<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1994
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CORAM HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8082 33-0615337
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ONE LAKESHORE CENTRE
3281 GUASTI ROAD, SUITE 700
ONTARIO, CALIFORNIA 91761
(909) 460-2400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KEVIN M. HIGGINS, ESQ.
ONE LAKESHORE CENTRE
3281 GUASTI ROAD, SUITE 700
ONTARIO, CALIFORNIA 91761
(909) 460-2400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C> <C>
R.M. MATTSON, JR., ESQ. B.E. MACDONOUGH, ESQ. M.A. KIMBALL, ESQ. R.A. FINK, ESQ.
T.S. POWELL, ESQ. R.R. ORAND, ESQ. C.J. MCLAUGHLIN, ESQ. K.M. CLAYTON, ESQ.
MORRISON & FOERSTER GREENBERG, TRAURIG, OPPENHEIMER WOLFF & BROBECK, PHLEGER & HARRISON
19900 MACARTHUR BLVD. HOFFMAN, LIPOFF, ROSEN & DONNELLY 4675 MACARTHUR COURT,
IRVINE, CA 92715 QUENTEL, P.A. 45 SOUTH SEVENTH ST. SUITE 1000
1221 BRICKELL AVENUE MINNEAPOLIS, MN 55402 NEWPORT BEACH, CA 92660
MIAMI, FL 33131
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If the securities being registered on this form are being offered in
compliance with General Instruction G, check the following box: / /
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) SHARE(2) PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
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Common Stock, $.001 par value................. 42,311,537 shares $16.37 $718,453,657 $247,747.64
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</TABLE>
(1) Represents the maximum number of shares of common stock issuable upon the
consummation of the mergers (collectively, the "Merger") of (1)T2Acquisition
Company, a wholly owned subsidiary of Coram, into T2 Medical, Inc., a
Delaware corporation ("T2"), (2) CHS Acquisition Company, a wholly owned
subsidiary of Coram Healthcare Corporation ("Coram"), into Curaflex Health
Services, Inc., a Delaware corporation ("Curaflex"), (3) HII Acquisition
Company, a wholly owned subsidiary of Coram, into HealthInfusion, Inc., a
Florida corporation ("HealthInfusion"), and (4) MI Acquisition Company, a
wholly owned subsidiary of Coram, into Medisys, Inc., a Delaware corporation
("Medisys"), assuming the conversion pursuant to the Merger of (i) each
presently outstanding share of common stock, par value $0.01, of T2 ("T2
Common Stock") for 0.63 of a share of common stock, par value $0.001, of
Coram ("Coram Common Stock"), (ii) each presently outstanding share of
common stock, par value $0.001, of Curaflex ("Curaflex Common Stock") for
0.333 of a share of Coram Common Stock, (iii) each presently outstanding
share of common stock, par value $0.01, of HealthInfusion ("HealthInfusion
Common Stock") for 0.447 of a share of Coram Common Stock, (iv) each
presently outstanding share of common stock, par value $0.01 per share, of
Medisys ("Medisys Common Stock") for 0.243 of a share of Coram Common Stock
and (v) each presently outstanding stock option and stock purchase right to
acquire T2 Common Stock, Curaflex Common Stock, HealthInfusion Common Stock,
Medisys Common Stock and the conversion of the underlying shares pursuant to
the Merger.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(f). Based upon (i) a per share price of the common
stock of T2 Medical, Inc. ("T2") of $11.00, which equals the average high
and low sales price of the common stock of T2 as reported on the New York
Stock Exchange on May 26, 1994, multiplied by 44,052,507, the maximum number
of shares of common stock of T2 that may be converted in the transaction,
(ii) a per share price of the common stock of Curaflex Health Services, Inc.
("Curaflex") of $5.38, which equals the average high and low sale price of
the common stock of Curaflex as quoted on The Nasdaq National Market on May
26, 1994, multiplied by 18,098,306, the maximum number of shares of common
stock of Curaflex that may be converted in the transaction, (iii) a per
share price of the common stock of HealthInfusion, Inc. ("HealthInfusion")
of $7.31, which equals the average high and low sale price of the common
stock of HealthInfusion as quoted on The Nasdaq National Market on May 26,
1994, multiplied by 11,763,525, the maximum number of shares of common stock
of HealthInfusion that may be converted in the transaction, and (iv) a per
share price of the common stock of Medisys, Inc. ("Medisys") of $3.75, which
equals the average high and low sale price of the common stock of Medisys as
quoted on The Nasdaq National Market on May 26, 1994, multiplied by
13,470,887, the maximum number of shares of common stock of Medisys that may
be converted in the transaction.
(3) Pursuant to Rule 457(b), the registration fee has been reduced by the
aggregate amount of $38,789.80 collectively paid by Curaflex, HealthInfusion
and Medisys on December 23, 1993, upon the initial filing under the
Securities Exchange Act of 1934, as amended, of preliminary copies of the
proxy materials included herein and further reduced by the amount of
$91,782.11 paid by T2 on March 21, 1994, upon the filing of revised
preliminary copies of the proxy materials included herein. Therefore, the
registration fee payable upon the filing of this Registration Statement is
$117,170.73.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
CORAM HEALTHCARE CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501 OF REGULATION S-K
<TABLE>
<CAPTION>
S-4 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
---------------------------------------------------- -----------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................ Facing Page of Registration
Statement; Cross-Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page; Outside
Back Cover Page
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................... Summary; Special Considerations;
Business of Coram; Business of
Curaflex; Business of
HealthInfusion; Business of
Medisys; Business of T2
4. Terms of the Transaction............................ Summary; The Merger
5. Pro Forma Financial Information..................... Summary; Pro Forma Capitalization
and Condensed Combined Financial
Statements; Notes to Unaudited Pro
Forma Combined Financial Data
6. Material Contacts with the Companies being
Acquired............................................ Summary; The Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters....... Inapplicable
8. Interests of Named Experts and Counsel.............. Legal Matters
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Inapplicable
10. Information with Respect to S-3 Registrants......... Inapplicable
11. Incorporation of Certain Information by Reference... Inapplicable
12. Information with Respect to S-2 or S-3
Registrants......................................... Inapplicable
13. Incorporation of Certain Information by Reference... Inapplicable
14. Information with Respect to Registrants Other than
S-3 or S-2 Registrants.............................. Business of Coram
15. Information with Respect to S-3 Companies........... Available Information;
Incorporation of Certain Documents
by Reference; Summary; The Merger;
Business of T2
16. Information with Respect to S-2 or S-3 Companies.... Inapplicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
S-4 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
---------------------------------------------------- -----------------------------------
<S> <C> <C>
17. Information with Respect to Companies Other than S-2
or S-3 Companies.................................... Curaflex Selected Consolidated
Financial Information; Curaflex
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business of
Curaflex; HealthInfusion Selected
Consolidated Financial Information;
HealthInfusion Management's
Discussion and Analysis of
Financial Condition and Results of
Operations; Business of
HealthInfusion; Medisys Selected
Consolidated Financial Information;
Medisys Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business of
Medisys; Price Range of Common
Stock
18. Information if Proxies, Consents or Authorizations
are to be Solicited................................. The Merger; Management of Curaflex;
Curaflex Principal Stockholders;
Description of Capital Stock of
Curaflex; Management of
HealthInfusion, HealthInfusion
Principal Stockholders; Description
of Capital Stock of HealthInfusion;
Management of Medisys; Medisys
Principal Stockholders;
Incorporation of Certain Documents
by Reference
19. Information if Proxies, Consents or Authorizations
are not to be Solicited, or in an Exchange Offer.... Inapplicable
</TABLE>
<PAGE> 4
[T2 MEDICAL, INC. LETTERHEAD]
June 9, 1994
Dear Stockholder:
You are cordially invited to attend the special meeting (the "Special
Meeting") of stockholders of T2 Medical, Inc. ("T2") to be held on July 8, 1994,
at the Westin Hotel, 13340 Dallas Parkway, Dallas, Texas 75240 commencing at
10:00 a.m., local time.
At the Special Meeting, stockholders will be asked to consider and vote
upon three proposals. Proposal No. 1 is the approval of the Agreement and Plan
of Merger, dated as of February 6, 1994, as amended as of May 25, 1994 (the
"Merger Agreement"), among T2, Curaflex Health Services, Inc., a Delaware
corporation ("Curaflex"), HealthInfusion, Inc., a Florida corporation
("HealthInfusion"), Medisys, Inc., a Delaware corporation ("Medisys"), Coram
Healthcare Corporation, a Delaware corporation ("Coram"), and four wholly-owned
subsidiaries of Coram -- T2 Acquisition Company, a Delaware corporation ("T2
Acquisition"), CHS Acquisition Company, a Delaware corporation ("CHS
Acquisition"), HII Acquisition Company, a Florida corporation ("HII
Acquisition"), and MI Acquisition Company, a Delaware corporation ("MI
Acquisition"), and the transactions contemplated by the Merger Agreement.
Pursuant to the Merger Agreement, (1) T2 Acquisition will merge into T2, CHS
Acquisition will merge into Curaflex, HII Acquisition will merge into
HealthInfusion, and MI Acquisition will merge into Medisys (collectively, the
"Merger"), (2) each outstanding share of common stock, $.01 par value, of T2
("T2 Common Stock"), will be converted into the right to receive 0.63 of a share
of common stock, $.001 par value of Coram ("Coram Common Stock") (the "T2
Exchange Ratio"), (3) each outstanding share of common stock, $.001 par value,
of Curaflex ("Curaflex Common Stock") will be converted into the right to
receive 0.333 of a share of Coram Common Stock, (4) each outstanding share of
common stock, $.01 par value, of HealthInfusion ("HealthInfusion Common Stock")
will be converted into the right to receive 0.447 of a share of Coram Common
Stock, (5) each outstanding share of common stock, $.01 par value, of Medisys
("Medisys Common Stock") will be converted into the right to receive 0.243 of a
share of Coram Common Stock, and (6) each outstanding option, warrant or other
right to purchase T2 Common Stock, Curaflex Common Stock, HealthInfusion Common
Stock or Medisys Common Stock will be converted into the right to acquire on the
same terms and conditions shares of Coram Common Stock, with the number and
exercise price adjusted based on the applicable exchange ratio for the
underlying T2, Curaflex, HealthInfusion or Medisys Common Stock.
It is a condition to the consummation of the Merger that the holders of a
majority of the outstanding shares of T2 Common Stock vote in person or by proxy
at the Special Meeting to approve the Merger Agreement and the transactions
contemplated thereby. Therefore, stockholders will be asked to vote upon the
Merger Agreement at the Special Meeting. If the Merger Agreement is approved by
the stockholders at the Special Meeting, certain current executive officers and
directors of T2 will enter into severance arrangements with Coram or T2 and
receive certain other benefits associated with the Merger. See "The
Merger -- Interest of Certain Persons in the Merger."
The terms and conditions of the Merger Agreement are described in the
accompanying Joint Proxy Statement/Prospectus. The complete text of the Merger
Agreement is attached in Appendix A to the Joint Proxy Statement/Prospectus.
Kidder, Peabody & Co. Incorporated delivered an oral opinion on February 1,
1994, which it confirmed on February 6, 1994 (and which it subsequently
confirmed in writing) to the T2 Board of Directors, to the effect that, as of
the date of such opinion, the T2 Exchange Ratio is fair, from a financial point
of view, to the holders of shares of T2 Common Stock. A copy of the written
opinion of Kidder, Peabody & Co. Incorporated is attached as Appendix F to the
accompanying Joint Proxy Statement/Prospectus and should be read carefully in
its entirety.
<PAGE> 5
Proposal No. 2 seeks stockholder approval of the implementation of the new
Coram Healthcare Corporation Stock Option/Stock Issuance Plan under which up to
an aggregate of 7,600,000 shares of Coram Common Stock will be available for
issuance to officers, key employees and consultants in the service of Coram or
any of its operating subsidiaries, including Curaflex, HealthInfusion, Coram,
Medisys and T2 after the Merger, and to the non-employee members of the Coram
Board of Directors or the board of directors of any operating subsidiary. Under
Proposal No. 3, the stockholders will be asked to approve the implementation of
the Coram Employee Stock Purchase Plan, pursuant to which 300,000 shares of
Coram Common Stock will be available for purchase by eligible employees of Coram
and its operating subsidiaries through a payroll-deduction based stock purchase
program.
After careful consideration, your Board of Directors believes that the
Merger is fair and reasonable to, and in the best interest of, T2 and its
stockholders. THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSED MERGER AND
RECOMMENDS THAT YOU VOTE IN FAVOR OF IT AT THE SPECIAL MEETING. The Board of
Directors has also approved the implementation of the Coram 1994 Stock
Option/Stock Issuance Plan and the Coram Employee Stock Purchase Plan and
recommends that you vote in favor of each such plan at the Special Meeting. The
current directors and executive officers of T2 have indicated that they will
vote all of the shares held by them FOR approval of the proposed Merger. Due to
the benefits to be received by certain officers and directors of T2 in
connection with the Merger, the interests of such officers and directors may be
different from the interests of other T2 stockholders. T2 stockholders should
consider such officers' and directors' interests in the Merger in connection
with the Board of Directors' recommendation of the Merger, as more particularly
described in the accompanying Joint Proxy Statement/Prospectus. See "The Merger
- -- Interests of Certain Persons in the Merger."
It is important that your shares be voted at the Special Meeting,
regardless of the number of shares you hold. THEREFORE, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING. This will not prevent you from voting your shares
in person if you do attend.
We look forward to seeing you on July 8, 1994.
Sincerely,
Tommy H. Carter,
President and Chief Executive Officer
<PAGE> 6
T2 MEDICAL, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 8, 1994
To the Stockholders of
T2 Medical, Inc.
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the stockholders of T2 Medical, Inc. ("T2") will be held on July 8, 1994, at the
Westin Hotel, 13340 Dallas Parkway, Dallas, Texas 75240, commencing at 10:00
a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of February 6, 1994, as amended as of May 25, 1994 (the
"Merger Agreement"), among T2, Curaflex Health Services, Inc., a Delaware
corporation ("Curaflex"), HealthInfusion, Inc., a Florida corporation
("HealthInfusion"), Medisys, Inc., a Delaware corporation ("Medisys"), Coram
Healthcare Corporation, a Delaware corporation ("Coram"), and four wholly-owned
subsidiaries of Coram -- T2 Acquisition Company, a Delaware corporation ("T2
Acquisition"), CHS Acquisition Company, a Delaware corporation ("CHS
Acquisition"), HII Acquisition Company, a Florida corporation ("HII
Acquisition"), and MI Acquisition Company, a Delaware corporation and the
transactions contemplated by the Merger Agreement. Pursuant to the Merger
Agreement, (1) T2 Acquisition will merge into T2, CHS Acquisition will merge
into Curaflex, HII Acquisition will merge into HealthInfusion, and MI
Acquisition will merge into Medisys (collectively, the "Merger"), (2) each
outstanding share of common stock, $.01 par value, of T2 ("T2 Common Stock"),
will be converted into the right to receive 0.63 of a share of common stock,
$.001 par value of Coram ("Coram Common Stock"), (3) each outstanding share of
common stock, $.001 par value, of Curaflex ("Curaflex Common Stock") will be
converted into the right to receive 0.333 of a share of Coram Common Stock, (4)
each outstanding share of common stock, $.01 par value, of HealthInfusion
("HealthInfusion Common Stock") will be converted into the right to receive
0.447 of a share of Coram Common Stock, (5) each outstanding share of common
stock, $.01 par value, of Medisys ("Medisys Common Stock") will be converted
into the right to receive 0.243 of a share of Coram Common Stock, and (6) each
outstanding option, warrant or other right to purchase T2 Common Stock, Curaflex
Common Stock, HealthInfusion Common Stock or Medisys Common Stock will be
converted into the right to acquire on the same terms and conditions shares of
Coram Common Stock, with the number and exercise price adjusted based on the
applicable exchange ratio for the underlying T2, Curaflex, HealthInfusion or
Medisys Common Stock. Accordingly, a vote in favor of the Merger Agreement will
also be a vote in favor of Coram's assumption of the various stock option plans
under which the options to acquire T2 Common Stock, Curaflex Common Stock,
HealthInfusion Common Stock and Medisys Common Stock are currently outstanding.
A copy of the Merger Agreement is attached in Appendix A to the
accompanying Joint Proxy Statement/Prospectus.
2. To approve the implementation of the 1994 Coram Healthcare Corporation
Stock Option/Stock Issuance Plan under which up to an aggregate of 7,600,000
shares of Coram Common Stock will be available for issuance to officers, key
employees and consultants in the service of Coram or any of its operating
subsidiaries, including Curaflex, HealthInfusion, Medisys and T2 after the
Merger, and to the non-employee members of the Coram Board of Directors or the
board of directors of any operating subsidiary.
3. To approve the implementation of the Coram Healthcare Corporation
Employee Stock Purchase Plan, pursuant to which 300,000 shares of Coram Common
Stock will be available for purchase by eligible employees of Coram and its
operating subsidiaries through a payroll-deduction based stock purchase program.
<PAGE> 7
4. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
Only those stockholders of record at the close of business on May 12, 1994,
will be entitled to notice of and to vote at the Special Meeting or any
adjournment thereof.
Due to the benefits to be received by certain officers and directors of T2
in connection with the Merger, the interests of such officers and directors may
be different from the interests of other T2 stockholders. T2 stockholders should
consider such officers' and directors' interests in the Merger in connection
with the Board of Directors' recommendation of the Merger, as more particularly
described in the accompanying Joint Proxy Statement/Prospectus. See "The Merger
- -- Interests of Certain Persons in the Merger."
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY STATEMENT AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO BE PRESENT AT
THE SPECIAL MEETING. Proxies are revocable at any time prior to the time they
are voted, and stockholders who are present at the Special Meeting may withdraw
their proxies and vote in person if they so desire.
By Order of the Board of Directors
Thomas E. Haire,
Chairman
Alpharetta, Georgia
June 9, 1994
<PAGE> 8
[CURAFLEX LETTERHEAD]
June 9, 1994
Dear Stockholder:
You are cordially invited to attend the special meeting (the "Special
Meeting") of stockholders of Curaflex Health Services, Inc. ("Curaflex") to be
held on July 8, 1994, at One Lakeshore Centre, 3281 Guasti Road, Suite 700,
Ontario, California 91761, commencing at 10:00 a.m., local time.
At the Special Meeting, stockholders will be asked to consider and vote
upon three proposals. Proposal No. 1 is the approval of the Agreement and Plan
of Merger, dated as of February 6, 1994, as amended as of May 25, 1994 (the
"Merger Agreement"), among Curaflex, HealthInfusion, Inc., a Florida corporation
("HealthInfusion"), Medisys, Inc., a Delaware corporation ("Medisys"), T2
Medical, Inc., a Delaware corporation ("T2"), Coram Healthcare Corporation, a
Delaware corporation ("Coram"), and four wholly owned subsidiaries of
Coram -- CHS Acquisition Company, a Delaware corporation ("CHS Acquisition"),
HII Acquisition Company, a Florida corporation ("HII Acquisition"), MI
Acquisition Company, a Delaware corporation ("MI Acquisition") and T2
Acquisition Company, a Delaware corporation ("T2 Acquisition") and the
transactions contemplated by the Merger Agreement. Pursuant to the Merger
Agreement, (1) CHS Acquisition will merge into Curaflex, HII Acquisition will
merge into HealthInfusion, MI Acquisition will merge into Medisys and T2
Acquisition will merge into T2 (collectively, the "Merger"), (2) each
outstanding share of common stock, $0.001 par value, of Curaflex ("Curaflex
Common Stock") will be converted into the right to receive 0.333 of a share of
common stock, $0.001 par value, of Coram ("Coram Common Stock"), (3) each
outstanding share of common stock, $0.01 par value, of HealthInfusion
("HealthInfusion Common Stock"), other than shares owned by stockholders who
elect to exercise dissenters' rights under the Florida Business Corporation Act,
will be converted into the right to receive 0.447 of a share of Coram Common
Stock, (4) each outstanding share of common stock, $0.01 par value, of Medisys
("Medisys Common Stock") will be converted into the right to receive 0.243 of a
share of Coram Common Stock, (5) each outstanding share of common stock, $.01
par value, of T2 ("T2 Common Stock") will be converted into the right to receive
0.63 of a share of Coram Common Stock and (6) each outstanding option, warrant
or other right to purchase Curaflex Common Stock, HealthInfusion Common Stock,
Medisys Common Stock or T2Common Stock will be converted into the right to
acquire on the same terms and conditions shares of Coram Common Stock, with the
number and exercise price adjusted based on the applicable exchange ratio for
the underlying Curaflex, HealthInfusion, Medisys or T2 Common Stock.
It is a condition to consummation of the Merger that the holders of a
majority of the outstanding shares of Curaflex Common Stock vote in person or by
proxy at the special meeting to approve the Merger Agreement and the
transactions contemplated thereby. Therefore, stockholders will be asked to vote
upon the Merger Agreement at the Special Meeting. If the Merger Agreement is
approved by the stockholders at the Special Meeting, one current executive
officer of Curaflex will enter into an employment arrangement with Coram, and
certain current executive officers of Curaflex will receive certain other
benefits associated with the Merger. See "The Merger -- Interest of Certain
Persons in the Merger."
The terms and conditions of the Merger Agreement are described in the
accompanying Joint Proxy Statement/Prospectus. The complete text of the Merger
Agreement is attached in Appendix A to the Joint Proxy Statement/Prospectus.
Smith Barney Inc., Curaflex's financial advisor, has delivered to the
Curaflex Board of Directors a written opinion, dated February 6, 1994, to the
effect that, as of the date of such opinion and based upon and subject to
certain matters described therein, the consideration to be received by the
holders of Curaflex Common Stock pursuant to the Merger is fair to such
stockholders from a financial point of view. A copy of the written
<PAGE> 9
opinion of Smith Barney is attached as Appendix C to the accompanying Joint
Proxy Statement/Prospectus and should be read carefully in its entirety.
Proposal No. 2 seeks stockholder approval of the implementation of the new
Coram Healthcare Corporation Stock Option/Stock Issuance Plan under which up to
an aggregate of 7,600,000 shares of Coram Common Stock will be available for
issuance to officers, key employees and consultants in the service of Coram or
any of its operating subsidiaries, including Curaflex, HealthInfusion, Medisys
and T2 after the Merger, and to the non-employee members of the Coram Board of
Directors or the board of directors of any operating subsidiary. Under Proposal
No. 3, the stockholders will be asked to approve the implementation of the Coram
Employee Stock Purchase Plan, pursuant to which 300,000 shares of Coram Common
Stock will be available for purchase by eligible employees of Coram and its
operating subsidiaries through a payroll-deduction based stock purchase program.
After careful consideration, your Board of Directors believes that the
Merger is fair and reasonable to, and in the best interests of, Curaflex and its
stockholders. THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSED MERGER AND
RECOMMENDS THAT YOU VOTE IN FAVOR OF IT AT THE SPECIAL MEETING. The directors
and executive officers of Curaflex have indicated that they will vote all of the
shares held by them FOR approval of the proposed Merger. The Board of Directors
has also approved the Coram 1994 Stock Option/Stock Issuance Plan and the Coram
Employee Stock Purchase Plan. Due to the benefits to be received by certain
officers and directors of Curaflex in connection with the Merger, the interests
of such officers and directors may be different from the interests of other
Curaflex stockholders. Curaflex stockholders should consider such officers' and
directors' interests in the Merger in connection with the Board of Directors'
recommendation of the Merger, as more particularly described in the accompanying
Joint Proxy Statement/Prospectus. See "The Merger -- Interests of Certain
Persons in the Merger." In addition, Curaflex stockholders should note that,
based on the public trading price of Curaflex Common Stock at the time the
Merger Agreement was executed, the Exchange Ratios implied a discount for
Curaflex Common Stock. See "Background of the Merger -- Determination of the
Exchange Ratios."
It is important that your shares be voted at the Special Meeting,
regardless of the number of shares you hold. THEREFORE, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING.This will not prevent you from voting your shares
in person if you do attend.
We look forward to seeing you on July 8, 1994.
Sincerely,
Charles A. Laverty,
President and Chief Executive Officer
<PAGE> 10
CURAFLEX HEALTH SERVICES, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 8, 1994
To the Stockholders of
Curaflex Health Services, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the stockholders of Curaflex Health Services, Inc. ("Curaflex") will be held on
July 8, 1994, at One Lakeshore Centre, 3281 Guasti Road, Suite 700, Ontario,
California 91761, commencing at 10:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of February 6, 1994, as amended as of May 25, 1994 (the
"Merger Agreement"), among Curaflex, HealthInfusion, Inc., a Florida corporation
("HealthInfusion"), Medisys, Inc., a Delaware corporation ("Medisys"), T2
Medical, Inc., a Delaware Corporation ("T2"), Coram Healthcare Corporation, a
Delaware corporation ("Coram"), and four wholly owned subsidiaries of
Coram -- CHS Acquisition Company, a Delaware corporation ("CHS Acquisition"),
HII Acquisition Company, a Florida corporation ("HII Acquisition"), MI
Acquisition Company, a Delaware corporation ("MI Acquisition") and T2
Acquisition Company, a Delaware corporation ("T2 Acquisition") and the
transactions contemplated by the Merger Agreement. Pursuant to the Merger
Agreement, (1) CHS Acquisition will merge into Curaflex, HII Acquisition will
merge into HealthInfusion, MI Acquisition will merge into Medisys and T2
Acquisition will merge into T2 (collectively, the "Merger"), (2) each
outstanding share of common stock, $0.001 par value, of Curaflex ("Curaflex
Common Stock") will be converted into the right to receive 0.333 of a share of
common stock, $0.001 par value, of Coram ("Coram Common Stock"), (3) each
outstanding share of common stock, $0.01 par value, of HealthInfusion
("HealthInfusion Common Stock"), other than shares owned by stockholders who
elect to exercise dissenters' rights under the Florida Business Corporation Act,
will be converted into the right to receive 0.447 of a share of Coram Common
Stock, (4) each outstanding share of common stock, $0.01 par value, of Medisys
("Medisys Common Stock") will be converted into the right to receive 0.243 of a
share of Coram Common Stock, (5) each outstanding share of common stock, $.01
par value, of T2 ("T2 Common Stock") will be converted into the right to receive
0.63 of a share of Coram Common Stock, and (6) each outstanding option, warrant
or other right to purchase Curaflex Common Stock, HealthInfusion Common Stock,
Medisys Common Stock or T2 Common Stock will be converted into the right to
acquire on the same terms and conditions shares of Coram Common Stock, with the
number and exercise price adjusted based on the applicable exchange ratio for
the underlying Curaflex, HealthInfusion, Medisys or T2 Common Stock.
Accordingly, a vote in favor of the Merger Agreement will also be a vote in
favor of Coram's assumption of the various stock option plans under which the
options to acquire Curaflex Common Stock, HealthInfusion Common Stock, Medisys
Common Stock and T2 Common Stock are currently outstanding. A copy of the Merger
Agreement is attached in Appendix A to the accompanying Joint Proxy
Statement/Prospectus.
2. To approve the implementation of the 1994 Coram Healthcare Corporation
Stock Option/Stock Issuance Plan under which up to an aggregate of 7,600,000
shares of Coram Common Stock will be available for issuance to officers, key
employees and consultants in the service of Coram or any of its operating
subsidiaries, including Curaflex, HealthInfusion, Medisys and T2 after the
Merger, and to the non-employee members of the Coram Board of Directors or the
board of directors of any operating subsidiary.
3. To approve the implementation of the Coram Healthcare Corporation
Employee Stock Purchase Plan, pursuant to which 300,000 shares of Coram Common
Stock will be available for purchase by eligible employees of Coram and its
operating subsidiaries through a payroll-deduction based stock purchase program.
4. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
<PAGE> 11
Only those stockholders of record at the close of business on May 25, 1994,
will be entitled to notice of and to vote at the Special Meeting or any
adjournment thereof.
Due to the benefits to be received by certain officers and directors of
Curaflex in connection with the Merger, the interests of such officers and
directors may be different from the interests of other Curaflex stockholders.
Curaflex stockholders should consider such officers' and directors' interests in
the Merger in connection with the Board of Directors' recommendation of the
Merger, as more particularly described in the accompanying Joint Proxy
Statement/Prospectus. See "The Merger -- Interests of Certain Persons in the
Merger." In addition, Curaflex stockholders should note that, based on the
public trading price of Curaflex Common Stock at the time the Merger Agreement
was executed, the Exchange Ratios for the Merger implied a discount for Curaflex
Common Stock. See "Background of the Merger -- Determination of the Exchange
Ratios."
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE SPECIAL
MEETING. Proxies are revocable at any time prior to the time they are voted, and
stockholders who are present at the meeting may withdraw their proxies and vote
in person if they so desire.
By Order of the Board of Directors
Kevin M. Higgins, Esq.,
Secretary
Ontario, California
June 9, 1994
<PAGE> 12
[HEALTHINFUSION LETTERHEAD]
June 9, 1994
Dear Shareholder:
You are cordially invited to attend the special meeting (the "Special
Meeting") of shareholders of HealthInfusion, Inc. ("HealthInfusion") to be held
on July 8, 1994, at the Miami Hilton Airport Hotel and Marina, 5101 Blue Lagoon
Drive, Miami, Florida, commencing at 10:00 a.m., local time.
At the Special Meeting, shareholders will be asked to consider and vote
upon three proposals. Proposal No. 1 is the approval of the Agreement and Plan
of Merger, dated as of February 6, 1994, as amended as of May 25, 1994 (the
"Merger Agreement"), among HealthInfusion, Curaflex Health Services, Inc., a
Delaware corporation ("Curaflex"), Medisys, Inc., a Delaware corporation
("Medisys"), T2 Medical, Inc., a Delaware corporation ("T2"), Coram Healthcare
Corporation, a Delaware corporation ("Coram"), and four wholly owned
subsidiaries of Coram -- CHS Acquisition Company, a Delaware corporation ("CHS
Acquisition"), HII Acquisition Company, a Florida corporation ("HII
Acquisition"), MI Acquisition Company, a Delaware corporation ("MI Acquisition")
and T2 Acquisition Company, a Delaware corporation ("T2 Acquisition") and the
transactions contemplated by the Merger Agreement. Pursuant to the Merger
Agreement, (1) CHS Acquisition will merge into Curaflex, HII Acquisition will
merge into HealthInfusion, MI Acquisition will merge into Medisys and T2
Acquisition will merge into T2 (collectively, the "Merger"), (2) each
outstanding share of common stock, $0.001 par value, of Curaflex ("Curaflex
Common Stock") will be converted into the right to receive 0.333 of a share of
common stock, $0.001 par value, of Coram ("Coram Common Stock"), (3) each
outstanding share of common stock, $0.01 par value, of HealthInfusion
("HealthInfusion Common Stock"), other than shares owned by shareholders who
elect and perfect their dissenters' rights under the Florida Business
Corporation Act, will be converted into the right to receive 0.447 of a share of
Coram Common Stock, (4) each outstanding share of common stock, $0.01 par value,
of Medisys ("Medisys Common Stock") will be converted into the right to receive
0.243 of a share of Coram Common Stock, (5) each outstanding share of common
stock, $.01 par value, of T2 ("T2 Common Stock") will be converted into the
right to receive 0.63 of a share of Coram Common Stock and (6) each outstanding
option, warrant or other right to purchase Curaflex Common Stock, HealthInfusion
Common Stock, Medisys Common Stock or T2 Common Stock will be converted into the
right to acquire shares of Coram Common Stock on the same terms and conditions,
except that the number and exercise price will be adjusted based on the
applicable exchange ratio for the underlying Curaflex, HealthInfusion, Medisys
or T2 Common Stock.
It is a condition to consummation of the Merger that the holders of a
majority of the outstanding shares of HealthInfusion Common Stock vote in person
or by proxy at the special meeting to approve the Merger Agreement and the
transactions contemplated thereby. Therefore, shareholders will be asked to vote
upon the Merger Agreement at the Special Meeting. If the Merger Agreement is
approved by the shareholders at the Special Meeting, certain current executive
officers and consultants of HealthInfusion will enter into severance
arrangements with Coram or HealthInfusion and receive certain other benefits
associated with the Merger. See "The Merger -- Interests of Certain Persons in
the Merger."
The terms and conditions of the Merger Agreement are described in the
accompanying Joint Proxy Statement/Prospectus. The complete text of the Merger
Agreement is attached in Appendix A to the Joint Proxy Statement/Prospectus.
Hambrecht & Quist, HealthInfusion's financial advisor, has rendered its
opinion, dated February 6, 1994, a copy of which is attached as Appendix D to
the attached Joint Proxy Statement/Prospectus, to the effect that, as of the
date of its opinion and based upon the matters described therein, the
consideration to be received by HealthInfusion's shareholders pursuant to the
Merger is fair to such shareholders from a financial point of view.
<PAGE> 13
Proposal No. 2 seeks shareholder approval of the implementation of the new
Coram Healthcare Corporation Stock Option/Stock Issuance Plan under which up to
an aggregate of 7,600,000 shares of Coram Common Stock will be available for
issuance to officers, key employees and consultants in the service of Coram or
any of its operating subsidiaries, including Curaflex, HealthInfusion, Medisys
and T2 after the Merger, and to the non-employee members of the Coram Healthcare
Corporation Board of Directors or the board of directors of any operating
subsidiary. Under Proposal No. 3, the shareholders will be asked to approve the
implementation of the Coram Healthcare Corporation Employee Stock Purchase Plan,
pursuant to which 300,000 shares of Coram Common Stock will be available for
purchase by eligible employees of Coram and its operating subsidiaries through a
payroll-deduction based stock purchase program.
After careful consideration, your Board of Directors believes that the
Merger is fair and reasonable to, and in the best interests of, HealthInfusion
and its shareholders. THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
PROPOSED MERGER AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF IT AT THE
SPECIAL MEETING. The Board of Directors has also approved the implementation of
the Coram 1994 Stock Option/Stock Issuance Plan and the Coram Employee Stock
Purchase Plan and unanimously recommends that you vote in favor of each such
plan at the Special Meeting. The directors and executive officers of
HealthInfusion have indicated that they will vote all of the shares held by them
FOR approval of the proposed Merger. Due to the benefits to be received by
certain officers and directors of HealthInfusion in connection with the Merger,
the interests of such officers and directors may be different from the interests
of other HealthInfusion shareholders. HealthInfusion shareholders should
consider such officers' and directors' interests in the Merger in connection
with the Board of Directors' recommendation of the Merger, as more particularly
described in the accompanying Joint Proxy Statement/Prospectus. See "The
Merger -- Interests of Certain Persons in the Merger." In addition,
HealthInfusion shareholders should note that, based on the public trading price
of HealthInfusion Common Stock at the time the Merger Agreement was executed,
the Exchange Ratios implied a discount for HealthInfusion Common Stock. See
"Background of the Merger -- Determination of the Exchange Ratios."
It is important that your shares be voted at the Special Meeting,
regardless of the number of shares you hold. THEREFORE, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING. This will not prevent you from voting your shares
in person if you do attend.
We look forward to seeing you on July 8, 1994.
Sincerely,
Miles E. Gilman,
President and Chief Executive Officer
<PAGE> 14
HEALTHINFUSION, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 8, 1994
To the Shareholders of
HealthInfusion, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the shareholders of HealthInfusion, Inc. ("HealthInfusion") will be held on July
8, 1994, at the Miami Hilton Airport Hotel and Marina, 5101 Blue Lagoon Drive,
Miami, Florida, commencing at 10:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of February 6, 1994, as amended as of May 25, 1994
(the "Merger Agreement"), among HealthInfusion, Curaflex Health Services,
Inc., a Delaware corporation ("Curaflex"), Medisys, Inc., a Delaware
corporation ("Medisys"), T2 Medical, Inc., a Delaware corporation ("T2"),
Coram Healthcare Corporation, a Delaware corporation ("Coram"), and four
wholly owned subsidiaries of Coram -- CHS Acquisition Company, a Delaware
corporation ("CHS Acquisition"), HII Acquisition Company, a Florida
corporation ("HII Acquisition"), MI Acquisition Company, a Delaware
corporation ("MI Acquisition") and T2 Acquisition Company, a Delaware
corporation ("T2 Acquisition") and the transactions contemplated by the
Merger Agreement. Pursuant to the Merger Agreement, (1) CHS Acquisition
will merge into Curaflex, HII Acquisition will merge into HealthInfusion,
MI Acquisition will merge into Medisys and T2 Acquisition will merge into
T2 (collectively, the "Merger"), (2) each outstanding share of common
stock, $0.001 par value, of Curaflex ("Curaflex Common Stock") will be
converted into the right to receive 0.333 of a share of common stock,
$0.001 par value, of Coram ("Coram Common Stock"), (3) each outstanding
share of common stock, $0.01 par value, of HealthInfusion ("HealthInfusion
Common Stock"), other than shares owned by shareholders who elect and
perfect their dissenters' rights under the Florida Business Corporation
Act, will be converted into the right to receive 0.447 of a share of Coram
Common Stock, (4) each outstanding share of common stock, $0.01 par value,
of Medisys ("Medisys Common Stock") will be converted into the right to
receive 0.243 of a share of Coram Common Stock, (5) each outstanding share
of common stock, $.01 par value, of T2 ("T2 Common Stock") will be
converted into the right to receive 0.63 of a share of Coram Common Stock,
and (6) each outstanding option, warrant or other right to purchase
Curaflex Common Stock, HealthInfusion Common Stock, Medisys Common Stock or
T2 Common Stock will be converted into the right to acquire shares of Coram
Common Stock on the same terms and conditions, except that the number and
exercise price will be adjusted based on the applicable exchange ratio for
the underlying Curaflex, HealthInfusion, Medisys or T2 Common Stock.
Accordingly, a vote in favor of the Merger Agreement will also be a vote in
favor of Coram's assumption of the various stock option plans under which
the options to acquire Curaflex Common Stock, HealthInfusion Common Stock,
Medisys Common Stock and T2 Common Stock are currently outstanding. A copy
of the Merger Agreement is attached in Appendix A to the accompanying Joint
Proxy Statement/Prospectus.
2. To approve the implementation of the 1994 Coram Healthcare
Corporation Stock Option/Stock Issuance Plan under which up to an aggregate
of 7,600,000 shares of Coram Common Stock will be available for issuance to
officers, key employees, and consultants in the service of Coram or any of
its operating subsidiaries, including Curaflex, HealthInfusion, Medisys and
T2 after the Merger, and to the non-employee members of the Coram Board of
Directors or the board of directors of any operating subsidiary.
3. To approve the implementation of the Coram Healthcare Corporation
Employee Stock Purchase Plan, pursuant to which 300,000 shares of Common
Stock will be available for purchase by eligible
<PAGE> 15
employees of Coram and its operating subsidiaries through a
payroll-deduction based stock purchase program.
4. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
Only those shareholders of record at the close of business on May 12, 1994,
will be entitled to notice of and to vote at the Special Meeting or any
adjournment thereof.
Due to the benefits to be received by certain officers and directors of
HealthInfusion in connection with the Merger, the interests of such officers and
directors may be different from the interests of other HealthInfusion
shareholders. HealthInfusion shareholders should consider such officers' and
directors' interests in the Merger in connection with the Board of Directors'
recommendation of the Merger, as more particularly described in the accompanying
Joint Proxy Statement/Prospectus. See "The Merger -- Interests of Certain
Persons in the Merger." In addition, HealthInfusion shareholders should note
that, based on the public trading price of HealthInfusion Common Stock at the
time the Merger Agreement was executed, the Exchange Ratios for the Merger
implied a discount for HealthInfusion Common Stock. See "Background of the
Merger -- Determination of the Exchange Ratios."
Any shareholder of record of shares of HealthInfusion Common Stock who does
not desire to have such shares converted into shares of Coram Common Stock
pursuant to the Merger Agreement and who has made written demand prior to the
vote of HealthInfusion shareholders on the Merger at the HealthInfusion Special
Meeting may dissent from the Merger and elect to have the fair value of such
shareholder's shares of HealthInfusion Common Stock (excluding any appreciation
or depreciation in anticipation of the Merger unless exclusion would be
inequitable) judicially determined and paid to the shareholder in cash, provided
that the shareholder complies with the applicable provisions of the Florida
Business Corporation Act, a copy of which is attached as Appendix B to the Joint
Proxy Statement/Prospectus.
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE SPECIAL
MEETING. Proxies are revocable at any time prior to the time they are voted, and
shareholders who are present at the meeting may withdraw their proxies and vote
in person if they so desire.
By Order of the Board of Directors
Jorge A. Medina,
Secretary
Miami, Florida
June 9, 1994
<PAGE> 16
[MEDISYS LETTERHEAD]
June 9, 1994
Dear Stockholder:
You are cordially invited to attend the special meeting (the "Special
Meeting") of stockholders of Medisys, Inc. ("Medisys") to be held on July 8,
1994, at the Holiday Inn International Airport, Three Appletree Square,
Bloomington, Minnesota, commencing at 11:00 a.m., local time.
At the Special Meeting, stockholders will be asked to consider and vote
upon three proposals. Proposal No. 1 is the approval of the Agreement and Plan
of Merger, dated as of February 6, 1994, as amended as of May 25, 1994 (the
"Merger Agreement"), among Medisys, Curaflex Health Services, Inc., a Delaware
corporation ("Curaflex"), HealthInfusion, Inc., a Florida corporation
("HealthInfusion"), T2 Medical, Inc., a Delaware corporation ("T2"), Coram
Healthcare Corporation, a Delaware corporation ("Coram"), and four wholly owned
subsidiaries of Coram -- CHS Acquisition Company, a Delaware corporation ("CHS
Acquisition"), HII Acquisition Company, a Florida corporation ("HII
Acquisition"), MI Acquisition Company, a Delaware corporation ("MI Acquisition")
and T2 Acquisition Company, a Delaware corporation ("T2 Acquisition") and the
transactions contemplated by the Merger Agreement. Pursuant to the Merger
Agreement, (1) CHS Acquisition will merge into Curaflex, HII Acquisition will
merge into HealthInfusion, MI Acquisition will merge into Medisys and T2
Acquisition will merge into T2 (collectively, the "Merger"), (2) each
outstanding share of common stock, $0.001 par value, of Curaflex ("Curaflex
Common Stock") will be converted into the right to receive 0.333 of a share of
common stock, $0.001 par value, of Coram ("Coram Common Stock"), (3) each
outstanding share of common stock, $0.01 par value, of HealthInfusion
("HealthInfusion Common Stock"), other than shares owned by stockholders who
elect to exercise dissenters' rights under the Florida Business Corporation Act,
will be converted into the right to receive 0.447 of a share of Coram Common
Stock, (4) each outstanding share of common stock, $0.01 par value, of Medisys
("Medisys Common Stock") will be converted into the right to receive 0.243 of a
share of Coram Common Stock, (5) each outstanding share of common stock, $.01
par value, of T2 ("T2 Common Stock") will be converted into the right to receive
0.63 of a share of Coram Common Stock and (6) each outstanding option, warrant
or other right to purchase Curaflex Common Stock, HealthInfusion Common Stock,
Medisys Common Stock or T2 Common Stock will be converted into the right to
acquire on the same terms and conditions shares of Coram Common Stock, with the
number and exercise price adjusted based on the applicable exchange ratio for
the underlying Curaflex, HealthInfusion, Medisys or T2 Common Stock.
It is a condition to consummation of the Merger that the holders of a
majority of the outstanding shares of Medisys Common Stock vote in person or by
proxy at the special meeting to approve the Merger Agreement and the
transactions contemplated thereby. Therefore, stockholders will be asked to vote
upon the Merger Agreement at the Special Meeting. If the Merger Agreement is
approved by the stockholders at the Special Meeting, certain current directors
and executive officers of Medisys will enter into severance arrangements with
Coram or Medisys and receive certain other benefits associated with the Merger.
See "The Merger -- Interests of Certain Persons in the Merger."
Piper Jaffray Inc., Medisys' financial advisor, has delivered to the
Medisys Board of Directors a written opinion, dated February 4, 1994, to the
effect that, as of the date of its opinion and based upon the matters described
therein, the consideration to be received by Medisys' stockholders pursuant to
the Merger is fair to such stockholders from a financial point of view. A copy
of the written opinion of Piper Jaffray is attached as Appendix E to the
accompanying Joint Proxy Statement/Prospectus and should be read carefully in
its entirety.
<PAGE> 17
Proposal No. 2 seeks stockholder approval of the implementation of the new
Coram Healthcare Corporation Stock Option/Stock Issuance Plan under which up to
an aggregate of 7,600,000 shares of Coram Common Stock will be available for
issuance to officers, key employees and consultants in the service of Coram or
any of its operating subsidiaries, including Curaflex, HealthInfusion, Medisys
and T2 after the Merger, and to the non-employee members of the Coram Board of
Directors or the board of directors of any operating subsidiary. Under Proposal
No. 3, the stockholders will be asked to approve the implementation of the Coram
Employee Stock Purchase Plan, pursuant to which 300,000 shares of Coram Common
Stock will be available for purchase by eligible employees of Coram and its
operating subsidiaries through a payroll-deduction based stock purchase program.
The terms and conditions of the Merger Agreement are described in the
accompanying Joint Proxy Statement/Prospectus. The complete text of the Merger
Agreement is attached in Appendix A to the Joint Proxy Statement/Prospectus.
After careful consideration, your Board of Directors believes that the
Merger is fair and reasonable to, and in the best interests of, Medisys and its
stockholders. THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSED MERGER AND
RECOMMENDS THAT YOU VOTE IN FAVOR OF IT AT THE SPECIAL MEETING. The Board of
Directors has also approved the adoption by Coram of the Coram 1994 Stock
Option/Stock Issuance Plan and the Coram Employee Stock Purchase Plan. The
directors and executive officers of Medisys have indicated that they will vote
all of the shares held by them FOR approval of the proposed Merger. Due to the
benefits to be received by certain officers and directors of Medisys in
connection with the Merger, the interests of such officers and directors may be
different from the interests of other Medisys stockholders. Medisys stockholders
should consider such officers' and directors' interests in the Merger in
connection with the Board of Directors' recommendation of the Merger, as more
particularly described in the accompanying Joint Proxy Statement/Prospectus. See
"The Merger -- Interests of Certain Persons in the Merger." In addition, Medisys
stockholders should note that, based on the public trading price of Medisys
Common Stock at the time the Merger Agreement was executed, the Exchange Ratios
implied a discount for Medisys Common Stock. See "Background of the
Merger -- Determination of the Exchange Ratios."
It is important that your shares be voted at the Special Meeting,
regardless of the number of shares you hold. THEREFORE, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING. This will not prevent you from voting your shares
in person if you do attend.
We look forward to seeing you on July 8, 1994.
Sincerely,
William J. Brummond,
Chief Executive Officer
<PAGE> 18
MEDISYS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 8, 1994
To the Stockholders of
Medisys, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of
the stockholders of Medisys, Inc. ("Medisys") will be held on July 8, 1994, at
the Holiday Inn International Airport, Three Appletree Square, Bloomington,
Minnesota, commencing at 11:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of February 6, 1994, as amended as of May 25, 1994
(the "Merger Agreement"), among Medisys, Curaflex Health Services, Inc., a
Delaware corporation ("Curaflex"), HealthInfusion, Inc., a Florida
corporation ("HealthInfusion"), T2 Medical, Inc., a Delaware Corporation
("T2"), Coram Healthcare Corporation, a Delaware corporation ("Coram"), and
four wholly owned subsidiaries of Coram -- CHS Acquisition Company, a
Delaware corporation ("CHS Acquisition"), HII Acquisition Company, a
Florida corporation ("HII Acquisition"), MI Acquisition Company, a Delaware
corporation ("MI Acquisition") and T2 Acquisition Company, a Delaware
Corporation ("T2 Acquisition") and the transactions contemplated by the
Merger Agreement. Pursuant to the Merger Agreement, (1) CHS Acquisition
will merge into Curaflex, HII Acquisition will merge into HealthInfusion,
MI Acquisition will merge into Medisys and T2 Acquisition will merge into
T2 (collectively, the "Merger"), (2) each outstanding share of common
stock, $0.001 par value, of Curaflex ("Curaflex Common Stock") will be
converted into the right to receive 0.333 of a share of common stock,
$0.001 par value, of Coram ("Coram Common Stock"), (3) each outstanding
share of common stock, $0.01 par value, of HealthInfusion ("HealthInfusion
Common Stock"), other than shares owned by stockholders who elect to
exercise dissenters' rights under the Florida Business Corporation Act,
will be converted into the right to receive 0.447 of a share of Coram
Common Stock, (4) each outstanding share of common stock, $0.01 par value,
of Medisys ("Medisys Common Stock") will be converted into the right to
receive 0.243 of a share of Coram Common Stock, (5) each outstanding share
of common stock, $.01 par value, of T2 ("T2 Common Stock") will be
converted into the right to receive 0.63 of a share of Coram Common Stock,
and (6) each outstanding option, warrant or other right to purchase
Curaflex Common Stock, HealthInfusion Common Stock, Medisys Common Stock or
T2 Common Stock will be converted into the right to acquire on the same
terms and conditions shares of Coram Common Stock, with the number and
exercise price adjusted based on the applicable exchange ratio for the
underlying Curaflex, HealthInfusion, Medisys or T2 Common Stock.
Accordingly, a vote in favor of the Merger Agreement will also be a vote in
favor of Coram's assumption of the various stock option plans under which
the options to acquire Curaflex Common Stock, HealthInfusion Common Stock,
Medisys Common Stock and T2 Common Stock are currently outstanding. A copy
of the Merger Agreement is attached in Appendix A to the accompanying Joint
Proxy Statement/Prospectus.
2. To approve the implementation of the 1994 Coram Healthcare
Corporation Stock Option/Stock Issuance Plan under which up to an aggregate
of 7,600,000 shares of Coram Common Stock will be available for issuance to
officers, key employees, and consultants in the service of Coram or any of
its operating subsidiaries, including Curaflex, HealthInfusion, Medisys and
T2 after the Merger, and to the non-employee members of the Coram Board of
Directors or the board of directors of any operating subsidiary.
3. To approve the implementation of the Coram Healthcare Corporation
Employee Stock Purchase Plan, pursuant to which 300,000 shares of Coram
Common Stock will be available for purchase by eligible employees of Coram
and its operating subsidiaries through a payroll-deduction based stock
purchase program.
<PAGE> 19
4. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
Only those stockholders of record at the close of business on May 12, 1994,
will be entitled to notice of and to vote at the Special Meeting or any
adjournment thereof.
Due to the benefits to be received by certain officers and directors of
Medisys in connection with the Merger, the interests of such officers and
directors may be different from the interests of other Medisys stockholders.
Medisys stockholders should consider such officers' and directors' interests in
the Merger in connection with the Board of Directors' recommendation of the
Merger, as more particularly described in the accompanying Joint Proxy
Statement/Prospectus. See "The Merger -- Interests of Certain Persons in the
Merger." In addition, Medisys stockholders should note that, based on the public
trading price of Medisys Common Stock at the time the Merger Agreement was
executed, the Exchange Ratios for the Merger implied a discount for the Medisys
Common Stock. See "Background of the Merger -- Determination of the Exchange
Ratios."
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE SPECIAL
MEETING. Proxies are revocable at any time prior to the time they are voted, and
stockholders who are present at the meeting may withdraw their proxies and vote
in person if they so desire.
By Order of the Board of Directors
Mary B. Bennett,
Secretary
Edina, Minnesota
June 9, 1994
<PAGE> 20
JOINT PROXY STATEMENT/PROSPECTUS
T2 MEDICAL, INC.
CURAFLEX HEALTH SERVICES, INC.
HEALTHINFUSION, INC.
MEDISYS, INC.
FOR
SPECIAL MEETINGS OF STOCKHOLDERS
TO BE HELD JULY 8, 1994
------------------------------------------------------------------
CORAM HEALTHCARE CORPORATION PROSPECTUS
------------------------------------------------------------------
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation by (1) the Board of Directors of T2 Medical, Inc. ("T2") of proxies
from holders of shares of T2 common stock, $0.01 par value ("T2 Common Stock"),
for use at the special meeting of T2 stockholders to be held June 30, 1994 (the
"T2 Special Meeting"), (2) the Board of Directors of Curaflex Health Services,
Inc. ("Curaflex") of proxies from holders of shares of Curaflex common stock,
$0.001 par value ("Curaflex Common Stock"), for use at the special meeting of
Curaflex stockholders to be held June 30, 1994 (the "Curaflex Special Meeting"),
(3) the Board of Directors of HealthInfusion, Inc. ("HealthInfusion") of proxies
from holders of shares of HealthInfusion common stock, $0.01 par value
("HealthInfusion Common Stock"), for use at the special meeting of
HealthInfusion stockholders to be held June 30, 1994 (the "HealthInfusion
Special Meeting") and (4) the Board of Directors of Medisys, Inc. ("Medisys") of
proxies from holders of shares of Medisys common stock, $0.01 par value
("Medisys Common Stock"), for use at the special meeting of Medisys stockholders
to be held June 30, 1994 (the "Medisys Special Meeting").
The Joint Proxy Statement/Prospectus relates to the transactions provided
for in that certain Agreement and Plan of Merger, dated February 6, 1994, as
amended as of May 25, 1994 (the "Merger Agreement"), by and among Coram
Healthcare Corporation, a Delaware corporation ("Coram"), T2, Curaflex,
HealthInfusion, Medisys and four wholly owned subsidiaries of Coram -- T2
Acquisition Company, a Delaware corporation ("T2 Acquisition"), CHS Acquisition
Company, a Delaware corporation ("CHS Acquisition"), HII Acquisition Company, a
Florida corporation ("HII Acquisition") and MI Acquisition Company, a Delaware
corporation ("MI Acquisition"). The Merger Agreement provides for the mergers
(collectively, the "Merger") of (1) T2 Acquisition into T2, (2) CHS Acquisition
into Curaflex, (3) HII Acquisition into HealthInfusion and (4) MI Acquisition
into Medisys.
This Joint Proxy Statement/Prospectus also serves as a prospectus under the
Securities Act of 1933, as amended (the "Securities Act"), for the issuance of
the shares of Coram common stock, $0.001 par value ("Coram Common Stock"), into
which shares of T2 Common Stock, Curaflex Common Stock, HealthInfusion Common
Stock and Medisys Common Stock will be converted upon consummation of the
Merger. Application has been made to list Coram Common Stock on the New York
Stock Exchange under the symbol "CRH."
If the Merger Agreement is approved by the respective stockholders of T2,
Curaflex, HealthInfusion and Medisys at their Special Meetings, and if the other
conditions specified in the Merger Agreement are satisfied or waived, each of
T2, Curaflex, HealthInfusion and Medisys will become wholly owned subsidiaries
of Coram, each outstanding share of T2 Common Stock will be converted into the
right to receive 0.63 of a share of Coram Common Stock, each outstanding share
of Curaflex Common Stock will be converted into the right to receive 0.333 of a
share of Coram Common Stock, each outstanding share of HealthInfusion Common
Stock (other than shares held by HealthInfusion stockholders who perfect their
right to dissent under the Florida Business Corporation Act) will be converted
into the right to receive 0.447 of a share of Coram Common Stock and each
outstanding share of Medisys Common Stock will be converted into the right to
receive 0.243 of a share of Coram Common Stock. Cash will be paid in lieu of
fractional shares based on the average trading price of Coram Common Stock for
the five trading days following the closing of the Merger. In addition, each
outstanding option, warrant or other right to purchase T2 Common Stock, Curaflex
Common Stock, HealthInfusion Common Stock or Medisys Common Stock will be
converted into the right to acquire shares of Coram Common Stock on the same
terms and conditions, except that the number and exercise price will be adjusted
based on the applicable Merger exchange ratio for the underlying T2, Curaflex,
HealthInfusion or Medisys Common Stock. In connection with such adjustments,
Coram will also assume the outstanding obligations of T2, Curaflex,
HealthInfusion and Medisys under the various stock option plans under which
those options are currently outstanding.
This Joint Proxy Statement/Prospectus is also being furnished in connection
with the solicitation by each of the Boards of Directors of T2, Curaflex,
HealthInfusion and Medisys of proxies from the holders of their respective
company's Common Stock to vote at their company's Special Meeting on the
proposals to implement the Coram 1994 Stock Option/Stock Issuance Plan and the
Coram Employee Stock Purchase Plan.
Each of Curaflex Common Stock, HealthInfusion Common Stock and Medisys
Common Stock is quoted on The Nasdaq National Market. T2 Common Stock is listed
on the New York Stock Exchange. On February 4, 1994, the last trading day before
the public announcement of the proposed merger, the closing sale price on The
Nasdaq National Market for Curaflex Common Stock was $5.69 per share, for
HealthInfusion Common Stock was $7.00 per share and for Medisys Common Stock was
$3.56 per share, and the closing sale price on the New York Stock Exchange for
T2 Common Stock was $7.88 per share. On May 19, 1994, the closing sale price on
The Nasdaq National Market for Curaflex Common Stock was $5.00 per share, for
HealthInfusion Common Stock was $7.00 per share and for Medisys Common Stock was
$3.62 per share, and the closing sale price on the New York Stock Exchange for
T2 Common Stock was $10.50 per share. Stockholders are encouraged to obtain
current quotations for the market prices of each of Curaflex, HealthInfusion,
Medisys and T2 Common Stock before voting on this Merger.
All information in this Joint Proxy Statement/Prospectus concerning T2 and
its affiliates has been furnished by T2; all information in this Joint Proxy
Statement/Prospectus concerning Curaflex and its affiliates has been furnished
by Curaflex; all information in this Joint Proxy Statement/Prospectus concerning
HealthInfusion and its affiliates has been furnished by HealthInfusion; all
information in this Joint Proxy Statement/Prospectus concerning Medisys and its
affiliates has been furnished by Medisys; and all information in this Joint
Proxy Statement/ Prospectus concerning Coram, T2 Acquisition, CHS Acquisition,
HII Acquisition and MI Acquisition has been furnished by Coram. The approximate
date of mailing of this Joint Proxy Statement/Prospectus and the accompanying
proxy is June 9, 1994.
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED WHEN
EVALUATING THE TRANSACTIONS CONTEMPLATED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS, SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is June 9, 1994
<PAGE> 21
TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION................................ 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...... 4
SUMMARY.............................................. 6
General............................................ 6
The Companies...................................... 6
Terms of the Merger................................ 7
Management Following the Merger.................... 8
Interests of Certain Persons in the Merger......... 9
Potential Adverse Consequences to Stockholders..... 12
Closing and Effective Time of the Merger........... 13
Operation of Coram After the Merger................ 13
Conditions of the Merger and Termination........... 13
Recommendation of the Boards of Directors.......... 13
Opinions of Financial Advisors..................... 15
Meetings of the Stockholders....................... 17
Record Date and Vote Required...................... 18
Exchange of Stock Certificates..................... 18
Government and Regulatory Approvals................ 19
Federal Income Tax Considerations.................. 19
Accounting Treatment............................... 19
HealthInfusion Shareholders' Right to Dissent...... 19
Common Stock Market Prices and Per Share Data...... 20
Listing of Coram Common Stock and Delisting of T2,
Curaflex, HealthInfusion and Medisys Common
Stock............................................ 22
UNAUDITED SUMMARY PRO FORMA SELECTED FINANCIAL DATA
OF CORAM........................................... 23
SUMMARY FINANCIAL DATA............................... 24
RISK FACTORS......................................... 28
Potential Adverse Effect of Certain T2 Proceedings
and Litigation................................... 28
Cash Flow Pressures and Possible Need for External
Financing........................................ 29
Recent Decline in Financial Performance of T2,
Curaflex, HealthInfusion and Medisys............. 29
Risks of Limited History of Operations and History
of Losses........................................ 30
Possible Limitations on and Delays in Reimbursement
by Third Party Payors............................ 30
Risk of Adverse Governmental Regulation............ 31
Risk of Price and Market Controls in Proposed
Health Care Reform Legislation................... 31
Risk of Impact of Physician "Self-Referral"
Legislation...................................... 31
Uncertainties Associated with Consolidation,
Expansion and Management of Growth............... 32
Large Percentage of Assets Comprised of Goodwill... 33
Possible Loss of or Inability to Attract Key
Personnel........................................ 33
Effect of Significant Market Competition........... 33
Potential Professional Liability................... 33
Dilution of Voting Power; Potential Adverse Impact
of Future Sale of Coram Shares................... 34
Effect of Contingent Payments Resulting from
Acquisitions..................................... 35
Changes in Technology.............................. 35
Dependence on Relationships with Other
Organizations.................................... 35
THE T2 SPECIAL MEETING............................... 35
Time, Date and Place of T2 Special Meeting......... 35
Business to be Conducted at the T2 Special
Meeting.......................................... 35
Proxies: Voting and Revocation..................... 36
Proxy Solicitation................................. 36
Vote Required...................................... 36
Other Matters...................................... 37
THE CURAFLEX SPECIAL MEETING......................... 37
Time, Date and Place of Curaflex Special Meeting... 37
Business to be Conducted at Curaflex Special
Meeting.......................................... 37
Proxies: Voting and Revocation..................... 37
Proxy Solicitation................................. 37
Vote Required...................................... 38
Other Matters...................................... 38
THE HEALTHINFUSION SPECIAL MEETING................... 38
Time, Date and Place of HealthInfusion Special
Meeting.......................................... 38
Business to be Conducted at HealthInfusion Special
Meeting.......................................... 38
Proxies: Voting and Revocation..................... 38
Proxy Solicitation................................. 39
Vote Required...................................... 39
Other Matters...................................... 39
THE MEDISYS SPECIAL MEETING.......................... 40
Time, Date and Place of Medisys Special Meeting.... 40
Business to be Conducted at Medisys Special
Meeting.......................................... 40
Proxies: Voting and Revocation..................... 40
Proxy Solicitation................................. 40
Vote Required...................................... 40
Other Matters...................................... 41
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BACKGROUND OF THE MERGER............................. 42
General............................................ 42
Background of the Merger........................... 42
T2's Reasons for the Merger and Board of Directors'
Recommendation................................... 53
Opinion of Kidder, Peabody......................... 55
Curaflex's Reasons for the Merger and Board of
Directors' Recommendation........................ 68
Opinion of Smith Barney............................ 70
HealthInfusion's Reasons for the Merger and Board
of Directors' Recommendation..................... 74
Opinion of Hambrecht & Quist....................... 76
Medisys' Reasons for the Merger and Board of
Directors' Recommendation........................ 81
Opinion of Piper Jaffray........................... 83
THE MERGER........................................... 89
Closing and Effective Time of the Merger........... 89
Conditions of the Merger Agreement................. 89
Termination of the Merger Agreement................ 90
Interests of Certain Persons in the Merger......... 90
Stockholder Approvals.............................. 97
Rights of Security Holders......................... 98
Governmental and Regulatory Approvals.............. 105
Federal Income Tax Considerations.................. 106
Accounting Treatment............................... 107
HealthInfusion Shareholders' Right to Dissent...... 107
Effects of the Merger.............................. 109
Assumption of Existing Stock Options Plans......... 109
Federal Income Tax Consequences With Respect to
Stock Options.................................... 115
Exchange of Stock Certificates..................... 117
Payment in Lieu of Fractional Shares............... 117
Resales of Coram Common Stock and Registration
Rights........................................... 117
OPERATION, MANAGEMENT AND BUSINESS OF CORAM AFTER THE
MERGER............................................. 119
Business of Coram.................................. 119
Management of Coram................................ 119
Coram Principal Stockholders....................... 121
Description of Capital Stock of Coram.............. 122
Listing of Coram Common Stock...................... 123
Transfer Agent..................................... 123
PRICE RANGE OF COMMON STOCK.......................... 123
Market For T2 Common Stock and Related Stockholder
Matters.......................................... 123
Market for Curaflex Common Stock and Related
Stockholder Matters.............................. 124
Market for HealthInfusion Common Stock and Related
Stockholder Matters.............................. 125
Market for Medisys Common Stock and Related
Stockholder Matters.............................. 125
UNAUDITED PRO FORMA CAPITALIZATION AND CONDENSED
COMBINED FINANCIAL STATEMENTS...................... 127
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.... 128
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS............................... 135
CURAFLEX SELECTED CONSOLIDATED FINANCIAL DATA........ 139
CURAFLEX MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 140
General............................................ 140
Results of Operations.............................. 141
Liquidity and Capital Resources.................... 143
Future Health Care Proposals and Legislation....... 144
HEALTHINFUSION SELECTED CONSOLIDATED FINANCIAL
DATA............................................... 145
HEALTHINFUSION MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS... 147
General............................................ 147
Results of Operations.............................. 147
Quarterly Results of Operations.................... 150
Liquidity and Capital Resources.................... 151
Future Health Care Proposals and Legislation....... 151
MEDISYS SELECTED CONSOLIDATED FINANCIAL DATA......... 152
MEDISYS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 153
General............................................ 153
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Results of Operations for the Three Months Ended
March 31, 1994 and 1993.......................... 154
Results of Operations for the Three Years Ended
December 31, 1993................................ 154
Liquidity and Capital Resources.................... 155
Future Health Care Proposals and Legislation....... 157
BUSINESS OF T2....................................... 158
BUSINESS OF CURAFLEX................................. 159
Description of Business............................ 159
Properties......................................... 165
Legal Proceedings.................................. 165
MANAGEMENT OF CURAFLEX............................... 166
Directors and Executive Officers................... 166
Compensation Committee Interlocks/Insider
Participation.................................... 169
Compensation of Directors.......................... 169
Certain Transactions............................... 170
EXECUTIVE COMPENSATION............................... 171
Summary of Cash and Certain Other Compensation..... 171
Option Grants in Last Fiscal Year.................. 172
Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values........................... 173
Employment Contracts and Termination of Employment
and Change-in-Control Arrangements............... 173
CURAFLEX PRINCIPAL STOCKHOLDERS...................... 174
DESCRIPTION OF CAPITAL STOCK OF CURAFLEX............. 175
Common Stock....................................... 175
Preferred Stock.................................... 175
Certain Anti-Takeover Provisions................... 175
BUSINESS OF HEALTHINFUSION........................... 176
Description of Business............................ 176
The Home Infusion Therapy Market................... 176
Background and Recent Developments................. 176
Growth Strategy.................................... 179
Operating Philosophy............................... 179
Infusion Therapies Provided by HealthInfusion...... 180
Marketing and Sales................................ 181
Delivery of Patient Services....................... 182
Quality Assurance.................................. 182
Reimbursement for Services......................... 183
Competition........................................ 183
Regulation......................................... 184
Supplies and Equipment............................. 185
Employees.......................................... 185
Trademarks and Licenses............................ 185
Properties......................................... 185
Legal Proceedings.................................. 185
MANAGEMENT OF HEALTHINFUSION......................... 187
Director Compensation.............................. 188
EXECUTIVE COMPENSATION............................... 189
Option Grant Table................................. 189
Aggregated Fiscal Year-End Option Value Table...... 190
Employment Contracts and Termination of Employment
and Change in Control Agreements................. 190
Consulting Agreements.............................. 191
Incentive Compensation Plan........................ 191
Compensation Committee Interlocks/Insider
Participation.................................... 192
Certain Transactions............................... 192
HEALTHINFUSION PRINCIPAL SHAREHOLDERS................ 193
DESCRIPTION OF CAPITAL STOCK OF HEALTHINFUSION....... 194
Common Stock....................................... 194
Preferred Stock.................................... 194
Certain Florida Legislation........................ 194
BUSINESS OF MEDISYS.................................. 195
Background......................................... 195
Alternate Site Health Care Market.................. 196
Clinical Programs.................................. 196
Pharmacy Programs.................................. 197
Patient Services................................... 198
Expansion Strategy................................. 199
Marketing and Sales................................ 202
Reimbursement for Services......................... 203
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Accreditation and Government Regulation............ 203
Competition........................................ 204
Employees.......................................... 205
Properties......................................... 205
Insurance.......................................... 205
Legal Proceedings.................................. 205
MANAGEMENT OF MEDISYS................................ 206
Directors and Executive Officers................... 206
Director Compensation.............................. 208
EXECUTIVE COMPENSATION............................... 209
Summary of Cash and Certain Other Compensation..... 209
Option Grants...................................... 209
Option Exercises and Holdings...................... 210
Employment Contracts and Termination of Employment
and Change in Control Agreements................. 210
Compensation Committee Interlocks/Insider
Participation.................................... 211
MEDISYS PRINCIPAL STOCKHOLDERS....................... 212
Certain Transactions............................... 213
DESCRIPTION OF CAPITAL STOCK OF MEDISYS.............. 214
Common Stock....................................... 214
Special Stock...................................... 214
Certain Anti-Takeover Provisions................... 214
APPROVAL OF CORAM HEALTH CARE CORPORATION 1994 STOCK
OPTION/STOCK ISSUANCE PLAN......................... 215
Equity Incentive Programs.......................... 215
Share Reserve...................................... 215
Plan Administration................................ 216
Eligibility........................................ 216
Valuation.......................................... 216
Discretionary Grant Program........................ 216
Automatic Grant Program............................ 218
Stock Issuance Program............................. 219
General Provisions................................. 220
Option/Vesting Acceleration........................ 220
Changes in Capitalization.......................... 221
Financial Assistance............................... 221
Special Tax Election............................... 221
Amendment and Termination.......................... 221
Federal Income Tax Consequences.................... 222
Option Grants...................................... 222
Stock Appreciation Rights.......................... 223
Direct Stock Issuance.............................. 223
Accounting Treatment............................... 223
Stockholder Approval............................... 223
New Plan Benefits.................................. 224
APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN............. 225
Summary of Purchase Plan........................... 225
Stockholder Approval............................... 227
LEGAL MATTERS........................................ 227
EXPERTS.............................................. 227
INDEX TO FINANCIAL STATEMENTS........................ F-1
CURAFLEX CONSOLIDATED FINANCIAL STATEMENTS........... F-2
HEALTHINFUSION CONSOLIDATED FINANCIAL STATEMENTS..... F-55
MEDISYS CONSOLIDATED FINANCIAL STATEMENTS............ F-79
APPENDIX A-1 -- AGREEMENT AND PLAN OF MERGER
APPENDIX A-2 -- FIRST AMENDMENT TO AGREEMENT AND PLAN
OF MERGER
APPENDIX B -- FLORIDA BUSINESS CORPORATION ACT
SECTIONS 607.1301, 607.1302 and 607.1320
APPENDIX C -- OPINION OF SMITH BARNEY INC.
APPENDIX D -- OPINION OF HAMBRECHT & QUIST
INCORPORATED
APPENDIX E -- OPINION OF PIPER JAFFRAY INC.
APPENDIX F -- OPINION OF KIDDER, PEABODY & CO.
INCORPORATED
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<PAGE> 23
AVAILABLE INFORMATION
T2, Curaflex, HealthInfusion and Medisys are each subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith file reports and other
information with the Securities and Exchange Commission ("SEC"). Reports, proxy
statements and other information filed by T2, Curaflex, HealthInfusion or
Medisys can be inspected and copied at the public reference facilities
maintained by the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549; 500 West
Madison Street, Chicago, Illinois 60661-2511; and 7 World Trade Center, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Common Stock of T2 is listed on the New York Stock
Exchange ("NYSE"). Reports, proxy statements and other information concerning T2
can be inspected at the offices of the NYSE at 20 Broad Street, New York, New
York, 10005.
Coram has filed a Registration Statement on Form S-4 under the Securities
Act with the SEC covering the Coram Common Stock to be issued pursuant to the
Merger Agreement. As permitted by the rules and regulations of the SEC, this
Joint Proxy Statement/Prospectus does not contain all information set forth in
the Registration Statement and exhibits thereto. For further information, please
refer to the Registration Statement, including the exhibits thereto, all of
which are available for inspection and copying as set forth above. Statements
contained in this Joint Proxy Statement/Prospectus relating to the contents of
any contract or other document referred to herein are not necessarily complete,
and reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission by T2,
are incorporated herein by reference and made a part hereof:
(1) Annual Report on Form 10-K for the fiscal year ended September 30,
1993, filed with the Commission on December 29, 1993 (the "T2 1993 Annual
Report");
(2) Amendment to T2 1993 Annual Report on Form 10-K/A, filed with the
Commission on January 28, 1994;
(3) Quarterly Report on Form 10-Q for the quarter ended December 31,
1993, filed with the Commission on February 12, 1994;
(4) Quarterly Report on Form 10-Q for the quarter ended March 31,
1994, filed with the Commission on May 13, 1994; and
(5) The description of T2 Common Stock contained in T2's Registration
Statement on Form 8-A, as amended, dated August 5, 1992, filed with the
Commission on August 5, 1992.
All documents filed by T2 pursuant to Sections 13(a), 13(c), 14 and 15(d)
of the Exchange Act subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to June 30, 1994, shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
thereof. Any statement contained herein or in a document incorporated or deemed
incorporated by reference herein shall be deemed to be modified or superseded
for all purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS AND SCHEDULES THERETO, UNLESS SUCH EXHIBITS OR SCHEDULES ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO THE INFORMA-
4
<PAGE> 24
TION THAT THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES) ARE AVAILABLE
WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL
REQUEST OF SUCH PERSON. WRITTEN OR TELEPHONIC REQUESTS FOR COPIES SHOULD BE
DIRECTED TO T2'S PRINCIPAL OFFICE: T2 MEDICAL, INC., 1121 ALDERMAN DRIVE,
ALPHARETTA, GEORGIA 30202, ATTENTION: SCOTT T. LARSON, ASSISTANT SECRETARY
(TELEPHONE (404) 442-2160. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS
PRIOR TO THE CURAFLEX, HEALTHINFUSION, MEDISYS AND T2 SPECIAL MEETINGS, ANY
REQUEST MUST BE RECEIVED BY JUNE 28, 1994.
* * *
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND IF GIVEN OR MADE SUCH
INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO EXCHANGE OR SELL, OR A
SOLICITATION OF AN OFFER TO EXCHANGE OR PURCHASE, THE SECURITIES OFFERED HEREBY,
OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SHARES OF CORAM
COMMON STOCK MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF CORAM, T2,
CURAFLEX, HEALTHINFUSION, MEDISYS, T2 ACQUISITION, CHS ACQUISITION, HII
ACQUISITION OR MI ACQUISITION SINCE THE DATE HEREOF.
5
<PAGE> 25
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. Reference is made to, and this Summary is
qualified in its entirety by, the more detailed information contained in this
Joint Proxy Statement/Prospectus and the Appendices hereto.
GENERAL
This Joint Proxy Statement/Prospectus is furnished to stockholders of T2
Medical, Inc., a Delaware corporation ("T2"), Curaflex Health Services, Inc., a
Delaware corporation ("Curaflex"), HealthInfusion, Inc., a Florida corporation
("HealthInfusion") and Medisys, Inc., a Delaware corporation ("Medisys"), in
connection with the solicitation of proxies by the Board of Directors of each of
T2, Curaflex, HealthInfusion and Medisys for use at, respectively, the special
meeting of stockholders of T2 (the "T2 Special Meeting"), the special meeting of
stockholders of Curaflex (the "Curaflex Special Meeting"), the special meeting
of stockholders of HealthInfusion (the "HealthInfusion Special Meeting") and the
special meeting of stockholders of Medisys (the "Medisys Special Meeting"), each
of which will be held on July 8, 1994 (collectively, the "Special Meetings").
At the Special Meetings, the stockholders of each of T2, Curaflex,
HealthInfusion and Medisys will consider and vote on that certain Agreement and
Plan of Merger, dated February 6, 1994, as amended as of May 25, 1994 (the
"Merger Agreement"), by and among Coram Healthcare Corporation, a Delaware
corporation ("Coram"), T2, Curaflex, HealthInfusion, Medisys and four wholly
owned subsidiaries of Coram -- T2 Acquisition Company, a Delaware corporation
("T2 Acquisition"), CHS Acquisition Company, a Delaware corporation ("CHS
Acquisition"), HII Acquisition Company, a Florida corporation ("HII
Acquisition"), and MI Acquisition Company, a Delaware corporation ("MI
Acquisition"), and the transactions contemplated by the Merger Agreement. At the
Special Meetings, the stockholders of each corporation will also consider and
vote on the implementation of the Coram 1994 Stock Option/Stock Issuance Plan
and the implementation of the Coram Employee Stock Purchase Plan.
THE COMPANIES
Coram Healthcare Corporation. Coram is a newly formed Delaware corporation
formed for the purposes of the Merger. Currently, Coram has no material assets
or liabilities, and is the holder of all of the capital stock of each of T2
Acquisition, CHS Acquisition, HII Acquisition and MI Acquisition. At the
consummation of the proposed Merger, T2, Curaflex, HealthInfusion and Medisys
each will become wholly owned subsidiaries of Coram, and Coram will issue shares
of its common stock, $0.001 par value ("Coram Common Stock"), to former
stockholders of T2, Curaflex, HealthInfusion and Medisys.
T2 Medical, Inc. T2 Medical, Inc. is a national provider of alternate site
health care treatment services. T2's primary business is the provision of
infusion therapies to patients at the patient's home or at one of T2s IntraCare
ambulatory infusion therapy facilities. T2 also provides infusion therapy and
related services in connection with its joint venture that provides specialized
pediatric services. Other services offered by T2 and its subsidiaries include
lithotripsy services, ambulatory surgical center services and physician practice
management services. T2 conducts its home and ambulatory infusion therapy and
specialized pediatric services operations in more than 100 cities and 38 states.
The principal executive offices of T2 are located at 1121 Alderman Drive,
Alpharetta, Georgia 30202.
Curaflex Health Services, Inc. Curaflex is a national provider of
comprehensive home infusion therapy and related services. Curaflex provides a
full range of infusion therapies, including antibiotic, total parenteral
nutrition, chemotherapy, pain management, hydration, enteral nutrition and other
therapies. Curaflex currently conducts its home infusion therapy operations
through 31 regional centers and six satellite facilities strategically located
in major markets throughout the United States. In addition, Curaflex provides
infusion therapy, as part of a broader program of clinical care, at seven
disease-specific outpatient centers focusing on the treatment of complex
long-term diseases such as cancer and AIDS/HIV. The principal executive offices
of Curaflex are located at One Lakeshore Centre, 3281 Guasti Road, Suite 700,
Ontario, California 91761.
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<PAGE> 26
HealthInfusion, Inc. HealthInfusion is a national provider of home infusion
therapy services, and currently operates 35 branch facilities serving 26 states.
HealthInfusion's services include educating patients and their caregivers,
compounding prescriptions and conducting other pharmacy operations, providing
nursing services through independent agencies and HealthInfusion-employed
registered nurses, monitoring patient compliance with the prescribed plan of
care, maintaining patient records, consulting with attending physicians, and
processing reimbursement claims. HealthInfusion also provides services to the
contract research industry for the research and development of new products and
services and provides case management and acute care dialysis services. The
principal executive offices of HealthInfusion are located at 5200 Blue Lagoon
Drive, Suite 200, Miami, Florida 33126.
Medisys, Inc. Medisys provides alternate site (i.e., outside the hospital)
health care services and related products, including comprehensive home infusion
therapy and related services and products, and comprehensive pharmacy services
to long-term care facilities and retirement communities. Medisys currently
provides alternate site health care services and related products from nine
regional centers in separate metropolitan area markets. The principal executive
offices of Medisys are located at 4550 West 77th Street, Edina, Minnesota 55435.
T2 Acquisition Company. T2 Acquisition Company is a wholly owned subsidiary
of Coram, newly formed for the purpose of merging with T2 in the Merger.
CHS Acquisition Company. CHS Acquisition is a wholly owned subsidiary of
Coram, newly formed for the purpose of merging with Curaflex in the Merger.
HII Acquisition Company. HII Acquisition is a wholly owned subsidiary of
Coram, newly formed for the purpose of merging with HealthInfusion in the
Merger.
MI Acquisition Company. MI Acquisition is a wholly owned subsidiary of
Coram, newly formed for the purpose of merging with Medisys in the Merger.
TERMS OF THE MERGER
Under the terms of the Merger Agreement, (1) T2 Acquisition will merge into
T2, CHS Acquisition will merge into Curaflex, HII Acquisition will merge into
HealthInfusion and MI Acquisition will merge into Medisys (collectively, the
"Merger"), (2) each outstanding share of T2 Common Stock will be converted into
the right to receive 0.63 of a share of Coram Common Stock (the "T2 Exchange
Ratio"), (3) each outstanding share of Curaflex Common Stock will be converted
into the right to receive 0.333 of a share of Coram Common Stock (the "Curaflex
Exchange Ratio"), (4) each outstanding share of HealthInfusion Common Stock,
other than shares owned by shareholders who elect to exercise dissenters' rights
under the Florida Business Corporation Act (the "FBCA"), will be converted into
the right to receive 0.447 of a share of Coram Common Stock (the "HealthInfusion
Exchange Ratio"), (5) each outstanding share of Medisys Common Stock will be
converted into the right to receive 0.243 of a share of Coram Common Stock (the
"Medisys Exchange Ratio") and (6) each outstanding option, warrant or other
right to purchase T2 Common Stock, Curaflex Common Stock, HealthInfusion Common
Stock or Medisys Common Stock will be converted into the right to acquire shares
of Coram Common Stock on the same terms and conditions, except that the number
and exercise price will be adjusted based on the applicable exchange ratio for
the underlying T2, Curaflex, HealthInfusion or Medisys Common Stock. A vote in
favor of the Merger Agreement will also be a vote in favor of Coram's assumption
of the various stock option plans under which options to acquire T2 Common
Stock, Curaflex Common Stock, HealthInfusion Common Stock and Medisys Common
Stock are currently outstanding. See "The Merger -- Effects of the Merger."
The Exchange Ratios were determined by arms-length negotiations among the
parties. The ratios for Curaflex, HealthInfusion and Medisys relative to each
other were established prior to the commencement of negotiations with T2 and
were based on a multiple of current and projected earnings for Curaflex,
HealthInfusion and Medisys, respectively, at the time of the execution of a
three-way merger agreement among Curaflex, HealthInfusion and Medisys on
December 1, 1993. The T2 Exchange Ratio was established to reflect T2's
contribution to an implied transaction value of the Merger as determined by
reference to the
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<PAGE> 27
then current trading prices for Curaflex Common Stock, HealthInfusion Common
Stock and Medisys Common Stock multiplied by their respective number of fully
diluted shares outstanding, and an assumed trading price for T2 Common Stock of
$10.50 per share multiplied by T2's fully diluted shares outstanding. When
compared to the then public market valuations for the four companies, the
Exchange Ratios implied a premium to T2 stockholders and a discount for
stockholders of Curaflex, HealthInfusion and Medisys. See "Background of the
Merger -- Determination of Exchange Ratios."
Based upon the number of outstanding shares of T2 Common Stock, Curaflex
Common Stock, HealthInfusion Common Stock and Medisys Common Stock as of April
30, 1994, assuming that no HealthInfusion shareholders exercise their right to
dissent and no cash is paid in lieu of fractional shares, and assuming the
exercise of all options, warrants and other rights to purchase T2, Curaflex,
HealthInfusion or Medisys Common Stock, approximately 42,296,648 shares of Coram
Common Stock would be outstanding upon consummation of the Merger, of which (1)
approximately 27,753,079 shares, representing approximately 66% of the total,
will be held by former T2 stockholders, (2) approximately 6,013,062 shares,
representing approximately 14% of the total, will be held by former Curaflex
stockholders, (3) approximately 5,258,296 shares, representing approximately 12%
of the total, will be held by former HealthInfusion stockholders and (4)
approximately 3,272,211 shares, representing approximately 8% of the total, will
be held by former Medisys stockholders.
The consummation of the Merger is subject to a number of conditions which,
if not fulfilled or waived, permit termination of the Merger Agreement. If the
stockholders of any one or more of the constituent corporations fail to approve
the Merger, the Merger will not be consummated. The Merger Agreement may also be
terminated at any time prior to consummation of the Merger by mutual consent and
may be terminated by any of T2, Curaflex, HealthInfusion or Medisys if the
Merger has not been consummated on or before July 31, 1994. See "The
Merger -- Conditions of the Merger Agreement" and " -- Termination of the Merger
Agreement."
MANAGEMENT FOLLOWING THE MERGER
Upon consummation of the Merger, the Board of Directors of Coram will
consist of seven members, four of which have been designated by T2's Board of
Directors, one of which has been designated by Curaflex's Board of Directors,
one of which has been designated by HealthInfusion's Board of Directors and one
of which has been designated by Medisys' Board of Directors. See "Operation,
Management and Business of Coram After the Merger -- Management of Coram."
T2 has designated James M. Sweeney, Tommy H. Carter, Richard A. Fink and
Stephen G. Pagliuca as directors of Coram. The Chairman of the Board and Chief
Executive Officer of Coram will be James M. Sweeney. Tommy H. Carter, currently
the President and Chief Executive Officer and a director of T2, will be named
Vice Chairman of the Board of Directors of Coram, Charles A. Laverty, currently
the Chairman of the Board, President and Chief Executive Officer of Curaflex,
will be the Senior Executive Vice President and a director of Coram, Miles E.
Gilman, currently the Chief Executive Officer, President and a Director of
HealthInfusion, will be the Executive Vice President and a director of Coram,
William J. Brummond, currently the Chief Executive Officer and a director of
Medisys, will be a Vice President of Coram, John T. Gallatin, currently the
Executive Vice President of T2, will also be a Vice President of Coram, and
Norman H. Werthwein, currently the Chief Financial Officer and Senior Vice
President of Curaflex, will serve as Acting Chief Financial Officer of Coram.
John D. Hirsch, M.D., currently a director and Medical Director of American Home
Therapies, Inc., a subsidiary of Medisys, will serve as Coram's Physician
Advisory Director. As such he and Mr. Carter will be responsible for overseeing
physician relations and medical affairs for Coram. Dr. Hirsch will participate
at Coram Board of Director meetings but he will not be a voting member of the
Board. The remaining director of Coram will be L. Peter Smith, currently
Director of Business Development for Medisys' CareVan Medical Systems of
Illinois subsidiary and a director of Medisys. See "Operation, Management and
Business of Coram After the Merger -- Management of Coram."
Mr. Laverty will enter into an employment agreement with Coram. All other
officers of Coram will hold office at the pleasure of the Board of Directors and
until their successors have been duly elected and qualified, unless sooner
removed. Any officer may be removed at any time by the Board, subject to any
severance rights
8
<PAGE> 28
under employment or severance/non-compete agreements with Coram. See "The
Merger -- Interests of Certain Persons in the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Due to the benefits received by certain affiliates of T2, Curaflex,
HealthInfusion and Medisys in connection with the Merger, as described below,
the interests of these affiliates may be different from the interests of other
stockholders. Stockholders should consider such affiliates' interest in the
Merger in connection with their recommendation of the Merger. For further
details relating to the benefits summarized below, see "The Merger -- Interests
of Certain Persons in the Merger," "Background of the Merger -- T2," "Proposal
No. 2: Approval of Coram Healthcare Corporation 1994 Stock Option/Stock Issuance
Plan," "Management of HealthInfusion -- Consulting Agreement," "Management of
HealthInfusion -- Employment Agreements," "Management of
HealthInfusion -- Change in Control Severance Agreement," and "Management of
Medisys -- Employment and Severance Agreement."
Certain executive officers and consultants to T2, Curaflex, Medisys and
HealthInfusion have employment, severance or consulting agreements that entitle
such executive officers or consultants to certain termination or severance
payments upon consummation of the Merger or upon termination of employment
following the Merger. In consideration of the termination by such executive
officers or consultants of their existing employment, consulting and/or
severance agreements, effective upon the consummation of the Merger, such
executives and consultants will be entitled to receive termination or severance
arrangements with Coram in lieu of the termination or severance payment to which
such executive or consultant would otherwise have been entitled under their
current employment, consulting and/or severance agreement. In order to preserve,
for Federal income tax purposes, the deductibility of the payments set forth
below, any amounts that would not be deductible if paid will be placed in a
Rabbi Trust for the benefits of the payee and will thereafter be paid at such
time that the payment is deductible. The following table sets forth the name,
current position, severance or termination payment payable under that person's
present employment, consulting and/or severance agreement, and the severance or
termination payment that such person would receive under the Coram arrangement
upon the termination of their employment with Coram, or, in the case of the
principals of KMF Associates, Inc., upon the consummation of the Merger.
9
<PAGE> 29
<TABLE>
<CAPTION>
SEVERANCE
SEVERANCE PAYMENT
PAYMENT UNDER UNDER
PRESENT CORAM
EXECUTIVE CURRENT POSITION CONTRACT ARRANGEMENT
--------- ---------------- ------------- -----------
<S> <C> <C> <C>
Miles E. Gilman................ President, Chief Executive $1,578,000 $2,000,000
Officer
and Chairman of the Board of
HealthInfusion
KMF Associates, Inc.(1)........ Consultants to HealthInfusion $1,980,000 $1,980,000
W. Barry Tanner................ Chief Operating Officer of $ 563,000 $ 675,000
HealthInfusion
Jack T. Thompson............... Vice President, Finance, Chief $ 723,000 $ 820,000
Financial Officer, Treasurer of
HealthInfusion
David C. McCormick............. Vice President, Operations of $ 610,000 $ 675,000
HealthInfusion
William J. Brummond(2)(3)...... President, Chief Executive $ 400,000 $ 400,000
Officer
and a Director of Medisys
Khalid Mahmud, M.D.(3)......... Chairman of the Board of and $ 140,000 $ 140,000
Chief Medical Officer of Medisys
Mary B. Bennett(3)............. Vice President, Northern $ 220,000 $ 220,000
Operations
and Secretary of Medisys
David G. Swendsen(3)........... Vice President, Sales and $ 200,000 $ 200,000
Marketing of Medisys
David J. Byrd(3)............... Chief Financial Officer and $ 250,000 $ 250,000
Treasurer of Medisys
Sandra A. Smilanich(3)......... Vice President, Western $ 220,000 $ 220,000
Operations of Medisys
Tommy H. Carter................ President and Chief Executive $1,345,500 $1,345,500
Officer and a Director of T2
Thomas E. Haire................ Chairman of the Board of T2 $ 448,500 $ 448,500
John T. Gallatin(4)............ Executive Vice President of T2 $ 200,000 $ 200,000
Gary P. Greenhood, M.D.(4)(5).. Vice President Medical Affairs, $ 200,000 $ 200,000
of T2
</TABLE>
- ---------------
(1) The principals of KMF Associates, Inc., are Melvin E. Levinson, M.D.,
currently the Chairman of the Board of Directors of HealthInfusion, Jeffrey
M. Fine, Esq., currently the Vice Chairman of the Board of Directors of
HealthInfusion, and Stuart R. Kaufman, currently the Director of
HealthInfusion and, until his resignation effective October 1, 1993, the
Executive Vice President, Corporate Development, for HealthInfusion.
(2) In addition, Mr. Brummond will receive 2.99 times his annual compensation if
his employment is terminated by Coram.
(3) If the individual is still employed by Coram on the first anniversary of the
Merger, the amount will be payable at such date.
(4) Amount reflects annual salary of individual as of December 31, 1993 and does
not include dollar value of annual benefits which individual would also
receive upon termination or resignation. Such severance payment is payable
if (i) the individual is terminated by T2 without cause, (ii) the individual
is required by T2 or its successor to move his principal residence outside
of the Atlanta, Georgia metropolitan area, or (iii) T2 or its successor
substantially changes the responsibilities of such individual without his
consent. Individuals will not enter into any arrangement with Coram but will
continue under the terms of such individuals' respective employment
agreement with T2.
(5) Dr. Greenhood may elect to resign and receive one year of current salary and
benefits at any time between 90 and 180 days following the Merger.
Upon consummation of the Merger, Mr. Laverty will enter into a one year
employment agreement, terminable at any time by Mr. Laverty but only "for cause"
by Coram, providing for (1) an annual base salary
10
<PAGE> 30
of $450,000, (2) an annual incentive compensation bonus of up to 100% of base
salary, payable in cash and/or Coram Common Stock, upon Coram achieving certain
performance objectives for the year in question as set by the Chairman of Coram
or by Coram's Board of Directors or a committee thereof (the remaining balance
of which annual base salary and a pro rata portion of which bonus shall be
payable in the event Mr. Laverty's employment with Coram is terminated during
the year by Coram at any time (other than "for cause") or by Mr. Laverty after
completion of at least six months of service with Coram), (3) an option grant
under the Coram 1994 Stock Option/Stock Issuance Plan to purchase 100,000 shares
of Coram Common Stock, to be made on December 1, 1994, provided that he has not
voluntarily terminated his employment with Coram prior to such date, at an
exercise price equal to the closing selling price per share of Coram Common
Stock on such date, which will be immediately exercisable, (4) forgiveness by
Coram of a current loan to Mr. Laverty from Curaflex in the principal amount of
$400,000, plus accrued interest to date, (5) payment by Coram of all fees, costs
and expenses incurred by Mr. Laverty in the event Coram requires Mr. Laverty to
relocate his primary residence (subject to Mr. Laverty's consent to such
relocation), including broker's fees, mortgage payments on his former residence
after the date of relocation until such residence is sold and any loss sustained
by him on sale of such residence, (6) payment of a severance/non-compete payment
in the amount of $2,500,000 upon termination of Mr. Laverty's employment (other
than by Coram "for cause") payable over three years (co-extensive with the
non-compete period) and (7) Mr. Laverty's agreement not to compete with Coram
during his employment with Coram and for three years following termination of
such employment. For further information concerning the stock option grant to be
made to Mr. Laverty, see "Proposal No. 2: Approval of Coram Healthcare
Corporation 1994 Stock Option/Stock Issuance Plan -- Discretionary Grant
Program."
In order to preserve, for Federal income tax purposes, the deductibility to
Coram of the payments called for under the employment agreement for Mr. Laverty,
the employment agreement provides that any amounts that would not be deductible
when otherwise scheduled to be paid to Mr. Laverty will be placed in a Rabbi
Trust for his benefit and will be paid at such time as the payment is deductible
by Coram.
In November 1993, T2 engaged Mr. Sweeney to act as an advisor to T2 for the
purpose of making presentations to and engaging in discussions and negotiations
with potential business combination candidates. See "Background of the
Merger -- T2." Pursuant to the terms of his engagement, T2 has agreed to pay Mr.
Sweeney a cash fee equal to 0.672% of the average total market capitalization of
the resulting company as determined over the ten trading day period immediately
following the Effective Time of the Merger. Applying the average total market
capitalization of Coram as determined over the ten trading day period
immediately following April 30, 1994, such cash fee would have been
approximately $4,452,275.
To induce Mr. Sweeney to serve as Chairman and Chief Executive Officer of
Coram, the Board of Directors of Coram has determined to grant to Mr. Sweeney on
December 1, 1994, provided that he continues in service with Coram until such
date, a stock option under the Coram 1994 Stock Option/Stock Issuance to
purchase 3,000,000 shares of Coram Common Stock. The option will have an
exercise price per share equal to the closing selling price per share of Coram
Common Stock on the date of grant. The option will have a maximum term of 10
years and will be immediately exercisable for all of the option shares. The
shares purchased under the option will be subject to repurchase by Coram, at the
option exercise price, should Mr. Sweeney cease service with Coram prior to the
lapsing of such repurchase right. Twenty-five percent (25%) of the option shares
will cease to be subject to such repurchase right upon Mr. Sweeney's completion
of one year of service with Coram measured from the Effective Time, and the
balance will cease to be subject to such repurchase right in successive equal
monthly installments upon Mr. Sweeney's completion of each additional month of
service over the next thirty six (36) months thereafter. In the event of certain
changes in control or ownership of Coram, all of the option shares will
immediately cease to be subject to such repurchase right, and the option will
remain exercisable for such shares until the end of the ten (10) year option
term, whether or not Mr. Sweeney continues in service with Coram. For further
information concerning the option grant to be made to Mr. Sweeney, see "Proposal
No. 2: Approval of Coram Healthcare Corporation 1994 Stock Option/Stock Issuance
Plan -- Discretionary Grant Program."
Mr. Carter will receive an option grant to purchase 94,500 shares of Coram
Common Stock under the Coram 1994 Stock Option/Stock Issuance Plan. The grant
will be made by the Coram Board of Directors on September 1, 1994, provided that
he continues in service with Coram until such date, and will have an
11
<PAGE> 31
exercise price per share equal to the closing selling price per share of Coram
Common Stock on such date. The option will become exercisable in three equal and
successive annual installments over Mr. Carter's continued period of sevice with
Coram. However, the option will become exercisable for all the option shares as
fully-vested shares upon certain changes in control of ownership of Coram. This
option will be granted to Mr. Carter in cancellation of his existing contractual
right to receive an option grant for 150,000 shares of T2 Common Stock in
September 1994. Further information concerning the 94,500-share option grant to
Mr. Carter may be found in "Proposal No. 2: Approval of Coram Healthcare
Corporation 1994 Stock Option/ Stock Issuance Plan" below.
Stanley S. Trotman, a director of T2, is a Managing Director of Kidder,
Peabody & Co. Incorporated ("Kidder, Peabody"). Kidder, Peabody delivered an
oral opinion on February 1, 1994, which it confirmed on February 6, 1994 (and
which it subsequently confirmed in writing), to the T2 Board of Directors to the
effect that, as of the date of such opinion, the T2 Exchange Ratio is fair, from
a financial point of view, to the holders of shares of T2 Common Stock. Kidder,
Peabody will receive a fee from T2 for rendering its opinion. See "Background of
the Merger -- Opinion of Kidder, Peabody."
Donald E. Strange, a director of Curaflex, will receive an option to
purchase 150,000 shares of Curaflex Common Stock at an exercise price of $6.13
per share (which, pursuant to the Merger, will be converted into an option to
purchase 49,950 shares of Common Stock at an exercise price of $18.41 per share)
upon consummation of the Merger in consideration for consulting services
provided by Mr. Strange for Curaflex relating to the Merger. The option, which
was based on an agreement entered into between Mr. Strange and Curaflex in
January 1994, will be vested and exercisable in full upon its grant, and is
exercisable for ten years following the date of such grant. See "Management of
Curaflex -- Compensation Committee Interlock/ Insider Participation."
The vesting of certain options held by executives and directors of Curaflex
and HealthInfusion may accelerate on or, in certain circumstances, after
consummation of the Merger. In the aggregate, (1) options to purchase 420,844
shares of Curaflex Common Stock at a weighted average exercise price of $6.13
per share (which, pursuant to the Merger, will be converted into options to
purchase 140,141 shares of Coram Common Stock at a weighted average exercise
price of $18.41 per share) held by certain executive officers of Curaflex will
accelerate to become vested following consummation of the Merger in the event
such officer is terminated from Curaflex (except for cause) following the Merger
and (2) options to purchase 8,250 shares of HealthInfusion Common Stock held by
one executive officer of HealthInfusion at a weighted average exercise price of
$5.33 per share (which, pursuant to the Merger, will be converted into options
to purchase 3,688 shares of Coram Common Stock at a weighted average exercise
price of $11.92 per share) will accelerate to become immediately and fully
exercisable on consummation of the Merger. See "The Merger -- Interests of
Certain Persons in the Merger."
POTENTIAL ADVERSE CONSEQUENCES TO STOCKHOLDERS
As described above, certain affiliates, directors and executive officers of
T2, Curaflex, HealthInfusion and Medisys will receive employment agreements,
increased compensation, stock options, termination agreements and severance
payments in connection with the Merger. Increased compensation and severance
payments will reduce the working capital of Coram, while directly benefitting
those affiliates, directors and officers receiving such increased compensation
and severance payments. See "The Merger -- Interests of Certain Persons in the
Merger."
The Exchange Ratios were the result of negotiation between the parties and,
at the time of negotiation, resulted in an implicit premium or discount for
certain of the companies' stockholders based on the companies' then public
market valuation. At the time of the December 1, 1993 execution of the three-way
merger agreement among Curaflex, HealthInfusion and Medisys, the exchange ratios
for those three companies (which are also the Exchange Ratios for those
companies under the Merger Agreement) implied a premium to HealthInfusion
shareholders and a discount for stockholders of Curaflex and Medisys based on
the then public market valuations of the three companies. The Exchange Ratios
provided in the February 6, 1994 Merger Agreement among the four companies
implied a premium to T2 stockholders and a discount for
12
<PAGE> 32
stockholders of Curaflex, HealthInfusion and Medisys, based on the then public
market valuations of the four companies. Because the Exchange Ratios are fixed
and are not tied to the market prices of the constituent companies' stock
immediately prior to the consummation of the Merger, stockholders of the four
companies may receive implicit premiums or discounts based on the Exchange
Ratios due to the relative trading prices for the constituent companies' common
stock on the date the Merger is consummated. See "Background of the
Merger -- Determination of Exchange Ratios."
Stockholders of certain companies may also be adversely affected due to
differences between the laws of the various states of incorporation and between
the provisions of the Certificate of Incorporation (or Articles of
Incorporation, as the case may be) and Bylaws of their respective companies and
the Certificate of Incorporation and Bylaws of Coram, which govern their rights
as stockholders. See "The Merger -- Rights of Security Holders."
CLOSING AND EFFECTIVE TIME OF THE MERGER
The Merger will become effective (the "Effective Time") upon the completion
of the filing of (1) properly executed Articles of Merger with the Department of
State of the State of Florida with respect to the merger of HII Acquisition into
HealthInfusion and (2) properly executed Certificates of Merger with the
Secretary of State of the State of Delaware reflecting the respective mergers of
T2 Acquisition into T2, CHS Acquisition into Curaflex and MI Acquisition into
Medisys, which filings will be made after satisfaction of certain conditions set
forth in the Merger Agreement, including approval by the stockholders of each
company. For more information, see "The Merger -- Closing and Effective Time of
the Merger" below.
OPERATION OF CORAM AFTER THE MERGER
From and after the Effective Time, each of T2, Curaflex, HealthInfusion and
Medisys will operate as wholly owned subsidiaries of Coram. Coram will
consolidate the operations of each of the constituent companies in order to take
advantage of efficiencies presented by the combination and to provide cost-
effective, nationwide coverage using the companies' existing facilities. See
"Operation, Management and Business of Coram After the Merger."
CONDITIONS OF THE MERGER AND TERMINATION
In addition to approval of the Merger by the stockholders of T2, Curaflex,
HealthInfusion and Medisys, the consummation of the Merger is subject to a
number of other conditions which, if not fulfilled or waived, permit termination
of the Merger Agreement. The Merger Agreement may also be terminated at any time
prior to consummation of the Merger by mutual consent, and may be terminated by
any of T2, Curaflex, HealthInfusion or Medisys if the Merger has not been
consummated on or before July 31, 1994. See "The Merger -- Conditions of the
Merger Agreement" and "-- Termination of the Merger Agreement."
RECOMMENDATION OF THE BOARDS OF DIRECTORS
The Merger. The Boards of Directors of T2, Curaflex, HealthInfusion and
Medisys have each approved the Merger Agreement and the transactions
contemplated thereby and separately determined that the Merger is fair to and in
the best interests of their respective stockholders.
The factors considered by the T2 Board of Directors in making this
determination included, among others, (i) the relative trading prices of T2
Common Stock, Curaflex Common Stock, HealthInfusion Common Stock and Medisys
Common Stock and the premium to market that would have been received by T2's
stockholders based upon the T2 Exchange Ratio if the Merger had been consummated
as of the date of the Merger Agreement, (ii) the accelerating pace of
consolidation taking place in the health care industry and the resulting need
for companies in the industry to attain scale to compete effectively, (iii) the
need for T2 to establish a larger sales force and the ability of the combined
sales forces of Curaflex, HealthInfusion and Medisys to address that need, (iv)
the opportunity that the Merger will provide for T2's stockholders to have
continued equity participation in a larger, more diversified enterprise with
enhanced geographic presence and generally greater managerial, financial and
marketing resources and opportunities, (v) the results of T2's
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<PAGE> 33
previous efforts in pursuing business combination transactions which were
designed to enhance shareholder value and (vi) the presentation of Kidder,
Peabody to the T2 Board of Directors. The Board of Directors also considered the
direct costs associated with the negotiation, solicitation and consummation of
the Merger, currently estimated to be approximately $14.0 million, as well as
the amounts to be paid to certain individuals in connection with the Merger or
any subsequent termination of their employment. In addition, the Board noted
that there would be significant additional, but presently undeterminable, costs
related to the necessary consolidation of the constituent companies' existing
operations. See "The Merger -- Interests of Certain Persons in the Merger" and
"Notes to Unaudited Pro Forma Condensed Combined Financial Statements --
Adjustments to Unaudited Pro Forma Condensed Combined Financial Statements."
The factors considered by the Curaflex Board of Directors in making this
determination included, among others, (i) the cost savings, enhanced marketing
capabilities, increased market presence and greater financial resources
available to Curaflex as part of the combined companies, (ii) the consolidation
occurring in the industry caused by pricing pressures, reduced margins and
increased competition, and (iii) the financial analysis performed by Curaflex's
financial advisor and presented to Curaflex's Board of Directors. The Board of
Directors also considered the direct costs associated with the negotiation,
solicitation and consummation of the Merger, currently estimated to be
approximately $14.0 million, as well as the amounts to be paid to certain
individuals in connection with the Merger or any subsequent termination of their
employment. In addition, the Board noted that there would be significant
additional, but presently undeterminable, costs related to the necessary
consolidation of the constituent companies' existing operations. See "The
Merger -- Interests of Certain Persons in the Merger" and "Notes to Unaudited
Pro Forma Condensed Combined Financial Statements -- Adjustments to Unaudited
Pro Forma Condensed Combined Financial Statements."
The factors considered by the HealthInfusion Board of Directors in making
this determination included, among others, (i) the opportunity that the Merger
will provide for HealthInfusion's shareholders to have continued equity
participation in a larger, more diversified enterprise with greater financial
and marketing resources to better address the increasing consolidation in the
infusion therapy industry resulting from pricing pressures from third party
payors, increasing governmental regulation and competition generally, (ii) the
potential enhancement of HealthInfusion's business arising out of the Merger as
a result of more efficient use of management, suppliers and facilities, and
(iii) the views of HealthInfusion's financial advisors and the presentations to
the Board of HealthInfusion from such financial advisors. The Board of Directors
also considered the direct costs associated with the negotiation, solicitation
and consummation of the Merger, currently estimated to be approximately $14.0
million, as well as the amounts to be paid to certain individuals in connection
with the Merger or any subsequent termination of their employment. In addition,
the Board noted that there would be significant additional, but presently
undeterminable, costs related to the necessary consolidation of the constituent
companies' existing operations. See "The Merger -- Interests of Certain Persons
in the Merger" and "Notes to Unaudited Pro Forma Condensed Combined Financial
Statements -- Adjustments to Unaudited Pro Forma Condensed Combined Financial
Statements."
The factors considered by the Medisys Board of Directors in making this
determination included, among others, (i) market conditions in the home infusion
therapy market, including competitive, pricing and governmental regulation
pressures that are driving a trend toward consolidation of infusion therapy
businesses, (ii) the opportunity for Medisys' stockholders to have an equity
interest in a larger and more diverse company that is expected to benefit
strategically, competitively and operationally from the Merger, (iii) the
benefits to be derived by the combined entity from operating synergies, volume
discounts from suppliers and a national presence in negotiating contracts with
third party payors, and (iv) the financial analysis performed by Medisys'
financial advisor and presented to Medisys' Board of Directors. The Board of
Directors also considered the direct costs associated with the negotiation,
solicitation and consummation of the Merger, currently estimated to be
approximately $14.0 million, as well as the amounts to be paid to certain
individuals in connection with the Merger or any subsequent termination of their
employment. In addition, the Board noted that there would be significant
additional, but presently undeterminable, costs related to the necessary
consolidation of the constituent companies' existing operations. See "The
Merger -- Interests of Certain Persons in the Merger" and "Notes to Unaudited
Pro Forma Condensed Combined Financial Statements -- Adjustments to Unaudited
Pro Forma Condensed Combined Financial Statements."
14
<PAGE> 34
A vote in favor of the Merger Agreement will also be a vote in favor of
Coram's assumption of the various stock option plans under which options to
acquire T2 Common Stock, Curaflex Common Stock, HealthInfusion Common Stock and
Medisys Common Stock are currently outstanding. Under the Merger Agreement, from
and after the Effective Time, each option, warrant or other right (a "Derivative
Security") to purchase or receive T2, Curaflex, HealthInfusion or Medisys Common
Stock will be converted into a Derivative Security to purchase or receive the
same number of shares of Coram Common Stock as the holder of such Derivative
Security would have received had he or she exercised his or her Derivative
Security in full immediately prior to the Effective Time, with the exercise
price per share to be proportionately adjusted. Accordingly, the adjusted
exercise price per share for each Derivative Security currently covering shares
of T2, Curaflex, HealthInfusion and Medisys Common Stock will be determined by
dividing the exercise price in effect for that Derivative Security immediately
prior to the Effective Time of the Merger by 0.630, 0.333, 0.447 and 0.243,
respectively. As of April 30, 1994, there were outstanding Derivative Securities
to purchase 2,302,940 shares of T2 Common Stock, 1,873,169 shares of Curaflex
Common Stock, 196,600 shares of HealthInfusion Common Stock and 508,679 shares
of Medisys Common Stock at exercise prices substantially in excess of the fair
market value of those shares on April 30, 1994. Accordingly, a total of
2,286,106 shares of Coram Common Stock issuable under the T2, Curaflex,
HealthInfusion and Medisys stock option plans to be assumed by Coram in the
Merger will have adjusted exercise prices expected to be in excess of the fair
market value per share of Coram Common Stock after the Merger, and these options
will accordingly have value only if the fair market value of the Coram Common
Stock purchasable under these options after the Merger substantially appreciates
over the remaining option term. See "The Merger -- Interests of Certain Persons
in the Merger -- Stock and Option Holdings of Directors and Officers" and
"-- Assumption of Existing Stock Option Plans."
ACCORDINGLY, THE BOARDS OF DIRECTORS OF T2, CURAFLEX, HEALTHINFUSION AND
MEDISYS RECOMMEND APPROVAL OF THE MERGER BY THEIR RESPECTIVE STOCKHOLDERS. For a
more detailed discussion of the reasons considered by the Board of Directors of
each of T2, Curaflex, HealthInfusion and Medisys in approving the Merger
Agreement, see "Background of The Merger -- T2's Reasons for the Merger and
Board of Directors' Recommendation," "-- Curaflex's Reasons for the Merger and
Board of Directors' Recommendation," "-- HealthInfusion's Reasons for the Merger
and Board of Directors' Recommendation" and "-- Medisys' Reasons for the Merger
and Board of Directors' Recommendations."
Coram 1994 Stock Option/Stock Issuance Plan and Coram Employee Stock
Purchase Plan. The Boards of Directors of T2, Curaflex, HealthInfusion and
Medisys have each approved of the Coram 1994 Stock Option/Stock Issuance Plan
and the Coram Employee Stock Purchase Plan as equity incentive programs which
are intended to attract and retain the services of valuable and highly-qualified
employees, non-employee directors and independent consultants. Under the Coram
1994 Stock Option/Stock Issuance Plan, up to an aggregate of 7,600,000 shares of
Coram Common Stock will be available for issuance to officers, key employees and
consultants in the service of Coram or any of its operating subsidiaries,
including T2, Curaflex, HealthInfusion and Medisys after the Merger, and to the
non-employee members of Coram's Board of Directors or the board of directors of
any operating subsidiary. Under the Coram Employee Stock Purchase Plan, up to
300,000 shares of Coram Common Stock will be available for purchase by eligible
employees of Coram and its operating subsidiaries through a payroll-deduction
based stock purchase program. ACCORDINGLY, THE BOARDS OF T2, CURAFLEX,
HEALTHINFUSION, AND MEDISYS RECOMMEND APPROVAL OF THE CORAM 1994 STOCK
OPTION/STOCK ISSUANCE PLAN AND APPROVAL OF THE CORAM EMPLOYEE STOCK PURCHASE
PLAN.
OPINIONS OF FINANCIAL ADVISORS
Kidder, Peabody delivered its oral opinion to the T2 Board of Directors on
February 1, 1994, which it confirmed on February 6, 1994 (and which it
subsequently confirmed in writing), to the effect that, as of the date of such
opinion, the T2 Exchange Ratio was fair, from a financial point of view, to the
holders of shares of T2 Common Stock. In connection with its opinion, Kidder,
Peabody reviewed, among other things, the Merger Agreement and, in connection
with its written opinion dated June 2, 1994, the Proxy Statement/Prospectus as
15
<PAGE> 35
filed with the Commission. Kidder, Peabody also reviewed certain financial and
other information with respect to T2, Curaflex, HealthInfusion and Medisys
(collectively, the "Companies") that was publicly available or furnished to
Kidder, Peabody by or on behalf of the Companies, including certain internal
financial analyses, financial forecasts, reports and other information prepared
by the Companies' respective managements and representatives. Kidder, Peabody
held discussions with the managements and representatives of the Companies
concerning the Companies' respective historical and current operations,
financial condition and prospects as well as the strategic and operating
benefits anticipated from the Merger. In addition, Kidder, Peabody: (i) reviewed
the prices and trading histories of the common stock of each of the Companies
and compared such prices and trading histories with those of publicly traded
companies it deemed relevant for the purposes of its opinion; (ii) compared the
financial positions and operating results of each of the Companies with those of
publicly traded companies it deemed relevant for purposes of its opinion; (iii)
compared certain financial terms of the Merger to certain financial terms of
selected business combinations it deemed relevant for purposes of its opinion;
(iv) reviewed the potential pro forma financial effects of the Merger on T2; and
(v) conducted such other financial studies, analyses and investigations and
reviewed such other factors as it deemed appropriate for purposes of its
opinion. A copy of Kidder, Peabody's written opinion dated June 2, 1994, which
sets forth the assumptions made, procedures followed, matters considered,
limitations on and the scope of the review by Kidder, Peabody in rendering its
opinion, is attached to this Joint Proxy Statement/Prospectus as Appendix F and
should be read carefully by stockholders in its entirety. See "Background of the
Merger -- Opinion of Kidder, Peabody."
Smith Barney Inc. ("Smith Barney") has delivered to the Board of Directors
of Curaflex its written opinion, dated February 6, 1994, to the effect that, as
of the date of such opinion and based upon and subject to certain matters stated
therein, the Curaflex Exchange Ratio was fair, from a financial point of view,
to the holders of Curaflex Common Stock. In arriving at its opinion, Smith
Barney (i) reviewed the Merger Agreement, (ii) held discussions with certain
senior officers, directors or other representatives and advisors of the
constituent companies concerning the constituent companies' respective
businesses, operations and prospects, (iii) examined certain publicly available
business and financial information relating to the constituent companies as well
as certain financial forecasts provided to Smith Barney by the respective
managements of the constituent companies, including information relating to
certain strategic implications and operational benefits anticipated from the
Merger, (iv) considered, to the extent publicly available, the financial terms
of certain other similar transactions recently effected which Smith Barney
considered comparable to the Merger, (v) analyzed certain financial and other
publicly available information relating to the businesses of other companies
whose operations Smith Barney considered comparable to the operations of the
constituent companies, (vi) evaluated the pro forma financial impact of the
Merger and (vii) performed such other financial analyses and examinations and
considered such other financial, economic and market criteria as Smith Barney
deemed necessary. A copy of Smith Barney's opinion, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached to this Joint Proxy Statement/Prospectus as Appendix C and should be
read carefully by stockholders in its entirety. See "Background of The
Merger--Opinion of Smith Barney."
Hambrecht & Quist Incorporated ("Hambrecht & Quist") has delivered to the
Board of Directors of HealthInfusion its written opinion, dated February 6,
1994, to the effect that, as of the date of such opinion and based upon and
subject to certain matters as stated therein, the consideration to be received
by the HealthInfusion shareholders pursuant to the Merger is fair to such
shareholders from a financial point of view. A copy of Hambrecht & Quist's
opinion, which sets forth the assumptions made, matters considered and limits on
the review undertaken, is attached to this Joint Proxy Statement/Prospectus as
Appendix D and should be read carefully by shareholders in its entirety. In
arriving at its opinion, Hambrecht & Quist (i) reviewed certain financial data
of HealthInfusion, (ii) held discussions with certain members of management of
HealthInfusion, (iii) reviewed certain publicly available financial information
of Curaflex, Medisys and T2, (iv) reviewed reported prices and trading activity
of the stock of HealthInfusion, T2, Curaflex and Medisys, (v) reviewed the
Merger Agreement, and (vi) performed such other analyses and examinations and
considered such other information as Hambrecht & Quist deemed relevant. See
"Background of The Merger -- Opinion of Hambrecht & Quist."
16
<PAGE> 36
Piper Jaffray Inc. ("Piper Jaffray") has delivered to the Board of
Directors of Medisys its written opinion, dated February 4, 1994, to the effect
that, as of the date of such opinion and based upon and subject to certain
matters as stated therein, the consideration to be received by the Medisys
stockholders pursuant to the Merger is fair to such stockholders from a
financial point of view. In arriving at its opinion, Piper Jaffray reviewed and
analyzed, among other things, (i) a draft of the Merger Agreement dated February
1, 1994; (ii) certain financial and securities data of Medisys, Curaflex,
HealthInfusion, T2 and companies deemed similar to such companies or
representative of the business sector in which such companies operate (although
none of these comparable companies had characteristics identical to Medisys,
Curaflex, HealthInfusion, or T2); (iii) to the extent publicly available, the
financial terms of certain acquisition transactions involving companies
operating in industries deemed similar to that in which Medisys operates
(although none of the transactions involved companies identical to Medisys);
(iv) publicly available information relating to Medisys, Curaflex,
HealthInfusion and T2; and (v) Medisys', Curaflex's, HealthInfusion's and T2's
internally prepared projections for fiscal 1993 and 1994. In addition, Piper
Jaffray had discussions with members of management of each of the four companies
concerning their respective financial condition, current operating results and
business outlook, including potential operating efficiencies and synergistic
values which may arise from the Merger. A copy of Piper Jaffray's opinion, which
sets forth the assumptions made, matters considered and limits on the review
undertaken, is attached to this Joint Proxy Statement/Prospectus as Appendix E
and should be read carefully by stockholders in its entirety. See "Background of
The Merger -- Opinion of Piper Jaffray."
MEETINGS OF THE STOCKHOLDERS
A Special Meeting of the Stockholders of T2 will be held at 10:00 a.m.,
local time, on July 8, 1994, at The Westin Hotel, 13340 Dallas Parkway, Dallas,
Texas.
A Special Meeting of the Stockholders of Curaflex will be held at 9:00
a.m., local time, on July 8, 1994, at One Lakeshore Centre, 3281 Guasti Road,
Suite 700, Ontario, California.
A Special Meeting of the Stockholders of HealthInfusion will be held at
10:00 a.m., local time, on July 8, 1994, at the Miami Hilton Airport Hotel and
Marina, 5101 Blue Lagoon Drive, Miami, Florida.
A Special Meeting of the Stockholders of Medisys will be held at 11:00
a.m., local time, on July 8, 1994, at the Holiday Inn International Airport,
Three Appletree Square, Bloomington, Minnesota.
At the Special Meetings, stockholders of the respective corporations will
be asked to consider and vote upon a proposal to approve the Merger Agreement
and the transactions contemplated thereby. A copy of the Merger Agreement is
attached to this Joint Proxy Statement/Prospectus as Appendix A. The
stockholders will also be asked to consider and vote upon the proposal to
approve the implementation of the Coram 1994 Stock Option/Stock Issuance Plan
and the proposal to approve the implementation of the Coram Employee Stock
Purchase Plan. The principal provisions of the 1994 Stock Option/Stock Issuance
Plan are described in the section below entitled "Proposal No. 2: Approval of
Coram Healthcare Corporation 1994 Stock Option/Stock Issuance Plan." The
principal features of the Employee Stock Purchase Plan are described in the
section below entitled "Proposal No. 3: Approval of Coram Healthcare Corporation
Employee Stock Purchase Plan."
All shares of common stock, par value $0.01 per share, of T2 ("T2 Common
Stock"), common stock, par value $0.001 per share, of Curaflex ("Curaflex Common
Stock"), common stock, par value $0.01 per share, of HealthInfusion
("HealthInfusion Common Stock"), and common stock, par value $0.01 per share, of
Medisys ("Medisys Common Stock") represented by properly executed proxies will
be voted at the appropriate Special Meeting in accordance with the directions on
the proxies, unless such proxies have been previously revoked. If no direction
is indicated, the shares will be voted FOR approval of the Merger Agreement and
the transactions contemplated thereby, FOR approval of the 1994 Stock
Option/Stock Issuance Plan and FOR approval of the Employee Stock Purchase Plan.
Any T2, Curaflex, HealthInfusion or Medisys stockholder giving a proxy may
revoke his or her proxy at any time before its exercise at the appropriate
Special Meeting by (1) giving written notice of such revocation to the Secretary
of T2, Curaflex, HealthInfusion or Medisys, as the case may be, or (2) signing
and delivering to such Secretary a proxy
17
<PAGE> 37
bearing a later date. However, the mere presence at a given Special Meeting of a
T2, Curaflex, HealthInfusion or Medisys stockholder who has delivered a valid
proxy will not of itself revoke that proxy. See "The T2 Special
Meeting -- Proxies: Voting and Revocation," "The Curaflex Special
Meeting -- Proxies: Voting and Revocation," "The HealthInfusion Special
Meeting -- Proxies: Voting and Revocation" and "The Medisys Special
Meeting -- Proxies: Voting and Revocation."
RECORD DATE AND VOTE REQUIRED
The record date for stockholders of each of T2, HealthInfusion and Medisys
entitled to vote at the appropriate Special Meeting is May 12, 1994. The record
date for stockholders of Curaflex entitled to vote at the Curaflex Special
Meeting is May 25, 1994.
The Delaware General Corporation Law (the "DGCL") requires approval of the
Merger Agreement by holders of a majority of the outstanding shares of each of
T2 Common Stock, Curaflex Common Stock and Medisys Common Stock. In addition,
the Florida Business Corporation Act (the "FBCA") requires approval of the
Merger Agreement by holders of a majority of the outstanding shares of
HealthInfusion Common Stock. In each case, abstentions and broker non-votes will
have the same effect as a vote against the Merger Agreement. If the stockholders
of any one or more of the constituent companies fail to approve the Merger
Agreement and the transactions contemplated thereby, as required, the Merger
will not be consummated.
The DGCL also requires the affirmative vote of a majority of the issued and
outstanding shares of common stock of each of T2 Acquisition, CHS Acquisition
and MI Acquisition for approval of the Merger Agreement, and the FBCA requires
the affirmative vote of a majority of the issued and outstanding shares of
common stock of HII Acquisition for approval of the Merger Agreement. Coram, as
owner of all such outstanding shares, has voted such shares to approve the
Merger Agreement.
The DGCL requires the affirmative vote of the majority of shares present in
person or represented by proxy at the respective shareholder meetings for T2,
Curaflex and Medisys, for approval by each respective company of the Coram 1994
Stock Option/Stock Issuance Plan and the Employee Stock Purchase Plan. The FBCA
requires that the votes cast by the holders of shares represented and entitled
to vote favoring the plans must exceed the votes cast opposing the plans for
approval by HealthInfusion of the Coram 1994 Stock Option/Stock Issuance Plan
and the Employee Stock Purchase Plan.
As of April 30, 1994, (1) the current directors and officers of T2 and
their respective affiliates held 433,915 shares of T2 Common Stock, exclusive of
options and warrants to purchase T2 Common Stock, representing approximately 1%
of the outstanding shares of T2 Common Stock, (2) the directors and officers of
Curaflex and their respective affiliates held 2,767,917 shares of Curaflex
Common Stock, exclusive of options and warrants to purchase Curaflex Common
Stock, representing approximately 18.5% of the outstanding shares of Curaflex
Common Stock, (3) the directors and officers of HealthInfusion and their
respective affiliates held 2,933,618 shares of HeathInfusion Common Stock,
exclusive of options and warrants to purchase HealthInfusion Common Stock,
representing approximately 29.5% of the outstanding shares of HeathInfusion
Common Stock and (4) the directors and officers of Medisys and their respective
affiliates held 4,106,302 shares of Medisys Common Stock, exclusive of options
and warrants to purchase Medisys Common Stock, representing approximately 32.3%
of the outstanding shares of Medisys Common Stock. All such directors and
officers have indicated their intention to vote in favor of the Merger.
EXCHANGE OF STOCK CERTIFICATES
Promptly after consummation of the Merger, Bank of Boston, or such other
bank or trust company designated by Coram (the "Exchange Agent"), will mail
written transmittal materials concerning exchange of stock certificates to each
record holder of outstanding shares of T2 Common Stock, Curaflex Common Stock,
HealthInfusion Common Stock and Medisys Common Stock. The transmittal materials
will contain instructions with respect to the proper method of surrender of
certificates formerly representing shares of T2, Curaflex, HealthInfusion or
Medisys in exchange for certificates representing shares of Coram Common Stock.
Upon surrender to the Exchange Agent by a T2, Curaflex, HealthInfusion or
Medisys stockholder of certificates formerly representing shares of T2,
Curaflex, HealthInfusion or Medisys Common Stock for cancellation, together with
properly completed transmittal materials, such stockholder will be entitled to
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<PAGE> 38
receive a certificate representing the number of whole shares of Coram Common
Stock into which the stockholder's shares of T2, Curaflex, HealthInfusion or
Medisys Common Stock have been converted and a check for cash in lieu of the
issuance of any fractional share of Coram Common Stock. Former T2, Curaflex,
HealthInfusion or Medisys stockholders will not be entitled to receive interest
on any such cash to be received in the Merger. See "The Merger -- Exchange of
Stock Certificates" and "-- Payment in Lieu of Fractional Shares."
GOVERNMENT AND REGULATORY APPROVALS
T2, Curaflex, HealthInfusion and Medisys filed pre-merger notification
forms with the Federal Trade Commission and the Department of Justice under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). The required waiting period expired on April 9, 1994. The companies are
not aware of any other material federal or state regulatory approvals required
to be obtained in order to consummate the Merger. See "The Merger -- Government
and Regulatory Approvals."
FEDERAL INCOME TAX CONSIDERATIONS
Each of the four mergers included in the Merger is intended to be a
reorganization for Federal income tax purposes, and consummation of the Merger
is conditioned upon the receipt of opinions to that effect from (1) counsel to
T2, (2) counsel to Curaflex, (3) outside accountants to HealthInfusion and (4)
counsel to Medisys, as described in "The Merger -- Federal Income Tax
Considerations." Subject to the limitations set forth therein, stockholders of
T2, Curaflex, HealthInfusion and Medisys generally will recognize no gain or
loss for Federal income tax purposes as a result of their exchange of T2,
Curaflex, HealthInfusion and Medisys Common Stock for Coram Common Stock in the
Merger, except to the extent that such stockholders receive cash in lieu of
fractional shares or HealthInfusion shareholders exercise their right to
dissent.
ACCOUNTING TREATMENT
The Merger will be accounted for as a pooling of interests for accounting
and financial reporting purposes.
In order to ensure that the Merger will be treated as a pooling of
interests for accounting purposes, a condition to the consummation of the Merger
is that the total cash paid in the Merger on account of fractional shares and
dissenting shares may not exceed 10% of the value of the Coram Common Stock
issuable in exchange for T2 Common Stock, Curaflex Common Stock, HealthInfusion
Common Stock and Medisys Common Stock at the Effective Time of the Merger. See
"The Merger -- Accounting Treatment."
HEALTHINFUSION SHAREHOLDERS' RIGHT TO DISSENT
Pursuant to the FBCA, any shareholder of record of shares of HealthInfusion
Common Stock who does not desire to have such shares converted into shares of
Coram Common Stock pursuant to the Merger Agreement and who has made written
demand prior to the vote of HealthInfusion shareholders on the Merger at the
HealthInfusion Special Meeting may dissent from the Merger and elect to have the
fair value of such shareholder's shares of HealthInfusion Common Stock
(excluding any appreciation or depreciation in anticipation of the Merger unless
exclusion would be inequitable) judicially determined and paid to the
shareholder in cash, provided that the shareholder complies with the provisions
of Section 607.1320 of the FBCA. If any shareholder of record of shares of
HealthInfusion Common Stock elects to exercise the right to dissent from the
Merger and demand appraisal, such shareholder of record must deliver a written
demand for appraisal of the shareholder's shares to HealthInfusion prior to the
taking of the vote on the Merger at the HealthInfusion Special Meeting. This
written demand must reasonably inform HealthInfusion of the identity of the
shareholder of record and that the shareholder thereby demands the appraisal of
the shareholder's shares. Any shareholder choosing to exercise his or her right
to dissent may not vote such shares in favor of the Merger. The failure of any
dissenting shareholder to follow the appropriate procedure will result in the
termination or waiver of that shareholder's right to dissent. See "The
Merger -- HealthInfusion Shareholders' Right to Dissent."
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<PAGE> 39
COMMON STOCK MARKET PRICES AND PER SHARE DATA
Currently, each of Curaflex Common Stock, HealthInfusion Common Stock and
Medisys Common Stock is quoted on The Nasdaq National Market and T2 Common Stock
is listed and traded on the New York Stock Echange (the "NYSE"). Curaflex has
been quoted on The Nasdaq National Market under the symbol CFLX since its
initial public offering on March 19, 1992. HealthInfusion has been quoted on The
Nasdaq National Market under the symbol HINF since it became public on May 23,
1990. On April 25, 1991, Medisys completed a merger with a publicly held company
and, as a result, Medisys Common Stock began trading in the over-the-counter
market. From June 6, 1991, through December 10, 1991, bid and asked prices for
Medisys Common Stock were quoted on the National Association of Securities
Dealers Automated Quotation System under the symbol MEDS. Since December 11,
1991, Medisys Common Stock has traded on The Nasdaq National Market. T2 Common
Stock has been listed and traded on the NYSE under the symbol "TSQ" since August
14, 1992; prior to that time, T2 Common Stock was quoted on The Nasdaq National
Market.
The following table sets forth, for the calendar periods indicated, (1) the
high and low closing bid quotations for Medisys Common Stock prior to December
11, 1991 (as reported by Metro Data Company for periods prior to June 6, 1991
and the National Association of Securities Dealers, Inc. thereafter) and from
and after December 11, 1991, on The Nasdaq National Market, (2) the high and low
sales prices per share for Curaflex Common Stock and HealthInfusion Common
Stock, from and after December 11, 1991, Medisys Common Stock and, prior to
August 14, 1992, T2 Common Stock on The Nasdaq National Market and (3) the high
and low sales prices per share for T2 Common Stock prior to August 14, 1992 on
The Nasdaq National Market and from and after August 14, 1992, on the NYSE. All
price data for HealthInfusion Common Stock has been restated for the 50% stock
dividend (treated as a stock split) paid to HealthInfusion stockholders of
record on November 29, 1991. Medisys Common Stock quotations prior to December
11, 1991, represent bid prices between dealers, do not include retail mark-ups,
mark downs or commissions and do not necessarily represent actual transactions.
See "Price Range of Common Stock -- Market for T2 Common Stock and Related
Stockholder Matters," "-- Market for Curaflex Common Stock and Related
Stockholder Matters," "-- Market for HealthInfusion Common Stock and Related
Stockholder Matters" and "-- Market for Medisys Common Stock and Related
Stockholder Matters."
<TABLE>
<CAPTION>
1991 HIGH LOW
---- ------ ------
<S> <C> <C> <C>
Fourth Quarter: T2 $57.75 $29.50
HealthInfusion $27.00 $12.83
Medisys(1) $ 8.50 $ 6.13
<CAPTION>
1992
----
<S> <C> <C> <C>
First Quarter: T2 $67.25 $40.75
Curaflex(2) $14.75 $13.00
HealthInfusion $28.00 $17.50
Medisys $11.75 $ 7.50
Second Quarter: T2 $43.13 $19.88
Curaflex $14.50 $ 9.50
HealthInfusion $19.25 $10.00
Medisys $ 8.75 $ 6.25
Third Quarter: T2(3) $31.13 $18.25
Curaflex $11.50 $ 7.50
HealthInfusion $13.75 $ 8.75
Medisys $ 8.75 $ 6.00
Fourth Quarter: T2 $27.25 $18.88
Curaflex $ 8.50 $ 4.25
HealthInfusion $12.50 $ 7.50
Medisys $ 7.13 $ 4.75
</TABLE>
20
<PAGE> 40
<TABLE>
<CAPTION>
1993
----
<S> <C> <C> <C>
First Quarter: T2 $25.75 $15.13
Curaflex $ 9.50 $ 5.63
HealthInfusion $11.75 $ 7.25
Medisys $ 7.00 $ 4.13
Second Quarter: T2 $16.88 $10.00
Curaflex $ 6.75 $ 4.75
HealthInfusion $ 9.50 $ 6.38
Medisys $ 4.75 $ 3.13
Third Quarter: T2 $16.75 $ 5.50
Curaflex $ 7.00 $ 5.06
HealthInfusion $ 7.63 $ 5.50
Medisys $ 5.75 $ 3.63
Fourth Quarter: T2 $ 7.88 $ 6.00
Curaflex $ 7.00 $ 4.88
HealthInfusion $ 8.13 $ 5.75
Medisys $ 5.75 $ 3.00
</TABLE>
<TABLE>
<CAPTION>
1994
----
<S> <C> <C> <C>
First Quarter: T2 $10.88 $ 7.25
Curaflex $ 6.13 $ 3.88
HealthInfusion $ 7.38 $ 5.50
Medisys $ 4.06 $ 2.94
Second Quarter: T2 $11.63 $ 8.75
(to May 25, Curaflex $ 5.50 $ 4.25
1994) HealthInfusion $ 7.63 $ 5.86
Medisys $ 4.00 $ 2.88
</TABLE>
- ---------------
(1) Data for Medisys Common Stock for Fourth Quarter 1991 represent (a) the
greater of the high closing bid quotation prior to December 11, 1991, and
the high sales price per share from and after December 11, 1991, and (b) the
lesser of the low closing bid quotation prior to December 11, 1991, and the
low sales price per share from and after December 11, 1991.
(2) Data for Curaflex Common Stock for First Quarter 1992 includes trading data
from and after March 19, 1992, the date of Curaflex's initial public
offering at $13.00 per share, through March 31, 1992.
(3) Data for T2 Common Stock for calendar Third Quarter 1992 represents (a) the
greater of the high sales price per share on The Nasdaq National Market
prior to August 14, 1992 and on the NYSE thereafter and (b) the lesser of
the low sales price per share on The Nasdaq National Market prior to August
14, 1992 and on the NYSE thereafter.
The following table sets forth the closing price per share of T2 Common
Stock, Curaflex Common Stock, HealthInfusion Common Stock and Medisys Common
Stock as reported on The Nasdaq National Market or the NYSE, as applicable, on
February 4, 1994 (the date preceding public announcement of the proposed
Merger), and on May 25, 1994. Stockholders are encouraged to obtain current
quotations for the market prices of T2 Common Stock, Curaflex Common Stock,
HealthInfusion Common Stock and Medisys Common Stock before voting on this
Merger.
<TABLE>
<CAPTION>
HEALTH-
T2 CURAFLEX INFUSION MEDISYS
COMMON COMMON COMMON COMMON
DATE STOCK STOCK STOCK STOCK
---- ------ -------- -------- -------
<S> <C> <C> <C> <C>
February 4, 1994...................... $ 7.88 $ 5.69 $ 7.00 $3.56
May 25, 1994.......................... $11.125 $ 5.13 $ 7.25 $3.69
</TABLE>
The following table presents selected pro forma data per share of Coram
Common Stock, historical per common share data for T2, Curaflex, HealthInfusion
and Medisys, and equivalent pro forma data per share of each of T2, Curaflex,
HealthInfusion and Medisys Common Stock after giving effect to the Merger on a
pooling of interests accounting basis, assuming the Merger had been effective
during all the periods presented.
21
<PAGE> 41
The pro forma equivalent data are based on the respective pro forma amounts per
share of T2 Common Stock multiplied by 0.630, Curaflex Common Stock multiplied
by 0.333, HealthInfusion Common Stock multiplied by 0.447 and Medisys Common
Stock multiplied by 0.243, each representing the fraction of a share of Coram
Common Stock issuable in exchange for one share of T2, Curaflex, HealthInfusion
and Medisys Common Stock, respectively, in the Merger. This data should be read
in conjunction with the financial statements and other financial and pro forma
financial information with respect to Coram, T2, Curaflex, HealthInfusion and
Medisys included elsewhere in this Joint Proxy Statement/Prospectus. Neither
HealthInfusion nor Medisys has paid any cash dividends with respect to its
Common Stock. Curaflex has not paid any cash dividends with respect to Curaflex
Common Stock during the periods presented. However, Clinical Homecare Ltd., with
which Curaflex consummated a stock-for-stock merger in March, 1993, accounted
for as a pooling of interests, paid dividends of $.31, $.75 and $.13 per share
on its redeemable preferred stock in 1991, 1992 and 1993, respectively. In the
event the Merger is not consummated, Curaflex does not anticipate that any
dividends will be paid on Curaflex Common Stock in the foreseeable future. Prior
to September 1992, T2 did not pay dividends on a regular basis. Since then, T2
has paid regular quarterly dividends of $.025 per share, and T2 intends to
continue paying dividends in the event that the Merger is not consummated. T2's
continued payment of regular quarterly dividends if the Merger is not
consummated, will, however, depend upon the consideration of factors including,
but not limited to, the earnings and financial condition of T2, considered
relevant by T2's Board of Directors. Coram has no present intention to pay
dividends with respect to Coram Common Stock.
<TABLE>
<CAPTION>
T2 CURAFLEX HEALTHINFUSION MEDISYS
CORAM --------------------- --------------------- --------------------- ---------------------
------ EQUIVALENT EQUIVALENT EQUIVALENT EQUIVALENT
PRO PRO PRO PRO PRO
FORMA REPORTED FORMA REPORTED FORMA REPORTED FORMA REPORTED FORMA
------ -------- ---------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Book value per share of
common stock at March
31, 1994................ $11.29 $ 7.15 $ 7.11 $ 4.46 $ 3.76 $ 5.62 $ 5.05 $ 2.43 $ 2.74
Fully-diluted earnings
(loss) per share from
continuing operations
for the years ended
December 31, 1991, 1992
and 1993 and the three
months ended March 31,
1994(1)
1994................. .09 .08 .06 (.11) .03 .10 .04 .02 .02
1993................. .89 1.02 .56 (.60) .30 .12 .40 .05 .22
1992................. 1.82 1.60 1.14 (.08) .60 .65 .81 .15 .44
1991................. 1.38 1.16 .87 .22 .46 .51 .62 .16 .34
</TABLE>
- ---------------
(1) The information with respect to T2 is for the fiscal years ended September
30, 1993, 1992 and 1991.
LISTING OF CORAM COMMON STOCK AND DELISTING OF T2, CURAFLEX, HEALTHINFUSION AND
MEDISYS COMMON STOCK
Application has been made to list Coram Common Stock on the New York Stock
Exchange (the "NYSE") under the symbol "CRH."
Following consummation of the Merger, the Common Stock of Curaflex,
HealthInfusion and Medisys will be delisted from The Nasdaq National Market and
the T2 Common Stock will be delisted from the NYSE.
22
<PAGE> 42
UNAUDITED SUMMARY PRO FORMA SELECTED FINANCIAL DATA OF CORAM
The following unaudited summary pro forma financial data presents unaudited
summary pro forma selected operations data for the fiscal years ended December
31, 1991, 1992 and 1993, and the three months ended March 31, 1993 and 1994,
after giving effect to the Merger of T2, Curaflex, HealthInfusion and Medisys
into Coram as if the Merger were consummated on January 1, 1991, and unaudited
pro forma selected balance sheet data at March 31, 1994, giving effect to the
Merger as if the Merger were consummated on that date, using the
pooling-of-interests method of accounting. The unaudited summary pro forma
selected operations data for the year ended December 31, 1993 have been adjusted
to give effect to acquisitions which were completed during 1993 as if those
acquisitions had occurred on January 1, 1993.
The following unaudited pro forma condensed combined financial data are
provided for comparative purposes only and should be read in conjunction with
the condensed combined unaudited pro forma condensed combined financial
statements and notes thereto, the audited consolidated financial statements of
T2 and the related notes thereto incorporated by reference herein, the audited
consolidated financial statements of Curaflex and the related notes thereto
contained elsewhere herein, the audited consolidated financial statements of
HealthInfusion and the related notes thereto contained elsewhere herein and the
audited consolidated financial statements of Medisys and the related notes
thereto contained elsewhere herein. The following unaudited pro forma condensed
combined financial data do not purport to be indicative of the results that
actually would have occurred if the Merger and acquisitions had been consummated
on the dates indicated or which may be obtained in the future.
CORAM HEALTHCARE CORPORATION
UNAUDITED SUMMARY PRO FORMA SELECTED OPERATIONS DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ---------------------------
1991 1992 1993 1993 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenue...................................... $275,363,300 $399,482,000 $475,956,900 $113,415,600 $113,064,800
Cost of revenue.................................. 137,246,000 201,912,400 272,409,900 62,602,200 73,335,700
------------ ------------ ------------ ------------ ------------
Gross margin................................. 138,117,300 197,569,600 203,547,000 50,813,400 39,729,100
Selling, general and administrative expense...... 52,744,000 68,380,500 96,201,700 20,455,500 25,890,000
Provision for estimated uncollectable accounts
receivable..................................... 14,135,000 19,621,400 35,555,700 8,771,500 4,731,900
Merger expense................................... -- -- 2,868,100 2,310,000 --
Restructuring charge............................. -- 2,385,300 1,600,100 1,600,000 --
------------ ------------ ------------ ------------ ------------
Operating income (loss)...................... 71,238,300 107,182,400 67,321,400 17,676,400 9,107,200
Interest income.................................. 3,477,900 4,819,900 4,043,000 1,136,200 715,200
Interest expense................................. (4,131,300) (3,158,000) (4,578,700) (796,400) (1,167,500)
Other income..................................... 494,200 763,500 6,782,700 (206,400) 76,700
Minority interest in net income of consolidated
joint ventures................................. (913,600) (3,371,800) (8,748,300) (1,679,900) (2,406,500)
Equity in net income of unconsolidated joint
venture........................................ 1,325,200 2,734,200 1,364,900 137,800 274,900
------------ ------------ ------------ ------------ ------------
Income from continuing operations before
taxes and extraordinary items.............. 71,490,700 108,970,200 66,185,000 16,267,700 6,600,000
Provision for income taxes....................... 28,066,600 42,413,200 32,271,400 6,624,400 3,026,800
------------ ------------ ------------ ------------ ------------
Net income from continuing operations before
extraordinary items........................ $ 43,424,100 $ 66,557,000 $ 33,913,600 $ 9,643,300 $ 3,573,200
=========== =========== =========== =========== ===========
Primary income per common share from continuing
operations before extraordinary items.......... $ 1.39 $ 1.85 $ 0.89 $ 0.26 $ 0.09
=========== =========== =========== =========== ===========
Fully diluted income per common share from
continuing operations before extraordinary
items.......................................... $ 1.38 $ 1.82 $ 0.89 $ 0.26 $ 0.09
=========== =========== =========== =========== ===========
Weighted average common and common equivalent
shares outstanding used in primary per share
calculation.................................... 31,242,500 35,976,800 38,097,300 37,294,400 38,616,700
=========== =========== =========== =========== ===========
Weighted average common equivalent shares
outstanding used in fully diluted per share
calculation.................................... 31,609,600 36,880,500 38,273,700 37,935,200 38,687,200
=========== =========== =========== =========== ===========
</TABLE>
UNAUDITED SUMMARY PRO FORMA SELECTED BALANCE SHEET DATA
23
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1993 1994
------------ ------------
<S> <C> <C>
Total current assets................................................................. $188,882,500 $198,384,500
Working capital...................................................................... 103,944,400 95,829,200
Goodwill, net........................................................................ 294,118,300 294,635,500
Total assets......................................................................... 551,673,100 562,542,400
Total long-term debt, less current portion........................................... 32,724,700 16,096,000
Total stockholders' equity........................................................... 424,872,200 433,878,900
</TABLE>
23
<PAGE> 43
SUMMARY FINANCIAL DATA
The following tables set forth selected consolidated historical financial
data for T2, Curaflex, HealthInfusion and Medisys. The data have been derived in
part from, and should be read in conjunction with, the consolidated financial
statements and notes thereto and other financial information with respect to T2,
Curaflex, HealthInfusion and Medisys incorporated by reference into or set forth
elsewhere in this Joint Proxy Statement/Prospectus, and such data are qualified
in their entirety by reference thereto. In the case of T2, the income statement
data for each of the five years in the period ended September 30, 1993 and the
balance sheet data at September 30, 1992 and 1993 are derived from the
consolidated financial statements of T2 which have been audited by Deloitte &
Touche, independent auditors, and are incorporated by reference in this Joint
Proxy Statement/Prospectus and all adjustments (comprising only normal recurring
accruals) that management believes necessary for a fair presentation of the data
for the six-month periods ended March 31, 1993 and 1994 have been included. T2's
data for such six-month periods are unaudited, and are not necessarily
indicative of the results to be expected for the entire year.
T2 SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------------------------------------------------- --------------------------
1989 1990 1991 1992 1993 1993 1994
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1)
Revenues:
Home infusion therapy...... $ 53,739,100 $ 85,665,017 $146,463,372 $200,350,400 $182,907,508 $100,281,154 $73,010,728
IntraCare.................. -- 5,228,497 17,631,273 37,896,665 45,430,079 22,021,567 21,056,525
Lithotripsy................ -- -- 900,150 6,208,463 35,429,827 12,283,779 23,764,529
Other...................... 2,958,647 2,745,684 7,415,868 6,488,223 9,431,667 4,856,806 4,041,082
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total revenues....... 56,697,747 93,639,198 172,410,663 250,943,751 273,199,081 139,443,306 121,872,869
Costs and expenses:
Costs of revenues.......... 29,352,135 50,143,506 85,400,369 120,722,394 147,550,081 68,839,826 75,136,471
Selling, general and
administrative........... 6,350,574 9,092,800 15,380,367 19,905,682 29,896,015 13,545,407 15,869,702
Provision for doubtful
accounts................. 2,696,808 4,732,131 9,742,377 12,139,284 23,273,759 14,999,547 4,762,190
Amortization of
intangibles.............. 1,091,060 1,841,598 2,511,845 3,276,102 4,518,614 2,061,110 2,497,824
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total costs and
expenses........... 39,490,577 65,810,035 113,034,958 156,043,462 205,238,469 99,445,890 98,266,187
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income from
operations......... 17,207,170 27,829,163 59,375,705 94,900,289 67,960,612 39,997,416 23,606,682
Other income (expense) --
net...................... (1,442,928) 555,139 1,600,439 4,718,193 8,683,918 1,502,487 1,660,763
------------ ------------ ------------ ------------ ------------ ------------ ------------
Income before
provision for
income taxes and
minority
interest........... 15,764,242 28,384,302 60,976,144 99,618,482 76,644,530 41,499,903 25,267,445
Provision for income
taxes.................... 4,883,547 9,131,475 18,629,791 32,313,721 27,519,489 14,105,935 8,867,073
Minority interest in income
of subsidiaries.......... -- -- 595,371 2,346,040 7,657,477 3,022,638 4,998,584
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net income........... $ 10,880,695 $ 19,252,827 $ 41,750,982 $ 64,958,721 $ 41,467,564 $ 24,371,330 $11,401,788
============ ============ ============ ============ ============ ============ ============
Net income per common and
common equivalent
share.................... $ .48 $ .66 $ 1.16 $ 1.60 $ 1.02 $ .60 $ .28
============ ============ ============ ============ ============ ============ ============
Weighted average common and
common equivalent shares
outstanding.............. 22,584,358 29,016,979 36,109,915 40,659,803 40,675,003 40,582,233 40,955,308
============ ============ ============ ============ ============ ============ ============
Cash dividends per common
share.................... $ -- $ -- $ -- $ .025 $ .10 $ .050 $ .050
============ ============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------------------------------------- MARCH 31,
1989 1990 1991 1992 1993 1994
------------ ------------ ------------ ------------ ------------ --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1)
Total assets................. $ 79,204,619 $156,043,471 $212,327,977 $283,516,698 $328,947,054 $323,135,371
Long-term debt, obligations
under capital leases and
other long-term
liability.................. 23,308,972 11,383,962 7,418,005 5,731,581 4,530,416 3,403,728
Total stockholders' equity... 44,845,791 131,830,511 168,911,639 246,292,099 281,460,876 294,201,043
</TABLE>
- ---------------
(1) Restated to reflect pooling of interests combinations. See Note 14 to the
Notes to Consolidated Financial Statements of T2 Medical, Inc. incorporated
herein by reference.
24
<PAGE> 44
CURAFLEX CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- ---------------------
1989 1990 1991 1992 1993 1993 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:(1)
Net revenue............................. $ 11,491 $ 33,221 $ 60,081 $ 75,127 $ 89,152 $ 20,595 $ 24,974
Gross margin............................ 3,047 16,176 31,752 38,025 36,111 9,447 9,195
Operating income (loss)................. (9,208) (3,852) 2,767 (738) (7,654) (2,692) (1,130)
Income (loss) from continuing
operations............................ (10,469) (5,030) 1,492 (875) (8,439) (1,903) (1,591)
Discontinued operations income (loss)... (5,194) 256 -- -- -- -- --
Extraordinary items..................... 25 707 457 -- -- -- --
Cumulative effect of accounting
change................................ -- -- -- -- (176) (176) --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)....................... $ (15,638) $ (4,067) $ 1,949 $ (875) $ (8,615) $ (2,079) $ (1,591)
======== ======== ======== ======== ======== ======== ========
Net income (loss) per common share from
continuing operations................. $ (2.81) $ (1.17) $ 0.17 $ (0.08) $ (0.59) $ (0.15) $ (0.11)
======== ======== ======== ======== ======== ======== ========
Net income (loss) per common share...... $ (4.20) $ (0.95) $ 0.22 $ (0.08) $ (0.60) $ (0.16) $ (0.11)
======== ======== ======== ======== ======== ======== ========
Weighted average number of common and
common equivalent shares
outstanding........................... 3,724 4,292 9,010 10,799 14,258 12,600 14,986
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------- MARCH 31,
1989 1990 1991 1992 1993 1994
--------- --------- --------- --------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(1)
Cash and cash equivalents................. $ 1,546 $ 2,502 $ 3,369 $ 1,528 $ 3,888 $ 2,856
Working capital (deficit)................. (5,438) 7,587 13,662 38,047 18,119 (351)
Total assets.............................. 14,895 22,671 37,266 83,837 110,217 111,478
Long-term obligations, less current
portion, plus minority interest......... 7,466 1,133 1,096 9,347 21,651 5,473
Redeemable preferred stock................ 13,910 17,112 20,009 -- -- --
Total common stockholders' equity
(deficit)............................... (22,349) (6,163) (532) 62,438 68,422 66,911
</TABLE>
- ---------------
(1) In March 1993, Curaflex consummated a merger with Clinical Homecare Ltd.
("CHL"), which merger was accounted for as a pooling-of-interests.
Accordingly, Curaflex's historical consolidated financial information has
been restated to include the accounts and results of operations of CHL. In
addition, the consolidated financial information includes results of
operations from acquisitions made by Curaflex during the periods presented
from the accounting effective date of each acquisition. See Note 2 to
Curaflex's Consolidated Financial Statements appearing elsewhere in this
Joint Proxy Statement/Prospectus. In 1993, Curaflex adopted the provisions
of Statement of Financial Accounting Standards No. 109. As a result, the
period ended December 31, 1993, reflects the cumulative effect of this
accounting change.
25
<PAGE> 45
HEALTHINFUSION SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------- -------------------
1989 1990 1991 1992 1993 1993 1994
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues...................... $ 5,807 $10,500 $29,248 $49,749 $56,682 $12,979 $16,374
Cost of revenues.............. 2,320 4,783 16,240 29,323 36,666 8,303 10,961
------- ------- ------- ------- ------- ------- -------
Operating profit.............. 3,487 5,717 13,008 20,426 20,016 4,676 5,413
------- ------- ------- ------- ------- ------- -------
Expenses
Selling, general and
administrative............ 493 1,854 4,883 6,806 9,613 1,689 2,674
Provision for bad debts..... 238 276 549 1,206 5,659 398 505
Related party management
fees...................... 96 40 -- -- -- -- --
Amortization of excess of
cost over fair value of
net assets acquired....... -- -- 296 758 1,052 234 301
------- ------- ------- ------- ------- ------- -------
Total expenses....... 827 2,170 5,728 8,770 16,324 2,321 3,480
------- ------- ------- ------- ------- ------- -------
Income from operations........ 2,660 3,547 7,280 11,656 3,692 2,355 1,933
------- ------- ------- ------- ------- ------- -------
Other income (expense):
Interest income............. 23 248 338 88 15 5 18
Interest expense............ (18) (87) (609) (858) (1,046) (241) (361)
Other income (expense),
net....................... -- -- -- -- -- -- (20)
Business combination cost... -- (75) -- (9) -- -- --
------- ------- ------- ------- ------- ------- -------
Total other income
(expense).......... 5 86 (271) (779) (1,031) (236) (363)
------- ------- ------- ------- ------- ------- -------
Income before income taxes and
minority interest........... 2,665 3,633 7,009 10,877 2,661 2,119 1,570
Provision for income taxes or
pro forma adjustment to
reflect income taxes(1)..... 1,016 1,356 2,696 4,287 1,387 861 764
------- ------- ------- ------- ------- ------- -------
Income before minority
interest.................... 1,649 2,277 4,313 6,590 1,274 1,258 806
Minority interest............. 8 (103) (72) (268) (154) (11) 156
------- ------- ------- ------- ------- ------- -------
Net income.................... $ 1,657 $ 2,174 $ 4,241 $ 6,322 $ 1,120 $ 1,247 $ 962
======= ======= ======= ======= ======= ======= =======
Net income per common share:
Primary..................... $ .33 $ .38 $ .54 $ .67 $ .12 $ .13 $ .10
======= ======= ======= ======= ======= ======= =======
Fully diluted............... $ .33 $ .38 $ .51 $ .65 $ .12 $ .13 $ .10
======= ======= ======= ======= ======= ======= =======
Weighted average common shares
outstanding:
Primary..................... 5,073 5,774 7,884 9,423 9,719 9,693 10,036
Fully diluted............... 5,073 5,774 8,666 10,380 9,719 10,650 10,036
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------- MARCH 31,
1989 1990 1991 1992 1993 1994
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets......................... $ 2,104 $ 9,376 $21,093 $26,165 $30,473 $34,319
Total assets........................... 2,582 10,943 41,477 65,813 81,331 85,819
Current liabilities.................... 2,554 2,066 3,179 10,197 17,016 20,375
Long-term debt, net of current
portion.............................. 56 459 7,112 7,022 8,505 8,806
Total stockholders' equity (deficit)... (120) 8,204 30,755 48,004 54,817 55,864
</TABLE>
- ---------------
(1) HealthInfusion acquired Intracare, Inc. in May 1990. Prior to such
acquisition, Intracare, Inc. was an S Corporation for income tax reporting
purposes. Accordingly, taxable income was taxed directly to its
shareholders. A pro forma adjustment to reflect income taxes at an estimated
rate of 38% has been provided for periods presented prior to such
acquisition.
See "Business of HealthInfusion -- Background and Recent Developments" and
the accompanying HealthInfusion financial statements for a discussion of
business combinations.
26
<PAGE> 46
MEDISYS SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- --------------------
1989 1990 1991 1992 1993 1993 1994
------ ------ ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA(1)
Net revenues............................. $4,592 $7,483 $13,624 $23,662 $51,381 $ 12,170 $ 13,508
Income from operations................... 1,041 1,217 1,817 1,364 3,075 997 695
Net income............................... 942 954 1,282 1,551 652 788 277
Net income per share:
Primary................................ $ .14 $ .13 $ .16 $ .15 $ .05 $ .06 $ .02
Fully diluted.......................... $ .14 $ .13 $ .16 $ .15 $ .05 $ .06 $ .02
Weighted average number of shares
outstanding:
Primary................................ 6,556 7,205 8,102 10,506 12,403 12,231 12,487
Fully diluted.......................... 6,556 7,205 8,174 10,575 13,129 13,108 12,777
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------------------------- ------------------
1989 1990 1991 1992 1993 1994
------ ------ ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1)
Accounts receivable net.................. $1,843 $3,314 $ 6,469 $11,055 $14,537 $ 14,786
Working capital.......................... 580 2,794 14,090 6,955 4,487 8,207
Total assets............................. 2,707 5,638 17,492 37,786 41,651 42,111
Total short and long-term debt........... 893 1,266 488 8,907 9,562 6,258
Stockholders' equity..................... 1,025 3,439 14,724 24,727 26,941 30,903
</TABLE>
- ---------------
(1) The consolidated financial information includes results of operations from
acquisitions made by Medisys during the periods presented from the
accounting effective date of each such acquisition. See Note 2 to Medisys'
Consolidated Financial Statements appearing elsewhere in this Joint Proxy
Statement/ Prospectus.
27
<PAGE> 47
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Joint Proxy Statement/Prospectus, should be carefully considered in evaluating
the Merger and the receipt by Curaflex, HealthInfusion, Medisys and T2
stockholders of Coram Common Stock thereunder.
POTENTIAL ADVERSE EFFECT OF CERTAIN T2 PROCEEDINGS AND LITIGATION
Grand Jury Subpoena. In 1992, T2 received a request for documents from a
grand jury sitting in Atlanta, Georgia, at the request of the U.S. Department of
Health and Human Services, the focus of which appears to be the potential
application of the Medicare Fraud and Abuse Law as it relates to physician
ownership. T2 has complied with the request and believes that the documents
submitted will confirm that it has conducted its business affairs in a proper
and lawful manner, consistent with all applicable laws, regulations and
professional codes of conduct. Management believes that the ultimate resolution
of the above matters will not have a material adverse effect on T2's financial
position and results of operations.
T2 Stockholder Litigation. Further, T2 and certain of its officers and
former officers are defendants in civil suits filed in 1992 on behalf of
individuals claiming to have purchased T2 Common Stock during the time period
from December 2, 1991 through June 24, 1992. The suits were consolidated into
one suit. The complaint seeks certification of a plaintiff's class and damages
in an unspecified amount. The complaint alleges, among other things, that the
Company and the named individuals violated various provisions of the Securities
and Exchange Act of 1934 and violated certain other laws by failing to make
complete and accurate statements about T2's business. On November 16, 1993, the
proceeding was certified as a class action ("In Re T2 Shareholder Litigation").
In 1993, T2 conducted an inquiry which resulted in the restatement of T2's
interim financial statements for the periods ended December 31, 1992 and March
31, 1993. Subsequently, T2 and certain of its officers and directors and former
officers and a former director were named as defendants in sixteen civil suits
filed in the United States District Court for the Northern District of Georgia
on behalf of individuals claiming to have purchased or sold T2 Common Stock
during various time periods in 1991, 1992 and 1993. The complaints, which were
generally similar, alleged in part that T2 made misleading public statements
concerning T2's business, results of operations, future prospects, revenues and
reimbursements from its payor sources. In September 1993, many of the complaints
were dismissed and a new class action complaint was filed.
On January 14, 1994, the court in In Re T2 Shareholder Litigation granted
the plaintiffs' motion to amend their complaint to allege violations of the
Securities Exchange Act of 1934 on behalf of a putative class consisting of
purchasers of T2 Common Stock for the period December 2, 1991, through August
12, 1993. Although the amended complaint has been filed, the court has not yet
ruled on the plaintiffs' motion to expand the previously certified class. Four
other putative class action complaints are pending in the Northern District of
Georgia. In three of these cases, the plaintiffs have consented to consolidation
with the In Re T2 Shareholder Litigation. T2 anticipates that the fourth case
will be consolidated with the In Re T2 Shareholder Litigation as well.
The ultimate outcome of the litigation described in the preceding
paragraphs cannot presently be determined, and no provision for any loss that
may result upon resolution of the suits has been made in the Consolidated
Financial Statements contained elsewhere in this Joint Proxy
Statement/Prospectus. However, based on discussions subsequent to May 13, 1994,
regarding the possible settlement of such litigation, T2 intends to record a
provision of $15,000,000 in its financial statements for the quarter ending June
30, 1994, with respect to its potential net losses in connection with the
resolution of such litigation. There can be no assurance, however, that such
litigation will be settled or that any settlement will be on terms currently
under discussion. If the foregoing claims continue to be pressed, the resulting
distraction of T2 management, the costs of defending these claims and the
payment of any settlement or damage award could have a material adverse effect
on T2's operations and financial condition, and upon the operations and
financial condition of Coram as the parent of T2 upon consummation of the
Merger.
SEC Inquiry. Subsequent to June 30, 1993, the Audit Committee of T2's
Board of Directors discovered, during the course of an inquiry, that certain
accounting irregularities and errors had occurred during the nine-
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month period ended June 30, 1993. As a result, T2 restated its consolidated
financial statements for each of the three-month periods ended December 31, 1992
and March 31, 1993 and for the six-month period ended March 31, 1993. The
restatements included (1) a reduction in home infusion therapy and Intracare
revenue, (2) an increase in the provision for doubtful accounts, (3) an increase
in the selling, general and administrative expenses, (4) a reduction in other
income related to the gain on sale of certain equipment and other assets used to
provide respiratory services and (5) adjustments to the provision for income
taxes.
The SEC is conducting a formal inquiry into the events that led to the
restatement of T2's financial statements for the periods ended December 31, 1992
and March 31, 1993, and certain other matters. The SEC has subpoenaed certain
information relating to such formal inquiry, and T2 is responding to the
subpoena. The SEC can seek certain civil remedies against T2 by way of an
enforcement action.
In connection with both the stockholder litigation and the SEC inquiry
discussed above, T2 has determined to pay the reasonable attorneys' fees and
expenses of certain present and former directors and officers in advance of the
final disposition of the litigation and inquiry, subject to each such
individual's agreement and undertaking to repay his or her share of the
attorneys' fees and expenses paid by T2 if it ultimately is determined that such
individual is not entitled to be indemnified by T2 pursuant to applicable law.
CASH FLOW PRESSURES AND POSSIBLE NEED FOR EXTERNAL FINANCING
The constituent companies each require substantial working capital to fund
accounts receivable. Like other healthcare providers, the companies rely on
third party payors for payment of a substantial portion of their billings and
must finance receivable balances between the time of billing and collection.
Curaflex's net accounts receivable balances grew $1.4 million from $29.6 million
as of December 31, 1993 to $31.0 million as of March 31, 1994. HealthInfusion's
net accounts receivable balances grew $4.4 million from $24.0 million as of
December 31, 1993 to $28.4 million as of March 31, 1994. Medisys' net accounts
receivable balances grew $300,000 from $14.5 million as of December 31, 1993 to
$14.8 million as of March 31, 1994. However, T2's net accounts receivable
balances decreased $1.7 million from $27.0 million as of September 30, 1993 to
$25.3 million as of March 31, 1994. Curaflex's operating activities to date have
not generated positive cash flow because of the increase in such receivable
balances, while Medisys first generated positive cash flow from operations of
$400,000 for the year ended December 31, 1992. For the three months ended March
31, 1994, Curaflex's operating activities had a negative cash flow of $2.8
million, HealthInfusion's operating activities had a negative cash flow of $3.0
million, Medisys' operating activities had a negative cash flow of $88,000 and,
for its fiscal year ended September 30, 1993 and the six-month period ended
March 31, 1994, T2's operating activities had positive cash flows of $53.6
million and $12.2 million, respectively. However, T2 may need to seek additional
sources of capital in connection with the resolution of its material pending
litigation, in the event it is required to acquire the minority interests in its
lithotripsy ventures or in connection with its acquisition of certain infusion
therapy companies it presently manages.
There can be no assurance that the operating activities of the combined
companies will generate a positive cash flow in any future periods. In the event
that Coram generates a negative cash flow, Coram may need external financing to
meet the working capital requirements of the combined companies. There can be no
assurance that such financing will be available when needed or, if available,
that it will be available on terms acceptable to Coram. Coram has no commitment
for financing subsequent to the Merger, and obtaining any such financing
commitment is not a condition to the Merger. See "Curaflex Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "HealthInfusion Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Medisys Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RECENT DECLINE IN FINANCIAL PERFORMANCE OF T2, CURAFLEX, HEALTHINFUSION AND
MEDISYS
During 1993, the home infusion industry experienced severe reductions in
the pricing of its products and services. This occurred primarily due to the
government's proposals to reform the health care delivery system in the United
States, and the efforts of third party payors to monitor and reduce the cost of
services provided
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by companies such as T2, Curaflex, HealthInfusion and Medisys. As indicated
below these trends have adversely affected the companies' recent financial
performance.
Revenues attributable to T2's home infusion therapy declined from $200.4
million in fiscal 1992 to $182.9 million in fiscal 1993. In addition, net income
declined from $65.0 million in fiscal 1992 to $41.5 million in fiscal 1993.
Total revenues declined from $139.4 million for the six-month period ended March
31, 1993 to $121.2 million for the six-month period ended March 31, 1994. In
addition, net income declined from $24.4 million for the six-month period ended
March 31, 1993 to $11.4 million for the six-month period ended March 31, 1994.
Curaflex. Curaflex's net loss increased from $(900,000) in fiscal 1992 to
$(8.6) million in fiscal 1993. Curaflex's net loss decreased from $(2.1) million
for the three months ended March 31, 1993 to $(1.6) million for the three months
ended March 31, 1994.
HealthInfusion. HealthInfusion's net income declined from $6.3 million in
fiscal 1992 to $1.1 million in fiscal 1993. HealthInfusion's net income declined
from $1.2 million for the three months ended March 31, 1993 to $1.0 million for
the three months ended March 31, 1994.
Medisys. Medisys' net income declined from $1.6 million in fiscal 1992 to
$.7 million in fiscal 1993. Medisys' net income declined from $800,000 for the
three months ended March 31, 1993 to $300,000 for the three months ended March
31, 1994.
No assurance can be given that any of T2, Curaflex, HealthInfusion, Medisys
or Coram will achieve net income in future periods or that T2's, Curaflex's,
HealthInfusion's, Medisys' or Coram's operations will generate positive cash
flow in the future.
RISKS OF LIMITED HISTORY OF OPERATIONS AND HISTORY OF LOSSES
Although Curaflex previously offered home infusion therapy services on a
limited basis, it did not commence full-scale home infusion therapy operations
until 1989. HealthInfusion's predecessor, Intracare, Inc., a Florida
corporation, was not organized until 1988, while Medisys started business in
1987. Given the limited operating histories of the companies, Curaflex,
HealthInfusion and Medisys and, concomitantly, Coram, are subject to the
uncertainties and risks associated with any new and expanding business. In
addition, Curaflex had net losses for fiscal years 1989, 1990, 1992 and 1993.
While Curaflex achieved net income in its year ended 1991, and HealthInfusion,
Medisys and T2 each achieved net income for each year in which they have
existed, there can be no assurances that Coram will become or remain profitable
in the future. See "Curaflex Management's Discussion and Analysis of Financial
Condition and Results of Operations," "HealthInfusion Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Medisys
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
POSSIBLE LIMITATIONS ON AND DELAYS IN REIMBURSEMENT BY THIRD PARTY PAYORS
Most of T2's, Curaflex's, HealthInfusion's and Medisys' revenues are
attributable to payments received from third party payors such as private
insurance companies, health maintenance organizations and government payors
under the Medicare and Medicaid programs. Any significant reduction in third
party reimbursement for the combined companies' home infusion therapies could
have a material adverse effect on Coram after the Merger. In addition to the
foregoing, managed care providers, which are a growing segment of private
payors, are placing downward pressure on the prices the companies can obtain for
their services. The interrelated lowering of reimbursement rates, increasing
medical review of bills for services and negotiating for reduced contract rates
could have a material adverse effect on the results of operations and liquidity
of Coram after the Merger. Furthermore, the combination of the constituent
companies' businesses and their respective agreements with third party payors
may have a negative impact on reimbursement rates if payors attempt to negotiate
lower reimbursement rates based upon the rates they previously had with the
other constituent companies. See "Business of Curaflex -- Reimbursement for
Services," "Business of HealthInfusion -- Reimbursement for Services," "Business
of Medisys -- Reimbursement for Services."
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RISK OF ADVERSE GOVERNMENTAL REGULATION
Each of T2's, Curaflex's, HealthInfusion's and Medisys' business is subject
to substantial governmental regulation including state laws governing the
dispensing, distribution and compounding of prescription products; state laws
regulating pharmacies and the provision of home health services; federal laws
regulating the repackaging and dispensing of drugs; federal and state laws
prohibiting the payment of remuneration for patient referrals; and federal and
state laws relating to the handling and disposal of medical waste as well as
occupational safety and health standards. Failure to comply with these laws
could adversely affect the combined companies' ability to continue to provide,
or receive reimbursement for, its therapies and services and could also subject
Coram, T2, Curaflex, HealthInfusion, Medisys and their respective officers to
penalties. Changes in these laws and the interpretation of existing laws could
have a material effect on permissible activities of Coram after the Merger, the
relative costs associated with doing business and the amount of reimbursement by
government and other third party payors.
In addition to the foregoing, there can be no assurance that federal, state
or local governments will not impose additional restrictions upon all or a
portion of the combined companies' activities which could have a material
adverse effect on Coram after the Merger. See "Business of
Curaflex -- Government Regulation," "Business of HealthInfusion -- Regulation"
and "Business of Medisys -- Accreditation and Government Regulation."
RISK OF PRICE AND MARKET CONTROLS IN PROPOSED HEALTH CARE REFORM LEGISLATION
The Clinton Administration's proposed health care plan, The American Health
Security Act of 1993 (the "Health Act"), could have a material adverse impact on
the combined companies. However, there are presently divergent views among the
members of Congress which could result in changes to the provisions of the
Health Act as proposed by the Clinton Administration, or the enactment of
significantly different proposals. The Health Act, as currently proposed,
creates a system of regional and corporate alliances that organize the buying
power of consumers and employers in order to stimulate market forces so that
health plans and providers compete on the basis of quality, service and price.
In addition, employers are required to provide health care insurance to all
employees; the government provides health care insurance to the unemployed and
uninsured by providing various subsidies and incentives to the alliances.
The Health Act creates an independent National Health Board responsible for
setting national standards for a comprehensive benefit package required to be
offered by employers to employees and overseeing the establishment and
administration of the health system by states. The Health Act authorizes the
National Health Board to issue regulations concerning implementation of a
national budget for health care spending; these budgetary controls would in
effect be price controls. These could limit Coram's ability to increase its
prices and market its products after the Merger. There can be no assurance that
the Health Act or other health care reform proposals and legislation will not
have a material adverse effect on the business of the combined companies.
RISK OF IMPACT OF PHYSICIAN "SELF-REFERRAL" LEGISLATION
In the past several years, numerous legislative proposals have been offered
at the state level that would expressly prohibit physicians from having any
financial interests in a health care provider to which they refer patients.
Within the past two years, 24 states have enacted physician "self-referral"
legislation that in some way regulates ownership interests in or compensation
arrangements between physicians and health care service providers. In addition,
numerous new proposals are currently pending. These laws vary from measures that
require physicians to disclose their financial interests in the service
providers to which they refer patients to outright prohibitions of all financial
relationships between physicians and the service providers to which they refer
their patients and, in most cases, without regard to whether payment for the
services is from a government or private program.
The so-called "fraud and abuse" provisions of the Medicare statute prohibit
the knowing and intentional payment or receipt of any kickback or other form of
remuneration specifically in return for the referral of patients to a health
care provider for services reimbursable by Medicare. Violations can result in
criminal or
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civil penalties, as well as exclusion from the Medicare program. The laws of
several states similarly prohibit such payments or receipt with respect to
health care services in general. The Inspector General of the United States
Department of Health and Human Services ("HHS") has taken the position that any
benefit derived from a physician's financial interest in a health care provider
to which the physician refers patients may in some circumstances constitute such
prohibited payment and receipt.
The Omnibus Budget Reconciliation Act of 1993 (the "Omnibus Act") was
enacted on August 10, 1993, and includes provisions that prohibit physicians,
beginning on January 1, 1995, from referring their patients who receive benefits
under the Medicare or Medicaid programs to entities in which they have financial
relationships for certain designated health services and prohibits the entity
from submitting a claim for payment with respect to such services. The Omnibus
Act is worded broadly and contains numerous exceptions and technical terms that
are not fully defined and empowers the Secretary of the Department of Health and
Human Services to adopt regulations interpreting and implementing the Omnibus
Act.
Furthermore, additional bills were introduced during the last session of
Congress that, if enacted, would have extended application of the Omnibus Act
beyond services covered by Medicare or Medicaid. The constituent companies
cannot predict whether any such bill will be introduced in subsequent
Congressional sessions and enacted into law or whether, if enacted, such law
will apply to businesses in which they operate or will contain an exemption
applicable to their operations. Enactment of such legislation (or similar state
legislation) applicable to the operations of any of the constituent companies
could have a material adverse effect on such company.
In December 1992, the Council on Ethics of the American Medical Association
adopted guidelines concerning physician ownership of medical facilities. The
guidelines state that, in general, physicians should not refer patients to a
health care facility in which they have an investment interest unless they
provide services at the facility and alternative financing is unavailable. See
"Risk of Adverse Governmental Regulation" and "Risk of Impact of Proposed
Healthcare Reform Legislation," above. See also "Business of
Curaflex -- Government Regulation," "Business of HealthInfusion -- Regulation"
and "Business of Medisys -- Accreditation and Government Regulation."
UNCERTAINTIES ASSOCIATED WITH CONSOLIDATION, EXPANSION AND MANAGEMENT OF GROWTH
Coram plans to consolidate the constituent companies' existing regional
centers, local centers and satellite facilities, based on a case-by-case review
of the existing facilities, and thereafter to expand by growing its business at
each location and by opening new regional centers, local centers and satellite
facilities and disease-specific outpatient centers. Coram may incur significant
costs and expenses in consolidating the operations of the constituent companies
upon consummation of the Merger, which costs and expenses could have a material
adverse effect on the results of operations of the combined companies. Coram's
ability to expand its operations after the Merger will depend on a number of
factors, including the availability of desirable locations for additional
facilities, the ability of Coram to recruit and retain skilled management and
licensed clinical professionals to market its services to referral sources and
payors, and the ability of Coram to finance such expansion. In addition, each of
T2, Curaflex, HealthInfusion and Medisys has acquired, and Coram expects to
continue to acquire, other existing providers of home infusion therapy or
related services. T2's, Curaflex's, HealthInfusion's and Medisys' growth,
including several recent acquisitions, has placed and will continue to place
significant demands on their respective financial and management resources,
including cash requirements to fund the purchase price for such acquisitions and
costs incurred to integrate the acquired operations into existing operations.
There can be no assurance that Coram will be able to implement or sustain its
growth strategy or that such strategy will ultimately prove profitable to Coram.
See "T2 Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Curaflex Management's Discussion and Analysis of Financial
Condition and Results of Operations," "HealthInfusion Management's Discussion
and Analysis of Financial Condition and Results of Operations," and "Medisys
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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LARGE PERCENTAGE OF ASSETS COMPRISED OF GOODWILL
Although each of T2, Curaflex, HealthInfusion and Medisys have substantial
assets reflected on its balance sheets, a large percentage of those assets are
intangible assets or goodwill (as opposed to current assets, such as cash,
accounts receivable and inventory, and equipment). At March 31, 1994, (1) T2's
total assets were approximately $323.1 million, of which approximately $179.1
million was goodwill, or 55.4% of total assets, (2) Curaflex's total assets were
approximately $111.5 million, of which approximately $50.4 million was goodwill,
or 45.2% of total assets, (3) HealthInfusion's total assets were approximately
$85.8 million, of which approximately $44.2 million was goodwill, or 51.5% of
total assets, and (4) Medisys' total assets were approximately $42.1 million, of
which approximately $20.9 million was goodwill, or 49.6% of total assets. These
large percentages of intangible assets may have a tendency to depress the price
of each of T2, Curaflex, HealthInfusion and Medisys Common Stock and, upon
consummation of the Merger, the price of Coram Common Stock. In addition, any
future write down of such goodwill by Coram or any of the consituent companies
may have a material adverse effect on the combined companies' financial
position. See the Consolidated Financial Statements for T2 incorporated by
reference into this Joint Proxy Statement/Prospectus and for each of Curaflex,
HealthInfusion and Medisys appearing elsewhere in this Joint Proxy
Statement/Prospectus.
POSSIBLE LOSS OF OR INABILITY TO ATTRACT KEY PERSONNEL
The success of the combined companies will depend largely on the ability to
attract and retain highly qualified managerial and clinical personnel. In
particular, the combined companies will be highly dependent on, among others,
James M. Sweeney, Coram's Chairman of the Board and Chief Executive Officer, and
Charles A. Laverty, the current President and Chief Executive Officer of
Curaflex, and Miles E. Gilman, the current President and Chief Executive Officer
of HealthInfusion, each of whom will become an executive officer of Coram as of
the Effective Time. Furthermore, the success of Coram's centers after the Merger
will continue to depend on the ability of the combined companies to attract and
retain competent managers for each location. There can be no assurance that
Coram will be successful in attracting or retaining key personnel. The loss of
services of key personnel could have a material adverse effect on the combined
companies after the Merger. See "The Merger -- Interests of Certain Persons in
the Merger" and "Operation, Management and Business of Coram After the
Merger -- Management of Coram."
EFFECT OF SIGNIFICANT MARKET COMPETITION
The home infusion therapy market is highly competitive. While most
companies and hospitals offering home infusion therapy services operate in one
locality or metropolitan area, a number of companies offer such services on a
regional or nationwide basis and are larger and have significantly greater
resources than T2, Curaflex, HealthInfusion or Medisys on an individual basis.
In addition, other companies and hospitals, as well as health maintenance
organizations and other healthcare organizations, may enter the home infusion
therapy market. Existing and future competitors also may expand the variety of
therapies that they offer. With respect to T2's lithotripsy operations, the
lithotripsy industry is highly competitive, particularly in geographic regions
in which a high incidence of kidney stones exists. While T2 management believes
that most hospitals and organizations offering lithotripsy or other kidney stone
treatments are operated in one locality, metropolitan area or state, T2 is aware
of several companies that offer lithotripsy services on a regional or
multi-regional basis. Furthermore, while the existence of statutes in certain
states that require a hospital, ambulatory surgery center or lithotripsy company
to obtain a certificate of need may inhibit competition, the flexibility offered
by mobile lithotripsy technology will increase competition in the lithotripsy
industry. Consequently, T2, Curaflex, HealthInfusion and Medisys each experience
strong competition in marketing their services and expect such competition to
intensify. See "Business of Curaflex -- Competition," "Business of
HealthInfusion -- Competition" and "Business of Medisys -- Competition."
POTENTIAL PROFESSIONAL LIABILITY
T2's, Curaflex's, HealthInfusion's and Medisys' services involve an
inherent risk of professional liability and, with respect to such services, none
of the companies has had any material claims for professional liability asserted
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against it and no assurance can be given that such claims will not be asserted
against Coram after the Merger. While each company maintains insurance in line
with industry practice, there can be no assurance that the amount of insurance
currently maintained by each of T2, Curaflex, HealthInfusion and Medisys will
satisfy all claims made against it or that Coram will be able to obtain
insurance in the future at satisfactory rates or in adequate amounts. Coram
cannot predict the effect that any such claims, regardless of their ultimate
outcome, might have on its business or reputation or on its ability to attract
and retain patients. See "Business of Curaflex -- Insurance," "Business of
HealthInfusion -- Legal Proceedings" and "Business of Medisys -- Insurance."
DILUTION OF VOTING POWER; POTENTIAL ADVERSE IMPACT OF FUTURE SALE OF CORAM
SHARES
Upon consummation of the Merger, based upon the number of outstanding
shares of T2 Common Stock, Curaflex Common Stock, HealthInfusion Common Stock
and Medisys Common Stock as of April 30, 1994, assuming the exercise of all
options, warrants or other rights to purchase T2 Common Stock, Curaflex Common
Stock, HealthInfusion Common Stock or Medisys Common Stock and assuming that no
HealthInfusion shareholders exercise their right to dissent and no cash is paid
in lieu of fractional shares, approximately 42,296,648 shares of Coram Common
Stock will be outstanding, of which (1) approximately 27,753,079 shares,
representing approximately 66% of the total, will be held by former T2
stockholders, (2) approximately 6,013,062 shares, representing approximately 14%
of the total, will be held by former Curaflex stockholders, (3) approximately
5,258,296 shares, representing approximately 12% of the total, will be held by
former HealthInfusion stockholders and (4) approximately 3,272,211 shares,
representing approximately 8% of the total, will be held by former Medisys
stockholders. As a result, the shareholders of T2, Curaflex, HealthInfusion and
Medisys will experience immediate and substantial voting dilution upon
consummation of the Merger.
Shares of T2 Common Stock, Curaflex Common Stock, HealthInfusion Common
Stock and Medisys Common Stock that are outstanding prior to the consummation of
the Merger will, after conversion into shares of Coram Common Stock, be freely
tradeable without restriction under the Securities Act after consummation of the
Merger, unless such shares are restricted by contract or received by persons who
are "affiliates" of T2, Curaflex, HealthInfusion or Medisys. Additional shares
of Coram Common Stock, including up to approximately 4,000,000 shares issuable
under contingent "earn-out" obligations of Curaflex, HealthInfusion and Medisys
and upon exercise of options, warrants and other rights to purchase shares of
T2, Curaflex, HealthInfusion or Medisys Common Stock outstanding as of February
28, 1994, will also become available for sale in the public market from time to
time in the future. In addition, Coram has agreed to register the resale of
certain shares of Coram Common Stock issued in the Merger to certain affiliates
of T2, Curaflex, HealthInfusion and Medisys. See "The Merger -- Resale of Coram
Common Stock and Registration Rights."
As of April 30, 1994, T2 had 41,172,567 shares of T2 Common Stock
outstanding (excluding 2,978,282 shares outstanding held by wholly owned
subsidiaries of the Company and accounted for as retired shares). Of these
shares, 7,618,112 are not currently freely tradeable in the public market as a
result of limitations imposed by law or contract between the holders thereof and
the Company (collectively, "Restricted Shares"). The Restricted Shares were
generally issued in connection with various acquisitions. T2 anticipates that
all such Restricted Shares will be freely tradeable on or about consummation of
the Merger. No prediction can be made as to what effect, if any, the removal of
any such contractual or legal restrictions on the Restricted Shares may have on
the market price of Coram Common Stock following consummation of the Merger. See
"Price Range of Common Stock -- Market for T2 Common Stock and Related
Stockholder Matters."
Sales or the potential for sales of substantial amounts of such shares in
the public market (including sales through the exercise of registration rights
granted to T2, Curaflex, HealthInfusion and Medisys affiliates) could adversely
affect the market price of Coram Common Stock and adversely affect Coram's
ability to raise additional capital in the capital markets at a time and price
favorable to Coram. See "The Merger -- Resales of Coram Common Stock and
Registration Rights."
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EFFECT OF CONTINGENT PAYMENTS RESULTING FROM ACQUISITIONS
As of March 31, 1994, Curaflex had contingent "earn-out" obligations in
connection with eight acquisitions made during 1992 and 1993. Curaflex may be
required to pay under such contingent obligations for years ending after
December 31, 1993, $13.8 million, subject to increase based, in certain cases,
on Curaflex or its subsidiaries exceeding certain revenue or income targets, of
which, subject to certain elections by Curaflex or the sellers, a maximum of
$11.1 million of contingent obligations may be paid in cash. See Note 2 of
Curaflex's Consolidated Financial Statements appearing elsewhere in this Joint
Proxy Statement/ Prospectus. As of March 31, 1994, HealthInfusion had contingent
"earn-out" obligations in connection with three 1993 acquisitions. The maximum
amount that HealthInfusion may be required to pay under such contingent
obligations is $5.2 million, of which approximately $200,000 would be paid in
cash and $5.0 million in stock. See Note 3 of HealthInfusion's Consolidated
Financial Statements appearing elsewhere in this Joint Proxy
Statement/Prospectus. As of March 31, 1994, Medisys had contingent "earn-out"
obligations in connection with three 1993 acquisitions. The maximum amount that
Medisys may be required to pay under such contingent obligations is $1.7
million, of which $0.7 million would be paid in cash and $1.0 million in stock.
See Note 2 of Medisys' Consolidated Financial Statements appearing elsewhere in
this Joint Proxy Statement/Prospectus. Such contingent obligations are not
reflected in the financial statements of Curaflex, HealthInfusion and Medisys
contained elsewhere in this Joint Proxy Statement/Prospectus. Although payment
of such contingent obligations typically results from achieving revenue or
earnings targets, which may have a positive effect on the results of operations,
if Curaflex, HealthInfusion and Medisys each are required to pay all such
earn-out obligations in full, it could have a material adverse effect on the
results of operation and liquidity of such companies, and on Coram after the
Merger.
CHANGES IN TECHNOLOGY
The businesses of constituent companies are dependent on physicians
continuing to prescribe the administration of drugs and nutrients through
intravenous and other infusion methods. Technological advances in drug delivery
systems, the development of therapies that can be administered orally and the
development of new medical treatments that cure certain complex diseases or
reduce the need for infusion therapy could adversely impact Coram's business
after the Merger.
DEPENDENCE ON RELATIONSHIPS WITH OTHER ORGANIZATIONS
The profitability and growth of Coram's business depends to a significant
extent on its ability to establish and maintain close working relationships with
physicians, physician groups, hospitals, long-term care facilities and other
institutional health providers, third-party payors and large self-insured
employers. There can be no assurance that T2's, Curaflex's, HealthInfusion's and
Medisys' existing relationships will be successfully maintained by the combined
companies or that additional relationships will be successfully developed and
maintained in existing and future markets. The loss of such existing
relationships and the failure to continue to develop such relationships could
have a material adverse effect on Coram's results of operations. See "Business
of Curaflex," "Business of HealthInfusion -- Marketing and Sales" and "Business
of Medisys -- Marketing and Sales."
THE T2 SPECIAL MEETING
TIME, DATE AND PLACE OF T2 SPECIAL MEETING
The T2 Special Meeting will be held at 10:00 a.m., local time, on July 8,
1994, at The Westin Hotel, 13340 Dallas Parkway, Dallas, Texas 75240.
BUSINESS TO BE CONDUCTED AT THE T2 SPECIAL MEETING
Each copy of this Joint Proxy Statement/Prospectus mailed to T2
Stockholders is accompanied by a form of proxy solicited by the Board of
Directors of T2 for use at the T2 Special Meeting and at any adjournment thereof
and the transactions contemplated thereby. At the T2 Special Meeting, the T2
stockholders will vote
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upon a proposal to approve the Merger Agreement. See "The Merger." The T2
stockholders will also be asked at that Special Meeting to vote upon a proposal
to approve the implementation of the Coram 1994 Stock Option/Stock Issuance Plan
and a proposal to approve the implementation of the Coram Employee Stock
Purchase Plan. The principal provisions of the 1994 Stock Option/Stock Issuance
Plan are described in the section below entitled "Proposal No. 2: Approval of
the Coram Healthcare Corporation 1994 Stock Option/Stock Issuance Plan." The
principal features of the Employee Stock Purchase Plan are described in the
section below entitled "Proposal No. 3: Approval of the Coram Healthcare
Corporation Employee Stock Purchase Plan."
PROXIES: VOTING AND REVOCATION
When a T2 proxy is properly executed and returned, the shares of T2 Common
Stock it represents will be voted in accordance with the directions indicated on
the proxy, or if no directions are indicated, the shares will be voted FOR the
approval of the Merger Agreement and FOR the approval of each of the Coram 1994
Stock Option/Stock Issuance Plan and the Coram Employee Stock Purchase Plan. Any
T2 stockholder giving a proxy may revoke his or her proxy at any time before its
exercise at the T2 Special Meeting by (1) giving written notice of such
revocation to Scott T. Larson, Assistant Secretary, T2 Medical, Inc., 1121
Alderman Drive, Alpharetta, Georgia 30202, or (2) signing and delivering to Mr.
Larson a proxy bearing a later date. However, the mere presence at the T2
Special Meeting of a T2 Stockholder who has delivered a valid proxy will not of
itself revoke that proxy.
T2 STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ACCOMPANYING
PROXY AND RETURN IT PROMPTLY TO T2 IN THE ENCLOSED POSTAGE-PAID ENVELOPE, EVEN
IF THEY ARE PLANNING TO ATTEND THE T2 SPECIAL MEETING.
PROXY SOLICITATION
T2 will bear the cost of soliciting proxies from its stockholders. Proxies
will be solicited by personnel of T2 in person, by telephone or through other
forms of communication without payment of additional compensation to such
personnel. Additionally, arrangements will be made with brokerage houses and
other custodians, nominees and fiduciaries and for payment of reasonable
expenses incurred in connection therewith.
VOTE REQUIRED
Under the DGCL, the holders of a majority of the outstanding shares of T2
Common Stock must approve the Merger Agreement. Abstentions and broker non-votes
will have the same effect as a vote against the Merger Agreement. The
affirmative vote of a majority of the outstanding shares of T2 Common Stock
present or represented and entitled to vote on the proposals at the Special
Meeting is required for approval of both the Coram 1994 Stock Option/Stock
Issuance Plan and the Coram Employee Stock Purchase Plan. Abstentions will have
the same effect as a vote against the approval of the two Coram plans, but
broker non-votes will not be taken into account for purposes of determining
whether the requisite stockholder approval has been obtained. Neither the
charter documents nor the Bylaws of T2 contain any provisions with respect to
the treatment or effect of abstentions or broker non-votes.
Only holders of record of T2 at the close of business on May 12, 1994, are
entitled to receive notice of, and to vote at, the T2 Special Meeting. At that
date, there were 41,172,567 shares of T2 Common Stock outstanding and entitled
to vote, with each such share entitled to one vote, and 2,857 holders of record
thereof. As of that date, the current directors and executive officers of T2,
together with their affiliates, beneficially held an aggregate of 433,915 shares
of T2 Common Stock, exclusive of options, warrants or other rights to purchase
T2 Common Stock (representing approximately 1% of the outstanding shares of T2
Common Stock). The current directors and executive officers of T2 have indicated
that they will vote all of the shares held by them FOR the approval of the
Merger Agreement. The transaction is not structured to require the approval of a
majority of the unaffiliated stockholders of T2.
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OTHER MATTERS
T2 is not presently aware of any other business to be brought before the T2
Special Meeting. If any matters come before the T2 Special Meeting which are not
directly referred to in this Joint Proxy Statement/Prospectus or the enclosed
proxy, including matters incident to the conduct of the T2 Special Meeting, the
proxy holders will vote the shares represented by the proxies in accordance with
the recommendations of T2 management.
THE CURAFLEX SPECIAL MEETING
TIME, DATE AND PLACE OF CURAFLEX SPECIAL MEETING
The Curaflex Special Meeting will be held at 9:00 a.m., local time, on July
8, 1994, at One Lakeshore Centre, 3281 Guasti Road, Suite 700, Ontario,
California 91761.
BUSINESS TO BE CONDUCTED AT CURAFLEX SPECIAL MEETING
Each copy of this Joint Proxy Statement/Prospectus mailed to Curaflex
stockholders is accompanied by a form of proxy solicited by the Board of
Directors of Curaflex for use at the Curaflex Special Meeting and at any
adjournment thereof. At the Curaflex Special Meeting, the Curaflex stockholders
will vote upon a proposal to approve the Merger Agreement and the transactions
contemplated thereby. See "The Merger." The Curaflex stockholders will also be
asked at that Special Meeting to vote upon a proposal to approve the
implementation of the Coram 1994 Stock Option/Stock Issuance Plan and a proposal
to approve the implementation of the Coram Stock Purchase Plan. The principal
provisions of the 1994 Stock Option/Stock Issuance Plan are described in the
section below entitled "Proposal No. 2: Approval of the Coram Healthcare
Corporation 1994 Stock Option/Stock Issuance Plan." The principal features of
the Employee Stock Purchase Plan are described in the section below entitled
"Proposal No. 3: Approval of the Coram Healthcare Corporation Employee Stock
Purchase Plan."
PROXIES: VOTING AND REVOCATION
When a Curaflex proxy is properly executed and returned, the shares of
Curaflex Common Stock it represents will be voted in accordance with the
directions indicated on the proxy, or if no directions are indicated, the shares
will be voted FOR the approval of the Merger Agreement and FOR the approval of
each of the Coram 1994 Stock Option/Stock Issuance Plan and the Coram Employee
Stock Purchase Plan. Any Curaflex stockholder giving a proxy may revoke his or
her proxy at any time before its exercise at the Curaflex Special Meeting by (1)
giving written notice of such revocation to Kevin M. Higgins, Esq., Secretary,
Curaflex Health Services, Inc., One Lakeshore Centre, 3281 Guasti Road, Suite
700, Ontario, California 91761, or (2) signing and delivering to Mr. Higgins a
proxy bearing a later date. However, the mere presence at the Curaflex Special
Meeting of a Curaflex stockholder who has delivered a valid proxy will not of
itself revoke that proxy.
CURAFLEX STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO CURAFLEX IN THE ENCLOSED
POSTAGE-PAID ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE CURAFLEX SPECIAL
MEETING.
PROXY SOLICITATION
Curaflex will bear the cost of soliciting proxies from its stockholders.
Proxies will be solicited by personnel of Curaflex in person, by telephone or
through other forms of communication without payment of additional compensation
to such personnel. Additionally, arrangements will be made with brokerage houses
and other custodians, nominees and fiduciaries for the forwarding of proxy
solicitation materials to beneficial owners of Curaflex Common Stock held of
record by such custodians, nominees and fiduciaries and for payment of
reasonable expenses incurred in connection therewith.
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<PAGE> 57
VOTE REQUIRED
Under the DGCL, the holders of a majority of the outstanding shares of
Curaflex Common Stock must approve of the Merger Agreement. Abstentions and
broker non-votes will have the same effect as a vote against the Merger
Agreement. The affirmative vote of a majority of the outstanding shares of
Curaflex Common Stock present or represented and entitled to vote on the
proposals at the Special Meeting is required for approval of both the Coram 1994
Stock Option/Stock Issuance Plan and the Coram Employee Stock Purchase Plan.
Abstentions will have the same effect as a vote against the approval of the two
Coram plans, but broker non-votes will not be taken into account for purposes of
determining whether the requisite shareholder approval has been obtained.
Neither the charter documents nor the Bylaws of Curaflex contains any provisions
with respect to the treatment or effect of abstentions or broker non-votes.
Only holders of record of Curaflex Common Stock at the close of business on
May 25, 1994, are entitled to receive notice of, and to vote at, the Curaflex
Special Meeting. At that date, there were 15,029,160 shares of Curaflex Common
Stock outstanding and entitled to vote, with each such share entitled to one
vote, and 785 holders of record thereof. As of that date, the directors and
executive officers of Curaflex, together with their affiliates, beneficially
held an aggregate of 2,767,917 shares of Curaflex Common Stock, exclusive of
options, warrants or other rights to purchase Curaflex Common Stock
(representing approximately 18.4% of the outstanding shares of Curaflex Common
Stock). The directors and executive officers of Curaflex have indicated that
they will vote all of the shares held by them FOR the approval of the Merger
Agreement. The transaction is not structured to require the approval of a
majority of the unaffiliated stockholders of Curaflex.
OTHER MATTERS
Curaflex is not presently aware of any other business to be brought before
the Curaflex Special Meeting. If any matters come before the Curaflex Special
Meeting which are not directly referred to in this Joint Proxy
Statement/Prospectus or the enclosed proxy, including matters incident to the
conduct of the Curaflex Special Meeting, the proxy holders will vote the shares
represented by the proxies in accordance with the recommendations of Curaflex
management.
THE HEALTHINFUSION SPECIAL MEETING
TIME, DATE AND PLACE OF HEALTHINFUSION SPECIAL MEETING
The HealthInfusion Special Meeting will be held at 10:00 a.m., local time,
on July 8, 1994, at the Miami Hilton Airport Hotel and Marina, 5101 Blue Lagoon
Drive, Miami, Florida.
BUSINESS TO BE CONDUCTED AT HEALTHINFUSION SPECIAL MEETING
Each copy of this Joint Proxy Statement/Prospectus mailed to HealthInfusion
shareholders is accompanied by a form of proxy solicited by the Board of
Directors of HealthInfusion for use at the HealthInfusion Special Meeting and at
any adjournment thereof. At the HealthInfusion Special Meeting, the
HealthInfusion shareholders will vote upon a proposal to approve the Merger
Agreement and the transactions contemplated thereby. See "The Merger." The
HealthInfusion shareholders will also be asked at that Special Meeting to vote
upon a proposal to approve the implementation of the Coram 1994 Stock
Option/Stock Issuance Plan and a proposal to approve the implementation of the
Coram Stock Purchase Plan. The principal provisions of the 1994 Stock
Option/Stock Issuance Plan are described in the section below entitled "Proposal
No. 2: Approval of the Coram Healthcare Corporation 1994 Stock Option/Stock
Issuance Plan." The principal features of the Employee Stock Purchase Plan are
described in the section below entitled "Proposal No. 3: Approval of the Coram
Healthcare Corporation Employee Stock Purchase Plan."
PROXIES: VOTING AND REVOCATION
When a HealthInfusion proxy is properly executed and returned, the shares
of HealthInfusion Common Stock it represents will be voted in accordance with
the directions indicated on the proxy, or if no directions
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<PAGE> 58
are indicated, the shares will be voted FOR the approval of the Merger Agreement
and FOR the approval of each of the Coram 1994 Stock Option/Stock Issuance Plan
and the Coram Employee Stock Purchase Plan. Any HealthInfusion shareholder
giving a proxy may revoke his or her proxy at any time before its exercise at
the HealthInfusion Special Meeting by (1) giving written notice of such
revocation to Jorge A. Medina, Secretary, HealthInfusion, Inc., 5200 Blue Lagoon
Drive, Suite 200, Miami, Florida 33126, or (2) signing and delivering to Mr.
Medina a proxy bearing a later date. However, the mere presence at the
HealthInfusion Special Meeting of a HealthInfusion shareholder who has delivered
a valid proxy will not of itself revoke that proxy.
HEALTHINFUSION SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO HEALTHINFUSION IN THE ENCLOSED
POSTAGE-PAID ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE HEALTHINFUSION
SPECIAL MEETING.
PROXY SOLICITATION
HealthInfusion will bear the cost of soliciting proxies from its
shareholders. Proxies will be solicited by personnel of HealthInfusion in
person, by telephone or through other forms of communication without payment of
additional compensation to such personnel. Additionally, arrangements will be
made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of proxy solicitation materials to beneficial owners of
HealthInfusion Common Stock held of record by such custodians, nominees and
fiduciaries and for payment of reasonable expenses incurred in connection
therewith.
VOTE REQUIRED
Under the FBCA, the holders of a majority of the outstanding shares of
HealthInfusion Common Stock must approve of the Merger Agreement. Abstentions
and broker non-votes will have the same effect as a vote against the Merger
Agreement. The Coram 1994 Stock Option/Stock Issuance Plan and the Coram
Employee Stock Purchase Plan will be approved if the votes cast by the holders
of the shares represented and entitled to vote on such plans favoring the action
exceeds the votes cast opposing the action. Abstentions will have no effect on
the vote for approval of the two Coram plans, but broker non-votes will not be
taken into account for purposes of determining whether the requisite shareholder
approval has been obtained. Neither the charter documents nor the Bylaws of
HealthInfusion contain any provisions with respect to the treatment or effect of
abstentions or broker non-votes.
Only holders of record of HealthInfusion Common Stock at the close of
business on May 12, 1994, are entitled to receive notice of, and to vote at, the
HealthInfusion Special Meeting. At that date, there were 9,930,162 shares of
HealthInfusion Common Stock outstanding and entitled to vote, with each such
share entitled to one vote, and 812 holders of record thereof. As of that date,
the directors and executive officers of HealthInfusion, together with their
affiliates, beneficially held an aggregate of 2,933,618 shares of HealthInfusion
Common Stock, exclusive of options, warrants or other rights to purchase
HealthInfusion Common Stock (representing approximately 29.5% of the outstanding
shares of HealthInfusion Common Stock). The directors and officers of
HealthInfusion have indicated that they will vote all of the shares held by them
FOR the approval of the Merger Agreement. The transaction is not structured to
require the approval of a majority of the unaffiliated shareholders of
HealthInfusion.
OTHER MATTERS
HealthInfusion is not presently aware of any other business to be brought
before the HealthInfusion Special Meeting. If any matters come before the
HealthInfusion Special Meeting which are not directly referred to in this Joint
Proxy Statement/Prospectus or the enclosed proxy, including matters incident to
the conduct of the HealthInfusion Special Meeting, the proxy holders will vote
the shares represented by the proxies in accordance with the recommendations of
HealthInfusion management.
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<PAGE> 59
THE MEDISYS SPECIAL MEETING
TIME, DATE AND PLACE OF MEDISYS SPECIAL MEETING
The Medisys Special Meeting will be held at 11:00 a.m., local time, on July
8, 1994, at the Holiday Inn International Airport, Three Appletree Square,
Bloomington, Minnesota.
BUSINESS TO BE CONDUCTED AT MEDISYS SPECIAL MEETING
Each copy of this Joint Proxy Statement/Prospectus mailed to Medisys
stockholders is accompanied by a form of proxy solicited by the Board of
Directors of Medisys for use at the Medisys Special Meeting and at any
adjournment thereof. At the Medisys Special Meeting, the Medisys stockholders
will vote upon a proposal to approve the Merger Agreement and the transactions
contemplated thereby. See "The Merger." The Medisys stockholders will also be
asked at that Special Meeting to vote upon a proposal to approve the
implementation of the Coram 1994 Stock Option/Stock Issuance Plan and a proposal
to approve the implementation of the Coram Stock Purchase Plan. The principal
provisions of the 1994 Stock Option/Stock Issuance Plan are described in the
section below entitled "Proposal No. 2: approval of the Coram Healthcare
Corporation 1994 Stock Option/Stock Issuance Plan." The principal features of
the Employee Stock Purchase Plan are described in the section below entitled
"Proposal No. 3: Approval of the Coram Healthcare Corporation Employee Stock
Purchase Plan."
PROXIES: VOTING AND REVOCATION
When a Medisys proxy is properly executed and returned, the shares of
Medisys Common Stock it represents will be voted in accordance with the
directions indicated on the proxy, or if no directions are indicated, the shares
will be voted FOR the approval of the Merger Agreement and FOR approval of each
of the Coram 1994 Stock Option/Stock Issuance Plan and the Coram Employee Stock
Purchase Plan. Any Medisys stockholder giving a proxy may revoke his or her
proxy at any time before its exercise at the Medisys Special Meeting by (1)
giving written notice of such revocation to Mary B. Bennett, Secretary, Medisys,
Inc., 4550 West 77th Street, Edina, Minnesota 55435, or (2) signing and
delivering to Ms. Bennett a proxy bearing a later date. However, the mere
presence at the Medisys Special Meeting of a Medisys stockholder who has
delivered a valid proxy will not of itself revoke that proxy.
MEDISYS STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO MEDISYS IN THE ENCLOSED
POSTAGE-PAID ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE MEDISYS SPECIAL
MEETING.
PROXY SOLICITATION
Medisys will bear the cost of soliciting proxies from its stockholders.
Proxies will be solicited by personnel of Medisys in person, by telephone or
through other forms of communication without payment of additional compensation
to such personnel. Additionally, arrangements will be made with brokerage houses
and other custodians, nominees and fiduciaries for the forwarding of proxy
solicitation materials to beneficial owners of Medisys Common Stock held of
record by such custodians, nominees and fiduciaries and for payment of
reasonable expenses incurred in connection therewith.
VOTE REQUIRED
Under DGCL, the holders of a majority of the outstanding shares of Medisys
Common Stock must approve the Merger Agreement. Abstentions and broker non-votes
will have the same effect as a vote against the Merger Agreement. The
affirmative vote of a majority of the outstanding shares of Medisys Common Stock
present or represented and entitled to vote on the proposals at the Special
Meeting is required for approval of both the Coram 1994 Stock Option/Stock
Issuance Plan and the Coram Employee Stock Purchase Plan. Abstentions will have
the same effect as a vote against the approval of the two Coram plans, but
broker non-votes will not be taken into account for purposes of determining
whether the requisite
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stockholder approval has been obtained. Neither the charter documents nor the
Bylaws of Medisys contain any provisions with respect to the treatment or effect
of abstentions or broker non-votes.
Only holders of record of Medisys Common Stock at the close of business on
May 12, 1994, are entitled to receive notice of, and to vote at, the Medisys
Special Meeting. At that date, there were 12,699,621 shares of Medisys Common
Stock outstanding and entitled to vote, with each such share entitled to one
vote, and 410 holders of record thereof. As of that date, the directors and
executive officers of Medisys, together with their affiliates, beneficially held
an aggregate of 4,046,302 shares of Medisys Common Stock, exclusive of options,
warrants or other rights to purchase Medisys Common Stock (representing
approximately 32.1% of the outstanding shares of Medisys Common Stock). The
directors and executive officers of Medisys have indicated that they will vote
all of the shares held by them FOR approval of the Merger Agreement. The
transaction is not structured to require the approval of a majority of the
unaffiliated stockholders of Medisys.
OTHER MATTERS
Medisys is not presently aware of any other business to be brought before
the Medisys Special Meeting. If any matters come before the Medisys Special
Meeting which are not directly referred to in this Joint Proxy
Statement/Prospectus or the enclosed proxy, including matters incident to the
conduct of the Medisys Special Meeting, the proxy holders will vote the shares
represented by the proxies in accordance with the recommendations of Medisys
management.
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BACKGROUND OF THE MERGER
GENERAL
The descriptions in this Proxy Statement/Prospectus of the terms and
conditions of the Merger and the Merger Agreement are qualified in their
entirety by reference to the copy of the Merger Agreement attached as Appendix A
to this Joint Proxy Statement/Prospectus, and to each of the other Appendices to
this Joint Proxy Statement/Prospectus. Stockholders are encouraged to read the
Merger Agreement in its entirety.
The Merger Agreement provides for T2, Curaflex, HealthInfusion and Medisys
each to become wholly owned subsidiaries of Coram through the mergers of T2
Acquisition into T2, CHS Acquisition into Curaflex, HII Acquisition into
HealthInfusion and MI Acquisition into Medisys, provided that all conditions to
consummation of the Merger are satisfied or waived. Each stockholder of
Curaflex, HealthInfusion, Medisys and T2 (other than those HealthInfusion
stockholders who exercise their right to dissent under the FBCA) will receive
shares of Coram Common Stock in exchange for their shares of Curaflex,
HealthInfusion, Medisys and T2 Common Stock (with the number of shares received
based on a separate exchange ratio for each company). It is contemplated that
the Effective Time for the Merger will occur as soon as practicable after the
Curaflex Special Meeting, the HealthInfusion Special Meeting, the Medisys
Special Meeting and the T2 Special Meeting, and upon satisfaction or waiver of
all of the other conditions set forth in the Merger Agreement. The Effective
Time is presently anticipated to occur on or before July 31, 1994. See "The
Merger."
BACKGROUND OF THE MERGER
Each of the companies has grown, to a significant extent, through
acquisitions. Over the past few years, each company has acquired several
privately held regional and local infusion therapy providers including, in the
case of T2, infusion therapy companies T2 previously had managed. In addition,
each company's management has internally discussed and analyzed various
expansion opportunities and the merits of various possible business combinations
with other large and publicly held companies. During 1993, each of T2, Curaflex,
HealthInfusion and Medisys entered into preliminary negotiations to acquire or
merge with one or more other publicly held infusion therapy providers.
T2. Commencing in September 1993, T2 began exploring the possibility of
engaging in a business combination with one or more other home infusion therapy
or other companies, including Curaflex, as a means to increase stockholders
value. As part of such effort, Mr. Haire and Mr. Carter held preliminary and
exploratory discussions with representatives of thirteen companies regarding
various types of business combinations with T2, including transactions which
would involve an acquisition by or of T2. In connection with this process, T2
also engaged Mr. Sweeney in November 1993 to act as an advisor to T2 for the
purpose of making presentations to and engaging in discussions and negotiations
with potential business combination candidates.
With one exception, from September 1993 to January 1994 business
combination discussions between T2and other companies were not seriously pursued
beyond initial discussions. In one case, T2 and another company held preliminary
and exploratory discussions during December 1993 and then performed limited due
diligence on each other. However, at a subsequent meeting between the two
companies in early January 1994 regarding valuation methodologies and various
ways to structure a business combination, the parties concluded that a business
combination between them was not feasible and discussions were terminated.
Curaflex. Following completion of its initial public offering in March
1992, Curaflex began exploration of expansion opportunities through internal
growth and acquisitions of existing infusion businesses. In the second half of
1992, Curaflex completed acquisition of two privately held infusion companies,
and in March 1993, Curaflex consummated its acquisition of Clinical Homecare
Ltd., a publicly held infusion company.
Thereafter, Curaflex began discussions of a possible merger with a publicly
held infusion company, pursuant to which stockholders of the target company
would receive Curaflex Common Stock in exchange for their shares of stock of the
target company. In April 1993, Curaflex and the target company began legal and
financial due diligence and began negotiations towards a definitive merger
agreement. Smith Barney, Curaflex's financial advisor, assisted in analyzing
certain financial aspects of such potential business
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combination. In mid-April, Curaflex terminated negotiations with the target
company as a result of the emergence of other potential bidders for the target
company, the two companies' inability to reach closure on certain issues
concerning the acquisition and Curaflex's determination, in light of the
foregoing, not to incur further costs in attempting to reach a definitive
agreement with the target company. Following this termination, the target
company was acquired by another company.
During the remainder of 1993, Curaflex acquired several small privately
held infusion companies and, as discussed below, engaged in acquisition
discussions with HealthInfusion, Medisys and T2.
HealthInfusion. Throughout late 1992 and early 1993, senior management of
HealthInfusion held discussions regarding the focus and scope of various
expansion opportunities, and considered generally the merits of various possible
business combinations. HealthInfusion considered both acquisitions and other
strategic alternatives for expanding business into the clinical research,
dialysis and managed care businesses. During that period, at the direction of
the HealthInfusion Board of Directors, Mr. Gilman contacted representatives of a
number of publicly held infusion companies to determine if any of them had an
interest in mergers or acquisitions involving HealthInfusion. In addition, Mr.
Gilman and other members of HealthInfusion's senior management team continued
their ongoing review of privately held businesses that possibly could be
acquired by HealthInfusion.
In late 1992, HealthInfusion began preliminary discussions with a publicly
held company concerning the possible acquisition of the outstanding stock of
such company by HealthInfusion in exchange for shares of HealthInfusion Common
Stock. Over the next several months, the parties conducted legal and financial
diligence, and negotiated the terms of the proposed business combination.
HealthInfusion's independent accountants and its financial advisor at that time,
Raymond James & Associates, Inc., assisted in HealthInfusion's analysis of the
proposed transaction. In early April 1993, HealthInfusion was advised that the
company with which it was having discussions had received an all cash
acquisition proposal. Following further discussions among management and
HealthInfusion's financial advisor, HealthInfusion determined it would not be
able to increase the amount of consideration it had proposed paying for such
target company. In April 1993, the target company accepted the all cash offer
and ceased its negotiations with HealthInfusion.
In April 1993, HealthInfusion and another publicly held infusion company
entered into a confidentiality agreement in connection with preliminary
discussions of a business combination between the companies. However, such
discussions were terminated before the parties reached any understanding as to a
possible transaction.
Medisys. Medisys completed four acquisitions of home infusion therapy
companies in 1992, and in July 1993 consummated the acquisition (by merger) of
American Home Therapies, Inc., a regional provider of comprehensive home
infusion therapy services and related products.
Initiation of Discussions among Curaflex, HealthInfusion and Medisys. On
May 5, 1993, the HealthInfusion Board of Directors authorized the hiring of an
investment banker to assist HealthInfusion in formulating and implementing its
acquisition strategy. HealthInfusion subsequently signed an engagement letter
with Hambrecht & Quist, dated May 24, 1993. At a regularly scheduled meeting of
HealthInfusion's Board of Directors on July 14, 1993, Hambrecht & Quist made a
presentation on the then current acquisition opportunities available to
HealthInfusion and provided a summary of the then current healthcare industry
environment based on recent visits by Hambrecht & Quist with a significant
number of healthcare companies.
HealthInfusion began discussions with Curaflex in early May 1993, when Mr.
Gilman of HealthInfusion and Mr. Laverty of Curaflex had a number of exploratory
discussions with respect to a possible business combination between
HealthInfusion and Curaflex. On May 17, 1993, Mr. Gilman and Mr. Laverty met in
Dallas, Texas and on May 19, 1993 (with respect to Curaflex) and on May 21, 1993
(with respect to HealthInfusion), Curaflex and HealthInfusion entered into
confidentiality agreements. On May 27, 1993, Mr. Gilman and Mr. Laverty met in
New York with representatives of Smith Barney and Hambrecht & Quist. Through the
summer of 1993, Mr. Gilman and Mr. Laverty continued their preliminary
discussions with respect to a possible business combination and began the
process of gathering and exchanging information, including publicly available
information and certain financial projections for the two companies. By early
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September 1993, various discussions had ensued between management
representatives from HealthInfusion and Curaflex, as well as their respective
financial advisors. Various business, financial and legal considerations were
discussed during this period, including preliminary terms of a proposed business
combination, regulatory approvals, operational issues, retention of management
and treatment of benefit plans. Preliminary due diligence activities were
conducted by each company during this time as well. No action was taken by
HealthInfusion's Board except for endorsing continued discussions and analysis.
On August 10, 1993, at a regularly scheduled meeting of the Board of
Directors of Medisys, Hambrecht & Quist made a presentation regarding the state
of the infusion therapy industry, including the factors leading to continuing
consolidation in the industry and the need for size in order to overcome
industry pricing pressures. The presentation included a brief summary of many of
the public companies in the industry, including general information as to the
possible compatibility of such companies with Medisys' business operations.
On September 22, 1993, at a meeting of the Board of Directors of Curaflex,
Curaflex management presented to the Board the possibility of a proposed
business combination with HealthInfusion. The Curaflex Board of Directors
authorized Mr. Laverty to continue discussions with HealthInfusion concerning
such proposed transaction.
In late September 1993, HealthInfusion and Curaflex determined to terminate
their preliminary discussions with respect to a possible business combination as
a result of the companies' inability to reach closure on various issues relating
to the proposed transaction and each party requested the other to return all
confidential evaluation material that had been supplied.
On October 12, 1993, Mr. Gilman met with Medisys' Board of Directors at
Medisys' offices. Mr. Gilman had additional conferences with representatives of
Medisys with respect to a possible business combination between HealthInfusion
and Medisys between October 15 and October 26. During these conferences, Mr.
Gilman and Mr. Brummond discussed Medisys' business, the prospects of a proposed
combined company, potential benefits to be derived by Medisys stockholders from
a merger with HealthInfusion and the historical and projected financial
performance of the two companies.
On October 26, 1993, Mr. Gilman and representatives of Hambrecht & Quist
made a presentation to the Board of Directors of Medisys regarding a proposed
combination of HealthInfusion and Medisys, and responded to questions from
Medisys' Board as to the presentation and the potential benefits to be derived
from a business combination of HealthInfusion and Medisys. Following this
presentation and discussion, Mr. Gilman and the representatives of Hambrecht &
Quist were excused from the meeting and Medisys' Board engaged in further
discussion regarding the proposal and the benefits to be derived from a business
combination with HealthInfusion or other companies in the industry. No action
was taken by Medisys' Board at that time other than to recommend further
evaluation and analysis of HealthInfusion's proposal.
On November 5, 1993, representatives of Medisys met with representatives of
Smith Barney regarding the possible engagement by Medisys of Smith Barney to
advise Medisys' Board in connection with the proposed business combination with
HealthInfusion. At this time, it was learned that Smith Barney had been engaged
by Curaflex in connection with Curaflex's discussions with HealthInfusion. Over
the next several days, Mr. Laverty, on behalf of Curaflex, Mr. Gilman, on behalf
of HealthInfusion, Peter Smith and John D. Hirsch, M.D. on behalf of Medisys
(collectively, the "Representatives") and representatives of Smith Barney met to
discuss a possible combination of the three companies.
A regularly scheduled meeting of HealthInfusion's Board of Directors was
held on November 9, 1993. At this meeting, Hambrecht & Quist made a presentation
with respect to its engagement to review acquisition opportunities on behalf of
HealthInfusion. In connection with such presentation, Hambrecht & Quist gave an
industry overview which stressed the continuing consolidation in the infusion
therapy industry driven by the need for size in order to survive ongoing pricing
pressures imposed by third party payors. Hambrecht & Quist also described to the
Board of Directors certain preliminary background information with respect to
Medisys, stressing that HealthInfusion needed to gather additional information
about Medisys before Hambrecht & Quist could determine whether a combination
would benefit HealthInfusion and its shareholders. Mr. Gilman
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also described to the Board his preliminary discussions with Medisys'
representatives and his scheduled meeting with Medisys management during the
following week. The HealthInfusion Board of Directors agreed that a business
combination with Medisys should be given serious consideration, but no action
was taken.
On November 12, 1993, Curaflex management met with the Curaflex Board of
Directors to introduce the possibility of a business combination between
Curaflex, HealthInfusion and Medisys and to discuss the preliminary discussions
of the companies concerning the proposed transaction and its terms. The Curaflex
Board of Directors agreed that more information concerning this proposed merger
was needed, and authorized Curaflex management to continue such discussions and
to begin a due diligence review of HealthInfusion and Medisys.
Following these preliminary discussions among the Representatives of each
of the three companies, on November 16, 1993, HealthInfusion, Curaflex and
Medisys signed a confidentiality agreement. Thereafter, the three companies
continued the process of gathering and exchanging information and negotiating
the basic terms of a proposed business combination. On November 18, 1993,
following numerous discussions among the Representatives of the three companies
together with Smith Barney, the parties generated a proposal for a combination
of the three companies, including the proposed exchange ratios and general terms
of employment agreements for the chief executive officer and the president of
the combined company, to be submitted to the respective Boards of Directors for
approval, and engaged an independent law firm to begin drafting an agreement and
plan of merger for the three parties (the "Three-Way Merger Agreement"). During
the next few days, each of the Representatives and their respective legal and
financial advisors conducted due diligence and began negotiations of the terms
of the definitive Three-Way Merger Agreement and related documents.
At a meeting of the Curaflex Board of Directors on November 23, 1993,
Curaflex management and Smith Barney further discussed the progression of the
negotiations and the business terms of the proposed Merger. After discussion,
the Board of Directors authorized Curaflex management to pursue final
negotiation of the material terms of the proposed merger.
On November 24, 1993, a meeting of the Board of Directors of Medisys was
held to discuss preliminarily the proposed combination. At this meeting, Mr.
Smith and Dr. Hirsch discussed with the Board of Directors the negotiations that
had led to the proposal and the benefits to Medisys and its stockholders from
the proposed combination. Piper Jaffray, which had been engaged to render a
fairness opinion to the Medisys Board of Directors, discussed the financial
aspects of the proposed combination and the procedures that it had undertaken
and would continue to undertake to evaluate the proposal from a financial point
of view and addressed questions from the Board of Directors. A representative of
Oppenheimer Wolff & Donnelly, Medisys' outside legal counsel, made a
presentation regarding the fiduciary duties of the directors, the structure of
the proposed transaction, the negotiations of the Three-Way Merger Agreement
among the lawyers for the three companies and the status of due diligence
reviews of the business and legal affairs of Curaflex and HealthInfusion.
Following considerable further discussion of the terms of the proposed
transaction, including the exchange ratios, management of the combined entity,
plans for consolidation and expansion, the Board of Directors of Medisys
concurred with the recommendation to pursue further negotiation of the material
terms of the business combination with Curaflex and HealthInfusion.
On November 26, 1993, HealthInfusion's senior management and
representatives of Hambrecht & Quist presented to HealthInfusion's Board of
Directors, on a telephone conference call, their preliminary recommendations and
analyses with respect to the possible business combination with Curaflex and
Medisys. At this meeting, HealthInfusion management discussed with its Board of
Directors its assessment of each company's business, the prospects of the
proposed combined company, potential benefits to be derived from a merger with
Curaflex and Medisys and the historical and projected financial performance of
the three companies. Representatives of Hambrecht & Quist then discussed their
preliminary financial analyses that had previously been distributed to Board
members. The November 26, 1993 meeting proceeded with management and the Board
of Directors of HealthInfusion discussing the structure of the potential
business combination and the proposed exchange ratios for such a transaction, as
well as the issues of combined operations, retention of management and
regulatory approvals. The Board of Directors of HealthInfusion concurred with
its
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management's recommendation to pursue negotiations of all material terms of the
business combination with Curaflex and Medisys.
On November 30, 1993, at a special meeting of the Curaflex Board of
Directors, Smith Barney presented its financial analysis of the proposed
transaction among Curaflex, HealthInfusion and Medisys and delivered its oral
opinion (subsequently confirmed in writing) as to the fairness of the Curaflex
Exchange Ratio from a financial point of view to the holders of Curaflex Common
Stock. A representative of Curaflex's outside counsel, Morrison & Foerster, made
a presentation regarding the fiduciary duties of the directors, the structure of
the transaction and the material terms of the proposed Three-Way Merger
Agreement, including the terms of the proposed employment agreements for Messrs.
Laverty, Gilman and Brummond (the "Executive Employment Agreements"). After
discussions among the Board of Directors, Curaflex management and its advisors,
and a review of the terms of the Three-Way Merger Agreement, drafts of which had
been supplied to the members of the Board, the Board of Directors unanimously
approved the proposed merger between Curaflex, Medisys and HealthInfusion, and
the terms thereof, including the exchange ratio and retention of management, and
directed Mr. Laverty to finalize and execute the Three-Way Merger Agreement.
On November 30, 1993, a special meeting of the Board of Directors of
HealthInfusion was held to discuss the terms of the proposed Three-Way Merger
Agreement among HealthInfusion, Curaflex and Medisys, draft copies of which had
previously been provided to each of the Board members. The November 30 meeting
of the Board of Directors of HealthInfusion included (i) a presentation by
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quantel, P.A., HealthInfusion's
outside legal counsel, on the fiduciary responsibilities of the Board of
Directors and other structural and other general issues relating to the
potential merger, including the proposed terms of certain employment and
severance arrangements for certain members of HealthInfusion's management, (ii)
a presentation by Arthur Andersen & Co., HealthInfusion's independent public
accountants, with respect to the treatment of the merger as a
"pooling-of-interests" for accounting and financial reporting purposes, as well
as the contemplated tax-free nature of the transaction, and (iii) a presentation
by Hambrecht & Quist of its financial analyses of the proposed merger, as well
as its fairness opinion to the HealthInfusion Board of Directors. Following
discussions among the Board of Directors and management of HealthInfusion,
including the need to act promptly to respond to the consolidation in the
infusion therapy industry, the Board of Directors unanimously approved a
proposed merger with Curaflex and Medisys, including the exchange ratio
previously discussed, and authorized and directed Mr. Gilman and Mr. Fine, Vice
Chairman of the Board, to finalize negotiations of the other terms of the
Three-Way Merger Agreement.
On November 30, 1993, a special meeting of the Board of Directors of
Medisys was convened to consider the proposed Three-Way Merger Agreement among
Medisys, Curaflex and HealthInfusion, a draft of which had previously been
provided to each Board member. At this meeting, a representative of Oppenheimer
Wolff & Donnelly made a presentation regarding the structure of the transaction
and the material terms of the Three-Way Merger Agreement. Following this
presentation, Piper Jaffray made a presentation regarding its financial analysis
of the proposed combination and its fairness opinion to the Medisys Board of
Directors. Following discussion of the proposed merger, the Board of Directors
approved the proposed merger and authorized the officers of Medisys to finalize
the negotiations and execute the Three-Way Merger Agreement on behalf of
Medisys.
On December 1, 1993, Curaflex, HealthInfusion and Medisys executed a
definitive Three-Way Merger Agreement.
Initiation of Discussions Regarding Four-Way Merger. In October 1993, Mr.
Laverty and Mr. Haire held a preliminary and exploratory discussion with respect
to a possible business combination between T2 and Curaflex. On January 7, 1993,
following the announcement of the Three-Way Merger Agreement, Messrs. Laverty,
Gilman, Haire and Carter met regarding the possibility of combining T2 with the
entity that would result from the merger of Curaflex, HealthInfusion and
Medisys.
On January 10, 1994, Messrs. Laverty, Gilman, Sweeney, Haire and Carter,
Donald E. Strange, a director of Curaflex, and certain consultants and advisors
to T2, met to explore again the possibility of T2combining with Curaflex,
HealthInfusion and Medisys. At the meeting, Messrs. Laverty and Gilman made
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an oral presentation on the strategic benefits to all parties of such a
combination. No discussion was held regarding the terms or conditions of any
potential transaction among the parties.
On January 17, 1994, representatives of T2, including Messrs. Haire, Carter
and Sweeney, met with Messrs. Laverty and Smith to further explore a possible
merger transaction between T2, Curaflex, HealthInfusion and Medisys. At the
meeting, the T2 representatives gave a presentation concerning T2's business and
presented a proposal for a four-way merger that would retain exchange ratios for
the previously negotiated three-way merger among Curaflex, HealthInfusion and
Medisys and provide T2 stockholders with an exchange ratio that would value
shares of T2 Common Stock at $10.50 per share when calculating (on a fully
diluted basis) the percentage of the new entity resulting from the merger that
would be owned by the T2 stockholders. In addition, the proposal called for
adjustments to the employment/severance arrangements established in the
previously negotiated three-way merger transaction. Messrs. Laverty and Smith
informed the T2 representatives that they would present the proposal to
HealthInfusion and the respective Boards of Directors of Curaflex and Medisys.
At the meeting, Messrs. Sweeney, Haire and Carter agreed that, if Curaflex,
HealthInfusion and Medisys determined to continue discussions with T2 and the
parties commenced due diligence investigations of each other, T2 would agree not
to initiate, solicit, encourage or facilitate any inquiries or proposals from
any other party concerning a sale of T2 through February 2, 1994 or as long as
productive efforts were being made in pursuit of the proposed transaction.
During the next two weeks, representatives from T2, Curaflex,
HealthInfusion and Medisys engaged in discussions concerning the proposed
business combination among the four companies. In addition, each of Kidder,
Peabody in the case of T2, Smith Barney in the case of Curaflex, Hambrecht &
Quist in the case of HealthInfusion and Piper Jaffray in the case of Medisys
evaluated the transaction from a financial point of view during this period.
Effective as of January 19, 1994, T2, Curaflex, HealthInfusion and Medisys
entered into confidentiality agreements, and the parties and their respective
financial and legal advisors began financial and legal due diligence. Also
effective as of January 19, 1994, T2 engaged Kidder, Peabody to render an
opinion with respect to the proposed T2 Exchange Ratio in the Merger.
On January 24, 1994, a special meeting with the Board of Directors of
Curaflex was held to discuss expanding the three-way merger to include T2. Smith
Barney discussed certain financial aspects of the proposed transaction, and
representatives of Curaflex's outside counsel, Green, Stewart & Farber and
Morrison & Foerster, discussed the legal aspects of the proposed four-way
merger, including the due diligence conducted with respect to T2 and the
structure and timing of the proposed transaction. After discussions among the
Board members, the Board resolved to continue negotiations regarding a business
combination involving HealthInfusion, Medisys and T2.
On January 24, 1994, a special meeting of the Board of Directors of Medisys
was held to discuss the proposed expansion of the three-way merger to include
T2. Considerable discussion took place concerning the status of the discussions,
the limited due diligence conducted to date, and the proposed structure and
timing of the transaction. Following this discussion, the Board resolved to
continue negotiations regarding a business combination involving Curaflex,
HealthInfusion and T2.
On January 25, 1994, a special meeting of the Board of Directors of
HealthInfusion was held to discuss the proposed expansion of the three-way
merger to include T2. Management of HealthInfusion advised the Board as to the
status of discussions, the limited due diligence conducted to date, the proposed
exchange ratio, the timing and structure of the proposed transaction and
possible alternatives. No action was taken by HealthInfusion's Board.
On January 25, 1994, Stanley S. Trotman, a director of T2, with the prior
approval of Mr. Haire, spoke with a representative of W.R. Grace & Co. ("Grace")
at the latter's request. Grace was one of the companies with whom Mr. Haire had
met in September 1993 regarding a possible business combination. Shortly after
the September 1993 meeting, representatives of Grace informed Mr. Haire that
Grace was not interested in pursuing a business combination with T2 and no
further discussions were held. The Grace representatives indicated to Mr.
Trotman that Grace had become interested again in a possible combination with
T2. Mr. Trotman informed the Grace representative that he would relay Grace's
interest to T2. Mr. Trotman then informed Mr. Haire of Grace's interest.
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Mr. Trotman informed the Grace representative that he would relay Grace's
interest to T2. Mr. Trotman then informed Mr. Haire of Grace's interest.
Shortly after January 25, 1994, T2's outside legal counsel called the Grace
representative to inform him that T2 was engaged in acquisition discussions with
another party (counsel did not name Curaflex, HealthInfusion or Medisys) and of
T2's agreement with such other party to refrain from initiating, soliciting,
encouraging or facilitating proposals from other parties concerning a sale of
T2. The Grace representative told T2's counsel that he understood T2's
obligations.
On January 26, 1994, Mr. Laverty and Mr. Gilman met with representatives of
T2 at T2's principal executive offices in Alpharetta, Georgia, to continue
discussions concerning a business combination among the four parties. Those
discussions and negotiations continued over the weekend of January 28-30 in
Southern California, when management representatives from all four companies met
to further consider the terms and conditions of the proposed business
combination. Issues discussed during these meetings included regulatory
approvals, operational issues, management for the new company, the
employment/severance arrangements and the exchange ratio for T2 Common Stock in
the proposed four-way merger.
On January 28, 1994, T2 received an unsolicited letter from Grace setting
forth a proposal to acquire T2 in a tax-free merger in which each outstanding
share of T2 common stock would be converted into $10.25 per share of Grace
common stock (the "Grace Proposal"). According to the letter, the proposal was
subject to the approval of Grace's Board of Directors, negotiation of a mutually
satisfactory merger agreement, satisfactory completion of due diligence on T2
and satisfactory resolution of all outstanding stockholder litigation against
T2. On January 31, 1994, Mr. Haire responded to Grace with a letter in which he
acknowledged receipt of Grace's letter and stated that it was T2's preliminary
view that the conditions attached to the Grace Proposal made the proposal highly
contingent. Mr. Haire further informed Grace that T2's Board of Directors would
be meeting on the evening of February 1 to consider the Grace Proposal as well
as other alternatives. He also informed Grace that if T2 did not receive another
written proposal from Grace by the evening of February 1, the T2 Board would
assume that the Grace Proposal was the proposal that Grace would want the Board
to consider. T2 did not receive any further proposal from Grace.
During the two weeks following the January 17, 1994 meeting, Mr. Haire kept
T2's Board of Directors apprised of developments relating to the proposed
combination with Curaflex, HealthInfusion and Medisys. On January 29, T2's Board
met informally to review the status of the discussions and negotiations on the
proposed transaction.
At a meeting of T2's Board of Directors on February 1, 1994, at which the
entire Board, certain members of senior management, Mr. Sweeney, representatives
of Kidder Peabody, outside legal counsel and other advisors were present, the
Board received presentations regarding, among other things (i) the background of
the proposed four-way merger, (ii) the strategic rationale for, and potential
benefits of, the proposed four-way merger, (iii) a summary of due diligence
findings on each of Curaflex, HealthInfusion and Medisys, (iv) the terms of the
proposed Merger Agreement, drafts of which had been provided to the Board prior
to the meeting, (v) the terms of the proposed employment and severance
arrangements to be entered into by the various executive officers and
consultants of T2, Curaflex, HealthInfusion and Medisys as provided in the
proposed Merger Agreement and (vi) the terms of the engagement of Kidder Peabody
to render its opinion to T2 with respect to the T2 Exchange Ratio in the Merger,
which terms the Board ratified. Kidder, Peabody then made a presentation to the
T2 Board of Directors, which presentation included Kidder, Peabody's oral
opinion (subsequently confirmed in writing) to the effect that, as of the date
thereof, the T2 Exchange Ratio was fair, from a financial point of view, to the
T2 stockholders. See "-- Opinion of Kidder Peabody." The Board then discussed
the letter received from Grace. In that regard, the Board considered, among
other factors (i) the conditional nature of the Grace Proposal relative to the
status of the proposed transaction with Curaflex, HealthInfusion and Medisys,
(ii) the effect that any pursuit of the Grace Proposal, and corresponding delay
to the proposed four-way merger, would have on the prospects of consummating the
latter transaction, particularly in light of the fact that the other three
parties appeared prepared to proceed with the Three Way Merger Agreement, and
(iii) the prospects for increasing stockholder value through the proposed
four-way merger compared to a combination with Grace. After discussion, the
Board of Directors decided to consider
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transaction as an alternative if T2 imposed any delay to pursue the Grace
Proposal, no further investigation of the Grace Proposal was undertaken at such
time.
On February 1, 1994, a special meeting of the Board of Directors of
HealthInfusion was held to further discuss the proposed expansion of the
three-way merger to include T2. At the meeting, (i) Hambrecht & Quist made a
brief presentation with respect to its meetings with representatives of T2 and
certain preliminary thoughts as to the proposed transaction, but was not at that
time in a postion to present its financial analysis to the Board, (ii)
HealthInfusion's legal counsel gave a brief presentation as to the status of
HealthInfusion's ongoing due diligence review, and (iii) Arthur Andersen & Co.
briefly discussed the requirements to be satisfied for pooling-of-interests
accounting treatment. The HealthInfusion Board engaged in significant
discussions with respect to the proposed exchange ratio, the structure of the
transaction (including the possible loss of the pending three-way merger should
the proposed four-way merger not be consummated), the proposed modifications for
certain employment and severance arrangements for HealthInfusion management,
certain possible modifications to the three-way merger and alternatives.
Following discussion among the Board members, the Board concluded that it was
not yet in a position to approve the proposed four-way merger transaction and
instructed management to advise Curaflex, Medisys and T2 of that position.
On February 1, 1994, a special meeting of the Board of Directors of Medisys
was held to further discuss the proposed expansion of the three-way merger to
include T2. At the meeting, members of the Board and management reported on the
status of the negotiations, the proposed structure and timing of the
transaction, the effect of the proposed transaction on the pending three-way
merger in the event that the four-way transaction was not consummated, and the
status and preliminary results of the due diligence conducted with respect to
T2. Following considerable discussion, the Board authorized management to
continue with the negotiations and due diligence relating to the proposed
four-way transaction.
On February 2, 1994, Curaflex, HealthInfusion and Medisys received a letter
from T2 informing them that the proposal for the four-way business combination
would expire at the end of that day. The letter also proposed that, in the event
HealthInfusion should determine not to participate in the four-way business
combination, Curaflex, Medisys and T2 enter into a three-way merger based on the
exchange ratios that had been negotiated in connection with the four-way merger
proposal. Each of Curaflex, HealthInfusion and Medisys requested additional time
by which to respond to T2's proposals. T2 thereafter extended the deadline for
approval of the four-way merger by the Curaflex, HealthInfusion and Medisys
Boards of Directors to February 4, 1994.
At a special meeting of the Board of Directors of Curaflex held February 2,
1994, the Board further considered the proposals outlined by T2 and Smith Barney
reviewed with the Board the financial aspects of the four-way business
combination. After considerable discussion by the Board, the Board resolved to
preliminarily approve the four-way business combination, subject to receipt of a
fairness opinion from Smith Barney, and to delay considering a three-way
business combination among Curaflex, Medisys and T2 until such time that
HealthInfusion determined definitively not to pursue the four-way business
combination, and until Smith Barney and Curaflex management were able to analyze
the alternative three-way business combination which T2 had proposed. Each
member of the Board voting on the matter voted in favor of the resolution.
Donald E. Strange abstained from the vote because of his arrangement with
Curaflex pursuant to which he will receive certain consideration as consulting
fees upon consummation of the Merger. See "The Merger -- Interests of Certain
Persons in the Merger."
At a special meeting of the Board of Directors of Medisys on February 2,
1994, representatives of management and members of the Board reviewed with the
entire Board the status of the negotiations regarding the proposed four-way
merger, including greater detail concerning the proposed ownership percentage
and proposed management and severance arrangements. Also at the meeting, legal
counsel for Medisys reported on the terms of the proposed four-way merger
agreement, including specifically the differences from the agreement relating to
the three-way transaction and various proposals relating to the status of the
three-way transaction in the event that the four-way transaction was not
consummated. In addition, legal counsel reported on the status of the due
diligence that had been conducted concerning T2. Also at this meeting,
representatives of Piper Jaffray gave the Medisys Board an overview of the
nature and scope of
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the procedures and methods that Piper Jaffray was using in its financial
analysis of the proposed four-way merger. The representatives of Piper Jaffray
responded to questions from members of the Medisys Board regarding the proposed
four-way merger, but did not, at that time, render any opinion as to the
fairness of the proposed four-way merger.
On February 4, 1994, a special meeting of the Board of Directors of
HealthInfusion was held to discuss certain proposed changes to the four-way
merger proposal made in response to HealthInfusion's concerns, as well as T2's
proposal to pursue a merger transaction with Curaflex and Medisys should
HealthInfusion not elect to participate in the four-way merger transaction.
Representatives of Hambrecht & Quist presented a preliminary financial analysis
of the proposed transaction, with particular emphasis on the impact of revised
estimates of fourth quarter results for each of HealthInfusion, Curaflex and
Medisys, on the anticipated contribution analysis previously summarized for the
Board. After summarizing its revised financial analysis, Hambrecht & Quist
issued its oral opinion (later confirmed in writing) that the four-way merger
transaction was fair, from a financial point of view, to the shareholders of
HealthInfusion. See " -- Opinion of Hambrecht & Quist." Representatives of
Hambrecht & Quist also discussed various benefits and risks of the proposed
four-way merger transaction. Following further discussions among Board members
and management, the Board of Directors unanimously approved the proposed
four-way merger transaction subject to certain conditions, including (i)
confirmation of certain management roles in Coram, (ii) satisfaction that the
transaction would qualify as a pooling-of-interests for accounting purposes, and
(iii) the Board's review of the final, definitive merger documentation.
Curaflex held a special meeting of its Board of Directors on February 4,
1994, to consider and approve the four-way business combination. Smith Barney
presented its financial analysis of the transaction, and rendered its oral
opinion (subsequently confirmed in writing) to the effect that, as of such date,
the Curaflex Exchange Ratio was fair, from a financial point of view, to the
holders of Curaflex Common Stock. The financial analyses and opinion of Smith
Barney are discussed below under "-- Opinion of Smith Barney." After discussions
among the Board of Directors, Curaflex management and its advisors, and a review
with Curaflex's outside counsel, Morrison & Foerster, of the terms of the Merger
Agreement (including the revised terms of the employment and severance
arrangements to be offered to certain T2, Curaflex, HealthInfusion and Medisys
executive officers and consultants), each member of the Board of Directors
voting on the matter approved the proposed merger between T2, Curaflex,
HealthInfusion and Medisys, and the terms thereof, including the exchange
ratios, and directed Mr. Laverty to finalize and execute the Merger Agreement.
As discussed above in connection with Curaflex's February 2 meeting, Donald E.
Strange abstained from voting.
On February 4, 1994, a special meeting of the Board of Directors of Medisys
was convened to consider the proposed Merger Agreement among Curaflex,
HealthInfusion, Medisys and T2, a draft of which had previously been provided to
each Board member. At this meeting, a representative of Oppenheimer Wolff &
Donnelly made a presentation to the Medisys Board regarding the structure of the
transaction and the material terms of the Merger Agreement. Following this
presentation, Piper Jaffray made a presentation to the Medisys Board and
responded to questions from members of the Board regarding its analysis of the
fairness to the stockholders of Medisys of the consideration to be received in
the Merger. At this time, Piper Jaffray also delivered its oral opinion (later
confirmed in writing) as to the fairness, from a financial point of view, to the
stockholders of Medisys of the consideration to be received in the Merger. The
financial analyses and opinion of Piper Jaffray are discussed below under
"-- Opinion of Piper Jaffray." Following discussion of the proposed Merger, each
member of the Board of Directors of Medisys voting on the matter approved the
proposed Merger and authorized the officers of Medisys to finalize the
negotiations and execute the Merger Agreement.
Between February 4 and February 6, 1994, representatives of the four
companies continued their discussions.
On February 6, 1994, a special meeting of the Board of Directors of
HealthInfusion was held to confirm the satisfaction of the conditions to
HealthInfusion's approval and execution of the Merger Agreement established at
the prior Board meeting. Following an informational update by Mr. Gilman and a
discussion of certain contemplated changes to the Merger Agreement, the Board
authorized and directed Mr. Gilman to execute the Merger Agreement.
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On February 6, 1994, a special meeting of the Board of Directors of T2 was
convened to consider the proposed four-way merger and Merger Agreement in its
final negotiated form. All directors participated in the meeting as well as Mr.
Sweeney, T2's outside counsel and other advisors. At the meeting (i) Mr. Haire
summarized developments since the February 1 Board meeting, (ii) T2's outside
legal counsel and other advisors again described the scope of the due diligence
investigation performed on the other three companies, (iii) Kidder, Peabody
confirmed its oral opinion previously delivered at the February 1 meeting and
(iv) T2's outside counsel made a presentation regarding the structure of the
transaction and the principal terms and conditions of the Merger Agreement in
its final form. The Board again considered the Grace Proposal and concluded that
such proposal was highly contingent and would involve extensive negotiation and
documentation as well as satisfaction of conditions outside of T2's control. The
Board weighed such factors against the imminence of entering into the four-way
merger and the prospect of not being able to participate in such transaction as
an alternative if T2 imposed any delay to pursue the Grace Proposal. Finally,
the Board considered the price per share and form of consideration included in
the Grace Proposal and the fact that the Grace Proposal imposed a ceiling of
$10.25 on the value per share of T2 Common Stock which would be received by the
T2 stockholders. In light of such considerations the T2 Board did not consider
the value per share of T2 Common Stock offered by the Grace Proposal sufficient
enough to be in the best interest of T2 and its stockholders compared to the
prospects for increasing stockholder value through the proposed Merger. After
discussion, the T2 Board of Directors approved the Merger and the transactions
contemplated thereby by a vote of 4-1 with Anthony C. Smith casting the vote
against the proposal. In so doing, Mr. Smith expressed (i) concern as to whether
the other parties' historical operating results reflected current pricing and
reimbursement pressures being imposed by third party payors on the infusion
therapy industry generally; (ii) a concern over the fact that the Merger
Agreement did not include a mechanism for adjusting the stock exchange ratio to
account for changes in the business or financial condition of the constituent
companies; (iii) concern over the amount of the "break-up" fees contemplated by
the Merger Agreement; (iv) concern regarding the amount of transaction fees and
severance payments associated with the proposed transactions and the fact that
T2's financial resources would be used partially to fund such obligations; and
(v) concern that Kidder, Peabody's analysis of the potential pro forma financial
effects of the Merger was based in part on financial forecasts of each of the
other constituent companies prepared by their respective managements. Mr. Smith
also expressed disagreement with the Board's determination to pursue the Merger
as opposed to further discussions with Grace. While other Board members had also
noted concerns similar to those raised by Mr. Smith, such members concluded that
the benefits associated with the Merger outweighed the noted concerns.
Accordingly, such members concluded that the Merger was in the best interests of
T2 and its stockholders for the reasons described herein and voted to recommend
approval of the Merger to T2's stockholders. See "Background of the
Merger -- T2's Reasons for the Merger and Board of Directors' Recommendation."
Thereafter, on February 6, 1994, representatives from each of T2, Curaflex,
HealthInfusion and Medisys executed the four-way Agreement and Plan of Merger. A
copy of the four-way Agreement and Plan of Merger is attached to this Joint
Proxy Statement/Prospectus as Appendix A-1.
On March 9, 1994, the Curaflex Board of Directors held a meeting to
consider the Coram 1994 Stock Option/Stock Issuance Plan and the Coram Employee
Stock Purchase Plan. After discussions among the Board of Directors, Curaflex
management and its advisors, the Board of Directors (with Mr. Strange abstaining
for the reasons discussed above) ratified the Merger Agreement and the
transactions contemplated thereby and approved adoption by Coram of the 1994
Stock Option/Stock Issuance Plan and the Employee Stock Purchase Plan, subject
to approval by the stockholders of each of T2, Curaflex, HealthInfusion and
Medisys. Each member of the Board voting on this matter voted in favor of these
resolutions.
On March 24, 1994, the Medisys Board of Directors held a meeting to
consider the Coram 1994 Stock Option/Stock Issuance Plan and the Coram Employee
Stock Purchase Plan. After discussions among the Board of Directors, Medisys
management and its advisors, the Board of Directors approved the adoption by
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Coram of the 1994 Stock Option/Stock Issuance Plan and the Employee Stock
Purchase Plan, subject to approval by the stockholders of each of T2, Curaflex,
HealthInfusion and Medisys.
The Merger Agreement entered into on February 6, 1994 provided that Charles
A. Laverty would be Coram's President and Chief Executive Officer. On March 28,
1994, Messrs. Sweeney, Carter, Gilman and Smith called Sage Givens, a director
of Curaflex, to communicate their belief that, in addressing the difficult
issues of merging four companies into one, the Chief Executive Officer of Coram
should be someone not currently employed by T2, Curaflex, HealthInfusion or
Medisys. Mr. Sweeney had subsequent telephone conversations during the next few
days with a number of the other outside directors of Curaflex. On April 6, 1994,
Mr. Sweeney and Messrs. Carter, Gilman and Smith (as representatives of T2,
HealthInfusion and Medisys, respectively) met with the Board of Directors of
Curaflex to discuss their concerns about who should be the President and Chief
Executive Officer of Coram. Later that day, the Curaflex Board of Directors
received a letter from Messrs. Sweeney, Carter, Gilman and Smith requesting that
the dialogue between them and the Curaflex Board be continued and that, if the
Curaflex Board ultimately determined that Mr. Laverty should be the Chief
Executive Officer of Coram, the other companies would honor that decision. The
Curaflex Board appointed outside directors Sage Givens and Jack Chamberlin to
act as their representatives in the discussions on the Coram Chief Executive
Officer issue.
During the next three weeks, Mr. Sweeney, Mr. Chamberlin and Ms. Givens had
several further discussions. During this period, Mr. Sweeney also had a number
of discussions with Mr. Laverty concerning their respective roles with Coram
going forward. On April 29, 1994, Messrs. Sweeney and Laverty reached agreement
as to their respective management positions at Coram after the Merger and
proposed revisions to be made to the Merger Agreement and to Mr. Laverty's
proposed employment agreement with Coram.
During the week of May 2, 1994, the Boards of Directors of each of T2,
Curaflex and Coram approved amendments to the Merger Agreement providing for (i)
Mr. Sweeney to be the Chairman and Chief Executive Officer of Coram, (ii) Mr.
Laverty to be the Senior Executive Vice President of Coram, (iii) the
designation of Norman H. Werthwein as the Acting Chief Financial Officer of
Coram, and (iv) revised terms for the employment agreement with Mr. Laverty
called for by the Merger Agreement. Such amendments were approved by the Board
of HealthInfusion on May 25, 1994 and by the Board of Medisys on May 26, 1994. A
copy of such First Amendment to Agreement and Plan of Merger is attached to this
Joint Proxy Statement/Prospectus as Appendix A-2.
On May 5, 1994, the HealthInfusion Board of Directors held a meeting to
consider the Coram 1994 Stock Option/Stock Issuance Plan and the Coram Employee
Stock Purchase Plan. After discussions among the Board of Directors,
HealthInfusion management and its advisors, the Board of Directors unanimously
recommended adoption by Coram of the 1994 Stock Option/Stock Issuance Plan and
the Employee Stock Purchase Plan, subject to approval by the stockholders of
each of T2, Curaflex, HealthInfusion and Medisys.
Pursuant to a Unanimous Written Consent of the Board of Directors of T2
dated June 2, 1994, the T2 Board of Directors unanimously recommended adoption
by Coram of the Coram 1994 Stock Option/Stock Issuance Plan and the Coram
Employee Stock Purchase Plan, subject to approval by the stockholders of each of
T2, Curaflex, HealthInfusion and Medisys.
Determination of Exchange Ratios. The exchange ratios for the initial
three-way merger were determined by arms-length negotiations among the
Representatives for the three companies. The Representatives considered the
business, operations and management of each of the companies to be substantially
comparable. It was, therefore, deemed appropriate to value each company on a
comparable basis. The Representatives initially considered relative exchange
ratios based on market trading prices of each of the companies over periods
ranging from 1 to 365 days. Basing relative ownership solely on the market
prices for the three companies at November 29, 1993, the resulting ownership of
Curaflex, HealthInfusion and Medisys stockholders in the combined entity would
have been 39%, 30% and 31%, respectively. The implied ownership ratios resulting
from such trading prices created a perceived disparity from the goal of valuing
the companies on a comparable basis due to differences in the historical
multiples for each company, including an historical high price-to-earnings ratio
for Medisys as compared to an historical low price-to-earnings ratio for
HealthInfusion. The Representatives then considered the relative contribution of
each company to the
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earnings of the combined entity for periods from 1990-1995, including the
projected earnings of HealthInfusion which approximated the projected earnings
of Curaflex, and determined that the exchange ratios should result in relative
ownership in the combined entity which would more closely reflect the relative
earnings contribution of each Curaflex, HealthInfusion and Medisys to the
historical and projected earnings of the combined entity, rather than historical
market valuations. The final exchange ratios for the three-way merger were then
negotiated by the Representatives and, as a result of those exchange ratios, the
stockholders of Curaflex, HealthInfusion and Medisys would have received
owneship interests in the combined entity of approximately 39.6%, 37.67% and
22.67%. Based on the public market valuations at the time of the December 1,
1993 execution of the three-way merger agreement among Curaflex, HealthInfusion
and Medisys, the exchange ratios for the three companies (which are also the
Exchange Ratios for those companies under the Merger Agreement) implied a
premium to HealthInfusion shareholders and a discount for stockholders of
Curaflex and Medisys.
Upon the entrance of T2 into the Merger negotiations, it was determined
that the initial three-way valuations should not be altered, since a binding
Merger Agreement among the initial three companies had already been executed. At
the January 17, 1994 meeting discussed above, T2's representatives indicated
that it would be necessary for T2 stockholders to receive a premium over T2
Common Stock's then current market price if the three other companies wanted to
add T2 to the pending three-way merger transaction. Based on this, the parties
negotiated a preliminary exchange ratio of 0.627 for T2 which reflected T2's
contribution to an implied transaction value of the Merger as determined by
reference to the then current trading prices for Curaflex Common Stock,
HealthInfusion Common Stock and Medisys Common Stock multiplied by their
respective number of estimated fully diluted shares outstanding and an assumed
trading price for T2 Common Stock of $10.50 per share multipled by T2's fully
diluted shares outstanding. The parties utilized a different methodology in
determining T2's Exchange Ratio because of T2's negotiating position that a
$10.50 per share value for T2 Common Stock was necessary. The preliminary T2
exchange ratio based on the $10.50 per share proposal by T2 was anticipated to
result in a relative ownership interest in Coram for T2, Curaflex,
HealthInfusion and Medisys stockholders of approximately 66.2%, 13.1%, 12.3% and
8.4%, respectively. However, when the final fully diluted share calculations
were performed by the companies' investment bankers utilizing the treasury stock
method, applying a $10.50 per share assumed valuation for T2 resulted in a
higher exchange ratio for T2 than the preliminary exchange ratio, with attendant
relative ownership interests in Coram for T2 stockholders that was higher than
initially anticipated and for HealthInfusion and Medisys stockholders that were
lower than initially anticipated. (The treasury stock method values common stock
equivalents outstanding (e.g., options and warrants) and, consistent with the
fully diluted calculations for the three-way merger, shares issuable post-Merger
as a result of pre-existing earnout arrangements were excluded.) After further
negotiations between the parties, the final T2 Exchange Ratio (0.630) was agreed
upon, resulting in Coram ownership interests for T2, Curaflex, HealthInfusion
and Medisys stockholders at the time of approximately 67.2%, 13.3%, 11.6% and
7.9%, respectively. The various Exchange Ratios determine the percentage of
ownership interest the stockholders of T2, Curaflex, HealthInfusion and Medisys
will have in Coram.
T2'S REASONS FOR THE MERGER AND BOARD OF DIRECTORS' RECOMMENDATION
T2's Board of Directors believes that the Merger is fair to and in the best
interests of T2 and its stockholders, that the terms of the Merger Agreement are
fair to T2 and its stockholders and has approved the Merger Agreement and the
Merger and the transactions contemplated thereby. T2'S BOARD OF DIRECTORS
RECOMMENDS THAT T2'S STOCKHOLDERS VOTE IN FAVOR OF THE PROPOSAL TO ADOPT THE
MERGER AGREEMENT AND THE MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY.
At meetings held on February 1 and 6, 1994, T2's Board of Directors, with
the assistance of Kidder, Peabody and T2's outside legal and other advisors,
considered the terms and structure of the Merger and the related transactions
and reviewed the legal, financial and other ramifications of the Merger and the
related transactions.
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In reaching its decision to enter into and to recommend the adoption of the
Merger Agreement and the Merger, T2's Board of Directors considered a number of
factors, including, without limitation, the following:
1. The relative trading prices of T2 Common Stock, Curaflex Common
Stock, HealthInfusion Common Stock and Medisys Common Stock. The T2 Board
placed particular emphasis on the substantial ownership (approximately 67%)
of Coram that T2's stockholders would have as a result of the T2 Exchange
Ratio and the opportunity such ownership would afford T2 stockholders to
ultimately influence the policies and management of Coram.
2. The results of operations, financial condition, competitive
position and prospects of each of T2, Curaflex, HealthInfusion and Medisys,
both on an historical and prospective basis and as separate and combined
entities, for T2 prepared by T2's management, particularly in light of the
rapidly changing conditions and trend toward consolidation in the infusion
therapy industry. See "Risk Factors." The T2 Board concluded that T2 needed
greater size in order to effectively compete and that the Merger would
enable T2 to attain such size far more rapidly than by remaining
independent.
3. The need for T2 to establish a larger sales force. The T2 Board
concluded that the Merger would enable T2 to immediately and substantially
increase its relatively small sales force by combining its sales force with
the sales forces of Curaflex, HealthInfusion and Medisys. As of March 31,
1994, T2 had a total of only twelve persons working on a full-time basis
within its managed care and traditional sales forces. With the addition of
the respective sales forces of Curaflex, HealthInfusion and Medisys, the
combined companies will have a sales force in excess of 100 persons. The T2
Board believed that the "purchase" of a sales force was the most
expeditious way to build a foundation to support future revenues.
4. The opportunity that the Merger will provide for T2's stockholders
to have continued equity participation in a larger, more diversified
enterprise with enhanced geographic presence and generally greater
managerial, financial and marketing resources and opportunities. In
particular, the T2 Board concluded that the strength of HealthInfusion's
presence in Florida and the Southeastern United States, of Medisys'
presence in the Midwest and of Curaflex's presence in the Western United
States coupled with the strength of the field organizations supporting such
presence, would provide T2 with opportunities for expansion that it would
not otherwise have on its own. The T2 Board of Directors concluded that by
combining its resources with the other constituent companies pursuant to
the Merger, T2's ability to compete more effectively against other
companies in the industry, several of which have significantly greater
resources than T2, would be enhanced.
5. The presentation of Kidder, Peabody to the T2 Board of Directors on
February 1, 1994, including Kidder, Peabody's oral opinion which it
confirmed on February 6, 1994 (and subsequently confirmed in writing), to
the effect that the T2 Exchange Ratio was fair, from a financial point of
view, to the holders of T2 Common Stock. The Board of Directors of T2 was
not presented with a specific valuation range for T2 and therefore the
Board of Directors was unable to consider such information in making its
determinations. The T2 Board of Directors considered the various financial,
comparative, pro forma and contribution analyses of T2, Curaflex,
HealthInfusion and Medisys, included in Kidder, Peabody's presentation and
felt that such analyses, taken as a whole, supported a conclusion that the
T2 Exchange Ratio was fair, from a financial point of view, to the T2
stockholders. See "-- Opinion of Kidder, Peabody." Such conclusion was a
key factor in the T2 Board's decision to recommend approval of the Merger.
6. The terms of the Merger Agreement and the structure of the Merger
generally. In regard to the Merger Agreement, the T2 Board of Directors
placed special emphasis on the usual and customary nature of the conditions
to closing as well as the "no shop" and "break up" fees applicable to the
constituent companies in the Merger Agreement. The T2 Board of Directors
concluded that the nature of the closing conditions provided T2 with
reasonable assurance that the Merger, once announced, would ultimately be
consummated. Moreover, the T2 Board of Directors concluded that the
consequences of the "no shop" and "break up" fee provisions to the other
constituent companies offered T2 assurance that each of the other
constituent companies was sufficiently committed to consummating the
Merger.
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7. The fact that the Merger should permit the holders of T2 Common
Stock to exchange their shares for Coram Common Stock on a tax-free basis.
See "Merger -- Terms of the Merger Agreement" and "-- Federal Income Tax
Consequences." Business combination transactions in which there is a
material cash component as part of the consideration to be received by
stockholders, as opposed to an exchange of shares as in the Merger
transaction, may result in a taxable event to such stockholders upon
consummation of such transaction.
8. Provisions of the Merger Agreement permitting T2, to the extent
required to fulfill the fiduciary duties of its Board of Directors, to
participate in negotiations or discussions with respect to alternative
offers or proposals to acquire all or substantially all of the business,
properties or capital stock of T2 and permitting T2's Board of Directors to
pursue such an alternative acquisition proposal, subject to the payment of
a specified "break-up" fee. See "-- Terms of the Merger Agreement." The T2
Board of Directors believed that such provisions adequately provided for
the ability of T2 to entertain unsolicited third party acquisition
proposals, and thus fulfill its fiduciary duties to T2 and the T2
stockholders, while still participating in the Merger.
9. The results of T2's previous efforts in pursuing alternative
business combination transactions designed to enhance stockholder value.
Prior business combination possibilities considered by the T2 Board of
Directors would not have resulted in T2 achieving a scale of operations
equivalent in size and scope to the combined operations resulting from the
Merger. The T2 Board concluded that the Merger presented the most likely
available and viable alternative for achieving the greater scale necessary
for effectively competing in a rapidly consolidating industry while
obtaining a satisfactory benefit to the stockholders of T2.
10. The T2 Board of Directors believes that the resulting conversion
of shares of T2 Common Stock that are currently restricted by operation of
the securities laws into freely tradeable shares of Coram Common Stock
should result in a greater base of stockholders who can potentially trade
on the open market, providing for a more active, liquid trading market. See
"Price Range of Common Stock -- Market for T2 Common Stock and Related
Stockholder Matters."
In view of the variety of factors considered by T2's Board of Directors in
connection with its evaluation of the Merger, the Board did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
such factors. However, in reaching the decision to approve the Merger Agreement,
the T2 Board was most strongly influenced by the factors set forth in items 1,
2, 4, 5, 8 and 9.
In addition, with respect to the pending SEC inquiry of and stockholder
litigation against T2, the T2 Board of Directors has consulted with and been
advised by outside legal counsel in regard to the ongoing status and possible
adverse consequences thereof. Although the ultimate outcome of such inquiry and
litigation cannot presently be determined, the T2 Board believes that T2 is
responding to such inquiry and has meritorious defenses in such litigation and,
based on such consultation and advice and after due consideration, concluded
that the risks associated with such matters should be considered in the context
of the transaction as a whole and that, in light of such consideration, such
risks and the uncertainty of the outcome of such inquiry and litigation should
not preclude the Board's recommendation of the approval of the Merger Agreement
and the Merger to the T2 stockholders.
The T2 Board concluded, in light of these factors, that the Merger is in
the best interests of T2 and its stockholders and is fair to its stockholders.
THE BOARD OF DIRECTORS OF T2 RECOMMENDS THAT THE STOCKHOLDERS OF T2 APPROVE THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
OPINION OF KIDDER, PEABODY
T2 engaged Kidder, Peabody to render an opinion as to whether the T2
Exchange Ratio is fair, from a financial point of view, to the holders of shares
of T2 Common Stock.
Kidder, Peabody delivered its oral opinion to the Board of Directors of T2
on February 1, 1994, which it confirmed on February 6, 1994, to the effect that,
as of the date of such opinion, the T2 Exchange Ratio was
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fair, from a financial point of view, to the stockholders of T2. Kidder, Peabody
subsequently rendered a written opinion confirming its earlier oral opinion
that, as of June 3, 1994, the T2 Exchange Ratio is fair, from a financial point
of view, to the holders of shares of T2 Common Stock. THE FULL TEXT OF THE
WRITTEN OPINION OF KIDDER, PEABODY WHICH SETS FORTH THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED, LIMITATIONS ON AND THE SCOPE OF THE
REVIEW BY KIDDER, PEABODY IN RENDERING ITS OPINION IS ATTACHED AS APPENDIX F TO
THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. T2
STOCKHOLDERS ARE URGED TO READ KIDDER, PEABODY'S OPINION IN ITS ENTIRETY.
In connection with its opinion, Kidder, Peabody reviewed, among other
things, the Merger Agreement and, in connection with its written opinion dated
June 3, 1994, the Proxy Statement/Prospectus as filed with the Commission.
Kidder, Peabody also reviewed certain financial and other information with
respect to T2, Curaflex, HealthInfusion and Medisys, (collectively, the
"Companies") that was publicly available or furnished to Kidder, Peabody by or
on behalf of the Companies, including certain internal financial analyses,
financial forecasts, reports and other information prepared by the Companies'
respective managements and representatives. Kidder, Peabody held discussions
with the managements and representatives of the Companies concerning the
Companies' respective historical and current operations, financial condition and
prospects as well as the strategic and operating benefits anticipated from the
Merger. In addition, Kidder, Peabody: (i) reviewed the prices and trading
histories of the common stock of each of the Companies and compared such prices
and trading histories with those of publicly traded companies it deemed relevant
for purposes of its opinion; (ii) compared the financial positions and operating
results of each of the Companies with those of publicly traded companies it
deemed relevant for purposes of its opinion; (iii) compared certain financial
terms of the Merger to certain financial terms of selected business combinations
it deemed relevant for purposes of its opinion; (iv) reviewed the potential pro
forma financial effects of the Merger on T2; and (v) conducted such other
financial studies, analyses and investigations and reviewed such other factors
as it deemed appropriate for purposes of its opinion.
In rendering its opinion, Kidder, Peabody relied, without independent
verification, on the accuracy and completeness of all financial and other
information reviewed by Kidder, Peabody that was publicly available or furnished
to it by or on behalf of the Companies. Kidder, Peabody assumed that the
financial forecasts which it examined were reasonably prepared on bases
reflecting the best currently available estimates and good faith judgments of
the respective managements of each of the Companies with respect to the future
performance of the respective Companies. Kidder, Peabody also assumed, with T2's
consent, that: (i) the strategic and operating benefits anticipated by the
management and representatives of T2 will be realized from the Merger; (ii) the
Merger will be accounted for under the pooling-of-interests method of
accounting; (iii) the Merger will be a tax-free reorganization; (iv) no
adjustment will be made to the respective Exchange Ratios; and (v) all material
liabilities (contingent or otherwise, known or unknown) of the Companies are as
set forth in the consolidated financial statements of the Companies. Kidder,
Peabody did not make an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Companies nor was Kidder, Peabody
furnished with any such evaluations or appraisals. Kidder, Peabody was not
requested to, and did not, participate in the structuring or negotiating of the
Merger and was not requested to and did not opine with respect to the Grace
Proposal. Kidder, Peabody was not asked to and did not determine the T2 Exchange
Ratio, which was determined in arms-length negotiations among the Companies.
Kidder, Peabody's opinion is based upon the economic, monetary and market
conditions existing on the date of such opinion. Furthermore, Kidder, Peabody
expressed no opinion as to the range at which shares of Coram Common Stock will
trade subsequent to the consummation of the Merger. T2 did not place any
limitations upon Kidder, Peabody with respect to the procedures followed or
factors considered by Kidder, Peabody in rendering its opinion.
Kidder, Peabody believes that its analyses must be considered as a whole
and that selecting portions of its analyses and of the factors considered by it,
without considering all factors and analyses, could create a misleading view of
the processes underlying its opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. In its analyses, Kidder, Peabody made numerous assumptions
with respect to industry performance, general business, regulatory and economic
conditions and other matters, many of which are beyond the control of the
Companies. Any estimates contained therein are not necessarily indicative of
future results or actual values, which may be
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significantly more or less favorable than such estimates. Estimates of values of
companies or assets do not purport to be appraisals or necessarily reflect the
prices at which companies or assets may actually be sold. Because such estimates
are inherently subject to uncertainty, none of Curaflex, HealthInfusion,
Medisys, T2, Kidder, Peabody or any other person assumes responsibility for
their accuracy.
In connection with rendering its oral opinion and preparing its oral
presentation to the Board of Directors of T2, Kidder, Peabody performed a
variety of financial analyses, including those summarized below. The summary set
forth below does not purport to be a complete description of the analyses
performed by Kidder, Peabody in this regard.
ANALYSES RELATING TO CURAFLEX
Comparative Company Analysis. Kidder, Peabody compared the historical,
current and relevant projected financial and operating results of Curaflex with
that of such financial and operating results of selected publicly traded home
infusion therapy and/or alternate site care providers it deemed relevant (the
"Curaflex Comparative Companies"). The Curaflex Comparative Companies were
chosen based on conversations with T2 management as to companies which possess
general business, operating and financial characteristics representative of
companies in the industry in which Curaflex operates. The Curaflex Comparative
Companies consisted of Abbey Healthcare Group, Inc., Caremark International,
Inc., HealthInfusion, Inc., Home Nutritional Services, Inc., Medical Care
America, Inc., Medisys, Inc., Quantum Health Resources, Inc., RoTech Medical
Corporation, T2 Medical, Inc., Tokos Medical Corporation and U.S. HomeCare
Corporation.
In order to measure Curaflex's current operating performance with that of
the Curaflex Comparative Companies, Kidder, Peabody considered, among other
things, that: (i) Curaflex's 1990 to latest four quarters compounded annual
growth rate in sales was 54.9% compared with a median 1990 to latest four
quarters compounded annual growth rate in sales for the Curaflex Comparative
Companies of 34.8%; (ii) Curaflex's 1990 to latest four quarters compounded
annual growth rate in earnings before interest, taxes, depreciation and
amortization ("EBITDA") was unable to be calculated mathematically because of a
negative base (i.e., the losses Curaflex incurred in 1990) and was therefore not
meaningful compared with a median 1990 to latest four quarters compounded annual
growth rate in EBITDA for the Curaflex Comparative Companies of 38.2%; (iii)
Curaflex's 1990 to latest four quarters compounded annual growth rate in
earnings before interest and taxes ("EBIT") was unable to be calculated
mathematically because of a negative base (i.e., the losses Curaflex incurred in
1990) and was therefore not meaningful compared with a median 1990 to latest
four quarters compounded annual growth rate in EBIT for the Curaflex Comparative
Companies of 41.2%; (iv) Curaflex's 1990 to latest four quarters compounded
annual growth rate in net income was unable to be calculated mathematically
because of a negative base (i.e., the losses Curaflex incurred in 1990) and was
therefore not meaningful compared with a median 1990 to latest four quarters
compounded annual growth rate in net income for the Curaflex Comparative
Companies of 37.1%; and (v) Curaflex's projected five-year growth rate in net
income (as per Institutional Broker's Estimate Service; "IBES") was 15.0%
compared with a median projected five-year growth rate in net income (as per
IBES) for the Curaflex Comparative Companies of 16.3%.
In order to measure Curaflex's profitability with that of the Curaflex
Comparative Companies, Kidder, Peabody considered, among other things, that: (i)
Curaflex's 1990 to latest four quarters average gross margin was 52.2% compared
with a median 1990 to latest four quarters average gross margin for the Curaflex
Comparative Companies of 41.4%; (ii) Curaflex's 1990 to latest four quarters
average EBITDA margin was 3.7% compared with a median 1990 to latest four
quarters average EBITDA margin for the Curaflex Comparative Companies of 15.3%;
(iii) Curaflex's 1990 to latest four quarters average EBIT margin was 1.8%
compared with a median 1990 to latest four quarters average EBIT margin for the
Curaflex Comparative Companies of 10.8%; (iv) Curaflex's 1990 to latest four
quarters average net income margin was not meaningful compared with a median
1990 to latest four quarters average net income margin for the Curaflex
Comparative Companies of 7.9%; (v) Curaflex's 1990 to latest four quarters
average return on assets (net income divided by average total assets; "ROA") was
not meaningful due to the inclusion of negative numbers (i.e., the losses
Curaflex incurred in 1990) compared with a median 1990 to latest four quarters
average ROA
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for the Curaflex Comparative Companies of 8.3%; and (vi) Curaflex's 1990 to
latest four quarters average return on equity (net income divided by average
total stockholders' equity; "ROE") was not meaningful due to the inclusion of
negative numbers (i.e., the losses Curaflex incurred in 1990) compared with a
median 1990 to latest four quarters average ROE for the Curaflex Comparative
Companies of 18.8%.
In order to assess the relative public market valuations of Curaflex and
the Curaflex Comparative Companies, Kidder, Peabody performed a market analysis
of Curaflex and the Curaflex Comparative Companies. With respect to such
analysis, Kidder, Peabody calculated a range of market multiples for each of the
Curaflex Comparative Companies based on dividing: (i) the market capitalization
(total common shares outstanding times market price per share on January 28,
1994 plus latest reported total debt, capitalized leases and preferred stock,
less cash and cash equivalents; the "Market Capitalization") of each of the
Curaflex Comparative Companies by such company's latest four quarters sales,
EBITDA and EBIT; (ii) the market value (total common shares outstanding times
market price per share on January 28, 1994; the "Market Value") of each of the
Curaflex Comparative Companies by such company's latest four quarters net
income; (iii) the market price (the closing market price per share on January
28, 1994; the "Market Price") of each of the Curaflex Comparative Companies by
such company's estimated calendar 1994 and calendar 1995 earnings per share
("EPS") (as per IBES); and (iv) the Market Value of each Curaflex Comparative
Company by such company's latest reported book value. The range of market
multiples for the Curaflex Comparative Companies included: (i) Market
Capitalization to latest four quarters sales multiples of 0.54x to 3.07x; (ii)
Market Capitalization to latest four quarters EBITDA multiples of 4.0x to 21.7x;
(iii) Market Capitalization to latest four quarters EBIT multiples of 4.6x to
23.5x; (iv) Market Value to latest four quarters net income multiples of 8.4x to
41.4x; (v) Market Price to estimated calendar 1994 EPS (as per IBES) multiples
of 8.0x to 28.9x; (vi) Market Price to estimated calendar 1995 EPS (as per IBES)
multiples of 6.2x to 20.2x; and (vii) Market Value to latest reported book value
multiples of 0.91x to 6.12x. Based on the above measures, Kidder, Peabody then
compared Curaflex's market multiples, based on its closing stock price on
January 28, 1994, with the Curaflex Comparative Companies' median market
multiples in order to establish the relationship between Curaflex's market
multiples and those of the Curaflex Comparative Companies. With respect to such
review, Kidder, Peabody noted that: (i) Curaflex's Market Capitalization to
latest four quarters sales multiple was 0.93x compared with a median Market
Capitalization to latest four quarters sales multiple of 1.06x for the Curaflex
Comparative Companies; (ii) Curaflex's Market Capitalization to latest four
quarters EBITDA multiple was 8.5x compared with a median Market Capitalization
to latest four quarters EBITDA multiple of 8.9x for the Curaflex Comparative
Companies; (iii) Curaflex's Market Capitalization to latest four quarters EBIT
multiple was 11.7x compared with a median Market Capitalization to latest four
quarters EBIT multiple of 10.5x for the Curaflex Comparative Companies; (iv)
Curaflex's Market Value to latest four quarters net income multiple was 17.0x
compared with a median Market Value to latest four quarters net income multiple
of 18.2x for the Curaflex Comparative Companies; (v) Curaflex's Market Price to
estimated calendar 1994 EPS (as per IBES) multiple was 9.6x compared with a
median Market Price to estimated calendar 1994 EPS (as per IBES) multiple of
16.5x for the Curaflex Comparative Companies; and (vi) Curaflex's Market Value
to latest reported book value multiple was 1.05x compared with a median Market
Value to latest reported book value multiple of 2.19x for the Curaflex
Comparative Companies.
Using such information, Kidder, Peabody derived a range of implied
enterprise values (a theoretical aggregate valuation of a corporate entity
before adjustments for non-operating assets and liabilities) for Curaflex of
$92.5 million to $171.9 million by applying the aforementioned market multiples
of the Curaflex Comparative Companies to the appropriate financial statistics of
Curaflex. The range of implied enterprise values of Curaflex was then adjusted
for non-operating assets and liabilities, where relevant, including: (i) total
debt of $25.4 million as of September 30, 1993; and (ii) cash and cash
equivalents of $4.4 million as of September 30, 1993 to yield implied equity
values for Curaflex of $71.4 million to $171.9 million. The range of implied
equity values of Curaflex was then divided by 15,475,990 fully diluted shares of
Curaflex Common Stock outstanding as of January 28, 1994 (representing
14,971,654 shares of Curaflex Common Stock outstanding and 504,336 shares of
Curaflex Common Stock issuable upon exercise of options, computed using the
treasury stock method) to yield implied values of $4.62 to $11.11 per fully
diluted share of Curaflex Common Stock.
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Comparative Transaction Analysis. Kidder, Peabody compared certain
financial and operating statistics of Curaflex with such financial and operating
statistics of selected relevant home infusion therapy and/or alternate site care
providers (the "Acquired Comparative Companies") immediately prior to being
acquired. The transactions involving the Acquired Comparative Companies, which
occurred or were announced between January 1, 1987 and January 28, 1994,
included (acquirer/acquired company): Caremark International/Medical Care
America, Abbey Healthcare Group, Inc./Total Pharmaceutical Care, Inc., Olsten
Corporation/Lifetime Corporation, W.R. Grace & Co./Home Intensive Care, Inc.,
Curaflex Health Services, Inc./Clinical Homecare Ltd., Quantum Health Resources,
Inc./I.V. Clinic, Inc., Medical Care International, Inc./Critical Care America,
Homedco Group, Inc./Glasrock Home Health Care, Inc., Tokos Medical
Corporation/CareLink Corporation, Shareholders of Baxter International,
Inc./Caremark International, Inc., Healthcare Compare
Corporation/Occupational-Urgent Care Health Systems, Inc., Critical Care
America/Teamcare, Inc., New England Critical Care, Inc./Care Plus, Inc.,
Secomerica, Inc./H.M.S.S., Inc., Shareholders of Community Psychiatric
Centers/Vivra Incorporated and Baxter Travenol Laboratories, Inc./Caremark, Inc.
In order to measure Curaflex's current operating performance and
profitability with that of the Acquired Comparative Companies immediately prior
to being acquired, Kidder, Peabody considered, among other things, that: (i)
Curaflex's latest four quarters gross margin was 51.7% compared with a median
latest four quarters gross margin for the Acquired Comparative Companies
immediatley prior to being acquired of 49.0%; (ii) Curaflex's latest four
quarters EBITDA margin was 11.0% compared with a median latest four quarters
EBITDA margin for the Acquired Comparative Companies immediately prior to being
acquired of 18.3%; (iii) Curaflex's latest four quarters EBIT margin was 7.9%
compared with a median latest four quarters EBIT margin for the Acquired
Comparative Companies immediately prior to being acquired of 15.3%; (iv)
Curaflex's latest four quarters net income margin was 4.4% compared with a
median latest four quarters net income margin for the Acquired Comparative
Companies immediately prior to being acquired of 10.3%; (v) Curaflex's latest
four quarters ROA was 5.3% compared with a median latest four quarters average
ROA for the Acquired Comparative Companies of 12.8%; and (vi) Curaflex's latest
four quarters average ROE was 7.1% compared with a median latest four quarters
ROE for the Acquired Comparative Companies of 17.0%.
Kidder, Peabody also performed an analysis of the multiples paid in the
selected acquisition transactions involving the Acquired Comparative Companies
in which it analyzed the adjusted purchase price (the Equity Cost, as defined
below, plus latest reported total debt and capitalized leases, minus total cash
and cash equivalents; the "Adjusted Purchase Price") for each of the Acquired
Comparative Companies and divided such amount by each of such company's
respective latest four quarters sales, EBITDA and EBIT immediately prior to
being acquired to give a range of purchase price multiples. Kidder, Peabody also
analyzed the equity cost (offer price per share multiplied by total common
shares outstanding; the "Equity Cost") for each of the Acquired Comparative
Companies acquired in the selected transactions and divided such amount by each
of such company's respective latest four quarters net income and book value
immediately prior to being acquired to give a range of purchase price multiples.
Additionally, Kidder, Peabody analyzed the premium paid over the
pre-announcement stock price (the percent increase of the offer price per share
over the pre-announcement closing market price; the "Premium over Stock Price")
for each of the Acquired Comparative Companies acquired in the selected
transactions. The range of purchase price multiples and Premium over Stock Price
paid in the selected acquisition transactions involving the Acquired Comparative
Companies included: (i) Adjusted Purchase Price to latest four quarters
(pre-acquisition) sales multiples of 0.37x to 13.25x; (ii) Adjusted Purchase
Price to latest four quarters (pre-acquisition) EBITDA multiples of 6.0x to
49.0x; (iii) Adjusted Purchase Price to latest four quarters (pre-acquisition)
EBIT multiples of 6.5x to 56.0x; (iv) Equity Cost to latest four quarters
(pre-acquisition) net income multiples of 2.3x to 87.6x; (v) Equity Cost to
latest reported (pre-acquisition) book value multiples of 0.85x to 15.34x; and
(vi) Premium over Stock Price of 3.2% to 149.6%.
Using such information, Kidder, Peabody derived a range of implied
enterprise values for Curaflex of $108.9 million to $297.7 million by applying
the aforementioned purchase price multiples and Premium over Stock Price paid in
the selected acquisition transactions involving the Acquired Comparative
Companies to the appropriate financial statistics of Curaflex. The range of
implied enterprise values of Curaflex was then
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adjusted for non-operating assets and liabilities, where relevant, including:
(i) total debt of $25.4 million as of September 30, 1993; and (ii) cash and cash
equivalents of $4.4 million as of September 30, 1993, to yield implied equity
values for Curaflex of $108.9 million to $297.7 million. The range of implied
equity values of Curaflex was then divided by 15,475,990 fully diluted shares of
Curaflex Common Stock outstanding as of January 28, 1994 (representing
14,971,654 shares of Curaflex Common Stock outstanding and 504,336 shares of
Curaflex Common Stock issuable upon exercise of options, computed using the
treasury stock method) to yield implied values of $7.04 to $19.24 per fully
diluted share of Curaflex Common Stock.
Other Factors. In rendering its opinion, Kidder, Peabody considered certain
other factors of which the material factors included: (i) a review of Curaflex's
business and operations and the industry in which Curaflex operates to increase
its understanding of Curaflex's business and its position within the industry in
which it operates; (ii) a review of Curaflex's historical operating results and
the fiscal 1993 and 1994 financial forecast for Curaflex, provided by Curaflex
management, to increase Kidder, Peabody's understanding of the financial
performance and prospects of Curaflex's business; (iii) a review of the current
book value of Curaflex Health Services, Inc.; and (iv) a review of the stock
price performance of Curaflex and the Curaflex Comparative Companies and
selected market indices over a one-year period to provide perspective on current
and historical public market valuations and stock price performance of Curaflex
and the Curaflex Comparative Companies relative to selected market indices.
ANALYSES RELATING TO HEALTHINFUSION
Comparative Company Analysis. Kidder, Peabody compared the historical,
current and relevant projected financial and operating results of HealthInfusion
with that of such financial and operating results of selected publicly traded
home infusion therapy and/or alternative site care providers it deemed relevant
(the "HealthInfusion Comparative Companies"). The HealthInfusion Comparative
Companies were chosen based on conversations with T2 management as to companies
which possess general business, operating and financial characteristics
representative of companies in the industry in which HealthInfusion operates.
The HealthInfusion Comparative Companies consisted of Abbey Healthcare Group,
Inc., Caremark International, Inc., Curaflex Health Services, Inc., Home
Nutritional Services, Inc., Medical Care America, Inc., Medisys, Inc., Quantum
Health Resources, Inc., RoTech Medical Corporation, T2 Medical, Inc., Tokos
Medical Corporation and U.S. HomeCare Corporation.
In order to measure HealthInfusion's current operating performance with
that of the HealthInfusion Comparative Companies, Kidder, Peabody considered,
among other things, that: (i) HealthInfusion's 1990 to latest four quarters
compounded annual growth rate in sales was 85.8% compared with a median 1990 to
latest four quarters compounded annual growth rate in sales for the
HealthInfusion Comparative Companies of 34.8%; (ii) HealthInfusions's 1990 to
latest four quarters compounded annual growth rate in EBITDA was 55.3% compared
with a median 1990 to latest four quarters compounded annual growth rate in
EBITDA for the HealthInfusion Comparative Companies of 36.0%; (iii)
HealthInfusion's 1990 to latest four quarters compounded annual growth rate in
EBIT was 49.5% compared with a median 1990 to latest four quarters compounded
annual growth rate in EBIT for the HealthInfusion Comparative Companies of
40.8%; (iv) HealthInfusion's 1990 to latest four quarters compounded annual
growth rate in net income was 43.0% compared with a median 1990 to latest four
quarters compounded annual growth rate in net income for the HealthInfusion
Comparative Companies of 31.3%; and (v) HealthInfusion's projected five-year
growth rate in net income (as per IBES) was 22.0% compared with a median
projected five-year growth rate in net income (as per IBES) for the
HealthInfusion Comparative Companies of 15.0%.
In order to measure HealthInfusion's profitability with that of the
HealthInfusion Comparative Companies, Kidder, Peabody considered, among other
things, that: (i) HealthInfusion's 1990 to latest four quarters average gross
margin was 44.4% compared with a median 1990 to latest four quarters average
gross margin for the HealthInfusion Comparative Companies of 43.0%, (ii)
HealthInfusion's 1990 to latest four quarters average EBITDA margin was 28.1%
compared with a median 1990 to latest four quarters average EBITDA margin for
the HealthInfusion Comparative Companies of 12.3%; (iii) HealthInfusion's 1990
to latest four quarters average EBIT margin was 25.6% compared with a median
1990 to latest four quarters average EBIT margin for the HealthInfusion
Comparative Companies of 10.0%; (iv) HealthInfusion's 1990 to latest four
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quarters average net income margin was 14.7% compared with a median 1990 to
latest four quarters average net income margin for the HealthInfusion
Comparative Companies of 7.2%; (v) HealthInfusion's 1990 to latest four quarters
average ROA was 8.3% compared with a median 1990 to latest four quarters average
ROA for the HealthInfusion Comparative Companies of 7.6%; and (vi)
HealthInfusion's 1990 to latest four quarters average ROE was 26.7% compared
with a median 1990 to latest four quarters average ROE for the HealthInfusion
Comparative Companies of 18.1%.
In order to assess the relative public market valuations of HealthInfusion
and the HealthInfusion Comparative Companies, Kidder, Peabody performed a market
analysis of HealthInfusion and the HealthInfusion Comparative Companies. With
respect to such analysis, Kidder, Peabody calculated a range of market multiples
for each of the HealthInfusion Comparative Companies based on dividing: (i) the
Market Capitalization of each of the HealthInfusion Comparative Companies by
such company's latest four quarters sales, EBITDA and EBIT; (ii) the Market
Value of each of the HealthInfusion Comparative Companies by such company's
latest four quarters net income; (iii) the Market Price of each of the
HealthInfusion Comparative Companies by such company's estimated calendar 1994
and calendar 1995 EPS (as per IBES); and (iv) the Market Value of each
HealthInfusion Comparative Company by such company's latest reported book value.
The range of market multiples for the HealthInfusion Comparative Companies
included: (i) Market Capitalization to latest four quarters sales multiples of
0.51x to 3.07x; (ii) Market Capitalization to latest four quarters EBITDA
multiples of 4.0x to 21.7x; (iii) Market Capitalization to latest four quarters
EBIT multiples of 4.6x to 23.5x; (iv) Market Value to latest four quarters net
income multiples of 8.4x to 41.4x; (v) Market Price to estimated calendar 1994
EPS (as per IBES) multiples of 9.6x to 28.9x; (vi) Market Price to estimated
calendar 1995 EPS (as per IBES) multiples of 6.2x to 20.2x; and (vii) Market
Value to latest reported book value multiples of 0.91x to 6.12x. Based on the
above measures, Kidder, Peabody then compared HealthInfusion's market multiples,
based on its closing stock price on January 28, 1994, with the HealthInfusion
Comparative Companies' median market multiples in order to establish the
relationship between HealthInfusion's market multiples and those of the
HealthInfusion Comparative Companies. With respect to such review, Kidder,
Peabody noted that: (i) HealthInfusion's Market Capitalization to latest four
quarters sales multiple was 1.32x compared with a median Market Capitalization
to latest four quarters sales multiple of 1.00x for the HealthInfusion
Comparative Companies; (ii) HealthInfusion's Market Capitalization to latest
four quarters EBITDA multiple was 6.0x compared with a median Market
Capitalization to latest four quarters EBITDA multiple of 9.5x for the
HealthInfusion Comparative Companies; (iii) HealthInfusion's Market
Capitalization to latest four quarters EBIT multiple was 7.0x compared with a
median Market Capitalization to latest four quarters EBIT multiple of 11.7x for
the HealthInfusion Comparative Companies; (iv) HealthInfusion's Market Value to
latest four quarters net income multiple was 10.6x compared with a median Market
Value to latest four quarters net income multiple of 18.2x for the
HealthInfusion Comparative Companies; (v) HealthInfusion's Market Price to
estimated calendar 1994 EPS (as per IBES) multiple was 8.0x compared with a
median Market Price to estimated calendar 1994 EPS (as per IBES) multiple of
16.5x for the HealthInfusion Comparative Companies; (vi) HealthInfusion's Market
Price to estimated calendar 1995 EPS (as per IBES) multiple was 8.3x compared
with a median Market Price to estimated calendar 1995 EPS (as per IBES) multiple
of 13.1x for the HealthInfusion Comparative Companies; and (vii)
HealthInfusion's Market Value to latest reported book value multiple was 1.08x
compared with a median Market Value to latest reported book value multiple of
2.19x for the HealthInfusion Comparative Companies.
Using such information, Kidder, Peabody derived a range of implied
enterprise values for HealthInfusion of $57.8 million to $127.0 million by
applying the aforementioned market multiples of the HealthInfusion Comparative
Companies to the appropriate financial statistics of HealthInfusion. The range
of implied enterprise values of HealthInfusion was then adjusted for
non-operating assets and liabilities where relevant, including: (i) total debt
of $17.1 million as of September 30, 1993; and (ii) cash and cash equivalents of
$2.5 million as of September 30, 1993, to yield implied equity values for
HealthInfusion of $43.2 million to $125.1 million. The range of implied equity
values of HealthInfusion was then divided by 10,052,862 fully diluted shares of
HealthInfusion Common Stock outstanding as of January 28, 1994 (representing
9,920,787 shares of HealthInfusion Common Stock outstanding and 132,075 shares
of HealthInfusion Common Stock
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issuable upon exercise of options, computed using the treasury stock method) to
yield implied values of $4.29 to $12.44 per fully diluted share of
HealthInfusion Common Stock.
Comparative Transaction Analysis. Kidder, Peabody compared certain
financial and operating statistics of HealthInfusion with such financial and
operating statistics of the Acquired Comparative Companies immediately prior to
being acquired.
In order to measure HealthInfusion's current operating performance and
profitability with that of the Acquired Comparative Companies immediately prior
to being acquired, Kidder, Peabody considered, among other things, that: (i)
HealthInfusion's latest four quarters gross margin was 37.4% compared with a
median latest four quarters gross margin for the Acquired Comparative Companies
immediately prior to being acquired of 49.0%; (ii) HealthInfusion's latest four
quarters EBITDA margin was 21.9% compared with a median latest four quarters
EBITDA margin for the Acquired Comparative Companies immediately prior to being
acquired of 18.3%; (iii) HealthInfusion's latest four quarters EBIT margin was
18.8% compared with a median latest four quarters EBIT margin for the Acquired
Comparative Companies immediately prior to being acquired of 15.3%; (iv)
HealthInfusion's latest four quarters net income margin was 10.1% compared with
a median latest four quarters net income margin for the Acquired Comparative
Companies immediately prior to being acquired of 10.3%; and (v) HealthInfusion's
latest four quarters ROA was 8.1% compared with a median latest four quarters
average ROA for the Acquired Comparative Companies of 12.8%; and (vi)
HealthInfusion's latest four quarters average ROE was 11.4% compared with a
median latest four quarters ROE for the Acquired Comparative Companies of 17.0%.
Kidder, Peabody also performed an analysis of the multiples paid in the
selected acquisition transactions involving the Acquired Comparative Companies
in which it analyzed the Adjusted Purchase Price for each of the Acquired
Comparative Companies and divided such amount by each of such company's
respective latest four quarters sales, EBITDA and EBIT immediately prior to
being acquired to give a range of purchase price multiples. Kidder, Peabody also
analyzed the Equity Cost for each of the Acquired Comparative Companies acquired
in the selected transactions and divided such amount by each of such Company's
respective latest four quarters net income and book value immediately prior to
being acquired to give a range of purchase price multiples. Additionally,
Kidder, Peabody analyzed the Premium over Stock Price for each of the Acquired
Comparative Companies acquired in the selected transactions. The range of
purchase price multiples and Premium over Stock Price paid in the selected
acquisition transactions involving the Acquired Comparative Companies included:
(i) Adjusted Purchase Price to latest four quarters (pre-acquisition) sales
multiples of 0.37x to 13.25x; (ii) Adjusted Purchase Price to latest four
quarters (pre-acquisition) EBITDA multiples of 6.0x to 49.0x; (iii) Adjusted
Purchase Price to latest four quarters (pre-acquisition) EBIT multiples of 6.5x
to 56.0x; (iv) Equity Cost to latest four quarters (pre-acquisition) net income
multiples of 2.3x to 87.6x; (v) Equity Cost to latest reported (pre-acquisition)
book value multiples of 0.85x to 15.34x; and (vi) Premium over Stock Price of
3.2% to 149.6%.
Using such information, Kidder, Peabody derived a range of implied
enterprise values for HealthInfusion of $92.3 million to $216.6 million by
applying the aforementioned purchase price multiples and Premium over Stock
Price paid in the selected acquisition transactions involving the Acquired
Comparative Companies to the appropriate financial statistics of HealthInfusion.
The range of implied enterprise values of HealthInfusion was then adjusted for
non-operating assets and liabilities, where relevant, including: (i) total debt
of $17.1 million as of September 30, 1993; and (ii) cash and cash equivalents of
$2.5 million as of September 30, 1993, to yield implied equity values for
HealthInfusion of $77.7 million to $216.6 million. The range of implied equity
values of HealthInfusion was then divided by 10,052,862 fully diluted shares of
HealthInfusion Common Stock outstanding as of January 28, 1994 (representing
9,920,787 shares of HealthInfusion Common Stock outstanding and 132,075 shares
of HealthInfusion Common Stock issuable upon exercise of options, computed using
the treasury stock method) to yield implied values of $7.73 to $21.55 per fully
diluted share of HealthInfusion Common Stock.
Other Factors. In rendering its opinion, Kidder, Peabody considered certain
other factors of which the material factors included: (i) a review of
HealthInfusion's business and operations and the industry in which
HealthInfusion operates to increase its understanding of HealthInfusion's
business and its position within the
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industry in which it operates; (ii) a review of HealthInfusion's historical
operating results and the fiscal 1994 and 1995 financial forecast for
HealthInfusion, provided by HealthInfusion management, to increase Kidder,
Peabody's understanding of the financial performance and prospects of
HealthInfusion's business; (iii) a review of the current book value of
HealthInfusion; and (iv) a review of the stock price performance of
HealthInfusion and the HealthInfusion Comparative Companies and selected market
indices over a one-year period to provide perspective on current and historical
public market valuations and stock price performance of HealthInfusion and the
HealthInfusion Comparative Companies relative to selected market indices.
ANALYSES RELATING TO MEDISYS
Comparative Company Analysis. Kidder, Peabody compared the historical,
current and relevant projected financial and operating results of Medisys with
that of such financial and operating results of selected publicly traded home
infusion therapy and/or alternate site care providers it deemed relevant (the
"Medisys Comparative Companies"). The Medisys Comparative Companies were chosen
based on conversations with T2 management as to companies which possess general
business, operating and financial characteristics representative of companies in
the industry in which Medisys operates. The Medisys Comparative Companies
consisted of Abbey Healthcare Group, Inc., Caremark International, Inc.,
Curaflex Health Services, Inc., HealthInfusion, Inc., Home Nutritional Services,
Inc., Medical Care America, Inc., Quantum Health Resources, Inc., RoTech Medical
Corporation, T2 Medical, Inc., Tokos Medical Corporation and U.S. HomeCare
Corporation.
In order to measure Medisys's current operating performance with that of
the Medisys Comparative Companies, Kidder, Peabody considered, among other
things, that: (i) Medisys's 1990 to latest four quarters compounded annual
growth rate in sales was 115.7% compared with a median 1990 to latest four
quarters compounded annual growth rate in sales for the Medisys Comparative
Companies of 34.8%; (ii) Medisys's 1990 to latest four quarters compounded
annual growth rate in EBITDA was 57.3% compared with a median 1990 to latest
four quarters compounded annual growth rate in EBITDA for the Medisys
Comparative Companies of 36.0%; (iii) Medisys's 1990 to latest four quarters
compounded annual growth rate in EBIT was 44.9% compared with a median 1990 to
latest four quarters compounded annual growth rate in EBIT for the Medisys
Comparative Companies of 40.8%; (iv) Medisys's 1990 to latest four quarters
compounded annual growth rate in net income was 31.3% compared with a median
1990 to latest four quarters compounded annual growth rate in net income for the
Medisys Comparative Companies of 43.0%; and (v) Medisys's projected five-year
growth rate in net income (as per IBES) was 17.5% compared with a median
projected five-year growth rate in net income (as per IBES) for the Medisys
Comparative Companies of 15.0%.
In order to measure Medisys's profitability with that of the Medisys
Comparative Companies, Kidder, Peabody considered, among other things, that: (i)
Medisys's 1990 to latest four quarters average gross margin was 43.0% compared
with a median 1990 to latest four quarters average gross margin for the Medisys
Comparative Companies of 41.4%; (ii) Medisys's 1990 to latest four quarters
average EBITDA margin was 12.3% compared with a median 1990 latest four quarters
average EBITDA margin for the Medisys Comparative Companies of 15.3%; (iii)
Medisys's 1990 to latest four quarters average EBIT margin was 10.8% compared
with a median 1990 to latest four quarters average EBIT margin for the Medisys
Comparative Companies of 10.0%; (iv) Medisys's 1990 to latest four quarters
average net income margin was 7.9% compared with a median 1990 to latest four
quarters average net income margin for the Medisys Comparative Companies of
7.3%; (v) Medisys's 1990 to latest four quarters average ROA was 6.8% compared
with a median 1990 to latest four quarters average ROA for the Medisys
Comparative Companies of 8.4%; and (vi) Medisys's 1990 to latest four quarters
average ROE was 33.0% compared with a median 1990 to latest four quarters
average ROE for the Medisys Comparative Companies of 18.1%.
In order to assess the relative public market valuations of Medisys and the
Medisys Comparative Companies, Kidder, Peabody performed a market analysis of
Medisys and the Medisys Comparative Companies. With respect to such analysis,
Kidder, Peabody calculated a range of market multiples for each of the Medisys
Comparative Companies based on dividing: (i) the Market Capitalization of each
of the Medisys Comparative Companies by such company's latest four quarters
sales, EBITDA and EBIT; (ii) the Market Value of each of the Medisys Comparative
Companies by such company's latest four quarters net income;
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(iii) the Market Price of each of the Medisys Comparative Companies by such
company's estimated calendar 1994 and calendar 1995 EPS (as per IBES); and (iv)
the Market Value of each Medisys Comparative Company by such company's latest
reported book value. The range of market multiples for the Medisys Comparative
Companies included: (i) Market Capitalization to latest four quarters sales
multiples of 0.51x to 3.07x; (ii) Market Capitalization to latest four quarters
EBITDA multiples of 4.0x to 21.7x; (iii) Market Capitalization to latest four
quarters EBIT multiples of 4.6x to 23.5x; (iv) Market Value to latest four
quarters net income multiples of 8.4x to 41.4x; (v) Market Price to estimated
calendar 1994 EPS (as per IBES) multiples of 8.0x to 28.9x; (vi) Market Price to
estimated calendar 1995 EPS (as per IBES) multiples of 6.2x to 20.2x; and (vii)
Market Value to latest reported book value multiples of 0.91x to 6.12x. Based on
the above measures, Kidder, Peabody, then compared Medisys's market multiples,
based on its closing stock price on January 28, 1994, with the Medisys
Comparative Companies' median market multiples in order to establish the
relationship between Medisys's market multiples and those of the Medisys
Comparative Companies. With respect to such review, Kidder, Peabody noted that:
(i) Medisys's Market Capitalization to latest four quarters sales multiple was
1.1x compared with a median Market Capitalization to latest four quarters sales
multiple of 1.0x for the Medisys Comparative Companies; (ii) Medisys's Market
Capitalization to latest four quarters EBITDA multiple was 14.2x compared with a
median Market Capitalization to latest four quarters EBITDA multiple of 7.8x for
the Medisys Comparative Companies; (iii) Medisys's Market Capitalization to
latest four quarters EBIT multiple was 19.5x compared with a median Market
Capitalization to latest four quarters EBIT multiple of 10.5x for the Medisys
Comparative Companies; (iv) Medisys's Market Value to latest four quarters net
income multiple was 29.6x compared with a median Market Value to latest four
quarters net income multiple of 17.4x for the Medisys Comparative Companies; (v)
Medisys's Market Price to estimated calendar 1994 EPS (as per IBES) multiple was
25.0x compared with a median Market Price to estimated calendar 1994 EPS (as per
IBES) multiple of 15.4x for the Medisys Comparative Companies; and (vi)
Medisys's Market Value to latest reported book value multiple was 2.36x compared
with a median Market Value to latest reported book value multiple of 1.48x for
the Medisys Comparative Companies.
Using such information, Kidder, Peabody derived a range of implied
enterprise values for Medisys of $35.1 million to $62.1 million by applying the
aforementioned market multiples of the Medisys Comparative Companies to the
appropriate financial statistics of Medisys. The range of implied enterprise
values of Medisys was then adjusted for non-operating assets and liabilities,
where relevant, including: (i) total debt of $7.6 million as of September 30,
1993; and (ii) cash and cash equivalents of $1.2 million as of September 30,
1993, to yield implied equity values for Medisys of $29.3 million to $55.7
million. The range of implied equity values of Medisys was then divided by
12,578,736 fully diluted shares of Medisys Common Stock outstanding as of
January 28, 1994 (representing 12,328,556 shares of Medisys Common Stock
outstanding and 250,180 shares of Medisys Common Stock issuable upon exercise of
options, computed using the treasury stock method) to yield implied values of
$2.33 to $4.44 per fully diluted share of Medisys Common Stock.
Comparative Transaction Analysis. Kidder, Peabody compared certain
financial and operating statistics of Medisys with such financial and operating
statistics of the Acquired Comparative Companies immediately prior to being
acquired.
In order to measure Medisys's current operating performance and
profitability with that of the Acquired Comparative Companies immediately prior
to being acquired, Kidder, Peabody considered, among other things, that: (i)
Medisys's latest four quarters gross margin was 37.5% compared with a median
latest four quarters gross margin for the Acquired Comparative Companies
immediately prior to being acquired of 49.0%; (ii) Medisys's latest four
quarters EBITDA margin was 7.5% compared with a median latest four quarters
EBITDA margin for the Acquired Comparative Companies immediately prior to being
acquired of 18.3%; (iii) Medisys's latest four quarters EBIT margin was 5.5%
compared with a median latest four quarters EBIT margin for the Acquired
Comparative Companies immediately prior to being acquired of 15.3%; (iv)
Medisys's latest four quarters net income margin was 3.3% compared with a median
latest four quarters net income margin for the Acquired Comparative Companies
immediately prior to being acquired of 10.3%; and (v) Medisys's latest four
quarters ROA was 7.1% compared with a median latest four quarters average ROA
for the Acquired Comparative Companies of 12.8%; and (vi) Curaflex's latest four
quarters average
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ROE was 8.6% compared with a median latest four quarters ROE for the Acquired
Comparative Companies of 17.0%.
Kidder, Peabody also performed an analysis of the multiples paid in the
selected acquisition transactions involving the Acquired Comparative Companies
in which it analyzed the Adjusted Purchase Price for each of the Acquired
Comparative Companies and divided such amount by each of such company's
respective latest four quarters sales, EBITDA and EBIT immediately prior to
being acquired to give a range of purchase price multiples. Kidder, Peabody also
analyzed the Equity Cost for each of the Acquired Comparative Companies acquired
in the selected transactions and divided such amount by each of such company's
respective latest four quarters net income and book value immediately prior to
being acquired to give a range of purchase price multiples. Additionally,
Kidder, Peabody analyzed the Premium over Stock Price for each of the Acquired
Comparative Companies acquired in the selected transactions. The range of
purchase price multiples and Premium over Stock Price paid in the selected
acquisition transactions involving the Acquired Comparative Companies included:
(i) Adjusted Purchase Price to latest four quarters (pre-acquisition) sales
multiples of 0.37x to 13.25x; (ii) Adjusted Purchase Price to latest four
quarters (pre-acquisition) EBITDA multiples of 6.0x to 49.0x; (iii) Adjusted
Purchase Price to latest four quarters (pre-acquisition) EBIT multiples of 6.5x
to 56.0x; (iv) Equity Cost to latest four quarters (pre-acquisition) net income
multiples of 2.3x to 87.6x; (v) Equity Cost to latest reported (pre-acquisition)
book value multiples of 0.85x to 15.34x; and (vi) Premium over Stock Price of
3.2% to 149.6%.
Using such information, Kidder, Peabody derived a range of implied
enterprise values for Medisys of $45.5 million to $99.2 million by applying the
aforementioned purchase price multiples and Premium over Stock Price paid in the
selected acquisition transactions involving the Acquired Comparative Companies
to the appropriate financial statistics of Medisys. The range of implied
enterprise values of Medisys was then adjusted for non-operating assets and
liabilities, where relevant, including: (i) total debt of $7.3 million as of
September 30, 1993; and (ii) cash and cash equivalents of $2.5 million as of
September 30, 1993, to yield implied equity values for Medisys of $45.5 million
to $93.1 million. The range of implied equity values of Medisys was then divided
by 12,578,736 fully diluted shares of Medisys Common Stock outstanding as of
January 28, 1994 (representing 12,328,556 shares of Medisys Common Stock
outstanding and 250,180 shares of Medisys Common Stock issuable upon exercise of
options, computed using the treasury stock method) to yield implied values of
$4.00 to $8.19 per fully diluted share of Medisys Common Stock.
Other Factors. In rendering its opinion, Kidder, Peabody considered
certain other factors of which the material factors included: (i) a review of
Medisys's business and operations and the industry in which Medisys operates to
increase its understanding of Medisys's business and its position within the
industry in which it operates; (ii) a review of Medisys's historical operating
results and the fiscal 1994 and 1995 financial forecast for Medisys, provided by
Medisys management, to increase Kidder, Peabody's understanding of the financial
performance and prospects of Medisys's business; (iii) a review of the current
book value of Medisys; and (iv) a review of the stock price performance of
Medisys and the Medisys Comparative Companies and selected market indices over a
one-year period to provide perspective on current and historical public market
valuations and stock price performance of Medisys and the Medisys Comparative
Companies relative to selected market indices.
ANALYSES RELATING TO T2
Comparative Company Analysis. Kidder, Peabody compared the historical,
current and relevant projected financial and operating results of T2 with that
of such financial and operating results of selected publicly traded home
infusion therapy and/or alternate site care providers it deemed relevant (the
"T2 Comparative Companies"). The T2 Comparative Companies were chosen based on
conversations with T2 management as to companies which possess general business,
operating and financial characteristics representative of companies in the
industry in which T2 operates. The T2 Comparative Companies consisted of Abbey
Healthcare Group, Inc., Caremark International, Inc., Curaflex, Inc.,
HealthInfusion, Inc., Home Nutritional Services, Inc., Medical Care America,
Inc., Medisys, Inc., Quantum Health Resources, Inc., RoTech Medical Corporation,
Tokos Medical Corporation and U.S. HomeCare Corporation.
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In order to measure T2's current operating performance with that of the T2
Comparative Companies, Kidder, Peabody considered, among other things, that: (i)
T2's 1990 to latest four quarters compounded annual growth rate in sales was
42.9% compared with a median 1990 to latest four quarters compounded annual
growth rate in sales for the T2 Comparative Companies of 34.8%; (ii) T2's 1990
to latest four quarters compounded annual growth rate in EBITDA was 33.8%
compared with a median 1990 to latest four quarters compounded annual growth
rate in EBITDA for the T2 Comparative Companies of 46.7%; (iii) T2's 1990 to
latest four quarters compounded annual growth rate in EBIT was 34.7% compared
with a median 1990 to latest four quarters compounded annual growth rate in EBIT
for the T2 Comparative Companies of 43.0%; (iv) T2's 1990 to latest four
quarters compounded annual growth rate in net income was 29.1% compared with a
median 1990 to latest four quarters compounded annual growth rate in net income
for the T2 Comparative Companies of 43.0%; and (v) T2's projected five-year
growth rate in net income (as per IBES) was 10.0% compared with a median
projected five-year growth rate in net income (as per IBES) for the T2
Comparative Companies of 16.3%.
In order to measure T2's profitability with that of the T2 Comparative
Companies, Kidder, Peabody considered, among other things, that: (i) T2's 1990
to latest four quarters average gross margin was 48.7% compared with a median
1990 to latest four quarters average gross margin for the T2 Comparative
Companies of 43.0%; (ii) T2's 1990 to latest four quarters average EBITDA margin
was 35.8% compared with a median 1990 to latest four quarters average EBITDA
margin for the T2 Comparative Companies of 12.3%; (iii) T2's 1990 to latest four
quarters average EBIT margin was 31.8% compared with a median 1990 to latest
four quarters average EBIT margin for the T2 Comparative Companies of 10.0%;
(iv) T2's 1990 to latest four quarters average net income margin was 21.5%
compared with a median 1990 to latest four quarters average net income margin
for the T2 Comparative Companies of 7.2%; (v) T2's 1990 to latest four quarters
average ROA was 15.7% compared with a median 1990 to latest four quarters
average ROA for the T2 Comparative Companies of 7.6%; and (vi) T2's 1990 to
latest four quarters average ROE was 24.6% compared with a median 1990 to latest
four quarters average ROE for the T2 Comparative Companies of 18.1%.
In order to assess the relative public market valuations of T2 and the T2
Comparative Companies, Kidder, Peabody performed a market analysis of T2 and the
T2 Comparative Companies. With respect to such analysis, Kidder, Peabody
calculated a range of market multiples for each of the T2 Comparative Companies
based on dividing: (i) the Market Capitalization of each of the T2 Comparative
Companies by such company's latest four quarters sales, EBITDA and EBIT; (ii)
the Market Value of each of the T2 Comparative Companies by such company's
latest four quarters net income; (iii) the Market Price of each of the T2
Comparative Companies by such company's estimated calendar 1994 and calendar
1995 EPS (as per IBES); and (iv) the Market Value of each T2 Comparative Company
by such company's latest reported book value. The range of market multiples for
the T2 Comparative Companies included: (i) Market Capitalization to latest four
quarters sales multiples of 0.51x to 3.07x; (ii) Market Capitalization to latest
four quarters EBITDA multiples of 6.0x to 21.7x; (iii) Market Capitalization to
latest four quarters EBIT multiples of 7.0x to 23.5x; (iv) Market Value to
latest four quarters net income multiples of 10.6x to 41.4x; (v) Market Price to
estimated calendar 1994 EPS (as per IBES) multiples of 8.0x to 28.9x; (vi)
Market Price to estimated calendar 1995 EPS (as per IBES) multiples of 8.3x to
20.2x; and (vii) Market Value to latest reported book value multiples of 0.9x to
6.1x. Based on the above measures, Kidder, Peabody then compared T2's market
multiples, based on its closing stock price on January 28, 1994, with the T2
Comparative Companies' median market multiples in order to establish the
relationship between T2's market multiples and those of the T2 Comparative
Companies. With respect to such review, Kidder, Peabody noted that: (i) T2's
Market Capitalization to latest four quarters sales multiple was 1.15x compared
with a median Market Capitalization to latest four quarters sales multiple of
1.00x for the T2 Comparative Companies; (ii) T2's Market Capitalization to
latest four quarters EBITDA multiple was 4.0x compared with a median Market
Capitalization to latest four quarters EBITDA multiple of 9.5x for the T2
Comparative Companies; (iii) T2's Market Capitalization to latest four quarters
EBIT multiple was 4.6x compared with a median Market Capitalization to latest
four quarters EBIT multiple of 11.7x for the T2 Comparative Companies; (iv) T2's
Market Value to latest four quarters net income multiple was 8.4x compared with
a median Market Value to latest four quarters net income multiple of 18.2x for
the T2 Comparative Companies; (v) T2's Market Price to estimated calendar 1994
EPS (as per IBES) multiple was 10.3% compared with a median Market Price to
estimated
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calendar 1994 EPS (as per IBES) multiple of 16.5x for the T2 Comparative
Companies; (vi) T2's Market Price to estimated calendar 1995 EPS (as per IBES)
multiple was 6.2x compared with a median Market Price to estimated calendar 1995
EPS (as per IBES) multiple of 13.1x for the T2 Comparative Companies; and (vii)
T2's Market Value to latest reported book value multiple was 1.24x compared with
a median Market Value to latest reported book value multiple of 2.19x for the T2
Comparative Companies.
Pro Forma Transaction Analysis. Kidder, Peabody's analysis of the potential
pro forma financial effects of the Merger on T2 was based principally upon the
1994 and 1995 financial forecasts of Curaflex, HealthInfusion, Medisys and T2
provided by their respective managements (collectively, the "Financial
Forecasts"). Kidder, Peabody's pro forma financial analysis assumed, among other
things, that: (i) fees and expenses of the Merger were $15.3 million; (ii) each
stockholder of Curaflex, HealthInfusion, Medisys and T2 would receive 0.333,
0.447, 0.243 and 0.630 of a share of Coram, respectively; (iii) the Merger will
be accounted for under the pooling-of-interests method of accounting; (iv) the
Merger will be treated as a tax-free reorganization; and (v) the strategic and
operating benefits anticipated by the management and representatives of T2 will
be realized from the Merger. Using the data and other information referred to
above, Kidder, Peabody's pro forma financial analysis suggested that the Merger
should result in accretion to T2's EPS in each of fiscal years 1994 and 1995.
The Board of Directors of T2 was not presented with a specific valuation
range for T2.
Contribution Analysis. Kidder, Peabody analyzed the relative contributions
to Coram's revenues, EBITDA and net income by the Companies for fiscal years
1993, 1994 and 1995 (based on the Financial Forecasts) and compared such results
to the relative percentages of pro forma ownership in Coram to be received by
the stockholders of each of the Companies. Kidder, Peabody observed that the T2
stockholders are expected to own approximately 67.2% of Coram upon the
consummation of the Merger. In 1993, it was estimated that, on a pro forma
basis. T2 would contribute approximately 56.9%, 74.1% and 74.7% of revenues,
EBITDA and net income of Coram, respectively. In 1994, it was estimated that, on
a pro forma basis, T2 would contribute approximately 47.7%, 63.2% and 61.6% of
revenues, EBITDA and net income of Coram, respectively. In 1995, it was
estimated that, on a pro forma basis, T2 would contribute approximately 45.5%,
59.5% and 56.0% of revenues, EBITDA and net income of Coram, respectively.
Other Factors. In rendering its opinion, Kidder, Peabody considered
certain other factors of which the material factors included: (i) a review of
T2's business and operations and the industry in which T2 operates to increase
its understanding of T2's business and its position within the industry in which
it operates; (ii) a review of T2's historical operating results and the fiscal
1994 and 1995 financial forecast for T2, provided by T2 management, to increase
Kidder, Peabody's understanding of the financial performance and prospects of
T2's business; (iii) a review of the current book value of T2; (iv) a review of
the stock price performance of T2 and the T2 Comparative Companies and selected
market indices over a one-year period to provide perspective on current and
historical public market valuations and stock price performance of T2 and the T2
Comparative Companies relative to selected market indices.
In connection with its written opinion dated June 3, 1994, Kidder, Peabody
confirmed the appropriateness of its reliance on the analyses used to render its
earlier opinion by performing procedures to update certain of such analyses and
by reviewing the assumptions on which such analyses were based and the factors
considered therewith.
Kidder, Peabody is a nationally recognized investment banking firm and as
part of its investment banking business, Kidder, Peabody is regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. T2 selected Kidder, Peabody to render a fairness opinion in
connection with the Merger because of Kidder, Peabody's experience in
transactions similar to the Merger as well as Kidder, Peabody's prior
relationship and familiarity with T2. In the past, Kidder, Peabody has provided
investment banking services to T2 including acting as a managing underwriter in
T2's public offering in 1992 of shares of T2 Common Stock. Kidder, Peabody
received customary compensation for such services. Stanley S. Trotman, a
Managing Director of Kidder, Peabody,
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currently serves as a director of T2. Kidder Peabody may provide investment
banking and financial advisory services to Coram in the future.
T2 engaged Kidder, Peabody to render its opinion to T2's Board of Directors
and not to represent specifically the interests of affiliated or non-affiliated
stockholders of T2. As compensation for rendering a fairness opinion to T2, T2
has agreed to pay Kidder, Peabody a fee of $750,000. T2 has also agreed to
reimburse Kidder, Peabody for its reasonable out-of-pocket expenses, including
the fees and expenses of its legal counsel, and to indemnify Kidder, Peabody and
its affiliates against certain liabilities, including liabilities under the
Federal securities laws, relating to, arising out of or in connection with its
engagement. In the ordinary course of its business, Kidder, Peabody trades the
equity securities of T2 for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. As of June 1, 1994, Kidder, Peabody held, for its own account,
no shares of T2 Common Stock.
CURAFLEX'S REASONS FOR THE MERGER AND BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors of Curaflex believes that the Merger is fair to and
in the best interests of Curaflex and its stockholders and unanimously
recommends that the Curaflex stockholders vote for approval of the Merger
Agreement and the transactions contemplated thereby. In evaluating the proposed
Merger, the Board of Directors of Curaflex considered a variety of factors,
including financial and operating information relating to Curaflex,
HealthInfusion, Medisys and T2 and reports from, and presentations by, its
officers, Smith Barney and legal counsel. The factors considered by the Curaflex
Board of Directors, all of which were deemed material but were given varying
priorities by individual directors, included the following:
1. The Board of Directors observed the need for Curaflex to achieve
greater critical mass, economies of scale and geographic coverage in order
to effectively compete in Curaflex's rapidly changing industry. The Board
noted the continued price erosion on mature product lines through
contractual adjustments, increasing the need for greater economies of
scale. In that regard, the Board was informed by management that
preliminary results indicated that Curaflex would have an operating loss
for the fourth quarter of 1993. The Board of Directors believed that
pricing pressures from third party payors, increased competition and
reduced margins in Curaflex's industry are driving a trend towards
consolidation within the industry. The Board of Directors noted that many
of Curaflex's competitors, including Critical Care America and Total
Pharmaceutical Care, have been acquired or merged with other infusion
companies, and others are actively seeking business combinations. The
Curaflex Board of Directors concluded that combining with HealthInfusion,
Medisys and T2 would result in the creation of the industry's second
largest infusion company and thus should better position Curaflex to
survive and grow stronger in its consolidating industry. In addition, both
the pace of consolidations in Curaflex's industry and the rapid changes the
entire healthcare industry is undergoing has added a sense of urgency to
Curaflex's efforts to merge with the proper strategic companies.
2. The Board of Directors believed that the core business of each of
Curaflex, HealthInfusion, Medisys and T2 are compatible. Consequently, upon
consummation of the Merger, the Board of Directors concluded that Curaflex,
as part of Coram, should be positioned to realize increased purchasing
power for goods and services necessary for the business, cost savings
through elimination of redundant administrative segments, including the
consolidation of four corporate offices, enhanced marketing capabilities
provided by a combined sales staff marketing the combined companies, and
greater potential penetration of the managed care market due to an
extensive physician network that was in place at T2.
3. The Curaflex Board of Directors concluded that Curaflex, as part of
the combined companies, should be positioned to enhance its presence in
certain geographic markets and enter other markets through the existing
operations of HealthInfusion, Medisys and T2, thus providing opportunities
for increased sales of Curaflex's business. The Board of Directors also
concluded that the Merger should permit the combined companies to increase
their penetration of national and regional payors. In addition, the
combined companies would benefit from a national network of facilities with
significant penetration in certain key regions.
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4. The Board of Directors noted that, as discussed above in
"-- Background of the Merger," Curaflex has considered and pursued other
alternatives to the Merger, including acquisitions and forming start-up
operations in new geographic markets. While Curaflex has acquired several
smaller privately held infusion companies, the Curaflex Board of Directors
concluded that the Merger provides Curaflex with an opportunity to expand
its business more rapidly and on a larger scale without the high cost of
start-up operations or the time, expense and risk incurred in growing
Curaflex's business through numerous smaller mergers or acquisitions. In
addition the Board noted that Coram, on a pro forma basis, would have
significantly greater cash flow than Curaflex on a stand-alone basis,
allowing the combined companies greater flexibility to take advantage of
subsequent expansion opportunities.
5. The Board of Directors believed that Curaflex as part of the
combined companies would face an increased chance of success in the
marketplace and of maximizing shareholder return, as compared to Curaflex
as a stand-alone corporation. The Board observed that Coram would be a
larger, more diversified company with an enhanced geographic presence and
greater financial resources and, likely, increased name recognition.
Moreover, the combined entity will have a greater base of stockholders who
can potentially trade on the open market, providing for a more active,
liquid trading market. In that regard, the Board noted that Coram stock was
anticipated to be listed on the New York Stock Exchange.
6. The Curaflex Board of Directors concluded that the Merger would
enhance Curaflex's ability to compete more effectively against other
companies in the industry, several of which have significantly greater
resources than Curaflex, and that the Merger presented the most likely
available alternative for achieving the greater scale necessary for success
in a rapidly consolidating industry.
7. The Curaflex Board of Directors noted Curaflex's future liquidity
needs and noted that the combined companies' liquidity position would allow
them to further expand their operations and manage cash flow with reduced
debt.
8. The Curaflex Board of Directors and Smith Barney, Curaflex's
financial advisor, analyzed the financial condition, results of operations
and prospects of each of Curaflex, HealthInfusion, Medisys and T2, both
separately and in relation to the value of the consideration to be received
by the stockholders of each constituent company in the Merger. Smith Barney
did not present the Board of Directors of Curaflex with specific valuation
ranges for the constituent companies and therefore the Board of Directors
was unable to consider such information in making its determinations. The
Curaflex Board of Directors placed special emphasis and relied on the
opinion of Smith Barney, to the effect that, as of the date of such opinion
and based upon and subject to certain matters stated therein, the Curaflex
Exchange Ratio was fair, from a financial point of view, to the holders of
Curaflex Common Stock. The Curaflex Board of Directors considered as a
whole the various financial and comparative analyses relating to each of
T2, Curaflex, HealthInfusion and Medisys both on an historical and
prospective basis and as separate and combined entities, as set forth in
Smith Barney's presentation to the Curaflex Board of Directors and believed
that such analyses, taken as a whole, supported a conclusion that the
Curaflex Exchange Ratio was fair, from a financial point of view, to the
Curaflex stockholders. See "-- Opinion of Smith Barney." Such conclusion
was a key factor in the Curaflex Board's decision to recommend approval of
the Merger.
Although the Board noted that the Exchange Ratios' valuation of T2
implied a premium to T2and a discount to Curaflex, based on the then
current public market valuation of the two companies, the Board also noted
that, on a pro forma basis, Curaflex's contribution to the combined
companies' 1993 net income was expected to constitute 8% of the total net
income (as compared to an ownership interest of Curaflex stockholders in
the combined companies of 13%) and that, based upon anticipated 1993
earnings, the Exchange Ratio valued Curaflex at a significantly higher
multiple of earnings than for T2. As discussed above, the Board was also
informed by management that it was anticipated that Curaflex would have an
operating loss for the fourth quarter of 1993. The Board further noted the
perceived benefits available to Curaflex stockholders from the combination
of the four companies, including T2's significantly greater critical mass,
profitable operating history, greater liquidity and increased earnings
contribution to be of importance in their evaluation of the proposed
Merger. In light of these
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considerations, and the other factors enumerated above, the Board
concluded that the Merger was in the best interests of Curaflex and
its stockholders.
In light of the variety of factors considered by Curaflex's Board of
Directors, the Board did not find it practical to and did not assign any
particular weight to any of the foregoing factors, but considered all of these
factors as a whole in reaching its determination. However, in reaching its
decision to approve the Merger, the Board was most strongly influenced by the
items noted in paragraphs 1, 2, 4 and 8.
In addition, with respect to the pending SEC inquiry and stockholder
litigation against T2, the Curaflex Board consulted with and was advised by
outside legal counsel in regard to the evaluation and assessment of such inquiry
and litigation. Although the ultimate outcome of such inquiry and litigation
cannot presently be determined, based on such consultation and advice and after
due consideration, the Curaflex Board concluded that the uncertainty of the
outcome of such inquiry and litigation should not preclude the Board's
recommendation of the approval of the Merger Agreement and the Merger to the
Curaflex stockholders.
The Curaflex Board concluded, in light of these factors, that the Merger is
in the best interests of Curaflex and its stockholders and is fair to its
stockholders. THE BOARD OF DIRECTORS OF CURAFLEX RECOMMENDS THAT THE
STOCKHOLDERS OF CURAFLEX APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
OPINION OF SMITH BARNEY
Smith Barney was retained by Curaflex to act as its financial advisor in
connection with the Merger. In connection with such engagement, Curaflex
requested that Smith Barney evaluate the fairness, from a financial point of
view, to the stockholders of Curaflex of the consideration to be received by
such stockholders in the Merger. On February 4, 1994, Smith Barney delivered to
the Board of Directors of Curaflex its oral opinion (subsequently confirmed by
written opinion dated February 6, 1994), to the effect that, as of the date of
such opinion and based upon and subject to certain matters stated therein, the
Curaflex Exchange Ratio was fair, from a financial point of view, to the holders
of Curaflex Common Stock.
In arriving at its opinion, Smith Barney reviewed the Merger Agreement and
held discussions with certain senior officers, directors and other
representatives and advisors of Curaflex and certain senior officers and other
representatives and advisors of HealthInfusion, Medisys and T2 concerning the
business, operations and prospects of Curaflex, HealthInfusion, Medisys and T2.
Smith Barney examined certain publicly available business and financial
information relating to Curaflex, HealthInfusion, Medisys and T2 as well as
certain financial forecasts and other data for Curaflex, HealthInfusion, Medisys
and T2 which were provided to Smith Barney by the respective managements of
Curaflex, HealthInfusion, Medisys and T2, including information relating to
certain strategic implications and operational benefits anticipated from the
Merger. Smith Barney reviewed the financial terms of the Merger as set forth in
the Merger Agreement in relation to, among other things: current and historical
market prices and trading volumes of the Curaflex Common Stock, HealthInfusion
Common Stock, Medisys Common Stock and T2Common Stock; the respective companies'
historical and projected earnings; and the capitalization and financial
condition of Curaflex, HealthInfusion, Medisys and T2. Smith Barney considered,
to the extent publicly available, the financial terms of certain other similar
transactions recently effected which Smith Barney considered comparable to the
Merger and analyzed certain financial and other publicly available information
relating to the businesses of other companies whose operations Smith Barney
considered comparable to the operations of Curaflex, HealthInfusion, Medisys and
T2. Smith Barney also evaluated the pro forma financial impact of the Merger. In
addition to the foregoing, Smith Barney conducted such other analyses and
examinations and considered such other financial, economic and market criteria
as Smith Barney deemed necessary to arrive at its opinion. Smith Barney noted
that its opinion was necessarily based upon financial, stock market and other
conditions and circumstances existing and disclosed to Smith Barney as of the
date of its opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of the financial
and other information publicly available or furnished to or otherwise discussed
with Smith Barney. With respect to financial forecasts and other information
provided to or otherwise discussed with Smith Barney, Smith Barney assumed that
such forecasts and other information
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were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of Curaflex,
HealthInfusion, Medisys and T2 as to the expected future financial performance
of Curaflex, HealthInfusion, Medisys and T2, and assumed and relied upon certain
assessments as to the outstanding litigation and proceedings involving T2. Smith
Barney also assumed that the Merger will be treated as a pooling-of-interests in
accordance with generally accepted accounting principles and as a tax-free
reorganization for federal income tax purposes. Smith Barney's opinion relates
to the relative values of Curaflex, HealthInfusion, Medisys and T2. Smith Barney
did not express any opinion as to what the value of the Coram Common Stock
actually will be when issued to Curaflex stockholders pursuant to the Merger or
the price at which the Coram Common Stock will trade subsequent to the Merger.
In addition, Smith Barney did not make or obtain an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Curaflex,
HealthInfusion, Medisys or T2 nor did Smith Barney make any physical inspection
of the properties or assets of Curaflex, HealthInfusion, Medisys or T2. In
addition, although Smith Barney evaluated the financial terms of the Merger,
Smith Barney was not asked to and did not recommend the specific consideration
to be paid by Curaflex in the Merger, which consideration was determined by
Curaflex, HealthInfusion, Medisys and T2. No other limitations were imposed by
Curaflex on Smith Barneywith respect to the investigations made or procedures
followed by Smith Barney in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN,
IS ATTACHED AS APPENDIX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. CURAFLEX STOCKHOLDERS ARE URGED TO READ THIS
OPINION CAREFULLY IN ITS ENTIRETY. SMITH BARNEY'S OPINION IS DIRECTED ONLY TO
THE FAIRNESS OF THE CURAFLEX EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW AND
IS PROVIDED SOLELY FOR THE USE OF THE CURAFLEX BOARD OF DIRECTORS IN ITS
EVALUATION OF THE MERGER, DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER OR ANY
RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY CURAFLEX
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE CURAFLEX SPECIAL
MEETING. THE SUMMARY OF THE OPINION OF SMITH BARNEY SET FORTH IN THIS JOINT
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
In preparing its opinion to the Board of Directors of Curaflex, Smith
Barney performed a variety of financial and comparative analyses, including
those described below. The summary of such analyses does not purport to be a
complete description of the analyses underlying Smith Barney's opinion. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. In arriving at its opinion, Smith Barney did not present
the Board of Directors of Curaflex with specific valuation ranges for the
Constituent Companies and did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly, Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without considering all analyses
and factors, could create a misleading or incomplete view of the processes
underlying such analyses and its opinion. In its analyses, Smith Barney made
numerous assumptions with respect to Curaflex, HealthInfusion, Medisys and T2,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Curaflex,
HealthInfusion, Medisys and T2. The estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by such analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty.
Comparable Company Analysis. Using publicly available information, Smith
Barney analyzed, among other things, the market values and trading multiples of
Curaflex, HealthInfusion, Medisys and T2 and the following selected healthcare
companies: Caremark International Inc., The Olsten Corporation, Lincare Holdings
Inc., Homedco Group, Inc., Abbey Healthcare Group Incorporated, Rotech Medical
Corp., Healthdyne, Inc., Tokos Medical Corp. (DE), Home Nutritional Services,
Inc., In Home Health, Inc., U.S. HomeCare Corp. and Option Care, Inc.
(collectively, the "Comparable Companies"). Smith Barney compared market values
as multiples of estimated calendar 1993 and projected calendar 1994 earnings per
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share ("EPS"). The mean and median multiples of estimated calendar 1993 EPS of
the Comparable Companies were 18.4x and 15.5x, respectively, and the mean and
median multiples of projected calendar 1994 EPS of the Comparable Companies were
15.2x and 15.5x, respectively. The multiples of estimated calendar 1993 and
projected calendar 1994 EPS for Curaflex, HealthInfusion, Medisys and T2 were as
follows: (i) Curaflex estimated calendar 1993 and projected calendar 1994 EPS:
23.7x and 9.8x; (ii) HealthInfusion estimated calendar 1993 and projected
calendar 1994 EPS: 30.4x and 8.3x; (iii) Medisys estimated calendar 1993 and
projected calendar 1994 EPS: 29.7x and 16.2x; and (iv) T2 estimated calendar
1993 and projected calendar 1994 EPS: 9.1x and 9.2x. The estimated calendar 1993
and projected calendar 1994 EPS multiples of Curaflex, HealthInfusion, Medisys
and T2 and the Comparable Companies may be compared with the net income
multiples derived for Curaflex, HealthInfusion, Medisys and T2 in the Valuation
Multiple Analysis described below.
Smith Barney compared adjusted market values (market value, plus the book
value of debt and preferred stock, less cash and cash equivalents) to latest 12
months revenues, earnings before interest, taxes, depreciation and amortization
("EBITDA") and earnings before interest and taxes ("EBIT"). The mean and median
multiples of latest 12 months revenues, EBITDA and EBIT of the Comparable
Companies were as follows: (i) latest 12 months revenues: 1.29x and 0.80x; (ii)
latest 12 months EBITDA: 9.7x and 8.4x; and (iii) latest 12 months EBIT: 14.7x
and 12.3x. The multiples of latest 12 months revenues, EBITDA and EBIT of
Curaflex, HealthInfusion, Medisys and T2 were as follows: (i) Curaflex latest 12
months revenues, EBITDA and EBIT: 1.09x, 11.0x and 15.9x; (ii) HealthInfusion
latest 12 months revenues, EBITDA and EBIT: 1.45x, 11.4x and 15.2x; (iii)
Medisys latest 12 months revenues, EBITDA and EBIT: 0.92x, 10.8x and 14.5x; and
(iv) T2 latest 12 months revenues, EBITDA and EBIT: 1.09x, 4.0x and 4.7x. Smith
Barney also compared the profit margins, leverage ratios and projected growth
rates of the Comparable Companies with those of Curaflex, HealthInfusion,
Medisys and T2.
All projected EPS estimates for the Comparable Companies were based on the
consensus EPS estimates of selected investment banking firms and all EPS
estimates for Curaflex, HealthInfusion, Medisys and T2 were based on internal
estimates of the respective companies. All multiples were based on closing stock
prices as of February 4, 1994.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Smith Barney analyzed the purchase prices and implied
transaction multiples in the following selected mergers and acquisition
transactions in the healthcare industry: Critical Care America, Inc./Caremark
International Inc.; Curaflex Health Services, Inc./ HealthInfusion,
Inc./Medisys, Inc.; Total Pharmaceutical Care, Inc./Abbey Healthcare Group
Incorporated; Lifetime Corporation/The Olsten Corporation; Home Intensive Care,
Inc./W.R. Grace & Co.; The IV Clinic, Inc./Quantum Health Resources, Inc.;
Clinical Homecare, Ltd./Curaflex Health Services, Inc.; Total Home Care, Inc./
Curaflex Health Services, Inc.; Critical Care America, Inc./Medical Care
International, Inc.; Glasrock Home Health Care, Inc./Homedco Group, Inc.;
CareLink Corp./Tokos Medical Corp; TeamCare, Inc./Critical Care America, Inc.;
Medical Research Management, Inc./Tokos Medical Corp.; Care Plus, Inc./New
England Critical Care, Inc.; Upjohn Healthcare Services/The Olsten Corporation;
Mentor Clinical Care/Lifetime Corporation; HMSS, Inc./Secomerica, Inc.; ASB
Meditest/Lifetime Corporation; Quality Care, Inc./Lifetime Corporation; and
Caremark Inc./Baxter Travenol Laboratories.
No company, transaction or business used in the comparable company and
selected merger and acquisition transactions analyses as a comparison is
identical to Curaflex, HealthInfusion, Medisys, T2 or the Merger. Accordingly,
an analysis of the results of the foregoing is not entirely mathematical;
rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics and other factors that could affect
the acquisition or public trading value of the comparable companies or the
business segment or company to which they are being compared.
Valuation Multiple Analysis. Smith Barney analyzed the implied equity
values of Curaflex, HealthInfusion, Medisys and T2 based on each company's pro
forma ownership of Coram (as implied by the companies' respective exchange
ratios in the Merger) and the companies' combined aggregate market values as of
February 4, 1994, and compared such implied equity values in relation to each
company's estimated calendar
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1993 and projected calendar 1994 net income. Based on the Curaflex Exchange
Ratio, the implied pro forma ownership of Curaflex stockholders of Coram was
approximately 13.3% and the implied equity value of Curaflex was approximately
$70.3 million, or approximately $4.544 per share. Based on the HealthInfusion
Exchange Ratio, the implied pro forma ownership of HealthInfusion stockholders
of Coram was approximately 11.6% and the implied equity value of HealthInfusion
was approximately $61.3 million, or approximately $6.100 per share. Based on the
Medisys Exchange Ratio, the implied pro forma ownership of Medisys stockholders
of Coram was approximately 7.9% and the implied equity value of Medisys was
approximately $41.7 million, or approximately $3.316 per share. Based on the T2
Exchange Ratio, the implied pro forma ownership of T2 stockholders of Coram was
approximately 67.1% and the implied equity value of T2was approximately $354.0
million, or approximately $8.600 per share. The implied equity value of Curaflex
as a multiple of estimated net income for the 12 months ended December 31, 1993
and projected net income for the 12 months ending December 31, 1994 was 18.9x
and 7.9x, respectively. The implied equity value of HealthInfusion as a multiple
of estimated net income for the 12 months ended December 31, 1993 and projected
net income for the 12 months ending December 31, 1994 was 26.3x and 7.3x,
respectively. The implied equity value of Medisys as a multiple of estimated net
income for the 12 months ended December 31, 1993 and projected net income for
the 12 months ending December 31, 1994 was 27.6x and 15.4x, respectively. The
implied equity value of T2 as a multiple of estimated net income for the 12
months ended December 31, 1993 and projected net income for the 12 months ending
December 31, 1994 was 9.9x and 10.0x, respectively.
Pro Forma Merger Analysis. Smith Barney analyzed certain pro forma effects
resulting from the Merger, including the potential impact of the Merger on
Curaflex's estimated EPS for the 12 months ended December 31, 1993 and projected
EPS for the 12 months ending December 31, 1994. Based on the estimates of the
respective managements of Curaflex, HealthInfusion, Medisys and T2, the pro
forma merger analysis suggests that the pro forma equivalent EPS of Curaflex
(the pro forma EPS of Coram multiplied by the Curaflex Exchange Ratio), as
compared to the estimated or projected EPS of Curaflex on a stand-alone basis,
would be accretive to the estimated EPS of Curaflex for the fiscal year ended
December 31, 1993, accretive to the projected EPS of Curaflex for the fiscal
year ending December 31, 1994 assuming certain costs savings associated with the
Merger were achieved and dilutive to the projected EPS of Curaflex for the
fiscal year ending December 31, 1994 assuming no costs savings associated with
the Merger were achieved. The actual results achieved may vary from projected
results and the variations may be material.
Relative Contribution Analysis. Smith Barney examined the relative
contributions of Curaflex, HealthInfusion, Medisys and T2 to Coram revenue,
gross profit, EBIT and net income for fiscal years 1992, 1993 and 1994. This
analysis indicated that, for the fiscal year ended December 31, 1993, Curaflex,
HealthInfusion, Medisys and T2 would have contributed approximately 21%, 12%,
11% and 56%, respectively, of Coram revenue; approximately 23%, 11%, 9% and 58%,
respectively, of Coram gross profit; approximately 9%, 7%, 4% and 80%,
respectively, of Coram EBIT; and approximately 8%, 6%, 4% and 83%, respectively,
of Coram net income; and for the fiscal year ending December 31, 1994, Curaflex,
HealthInfusion, Medisys and T2 would contribute approximately 23%, 14%, 11% and
51%, respectively, of Coram revenue; approximately 27%, 12%, 10% and 51%,
respectively, of Coram gross profit; approximately 14%, 15%, 5% and 66%,
respectively, of Coram EBIT; and approximately 16%, 15%, 5% and 64%,
respectively, of Coram net income. This analysis also indicated that, at
December 31, 1993, Curaflex, HealthInfusion, Medisys and T2 would have
contributed approximately 21%, 15%, 7% and 58%, respectively, of Coram total
assets; approximately 17%, 13%, 6% and 64%, respectively, of Coram shareholders'
equity; approximately 32%, 22%, 10% and 36%, respectively, of Coram net working
capital; and approximately 30%, 22%, 11% and 37%, respectively, of Coram
accounts receivable. Immediately following consummation of the Merger,
stockholders of Curaflex, HealthInfusion, Medisys and T2 would own approximately
13%, 12%, 8% and 67%, respectively, of Coram.
Other Factors and Comparative Analyses. In rendering its opinion, Smith
Barney considered certain other factors and conducted certain other comparative
analyses, including, among other things, a review of (i) Curaflex,
HealthInfusion, Medisys and T2 historical and projected financial results and
(ii) the history of trading prices for Curaflex Common Stock, HealthInfusion
Common Stock, Medisys Common Stock and T2
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Common Stock and the relationship between movements of such common stock,
movements of the common stock of comparable companies and movements in the
Standard & Poor's 400 Industrial Index.
Pursuant to the terms of Smith Barney's engagement, Curaflex has agreed to
pay Smith Barney for its services in connection with the Merger an aggregate
financial advisory fee of $3 million, payable upon the consummation of the
Merger. Curaflex has agreed to reimburse Smith Barney for travel and other
out-of-pocket expenses incurred by Smith Barney in performing its services,
including the fees and expenses of its legal counsel, and to indemnify Smith
Barney and related persons against certain liabilities, including liabilities
under the federal securities laws, arising out of Smith Barney's engagement.
Smith Barney has advised Curaflex that, in the ordinary course of business,
it may actively trade the equity and debt securities of Curaflex,
HealthInfusion, Medisys and T2 for its own account or for the account of its
customers and, accordingly, may at any time hold a long or short position in
such securities. In addition, Smith Barney has provided Curaflex with financial
advisory and investment banking services in the past, including acting as
financial advisor to Curaflex in connection with its acquisition of Clinical
Homecare, Ltd. in March 1993 and as co-manager for the initial public offering
by Curaflex in March 1992 of Curaflex Common Stock, and received customary fees
from Curaflex for such services.
Curaflex engaged Smith Barney to render its opinion to Curaflex's Board of
Directors, and not to represent specifically the interests of affiliated or
non-affiliated shareholders of Curaflex. Smith Barney is a nationally recognized
investment banking firm and was selected by Curaflex based on Smith Barney's
experience and expertise. Smith Barney regularly engages in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive bids, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes.
HEALTHINFUSION'S REASONS FOR THE MERGER AND BOARD OF DIRECTORS' RECOMMENDATION
HealthInfusion's Board of Directors believes that the Merger is advisable
and in the best interests of HealthInfusion and its shareholders and is fair to
its shareholders and, by a unanimous vote of the directors, approved the Merger
Agreement and the Merger and the transactions contemplated thereby and
recommends that HealthInfusion's shareholders vote in favor of the proposal to
adopt the Merger Agreement and the Merger and the transactions contemplated
thereby.
At meetings held on February 1, 4 and 6, 1994, HealthInfusion's Board of
Directors, with the assistance of HealthInfusion's outside financial and legal
advisors, considered the terms and structure of the Merger and the related
transactions and reviewed the legal, financial and other ramifications of the
Merger and the related transactions.
In making its decision to enter into and to recommend the adoption of the
Merger Agreement and the Merger, HealthInfusion's Board of Directors considered
the following factors:
1. The relative trading prices of HealthInfusion Common Stock, Curaflex
Common Stock, Medisys Common Stock and T2 Common Stock.
2. The results of operations, financial condition, business, operations,
competitive position and prospects of each of HealthInfusion, Curaflex, Medisys
and T2, both on an historical and prospective basis, their respective strategic
business plans, certain financial forecasts for HealthInfusion prepared by
HealthInfusion's management and certain of the risks related to the results of
operations and prospects of each of HealthInfusion, Curaflex, Medisys and T2 as
separated and combined entities. In this regard, the Board considered the
increasing consolidation in the infusion therapy industry resulting from pricing
pressures from third party payors, increasing governmental regulation and
competition generally. See "Risk Factors." The Board concluded that
HealthInfusion needed greater scale and nationwide presence in order to
effectively compete and that the Merger would enable HealthInfusion to attain
such scale far more rapidly than by remaining independent.
3. The opportunity that the Merger will provide for HealthInfusion's
shareholders to have continued equity participation in a larger, more
diversified enterprise with enhanced geographic presence and a generally more
active trading market and greater financial and marketing resources, which
should position the combined
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companies to realize increased purchasing power for goods and services. In
particular, the HealthInfusion Board concluded that strength of T2's presence in
the Southeastern United States, of Medisys's presence in the Northern Midwest
and of Curaflex's presence in the Western United States coupled with the
strength of the field organization supporting such presence, would provide
HealthInfusion with opportunities for expansion that it would not otherwise have
on its own. The Board concluded that the Merger, by expanding HealthInfusion's
geographic presence and creating the industry's second largest infusion company
with a strong balance sheet and cash flow, would enhance HealthInfusion's
ability to compete more effectively against other companies in the industry,
several of which have significantly greater resources than HealthInfusion.
4. The potential enhancement of HealthInfusion's business arising out of
the Merger as a result of more efficient use of management, suppliers and
facilities, including the consolidation of four corporate offices. The Board
placed special emphasis on the anticipated synergies that are expected to result
from the integration of the operations of T2, Curaflex, HealthInfusion and
Medisys.
5. The views of HealthInfusion's management concerning HealthInfusion's
competitive position, pros pects and alternatives to the Merger, in light of an
infusion therapy industry driven by the need for size in order to survive
on-going pricing pressures imposed by third party payors. The Board noted the
continued price erosion on mature product lines through contractual adjustments,
increasing the need for greater economies of scale. Further, the Board
recognized that the rapid decline in net income experienced by each of the
constituent companies despite increasing net revenues indicated the need for
substantial cost reductions to compete effectively. Finally, the Board
recognized that the increase in size resulting from the Merger would increase
HealthInfusion's ability to effectively compete in the managed care arena. In
summary, the Board believes that the Merger offers the opportunity to create a
combined company with greater financial resources, competitive strengths and
business opportunities than would be possible for HealthInfusion alone.
6. The views of Hambrecht & Quist and presentations by Hambrecht & Quist
given to the Board of Directors, including the analyses described under
"-- Opinion of Hambrecht & Quist." Although T2, Curaflex and Medisys were
included in various analyses, the Board was not presented with specific
valuation ranges for T2, Curaflex or Medisys and therefore the Board of
Directors was unable to consider such information in making its determination.
The HealthInfusion Board of Directors considered the various financial,
comparative, pro forma and contribution analyses of T2, Curaflex, HealthInfusion
and Medisys, included in Hambrecht & Quist's presentation and believed that such
analyses, taken as a whole, supported a conclusion that the HealthInfusion
Exchange Ratio was fair, from a financial point of view, to the HealthInfusion
Stockholders. See "-- Opinion of Hambrecht & Quist." Such conclusion was a key
factor in the HealthInfusion Board's decision to recommend approval of the
Merger. Although the HealthInfusion Board of Directors did not specifically
adopt Hambrecht & Quist's opinion, it was of primary importance to the Board in
reaching its conclusion to approve the Merger Agreement and the transactions
contemplated thereby.
7. Reports of selected investment analysts concerning each of T2, Curaflex
and Medisys. The Board believed that the consensus of these analysis reports
supported the Board's conclusion that industry consolidation would continue.
These reports also confirmed the HealthInfusion Board's conclusion that the
business and operations of Curaflex and Medisys were similar and compatible to
those of HealthInfusion, and that T2 would bring to the combined enterprise a
more diversified line of business, a significant base of revenues, substantial
liquidity, a history of profitability and greater name recognition.
8. The terms of the Merger Agreement and the Merger generally, including
the amount and form of consideration to be received. See "The Merger -- Terms of
the Merger Agreement." The Board placed special emphasis on the "no shop" and
"break up" fees applicable to T2 and Curaflex, as well as the fact that the
Merger Agreement did not impose any extraordinary closing conditions. The
HealthInfusion Board concluded that the significant negative consequences of the
"no shop" and "break up" fee provisions to any constituent company determining
to actively pursue another business combination transaction gave the
HealthInfusion Board an adequate level of comfort that each of the other
constituent companies was sufficiently committed to consummating the Merger
transaction.
9. The structure of the Merger permitting the holders of HealthInfusion
Common Stock to exchange their shares for Coram Common Stock on a tax-free
basis. See "-- Federal Income Tax Consequences."
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Business combination transactions in which there is a material cash component as
part of the consideration to be received by shareholders, as opposed to an
exchange of shares as in the Merger transaction, may result in a taxable event
to such shareholders upon consummation of such transaction.
10. Provisions of the Merger Agreement permitting HealthInfusion, to the
extent required to fulfill the fiduciary duties of its Board of Directors, to
participate in negotiations or discussions with respect to offers or proposals
to acquire all or substantially all of the business, properties or capital stock
of HealthInfusion and permitting HealthInfusion's Board of Directors to pursue
such an alternative acquisition proposal, subject to the payment of a specified
"break-up" fee. See "-- Terms of the Merger Agreement."
11. The amount of the "break-up" fee in relation to the amount of
consideration to be received by HealthInfusion shareholders in the transaction
and the effect of the break-up fee and HealthInfusion's various change in
control severance arrangements (see "Management of HealthInfusion -- Change in
Control Severance Agreements") upon possible offers from third parties.
12. The results of HealthInfusion's earlier efforts to explore and
investigate transactions which were intended to maximize values for
HealthInfusion's shareholders. The Board believed that the Merger presented the
most likely available alternative for achieving the greater scale necessary for
success in a rapidly consolidating industry.
13. The potential risks and benefits of soliciting other offers for the
purchase of HealthInfusion in advance of entering into the Merger Agreement in
the light of HealthInfusion's past experience with possible business
combinations. The Board placed particular emphasis on Hambrecht & Quist's
analysis that an alternative transaction would be more difficult to consummate
in light of HealthInfusion's fourth quarter 1993 results and projected 1994
results.
14. The potential risk that T2 would follow through with its proposal to
pursue a merger with Curaflex and Medisys should HealthInfusion not elect to
participate in the four-way merger transaction. The Board placed particular
emphasis on the announced intentions of T2 and Curaflex to pursue such a
transaction.
15. The pending litigation and pending SEC inquiry relating to T2. Although
the Board did not receive any formal evaluation or assessment of such
proceedings, following discussions between T2's management and advisors and
HealthInfusion's management and advisors, the Board believed that the risks
associated with such matters should be considered in the context of the
transaction as a whole (including T2's liquidity as a possible source of
satisfying any resulting liability), that many of the risks were possibly
reflected in the trading price of T2 Common Stock, and that such proceedings
should not preclude approval of the Merger.
In view of the variety of factors considered by HealthInfusion's Board of
Directors in connection with its evaluation of the Merger, the Board did not
find it practicable to, and did not, quantify or otherwise assign relative
weights to such factors. However, in reaching the decision to approve the Merger
Agreement, the Board was most strongly influenced by the factors set forth in
items 1, 2, 3, 4, 5, 6, 10, 12 and 14 above. Although the Board did not reach
specific conclusions regarding any of these individual factors, on balance each
such factor positively affected the Board's decision to approve the Merger.
The HealthInfusion Board of Directors concluded, in light of these factors,
that the Merger is in the best interests of HealthInfusion and its shareholders
and is fair to its shareholders. THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS OF HEALTHINFUSION APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
OPINION OF HAMBRECHT & QUIST
HealthInfusion engaged Hambrecht & Quist to act as its financial advisor in
connection with the Merger and to render an opinion as to the fairness from a
financial point of view to the holders of HealthInfusion Common Stock of the
consideration to be received by such holders in the Merger. Hambrecht & Quist
rendered its oral opinion (subsequently confirmed in writing) on February 6,
1994 to the Board of Directors that, as of such date, the consideration to be
received by the holders of the Common Stock in the Merger is fair to the holders
of the Common Stock from a financial point of view. A COPY OF HAMBRECHT &
QUIST'S
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OPINION DATED FEBRUARY 6, 1994, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED, THE SCOPE AND LIMITATIONS OF THE REVIEW UNDERTAKEN AND THE
PROCEDURES FOLLOWED BY HAMBRECHT & QUIST IS ATTACHED AS APPENDIX D TO THIS JOINT
PROXY STATEMENT/PROSPECTUS. HEALTHINFUSION SHAREHOLDERS ARE ADVISED TO READ THE
OPINION IN ITS ENTIRETY. The assumptions made, matters considered and limits of
review contained in Hambrecht & Quist's written opinion delivered February 6,
1994 were substantially the same as those contained in the opinion attached
hereto. No limitations were placed on Hambrecht & Quist by the Board of
Directors of HealthInfusion with respect to the investigation made or the
procedures followed in preparing and rendering its opinion.
On February 4, 1994, Hambrecht & Quist presented its analysis to the
HealthInfusion Board of Directors for review and discussion. Its analysis
encompassed, as more fully set forth below, a comparison of companies in the
alternate site healthcare industry, including a review of valuations of various
publicly-traded companies, comparative stock trading performance data for such
companies, a review of various business combinations among publicly-traded
companies, summaries of discussions with other participants in the alternate
side healthcare industry over the previous twelve months, various quantitative
scenarios of pro forma combined financial statements of HealthInfusion, T2,
Curaflex and Medisys and the corresponding ranges of potential value associated
with such scenarios. Hambrecht & Quist's presentation to the Board focused on
the value of HealthInfusion as an independent, stand-alone business and as a
participant in the proposed transaction. Although T2, Curaflex and Medisys were
included in various analyses, the Board was not presented with specific
valuation ranges for T2, Curaflex of Medisys. Hambrecht & Quist was retained for
the benefit of the Board of Directors of HealthInfusion to assist the Board in
its evaluation of the Merger, and the opinion provided by Hambrecht & Quist was
provided solely for the Board's use in its evaluation of the Merger.
In its review of the Merger, and in arriving at its opinion, Hambrecht &
Quist, among other things (i) reviewed the publicly available consolidated
financial statements of HealthInfusion for recent years and interim periods to
date and certain other relevant financial and operating data of HealthInfusion
(including its capital structure) made available to us from the internal records
of HealthInfusion; (ii) discussed with certain members of the management of
HealthInfusion the business, financial condition and prospects of
HealthInfusion; (iii) reviewed certain financial and operating information,
including certain projections provided by the management of HealthInfusion,
relating to HealthInfusion; (iv) reviewed the publicly available consolidated
financial statements of T2, Curaflex and Medisys for recent years and interim
periods to date and certain other relevant financial and operating data of T2,
Curaflex and Medisys (including their respective capital structures) made
available to Hambrecht & Quist from the internal records of T2, Curaflex and
Medisys, respectively; (v) reviewed certain financial and operating information,
including certain projections provided by the managements of T2, Curaflex and
Medisys and discussed such projections with certain members of the managements
of T2, Curaflex and Medisys, respectively; (vi) reviewed the recent reported
prices and trading activity for the common stock of HealthInfusion, T2, Curaflex
and Medisys and compared such information and certain financial information of
HealthInfusion, T2, Curaflex and Medisys with similar information for certain
other companies engaged in businesses Hambrecht & Quist considered comparable to
those of HealthInfusion, T2, Curaflex and Medisys; (vii) discussed with parties
other than T2, Curaflex and Medisys the possibility of a transaction or series
of transactions involving a business combination with HealthInfusion; (viii)
reviewed the terms, to the extent publicly available, of certain comparable
acquisition transactions; (ix) reviewed the Merger Agreement; and (x) performed
such other analyses and examinations and considered such other information,
financial studies, analyses and investigations and financial, economic and
market data as Hambrecht & Quist deemed relevant.
Hambrecht & Quist did not independently verify any of the information
concerning HealthInfusion, T2, Curaflex or Medisys considered in connection with
their review of the Merger and, for purposes of its opinion, Hambrecht & Quist
assumed and relied upon the accuracy and completeness of all such information.
In connection with its opinion, Hambrecht & Quist did not prepare or obtain any
independent evaluation or appraisal of any of the assets or liabilities of
HealthInfusion, T2, Curaflex or Medisys, nor did they conduct a physical
inspection of the properties and facilities of HealthInfusion, T2, Curaflex or
Medisys. With the permission of HealthInfusion, Hambrecht & Quist did not
prepare or obtain any evaluation or appraisal of any potential or pending
litigation that may involve T2 or accordingly HealthInfusion, Curaflex, Medisys
or
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Coram, including without limitation, certain investigations specified in Item 1
and certain litigation specified in Item 3 of the T2 Annual Report on Form 10-K
for the year ended September 30, 1993. With respect to the financial forecasts
and projections made available to Hambrecht & Quist and used in their analyses,
Hambrecht & Quist, on the advice of the managements of HealthInfusion, T2,
Curaflex and Medisys, assumed that they reflected the best currently available
estimates and judgments of the expected future financial performance each of
those companies, respectively. Hambrecht & Quist also assumed that none of
HealthInfusion, T2, Curaflex or Medisys was a party to any pending transactions,
including external financings, recapitalizations or merger discussions, other
than the Merger and those in the ordinary course of conducting their respective
businesses. Hambrecht & Quist's opinion is necessarily based upon market,
economic, financial and other conditions as they exist and can be evaluated as
of the date of the opinion and any subsequent change in such conditions would
require a reevaluation of such opinion.
In rendering its opinion, Hambrecht & Quist did not express any opinion or
make any determination as to what specific consideration should be paid for the
HealthInfusion Common Stock or received by the holders thereof in connection
with the Merger, what the value of the Coram Common Stock actually will be when
issued to HealthInfusion shareholders pursuant to the Merger or the price at
which the Coram Common Stock will trade subsequent to the Merger. The opinion
rendered by Hambrecht & Quist is limited to the evaluation and determination of
whether the consideration to be received by the HealthInfusion shareholders is
fair, from a financial point of view, to such shareholders.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the Hambrecht & Quist analyses set forth below does not purport to be a
complete description of the presentation by Hambrecht & Quist to the Board of
Directors. In arriving at its opinion, Hambrecht & Quist did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Moreover, any particular mathematical computation may, by itself, imply
a valuation higher or lower than the public market value of HealthInfusion or
HealthInfusion's proportional ownership in Coram and is, accordingly, a
potentially misleading or unreliable indicia of value. Accordingly, Hambrecht &
Quist believes that its analyses and the summary set forth below must be
considered as a whole and that selecting portions of its analyses, without
considering all analyses, or of the above summary, without considering all
factors and analyses, could create an incomplete view of the processes
underlying the analyses set forth in the Hambrecht & Quist presentation to
HealthInfusion's Board and its opinion. In performing its analyses, Hambrecht &
Quist made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of HealthInfusion, T2, Curaflex and Medisys. Such assumptions include,
but are not limited to, the absence of extraordinary macroeconomic dislocations,
low to moderate inflation rates, and the absence of material changes in current
healthcare reimbursement structures. The analyses performed by Hambrecht & Quist
(and summarized below) are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. Additionally, analyses relating to the values of businesses do
not purport to be appraisals or to reflect the prices at which businesses
actually may be sold.
The following analytical methodologies provide a quantitative framework for
determining the range of fair values to be ascribed to HealthInfusion. In both
the "Comparable Public Company Analysis" and the "Selected Acquisitions
Analysis" a range of fair values for HealthInfusion is derived by comparing
HealthInfusion's historic and projected financial performance with the
performance of companies engaged in businesses deemed to be comparable to
HealthInfusion. The operating data from such comparable companies is analyzed
and compared with the valuations placed on such companies by either the public
markets or the acquirers of such companies, as the case may be. Such valuations
are then analyzed as multiples of such companies' various operating data (such
as net income, revenues, operating income, book value and earnings before
interest and taxes (EBIT)). Those multiples then are used to "imply" a range of
value for HealthInfusion; such data implies a range of both equity values and
enterprise values (equity value plus long-term debt less cash).
Comparable Public Company Analysis. Hambrecht & Quist compared selected
historical and projected financials, operating and stock market performance data
of HealthInfusion, T2, Curaflex and Medisys to the
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corresponding data of certain publicly traded health services companies that
Hambrecht & Quist considered comparable based on market value and strategic
focus. Comparisons were analyzed for the following companies in the alternate
site drug delivery business (the "Alternate Site Drug Delivery Group"): Caremark
International, Inc., Home Nutritional Services, Inc., Option Care, Inc., Quantum
Health Resources, Inc., Response Technologies, Inc., and Salick Health Care,
Inc. Comparisons were analyzed for the following companies in the home health
care business (the "Home Health Care Group"): Abbey Healthcare Group,
Healthdyne, Inc., Homedco Group, Inc., In Home Health, Inc., Lincare Holdings,
Inc., Olsten Corporation, Rotech Medical Corp., Tokos Medical Corp., and U.S.
Homecare Corp. Comparisons were analyzed for the following companies in the
ambulatory surgery business (the "Ambulatory Surgery Group"): Medical Care
America, Inc. and Surgical Care Affiliates, Inc. For each of the Alternate Site
Drug Delivery Group, the Home Health Care Group and the Ambulatory Surgery
Group, Hambrecht & Quist compared the equity market value of each company as a
multiple of tangible book value, 1992 net income, 1993 estimated net income, and
1994 forecasted net income with each of HealthInfusion, T2, Curaflex and
Medisys, and Hambrecht & Quist compared the enterprise value of each company
(calculated as market equity value plus preferred stock and long-term debt minus
cash) as a multiple of each company's last twelve month's revenues, EBIT
(earnings before interest and taxes) and EBITDAR (earnings before interest,
taxes, depreciation, amortization and rent) with each of HealthInfusion, T2,
Curaflex and Medisys. All multiples were based on closing stock prices on
January 28, 1994. All forecasted data for companies in each of the Alternate
Site Drug Delivery Group, the Home Healthcare Group and the Ambulatory Surgery
Group were based on publicly-available independent estimates of selected
investment banking firms. The average multiple of calendar 1993 net income
implied an equity valuation for HealthInfusion of approximately $67.3 million;
the average multiple of tangible book value (as of September 1993) implied an
equity valuation of HealthInfusion of approximately $65.0 million; the average
multiple of estimated 1994 net income implied an equity valuation for
HealthInfusion (based on several scenarios of potential HealthInfusion
performance in 1994) of approximately $94.5 million; the average latest twelve
months revenues (for the period generally ending September 1993); implied an
equity valuation for HealthInfusion of approximately $69.4 million; the average
multiple of the latest twelve months EBITDAR implied an equity valuation for
HealthInfusion of approximately $85.4 million; and the average multiple of the
latest twelve months EBIT implied an equity valuation for HealthInfusion of
approximately $54.3 million.
Selected Acquisitions Analysis. Using publicly-available information,
Hambrecht & Quist analyzed the purchase prices and transaction values (as equity
value multiples of net income, tangible book value, cash flow, and as enterprise
value multiples of revenue, EBIT, EBDIT, and not operating assets) in the
following selected merger and acquisition transactions in the alternate site
drug delivery industry: Critical Care America, Inc./Medical Care International,
Inc., Clinical Homecare Ltd./Curaflex, The IV Clinic, Inc./ Quantum Health
Resources, Inc., Caremark International/public investors, Home Intensive Care,
Inc./W.R. Grace & Co., Lifetime Corp./Olsten Corp., Total Pharmaceutical Care,
Inc./Abbey Healthcare Group, Inc., Teamcare, Inc./Critical Care America, Inc.,
Care Plus, Inc./New England Critical Care, Inc., HMSS, Inc./ Secom Co. Ltd.,
Caremark, Inc./Baxter Travenol Laboratories. Hambrecht & Quist also analyzed the
purchase prices and transaction values in the following selected merger and
acquisition transactions in the healthcare services industry: Damon
Corp./Investor group, Glasrock Home Health Care, Inc./Homedco Group, Inc., Basic
American Medical, Inc./Columbia Hospital Corp., Vivigen, Inc./Genzyme Corp.,
Galen Health Care, Inc./Columbia Hospital Corp., Damon Corporation/Corning Inc.
Vari-care Inc./Living Centers of America, Inc., Medco Containment Services,
Inc./Merck, Greenery Rehabilitation Group, Inc./Horizon Healthcare Corp.,
Preferred Health Care Ltd./Value Health Inc., Hospital Corp. of America/Columbia
Hospital Corp., Orthopedic Services, Inc./NovaCare Inc., RehabCare
Corp./investor group, Unilab Corp./ Metpath Inc., Damon Corp./Nomad Partners,
Quality Care/Lifetime Corp. The average multiple of the latest twelve months net
income implied an equity valuation for HealthInfusion of approximately $57.8
million; the average multiple of tangible book value (as of September 1993)
implied an equity valuation for HealthInfusion of approximately $67.4 million;
the average multiple of the latest twelve months cash flow from operations
implied an equity valuation for HealthInfusion of approximately $42.7 million;
the average multiple of latest twelve months revenues implied an equity
valuation for HealthInfusion of approximately $68.7 million; the average
multiple of latest twelve months EBDIT implied an equity valuation for
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HealthInfusion of approximately $56.5 million; and the average multiple of
latest twelve months EBIT implied an equity valuation for HealthInfusion of
approximately $62.8 million. Hambrecht & Quist also analyzed the stock price
premiums paid (as measured by the difference between trading prices and
acquisition prices) in the acquisitions in the alternate site drug delivery
industry in 1992 and 1993. The premiums paid in the comparable transactions
implied an average equity valuation for HealthInfusion of approximately $108.2
million, based on an average acquisition premium of 52.6% over the price
twenty-eight days prior to announcement of the transactions.
Relative Contributions Analysis. Hambrecht & Quist examined the expected
contributions to aggregate Coram revenues, EBIT, not income and book value by
each of HealthInfusion, T2, Curaflex and Medisys for the 1993 calendar year.
Hambrecht & Quist observed that HealthInfusion shareholders are expected to own
approximately 12% of the Coram equity at the close of the Merger, that T2
shareholders are expected to own approximately 67% of the Coram equity at the
close of the Merger, that Curaflex shareholders are expected to own
approximately 13% of the Coram equity at the close of the Merger, and that
Medisys shareholders are expected to own approximately 8% of the Coram equity at
the close of the Merger. In 1993, it was estimated that HealthInfusion, T2,
Curaflex and Medisys would have contributed approximately 12.3%, 56.4%, 20.5%
and 10.8%, respectively, of the combined revenues; approximately 7.9%, 89.1%,
(3.0%) and 6.0%, respectively, of the combined EBIT; approximately 8.3% 101.3%,
(14.4%) and 4.8%, respectively, of the combined net income; and approximately
12.7%, 64.2%, 17.4% and 5.6%, respectively, of the combined book value.
Hambrecht & Quist also observed that HealthInfusion represented approximately
13% of the combined market value of the four companies.
Stock Trading History Analysis. Hambrecht & Quist examined the history of
the trading prices and volume of the shares of the common stock of
HealthInfusion, T2, Curaflex and Medisys, both separately and in relation to
each other, and the relationship between movement in the prices of such shares
and movements in certain stock indices, during the periods from January 20, 1993
to January 28, 1994.
No company or transaction used in the above analyses is identical to
HealthInfusion, T2, Curaflex or Medisys or the proposed Merger. Accordingly, an
analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading values of the companies or company to which they
are compared.
The foregoing description of Hambrecht & Quist's opinion is qualified in
its entirety by reference to the full text of such opinion which is attached at
Appendix D to this Joint Proxy Statement/Prospectus.
Hambrecht & Quist, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, corporate restructurings, strategic alliances,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Hambrecht & Quist may in the future provide additional investment banking or
other financial advisory services to Coram.
HealthInfusion engaged Hambrecht & Quist to render its opinion to
HealthInfusion's Board of Directors, and not to represent specifically the
interests of affiliated or non-affiliated shareholders of HealthInfusion.
Pursuant to an engagement letter dated May 24, 1993 (as amended on January 28,
1994), HealthInfusion has paid Hambrecht & Quist (i) retainer payments
aggregating $60,000, and (ii) an initial fairness opinion fee (the "Initial
Opinion Fee") of $250,000 (paid in connection with the delivery of a fairness
opinion rendered for the proposed three-way merger among HealthInfusion,
Curaflex and Medisys). HealthInfusion has also agreed to pay Hambrecht & Quist
(a) an additional fairness opinion fee of $250,000 (rendered in connection with
the delivery of the fairness opinion for the four-party transaction) and (b) a
transaction fee (the "Transaction Fee") upon the closing of the Merger, of 1.25%
of the consideration (defined as including, among other things, marketable
equity securities received from, and indebtedness assumed by, an acquiring
entity) received in the Merger. The Initial Opinion Fee shall be credited
against the total Transaction Fee. HealthInfusion has agreed to reimburse
Hambrecht & Quist for its reasonable out of pocket expenses, and to indemnify
Hambrecht & Quist against certain liabilities, including liabilities under the
federal securities laws or relating to or arising out of Hambrecht & Quist's
engagement as financial advisor.
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MEDISYS' REASONS FOR THE MERGER AND BOARD OF DIRECTORS' RECOMMENDATION
In approving the Merger Agreement and the transactions contemplated
thereby, and in recommending that the stockholders of Medisys approve the Merger
Agreement and the transactions contemplated thereby, Medisys' Board of Directors
considered a number of factors, including, but not limited to, the following:
1. Market conditions in the home infusion therapy industry, including
competitive, pricing and governmental regulation pressures that are driving a
trend toward consolidation of infusion therapy companies. Due to these pressures
arising from market conditions, the Board was of the view that it may be
difficult for smaller, regional infusion therapy companies, such as Medisys, to
effectively compete and realize profitable margins. The Board believes that
consolidation may be the most effective strategy to address these market
pressures, which supports the recommendation to approve the consolidation with
Curaflex, HealthInfusion and T2. The Board in particular noted the recent
decline in the net income of Medisys, Curaflex and HealthInfusion, despite
increasing revenues, as further underscoring the need to develop critical mass
and realize cost savings through consolidation.
2. The amount of the consideration to be received by the stockholders of
Medisys in the Merger was considered in conjunction with the Board's review of
the analysis presented by Medisys' financial advisor, Piper Jaffray, which is
discussed in greater detail below, as to the fairness, from a financial point of
view, to the stockholders of Medisys of the consideration to be received in the
Merger. The Board specifically considered the percentage of the combined
enterprise to be received by the stockholders of Medisys (approximately 7.9%) in
comparison to Medisys' contribution to the pro forma earnings of the combined
enterprise (approximately 1.1% in 1993 and approximately 5.7% in 1994 based upon
the projected earnings of the four companies) and determined on the basis of
such comparison that the amount of the consideration to be received by the
Medisys stockholders is favorable. In addition, as described in greater detail
below, the Board compared various pro forma implied stock prices determined for
the combined enterprise with the then current Medisys Common Stock price of
$3.63 and determined that, on the basis of certain assumptions regarding the
expected price to earnings ratio of Coram Common Stock and expected cost savings
from operating synergies, the amount of the consideration to be received in the
Merger compared favorably. For instance, based on the analysis presented by
Medisys' financial adviser, assuming that Coram's Common Stock traded at a price
to earnings multiple of 11, and assuming cost savings from operating synergies
of $12 million, the implied value per share to be received by the stockholders
of Medisys, based on 1994 pro forma information, would be $4.39, representing a
21.1% increase over the the current Medisys Common Stock price of $3.65 per
share. At higher price to earnings multiples, or with greater cost savings from
operating synergies, the implied value to be received by the stockholders of
Medisys would be higher. No assurance can be given, however, that the combined
entity will achieve projected earnings or any cost savings from operating
synergies, or that Coram's stock will trade at any particular price to earnings
multiple.
The Board recognized that T2 may be perceived to have received a premium in
the exchange ratio over its public market valuation at the time of execution of
the Merger Agreement, resulting in a discount to the stockholders of Medisys on
the basis of its public market valuation at that time. This perceived discount
results from the significantly higher price to earnings multiple at which
Medisys Common Stock has historically traded in the market. On the basis of the
percentage of the combined enterprise to be received by the stockholders of
Medisys compared with Medisys' expected contribution to the operating and net
income of the combined enterprise, the stockholders of Medisys may be perceived
to receive a premium.
3. The structure of the Merger, permitting the stockholders of Medisys to
receive shares in the combined entity on a tax-free basis, which may enable
stockholders to preserve the value of the investment, rather than liquidating
the investment in a taxable transaction. Business combination transactions in
which there is a material cash component as part of the consideration to be
received by shareholders, as opposed to an exchange of shares as in the Merger,
may result in a taxable event to such shareholders upon consummation of the
transaction. Due to the relatively high price to earnings ratio at which Medisys
Common Stock has historically traded, the Board of Directors was of the view
that Medisys was unlikely to be able to obtain any significant premium over the
market price in a taxable cash transaction.
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4. The form of the consideration to be received by the Medisys stockholders
as an equity interest in a larger and more diversified company that is expected
to benefit strategically, competitively and operationally from the Merger, which
may allow the stockholders to realize growth in their investment and possibly a
greater long-term return than in a cash transaction. As noted above, the Board
concluded that it was unlikely that a cash transaction would yield any
significant premium over the current price of Medisys Common Stock.
5. The benefits to be derived by the combined entity from a national
presence in negotiating contracts with third party payors. The Board of
Directors considered the trend in the industry of third party payors
consolidating their contracts with national companies. The Board concluded that
Medisys, as an independent company, may have difficulty in negotiating contracts
with large third party payors. The Board also concluded that the combined
enterprise, which would be the industry's second largest infusion therapy
company, is more likely than Medisys, as a separate Company, to be able to
effectively compete for such contracts, which may give Medisys access to a
broader base of referrals and a larger patient population.
6. The ability of the combined entity to realize cost savings from
operating synergies. The Board was of the view that, with the pricing pressures
prevalent in the industry, the most effective way to achieve more favorable
operating margins is through reduction of operating expenses. Based upon the
expected consolidation of regional centers and corporate headquarters in the
combined entity and the expected realization of savings in general and
administrative expenses through consolidation, the Board determined that the
combined enterprise is more likely to achieve more favorable operating margins
than Medisys could with its regional operations, particularly in light of the
consolidation in the industry. The Board also recognized that the potential cost
savings from operating synergies will be offset by the costs associated with the
negotiation and consummation of the Merger, currently estimated to be
approximately $14.0 million, as well as the amounts to be paid to certain
individuals in connection with the Merger or upon the subsequent termination of
their employment. In addition, the Board recognized that there would be
significant additional, but presently undeterminable, costs related to the
implementation of consolidation of the constituent companies' existing
operations. See "The Merger -- Interests of Certain Persons in the Merger" and
"Notes to Unaudited Pro Forma Condensed Combined Financial
Statements -- Adjustments to Unaudited Pro Forma Condensed Combined Financial
Statements."
7. The ability of the combined entity to realize volume discounts from
suppliers. Because many of the products used in Medisys' business are generic
commodities, the Board believed that savings from volume purchasing can be
realized, weighing in favor of the combination.
8. The ability of the combined entity to enhance its presence in certain
geographical markets and to enter additional markets. The Board considered that
the larger presence in common markets may provide a broader base of referrals
and greater name recognition in existing markets allowing the combined
enterprise to enhance operating margins through increased volume. In addition,
the Board determined that the combined entity's financial resources, ability to
obtain financing and possibly greater national name recognition is expected to
permit the combined enterprise to enter new markets on a more cost-effective
basis than Medisys could on its own. These factors led the Board to the
conclusion that the combined enterprise was in a better position than Medisys as
a separate company to realize the growth and critical mass that is necessary to
compete effectively and profitably in the current climate of the industry.
9. The historical and current financial condition, results of operations,
prospects and business of Medisys, T2, Curaflex and HealthInfusion. These
factors were considered as part of the analysis presented by Piper Jaffray,
described in greater detail below, and with the input of management familiar
with the operations of all four companies. Specifically, the Board was advised
by management that the business and operations of Medisys, Curaflex and
HealthInfusion were similar and compatible, and the Board believed that T2
brought to the combined enterprise a more diversified line of business, a
significant base of revenues, a history of profitability and greater national
name recognition. The Board was presented with evidence that the financial
condition and results of operations of T2, Curaflex and HealthInfusion were
relatively sound, and that the prospects for Medisys' future business would be
enhanced by being part of a larger, national enterprise, particularly in light
of the industry conditions driving consolidation, which weighed in favor of
recommendation of the Merger.
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10. The pending litigation and pending SEC investigation relating to T2.
Although the Board of Directors did not receive any formal evaluation or
assessment of the pending litigation and SEC investigation, counsel for Medisys
discussed these items with the Board of Directors based on such counsel's review
of the pleadings and discussions with counsel representing T2 in the various
pending matters. The Board considered the risks of the pending litigation in the
context of the transaction as a whole and the extent to which the risks were
previously disclosed to the market and possibly reflected in the trading price
of T2 Common Stock. Although the ultimate outcome of the pending litigation and
investigation cannot be accurately predicted, based on such consultation and
considerations, the Medisys Board of Directors concluded that the uncertainty of
the outcome of the litigation and investigation should not preclude the Board's
approval and recommendation of the Merger.
11. The terms of the Merger Agreement and the Merger generally, including
the conditions to closing, the structure of the Board of Directors, permitting
involvement by a representative of Medisys, the strength of the proposed
management of the combined entity, the provisions relating to the requirement of
Coram to fulfill the obligations of Medisys, the provisions relating to the
ability of Medisys to participate in negotiations or discussions with respect to
other proposals to acquire Medisys to the extent necessary to fulfill the
fiduciary duties of the Board of Directors to the stockholders of Medisys and
the nature and amount of the termination fees that may be payable under certain
circumstances. The Board believed that the termination fees payable by the other
constituent companies under certain circumstances provided an adequate level of
assurance that each of the other constituent companies was sufficiently
committed to the consummation of the Merger. The Board was advised that the
Merger Agreement conformed to the terms of the transaction as approved by the
Board, and was advised that the provisions regarding the ability of Medisys to
consider other proposals to acquire Medisys, and termination fees related
thereto, would enable the Board to fulfill its fiduciary duties to the
stockholders with respect to the consideration of alternative proposals.
12. The presentation with respect to the Merger and the written opinion of
Piper Jaffray dated February 4, 1994, to the effect that, as of such date and
based upon and subject to certain matters as stated in its written opinion, the
consideration to be received by the stockholders of Medisys pursuant to the
Merger Agreement is fair, from a financial point of view, to the stockholders of
Medisys. In connection with its presentation to the Medisys Board of Directors,
Piper Jaffray did not provide an independent analysis with respect to the
specific valuation ranges of Medisys, Curaflex, HealthInfusion or T2 and
therefore the Board of Directors was unable to consider such information in
making its determinations. Although the Medisys Board of Directors did not
specifically adopt the opinion, it relied upon that opinion and the presentation
and fairness opinion of Piper Jaffray was of primary importance to the Board of
Directors in reaching its conclusion to approve the Merger Agreement and the
transactions contemplated thereby.
The Medisys Board of Directors considered the financial, comparative, pro
forma and contribution analyses of T2, Curaflex, HealthInfusion and Medisys,
included in Piper Jaffray's presentation and believed that such analyses, taken
as a whole, supported a conclusion that the Medisys Exchange Ratio was fair,
from a financial point of view, to the Medisys stockholders. See "-- Opinion of
Piper Jaffray". Such conclusion was a key factor in the Medisys Board's decision
to recommend approval of the Merger.
In light of the variety of factors considered by Medisys' Board of
Directors, the Board did not find it practical to and did not assign any
particular weight to any of the foregoing factors, but considered all of these
factors as a whole in reaching its determination. However, in reaching its
decision to approve the Merger the Board was most strongly influenced by the
items noted in paragraphs 1, 2, 3, 4, 6, 9, 11 and 12.
The Medisys Board concluded, in light of all of the foregoing factors, that
the Merger is in the best interests of Medisys and its stockholders and is fair
to its stockholders. THE BOARD OF DIRECTORS OF MEDISYS RECOMMENDS THAT THE
STOCKHOLDERS OF MEDISYS APPROVE THE MERGER.
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OPINION OF PIPER JAFFRAY
Medisys retained Piper Jaffray, an investment banking firm based in
Minneapolis, Minnesota, to render an opinion to the Board as to the fairness,
from a financial point of view, to the stockholders of Medisys of the
consideration to be received in the Merger.
Medisys selected Piper Jaffray in part because of its national reputation
for quality investment banking services and its considerable knowledge and
experience with the health care industry. In addition, Piper Jaffray had served
as underwriter for Medisys' public offering in 1991, and had rendered fairness
opinions to Medisys with respect to three acquisitions completed by Medisys in
1992 and 1993. The Medisys Board of Directors retained Piper Jaffray in November
1993 to render a fairness opinion in connection with the proposed combination
with HealthInfusion and Curaflex, and in January 1994 to render a fairness
opinion in connection with the four-way Merger, in each case based primarily on
its extensive knowledge and experience with Medisys and its industry.
On November 24, 1993, representatives of Piper Jaffray participated in a
meeting of the Board of Directors and gave the Board an overview of the nature
and scope of the procedures and methods that Piper Jaffray would use in its
analysis of the fairness, from a financial point of view, to the stockholders of
Medisys of the consideration to be received in the proposed combination of
Medisys, Curaflex and HealthInfusion. The representatives of Piper Jaffray also
responded to questions regarding the proposed three-way transaction from members
of the Board of Directors. Piper Jaffray did not at that time render any opinion
as to the fairness of the proposed business combination.
On November 30, 1993, Piper Jaffray made a presentation to the Medisys
Board of Directors, and responded to questions from members of the Board
regarding its analysis of the fairness to the stockholders of Medisys of the
consideration to be received in the proposed three-way transaction. At this
time, Piper Jaffray also delivered its written opinion, dated November 30, 1993,
the day before the agreement was executed as to the proposed three-way business
combination.
On February 2, 1994, representatives of Piper Jaffray participated in a
meeting of the Medisys Board of Directors and gave the Board an overview of the
nature and scope of the procedures and methods that Piper Jaffray was using in
its analysis of the fairness, from a financial point of view, to the
stockholders of Medisys of the consideration to be received in the proposed
four-way combination of Medisys, Curaflex, HealthInfusion and T2. The
representatives of Piper Jaffray also responded to questions from members of the
Board of Directors regarding the proposed four-way transaction. Piper Jaffray
did not at that time render any opinion as to the fairness of the proposed
four-way business combination.
On February 4, 1994, Piper Jaffray made a presentation to the Medisys Board
of Directors and responded to questions from members of the Board regarding its
analysis of the fairness to the stockholders of Medisys of the consideration to
be received in the Merger. At this time, Piper Jaffray also delivered its oral
opinion (later confirmed in writing) as to the fairness, from a financial point
of view, to the stockholders of Medisys of the consideration to be received in
the Merger. On February 7, 1994, Piper Jaffray delivered its written opinion,
dated February 4, 1994, confirming its oral opinion referred to above.
The amount of the consideration to be exchanged was determined through
arm's length negotiations among representatives of Medisys, Curaflex,
HealthInfusion and T2 and was not determined by Piper Jaffray. In rendering its
opinion, Piper Jaffray did not express any opinion or make any determination as
to what specific consideration should be paid for the Medisys Common Stock or
received by the holders thereof in connection with the Merger, what the value of
the Coram Common Stock actually will be when issued to Medisys stockholders
pursuant to the Merger or the price at which the Coram Common Stock will trade
subsequent to the Merger. The opinion rendered by Piper Jaffray is limited to
the evaluation and determination of whether the consideration to be received by
the Medisys stockholders is fair, from a financial point of view, to such
stockholders. The full text of the written opinion of Piper Jaffray, which
contains information as to the assumptions made, matters considered, scope and
limitations of the review undertaken and the procedures followed by Piper
Jaffray, is set forth as Appendix E to this Joint Proxy Statement/Prospectus and
should be read in its entirety.
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In arriving at its opinion, Piper Jaffray reviewed and analyzed, among
other things, (i) a draft of the Merger Agreement dated February 1, 1994; (ii)
certain financial and securities data of Medisys, Curaflex, HealthInfusion, T2
and companies deemed similar to such companies or representative of the business
sector in which such companies operate (although none of these comparable
companies had characteristics identical to Medisys, Curaflex, HealthInfusion, or
T2; (iii) to the extent publicly available, the financial terms of certain
acquisition transactions involving companies operating in industries deemed
similar to that in which Medisys operates (although none of the transactions
involved companies identical to Medisys); (iv) publicly available information
relating to Medisys, Curaflex, HealthInfusion and T2; and (v) Medisys',
Curaflex's, HealthInfusion's and T2's internally prepared projections for fiscal
1993 and 1994. In addition, Piper Jaffray had discussions with members of
management of each of the four companies concerning their respective financial
condition, current operating results and business outlook, including potential
operating efficiencies and synergistic values which may arise from the Merger.
Piper Jaffray also visited the headquarters of each of Medisys, Curaflex and
HealthInfusion.
In connection with rendering its opinion, Piper Jaffray performed various
financial analyses which are summarized below.
1. Dilution Analysis. Piper Jaffray analyzed the potential effect of the
proposed Merger on earnings per share of Medisys Common Stock, based on
forecasted pro forma combined earnings of Coram which in turn were based upon
forecasted earnings provided by Medisys, Curaflex, HealthInfusion and T2 for
1993 and 1994. Assuming the accuracy of the forecasted pro forma combined
earnings of Coram, this analysis indicated that the transaction would be
potentially accretive to earnings per share of Medisys by approximately 108% in
1993 and by approximately 68% in 1994, in each case without taking into account
potential cost savings from operating synergies that may be realized by the
combined entity.
2. Contribution Analysis. Piper Jaffray analyzed the relative projected
contributions of Medisys, Curaflex, HealthInfusion and T2 to the projected
revenues, operating income and net income of Coram for 1993 and 1994 in
comparison to the relative percentages of pro forma ownership in Coram to be
received by the stockholders of the four companies. This analysis indicated that
the percentage ownership in the combined entity expected to be received by the
stockholders of Medisys is somewhat below the percentage of Medisys' expected
contribution to the combined entity's revenues for 1993 and 1994, as the
percentage ownership in Coram to be received by the stockholders of Medisys is
approximately 7.9% and Medisys' expected contribution to Coram's revenues for
1993 is approximately 10.8% and for 1994 is approximately 10.7%. However, the
percentage ownership in Coram expected to be received by the stockholders of
Medisys of 7.9% is favorable to the stockholders of Medisys in comparison with
the percentage of Medisys' expected contribution to Coram's operating income
(3.43% in 1993 and 5.22% in 1994) and net income (3.76% in 1993 and 4.71% in
1994). In addition, the percentage ownership in the combined entity to be
received by the stockholders of Medisys of 7.9% is favorable to the stockholders
of Medisys in comparison with the percentage of Medisys' expected contribution
to the combined entity's cash (2.1%), total assets (7.0%), tangible book value
(3.8%) and shareholders' equity (5.6%) based on September 30, 1993 balance sheet
data.
3. Pro Forma Implied Stock Price Analysis. Piper Jaffray analyzed
hypothetical stock prices for Coram calculated from the combined entity's
estimated earnings for 1993 and 1994, assuming varying levels of cost savings
resulting from operating synergies, and using a range of possible price to
earnings per share multiples. This range of implied stock prices was then
compared with the average price per share of Medisys Common Stock over the
period from December 31, 1993 through February 3, 1994. Piper Jaffray's analysis
indicated that there could be accretion in the implied Medisys stock price in
1994 assuming no cost savings from operating synergies and assuming that the
combined entity's hypothetical stock trades at a price to estimated earnings
multiple of 11 or higher. Assuming cost savings resulting from operating
synergies of $12 million in 1994, there could be accretion in the implied
Medisys stock price in 1994 if the combined entity's hypothetical stock trades
at a price to projected earnings multiple of 10 or higher.
Stockholders should be aware, however, that no assurance can be given that
the combined entity will achieve projected earnings or any cost savings from
operating synergies, or that the combined entity's stock will trade at any
particular price to earnings multiple.
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<PAGE> 105
4. Comparable Publicly Traded Company Analysis. Piper Jaffray completed a
search for publicly traded companies operating in similar business segments as
Medisys, and the search was narrowed to those companies focused on home infusion
therapy and home healthcare services. The remaining 15 companies were separated
into three comparable groups: Home Infusion Therapy Companies (including
Caremark International, Inc., Home Nutritional Services, Inc. and Option Care,
Inc.); Home Healthcare Service Companies (including Abbey Health Care Group,
Inc., Healthdyne, Inc., Homedco Group, Inc., In Home Health, Inc., Lincare
Holdings, Inc., Quantum Health Resources, Inc., Rotech Medical Corp., Tokos
Medical Corp., and U.S. Home Care Corp.); and the other three companies included
in the transaction. Using the closing price of Medisys Common Stock of $3.63 per
share on February 3, 1994, Piper Jaffray compared the ratio of Medisys' company
value to its revenues, the ratio of its price per share to earnings per share,
and the ratio of its company value to operating income with similar ratios for
the selected comparable publicly traded companies. This analysis indicated that
in comparison with the group of Home Infusion Therapy Companies, Medisys' ratios
were in all cases higher than the mean and median ratios for the comparable
companies, including company value to last 12 months' revenue (Medisys: 1.0;
mean: 0.7; median: 0.8); price per share to 1993 earnings (Medisys: 22.7; mean:
19.2; median: 18.5); and company value to last 12 months, operating income
(Medisys: 17.2; mean: 12.1; median: 10.2). Similarly, in comparison with
Curaflex, HealthInfusion and T2, Medisys' ratios were higher than the mean and
median ratios of price per share to 1993 earnings (Medisys: 22.7; mean 11.4;
median 12.1); and company value to last 12 months' operating income (Medisys:
17.2; mean 10.2; median 8.1), but lower than the mean and median ratios of
company value to last 12 months' revenue (Medisys: 1.0; mean 1.3; median 1.2).
In comparison with the Home Healthcare Service Companies, Medisys' ratios
were mixed in comparison with the mean and median ratios for the comparable
companies, including company value to last 12 months' revenue (Medisys: 1.0;
mean: 1.6; median: 1.0); price per share to 1993 earnings per share (Medisys:
22.7; mean: 24.8; median: 23.5); and company value to last 12 months' operating
income (Medisys: 17.2; mean: 13.2; median: 14.9). The mixed results of these
comparisons are not considered conclusive since the companies in this category
are generally considered to be less similar to Medisys than the companies
included in the first two categories described above.
5. Comparable Transactions Analysis. Piper Jaffray compared the ratios of
the implied enterprise purchase price and the implied purchase price to be
received by the Medisys stockholders (based on certain assumptions regarding the
combined entity's projected earnings, a range of expected cost savings resulting
from operating synergies and a range of possible price to earnings multiples for
the combined entity's common stock) to Medisys' historical revenues, operating
income, net income and stockholders' equity with similar ratios derived from
selected publicly disclosed acquisition transactions that involved target
companies operating in industries deemed similar to that in which Medisys
operates. The transactions included in this analysis were: Critical Care
America, Inc./Caremark International; Total Pharmaceutical Care Inc./Abbey
Healthcare Group Inc.; Lifetime Corp./Olsten Corp.; American Home Therapies,
Inc./Medisys, Inc.; Home Intensive Care Inc./WR Grace & Co.; IV Clinic
Inc./Quantum Health Resources, Inc.; Clinical Homecare Ltd./Curaflex Health
Services, Inc.; ContinueCare Health Systems/Curaflex Health Services, Inc.;
Total Home Care Inc./Curaflex Health Services, Inc.; Medical Technology
Services/Home Nutritional Services, Inc.; Critical Care America, Inc./Medical
Care International, Inc.; Glasrock Home Health Care Inc./Homedco Group, Inc.;
CareLink Corp./Tokos Medical Corp.; Marquest Health Services/American Home
Patient Centers; TeamCare, Inc./Critical Care America, Inc.; Medical Research
Management/Tokos Medical Corp.; Comprehensive Home Services/Quantum Health
Resources, Inc.; Care Plus, Inc./New England Critical Care, Inc.; Upjohn
Healthcare Services, Inc./Olsten Corp.; HMSS, Inc./Secomerica (Secom Co. Ltd.);
and Vivra, Inc./Shareholders. This analysis revealed that the range of multiples
of the implied enterprise purchase price (based on varying levels of assumed
cost savings from operating synergies and varying assumed trading multiples) to
Medisys' operating income and net income compared favorably to similar multiples
for the selected transactions. As an example, assuming no cost savings resulting
from synergies, and assuming that Coram's stock trades at a multiple of 8 times
projected 1994 earnings, the ratio of Medisys' implied enterprise purchase price
to operating income would be 21.54, compared to a mean of 16.06 and a median of
12.96 for the comparable transactions, and the ratio of Medisys' implied
enterprise purchase price to net income would be 60.77, compared to a mean of
29.80 and a median of 18.88 for the comparable
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<PAGE> 106
transactions. The range of multiples of the implied enterprise purchase price to
Medisys' sales and stockholders' equity were generally below the mean and the
median for the comparable transactions, but generally within the range found in
the comparable transactions. For example, assuming no cost savings from
synergies, and assuming that Coram's stock trades at a multiple of 12 times
projected 1994 earnings, the ratio of Medisys' implied enterprise purchase price
to revenues would be 1.33, compared to a minimum of .32, a maximum of 5.34, a
mean of 2.00 and a median of 1.97 for the comparable transactions, and the ratio
of Medisys' implied enterprise purchase price to stockholders' equity would be
2.1, compared to a minimum of 1.8, a maximum of 22.27, a mean of 7.58 and a
median of 6.68 for the comparable transactions.
No company or transaction used in any analysis as a comparison is identical
to Medisys or to the proposed Merger. Accordingly, an analysis of the results is
not mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies or the company to which they are being
compared.
The preparation of a fairness opinion is a complex process and not
necessarily susceptible to partial analyses or summary description. Piper
Jaffray believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all factors and analyses, would create a misleading view of the
processes underlying its opinion. In view of the various factors considered in
connection with its evaluation of the fairness, from a financial point of view,
to the stockholders of Medisys of the consideration to be received in the
Merger, Piper Jaffray did not find it practicable to assign relative weights to
the factors considered in reaching its opinions, but rather considered all of
the different analyses and factors as a whole. The analyses of Piper Jaffray are
not necessarily indicative of actual values, which may be significantly more or
less favorable than as set forth in its analyses. Analyses relative to the value
of companies do not purport to be appraisals or necessarily indicative of the
price at which companies may actually be sold.
Piper Jaffray's opinion was delivered for use and consideration by the
Medisys Board, is directed only to the consideration to be received by the
stockholders of Medisys in the Merger, and does not constitute a recommendation
to any stockholders of Medisys as to how such stockholders should vote at the
Medisys Special Meeting. Piper Jaffray's opinion is based, in part, upon market
conditions at February 3, 1994 and does not represent an opinion as to the value
at which Coram Common Stock would trade if and when it is issued pursuant to the
Merger. The summary of the opinion of Piper Jaffray set forth in this Joint
Proxy Statement/Prospectus is qualified in its entirety by reference to the full
text of such opinion.
For purposes of its opinion, Piper Jaffray relied upon and assumed the
accuracy, completeness and fairness of the financial and other information of
Medisys, Curaflex, HealthInfusion and T2 and did not attempt independently to
verify such information. Piper Jaffray further relied upon the assurances of the
respective managements of Medisys, Curaflex, HealthInfusion and T2 that the
information provided had a reasonable basis and, with respect to internal
financial projections and other business outlook information, reflected the best
available estimates and that they were not aware of any information or fact that
would make the information provided to Piper Jaffray incomplete or misleading.
In connection with its presentation to the Medisys Board of Directors, Piper
Jaffray did not provide an independent analysis with respect to the specific
valuation ranges of Medisys, Curaflex, HealthInfusion or T2. In arriving at its
opinion, Piper Jaffray did not perform any appraisal or valuation of specific
assets of Medisys, Curaflex, HealthInfusion or T2 and expressed no opinion
regarding the liquidation value of any company. Piper Jaffray did not express
any opinion regarding the prices at which shares of Coram Common Stock may trade
at any future time. Piper Jaffray's opinion is based upon the information
available to it and facts and circumstances as they existed and were subject to
evaluation on February 3, 1994. Events occurring after that date could
materially affect the assumptions used in preparing the opinion. Moreover, Piper
Jaffray assumed that the Merger will (i) qualify as a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended,
and (ii) be accounted for as a pooling-of-interests transaction in accordance
with generally accepted accounting principles.
Medisys engaged Piper Jaffray to render its opinion to Medisys' Board of
Directors, and not to represent specifically the interests of affiliated or
non-affiliated stockholders of Medisys. Pursuant to separate engage-
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<PAGE> 107
ment letters relating to the proposed three-way merger among HealthInfusion,
Curaflex and Medisys and the Merger, Medisys has paid Piper Jaffray (i) an
initial fairness opinion fee of $275,000, and (ii) an additional fairness
opinion fee of $150,000. Medisys has also agreed to pay Piper Jaffray an
additional transaction fee of $250,000 payable upon closing of the Merger or
receipt by Medisys of compensation in the event the Merger is not consummated.
Medisys has agreed to reimburse Piper Jaffray for all its reasonable
out-of-pocket expenses, including fees and disbursements of Piper Jaffray's
counsel, and to indemnify it against certain liabilities in connection with its
services to Medisys, including liabilities under the federal securities laws.
As part of its investment banking business, Piper Jaffray is engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. Piper Jaffray is active as a broker/dealer on all domestic
exchanges and therefore may, in the ordinary course of its business, trade
securities of Medisys for its own account or for the accounts of customers and
thus may hold long or short positions in Medisys securities at any time. In the
past, Piper Jaffray has rendered services to Medisys unrelated to the Merger and
received fees for such services. In connection with a public offering of Medisys
Common Stock in 1991, Piper Jaffray served as underwriter and, as part of its
fees for its investment banking services, received a warrant to purchase 97,750
shares of Medisys Common Stock at a price of $7.20 per share.
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<PAGE> 108
THE MERGER
The Merger Agreement was entered into by and among Coram, T2, Curaflex,
HealthInfusion, Medisys, T2 Acquisition, CHS Acquisition, HII Acquisition and MI
Acquisition on February 6, 1994, following approval by each company's Board of
Directors. Pursuant to the terms of the Merger Agreement, T2, Curaflex,
HealthInfusion and Medisys will each become wholly owned subsidiaries of Coram
through the mergers of T2 Acquisition into T2, CHS Acquisition into Curaflex,
HII Acquisition into HealthInfusion and MI Acquisition into Medisys.
CLOSING AND EFFECTIVE TIME OF THE MERGER
The Merger will become effective (the "Effective Time") upon the completion
of the filing of (1) properly executed Articles of Merger with the Department of
State of the State of Florida with respect to the merger of HII Acquisition into
HealthInfusion and (2) properly executed Certificates of Merger with the
Secretary of State of the State of Delaware reflecting the respective mergers of
T2 Acquisition into T2, CHS Acquisition into Curaflex and MI Acquisition into
Medisys, which filings will be made after satisfaction of certain conditions set
forth in the Merger Agreement. None of the three filings will be made unless all
such filings are made. See "Conditions of the Merger Agreement" below.
CONDITIONS OF THE MERGER AGREEMENT
Conditions to the Closing of the Merger Agreement include, but are not
limited to, the following:
1. Performance of Obligations: Each of T2, Curaflex, HealthInfusion
and Medisys shall have performed in all material respects its obligations
under the Merger Agreement required to be performed by it at or prior to
the Effective Time.
2. Stockholder Approval: The Merger Agreement and the transactions
contemplated thereby shall have been approved and adopted by (a) the
affirmative vote of the holders of a majority of the outstanding shares of
each of T2 Common Stock, Curaflex Common Stock, HealthInfusion Common Stock
and Medisys Common Stock, and (b) the written consent of the sole
stockholder of each of T2 Acquisition, CHS Acquisition, HII Acquisition and
MI Acquisition. If the stockholders of any one or more of the constituent
corporations fail to approve the Merger, the Merger will not be
consummated.
3. Limit on Cash Payments: The aggregate amount of cash required to
be paid on account of all the HealthInfusion Common Stock held by
HealthInfusion stockholders who validly exercise their right to dissent to
the Merger Agreement and with respect to any cash payments to T2, Curaflex,
HealthInfusion and Medisys stockholders for fractional shares shall not
exceed ten percent (10%) of the value of the Coram Common Stock issuable in
exchange for T2, Curaflex, HealthInfusion and Medisys Stock (including
shares that would otherwise be issued with respect to the shares held by
the dissenting stockholders).
4. "Pooling" Letters from Auditors: Each of T2, Curaflex,
HealthInfusion and Medisys shall have received a letter from its regularly
retained independent auditors to the effect that each company served by
such auditors qualifies for "pooling of interests" treatment for financial
reporting purposes and that such accounting treatment is in accordance with
generally accepted accounting principles.
5. Tax Opinions: Each of T2, Curaflex and Medisys shall have received
an opinion from its outside counsel, and HealthInfusion shall have received
an opinion from its outside accountants, substantially to the effect that
the merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that the company receiving such
opinion will be a party to the reorganization within the meaning of Section
368(b) of the Code. See "Federal Income Tax Consequences" below.
6. Resignation of Current Directors: Each of the respective current
directors of T2, Curaflex, HealthInfusion and Medisys shall have resigned
effective as of the Effective Time.
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<PAGE> 109
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated prior to the Effective Time upon
certain occurrences, including but not limited to the following:
1. By mutual written consent of all of Coram, T2, Curaflex,
HealthInfusion, Medisys, T2 Acquisitions, CHS Acquisition, HII Acquisition
and MI Acquisition (collectively, the "Companies," and individually, a
"Company").
2. By any Company if the Merger shall not have been consummated on or
before July 31, 1994.
3. By any Company if the Board of Directors of any other Company
withdraws or adversely modifies its approval or recommendation of the
Merger Agreement or the Merger (unless such approval or recommendation is
reinstated and publicly confirmed prior to termination by any other
Company).
4. By any Company if any court of competent jurisdiction in the
United States or other United States governmental body shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger, and such order, decree, ruling or other
action shall have become final and non-appealable.
5. By written notice from any Company to the others if any approval
of the stockholders of a Company required for the consummation of the
Merger shall not have been obtained by reason of the failure to obtain the
required vote at a duly held meeting of the stockholders or any adjournment
thereof.
In addition to the foregoing, in the event that any of T2, Curaflex,
HealthInfusion and Medisys (each an "Operating Company") (1) initiates,
solicits, encourages or engages or (except as required in the exercise of its
Board of Directors' fiduciary duty) participates in negotiations, provides any
non-public information or has discussions with any other entity concerning any
acquisition, tender offer, exchange offer, merger, consolidation, acquisition or
beneficial ownership of or the right to vote securities representing 10% or more
of the total voting power of such Operating Company, dissolution, business
combination, purchase of all or any significant portion of the assets or any
division of, or any equity interest in, such Operating Company (other than the
Merger, an "Acquisition Proposal"), (2) breaches in a material respect any other
material obligation under the Merger Agreement or (3) terminates the Merger
Agreement upon receipt of an Acquisition Proposal, then such Operating Company
must pay to the other three Operating Companies the following:
(a) the reasonable fees and expenses of each such other Operating
Companies incurred in connection with the proposed Merger prior to the
termination (but not less than $250,000); and
(b) in the case of a termination by Curaflex, an amount equal to $1.5
million to each of HealthInfusion, Medisys and T2; in the case of a
termination by HealthInfusion, an amount equal to $1.5 million to each of
Curaflex, Medisys and T2; in the case of a termination by Medisys, an
amount equal to $750 thousand to each of Curaflex, HealthInfusion and T2;
and in the case of termination by T2, an amount equal to $1.5 million to
each of Curaflex, HealthInfusion and Medisys (less, in each case, any
amounts paid under clause (a)) plus an additional $3.5 million to each of
Curaflex, HealthInfusion and Medisys if T2 consummates an Acquisition
Proposal within 12 months thereafter.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Stock and Option Holdings of Directors and Officers. Under the Merger
Agreement, from and after the Effective Time, each option, warrant or other
right (a "Derivative Security") to purchase or receive T2, Curaflex,
HealthInfusion or Medisys Common Stock will be converted into a Derivative
Security to purchase or receive the same number of shares of Coram Common Stock
as the holder of such Derivative Security would have received had he or she
exercised his or her Derivative Security in full immediately prior to the
Effective Time, with the exercise price per share to be proportionately
adjusted. Accordingly, the adjusted exercise price per share for each Derivative
Security currently covering shares of T2 Common Stock will be determined by
dividing the exercise price in effect for that Derivative Security immediately
prior to the Effective Time of the Merger by 0.63. The adjusted exercise price
per share for each Derivative Security currently covering shares of Curaflex
Common Stock will be determined by dividing the exercise price in
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<PAGE> 110
effect for that Derivative Security immediately prior to the Effective Time of
the Merger by 0.333. The adjusted exercise price per share for each Derivative
Security currently covering shares of HealthInfusion Common Stock will be
determined by dividing the exercise price in effect for that Derivative Security
immediately prior to the Effective Time of the Merger by 0.447. The adjusted
exercise price per share for each Derivative Security currently covering shares
of Medisys Common Stock will be determined by dividing the exercise price in
effect for that Derivative Security immediately prior to the Effective Time of
the Merger by 0.243.
The chart below indicates as to the specified individuals and groups (i)
the number of options outstanding under each of the T2, Curaflex, HealthInfusion
and Medisys stock option plans which have exercise prices in excess of the fair
market value of those shares on April 30, 1994, and (ii) the weighted average
exercise price of these out-of-the-money options. Accordingly, as of April 30,
1994, a total of 2,286,106 shares of Coram Common Stock issuable under the T2,
Curaflex, HealthInfusion and Medisys stock option plans to be assumed by Coram
in the Merger will have adjusted exercise prices expected to be in excess of the
fair market value per share of Coram Common Stock after the Merger, and these
options will accordingly have value only if the fair market value of the Coram
Common Stock purchasable under these options after the Merger substantially
appreciates over the remaining option term:
T2
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
OPTION HOLDER OPTION SHARES(1) PER SHARE
------------- ---------------- ----------------
<S> <C> <C>
Thomas E. Haire........................................ 500,000 $ 30.62
John T. Gallatin....................................... 85,000 28.68
Gary P. Greenhood...................................... 100,000 20.25
Bruce A. Kolleda....................................... 40,000 30.06
All Executive Officers as a group (4 persons).......... 725,000 28.93
All Non-Executive Officer Directors as a group (2
persons)............................................. 60,000 23.25
All Employees other than Current Executive Officers as
a group (102 persons)................................ 1,729,273 25.66
</TABLE>
CURAFLEX
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
OPTION HOLDER OPTION SHARES(2) PER SHARE
------------- ---------------- ----------------
<S> <C> <C>
John S. Chamberlin..................................... 60,000 $ 6.39
C. Sage Givens......................................... 30,000 8.06
Philip D. Green........................................ 20,000 9.41
Leo G. Hendler......................................... 25,000 6.13
Kevin Higgins.......................................... 45,000 9.18
Charles A. Laverty..................................... 375,000 7.96
Michael Rothkopf....................................... 0 --
Donald E. Strange...................................... 60,000 11.80
George H. Strong....................................... 40,000 7.58
Edgar Udine............................................ 0 --
Norman Werthwein....................................... 100,000 8.47
James R. Yarter........................................ 20,000 9.41
All Executive Officers as a group (14 persons)......... 880,000 7.99
All Non-Executive Officer Directors as a group (7
persons)............................................. 230,000 8.75
All Employees other than Current Executive Officers as
a group (172 persons)................................ 763,169 6.86
</TABLE>
- ---------------
(1) Number of Option Shares equals the aggregate, for each individual or group
listed, of shares subject to options to purchase T2 Common Stock with an
exercise price in excess of $10.50 per share, which was the closing price
for T2 Common Stock on April 29, 1994.
(2) Number of Option Shares equals the aggregate, for each individual or group
listed, of shares subject to options to purchase Curaflex Common Stock with
an exercise price in excess of $5.00 per share, which was the closing price
for Curaflex Common Stock on April 29, 1994.
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<PAGE> 111
HEALTHINFUSION
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
OPTION HOLDER OPTION SHARES(1) PER SHARE
------------- ---------------- ----------------
<S> <C> <C>
Jack T. Thompson....................................... 45,000 $ 8.00
All Executive Officers as a group (1 person)........... 45,000 8.00
All Non-Executive Officer Directors as a group (0
persons)............................................. 0 --
All Employees other than Current Executive Officers as
a group (48 persons)................................. 76,600 10.32
</TABLE>
MEDISYS
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
OPTION HOLDER OPTION SHARES(2) PER SHARE
------------- ---------------- ----------------
<S> <C> <C>
Khalid Mahmud, M.D. ................................... 10,000 $ 5.00
William J. Brummond.................................... 30,000 5.00
David J. Byrd.......................................... 40,000 4.25
Mary B. Bennett........................................ 15,000 4.75
Sandra A. Smilanich.................................... 35,000 4.75
David G. Swendsen...................................... 15,000 4.75
John D. Hirsch......................................... 10,000 4.68
Robert D. Holmen....................................... 15,000 3.83
Kathryn R. Love, M.D................................... 15,000 3.83
Michael A. Noble....................................... 15,000 4.25
David L. Printy........................................ 23,000 3.98
Robert L. Rasmussen.................................... 10,500 3.65
L. Peter Smith......................................... 10,000 4.13
Christopher J. York.................................... 20,000 4.25
All Executive Officers as a group (8 persons).......... 180,000 4.60
All Non-Executive Officer Directors as a group (6
persons)............................................. 83,500 3.99
All Employees other than Current Executive Officers as
a group (24 persons)................................. 116,000 4.63
All Non-Employees other than Directors as a group (3
persons)............................................. 129,179 6.92
</TABLE>
- ---------------
(1) Number of Option Shares equals the aggregate, for each individual or group
listed, of shares subject to options to purchase HealthInfusion Common Stock
with an exercise price in excess of $6.75 per share, which was the closing
price for HealthInfusion Common Stock on April 29, 1994.
(2) Number of Option Shares equals the aggregate, for each individual or group
listed, of shares subject to options to purchase Medisys Common Stock with
an exercise price in excess of $3.50 per share, which was the closing price
for Medysys Common Stock on April 29, 1994.
As part of the assumption by Coram of the outstanding stock options to
purchase Medisys Common Stock, the stock options held by the four current
non-employee members of the Medisys Board of Directors that would otherwise
terminate in accordance with their terms 90 days after the Effective Time of the
Merger will, following the Effective Time of the Merger, be extended for an
additional one year period during which such options will be exercisable for
fully-vested shares of Coram Common Stock based upon the Medisys Exchange Ratio.
These options currently cover 52,164 shares of Medisys Common Stock with a
weighted average exercise price of $3.45 per share (which will, pursuant to the
Merger, be converted into options to purchase 12,676 shares of Coram Common
Stock with a weighted average exercise price of $14.20).
The vesting of certain options held by executives and directors of Curaflex
and HealthInfusion may accelerate on or, in certain circumstances, after
consummation of the Merger. In aggregate, (1) options to purchase 420,844 shares
of Curaflex Common Stock (which, pursuant to the Merger, will be converted into
options to purchase 140,135 shares of Coram Common Stock at a weighted average
exerise price of $18.41 per share) held by certain executive officers of
Curaflex will accelerate to become vested following consummation of the Merger
in the event such officer's employment is terminated by Curaflex (except for
cause) following the Merger and (2) options to purchase 8,250 shares of
HealthInfusion Common Stock held by one executive officer of HealthInfusion at a
weighted average exercise price of $5.33 per share (which, pursuant to the
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Merger, will be converted into options to purchase 3,687 shares of Coram Common
Stock at a weighted average exercise price of $11.92 per share) will accelerate
to become immediately and fully exercisable on consummation of the Merger.
The following table sets forth the number of shares subject to unvested
options held by each executive officer of Curaflex and HealthInfusion which will
accelerate or become subject to acceleration in the Merger (assuming the Merger
were consummated on or before April 30, 1994), and the number of such shares as
converted to Coram Common Stock upon consummation of the Merger:
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO UNVESTED
OPTIONS WHICH
ACCELERATE ON
TERMINATION OF AS CONVERTED WEIGHTED AVERAGE
CURAFLEX EMPLOYMENT FOLLOWING WEIGHTED AVERAGE TO CORAM EXERCISE PRICE
EXECUTIVE OFFICER MERGER EXERCISE PRICE COMMON STOCK FOLLOWING MERGER
----------------------- ----------------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Charles A. Laverty..... 200,523 $6.125 66,774 $18.39
Norman H. Werthwein.... 18,230 6.125 6,070 18.39
Kevin M. Higgins....... 18,230 6.125 6,070 18.39
M. Cassandra Harris.... 18,230 6.125 6,070 18.39
David C. Garland....... 18,230 6.125 6,070 18.39
R. Weldon Cole......... 18,230 6.125 6,070 18.39
Ralph B. Strong........ 18,230 6.125 6,070 18.39
Thomas M. Bates........ 18,230 6.125 6,070 18.39
Gary Goltz............. 20,313 7.00 6,764 21.02
Bernard Lambrese....... 14,584 6.125 4,856 18.39
Thomas McNulty......... 18,230 6.125 6,070 18.39
Donald Peterson........ 39,584 5.75 13,181 17.27
------- ------ ------- ------
Total........ 420,844 $6.13 140,135 $18.41
======= ===== ======= ======
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO UNVESTED
OPTIONS WHICH AS CONVERTED WEIGHTED AVERGE
HEALTHINFUSION ACCELERATE ON WEIGHTED AVERAGE TO CORAM EXERCISE PRICE
EXECUTIVE OFFICER CONSUMMATION OF MERGER EXERCISE PRICE COMMON STOCK FOLLOWING MERGER
----------------------- ----------------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
David C. McCormick..... 8,250 $5.33 3,687 $11.92
</TABLE>
In the aggregate, as of April 30, 1994, (1) T2's current directors and
executive officers and their affiliates beneficially owned approximately 3% of
the outstanding T2 Common Stock, including approximately 1.0% representing
options to purchase T2 Common Stock which were exercisable within sixty days,
(2) Curaflex's directors and executive officers and their affiliates
beneficially owned approximately 24.6% of the outstanding Curaflex Common Stock,
including 6.1% representing options to purchase Curaflex Common Stock which were
exercisable within sixty days, (3) HealthInfusion's directors and executive
officers and their affiliates beneficially owned approximately 32.5% of the
outstanding HealthInfusion Common Stock, including approximately 4.4%
representing options to purchase HealthInfusion Common Stock which were
exercisable within sixty days and (4) Medisys' directors and executive officers
and their affiliates beneficially owned approximately 33.8% of the outstanding
Medisys Common Stock, including approximately 2.2% representing options to
purchase Medisys Common Stock which were exercisable within sixty days. Upon
consummation of the Merger, it is anticipated that (1) the current directors and
executive officers of T2 and their affiliates will beneficially own
approximately 1.8% of the outstanding shares of Coram Common Stock, including
options to purchase approximately 1.2% of such shares, (2) the directors and
executive officers of Curaflex and their affiliates will beneficially own
approximately 3.1% of the outstanding shares of Coram Common Stock,
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including options to purchase approximately 1.0% of such shares, (3) the
directors and executive officers of HealthInfusion and their affiliates will
beneficially own approximately 3.6% of the outstanding shares of Coram Common
Stock, including options to purchase approximately 0.5% of such shares and (4)
the directors and executive officers of Medisys and their affiliates will
beneficially own approximately 2.5% of the outstanding shares of Coram Common
Stock, including options to purchase approximately 0.2% of such shares. All of
the current directors and executive officers of each company have indicated that
they will vote their shares of Common Stock in the respective Company FOR
approval of the Merger Agreement. For more information, see "Operation,
Management and Business of Coram After the Merger -- Coram Principal
Stockholders," "Curaflex Principal Stockholders," "HealthInfusion Principal
Stockholders" and "Medisys Principal Stockholders."
Employment, Consulting and Severance Arrangements. Certain of the executive
officers and directors of T2, Curaflex, HealthInfusion and Medisys will be named
as executive officers and directors of Coram after the Merger. See "Operation,
Management and Business of Coram After the Merger -- Management of Coram."
Upon consummation of the Merger, Mr. Laverty will enter into a one year
employment agreement, terminable at any time by Mr. Laverty but only "for cause"
by Coram, providing for (1) an annual base salary of $450,000, (2) an annual
incentive compensation bonus of up to 100% of base salary, payable, in cash
and/or Coram Common Stock, upon Coram achieving certain performance objectives
for the year in question as set by the Chairman of Coram or by Coram's Board of
Directors or a committee thereof (the remaining balance of which salary and a
pro rata portion of which bonus shall be payable in the event Mr. Laverty's
employment with Coram is terminated during the year by Coram at any time (other
than "for cause") or by Mr. Laverty after completion of at least six months of
service with Coram), (3) an option grant under the Coram 1994 Stock Option/Stock
Issuance Plan to purchase 100,000 shares of Coram Common Stock to be made on
December 1, 1994, provided that he has not voluntarily terminated his employment
with Coram prior to such date, at an exercise price equal to the closing selling
price of Coram Common Stock on such date, which will be immediately exercisable,
(4) forgiveness by Coram of a current loan to Mr. Laverty from Curaflex in the
principal amount of $400,000, plus accrued interest to date, (5) payment by
Coram of all fees, costs and expenses incurred by Mr. Laverty in the event Coram
requires Mr. Laverty to relocate his primary residence (subject to Mr. Laverty's
consent to such relocation), including broker's fees, mortgage payments on his
former residence after the date of relocation until such residence is sold, and
any loss sustained by him on sale of such residence, (6) payment of a
severance/non-compete payment of $2,500,000 upon termination of Mr. Laverty's
employment (other than by Coram "for cause") payable over three years
(co-extensive with the non-compete period) and (7) Mr. Laverty's agreement not
to compete with Coram during his employment with Coram and for three years
following termination of such employment. For further information concerning the
stock option grant to be made to Mr. Laverty, see "Proposal No. 2: Approval of
Coram Healthcare Corporation 1994 Stock Option/Stock Issuance
Plan -- Discretionary Grant Program."
In order to preserve, for Federal income tax purposes, the deductibility to
Coram of the payments called for under the employment agreement for Mr. Laverty,
the employment agreement provides that any amounts which would not be deductible
when otherwise scheduled to be paid to the executive will be placed in a "Rabbi
Trust" for the benefit of Mr. Laverty, and will be paid at such time as the
payment is deductible by Coram.
In November 1993, T2 engaged Mr. Sweeney to act as an advisor to T2 for the
purpose of making presentations to and engaging in discussions and negotiations
with potential business combination candidates. See "Background of the
Merger -- T2." Pursuant to the terms of his engagement, T2 has agreed to pay Mr.
Sweeney a cash fee equal to 0.672% of the average total market capitalization of
the resulting company as determined over the ten trading day period immediately
following the Effective Time of the Merger. Such cash fee, if based on the
average total market capitalization of Coram as determined over the ten trading
day period immediately following April 30, 1994, would equal approximately
$4,452,275.
To induce Mr. Sweeney to serve as Chairman and Chief Executive Officer of
Coram, the Board of Directors of Coram has determined to grant to Mr. Sweeney on
December 1, 1994, provided that he continues in service with Coram until such
date, a stock option under the Coram 1994 Stock Option/Stock Issuance to
purchase 3,000,000 shares of Coram Common Stock. The option will have an
exercise price per share equal to
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<PAGE> 114
the closing selling price per share of Coram Common Stock on the date of grant.
The option will have a maximum term of 10 years and will be immediately
exercisable for all of the option shares. The shares purchased under the option
will be subject to repurchase by Coram, at the option exercise price, should Mr.
Sweeney cease service with Coram prior to the lapsing of such repurchase right.
Twenty-five percent (25%) of the option shares will cease to be subject to such
repurchase right upon Mr. Sweeney's completion of one year of service with Coram
measured from the Effective Time, and the balance will cease to be subject to
such repurchase right in successive equal monthly installments upon Mr.
Sweeney's completion of each additional month of service over the next thirty
six (36) months thereafter. In the event of certain changes in control or
ownership of Coram, all of the option shares will immediately cease to be
subject to such repurchase right, and the option will remain exercisable for
such shares until the end of the ten (10) year option term, whether or not Mr.
Sweeney continues in service with Coram. For further information concerning the
option grant to be made to Mr. Sweeney, see "Proposal No. 2: Approval of Coram
Healthcare Corporation 1994 Stock Option/Stock Issuance Plan -- Discretionary
Grant Program."
Pursuant to a Consulting Agreement, effective October 1, 1993, between
HealthInfusion and KMF Associates, Inc. ("KMF"), KMF may be entitled to fees in
the amount of $1,980,000, payable upon the termination of KMF's services in
certain circumstances, which circumstances may include consummation of the
Merger. The principals of KMF are the three founders of HealthInfusion,
consisting of Melvin E. Levinson, M.D. (currently Chairman of the Board of
Directors of HealthInfusion), Jeffrey M. Fine, Esq. (currently Vice Chairman of
the Board of Directors of HealthInfusion) and Stuart R. Kaufman (currently a
Director of HealthInfusion and, until his resignation effective October 1, 1993,
the Executive Vice President -- Corporate Development of HealthInfusion). In
consideration of payment of $1,980,000 by Coram or HealthInfusion to KMF at
closing of the Merger, (1) KMF and HealthInfusion will amend KMF's consulting
agreement with HealthInfusion so that it terminates upon consummation of the
Merger, and (2) each of Messrs. Levinson, Fine and Kaufman will resign as
directors of HealthInfusion, effective upon consummation of the Merger. See
"Management of HealthInfusion -- Consulting Agreements."
Certain executive officers of HealthInfusion have entered into employment
and severance agreements with HealthInfusion that provide for payment of
severance or termination fees upon the termination of the executive's employment
in certain circumstances, which circumstances may include consummation of the
Merger. Effective upon the consummation of the Merger, each of Miles E. Gilman,
W. Barry Tanner, Jack T. Thompson and David C. McCormick and HealthInfusion will
terminate any employment and severance agreements between such individual and
HealthInfusion and, thereafter, each such individual will be an "at will"
employee at his current salary. In consideration therefor, each such individual
will enter into a new severance arrangement with Coram that will provide (1) for
payment of a lump sum severance/non-compete payment to such individual upon the
voluntary or involuntary termination of employment of such individual with Coram
or HealthInfusion, in the following amounts: Mr. Gilman -- $2,000,000, Mr.
Tanner -- $675,000, Mr. Thompson -- $820,000 and Mr. McCormick -- $675,000, and
(2) that the executive will not compete with Coram during such individual's
employment and for two years after termination of such employment. See "The
Merger -- Interests of Certain Persons in the Merger," "Management of
HealthInfusion -- Employment Agreements" and "-- Change in Control Severance
Agreements."
Upon consummation of the Merger, and in consideration of the severance
agreement described below, William Brummond, currently the Chief Executive
Officer of Medisys, and Medisys will terminate Mr. Brummond's employment
agreement with Medisys, and thereafter Mr. Brummond will be employed by Coram on
an "at will" basis as a Vice President at a base salary of $275,000 per annum
and an annual bonus potential of up to 100% of base salary payable based upon
earnings per share or other performance objective set by Coram's Compensation
Committee of the Board of Directors. Coram and Mr. Brummond will enter into a
severance agreement providing that, if Mr. Brummond's employment is terminated
by Coram for any reason, Mr. Brummond shall receive a severance/non-compete
payment of 2.99 times annual compensation, payable over three years
(co-extensive with the non-compete period). In addition, Mr. Brummond will
receive
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a supplemental lump sum payment ("Supplemental Payment") of $400,000 upon the
earlier of (1) termination of his employment by Coram during the first twelve
months following consummation of the Merger, (2) termination of employment by
Mr. Brummond due to (i) the assignment to him of duties inconsistent in any
respect to his position or the diminution of authority, duties or
responsibilities, (ii) his required relocation from his current primary work
location, or (iii) any breach by Coram of any provision of his severance
agreement or (3) on the first anniversary of consummation of the Merger if Mr.
Brummond is still employed by Coram. No Supplemental Payment will be payable if
Mr. Brummond voluntarily terminates his employment with Coram prior to the first
anniversary of consummation of the Merger. See "The Merger -- Interests of
Certain Persons in the Merger" and "Management of Medisys -- Employment and
Severance Agreements."
In addition, in consideration of the severance arrangements with Coram
described below, the respective employment agreements of Mr. Tommy H. Carter,
currently Chief Executive Officer, President and a Director of T2, and Thomas E.
Haire, currently the Chairman of the Board of T2, currently in effect with T2
will be terminated. Each of Messrs. Carter and Haire will thereafter be an "at
will" employee at his respective current salary and will be given new severance
arrangements substantially similar to those provided for in such employment
agreements, providing for, among other things, a lump sum payment to each of
Messrs. Carter and Haire in an amount equal to 2.99 times their respective
annual base salaries of $450,000 and $150,000 if his respective employment is
terminated by Coram (other than "for cause") or by him due to (i) the assignment
to him of duties inconsistent in any respect to his position or the diminution
of authority, duties or responsibilities, (ii) his required relocation from his
current primary work location, or (iii) any breach by Coram or T2 of any
provision of his severance agreement.
Notwithstanding the lump sum payments referred to above, the timing of the
payment of such amounts shall be subject to postponement to the extent that
payment of any such amount in the taxable year in which it was originally
scheduled to be paid would result in a disallowance of a deduction for any such
amount pursuant to either Section 162(m) or Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"). Any amount which is not paid in the
taxable year in which it was originally scheduled to be paid as a result of such
postponement shall be payable in the next succeeding taxable year in which such
payment will not result in the disallowance of a deduction pursuant to either
Section 162(m) or Section 280G of the Code; provided, however, that (i) in any
litigation relating to the payment of the postponed payments, the prevailing
party shall be entitled to receive attorneys' fees and related costs, and (ii)
all postponed payments shall be placed in a Rabbi trust or similar vehicle for
the benefit of the person to whom it is owed in such a way that the amounts so
transferred are not taxable to such person or deductible by Coram until payment
from such vehicle to such person is made.
Certain executive officers of Medisys, including Khalid Mahmud, Mary
Bennett, David Byrd, David Swendsen and Sandra Smilanich, have entered into
employment and severance agreements with Medisys that provide for payment of
severance or termination fees upon the termination of the executive's employment
in certain circumstances, which circumstances may include consummation of the
Merger. In consideration of the termination, effective upon the consummation of
the Merger of each of these employment and severance agreements with Medisys,
each of such executive officers will be offered severance agreements pursuant to
which the employee will become an "at will" employee at his or her current
salary, and providing for the lump sum payment to such individual of $140,000,
$220,000, $250,000, $200,000 and $220,000, respectively, upon the earlier of (1)
termination of employment by Coram or Medisys (other than "for cause") during
the first twelve months following consummation of the Merger, (2) termination of
employment by the employee due to (a) the assignment to such person of duties
inconsistent in any respect to his or her current position or the diminution of
authority, duties or responsibilities, (b) such person's required relocation
from his or her current primary work location, or (c) any breach by Coram or
Medisys of any provision of such person's severance agreement or (3) on the
first anniversary of consummation of the Merger if such individual is still
employed by Coram or Medisys. For this purpose, termination of employment by
Coram as a result of the employee's refusal to relocate, as required by Coram,
from his or her current primary work location shall be deemed a termination
entitling the employee to the severance payment described in the preceding
sentence. See "The
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Merger -- Interests of Certain Persons in the Merger" and "Management of
Medisys -- Employment and Severance Agreements."
Mr. Carter will receive an option grant to purchase 94,500 shares of Coram
Common Stock under the Coram 1994 Stock Option/Stock Issuance Plan. The grant
will be made by the Coram Board of Directors and will have an exercise price per
share equal to the closing selling price per share of Coram Common Stock on the
date of grant. The option will become exercisable in three equal and successive
annual installments over Mr. Carter's continued period of service with Coram.
However, the option will become exercisable for all the option shares as
fully-vested shares upon certain changes in control of ownership of Coram. This
option will be granted to Mr. Carter in cancellation of his existing contractual
right to receive an option grant for 150,000 shares of T2 Common Stock in
September 1994. Further information concerning the 94,500-share option grant to
Mr. Carter may be found in "Proposal No. 2: Approval of Coram Healthcare
Corporation 1994 Stock Option/Stock Issuance Plan" below.
Stanley S. Trotman, a director of T2, is a Managing Director of Kidder,
Peabody. Kidder, Peabody delivered an oral opinion on February 1, 1994, which it
confirmed on February 6, 1994 (and which it subsequently confirmed in writing),
to the T2 Board of Directors to the effect that, as of the date of such opinion,
the T2 Exchange Ratio is fair, from a financial point of view, to the holders of
shares of T2 Common Stock. Kidder, Peabody will receive a fee from T2 for
rendering its opinion.
John T. Gallatin, T2's Executive Vice President, and Gary P. Greenhood,
M.D., T2's Vice President of Medical Affairs, have each entered into employment
agreements with T2 that provide for payment of severance fees in certain
circumstances following a "Change of Control" of T2, which may include the
consummation of the Merger. If either (i) Mr. Gallatin or Dr. Greenhood is
terminated by T2 without cause, (ii) T2 or its successor requires Mr. Gallatin
or Dr. Greenhood to move his principal residence outside of the Atlanta, Georgia
metropolitan area, or (iii) T2 or its successor substantially changes the
respective responsibilities of such individuals without their consent, then he
may terminate his agreement and become entitled to a single cash payment in an
amount equal to one year of his salary and benefits. In addition, following the
occurrence of a "Change of Control", which may include the Merger, Dr. Greenhood
may elect at any time between 90 days and 180 days following the "Change of
Control" to resign and receive his full base salary and benefits for twelve (12)
months thereafter.
Donald E. Strange, a director of Curaflex, will receive an option to
purchase 150,000 shares of Curaflex Common Stock at an exercise price of $6.13
per share (which, pursuant to the Merger, will be converted into an option to
purchase 49,950 shares of Common Stock at an exercise price of $18.41 per share)
upon consummation of the Merger in consideration for consulting services
provided by Mr. Strange for Curaflex relating to the Merger. The option, which
was based on an agreement entered into between Mr. Strange and Curaflex in
January 1994, will be vested and exercised in full upon its grant, and will
remain exercisable for ten years following the date of such grant. See
"Management of Curaflex -- Compensation Committee Interlocks/Insider
Participation."
In connection with the Merger, the Board of Directors of Curaflex will
establish an Advisory Board to render advice to the Board on matters coming
before it. The Advisory Board, which acts solely in an advisory capacity, may
attend meetings of the Board. The following current Board members have agreed to
serve as Advisory Board members upon consummation of the Merger: John S.
Chamberlin, C. Sage Givens, Philip D. Green, Donald E. Strange, George H. Strong
and James R. Yarter.
STOCKHOLDER APPROVALS
T2 Stockholder Approval. The DGCL requires the affirmative vote of a
majority of the issued and outstanding shares of T2 Common Stock for approval of
the Merger Agreement.
Curaflex Stockholder Approval. The DGCL requires the affirmative vote of a
majority of the issued and outstanding shares of Curaflex Common Stock for
approval of the Merger Agreement.
HealthInfusion Stockholder Approval. The FBCA requires the affirmative
vote of a majority of the issued and outstanding shares of HealthInfusion Common
Stock for approval of the Merger Agreement.
Medisys Stockholder Approval. The DGCL requires the affirmative vote of a
majority of the issued and outstanding shares of Medisys Common Stock for
approval of the Merger Agreement.
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T2 Acquisition Approval. The DGCL requires the affirmative vote of a
majority of the issued and outstanding shares of common stock of T2 Acquisition
Company for approval of the Merger Agreement. Coram owns all of such shares, and
has voted such shares to approve the Merger Agreement.
CHS Acquisition Stockholder Approval. The DGCL requires the affirmative
vote of a majority of the issued and outstanding shares of common stock of CHS
Acquisition for approval of the Merger Agreement. Coram owns all of such shares,
and has voted such shares to approve the Merger Agreement.
HII Acquisition Approval. The FBCA requires the affirmative vote of a
majority of the issued and outstanding shares of common stock of HII Acquisition
for approval of the Merger Agreement. Coram owns all of such shares, and has
voted such shares to approve the Merger Agreement.
MI Acquisition Approval. The DGCL requires the affirmative vote of a
majority of the issued and outstanding shares of common stock of MI Acquisition
for approval of the Merger Agreement. Coram owns all of such shares, and has
voted such shares to approve the Merger Agreement.
RIGHTS OF SECURITY HOLDERS
The stockholders of each of T2, Curaflex, HealthInfusion and Medisys should
be aware that upon receipt of Coram Common Stock, their rights as stockholders,
which are now governed by the laws of the state of incorporation and the
Articles of Incorporation (or Certificate of Incorporation, as the case may be)
and Bylaws of their respective companies (the "Governance Documents"), will be
governed by the laws of the State of Delaware, the state of incorporation of
Coram and by Coram's Certificate of Incorporation (the "Coram Certificate") and
Bylaws (the "Coram Bylaws"). Upon the Effective Time of the Merger, the rights
of the stockholders of each of T2, Curaflex, HealthInfusion and Medisys will be
different, and possibly adversely affected, due to differences between the laws
of the various states of incorporation and between the Governance Documents and
the Coram Certificate and the Coram Bylaws. Accordingly, the stockholders of
each of the constituent companies should carefully review the following, which
the constituent companies believe addresses all material differences in the
rights of the stockholders upon consummation of the Merger, to understand how
certain of their rights as stockholders will be affected upon completion of the
Merger.
The following is a brief description of those differences. This description
does not purport to be a complete explanation of all of the differences between
the rights of Coram stockholders and the stockholders of each of T2, Curaflex,
HealthInfusion and Medisys. Furthermore, the identification of specific
differences is not meant to indicate that other differences do not exist. The
following summary is also qualified in its entirety by reference to the DGCL,
the FBCA, the Governance Documents and the Coram Certificate and Coram Bylaws.
T2, Curaflex, Medisys and Coram are incorporated under the laws of the
State of Delaware. Consequently, the Merger will affect the rights of T2,
Curaflex and Medisys stockholders only to the extent that there are differences
between the T2, Curaflex and Medisys Certificates of Incorporation and the Coram
Certificate and between the T2, Curaflex and Medisys Bylaws and the Coram
Bylaws. HealthInfusion is incorporated under the laws of the State of Florida;
therefore, the Merger will affect the rights of the stockholders of
HealthInfusion to the extent there are differences in between the DGCL and the
FBCA, and between the HealthInfusion Articles of Incorporation and Bylaws and
the Coram Certificate Bylaws.
Liability of Directors. The FBCA provides that a director is not
personally liable for monetary damages to the corporation or any other person
for any act or omission as a director unless the director breached or failed to
perform his statutory duties as a director and such breach or failure (1)
constitutes a violation of criminal law, unless the director had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful, (2) constitutes a transaction from which the director
derived an improper personal benefit, (3) results in an unlawful distribution,
(4) in a derivative action or an action by a stockholder, constitutes conscious
disregard for the best interests of the corporation or willful misconduct, or
(5) in a proceeding other than a derivative action or an action by a
stockholder, constitutes recklessness or an act or omission which was committed
in bad faith or with malicious purpose or in a manner exhibiting wanton and
willful disregard of human rights, safety or property. The DGCL provides that a
corporation's certificate
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of incorporation may contain a provision which eliminates or limits the personal
liability of a director to the corporation or its stockholders for monetary
damages for a breach of fiduciary duty as a director, except for a breach which
(1) constitutes an act or omission not in good faith or which involves
intentional misconduct or a knowing violation of law, (2) constitutes a breach
of the director's duty of loyalty to the corporation or its stockholders, (3)
results in an unlawful distribution, or (4) relates to a transaction from which
the director derived an improper personal benefit. Each of the Coram Certificate
of Incorporation, T2 Certificate of Incorporation, Curaflex Certificate of
Incorporation and Medisys Certificate of Incorporation currently include a
provision eliminating the personal liability of its directors to the extent
permitted by the DGCL. The Articles of Incorporation of HealthInfusion do not
include a comparable provision because the provisions of the FBCA eliminating
personal liability of directors automatically apply to all Florida corporations.
Therefore, the closing of the Merger will not affect the rights of the T2,
Curaflex, HealthInfusion, or Medisys stockholders in this regard.
Indemnification. Under both the FBCA and the DGCL, a corporation may
generally indemnify its officers, directors, employees and agents against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement of any proceedings (other than derivative actions), if they acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe their conduct was unlawful. A
similar standard is applicable in derivative actions, except that
indemnification may be made only for (1) expenses (including attorneys' fees)
and certain amounts paid in settlement, and (2) in the event the person seeking
indemnification has been adjudicated liable, amounts deemed proper, fair and
reasonable by the appropriate court upon application thereto. The DGCL and the
FBCA both provide that to the extent that such persons have been successful in
defense of any proceeding, they must be indemnified by the corporation against
expenses actually and reasonably incurred in connection therewith. The FBCA Act
also provides that, unless a corporation's articles of incorporation provide
otherwise, if a corporation does not so indemnify such persons, they may seek,
and a court may order, indemnification under certain circumstances even if the
board of directors or stockholders of the corporation have determined that the
persons are not entitled to indemnification. The Certificates of Incorporation
and Articles of Incorporation of Coram, T2, Curaflex, HealthInfusion and Medisys
each provide that directors and officers will be indemnified to the fullest
extent permitted by law.
Distributions and Redemptions. A Florida corporation may make distributions
to stockholders as long as, after giving effect to such distribution (1) the
corporation would be able to pay its debts as they become due in the usual
course of business, and (2) the corporation's total assets would not be less
than the sum of its total liabilities plus (unless the Articles of Incorporation
permit otherwise, which HealthInfusion's Articles of Incorporation do not) the
amount that would be needed if the corporation were to be dissolved at the time
of the distribution to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights are superior to those receiving the
distribution. Under the FBCA, a corporation's redemption of its own capital
stock is deemed to be a distribution. A Delaware corporation may pay dividends
out of surplus or, if there is no surplus, out of its net profits for the fiscal
year in which the dividend is declared or net profits of the preceding fiscal
year. A Delaware corporation is generally prohibited from redeeming any of its
capital stock if the redemption would result in an impairment of the
corporation's capital. Accordingly, the closing of the Merger will not affect
the rights of the T2, Curaflex or Medisys stockholders in this regard, but will
subject HealthInfusion stockholders, as stockholders of Coram, to different
standards than now applicable.
Stockholder Inspection of Books and Records. Under the FBCA, a stockholder
is entitled to inspect and copy the articles of incorporation, bylaws, certain
board and stockholder resolutions, certain written communications to
stockholders, a list of the names and business addresses of the corporation's
directors and officers, and the corporation's most recent annual report, during
regular business hours if the stockholder gives at least five business days'
prior written notice to the corporation. In addition, a stockholder of a Florida
corporation is entitled to inspect and copy other books and records of the
corporation during regular business hours if the stockholder gives at least five
business days' prior written notice to the corporation and (1) the stockholders'
demand is made in good faith and for a proper purpose, (2) the demand describes
with particularity its purpose and the records to be inspected or copied, and
(3) the requested records are directly
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connected with such purpose. The FBCA also provides that a corporation may deny
any demand for inspection if the demand was made for an improper purpose or if
the demanding stockholder has, within two years preceding such demand, sold or
offered for sale any list of stockholders of the corporation or any other
corporation, has aided or abetted any person in procuring a list of stockholders
for such purpose or has improperly used any information secured through any
prior examination of the records of the corporation or any other corporation.
The provisions of the DGCL governing the inspection and copying of a
corporation's books and records are generally less restrictive than those of the
FBCA. Specifically, the DGCL permits any stockholder the right, during usual
business hours, to inspect and copy the corporation's stock ledger,
stockholders' list and other books and records for any proper purpose upon
written demand under oath stating the purpose thereof. Therefore, HealthInfusion
stockholders will be subject to this different standard, as stockholders of
Coram, upon close of Merger, while T2, Curaflex and Medisys stockholders will
not be affected.
Dissenter's Rights. A stockholder of a Florida corporation, with certain
exceptions, has the right to dissent from, and obtain payment of the fair value
of his shares in the event of (1) a merger or consolidation to which the
corporation is a party, (2) a sale or exchange of all or substantially all of
the corporation's property other than in the usual and regular course of
business, (3) the approval of a control share acquisition, (4) a statutory share
exchange to which the corporation is a party as the corporation whose shares
will be acquired, (5) an amendment to the articles of incorporation if the
stockholder is entitled to vote on the amendment and the amendment would
adversely affect the stockholder, and (6) any corporate action taken to the
extent that the articles of incorporation provide for dissenter's rights with
respect to such action. The FBCA provides that unless a corporation's articles
of incorporation provide otherwise, which HealthInfusion's Articles of
Incorporation do not, a stockholder does not have dissenters' rights with
respect to a plan of merger, share exchange or proposed sale or exchange of
property if the shares held by the stockholder are either registered on a
national securities exchange or held of record by 2,000 or more stockholders.
A stockholder of a Delaware corporation generally is entitled to
dissenters' rights in the event that the corporation is a party to certain
mergers or consolidations to which the stockholder did not consent. A Delaware
corporation's certificate of incorporation may also provide that dissenters'
rights are available with respect to any amendment to the certificate of
incorporation or any sale of all or substantially all of the corporation's
assets. The Coram Certificate does not contain such a provision. Similar (but
not identical) to the FBCA, dissenters' rights do not apply to a stockholder of
a Delaware corporation if his shares were (1) listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Security Dealers, Inc., or (2)
held of record by more than 2,000 stockholders. Notwithstanding the foregoing,
however, under the DGCL, a stockholder does have dissenters' rights with respect
to such shares if the stockholder is required by the terms of the agreement of
merger or consolidation to accept anything for his shares other than (1) shares
of stock of the corporation surviving or resulting from the merger or
consolidation, (2) shares of stock of any other corporation which is so listed
or designated or held of record by more than 2,000 stockholders, (3) cash in
lieu of fractional shares, or (4) any combination of the foregoing. Such rights
are not modified in the Coram, T2, Curaflex or Medisys Bylaws, and only
HealthInfusion stockholders will have different dissenters rights as
stockholders of Coram after the Merger.
Staggered Board of Directors. The FBCA permits a corporation's articles of
incorporation or bylaws to provide that the board of directors be divided into
not more than four classes with staggered terms of not longer than four years
and with at least one-fifth of the directors to be elected each year. The DGCL
similarly permits a corporation's certificate of incorporation or bylaws to
provide for a staggered board of directors divided into three classes.
Curaflex's Certificate of Incorporation provides for a staggered Board of
Directors consisting of three classes with initial terms of one year, two years
and three years, respectively, with three-year terms thereafter. T2's,
HealthInfusion's and Medisys' Governance Documents do not provide for staggered
Boards.
The Coram Certificate does not provide for a staggered Board of Directors.
However, the Coram Certificate provides that a director may only be removed for
cause or by the affirmative vote of the holders of a majority of Coram Common
Stock. This provision, when coupled with the provisions in the the Coram
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Certificate and Bylaws authorizing only the Board of Directors to fill vacant
directorships, will preclude stockholders (except by majority vote) from
removing incumbent directors without cause and simultaneously gaining control of
the Board of Directors by filling the vacancies created by such removal with
their nominees. The foregoing provisions of the DGCL and the Coram Certificate
may have certain anti-takeover effects.
Stockholder Voting Requirements. Under both the FBCA and the DGCL,
directors are generally elected by a plurality of the votes cast by the
stockholders entitled to vote at a stockholder's meeting at which a quorum is
present. With respect to matters other than the election of directors, unless a
greater number of affirmative votes is required by the FBCA or a Florida
corporation's articles of incorporation (but not its bylaws), if a quorum
exists, action on any matter generally is approved by the stockholders if the
votes cast by the holders of the shares represented at the meeting and entitled
to vote on the matter favoring the action exceed the votes cast opposing the
action. Accordingly, under the FBCA, abstentions have no impact on the outcome
of a vote. HealthInfusion's Articles of Incorporation do not include a provison
requiring a greater vote on any matter than required by the FBCA. Under the
DGCL, unless otherwise provided by the DGCL or a Delaware corporation's
certificate of incorporation or bylaws, if a quorum exists, action on a matter
is approved by the affirmative vote of a majority of the shares represented at a
meeting and entitled to vote on the matter. Accordingly, under the DGCL,
abstentions have the same effect as votes against a matter.
T2's Certificate of Incorporation contains a provision requiring the
affirmative vote of not less than 80% of the outstanding shares of T2 Common
Stock voting together as a class to a approve (i) any merger or consolidation of
T2 or any subsidiary with any person or entity who is either (1) the beneficial
owner of 10% or more of the outstanding shares (an "Interested Stockholder") of
T2 Common Stock or (2) if such Interested Stockholder is an affiliate of T2(an
"Affiliate"), such Affiliate was at any time within the two-year period
immediately prior to the date of such merger or consolidation the beneficial
owner of 10% or more of the outstanding shares of T2 Common Stock or (3) an
assignee or successor in interest of any such Interested Stockholder or
Affiliate who acquired such shares in a transaction or series of transactions
not involving a public offering within the meaning of the Securities Act of
1933, as amended, (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition with any Interested Stockholder or affiliate of an Interested
Stockholder, having an aggregate fair market value in excess of 25% of the total
assets of T2, (iii) the adoption of any plan or proposal for the liquidation or
dissolution of T2 proposed by or on behalf of an Interested Stockholder or any
affiliate of an Interested Stockholder, (iv) any reclassification of securities,
recapitalization of T2, merger or consolidation of T2 with any of its
subsidiaries, or any other transaction that has the effect, either directly or
indirectly, or increasing the proportionate share of any class or series of
capital stock of T2 that is beneficially owned by any Interested Stockholder or
an affiliate of an Interested Stockholder, and (v) any agreement, contract or
other arrangement providing for any one or more of the actions specified in (i)
through (iv); provided, that such greater vote is not applicable to any of the
foregoing transactions described in (i) through (v) if such transaction was
approved by 80% of the directors of T2 who are not an affiliate or
representative of an Interested Stockholder or the aggregate amount of cash and
fair market value of other property to be received per share by the stockholders
of T2pursuant to such transaction is at least equal to the amount per share of
T2 Common Stock of the highest of (i) paid by the Interested Stockholder during
two-year period immediately prior to the public announcement of the proposed
transaction (the "Announcement Date"), (ii) the fair market value per share of
T2 Common Stock on the Announcement Date or (iii) the highest preferential
amount per share to which stockholders would be entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of T2. In addition, the Bylaws of T2 provide that the exact number of directors
within the specified minimum of two and the specified maximum of nine may only
be determined and the bylaw of T2 with respect to the number and qualification
of directors may only be amended by a vote of at least 80% of all outstanding
shares able to be voted or by resolution of a majority of the Board of
Directors. In addition, the indemnification requirement contained in the
Curaflex Certificate of Incorporation may only be amended if approved by the
affirmative vote of at least 80% of the combined voting power of the outstanding
Curaflex shares entitled to vote.
The Coram Certificate provides that certain provisions of the Coram
Certificate and Coram Bylaws may only be amended by the affirmative vote of the
holders of at least 80% of the combined voting power of all shares of Coram
entitled to vote, including the provisions governing: (i) the number, election
and terms of
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directors, (ii) stockholder nomination of director candidates and the
introduction of business at annual meetings, (iii) filling newly created
directorships and vacancies, (iv) the removal of directors, (v) the calling of
special meetings, (vi) the stockholders inability to act by written consent,
(vii) the rights of the directors and officers of Coram with respect to
indemnification under Article IX of the Coram Bylaws and (viii) the amendment,
repeal or adoption of, or approval of any provision inconsistent with, those
provisions of the Coram Bylaws related to (i) through (vii) above.
Action By Written Consent of Stockholders. The FBCA provides that, unless
otherwise provided in the articles of incorporation, actions which would be
required or permitted to be taken at an annual or special meeting of
stockholders may be taken by the written consent of the holders of shares
constituting not less than the minimum number of shares that would be necessary
to take such action at a meeting of stockholders. The DGCL contains a similar
provision. The Bylaws of T2, Curaflex, HealthInfusion and Medisys each permit
action by written consent of stockholders consistent with the foregoing
provisions of the FBCA and the DGCL. The Coram Certificate prohibits action by
written consent of stockholders and, as a result, stockholders of Coram will be
able to take action only at annual and special meetings of such stockholders.
This elimination of the right of stockholders to take action by written consent
may have certain anti-takeover effects.
Notice Procedures for Stockholder Proposals. T2's, Curaflex's and Coram's
Bylaws establish advance notice procedures with regard to stockholder proposals
and the nomination, other than by or at the direction of the Board of Directors,
of person for election as directors. These procedures provide that the notice of
the stockholder proposals and stockholder nominations for the election of
directors at an annual meeting must be in writing and received by, in the case
of T2, the Secretary of T2 not later than (i) with respect to any election to be
held at an annual meeting of stockholders of T2, 60 days in advance of such
meeting if such meeting is to be held on a day which is within the 30 days
preceeding the anniversary of the previous year's annual meeting or 90 days in
advance of such meeting if such meeting is to be held on or within 45 days after
the anniversary of the previous year's annual meeting, and (ii) with respect to
any election to be held at any other annual or special meeting of stockholders
of T2 for the election of directors, the close of business on the seventh day
following the date on which notice of such meeting is first given to such
stockholders and, in the case of Curaflex and Coram, by the Secretary of
Curaflex and Coram, respectively, not less than 30 days nor more than 60 days
prior to the meeting (or if less than 40 days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder must be received by the Secretary not later than the close of
business on the 10th day following the day notice of the date of the meeting was
mailed or such public disclosure was made). The notice of stockholder proposal
or nomination must set forth certain information with respect to the stockholder
and each proposal or each nominee for director. The Bylaws of HealthInfusion and
Medisys do not contain similar advance notice provisions. Although these
procedures do not give the Board of Directors any power to approve or disapprove
stockholder nominations for election of directors or any other business desired
by such stockholders to be conducted at an annual meeting, they may have the
effect of precluding a nomination for election of directors or precluding the
consideration of certain business at an annual meeting if the proper procedures
are not followed, and could discourage or deter a third party from conducting a
solicitation of proxies to elect its own slate of directors or preclude the
consideration of certain business at a meeting, even if such solicitation or
proposals might be beneficial to Coram or its stockholders. Accordingly, these
provisions may have certain anti-takeover effects.
Board Vacancies. The FBCA provides that a vacancy on the board of directors
generally may be filled by the affirmative vote of a majority of the remaining
directors or by the stockholders, unless the articles of incorporation provide
otherwise. HealthInfusion's Articles of Incorporation do not alter this
provision. Under the DGCL, a vacancy on the board of directors generally may be
filled by a majority of the remaining directors or in the manner specified in a
corporation's certificate of incorporation or bylaws. The Coram Certificate and
Bylaws and the Governance Documents of T2, Curaflex and Medisys each provide
that a vacancy on the board may be filled only by the remaining directors.
Therefore, HealthInfusion stockholders, as stockholders of Coram, will not be
entitled to fill vacancies on the Coram Board of Directors.
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Removal of Directors. The FBCA provides that stockholders may remove one or
more directors with or without cause unless the articles of incorporation
provide that directors may be removed only for cause. HealthInfusion's Articles
of Incorporation do not include such a provision. Under the FBCA a director
generally may be removed only if the number of votes cast to remove him exceed
the number of votes cast not to remove him. The DGCL provides that, except with
respect to corporations with classified Boards or cumulative voting, a director
may be removed, with or without cause, by the holders of the majority of the
shares entitled to vote at an election of directors. The Medisys Bylaws allow
for the removal of directors at any time, with or without cause, by the
affirmative vote of the holders of a majority of the voting stock entitled to
elect such director. The Curaflex Bylaws allow directors to be removed only for
cause or by the affirmative vote of the holders of 80% of the combined voting
power of the then outstanding stock entitled to vote. T2's Certificate provides
that, at any meeting of stockholders with respect to which proper notice of such
purpose has been given, the entire Board of Directors or any individual director
or directors may be removed, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors. Finally, the
Coram Certificate and the Curaflex Certificate of Incorporation allows directors
to be removed from office only for cause and only by the affirmative vote of the
holders of 80% of the combined voting power of the then outstanding stock
entitled to vote. Accordingly, after the closing of the Merger, the ability of
Coram stockholders to remove a director of Coram will be more restrictive than
currently is the case for T2, HealthInfusion and Medisys.
Amendments to Charter. An amendment to a Florida corporation's articles of
incorporation must be approved by the corporation's stockholders, except that
certain immaterial amendments specified in the FBCA may be made by the board of
directors. Unless a specific section of the FBCA or a Florida corporation's
articles of incorporation require a greater vote, an amendment to a Florida
corporation's articles of incorporation generally must be approved by a majority
of the votes entitled to be cast on the amendment. HealthInfusion's Articles of
Incorporation do not include any provision requiring greater than a majority of
votes to amend its articles of incorporation. The Medisys Certificate of
Incorporation may be amended by a vote of a majority of the outstanding shares
entitled to vote. Certain provisions of the Curaflex Certificate of
Incorporation may only be amended by the affirmative vote of the holders of at
least 80% of the voting power of all shares of Curaflex Common Stock, including:
(i) the number, election and terms of directors, (ii) filling of newly created
directorships and vacancies and (iii) the removal of directors. The provision
contained in the T2 Certificate of Incorporation providing for a
greater-than-majority vote for approval of certain business combination
transactions described above in "Stockholder Voting Requirements" (and any
provisions in the Bylaws related thereto) may only be amended by the affirmative
vote of not less than 80% of the votes entitled to be cast by the holders of all
then oustanding shares of T2 capital stock, voting together as a single class,
provided, that such greater vote shall not be required to amend any such
provision if such amendment was recommended by not less than 80% of the members
of the Board of Directors. The Coram Certificate provides that certain
provisions of the Coram Certificate and Coram Bylaws may only be amended by the
affirmative vote of the holders of at least 80% of the combined voting power of
all shares of Coram entitled to vote, including the provisions governing: (i)
the number, election and terms of directors, (ii) stockholder nomination of
director candidates and the introduction of business at annual meetings, (iii)
filling newly created directorships and vacancies, (iv) the removal of
directors, (v) the calling of special meetings, (vi) the stockholders inability
to act by written consent, (vii) the rights of the directors and officers of
Coram with respect to indemnification under Article IX of the Coram Bylaws and
(viii) the amendment, repeal or adoption of, or approval of any provision
inconsistent with, those provisions of the Coram Bylaws related to (i) through
(vii) above. Accordingly, after the closing of the Merger it will be more
difficult for the stockholders of Coram to amend certain sections of the Coram
Certificate than currently is the case for stockholders of T2, Curaflex,
HealthInfusion and Medisys. This could be deemed a benefit or detriment to such
stockholders depending upon the position with respect to a particular issue.
Special Meetings of Stockholders. Special meetings of a Florida
corporation's stockholders may be called by its board of directors, by the
persons authorized to do so in its articles of incorporation or bylaws or by the
holders of not less than 10% of all votes entitled to be cast on any issue
proposed to be considered at the special meeting, unless a greater percentage
not to exceed 50% is required by the articles of incorporation. HealthInfusion's
Articles of Incorporation contain no special requirements for the calling of
special meetings
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by the shareholders. Under HealthInfusion's Bylaws, special meetings may be
called by the president, the directors or the Secretary on the written request
of not less than 10% of all votes entitled to be cast on any matter at the
special meeting. Special meetings of the stockholders of a Delaware corporation
may be called by the board of directors or by the persons authorized in the
corporation's certificate of incorporation or bylaws. The Medisys Bylaws provide
that special meetings of the shareholders may be called only by the Chairman of
the Board or the Chief Executive Officer and shall be called by him or her at
the request of two or more members of the Medisys Board of Directors. The
Curaflex Bylaws provide that special meetings of the stockholders of the
corporation may be called by the Chairman of the Board, President, or the Board
of Directors, or on written request of the holders of 10% of the voting power of
Curaflex. The T2 Bylaws provide that special meetings of stockholders may be
called at any time by the Board of Directors or the Chairman of the Board of
Directors and shall be called by the President or Secretary or an Assistant
Secretary at the written request of the holders of at least 50% of the total
number of shares of T2 Common Stock then outstanding and entitled to vote
stating the specific purpose or purposes thereof. The Coram Bylaws provide that
a special meeting may be called by the written request of stockholders holding
15% of the voting power of all Coram Common Stock, the Chairman of the Board,
the Board of Directors or the Chief Executive Officer. Accordingly, each of the
stockholders of T2, Curaflex, HealthInfusion and Medisys will be subject to a
different standard as stockholders of Coram with respect to the calling of
special meetings of stockholders after the Merger.
Affiliated Transactions. The FBCA contains an affiliated transactions
statute which provides that certain transactions involving a corporation and a
stockholder owning 10% or more of the corporation's outstanding voting shares
(an "affiliated stockholder") must generally be approved by the affirmative vote
of the holders of two-thirds of the voting shares other than those owned by the
affiliated shareholder. The transactions covered by the statute include, with
certain exceptions, (1) mergers and consolidations to which the corporation and
the affiliated shareholder are parties, (2) sales or other dispositions of
substantial amounts of the corporation's assets to the affiliated stockholder,
(3) issuances by the corporation of substantial amounts of its securities to the
affiliated stockholder, (4) the adoption of any plan for the liquidation or
dissolution of the corporation proposed by or pursuant to an arrangement with
the affiliated stockholder, (5) any reclassification of the corporation's
securities which has the effect of substantially increasing the percentage of
the outstanding voting shares of the corporation beneficially owned by the
affiliated stockholder, and (6) the receipt by the affiliated stockholder of
certain loans or other financial assistance from the corporation. These special
voting requirements do not apply in any of the following circumstances: (1) if
the transaction was approved by a majority of the corporation's disinterested
directors, (2) if the corporation did not have more than 300 stockholders of
record at any time during the preceding three years, (3) if the affiliated
stockholder has been the beneficial owner of at least 80% of the corporation's
outstanding voting shares for the past five years, (4) if the affiliated
stockholder is the beneficial owner of at least 90% of the corporation's
outstanding voting shares, exclusive of those acquired in a transaction not
approved by a majority of disinterested directors, or (5) if the consideration
received by each stockholder in connection with the transaction satisfies the
"fair price" provisions of the statute. This statute applies to any Florida
corporation unless the original articles of incorporation or an amendment to the
articles of incorporation or bylaws contain a provision expressly electing not
to be governed by this statute. Such an amendment to the articles of
incorporation or bylaws must be approved by the affirmative vote of a majority
of disinterested stockholders and is not effective until 18 months after
approval. HealthInfusion's Articles of Incorporation and bylaws do not contain a
provision electing not to be governed by the statute.
The DGCL generally prohibits a stockholder owning 15% or more of a Delaware
corporation's outstanding voting stock (an "interested stockholder") from
engaging in certain business combinations involving the corporation during the
three years after the date the person became an interested stockholder unless
(1) prior to such date, the board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (2) upon the consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the stockholder
owned at least 85% of the voting stock outstanding at the time the transaction
commenced, (3) on or subsequent to such date, the transaction is approved by the
board of directors and by the stockholders by a vote of two-thirds of the
disinterested outstanding voting stock, (4) the corporation's original
certificate of
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incorporation provides that the corporation shall not be governed by the
statute, or (5) a majority of shares entitled to vote approve an amendment to
the corporation's certificate of incorporation or bylaws expressly electing not
to be governed by the statute (but such amendment may not be effective until one
year after it was adopted and may not apply to any business combination between
the corporation and any person who became an interested stockholder on or prior
to such adoption). These business combinations include, with certain exceptions,
mergers, consolidations, sales of assets and transactions benefitting the
interested stockholder. T2's, Curaflex's, Medisys' and Coram's Certificate and
Bylaws do not contain a provision electing not to be governed by the DGCL
interested stockholder provisions described above. Accordingly, only
HealthInfusion stockholders will be subject to a different standard as
stockholders of Coram.
Control Share Acquisitions. The FBCA also contains a control share
acquisition statute which provides that a person who acquires shares in an
issuing public corporation in excess of certain specific thresholds will
generally not have any voting rights with respect to such shares unless the
voting rights are approved by a majority of the shares entitled to vote,
excluding interested shares. This statute does not apply to acquisitions of
shares of a corporation if, prior to the pertinent acquisition of shares, the
corporation's articles of incorporation or bylaws provide that the corporation
shall not be governed by the statute. This statute also permits a corporation to
adopt a provision in its articles of incorporation or bylaws providing for the
redemption by the corporation of such acquired shares in certain circumstances.
Unless otherwise provided in the corporation's articles of incorporation or
bylaws prior to the pertinent acquisition of shares, in the event that such
shares are accorded full voting rights by the stockholders of the corporation
and the acquiring stockholder acquires a majority of the voting power of the
corporation, all stockholders who did not vote in favor of according voting
rights to such acquired shares are entitled to dissenters' rights.
HealthInfusion's Articles of Incorporation and Bylaws do not contain any
provisions with respect to this statute. The DGCL does not have any provision
comparable to Florida's control share acquisition statute.
Other Constituencies. The FBCA provides that directors of a Florida
corporation, in discharging their duties to the corporation and in determining
what they believe to be in the best interests of the corporation, may, in
addition to considering the effects of any corporate action on the stockholders
and the corporation, consider the effects of the corporate action on employees,
suppliers and customers of the corporation or its subsidiaries and the
communities in which the corporation and its subsidiaries operate. Delaware does
not have a comparable statutory provision.
Stockholder Rights Plans. The FBCA has a provision which explicitly
authorizes corporations to adopt "poison pill" or "stockholder rights" plans.
These plans may be adopted in a number of forms, but generally involve the
distribution by the corporation to its stockholders of rights or options which
are triggered by a hostile takeover attempt or by a party acquiring a specific
percentage of a class of the corporation's securities. These plans can make
hostile takeovers excessively or prohibitively expensive unless the board of
directors cancels the plan. Although the DGCL does not have a comparable
statutory provision, a number of courts have construed Delaware law to permit
certain of these plans.
GOVERNMENTAL AND REGULATORY APPROVALS
Under the HSR Act, and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division"), and specified warning period requirements have been satisfied. The
parties hereto filed premerger notification and report forms with the FTC and
the Antitrust Division on March 9 and 10, 1994.
The waiting period under the HSR Act expired on April 9, 1994 (thirty days
after the date of filing). The companies are not aware of any other material
federal or state regulatory approvals required to be obtained in order to
consummate the Merger.
At any time before or after consummation of the Merger, and notwithstanding
the satisfaction of the HSR Act requirements, the FTC or the Antitrust Division
or any state could take action under the federal or state antitrust laws to seek
to enjoin the consummation of the Merger. Private parties may also seek to take
legal action under the antitrust laws.
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In February 1994, each of T2, Curaflex and HealthInfusion, received from
the Office of the Attorney General of the State of Florida an Antitrust Civil
Investigative Demand (the "Demands") requesting certain information and
documents relating to the Merger Agreement and each company's operations in
Florida. The Companies were advised by letter dated June 2, 1994, that the
Office of the Attorney General does not plan on taking any action in connection
with the Merger at this time.
Based on information available to them, T2, Curaflex, HealthInfusion and
Medisys believe that the Merger can be effected in compliance with federal and
state antitrust laws. However, there can be no assurance that a challenge to the
consummation of the Merger on antitrust grounds will not be made or that, if
such a challenge were made, T2, Curaflex, HealthInfusion and Medisys would
prevail.
Except as set forth above, Coram, T2, Curaflex, HealthInfusion and Medisys
are aware of no governmental or regulatory approvals required for consummation
of the Merger, other than compliance with federal and applicable state
securities and corporate laws, and the required transfer of or amendment to
certain of T2's, Curaflex's, HealthInfusion's and Medisys' licenses and permits,
including the approval process required by the New York Department of Health for
the transfer of the companies' New York home infusion licenses.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary is a general discussion of certain expected Federal
income tax consequences of the four mergers included in the Merger. This summary
is based upon the Internal Revenue Code of 1986, as amended (the "Code"),
regulations and rulings now in effect or proposed thereunder, current
administrative rulings and practice and judicial authority, all of which are
subject to change. Any such change, which may or may not be retroactive, could
alter the tax consequences to stockholders of T2, Curaflex, HealthInfusion and
Medisys set forth herein. While this summary addresses all material Federal
income tax consequences generally applicable to such stockholders, this summary
does not discuss all aspects of Federal income taxation that may be relevant to
a particular investor in light of personal circumstances or to certain types of
investors subject to special treatment under the Federal income tax laws (for
example, life insurance companies, tax-exempt organizations, foreign investors,
dealers in securities and taxpayers subject to the alternative minimum tax) and
does not discuss any aspect of state, local or foreign tax laws.
Consummation of the four mergers included in the Merger is subject to the
condition that each Company shall have received an opinion of its outside
counsel or, in the case of HealthInfusion, its outside accountants, dated as of
the Effective Time, substantially to the effect that, on the basis of facts,
representations, and assumptions set forth in such opinion which are consistent
with the state of facts existing at the Effective Time, the merger applicable to
such Company will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and that such Company will be a
party to the reorganization within the meaning of Section 368(b) of the Code.
Such an opinion is not binding upon the Internal Revenue Service ("IRS") or the
courts. Coram, T2, Curaflex, HealthInfusion and Medisys do not intend to apply
for a ruling from the IRS with respect to the Federal income tax consequences of
the Merger.
If each merger constitutes such a reorganization, the following would be
the material Federal income tax consequences of the Merger to the stockholders
of T2, Curaflex, HealthInfusion and Medisys: (1) no gain or loss will be
recognized by stockholders of T2, Curaflex, HealthInfusion and Medisys upon
their receipt of Coram Common Stock in exchange for their T2, Curaflex,
HealthInfusion and Medisys Common Stock, except that stockholders who receive
cash proceeds for fractional interests in Coram Common Stock will recognize gain
or loss equal to the difference between such proceeds and the tax basis
allocated to their fractional share interests, and such gain or loss will
constitute capital gain or loss if their T2, Curaflex, HealthInfusion or Medisys
Common Stock is held as a capital asset at the Effective Time; (2) the tax basis
of the shares of Coram Common Stock (including fractional share interests)
received by the stockholders of T2, Curaflex, HealthInfusion and Medisys will be
the same as the tax basis of their T2, Curaflex, HealthInfusion or Medisys
Common Stock; and (3) the holding period for federal income tax purposes of the
Coram Common Stock in the hands of the T2, Curaflex, HealthInfusion and Medisys
stockholders will include the holding period of their T2, Curaflex,
HealthInfusion or Medisys Common Stock, provided such T2, Curaflex,
HealthInfusion or Medisys stock is held as a capital asset at the Effective
Time.
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Holders of shares of HealthInfusion Common Stock who receive cash upon the
exercise of dissenter's rights generally will recognize gain or loss measured by
the difference between the amount of cash received and their adjusted tax basis
in such shares. Such gain or loss generally will be capital gain or loss,
provided such shares are held as capital assets at the Effective Time, and will
be long-term capital gain or loss if such shares had been held for more than one
year at the Effective Time. However, stockholders who exercise dissenters'
rights and who own shares of Coram Common Stock, or who are considered for
federal income tax purposes constructively to own shares of Coram Common Stock
actually owned by other persons may, under certain circumstances, recognize
dividend income (taxable as ordinary income) equal to the full amount of the
cash they receive.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. SUCH DISCUSSION MAY NOT BE APPLICABLE TO A STOCKHOLDER WHO
ACQUIRED SHARES OF T2, CURAFLEX, HEALTHINFUSION OR MEDISYS COMMON STOCK PURSUANT
TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS COMPENSATION. T2,
CURAFLEX, HEALTHINFUSION, AND MEDISYS STOCKHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS FOR MORE SPECIFIC AND DEFINITE ADVICE AS TO THE FEDERAL INCOME
TAX CONSEQUENCES TO THEM ON THE EXCHANGE OF THEIR T2, CURAFLEX, HEALTHINFUSION
AND MEDISYS COMMON STOCK PURSUANT TO THE MERGERS, AS WELL AS ADVICE AS TO THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Merger will be accounted for as a pooling of interests for accounting
and financial reporting purposes.
In order to ensure that the Merger will be treated as a pooling of
interests for accounting purposes, a condition to the consummation of the Merger
is that the total cash paid in the Merger on account of fractional shares and
dissenting shares may not exceed 10% of the value of the Coram Common Stock
issuable in exchange for T2 Common Stock, Curaflex Common Stock, HealthInfusion
Common Stock and Medisys Common Stock at the Effective Time of the Merger.
HEALTHINFUSION SHAREHOLDERS' RIGHT TO DISSENT
Pursuant to Section 607.1320 of the FBCA ("Section 607.1320"), any
shareholder of record of shares of HealthInfusion Common Stock who does not
desire to have such shares converted into shares of Coram Common Stock pursuant
to the Merger Agreement may dissent from the Merger and elect to have the fair
value of the shareholder's shares of HealthInfusion Common Stock (excluding of
any appreciation or depreciation in anticipation of the Merger unless the
exclusion would be inequitable) judicially determined and paid to the
shareholder in cash, provided that the shareholder complies with the provisions
of Section 607.1320.
The following is a brief summary of the statutory procedures to be followed
by a shareholder of record of shares of HealthInfusion Common Stock in order to
dissent from the Merger and perfect appraisal rights under Florida law. This
summary is not intended to be complete and is qualified in its entirety by
reference to Sections 607.1301, 1302 and 1320 attached hereto, and incorporated
by this reference, in Appendix B.
Under Section 607.1320, where a merger is to be submitted for approval at a
meeting of shareholders, as in the case of the HealthInfusion Special Meeting,
the meeting notice (consisting of this Joint Proxy Statement/Prospectus) must
state that shareholders may be entitled to assert dissenters' rights, and must
be accompanied by a copy of Sections 607.1301, 1302 and 1320 (see Appendix B
hereto). Any such shareholder who wishes to exercise appraisal rights should
review the following discussion and Appendix B carefully because failure to
timely and properly comply with the procedures specified will result in the loss
of appraisal rights under the FBCA.
If any shareholder of record of shares of HealthInfusion Common Stock
elects to exercise the right to dissent from the Merger and demand appraisal,
such shareholder of record must deliver a written demand for appraisal of the
shareholder's shares to HealthInfusion prior to the taking of the vote on the
Merger at the
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HealthInfusion Special Meeting. This written demand must reasonably inform
HealthInfusion of the identity of the shareholder of record and that the
shareholder thereby demands the appraisal of the shareholder's shares.
Any shareholder choosing to exercise his or her right to dissent may not
vote such shares in favor of the Merger. Any shareholder of record who fails to
comply with this condition will be entitled only to receive shares of Coram
Common Stock, as provided in the Merger Agreement, and will have no appraisal
rights with respect to the shareholder's shares of HealthInfusion Common Stock.
All written demands for appraisal should be addressed to: Jorge A. Medina,
Secretary, HealthInfusion, Inc., 5200 Blue Lagoon Drive, Suite 200, Miami,
Florida 33126. To be effective, a demand for appraisal must be actually
delivered prior to the taking of the vote on the Merger at the HealthInfusion
Special Meeting on June , 1994.
Only HealthInfusion shareholders who hold their shares of record on the
date of the making of a demand for appraisal and who continuously hold such
shares through the Effective Time are eligible for the appraisal of their
shares. To be effective, a demand for appraisal must be executed by or for the
shareholder of record, fully and correctly, as such shareholder's name appears
on the shareholder's stock certificate(s) and cannot be made by the beneficial
owner if the beneficial owner does not also hold the shares of record. The
beneficial holder must, in such case, have the registered owner submit the
required demand in respect of such shares.
If HealthInfusion Common Stock is owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of a demand for appraisal
should be made in such capacity. If HealthInfusion Common Stock is owned of
record by more than one person, as in a joint tenancy or tenancy in common, such
demand must be executed by or for all joint owners. An authorized agent,
including one of two or more joint owners, must identify the record owner or
owners and expressly disclose the fact that, in executing the demand, the agent
is acting as agent for the record owner. A record owner, such as a broker or
other nominee, who holds HealthInfusion Common Stock as a nominee for others may
exercise the right of appraisal with respect to the shares held for one or more
beneficial owners, while not exercising such right for other beneficial owners.
In such case, the written demand should set forth the beneficial owners, and the
number of shares held by that beneficial owner, on whose behalf the record owner
is dissenting. Where no specific beneficial owners are expressly mentioned, the
demand will be presumed to cover shares of HealthInfusion Common Stock held for
all beneficial owners in the name of such record owner.
Within ten days after approval of the Merger by the shareholders of
HealthInfusion (the "Authorization Date"), HealthInfusion must give written
notice of such approval to each shareholder who so filed a written demand for
appraisal and who did not vote in favor of the Merger. Within 20 days after
HealthInfusion has given the dissenting shareholder such notice, any shareholder
who elects to dissent must file with the HealthInfusion a notice of such
election, stating the shareholders name and address, the number of shares of
HealthInfusion Common Stock as to which that shareholder dissents, and a demand
for payment of the fair value of such shares. The shareholder must deposit the
certificates for such shares with HealthInfusion simultaneously with the filing
of the election to dissent.
Within ten days after the later of (1) the expiration of the period in
which shareholders may file their notices of election to dissent and (2) the
Effective Time, HealthInfusion must make a written offer to each dissenting
shareholder offering to pay an amount per share determined by HealthInfusion as
the fair value of such shares. Thereafter, a shareholder may, within 30 days of
such offer, accept the offer, in which case HealthInfusion must pay the accepted
fair value to the dissenting shareholder within 90 days after the making of the
offer. Otherwise, either a dissenting shareholder or HealthInfusion may
institute an action in any court of competent jurisdiction requesting that the
fair value of such shares be determined. Thereafter, HealthInfusion must pay
each dissenting shareholder the amount found to be due to that shareholder
within ten days after final determination by the court.
Any shareholder who has duly demanded appraisal rights in compliance with
Section 607.1320 will not, after the Effective Time, be entitled to vote the
shares of HealthInfusion Common Stock subject to such demand for any purpose or
to receive payment of dividends or any other distribution with respect to such
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shares (other than dividends or distributions, if any, payable to holders of
record as of a record date prior to the Effective Time), or to receive the
shares of Coram Common Stock to which the shareholder would have been entitled
pursuant to the Merger Agreement. Notwithstanding the foregoing, at any time
before an offer is made by HealthInfusion to purchase such shares, a dissenting
shareholder may withdraw the shareholder's notice of election, and receive
shares of Coram Common Stock in exchange for the shares of HealthInfusion Common
Stock.
Dissenting shareholders are urged to consult legal counsel with respect to
dissenters' rights under Section 607.1320. HealthInfusion shareholders
considering the exercise of dissenters' rights should consider the information
set forth under "The Merger -- Federal Income Tax Considerations."
EFFECTS OF THE MERGER
As of the Effective Time, the following will occur:
1. The separate existence of T2 Acquisition will cease, and T2
Acquisition will be merged with and into T2.
2. The separate existence of HII Acquisition will cease, and HII
Acquisition will be merged with and into HealthInfusion.
3. The separate existence of MI Acquisition will cease, and MI
Acquisition will be merged with and into Medisys.
4. The separate existence of CHS Acquisition will cease, and CHS
Acquisition will be merged with and into Curaflex.
5. Each issued and outstanding share of T2 Common Stock will be converted
into the right to receive 0.63 of a fully paid and nonassessable share
of Coram Common Stock.
6. Each issued and outstanding share of HealthInfusion Common Stock
(except for those held by shareholders who perfect their right to
dissent under the FBCA) will be converted into the right to receive
0.447 of a fully paid and nonassessable share of Coram Common Stock.
7. Each issued and outstanding share of Medisys Common Stock will be
converted into the right to receive 0.243 of a fully paid and
nonassessable share of Coram Common Stock.
8. Each issued and outstanding share of Curaflex Common Stock will be
converted into the right to receive 0.333 of a fully paid and
nonassessable share of Coram Common Stock.
9. Each share of T2, Curaflex, HealthInfusion or Medisys Common Stock
held in the treasury of any such Company, and each share of such
Common Stock held by Coram, T2 Acquisition, CHS Acquisition, HII
Acquisition or MI Acquisition, will be cancelled and retired and cease
to exist.
10. Each share of common stock of T2 Acquisition, CHS Acquisition, HII
Acquisition or MI Acquisition issued and outstanding immediately prior
to the Effective Time will be converted into one share of common stock
of, respectively, T2, Curaflex, HealthInfusion or Medisys (in each
case, as the surviving corporation of a merger).
11. Each Derivative Security, whether vested or unvested, will be assumed
by Coram and converted into the right to acquire or receive, on the
same terms and conditions as were applicable under the Derivative
Securities, the number of shares of Coram Common Stock equal to the
number of shares subject to the Derivative Security multiplied by the
applicable exchange ratio for the underlying shares of T2, Curaflex,
HealthInfusion or Medisys Common Stock, at an exercise price per share
of Coram Common Stock equal to the former exercise price per share
under the Derivative Security divided by the applicable exchange
ratio.
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ASSUMPTION OF EXISTING STOCK OPTION PLANS
In connection with the Merger and the adjustments to be made to the
outstanding employee stock options to purchase T2, Curaflex, HealthInfusion and
Medisys Common Stock, Coram will assume the outstanding obligations of T2,
Curaflex, HealthInfusion and Medisys under the various stock option plans under
which those options are currently outstanding. No further options will be
granted under the assumed plans, except in connection with any repricing of
currently outstanding options which the Compensation Committee of the Coram
Board of Directors may from time to time determine in its sole discretion to
implement. The plans to be so assumed by Coram may be summarized as follows:
T2 Option Plans:
1988 Stock Option Plan. Under T2's 1988 Stock Option Plan (the "T2 1988
Plan"), options to purchase up to an aggregate of 6,500,000 shares of T2 Common
Stock may be granted from time to time to certain officers, directors and
employees of T2 and its subsidiaries deemed by T2's Stock Option Committee to be
"key employees." The T2 1988 Plan is administered by the Stock Option Committee,
which is appointed by the Board of Directors of T2 and consists of not fewer
than two members of T2's Board of Directors. Currently, the members of the Stock
Option Committee are Stanley S. Trotman and Bruce D. Fielitz. T2's Board of
Directors may from time to time remove members from or add members to the Stock
Option Committee and may fill vacancies thereon.
Options granted pursuant to the T2 1988 Plan may be either incentive stock
options as defined in Section 422 of the Code or non-qualified options. Each
option granted pursuant to the T2 1988 Plan shall be authorized by the Stock
Option Committee and evidenced by an agreement containing the terms and
conditions of the option, including the designation of the option as an
incentive stock option or a non-qualified option (an "Option Agreement"). Each
Option Agreement provides that the option may be exercised only in the amounts
and at the times specified in the Option Agreement, as to which the Stock Option
Committee is given authority to determine.
Each Option Agreement evidencing the grant of an incentive stock option
requires that the option price thereof not be less than 100% of the fair market
value of the shares of T2 Common Stock on the date of the grant of the option,
provides that the option is not exercisable after the expiration of ten years or
less from the date the option is granted, provides that any option or portion of
an option that is unexercised at the time the optionee ceases to be an employee
of T2 or a subsidiary of T2 for reasons other than death or retirement shall
terminate as of the date the optionee ceased to be an employee.
Each Option Agreement evidencing the grant of a non-qualified option
typically incorporates the general terms and conditions of an option intended to
be an incentive stock option except that the option price of a non-qualified
stock option may be less than 100% of the fair market value of the shares of T2
Common Stock on the date of the grant of the option. Each non-qualified option
currently outstanding under the T2 1998 Plan, however, has an option price of
not less than 100% of the fair market value of the shares of T2 Common Stock on
the date of the grant of such option. Non-qualified options may be granted to
non-employee directors of T2 or any of its subsidiaries. Each Option Agreement
evidencing the grant of a non-qualified option provides for the termination of
the option (or any unexercised portion thereof) on the date the optionee ceases
to be an employee or director, or both, as applicable, of T2 or any of its
subsidiaries, except if such termination is due to the optionee's death, upon
which the optionee's representatives will have a period of one year after such
termination in which to exercise such option but only to the extent such option
would otherwise be exercisable during such period. In addition, if an optionee
retires with the consent of T2 the option shall remain exercisable by the
optionee for a period of three months after the effective date of such
retirement but only to the extent such option would otherwise be exercisable
during such period.
The option price must be paid in cash unless the Stock Option Committee
provides in the Option Agreement that the option price may be paid otherwise. To
date, all options exercised have been exercised for cash and all currently
outstanding Option Agreements provide for the exercise of such options only for
cash. T2 presently has no incentive stock options issued pursuant to the T2 1988
Plan. As of April 30, 1994, options
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to purchase an aggregate of 2,879,940 shares of T2 Common Stock were outstanding
under the T2 1988 Plan at a weighted average exercise price of $22.86 per share.
All outstanding options under the T2 1988 Plan become immediately
exercisable, regardless of any exercisability schedule set forth in the Option
Agreement, in the event of certain mergers or sales of assets involving T2,
changes in control of T2 or upon liquidation or dissolution of T2, without the
prior approval of the Board of Directors of T2 or unless a successor
corporation, in the event of a merger or sales of assets, agrees to assume the
outstanding options or to substitute substantially equivalent options.
Employee Stock Purchase Plan. T2 Employee Stock Purchase Plan (the "T2
Stock Purchase Plan"), is intended to comply with Section 423 of the Code. Under
the terms of the T2 Stock Purchase Plan, employees of T2 and designated
subsidiaries will be granted options to purchase up to an aggregate of 400,000
shares of T2 Common Stock. The T2 Stock Purchase Plan is administered by a
committee of not less than two members of T2's Board of Directors, which are
appointed by the Board of Directors. Currently, the members of the Stock Option
Committee are Stanley S. Trotman and Bruce D. Fielitz. T2's Board of Directors
may from time to time remove members from or add members to such committee and
may fill vacancies thereon.
The T2 Stock Purchase Plan operates on a calendar year basis and employees
desiring to participate must elect to do so prior to the commencement of the
plan year. On each January 1, a participant will be granted an option for a
fixed maximum number of whole shares of T2 Common Stock, subject to certain
adjustments, that can be purchased on the following December 31, determined by
dividing the aggregate amount of the participant's anticipated payroll
deductions for the year by 85% of the fair market value of a share of T2 Common
Stock on January 1. The per share option price for any plan year will finally be
determined on December 31 of such year and will equal the lower of 85% of the
fair market value of a share of T2 Common Stock on January 1 or December 31 of
such plan year.
Any employee of T2 or of any subsidiary of T2 designated by the Board of
Directors who is customarily employed for more than twenty hours per week may
elect to purchase T2 Common Stock through participation in the T2 Stock Purchase
Plan. Each participant may elect to contribute, through bi-monthly payroll
deductions, up to 10% of his or her annual compensation. However, no employee
will be granted an option (a) if that employee would then own stock, or hold
options to purchase stock, representing 5% or more of the total combined voting
power or value of T2 or any subsidiary; or (b) which would permit his or her
rights to purchase shares of T2 Common Stock under all employee stock purchase
plans of T2 and its subsidiaries to accrue at a rate in excess of $25,000 in
fair market value of the shares (determined when the option is granted) for each
calendar year in which the option is at any time outstanding.
Unless a participant withdraws from the T2 Stock Purchase Plan, his or her
option will be automatically exercised on December 31 of each year for the
maximum number of whole shares that may be purchased with the aggregate payroll
deductions credited to that participant's account at the applicable per share
option price. A participant may withdraw from the T2 Stock Purchase Plan at any
time.
The Board of Directors of T2 may at any time terminate or amend the T2
Stock Option Plan; provided, that no termination may affect the options
previously granted, and no amendment which would change any option granted prior
to such amendment in a manner which would adversely affect the rights of any
participant may be made by the Board of Directors. In addition, any amendment to
the T2 Stock Purchase Plan which would increase the number of shares authorized
for issuance thereunder requires the prior approval of the stockholders of T2.
As of April 30, 1994, options to purchase up to an aggregate of 149,213
shares of T2 Common Stock have been exercised and options to purchase up to an
aggregate of 250,787 shares of T2 Common Stock remain available for issuance
under the T2 Stock Purchase Plan.
In connection with the consummation of the Merger, the T2 Stock Option Plan
will be terminated and, unless a participant withdraws from the T2 Stock
Purchase Plan, his or her option will be automatically exercised on the last day
of the calendar month prior to the consummation of the Merger for the maximum
number of whole shares that may be purchased with the aggregate payroll
deductions credited to that participant's account at a per share option price
equal to the lower of 85% of the fair market value of a share of
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T2 Common Stock on such date or January 1, 1994. In no event, however, may any
participant purchase more than that number of shares of T2 Common Stock obtained
by multiplying the maximum number of purchasable shares determined for such
individual as of January 1, 1994, by a fraction, the numerator of which is the
number of full calendar months completed in the 1994 calendar year at the time
of purchase and the denominator of which is twelve.
Effective as of December 31, 1993, the T2 Board of Directors adopted
resolutions establishing the 1993 T2 Medical, Inc. Employee Stock Option Plan
(the "T2 1993 Employee Plan") and the 1993 T2 Medical, Inc. Non-Employee
Director Stock Option Plan (the "T2 1993 Director Plan"). On January 5, 1994,
the T2 Stock Option Committee adopted resolutions providing for grants of
options under the 1993 T2 Employee Plan, but no option agreements were executed
with respect thereto. On February 6, 1994, the T2 Board of Directors terminated
the T2 1993 Employee Plan and rescinded all proposed grants thereunder and
terminated the T2 1993 Director Plan.
Curaflex Option Plans:
1990 Stock Option Plan. In April 1990, Curaflex's Board of Directors
approved Curaflex's 1990 Stock Option Plan. In June 1991, Curaflex's Board of
Directors approved the amendment of the 1990 Stock Option Plan (as amended, the
"1990 Plan"). In July, 1991, the 1990 Plan was approved by Curaflex's
stockholders.
Subject to certain additional limitations, the 1990 Plan provides for the
grant of options to purchase shares of Curaflex Common Stock up to an aggregate
of not more than 8,000,000 shares of Curaflex Common Stock.
Options under the 1990 Plan can be granted to key employees, officers,
directors, consultants and advisors of Curaflex as determined by the
Compensation Committee of the Board of Directors which administers the 1990 Plan
(the "Committee"). Options granted under the 1990 Plan may be either incentive
stock options ("ISOs," which may only be granted to employees) intended to
qualify under Section 422 of the Code, or options that do not qualify as ISOs
("nonqualified options"). The exercise price of shares of Curaflex Common Stock
subject to any ISO cannot be less than the fair market value of Curaflex Common
Stock at the time the ISO is granted. The exercise price in the case of any
nonqualified option granted under the 1990 Plan will be such price as is
determined by the Committee on the date the nonqualified option is granted;
however, the exercise price may not be less than 85% of the fair market value of
Curaflex Common Stock at the time the nonqualified option is granted.
Subject to vesting, an option granted under the 1990 Plan may be exercised
at any time after the date of grant and before the expiration of 10 years from
the date of grant. The Committee has the authority to determine the rate at
which options under the 1990 Plan will vest; provided, that an option granted
under the 1990 Plan may not vest at less than 20% per year over five consecutive
years. All options granted under the 1990 Plan are not transferable by the
participant other than by will or the laws of descent and distribution. The
Board of Directors has the authority at any time to suspend, terminate, modify
or amend the 1990 Plan. Options may be granted under the 1990 Plan until April
2000, ten years from the date the 1990 Plan was adopted by the Board of
Directors.
As of April 30, 1994, options to purchase an aggregate of 314,017 shares of
Curaflex Common Stock had been exercised under the 1990 Plan, and options to
purchase an aggregate of 2,060,403 shares of Curaflex Common Stock were
outstanding under the 1990 Plan at a weighted average exercise price of $6.17
per share.
1989 Stock Option Plan. Prior to the adoption of the 1990 Plan, Curaflex
granted options to certain employees of Curaflex pursuant to Curaflex's 1989
Stock Option Plan (the "1989 Plan"). The 1989 Plan is not materially different
from the 1990 Plan, except that (i) grants of options under the 1989 Plan may
only be made to employees of Curaflex; (ii) the exercise price of a nonqualified
option is not required to be at least 85% of the fair market value of Curaflex
Common Stock at the time of grant; and (iii) the exercise price of any option
granted under the 1989 Plan is fully or partially payable by delivery to
Curaflex of a promissory note. As of April 30, 1994, options to purchase an
aggregate of 11,548 shares of Curaflex Common Stock had been exercised under the
1989 Plan, and options to purchase an aggregate of 113,740 shares of Curaflex
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Common Stock were outstanding under the 1989 Plan at a weighted average exercise
price of $.95 per share. Curaflex does not intend to grant any further options
under the 1989 Plan.
Director Stock Option Plan. Curaflex's Directors' Nonqualified Stock Option
Plan (the "Director Plan") was adopted by the Board of Directors of Curaflex, in
February 1992. A total of 500,000 shares of Curaflex Common Stock are reserved
for issuance under the Director Plan. As of April 30, 1994, options to purchase
an aggregate of 120,000 shares of Curaflex Common Stock were outstanding under
the Director Plan at a weighted average exercise price of $8.99 per share. No
options under this Director Plan have been exercised.
The Director Plan grants to each non-employee director of Curaflex
("Non-Employee Director") an option to purchase 10,000 shares of Curaflex Common
Stock (an "Initial Grant") upon the closing of Curaflex's initial public
offering, or upon his or her first election or appointment to the Board of
Directors, if subsequent to that offering. In addition, the Director Plan
provides that each Non-Employee Director who is a director immediately prior to
an annual meeting of Curaflex's stockholders and who continues to be a director
after such meeting will be granted an option to purchase 10,000 shares of
Curaflex Common Stock (a "Subsequent Grant"); provided that no Subsequent Grant
will be made to any Non-Employee Director who has not served as a director of
Curaflex, as of the time of such annual meeting, for at least one year. Each
Subsequent Grant will be made on the date of the annual stockholders' meeting in
question.
The exercise price per share of each option granted under the Director Plan
will be the fair market value of Curaflex Common Stock on the date the option is
granted, except that, in the case of the Initial Grants to current directors,
the exercise price per share for such grants was the price to public in the
offering. Payment of the exercise price of any option to purchase Curaflex
Common Stock granted under the Director Plan may be made in whole or in part in
(i) cash, (ii) Curaflex Common Stock held by the Non-Employee Director, (iii)
notes or (iv) such other valuable consideration as the Board, in its discretion,
determines to be consistent with the Director Plan's purpose and applicable law.
Options granted under the Director Plan vest monthly over a 12 month
period.
CHL 1990 Incentive Stock Option Plan. In connection with Curaflex's
acquisition of Clinical Homecare Ltd. ("CHL"), Curaflex assumed options issued
by CHL under its 1990 Incentive Stock Option Plan (the "CHL 1990 ISO PLAN").
Such plan provided for the grant of stock options covering a maximum of 350,000
shares of common stock of CHL. Options under the CHL 1990 ISO Plan were granted
to employees as determined by the CHL Board of Directors (or a committee of such
Board, if appointed by the Board). The options were granted at a price of no
less than fair market value of the underlying shares of common stock of CHL at
the time of the grant. The options granted under the CHL 1990 ISO Plan were
intended to qualify as incentive stock options within the meaning of Section
422A of the Code.
Subject to vesting, an option granted under the CHL 1990 ISO Plan may be
exercised at any time after the date of grant and before the expiration of 10
years from the date of grant. All options granted under the CHL 1990 ISO Plan
are not transferable by the participant other than by will or the laws of
descent and distribution. As converted into options to purchase Curaflex Common
Stock, as of April 30, 1994, options to purchase 22,575 shares of Curaflex
Common Stock at a weighted average exercise price of $6.44 per share were
outstanding under the CHL 1990 ISO Plan. Since being assumed by Curaflex, no
options under the 1990 ISO Plan have been exercised.
CHL 1990 Non-Qualified Stock Option Plan. In addition, Curaflex assumed
options under CHL's 1990 Stock Option Plan (Non-Qualified) (the "CHL 1990
Non-Qualified Plan"), which provided for the grant of options covering up to
1,674,318 shares of Common Stock of CHL to officers, directors and other key
employees and independent contractors of CHL who had been employed or retained
by CHL for at least one year. Under the CHL 1990 Non-Qualified Plan, the CHL
Board of Directors (or a committee of the Board appointed by the Board) had
discretion to determine grant of options, vesting and other terms of each option
granted under the CHL 1990 Non-Qualified Plan. Options were granted at a price
no less than fair market
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<PAGE> 133
value of the underlying shares of common stock of CHL at the time of the grant,
and the options must expire within five years of the grant of such option. As of
April 30, 1994, there were outstanding options for the purchase of 136,748
shares of Curaflex Common Stock under the CHL 1990 Non-Qualified Plan at a
weighted average exercise price of $5.90 per share. Since being assumed by
Curaflex, no options under the CHL 1990 Non-Qualified Plan have been exercised.
HealthInfusion Option Plans:
Stock Option Plan
Under the HealthInfusion Amended and Restated Stock Option Plan (the
"HealthInfusion Option Plan"), 900,000 shares of HealthInfusion Common Stock are
reserved for issuance upon exercise of stock options. The HealthInfusion Option
Plan is designed to serve as an incentive for retaining qualified and competent
directors, employees and consultants. The Compensation Committee of the
HealthInfusion Board of Directors administers and interprets the HealthInfusion
Option Plan and is authorized to grant options thereunder to all eligible
employees of HealthInfusion, including officers, directors (whether or not
employees) and consultants.
The HealthInfusion Option Plan provides for the granting of both incentive
stock options (as defined in Section 422 of the Internal Revenue Code) and
nonqualified stock options. Options can be granted under the HealthInfusion
Option Plan on such terms and at such prices as determined by the HealthInfusion
Compensation Committee except that the per share exercise price of incentive
stock options cannot be less than the fair market value of the HealthInfusion
Common Stock on the date of grant. The HealthInfusion Option Plan also
authorizes HealthInfusion to make loans to optionees to enable them to exercise
their options. Such loans must (i) provide for recourse to the optionee, (ii)
bear interest at a rate no less than the prime rate of interest of
HealthInfusion's principal lender, and (iii) be secured by the shares of
HealthInfusion Common Stock purchased.
No option granted under the HealthInfusion Option Plan is assignable or
transferable, other than by will or by the laws of descent and distribution.
During the lifetime of an optionee, an option is exercisable only by him. The
expiration date of an option will be determined by the HealthInfusion
Compensation Committee at the time of the grant, but in no event will an option
be exercisable after the expiration of 10 years from the date of grant, subject
to earlier termination in connection with the optionee's cessation of services
with HealthInfusion. An option may be exercised at any time or from time to time
or only after a period of time or in installments, as the HealthInfusion
Compensation Committee determines. The HealthInfusion Compensation Committee may
in its sole discretion accelerate the date on which any option may be exercised.
To prevent dilution of the rights of a holder of an option, the
HealthInfusion Option Plan provides for adjustment of the number of shares for
which options may be granted, the number of shares subject to outstanding
options and the exercise price of outstanding options in the event of any
subdivision or consolidation of shares, any stock dividend, recapitalization or
other capital adjustment of HealthInfusion.
In addition, to the extent not already exercisable, options under the
HealthInfusion Option Plan generally become exercisable upon (i) a merger,
consolidation or similar corporate transaction in which ownership of more than
49% of the voting power of HealthInfusion's voting stock is transferred, (ii) a
merger or consolidation or similar corporate transaction in which HealthInfusion
does not survive, or (iii) a sale or disposition of all or substantially all of
HealthInfusion's assets. Accordingly, all outstanding options under the
HealthInfusion Option Plan will become exercisable upon consummation of the
Merger.
As of April 30, 1994, options to purchase 649,025 shares of HealthInfusion
Common Stock at a weighted average exercise price of $6.15 per share were
outstanding under the HealthInfusion Option Plan.
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Medisys Option Plans:
General. The Medisys Option Plan provides for certain key employees,
officers, directors (including non-employee directors) and consultants of
Medisys to be granted options of two types: those that qualify as "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), (Incentive Options"), and those that do not
qualify as such "incentive stock options" ("Non-Statutory Options") (Incentive
Options and Non-Statutory Options are sometimes collectively referred to as
"Options"). The Option Plan is administered by the Compensation Committee (the
"Committee"), which determines the persons who are to receive Options, the terms
and the number of shares subject to each Option and whether the Option is an
Incentive Option or a Non-Statutory Option. The Committee determines the
exercise price of Options, which may not be below 100% and 85% of the fair
market value of the Medisys Common Stock on the date of grant for Incentive
Options and Non-Statutory Options, respectively.
If a "Change in Control" of Medisys is deemed to occur, any Options granted
and outstanding prior to such Change in Control automatically become immediately
exercisable in full. A Change in Control is deemed to occur if (i) Medisys
merges or consolidates with another corporation and is not the surviving
corporation, (ii) Medisys transfers all or substantially all of its business or
assets to another person, or (iii) more than 50% of Medisys outstanding voting
shares are purchased by any other person.
Incentive Options. Incentive Options may be granted to officers and other
key employees of Medisys and are intended to meet the requirements of the
federal income tax laws and regulations relating to incentive stock options.
Incentive Options may not be granted at a purchase price less than the fair
market value of the Medisys Common Stock on the date of the grant. Incentive
Options generally expire when the Optionee is no longer an employee of Medisys,
may not be transferred other than by will or the laws of descent and
distribution, and during the lifetime of an Optionee may be exercised only by
the optionee. The term of each Option, which is fixed by the Medisys Board or
the Committee at the time of grant, may not exeed 10 years from the date the
Option is granted. Options may be made exercisable in whole or in installments,
as determined by the Medisys Board or the Committee.
Non-Statutory Options. The terms of Non-Statutory Options granted under the
Option Plan are essentially the same as those of Incentive Options except that
the Non-Statutory Options are not intended to qualify under the federal tax laws
and regulations relating to incentive stock options and, as a consequence, also
may be granted to non-employee directors and consultants.
As part of the assumption of Coram of the outstanding stock options to
purchase Medisys Common Stock, the stock options held by the four current
non-employee members of the Medisys Board of Directors that would otherwise
terminate in accodance with their terms 90 days after the Effective Time of the
Merger will, following the Effective Time of the Merger, be extended for an
additional one year period during which such options will be exercisable for
fully-vested shares of Coram Common Stock based upon the Medisys Exchange Ratio.
As of April 30, 1994, options to purchase 481,550 shares of Medisys Common
Stock, at a weighted average exercise price of $3.87 per share, were outstanding
under the Medisys Option Plan.
FEDERAL INCOME TAX CONSEQUENCES WITH RESPECT TO STOCK OPTIONS
The following description of federal income tax consequences is based on
current statutes, regulations and interpretations. The description does not
include state or local income tax consequences. In addition, the description is
not intended to address specific tax consequences applicable to an individual
participant who receives a stock option.
Incentive Stock Options. There will not be any federal income tax
consequences to either the participant or Coram as a result of the grant to an
employee of an incentive stock option. The exercise by a participant of an
incentive stock option also will not result in any federal income tax
consequences to Coram or the participant, except that (i) an amount equal to the
excess of the fair market value of the shares acquired upon
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<PAGE> 135
exercise of the incentive stock option, determined at the time of exercise, over
the amount paid for the shares by the participant will be includable in the
participant's alternative minimum taxable income for purposes of the alternative
minimum tax, and (ii) the participant may be subject to an additional excise tax
if any amounts are treated as excess parachute payments (see explanation below).
If the participant disposes of the shares acquired upon exercise of an
incentive stock option, the federal income tax consequences will depend upon how
long the participant has held the shares. If the participant does not dispose of
the shares within two years after the incentive stock option was granted, nor
within one year after the participant exercised the incentive stock option and
the shares were transferred to the participant, then the participant will
recognize a long-term capital gain or loss. The amount of the long-term capital
gain or loss will be equal to the difference between (i) the amount the
participant realized on the disposition of the shares, and (ii) the option price
at which the participant acquired the shares. Coram is not entitled to any
compensation expense deduction under these circumstances.
If the participant does not satisfy both of the above holding period
requirements (a "disqualifying disposition"), then the participant will be
required to report as ordinary income, in the year the participant disposes of
the shares, the amount by which the lesser of (i) the fair market value of the
shares at the time of exercise of the incentive stock option, or (ii) the amount
realized on the disposition of the shares, exceeds the option price for the
shares. Coram will be entitled to a compensation expense deduction in an amount
equal to the ordinary income includable in the taxable income of the
participant. This compensation income may be subject to withholding. The
remainder of the gain recognized on the disposition, if any, or any loss
recognized on the disposition, will be treated as long-term or short-term
capital gain or loss, depending on the holding period.
Non-Statutory Stock Options. Neither the participant nor Coram incurs any
federal income tax consequences as a result of the grant of a non-statutory
stock option. Upon exercise of a non-statutory stock option, a participant will
recognize ordinary income, subject to withholding, on the exercise date in an
amount equal to the difference between (i) the fair market value of the shares
purchased, determined on the exercise date and (ii) the consideration paid for
the shares. The participant may be subject to an additional excise tax if any
amounts are treated as excess parachute payments (see explanation below).
At the time of a subsequent sale or disposition of any shares of common
stock obtained upon exercise of a non-statutory stock option, any gain or loss
will be a capital gain or loss. Such capital gain or loss will be long-term
capital gain or loss if the sale or disposition occurs more than one year after
the exercise date and short-term capital gain or loss if the sale or disposition
occurs one year or less after the exercise date.
In general, Coram will be entitled to a compensation expense deduction in
connection with the exercise of a non-statutory stock option for any amounts
includable in the taxable income of the participant as ordinary income, provided
Coram complies with any applicable withholding requirements.
Excise Tax on Parachute Payments. The Code also imposes a 20% excise tax on
the recipient of "excess parachute payments," as defined in the Code and denies
tax deductibility to Coram on excess parachute payments. Generally, parachute
payments are payments in the nature of compensation to employees of a company
who are officers, shareholders, or highly compensated individuals, which
payments are contingent upon a change in ownership or effective control of the
company, or in the ownership of a substantial portion of the assets of the
company. Should the value of the parachute payments made to such an individual
exceed 2.99 times his or her average annual W-2 wages for a period of years (not
to exceed 5 years) prior to the calendar year in which the change occurs, then
an excess parachute payment will arise to the extent the value of such parachute
payments exceed 1 times the individual's average annual W-2 wages. For example,
acceleration of the exercisability of options upon a change in control of the
Company may constitute parachute payments, and in certain cases, "excess
parachute payments." For a further discussion of general federal tax
consequences with respect to stock options and, in particular, as applicable to
the Coram 1994 Stock Option/Stock Issuance Plan, see "Proposal No. 2: Approval
of Coram Healthcare Corporation 1994 Stock Option/Stock Issuance Plan -- Federal
Income Tax Consequences."
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EXCHANGE OF STOCK CERTIFICATES
Promptly after the Effective Time, Bank of Boston, or such other bank or
trust company designated by Coram (the "Exchange Agent"), will mail written
transmittal materials concerning exchange of stock certificates to each record
holder of shares of T2, Curaflex, HealthInfusion and Medisys Common Stock
outstanding at the Effective Time. The transmittal materials will contain
instructions with respect to the proper method of surrender of certificates
formerly representing shares of T2, Curaflex, HealthInfusion and Medisys Common
Stock in exchange for certificates representing shares of Coram Common Stock.
Upon surrender to the Exchange Agent of certificates formerly representing
shares of T2, Curaflex, HealthInfusion and Medisys Common Stock for
cancellation, together with properly completed transmittal materials, each
stockholder will be entitled to receive a certificate representing the number of
whole shares of Coram Common Stock into which the stockholder's shares of T2,
Curaflex, HealthInfusion and Medisys Common Stock have been converted and a
check for cash in lieu of the issuance of any fractional share of Coram Common
Stock. Stockholders will not be entitled to receive interest on any such cash to
be received in the Merger.
Until they have surrendered their T2, Curaflex, HealthInfusion and Medisys
Common Stock certificates for exchange, stockholders will not be entitled to
receive any dividends or other distributions that may be declared and payable to
holders of record of Coram Common Stock. Upon the surrender of T2, Curaflex,
HealthInfusion and Medisys Common Stock certificates, Coram Common Stock
certificates (together with any such withheld dividends or other distributions
without interest) will be delivered. At the same time or as soon as possible
thereafter, any cash payment for a fractional share will be paid (without
interest). See "The Merger -- Payment in Lieu of Fractional Shares."
After the Effective Date, certificates representing shares of T2, Curaflex,
HealthInfusion and Medisys Common Stock converted into Coram Common Stock in the
Merger will be deemed for all corporate purposes to evidence ownership of the
shares of Coram Common Stock into which they were converted. Any stockholder
whose certificate for T2, Curaflex, HealthInfusion or Medisys Common Stock has
been lost, destroyed or stolen will be entitled to issuance of a certificate
representing the shares of Coram Common Stock into which such T2, Curaflex,
HealthInfusion or Medisys Common Stock will have been converted upon compliance
with such requirements as Coram and the Exchange Agent customarily apply in
connection with lost, stolen or destroyed certificates representing shares of
Coram Common Stock.
PAYMENT IN LIEU OF FRACTIONAL SHARES
No fractional shares of Coram will be issued as a result of the Merger. In
lieu of the issuance of fractional shares, each stockholder who otherwise would
be entitled to a fractional share of Coram Common Stock will receive a cash
payment equal to the product obtained by multiplying the fractional share
interest to which such holder would otherwise be entitled by the closing price
for a share of Coram Common Stock on the New York Stock Exchange, if listed
thereon, or on The Nasdaq National Market, if listed thereon, for the five
trading days immediately following the Effective Time.
RESALES OF CORAM COMMON STOCK AND REGISTRATION RIGHTS
Shares of T2 Common Stock, Curaflex Common Stock, HealthInfusion Common
Stock and Medisys Common Stock that are outstanding prior to the consummation of
the Merger will, after conversion into shares of Coram Common Stock, be freely
tradeable without restrictions under the Securities Act after consummation of
the Merger, except that shares of Coram Common Stock restricted by contract or
received by persons who are deemed to be "affiliates" (as that term is defined
in Rule 144 under the Securities Act) of Coram, T2, Curaflex, HealthInfusion or
Medisys may be resold by them only in transactions permitted by the resale
provisions of Rule 145 or as otherwise permitted under the Act. The existence of
these shares restricted from resale by contract or held by affiliates may have a
depressive effect on the market price of Coram Common Stock. Certain persons who
may be deemed "affiliates" of T2, Curaflex, HealthInfusion and Medisys
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<PAGE> 137
(the "Restricted Holders") have agreed not to dispose of the shares of Coram
Common Stock which they will receive in the Merger as required under Rule 145 of
the Securities Act and as required to qualify the Merger for pooling of interest
accounting treatment and tax-free reorganization treatment under the Code. Based
upon the number of outstanding shares of T2 Common Stock, Curaflex Common Stock,
HealthInfusion Common Stock and Medisys Common Stock as of April 30, 1994,
assuming that no HealthInfusion shareholders exercise their right to dissent and
no cash is paid in lieu of fractional shares, and assuming the exercise of all
options, warrants and other rights to purchase T2, Curaflex, HealthInfusion or
Medisys Common Stock, approximately 42,296,648 shares of Coram Common Stock will
be outstanding upon consummation of the Merger, of which approximately 3,504,241
shares of Coram Common Stock will be held by the Restricted Holders. Options,
warrants and other rights to purchase approximately 3,828,836 shares of Coram
Common Stock exercisable within sixty days of April 30, 1994, will be
outstanding upon consummation of the Merger. Such Restricted Holders, in
aggregate, will hold options to purchase approximately 1,167,934 shares of Coram
Common Stock exercisable within sixty days of April 30, 1994.
In addition, Coram has agreed to, upon demand within three years of the
Effective Date made by Restricted Holders (other than persons who will be
directors or executive officers of Coram after the Merger) holding 5% or more of
the aggregate number of shares of Coram issued in the Merger, register the sale
or other distribution of shares Coram Common Stock held by such holders as soon
as practicable. Such demand may be made only one time by such Restricted Holders
(except that Messrs. Kaufman, Levinson and Fine may, acting jointly, demand an
additional registration no earlier than six months following the first demand
registration in the event that none of Messrs. Kaufman, Levinson and Fine
participate in the first demand registration or in the event that any of such
persons was unable to include in such registration all of his shares of Coram
Common Stock which he requested to be registered therein).
If Coram shall, at any time up until three years after the Effective Date,
propose the registration under the Securities Act (other than a registration on
Form S-8 or Form S-4) of any offering of Coram Common Stock, Coram shall give
notice of such registration to the Restricted Holders having registration rights
and allow such holders to include their shares of Coram Common Stock in such
registration (subject to any reduction advised by Coram's investment banking
firm as necessary to ensure the orderly sale and distribution of shares of Coram
Common Stock being offered by Coram.
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OPERATION, MANAGEMENT AND BUSINESS OF CORAM AFTER THE MERGER
BUSINESS OF CORAM
From and after the Effective Time, each of T2, Curaflex, HealthInfusion and
Medisys will operate as wholly owned subsidiaries of Coram. Coram will
consolidate the operations of each of the constituent companies in order to take
advantage of efficiencies presented by the combination and to provide cost-
effective, nationwide coverage using the companies' existing facilities. Coram
expects that decisions as to the continuing employment of T2, Curaflex,
HealthInfusion and Medisys officers and employees, and the continuing operation
of business at each company's facilities, will be made on a case-by-case basis
after the consummation of the Merger based upon Coram's evaluation of the
combined operations of the four companies. See "Business of
Curaflex -- Description of Business," "Business of HealthInfusion -- Description
of HealthInfusion" and "Business of Medisys -- Description of Business."
MANAGEMENT OF CORAM
Executive Officers. Pursuant to the terms and conditions of the Merger
Agreement, from and after the Effective Time, the following individuals will be
executive officers of Coram:
<TABLE>
<CAPTION>
EXECUTIVE OFFICER AGE POSITION WITH CORAM PRESENT POSITION
----------------- --- ------------------- ----------------
<S> <C> <C> <C>
James M. Sweeney 51 Chief Executive Officer Self-employed
Charles A. Laverty 48 Senior Executive Vice Chairman of the
President Board, President and
Chief Executive
Officer of Curaflex
Miles E. Gilman 36 Executive Vice President Chief Executive
Officer, President
and a Director of
HealthInfusion
Norman H. Werthwein 49 Acting Chief Financial Officer Chief Financial
Officer and Senior
Vice President of
Curaflex
William J. Brummond 42 Vice President Chief Executive
Officer and a
Director of Medisys
John T. Gallatin 43 Vice President Executive Vice
President of T2
John D. Hirsch, M.D. 46 Physician Advisory Director Director of Medisys
and Medical Director
of American Home
Therapies, Inc., a
subsidiary of
Medisys
</TABLE>
John T. Gallatin joined T2 as an Executive Vice President on October 1,
1991. Mr. Gallatin had previously served as the Southeast Area Vice President of
Caremark International, Inc. (which, at that time, was a division of Baxter
Healthcare) from 1986 to 1991. Before joining Caremark International, Inc. in
1986, he served as the Vice President of Baxter Healthcare's Alternate Site
Group in the Southeast Area from 1985 to 1986, served as the Director of
National Accounts for Continue Care, Inc., the home infusion division of
American Hospital Supply, Inc. from 1984 to 1985, and held various other sales
and management positions with American Hospital Supply, Inc. between 1977 and
1984.
For more information concerning each of the other proposed executive
officers of Coram, see "Management of Coram -- Directors," "Management of
Curaflex," "Management of HealthInfusion" and "Management of Medisys."
Mr. Laverty will enter into an employment agreement with Coram. All other
officers of Coram will hold office at the pleasure of the Board of Directors and
until their successors have been duly elected and qualified, unless sooner
removed. Any officer may be removed at any time by the Board, subject to any
severance rights
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under employment or severance/non-compete agreements with Coram. See "The
Merger -- Interests of Certain Persons in the Merger."
Directors. Coram's Board of Directors will be comprised of seven members.
The following individuals have been designated as the initial directors of
Coram:
<TABLE>
<CAPTION>
DIRECTOR AGE PRESENT POSITION
-------- --- ----------------
<S> <C> <C>
James M. Sweeney 51 Self-employed
(Chairman of the Board)
Tommy H. Carter 51 Chief Executive Officer, President
(Vice Chairman of the Board) and a Director of T2
Charles A. Laverty 48 Chairman of the Board, President
and Chief Executive Officer of
Curaflex
Miles E. Gilman 36 Chief Executive Officer, President
and a Director of HealthInfusion
L. Peter Smith 45 Director of Medisys
Richard A. Fink 39 Partner, Brobeck, Phleger &
Harrison
Stephen G. Pagliuca 39 Managing Director of Information
Partners
</TABLE>
In accordance with the terms and conditions of the Merger Agreement, Mr.
Laverty has been designated as a Coram director by Curaflex, Mr. Gilman has been
designated as a Coram director by HealthInfusion, Mr. Smith has been designated
as a Coram Director by Medisys, and Messrs. Carter, Sweeney, Fink and Pagliuca
have been designated as Coram directors by T2.
Mr. Sweeney was the Chairman and Chief Executive Officer of McGaw, Inc.,
and served as a member of the Board of Directors of McGaw, Inc. from October
1990 until he resigned effective February 7, 1994. From February 1988 to October
1990, Mr. Sweeney was the Chairman and Chief Executive Officer of CarePartners,
Inc., a provider of patient monitoring services and home therapies. Mr. Sweeney
was the founder of Caremark, Inc., the largest home infusion therapy company in
the United States, and served as its Chairman and Chief Executive Officer from
June 1979 to February 1988.
Tommy H. Carter has been Chief Executive Officer, President and Director of
T2 since September 15, 1993. Prior to that time, Mr. Carter, a co-founder of T2,
served as President of T2 from 1984 to October 1, 1988 and a Director from 1984
to 1990. Mr. Carter came out of retirement to assume the duties of President and
Chief Executive Officer on September 14, 1993. From November 1978 to May 1984,
Mr. Carter served in various capacities with Kendall McGaw Corporation, a
manufacturer of intravenous fluids and equipment, including Regional Manager,
National Sales Administration Manager, and Vice President of Sales and Marketing
for the United States.
Mr. Fink has been Managing Partner of the Orange County, California office
of Brobeck, Phleger & Harrison, a California-based law firm, since October 1987.
Mr. Pagliuca founded Information Partners, a venture capital and management
buyout company based in Boston, Massachusetts, in 1989 and has been Managing
Director since that time, focusing on health care and information industry
private equity investment opportunities. Prior to 1989, Mr. Pagliuca was a
partner at Bain & Company, a management consulting firm based in Boston,
Massachusetts, where he managed significant client relationships in the health
care and information industries.
John D. Hirsch, M.D. will serve as Coram's Physician Advisory Director. As
such, he and Mr. Carter will be responsible for overseeing physician relations
and medical affairs for Coram. Dr. Hirsch will participate in Coram Board of
Director meetings, but will not be a voting member of the Board.
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<PAGE> 140
For information on each of the designated directors of Coram who presently
are directors or executive officers of Curaflex, HealthInfusion or Medisys, see
"Management of Curaflex," "Management of HealthInfusion" and "Management of
Medisys."
CORAM PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to Curaflex,
HealthInfusion, Medisys and T2 with respect to certain principal stockholders of
Curaflex, HealthInfusion, Medisys and T2 Common Stock as of February 28, 1994,
as adjusted to reflect the consummation of the Merger (assuming that none of the
individuals or entities listed below who hold HealthInfusion Common Stock
exercise their right to dissent from the Merger), by (1) each person who is
projected to own beneficially more than 5% of the outstanding shares of Coram
Common Stock, (2) each of Coram's designated directors, (3) each of Coram's
designated executive officers and (4) all of Coram's designated directors and
executive officers as a group.
<TABLE>
<CAPTION>
SHARES TO BE PERCENT TO BE
5% STOCKHOLDERS, DIRECTORS, EXECUTIVE OFFICERS, AND BENEFICIALLY BENEFICIALLY
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP OWNED(1) OWNED(1)
---------------------------------------------------- ------------- -------------
<S> <C> <C>
Miles E. Gilman(2).................................. 336,037 *
Charles A. Laverty(3)............................... 180,883 *
L. Peter Smith(4)................................... 59,721 *
Tommy H. Carter(5).................................. 77,587 *
James M. Sweeney(6)................................. 0 0.0
Norman H. Werthwein(7).............................. 21,875 *
William J. Brummond(8).............................. 79,280 *
John T. Gallatin(9)................................. 46,367 *
John D. Hirsch, M.D................................. 517,748 1.3
Richard A. Fink(10)................................. 0 0.0
Stephen G. Pagliuca(11)............................. 0 0.0
All officers and directors as a group
(11) persons)(12)................................. 1,274,633 3.1
</TABLE>
- ---------------
* Less than 1%
(1) Except as indicated in the footnotes to this table and pursuant to
community property laws, the persons named in the table have sole voting
and investment power with respect to all shares of Coram Common Stock.
(2) Includes 38,553 shares subject to options that are fully exercisable.
(3) Includes 121,335 shares subject to options that will be exercisable within
sixty days of April 30, 1994. Does not include 100,000 shares subject to an
option that will be granted to Mr. Laverty on December 1, 1994, which
option will be immediately exercisable.
(4) Includes 810 shares subject to options that will be exercisable within 60
days of April 30, 1994. Does not include 75,000 shares subject to an option
that will be granted to Mr. Smith on December 1, 1994, which option will
vest as to 25% of the option shares upon his completion of one year of
Board service measured from the Effective Time and will vest as to the
balance of the option shares in a series of successive equal monthly
installments upon his completion of each additional month of Board service
over the next thirty-six (36) months thereafter.
(5) Does not include 94,500 shares subject to an option that will be granted to
Mr. Carter on September 1, 1994, which option will vest in three equal and
successive annual installments over Mr. Carter's continued period of
service with Coram and which is being granted to Mr. Carter in cancellation
of his existing contractual right to receive an option grant for 150,000
shares of T2 Common Stock in September 1994.
(6) Does not include 3,000,000 shares subject to an option that will be granted
to Mr. Sweeney on December 1, 1994, which option will vest as to 25% of the
option shares upon his completion of one year of service with Coram
measured from the Effective Time and will vest as to the balance of the
option
121
<PAGE> 141
shares in a series of successive equal monthly installments upon his
completion of each additional month of service with Coram over the next
thirty-six (36) months thereafter.
(7) Includes 20,812 shares subject to options that will be exercisable within
60 days of April 30, 1994.
(8) Includes 19,440 shares subject to options that will be exercisable within
60 days of April 30, 1994.
(9) Includes 46,200 shares subject to options that are fully exercisable.
(10) Does not include 75,000 shares subject to an option that will be granted to
Mr. Fink on December 1, 1994, which option will vest as to 25% of the
option shares upon his completion of one year of Board service measured
from the Effective Time and will vest as to the balance of the option
shares in a series of successive equal monthly installments upon his
completion of each additional month of Board service over the next
thirty-six (36) months thereafter.
(11) Does not include 75,000 shares subject to an option that will be granted to
Mr. Pagliuca on December 1, 1994, which option will vest as to 25% of the
option shares upon his completion of one year of Board service measured
from the Effective Time and will vest as to the balance of the option
shares in a series of successive equal monthly installments upon his
completion of each additional month of Board service over the next
thirty-six (36) months thereafter.
(12) Includes 247,150 shares subject to options that will be exercisable within
sixty days of April 30, 1994. Does not include an aggregate of 3,419,500
shares subject to options that will be granted to Mr. Sweeney, Mr. Laverty
and all non-employee directors of Coram upon consummation of the Merger,
which options will vest as described above in footnotes (3), (4), (5), (6),
(10) and (11).
For more information, see "Curaflex Principal Stockholders,"
"HealthInfusion Principal Shareholders" and "Medisys Principal Stockholders."
DESCRIPTION OF CAPITAL STOCK OF CORAM
The authorized capital stock of Coram consists of 75,000,000 shares of
common stock, $.001 par value, and 10,000,000 shares of preferred stock, $.001
par value.
Common Stock. The holders of Coram Common Stock are entitled to one vote
for each share held of record on all matters submitted to a vote of
stockholders. The holders of Coram Common Stock have no cumulative voting rights
in the election of directors. Subject to the prior rights of holders of
preferred stock of Coram which may be issued, the holders of Coram Common Stock
are entitled to dividends, when and if declared by the Board of Directors out of
funds legally available therefor. In the event of the liquidation, dissolution
or winding up of Coram the holders of Coram Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preferences of any outstanding shares of preferred stock. Holders of Coram
Common Stock have no preemptive rights and have no right to convert Coram Common
Stock into any other securities. All shares of Coram Common Stock issued
pursuant to the Merger will be when issued, fully paid and nonassessable.
Preferred Stock. The Board of Directors has the authority, without further
stockholder approval, to issue authorized but unissued shares of preferred stock
in one or more series and to determine the preferences, rights, privileges and
restrictions of any series, including the dividend rights, conversion rights,
voting rights, rights and terms of redemption, liquidation preferences, the
number of shares constituting any such series and the designation of such
series. Such issuance of preferred stock may adversely affect, among other
things, the voting rights of existing stockholders. Coram has no present plans
to issue any shares of preferred stock.
Certain Provisions of the Certificate of Incorporation and Bylaws. Under
the Certificate, after giving effect to the issuance of shares contemplated in
the Merger and accounting for shares reserved for issuance pursuant to the
Merger, the Coram 1994 Stock Option/Stock Issuance Plan and the Coram Employee
Stock Purchase Plan, there will be an aggregate of approximately 21,519,179
authorized but unissued and unreserved shares of Coram Common Stock and an
aggregate of 10,000,000 authorized but unissued and unreserved shares of
preferred stock. These additional authorized shares may be utilized for a
variety of corporate purposes, including future public offerings to raise
additional capital and to finance corporate acquisitions. Except pursuant to the
Merger and certain Derivative Securities described in this Joint Proxy State-
122
<PAGE> 142
ment/Prospectus, Coram currently has no plans to issue additional shares of
Coram Common Stock or its preferred stock. However, one of the effects of
authorized but unissued and unreserved shares of capital stock may be to render
more difficult or discourage an attempt by a potential acquiror to obtain
control of Coram by means of a merger, tender offer, proxy contest or otherwise,
and thereby protect the continuity of Coram's management. The issuance of such
shares of capital stock may have the effect of delaying, deferring or preventing
a change in control of Coram without any further action by the stockholders of
Coram.
LISTING OF CORAM COMMON STOCK
Application has been made to list Coram Common Stock on the New York Stock
Exchange under the symbol "CRH."
TRANSFER AGENT
Bank of Boston will act as transfer agent for Coram Common Stock following
consummation of the Merger.
PRICE RANGE OF COMMON STOCK
MARKET FOR T2 COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of May 12, 1994, T2 Common Stock was held by approximately 2,857 record
owners. T2's shares are currently listed and traded on the NYSE under the symbol
TSQ. Prior to August 14, 1992, T2's shares were quoted on The Nasdaq National
Market. The following table sets forth the high and low closing bid quotations
for T2 Common Stock prior to August 14, 1992, as quoted on The Nasdaq National
Market, and the high and low sale prices per share of T2 Common Stock from and
after August 14, 1992, as reported by the NYSE for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR 1992
First Quarter ended December 31, 1991................................ $57.75 $29.50
Second Quarter ended March 31, 1992.................................. $67.25 $40.75
Third Quarter ended June 30, 1992.................................... $43.13 $19.88
Fourth Quarter ended September 30, 1992(1)........................... $31.13 $18.25
FISCAL YEAR 1993
First Quarter ended December 31, 1992................................ $27.25 $18.88
Second Quarter ended March 31, 1993.................................. $25.75 $15.13
Third Quarter ended June 30, 1993.................................... $16.88 $10.00
Fourth Quarter ended September 30, 1993.............................. $16.75 $ 5.50
FISCAL YEAR 1994
First Quarter ended December 31, 1993................................ $ 7.88 $ 6.00
Second Quarter ended March 31, 1994.................................. $10.88 $ 7.25
Third Quarter (to May 25, 1994)...................................... $11.63 $ 8.75
</TABLE>
- ---------------
(1) Data for T2 Common Stock for the fourth fiscal quarter of its fiscal year
ended September 3, 1992 represents (a) the greater of the high sales price
per share on The Nasdaq National Market prior to August 14, 1992 and on the
NYSE thereafter and (b) the lesser of the low sales price per share on The
Nasdaq National Market prior to August 14, 1992 and on the NYSE thereafter.
Dividends. Prior to September 1992, T2 did not pay dividends on a regular
basis. Since then, T2 has paid regular quarterly dividends of $0.025 per share,
and T2 intends to continue paying dividends in the event the Merger is not
consummated. T2's continued payment of regular quarterly dividends if the Merger
is not consummated, will, however, depend upon the consideration of factors
including, but not limited to, the earnings and financial condition of T2,
considered relevant by T2's Board of Directors.
123
<PAGE> 143
T2 Shares Eligible For Future Sale. As of April 30, 1994, T2 had 41,172,567
shares of Common Stock outstanding (excluding 2,978,282 shares outstanding held
by wholly owned subsidiaries of the Company and accounted for as retired
shares). Of these shares, 7,618,112 shares are not currently freely tradeable in
the public market as a result of limitations imposed by law or contract between
the holders thereof and T2 (collectively, "Restricted Shares"). As of April 30,
1994, 2,866,628 of such Restricted Shares were restricted by contract and
4,751,484 of such Restricted Shares were restricted as a result of limitations
imposed by law. The Restricted Shares were generally issued by T2 in connection
with various acquisitions. Except for shares held by certain affiliates of
Coram, any Restricted Shares restricted by securities laws (but not by contract)
will become freely tradeable upon consummation of the Merger under Rule 145 of
the Securities Act. See "The Merger -- Resale of Coram Common Stock and
Registration Rights."
In connection with T2's review of applicable laws and regulations and in
response to health care reform policies, T2 has reviewed the relationships it
has with physicians who hold Restricted Shares. Among the alternatives currently
being reviewed were: (i) a one time release or staggered release of all
Restricted Shares that are restricted by contract; (ii) a public offering of
some or all of the Restricted Shares whose transferability are restricted by
operation of the securities laws; or (iii) an underwritten public offering of
some or all of the Restricted Shares. T2 management believes that removing all
restrictions on transferability of the Restricted Shares may assist T2 in
removing any negative perceptions associated with the numbers of shares of T2
common stock held by physicians, and better position T2 within the "safe
harbors" associated with the fraud and abuse provisions of the Medicare statute.
Consummation of the proposed Merger and the resulting conversion of shares of T2
Common Stock into shares of Coram Common Stock would remove virtually all of the
restrictions on the transferability of the Restricted Shares that were imposed
by operation of the securities laws. In addition, T2 anticipates that, on or
about consummation of the proposed Merger, T2 will release all contractual
restrictions imposed on the Restricted Shares.
MARKET FOR CURAFLEX COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of May 25, 1994, Curaflex Common Stock was held by approximately 785
record owners. Curaflex's shares are quoted on The Nasdaq National Market under
the symbol CFLX. The following table sets forth the high and low sale prices per
share of Curaflex Common Stock as reported by The Nasdaq National Market for the
periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1992
Initial Public Offering on March 19, 1992...................... $13.00
First Quarter.................................................. $14.75 $13.00
Second Quarter................................................. $14.50 $ 9.50
Third Quarter.................................................. $11.50 $ 7.50
Fourth Quarter................................................. $ 8.50 $ 4.25
1993
First Quarter.................................................. $ 9.50 $ 5.63
Second Quarter................................................. $ 6.75 $ 4.75
Third Quarter.................................................. $ 7.00 $ 5.06
Fourth Quarter................................................. $ 7.00 $ 4.88
1994
First Quarter.................................................. $ 6.13 $ 3.88
Second Quarter (to May 25, 1994)............................... $ 5.50 $ 4.25
</TABLE>
Dividends. Curaflex has not declared or paid any cash dividends on its
Common Stock during the periods presented. However, Clinical Homecare Ltd., with
which Curaflex consummated a stock-for-stock merger in March, 1993, accounted
for as a pooling of interests, paid dividends of $.31, $.75 and $.13 per share
on its redeemable preferred stock in 1991, 1992 and 1993, respectively. In the
event the Merger is not consummated, Curaflex does not anticipate that any
dividends will be paid on Curaflex Common Stock in the foreseeable future.
124
<PAGE> 144
MARKET FOR HEALTHINFUSION COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of May 12, 1994, HealthInfusion Common Stock was held by approximately
815 record owners. HealthInfusion's shares are quoted on The Nasdaq National
Market under the symbol HINF. The following table sets forth the high and low
sales prices per share of HealthInfusion Common Stock as reported by The Nasdaq
National Market for the periods indicated. All price data for HealthInfusion
Common Stock has been restated for the 50% stock dividend (treated as a stock
split) paid to HealthInfusion shareholders of record on November 29, 1991.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1991
First Quarter.................................................. $11.33 $ 5.17
Second Quarter................................................. $11.83 $ 8.17
Third Quarter.................................................. $15.00 $ 8.67
Fourth Quarter................................................. $27.00 $12.83
</TABLE>
<TABLE>
<S> <C> <C>
1992
First Quarter.................................................. $28.00 $17.50
Second Quarter................................................. $19.25 $10.00
Third Quarter.................................................. $13.75 $ 8.75
Fourth Quarter................................................. $12.50 $ 7.50
1993
First Quarter.................................................. $11.75 $ 7.25
Second Quarter................................................. $ 9.50 $ 6.38
Third Quarter.................................................. $ 7.63 $ 5.50
Fourth Quarter................................................. $ 8.13 $ 5.75
1994
First Quarter.................................................. $ 7.38 $ 5.50
Second Quarter (to May 25, 1994)............................... $ 7.63 $ 5.86
</TABLE>
Dividends. HealthInfusion has not declared or paid any cash dividends on
HealthInfusion Common Stock and in the event the Merger is not consummated, does
not anticipate that any dividends will be paid in the foreseeable future.
HealthInfusion is restricted from paying cash dividends under its bank credit
facility.
MARKET FOR MEDISYS COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of May 12, 1994, Medisys Common Stock was held by approximately 410
record owners. On April 25, 1991, Medisys completed a merger with a publicly
held company and, as a result, Medisys Common Stock began trading in the
over-the-counter market. From June 6, 1991, through December 10, 1991, bid and
asked prices for Medisys Common Stock were quoted on the National Association of
Securities Dealers Automated Quotation System under the symbol MEDS. Since
December 11, 1991, Medisys Common Stock has traded on The Nasdaq National
Market.
125
<PAGE> 145
The following table sets forth, for the periods indicated, the high and low
closing bid quotations for periods prior to December 11, 1991, as reported by
Metro Data Company (for periods prior to June 6, 1991) or the National
Association of Securities Dealers, Inc., and the high and low sales prices per
share for periods from and after December 11, 1991, for Medisys Common Stock on
The Nasdaq National Market. Medisys Common Stock quotations prior to December
11, 1991, represent bid prices between dealers, do not include retail mark-ups,
mark downs or commissions and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1991
Second Quarter(1)(2)................................................ $ 5.50 $4.50
Third Quarter(2).................................................... $ 6.25 $4.50
Fourth Quarter(3)................................................... $ 8.50 $6.13
1992
First Quarter....................................................... $11.75 $7.50
Second Quarter...................................................... $ 8.75 $6.25
Third Quarter....................................................... $ 8.75 $6.00
Fourth Quarter...................................................... $ 7.13 $4.75
1993
First Quarter....................................................... $ 7.00 $4.13
Second Quarter...................................................... $ 4.75 $3.13
Third Quarter....................................................... $ 5.75 $3.63
Fourth Quarter...................................................... $ 5.75 $3.00
1994
First Quarter....................................................... $ 4.06 $2.94
Second Quarter (to May 25, 1994).................................... $ 4.00 $2.88
</TABLE>
- ---------------
(1) Data for Medisys Common Stock for Second Quarter 1991 includes trading data
from and after April 25, 1991, the date that Medisys became a public company
through completion of a merger with a publicly held company
(2) Data for Medisys Common Stock for Second Quarter and Third Quarter 1991
represent high and low closing bid quotations.
(3) Data for Medisys Common Stock for Fourth Quarter 1991 represent (a) the
greater of the high closing bid quotation prior to December 11, 1991, and
the high sales price per share from and after December 11, 1991, and (b) the
lesser of the low closing bid quotation prior to December 11, 1991, and the
low sales price per share from and after December 11, 1991.
Dividends. Medisys has never paid cash dividend on any of its securities.
In the event the Merger is not consummated, Medisys currently intends to retain
any earnings for use in its operations and does not anticipate paying cash
dividends in the foreseeable future. Under Medisys' bank credit agreement,
Medisys may not declare a dividend in any calendar year greater than 25% of
Medisys' net income in such year. In addition, Medisys is not permitted to pay
any dividends if Medisys is in default under such agreement or if an event of
default would result from the payment of such dividends.
126
<PAGE> 146
UNAUDITED PRO FORMA CAPITALIZATION AND
CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma financial data presents the unaudited pro
forma capitalization of Coram at March 31, 1994, giving effect to the Merger of
wholly-owned subsidiaries of Coram with and into T2, Curaflex, HealthInfusion
and Medisys as if the Merger were consummated on that date, and the Unaudited
Pro Forma Condensed Combined Balance Sheet at March 31, 1994, giving effect to
the Merger of T2, Curaflex, HealthInfusion and Medisys into Coram as if the
Merger were consummated on that date, using the pooling-of-interests method of
accounting. Also presented are the Unaudited Pro Forma Condensed Combined
Statements of Operations for the fiscal years ended December 31, 1991, 1992,
1993 and the three months ended March 31, 1993 and 1994, after giving effect to
the Merger as if it were consummated on January 1, 1991. The pro forma results
of operations for the year ended December 31, 1993 have been adjusted to give
effect to acquisitions which were completed during 1993 as if those acquisitions
had occurred on January 1, 1993. The pro forma data is based on the historical
consolidated financial statements of T2, the historical restated consolidated
financial statements of Curaflex, the historical consolidated financial
statements of HealthInfusion and the historical supplemental consolidated
financial statements of Medisys giving effect to the transactions under the
assumptions and adjustments outlined in the accompanying Notes to Unaudited Pro
Forma Condensed Combined Financial Statements.
The results of operations of the companies acquired in 1993 for the period
from January 1, 1993 to the acquisition date were derived from unaudited
financial statements.
The unaudited pro forma condensed combined financial statements are
provided for comparative purposes only. They do not purport to be indicative of
the results that actually would have occurred if the Merger and acquisitions had
been consummated on the dates indicated or which may be obtained in the future.
The unaudited pro forma condensed combined financial statements should be read
in conjunction with the notes thereto, the audited consolidated financial
statements of T2 and the related notes thereto incorporated by reference herein,
the audited consolidated financial statements of Curaflex and the related notes
thereto contained elsewhere herein, the audited consolidated financial
statements of HealthInfusion and the related notes thereto contained elsewhere
herein and the audited consolidated financial statements of Medisys and the
related notes thereto contained elsewhere herein.
UNAUDITED PRO FORMA CAPITALIZATION OF CORAM
MARCH 31, 1994
The following table represents the unaudited pro forma capitalization of
Coram following consummation of the Merger.
<TABLE>
<CAPTION>
PRO FORMA
ITEM HISTORICAL AS ADJUSTED
---- ------------ ------------
<S> <C> <C>
Current maturities of long term debt............. $ 56,229,500 $ 56,229,500
============ ============
Long-term debt, excluding current portion........ $ 16,096,000 $ 16,096,000
------------ ------------
Stockholders' equity:
Common Stock, par value $0.001 per share,
75,000,000 shares authorized................ 652,800 38,400(1)
Preferred Stock, par value $0.001 per
share, 10,000,000 shares authorized......... -- --
Additional paid-in capital..................... 334,908,600 335,523,000
Retained earnings.............................. 113,182,000 99,182,000
Less: Treasury stock and stock purchase note... (864,500) (864,500)
------------ ------------
Total Stockholders' Equity....................... 447,878,900 433,878,900
------------ ------------
Total Capitalization............................. $463,974,900 $449,974,900
============ ============
</TABLE>
- ---------------
(1) Excluding approximately 3,828,836 shares of Coram Common Stock subject to
outstanding warrants, options and other rights to purchase Coram Common
Stock at a weighted average exercise price of $27.65 per share that will be
assumed by Coram and were outstanding at March 31, 1994. Also excludes an
aggregate of 3,400,000 shares subject to options that will be granted to Mr.
Sweeney, Mr. Laverty and all non-employee directors of Coram following
consummation of the Merger.
127
<PAGE> 147
CORAM HEALTHCARE CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1994
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------------------------------ ----------------------------------------
T2 CURAFLEX ADJUSTMENTS CORAM
MEDICAL HEALTH HEALTHINFUSION, INCREASE ADJUSTMENTS HEALTHCARE
INC. SERVICES, INC. INC. MEDISYS, INC. (DECREASE) REFERENCE INC.
------------ -------------- -------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents... $ 21,752,800 $ 2,856,000 $ 1,449,500 $ 669,200 $ -- $ 26,727,500
Investments................. 28,075,900 -- -- -- -- 28,075,900
Accounts receivable, net.... 44,392,700 31,017,100 28,392,000 14,786,100 -- 118,587,900
Note receivable............. -- 421,400 -- -- -- 421,400
Due from affiliates......... -- -- 56,200 -- -- 56,200
Inventory................... 5,805,400 2,640,800 1,590,400 1,881,400 -- 11,918,000
Prepaid expenses............ 2,230,400 1,567,200 -- -- -- 3,797,600
Income tax receivable....... 4,275,100 -- 224,100 -- -- 4,499,200
Deferred income taxes....... -- -- 1,145,700 169,100 -- 1,314,800
Other current assets........ -- 240,800 1,460,800 1,284,400 -- 2,986,000
------------ ------------ ----------- ----------- ------------ ------------
Total current assets.... 106,532,300 38,743,300 34,318,700 18,790,200 -- 198,384,500
Equipment, furniture, and
fixtures, net............. 23,527,600 11,607,600 4,685,800 2,427,500 -- 42,248,500
Joint ventures and other
assets.................... 13,934,600 10,693,800 2,645,500 -- -- 27,273,900
Deferred income taxes....... -- -- -- -- -- --
Goodwill, net............... 179,140,900 50,432,700 44,168,800 20,893,100 -- 294,635,500
------------ ------------ ----------- ----------- ------------ ------------
Total assets............ $323,135,400 $111,477,400 $85,818,800 $42,110,800 $ -- $562,542,400
============ ============ =========== =========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long
term debt................. $ 10,167,000 $ 25,913,300 $13,891,300 $ 6,257,900 $ -- $ 56,229,500
Accounts payable.......... 5,340,800 9,134,400 4,032,600 2,490,800 -- 20,998,600
Accrued compensation...... 1,068,300 1,246,300 2,029,600 1,495,200 -- 5,839,400
Deferred tax liability.... 1,653,700 -- -- 339,300 -- 1,993,000
Other accrued liabilities. 273,000 2,800,300 421,500 -- 14,000,000 (a)(i) 17,494,800
------------ ------------ ----------- ----------- ------------ ------------
Total current
liabilities........... 18,502,800 39,094,300 20,375,000 10,583,200 14,000,000 102,555,300
Long term debt, less
current portion........... 2,107,000 5,182,600 8,806,400 -- -- 16,096,000
Deferred income taxes....... 678,900 -- 699,800 585,200 -- 1,963,900
Other liabilities........... 1,296,800 -- -- -- -- 1,296,800
Minority interest........... 6,348,900 289,600 73,400 39,600 -- 6,751,500
Stockholders' equity:
Common stock.............. 411,500 15,000 99,400 126,900 (652,800) (a)(ii)
38,400 (a)(ii) 38,400
Additional paid-in capital 158,073,100 107,615,600 41,717,300 27,502,600 (334,908,600) (a)(ii)
335,523,000 (a)(ii) 335,523,000
Retained earnings
(deficit)............... 135,716,400 (39,855,200) 14,047,500 3,273,300 (14,000,000) (a)(i) 99,182,000
Less:
Treasury stock........ -- (5,000) -- -- -- (5,000)
Stock purchase note... -- (859,500) -- -- -- (859,500)
------------ ------------ ----------- ----------- ------------ ------------
Total stockholders'
equity................ 294,201,000 66,910,900 55,864,200 30,902,800 (14,000,000) 433,878,900
------------ ------------ ----------- ----------- ------------ ------------
Total liabilities and
stockholders' equity.. $323,135,400 $111,477,400 $85,818,800 $42,110,800 $ -- $562,542,400
============ ============ =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the pro forma
combined financial statements.
128
<PAGE> 148
CORAM HEALTHCARE CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1994
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------------------------------------- ----------------------------------------
T2 CURAFLEX ADJUSTMENTS
MEDICAL HEALTH HEALTHINFUSION, INCREASE ADJUSTMENTS
INC. SERVICES, INC. INC. MEDISYS, INC. (DECREASE) REFERENCE CORAM
------------ -------------- -------------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue........... $ 58,209,300 $24,974,000 $ 16,373,900 $13,507,600 $ -- $113,064,800
Cost of revenue....... 37,449,200 15,778,600 10,960,900 9,097,000 -- 73,335,700
------------ ----------- ------------ ----------- ---------- ------------
Gross margin...... 20,710,100 9,195,400 5,413,000 4,410,600 -- 39,729,100
Selling, general
and administrative
expense............. 10,520,700 8,940,400 2,974,700 3,454,200 25,890,000
Provision for
estimated
uncollectable
accounts receivable. 2,580,900 1,384,700 505,300 261,000 4,731,900
Merger expenses....... -- -- -- -- --
Restructuring
charge.............. -- -- -- -- --
------------ ----------- ------------ ----------- ---------- ------------
Operating
income.......... 7,608,500 1,129,700 1,933,000 695,400 -- 9,107,200
Interest income....... 617,500 76,500 18,300 2,900 -- 715,200
Interest expense...... (155,600) (564,600) (361,600) (85,700) (1,167,500)
Other income.......... 106,400 11,600 (19,900) (21,400) -- 76,700
Minority interest
in net income....... (2,472,900) (89,700) 156,100 -- -- (2,406,500)
Equity in net income
of unconsolidated
joint ventures...... 169,600 105,300 -- -- -- 274,900
------------ ----------- ------------ ----------- ---------- ------------
Income before
taxes,
extraordinary
items and
cumulative
effect of
accounting
change.......... 5,873,500 (1,590,600) 1,725,900 591,200 -- 6,600,000
Provision for
income taxes........ 2,617,500 -- 763,400 314,000 (668,100) b(iv) 3,026,800
------------ ----------- ------------ ----------- ---------- ------------
Income from
continuing
operations
before
extraordinary
items and
cumulative
effect of
accounting
change.......... $ 3,256,000 $(1,590,600) $ 962,500 $ 277,200 $ 668,100 $ 3,573,200
============ =========== ============ =========== ========== ============
Primary income per
common share
from continuing
operations
before extraordinary
items and cumulative
effect of accounting
change.............. $ 0.08 $ (0.11) $ 0.10 $ .02 $ 0.09
============ =========== ============ =========== =============
Fully diluted
income per
common share
from continuing
operations before
extraordinary
items and cumulative
effect of accounting
change.............. $ 0.08 $ (0.11) $ 0.10 $ .02 $ 0.09
============ =========== ============ =========== =============
Weighted average
common and
common equivalent
shares outstanding
used in primary per
share calculation... 41,187,300 14,985,500 10,035,700 12,487,000 (40,237,000) b(i)
158,200 b(ii) 38,616,700
============ =========== ============ =========== =========== =============
Weighted average
common and
common equivalent
shares outstanding
used in fully
diluted per share
calculation......... 41,187,300 14,985,500 10,035,700 12,777,000 (40,456,500) b(i)
158,200 b(ii) 38,687,200
============ =========== ============ =========== =========== =============
</TABLE>
The accompanying notes are an integral part of the pro forma combined financial
statements.
129
<PAGE> 149
CORAM HEALTHCARE CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1993
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL --------------------------------------------
--------------------------------------------------------------- ADJUSTMENTS
T2 MEDICAL CURAFLEX HEALTH HEALTHINFUSION, INCREASE ADJUSTMENTS CORAM
INC. SERVICES, INC. INC. MEDISYS, INC. (DECREASE) REFERENCE HEALTHCARE, INC.
------------ --------------- -------------- ------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue...... $ 67,670,400 $20,595,600 $12,979,200 $12,170,400 $ -- $113,415,600
Cost of
revenue........ 35,245,600 11,148,400 8,303,100 7,905,100 -- 62,602,200
------------ --------------- -------------- ------------- ----------- ----------------
Gross
margin... 32,424,800 9,447,200 4,676,100 4,265,300 -- 50,813,400
Selling, general
and
administrative
expense........ 8,342,300 7,068,400 1,922,600 3,122,200 20,455,500
Provision for
estimated
uncollectable
accounts
receivable..... 7,066,800 1,160,700 398,200 145,800 8,771,500
Merger
expenses....... -- 2,310,000 -- -- 2,310,000
Restructuring
charge......... -- 1,600,000 -- -- 1,600,000
------------ --------------- -------------- ------------- ----------- ----------------
Operating
income... 17,015,700 (2,691,900) 2,355,300 997,300 -- 17,676,400
Interest
income......... 817,900 307,300 5,200 5,800 -- 1,136,200
Interest
expense........ (352,700) (184,600) (241,100) (18,000) (796,400)
Other income..... (290,600) 75,100 -- 9,100 -- (206,400)
Minority interest
in net income.. (1,463,200) (205,200) (11,500) -- -- (1,679,900)
Equity in net
income of
unconsolidated
joint
ventures....... 212,400 (74,600) -- -- -- 137,800
------------ --------------- -------------- ------------- ----------- ----------------
Income
before
taxes,
extraordinary
items and
cumulative
effect of
accounting
change... 15,939,500 (2,773,900) 2,107,900 994,200 -- 16,267,700
Provision for
income taxes... 5,677,900 (871,000) 861,000 206,700 749,800 b(iii) 6,624,400
------------ --------------- -------------- ------------- ----------- ----------------
Income from
continuing
operations
before
extraordinary
items and
cumulative
effect of
accounting
change... $ 10,261,600 $(1,902,900) $1,246,900 $ 787,500 $ (749,800 ) $ 9,643,300
=========== ============== ============= ============ =========== ==============
Primary income
per common
share from
continuing
operations
before
extraordinary
items and
cumulative
effect of
accounting
change......... $ 0.25 $ (0.15) $ 0.13 $ 0.06 $ 0.26
=========== ============== ============= ============ ==============
Fully diluted
income per
common share
from continuing
operations
before
extraordinary
items and
cumulative
effect of
acounting
change......... $ 0.25 $ (0.15) $ 0.13 $ 0.06 $ 0.26
=========== ============== ============= ============ ==============
Weighted average
common and
common
equivalent
shares
outstanding
used in primary
per share
calculation.... 40,664,500 12,600,300 9,693,100 12,231,000 (38,069,300) b(i)
174,800 b(ii) 37,294,400
=========== ============== ============= ============ =========== ==============
Weighted average
common and
common
equivalent
shares
outstanding
used in fully
diluted per
share 40,664,500 12,600,300 10,650,100 13,108,000 (39,262,500) b(i)
calculation.... 174,800 b(ii) 37,935,200
=========== ============== ============= ============ =========== ==============
</TABLE>
The accompanying notes are an integral part of the pro forma combined financial
statements.
130
<PAGE> 150
CORAM HEALTHCARE CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL
------------ --------------- -------------------------- ADJUSTMENTS
T2 MEDICAL, CURAFLEX HEALTH HEALTHINFUSION, MEDISYS, INCREASE ADJUSTMENTS
INC. SERVICES, INC. INC. INC. (DECREASE) REFERENCE CORAM
------------ --------------- ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............. $273,199,100 $94,695,200 $ 56,681,800 $51,380,800 $ -- $475,956,900
Cost of revenue......... 147,550,100 54,825,900 36,666,000 33,367,900 -- 272,409,900
------------ --------------- ------------ ----------- ------------ ------------
Gross margin...... 125,649,000 39,869,300 20,015,800 18,012,900 -- 203,547,000
Selling, general and
administrative
expense............... 34,414,600 37,187,600 10,665,200 13,934,300 -- 96,201,700
Provision for estimated
uncollectible accounts
receivable............ 23,273,800 5,619,500 5,658,500 1,003,900 -- 35,555,700
Merger expense.......... -- 2,309,900 -- 558,200 -- 2,868,100
Restructuring charge.... -- 1,600,100 -- -- -- 1,600,100
------------ --------------- ------------ ----------- ------------ ------------
Operating income
(loss)......... 67,960,600 (6,847,800) 3,692,100 2,516,500 -- 67,321,400
Interest income......... 3,239,200 773,700 14,900 15,200 -- 4,043,000
Interest expense........ (1,738,300) (1,604,300) (1,046,400) (189,700) -- (4,578,700)
Other income............ 6,178,700 326,000 -- 278,000 -- 6,782,700
Minority interest in net
income of consolidated
joint ventures........ (7,657,400) (1,018,800) (153,600) 81,500 -- (8,748,300)
Equity in net income of
unconsolidated joint
ventures.............. 1,004,300 360,600 -- -- -- 1,364,900
------------ --------------- ------------ ----------- ------------ ------------
Income (loss) from
continuing
operations
before
extraordinary
items and
cumulative
effect of
accounting
change and
provision for
income taxes... 68,987,100 (8,010,600) 2,507,000 2,701,500 -- 66,185,000
Provision for income
taxes................. 27,519,500 (104,900) 1,386,600 2,049,500 1,420,700 (b)(iii) 32,271,400
------------ --------------- ------------ ----------- ------------ ------------
Income (loss) from
continuing
operations
before
extraordinary
items and
cumulative
effect of
accounting
change......... $ 41,467,600 $(7,905,700) $ 1,120,400 $ 652,000 $ (1,420,700) $ 33,913,600
============= ============== ============= ============ ============ =============
Primary income (loss)
per common share from
continuing operations
before extraordinary
items and cumulative
effect of accounting
change................ $ 1.02 $ (0.53) $ .12 $ 0.05 $ 0.89
============= ============== ============= ============ =============
Fully diluted income
(loss) per common
share from continuing
operations before
extraordinary items
and cumulative effect
of accounting
change................ $ 1.02 $ (0.53) $ .12 $ 0.05 $ 0.89
============= ============== ============= ============ =============
Weighted average common
and common equivalent
shares
used in primary per
share (39,675,200) (b)(i)
calculation........... 40,675,000 14,785,700 9,718,600 12,403,000 190,200 (b)(ii) 38,097,300
============= ============== ============= ============ ============ =============
Weighted average common
and common equivalent
shares
used in fully diluted
per (40,224,800) (b)(i)
share calculation..... 40,675,000 14,785,700 9,718,600 13,129,000 190,200 (b)(ii) 38,273,700
============= ============== ============= ============ ============ =============
</TABLE>
The accompanying notes are an integral part of the pro forma combined financial
statements.
131
<PAGE> 151
CORAM HEALTHCARE CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------------------------------------
------------------------------------------------------------------- ADJUSTMENTS
T2 MEDICAL CURAFLEX HEALTH HEALTHINFUSION, INCREASE ADJUSTMENTS
INC. SERVICES, INC. INC. MEDISYS, INC. (DECREASE) REFERENCE CORAM
------------ ---------------- ---------------- -------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue.... $250,943,800 $ 75,127,000 $ 49,749,500 $ 23,661,700 $ -- $399,482,000
Cost of
revenue...... 120,722,400 37,102,300 29,324,000 14,763,700 -- 201,912,400
------------ ------------ ------------ ------------ ------------ ------------
Gross
margin... 130,221,400 38,024,700 20,425,500 8,898,000 -- 197,569,600
Selling,
general and
administrative
expense...... 23,181,800 30,698,400 7,564,300 6,936,000 -- 68,380,500
Provision for
estimated
uncollectable
accounts
receivable... 12,139,300 5,679,000 1,205,400 597,700 -- 19,621,400
Restructuring
charge....... -- 2,385,300 -- -- -- 2,385,300
------------ ------------ ------------ ------------ ------------ ------------
Operating
income... 94,900,300 (738,000) 11,655,800 1,364,300 -- 107,182,400
Interest
income....... 3,194,200 1,252,900 87,600 285,200 -- 4,819,900
Interest
expense...... (1,554,000) (705,000) (857,700) (41,300) -- (3,158,000)
Other income
(expense).... 506,800 297,700 (9,000) (32,000) -- 763,500
Minority
interest in
net income of
consolidated
joint
ventures..... (2,346,000) (806,300) (267,300) 47,800 -- (3,371,800)
Equity in net
income of
unconsolidated
joint
ventures..... 2,571,200 163,000 -- -- -- 2,734,200
------------ ------------ ------------ ------------ ------------ ------------
Income from
continuing
operations
before
taxes and
extraordinary
items.... 97,272,500 (535,700) 10,609,400 1,624,000 -- 108,970,200
Provision for
income
taxes........ 32,313,700 339,000 4,287,000 73,000 5,400,500 (b)(iii) 42,413,200
------------ ------------ ------------ ------------ ------------ ------------
Income from
continuing
operations
before
extraordinary
items.... $ 64,958,800 $ (874,700) $ 6,322,400 $ 1,551,000 $ (5,400,500) $ 66,557,000
============ ============ ============ ============ ============ ============
Primary income
per common
share from
continuing
operations
before
extraordinary
items........ $ 1.60 $ (0.08) $ 0.67 $ 0.15 $ 1.85
============ ============ ============ ============ ============
Fully diluted
income per
common share
from
continuing
operations
before
extraordinary
items........ $ 1.60 $ (0.08) $ 0.65 $ 0.15 $ 1.82
============ ============ ============ ============ ============
Weighted
average
common and
common
equivalent
shares
outstanding
used in
primary year
share
calculation... 40,659,800 10,799,200 9,422,900 10,506,000 (35,411,100) (b)(i) 35,976,800
============ ========== ========== ========== =========== ===========
Weighted
average
common and
common
equivalent
shares
outstanding
used in fully (35,992,200) (b)(i)
diluted per
share
calculation... 40,659,800 10,799,200 10,379,800 10,575,000 458,900 (b)(ii) 36,880,500
============ ========== ========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the pro forma combined
financial statements.
132
<PAGE> 152
CORAM HEALTHCARE CORPORATION
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------------------------------------
------------------------------------------------------------------- ADJUSTMENTS
T2 MEDICAL CURAFLEX HEALTH HEALTHINFUSION, INCREASE ADJUSTMENTS
INC. SERVICES, INC. INC. MEDISYS, INC. (DECREASE) REFERENCE CORAM
------------ ---------------- ---------------- -------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue.... $172,410,700 $ 60,081,200 $ 29,247,500 $ 13,623,900 -- $275,363,300
Cost of
revenue...... 85,400,400 28,329,700 16,239,700 7,276,200 -- 137,246,000
------------ ------------ ------------ ------------ ------------ ------------
Gross
margin... 87,010,300 31,751,500 13,007,800 6,347,700 -- 138,117,300
Selling,
general and
administrative
expense...... 17,892,200 25,367,400 5,179,300 4,305,100 -- 52,744,000
Provision for
estimated
uncollectable
accounts
receivable... 9,742,400 3,618,300 548,500 225,800 -- 14,135,000
------------ ------------ ------------ ------------ ------------ ------------
Operating
income... 59,375,700 2,765,800 7,280,000 1,816,800 -- 71,238,300
Interest
income....... 2,859,000 231,600 338,100 49,200 -- 3,477,900
Interest
expense...... (2,396,100) (989,300) (609,300) (136,600) -- (4,131,300)
Other income... 155,600 309,200 -- 29,400 -- 494,200
Minority
interest in
net income of
consolidated
joint
ventures..... (595,400) (92,500) (71,600) (154,100) -- (913,600)
Equity in net
income of
unconsolidated
joint
venture...... 982,000 343,200 -- -- -- 1,325,200
------------ ------------ ------------ ------------ ------------ ------------
Income from
continuing
operations
before
taxes and
extraordinary
items.... 60,380,800 2,568,000 6,937,200 1,604,700 -- 71,490,700
Provision for
income
taxes........ 18,629,800 1,075,800 2,696,200 323,000 5,341,800 (b)(iii) 28,066,600
------------ ------------ ------------ ------------ ------------ ------------
Income from
continuing
operations
before
extraordinary
items.... $ 41,751,000 $ 1,492,200 $ 4,241,000 $ 1,281,700 $(5,341,800) $ 43,424,100
============ ============ ============ ============ =========== ============
Primary income
per common
share from
continuing
operations
before
extraordinary
items........ $ 1.16 $ 0.17 $ 0.54 $ 0.16 $ 1.39
============ ============ ============ ============ ============
Fully diluted
income per
common share
from
continuing
operations
before
extraordinary
items........ $ 1.16 $ 0.17 $ 0.51 $ 0.16 $ 1.38
============ ============ ============ ============ ============
Weighted
average
common and
common
equivalent
shares
outstanding
used in
primary per
share
calculation... 36,110,000 9,009,700 7,884,100 8,102,000 (29,863,300) (b)(i) 31,242,500
============ ============ ============ =========== =========== ============
Weighted
average
common
equivalent
shares
outstanding
used in fully
diluted per
share
calculation... 36,110,000 9,009,700 8,666,300 8,174,000 (30,350,400) (b)(i) 31,609,600
============ ============ ============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the pro forma combined financial
statements.
133
<PAGE> 153
CURAFLEX HEALTH SERVICES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------------------
FOR THE FOR THE
FOR THE PERIOD ENDED FOR THE PERIOD ENDED
YEAR ENDED MARCH 31, 1993 PERIOD ENDED JUNE 30, 1993
DECEMBER 31, 1993 --------------- MARCH 31, 1993 ---------------
------------------ COMPREHENSIVE --------------- HOME
COMPANY PHARMACY CONTINUECARE SOLUTION, INC.
------------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net revenue................................ $ 89,152,000 $ 814,900 $ 1,155,300 $ 1,075,300
Cost of revenue............................ 53,041,400 268,200 301,200 263,100
------------ --------- ----------- -----------
Gross margin....................... 36,110,600 546,700 854,100 812,200
Selling, general and administrative
expense.................................. 34,297,700 255,700 544,000 438,100
Provision for estimated uncollectible
accounts receivable...................... 5,556,900 17,300 (3,900) 49,200
Merger expense............................. 2,309,900 -- -- --
Restructuring charge....................... 1,600,100 -- -- --
------------ --------- ----------- -----------
Operating income (loss).............. (7,654,000) 273,700 314,000 324,900
Interest income............................ 774,300 700 3,100 2,100
Interest expense........................... (1,329,100) -- -- (1,700)
Other income............................... 322,400 1,200 2,400 --
Minority interest in net income of
consolidated joint ventures.............. (1,018,800) -- -- --
Equity in net income of unconsolidated
joint ventures........................... 360,600 -- -- --
------------ --------- ----------- -----------
Income (loss) from continuing
operations before extraordinary
items, and cumulative effect of
accounting change.................. (8,544,600) 275,600 319,500 325,300
Provision for income taxes, (benefits)..... (104,900) -- 118,200 --
------------ --------- ----------- -----------
Income (loss) from continuing
operations before extraordinary
items and cumulative effect of
accounting change.................. $ (8,439,700) $ 275,600 $ 201,300 $ 325,300
============ ========= =========== ===========
Primary income (loss) per common share from
operations before extraordinary items and
cumulative effect of accounting change... $ (0.59)
============
Weighted average common and common
equivalent shares used in primary per
share calculation........................ 14,258,300
============
<CAPTION>
FOR THE PRO FORMA
PERIOD ENDED ---------------------------------------
SEPTEMBER 30, 1993 ADJUSTMENTS
------------------- INCREASE ADJUSTMENTS COMBINED
EXCELLENCE, INC. (DECREASE) REFERENCE TOTAL
------------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Net revenue................................ $ 2,497,700 $ -- $94,695,200
Cost of revenue............................ 952,000 -- 54,825,900
----------- ----------- -----------
Gross margin....................... 1,545,700 -- 39,869,300
Selling, general and administrative
expense.................................. 1,390,700 261,400 (c) (i) 37,187,600
Provision for estimated uncollectible
accounts receivable...................... -- -- 5,619,500
Merger expense............................. -- -- 2,309,900
Restructuring charge....................... -- -- 1,600,100
----------- ----------- -----------
Operating income (loss).............. 155,000 (261,400) (6,847,800)
Interest income............................ -- (6,500) (c) (iv) 773,700
Interest expense........................... -- (1,604,300)
(40,300) (c) (ii)
(235,600) (c) (iii)
2,400 (c) (v)
Other income............................... -- -- 326,000
Minority interest in net income of
consolidated joint ventures.............. -- -- (1,018,800)
Equity in net income of unconsolidated
joint ventures........................... -- -- 360,600
----------- ----------- -----------
Income (loss) from continuing
operations before extraordinary
items, and cumulative effect of
accounting change.................. 155,000 (541,400) (8,010,600)
Provision for income taxes, (benefits)..... -- (118,200) (c)(vi) (104,900)
----------- ----------- -----------
Income (loss) from continuing
operations before extraordinary
items and cumulative effect of
accounting change.................. $ 155,000 $ (423,200) $(7,905,700)
=========== =========== ===========
Primary income (loss) per common share from
operations before extraordinary items and
cumulative effect of accounting change... $ (0.53)
===========
Weighted average common and common
equivalent shares used in primary per
share calculation........................ 527,400 (c)(vii) 14,785,700
========== ===========
</TABLE>
The accompanying notes are an integral part of the pro forma condensed combined
financial statements.
134
<PAGE> 154
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On February 7, 1994, a definitive agreement was announced providing for the
merger of wholly-owned subsidiaries of Coram with and into T2, Curaflex,
HealthInfusion and Medisys. Under the terms of the definitive agreement, all
shares of common stock of T2, Curaflex, HealthInfusion and Medisys issued and
outstanding prior to the Merger will be exchanged for shares of Coram common
stock, on the following basis: Each stockholder of T2 will receive 0.630 shares
of Coram common stock in exchange for each share of T2 common stock, each
stockholder of Curaflex will receive 0.333 shares of Coram common stock in
exchange for each share of Curaflex common stock, each stockholder of
HealthInfusion will receive 0.447 shares of Coram common stock in exchange for
each share of HealthInfusion common stock and each stockholder of Medisys will
receive 0.243 shares of Coram common stock in exchange for each share of Medisys
common stock.
The following table reflects pro forma ownership of Coram.
<TABLE>
<CAPTION>
SHARES
OUTSTANDING
AS OF
MARCH 31, EXCHANGE CORAM OWNERSHIP
1994 RATIO SHARES %
------------ -------- --------- ---------
<S> <C> <C> <C> <C>
T2....................... 41,147,567 0.630 25,922,967 67%
Curaflex................. 14,988,097 0.333 4,991,036 13%
HealthInfusion........... 9,941,062 0.447 4,443,655 12%
Medysis.................. 12,694,621 0.243 3,084,793 8%
--------- ---
Total.......... 38,442,451 100%
========== ===
</TABLE>
Merger will be accounted for as a "pooling-of-interests."
The following table reflects the options outstanding, their conversion to
Coram stock and the exercise prices:
<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING
AS OF
MARCH 31, PER SHARE EXCHANGE CORAM PER SHARE
1994 EXERCISE PRICE RATIO OPTIONS EXERCISE PRICE
----------- --------------- -------- --------- ----------------
<S> <C> <C> <C> <C> <C>
T2............... 2,904,940 $4.813 - 58.125 0.630 1,830,112 $ 7.64 - 92.262
Curaflex......... 2,493,125 $ 0.48 - 13.00 0.333 830,211 $ 1.381 - 39.039
HealthInfusion... 670,525 $ 5.33 - 13.67 0.447 299,725 $11.924 - 30.582
Medisys.......... 652,087 $ 1.10 - 8.80 0.243 158,457 $ 4.527 - 36.214
--------- ----------------
3,118,505 $ 1.381 - 92.262
========= ================
</TABLE>
In addition, as of March 31, 1994, warrants convertible into 271,197 shares
of Coram common stock at prices ranging from $12.58 to $29.28 were outstanding.
Pro forma goodwill is a significant asset which represents the excess of
the purchase price over the fair value of net assets acquired through business
combinations accounted for as purchases. Coram's policy will be to amortize the
goodwill over a period of thirty to forty years and to assess the recoverability
or possible impairment of goodwill by determining whether the amortization of
the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation.
Aggregate maturities of pro forma outstanding long term debt for the next
five years are as follows: 1994 -- $34,552,500; 1995 -- $6,321,700;
1996 -- $25,458,900; 1997 --$473,900; and 1998 -- $470,200.
135
<PAGE> 155
T2 MEDICAL
The results of operations for T2 Medical included in the Unaudited Pro
Forma Condensed Combined Statements of Operations for the years ended December
31, 1991, 1992 and 1993 were derived from T2's audited financial statements for
the fiscal years ended September 30, 1991, 1992 and 1993, respectively. The
unaudited results of operations for the quarters ended December 31, 1991, 1992
and 1993 are as follows:
<TABLE>
<CAPTION>
1991 1992 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues........................ $58,155,000 $71,772,900 $63,663,600
Net income.......................... 14,209,300 14,109,800 8,145,800
----------- ----------- -----------
Net income per common share......... $ .36 $ .35 $ .20
</TABLE>
If T2's results of operations for the twelve months ended December 31, 1993
had been used in preparing the unaudited Pro Forma Condensed Combined Statements
of Operations for the year ended December 31, 1993 rather than T2's results of
operations for the twelve months ended September 30, 1993, pro forma revenues
and income from continuing operations before extraordinary items and cumulative
effect of accounting change would be reduced from $475,956,900 to $467,847,600
and from $35,334,300 to $29,370,300, respectively.
The foregoing Pro Forma Condensed Combined Statements of Operations and
Balance Sheet do not include a provision for any loss that may result in
connection with the resolution of certain shareholder litigation currently
pending against T2. Based on discussions subsequent to May 13, 1994, regarding
the possible settlement of such litigation, T2 intends to record a provision of
$15,000,000 in its financial statements for the quarter ending June 30, 1994,
with respect to its potential net losses in connection with the resolution of
such litigation. There can be no assurance, however, that such litigation will
be settled or that any settlement will be on terms currently under discussion.
CURAFLEX
Curaflex completed four acquisitions in 1993 which have been accounted for
as purchases. Information about the acquired companies follows.
On June 29, 1993, Curaflex completed the acquisition of 100% of the stock
of Comprehensive Pharmacy Home IV Services, Inc. ("Comprehensive"), a regional
infusion therapy company located in Ontario, California. The total purchase
price was $6,780,000, consisting of $3,480,000 cash consideration, $2,300,000 in
promissory notes payable over three years at 7% and Curaflex common stock with a
fair market value of $1,000,000. In addition, subject to certain performance
criteria for 1993, 1994 and 1995, Curaflex may be required to pay up to an
additional $1,000,000 in cash. Goodwill of $6,880,000, recognized as a result of
the purchase, is being amortized over 30 years. Under the terms of the purchase
agreement with Comprehensive, the effective date for accounting and
consolidation of the acquisition was April 1, 1993.
On June 29, 1993, a subsidiary of Curaflex completed a merger with
ContinueCare Health Systems, Inc. ("ContinueCare"), a regional infusion therapy
company located in Dallas, Texas. Total consideration was $10,000,000 which,
under the terms of the merger agreement, was paid by converting the outstanding
shares of common stock of ContinueCare into Curaflex common stock with a fair
market value of $6,500,000 and $3,500,000 in cash, payable in the form of a
thirty-day, 6% interest bearing note. In addition, subject to certain
performance criteria for 1993, 1994, 1995 and 1996, Curaflex may be required to
pay up to an additional $5,000,000 in shares of Curaflex common stock, up to
$3,000,000 of which may be paid in cash at the former stockholders' options.
Goodwill of $10,483,100, recognized as a result of the merger, is being
amortized over 30 years. Under the terms of the merger agreement with
ContinueCare, the effective date for accounting and consolidation of the
acquisition was April 1, 1993.
On September 27, 1993, a subsidiary of Curaflex completed a merger with
Home Solution, Inc. ("Home Solution"), a regional infusion therapy company
located in Salt Lake City, Utah. Total consideration was $2,700,000 which, under
the terms of the merger agreement, was paid by converting the outstanding shares
of common stock of Home Solution into Curaflex common stock with a fair market
value of $1,350,000, and
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<PAGE> 156
$1,350,000 in cash. In addition, subject to certain performance criteria for
1993, 1994, 1995, 1996 and 1997, Curaflex may be required to pay up to an
additional $2,200,000. One-half of this amount, evidenced by a contingent
earn-out note, is payable in cash, and the remaining one-half is payable in the
form of shares of Curaflex common stock. Goodwill of $3,128,000, recognized as a
result of the merger, is being amortized over 30 years. Under the terms of the
merger agreement with Home Solution, the effective date for accounting and
consolidation of the acquisition was July 1, 1993.
On September 30, 1993, Curaflex completed the acquisition of certain assets
of Excellence, Inc. and Excellence, Inc. of North Carolina (collectively,
"Excellence"), regional infusion therapy companies located in Tampa, Florida and
Charlotte, North Carolina, respectively. The aggregate purchase price for these
assets was $2,500,000, consisting of $1,800,000 cash consideration and Curaflex
common stock with a fair market value of $700,000. In addition, subject to
certain performance criteria for 1994, 1995 and 1996, Curaflex may be required
to pay to Excellence up to an additional $1,800,000 in cash or Curaflex common
stock. Goodwill of $2,584,500, recognized as a result of the purchase, is being
amortized over 30 years.
ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) The unaudited pro forma condensed combined balance sheet has been
prepared to reflect the business combination of T2, Curaflex, HealthInfusion and
Medisys through the issuance of an assumed 38,442,451 shares of Coram common
stock in exchange for all of the outstanding shares of T2 common stock, Curaflex
common stock, HealthInfusion common stock and Medisys common stock. The Merger
is reflected under the pooling-of-interests method of accounting. Non-recurring
charges to effect the Merger, assumed to be approximately $14,000,000, were not
reflected in the unaudited pro forma condensed combined statements of operations
for the fiscal years ended December 31, 1991, 1992 and 1993. The effect of such
charge is reflected on the unaudited pro forma condensed combined balance sheet
as of March 31, 1994.
The unaudited pro forma condensed combined balance sheet has been adjusted
to reflect the Merger transaction as follows:
(i) To record the payment of estimated expenses for investment banking
fees of $9,725,000; legal, accounting, printing and other professional fees
of $2,295,000; and severence of $1,980,000 related to the Merger of T2,
Curaflex, HealthInfusion and Medisys.
(ii) To record the issuance of 25,922,967 shares of Coram common stock
in exchange for the 41,147,567 outstanding shares of T2 common stock
(exchange ratio of 0.630 to 1); the issuance of 4,991,036 shares of Coram
common stock in exchange for the 14,988,097 outstanding shares of Curaflex
common stock (exchange ratio of 0.333 to 1); the issuance of 4,443,655
shares of Coram common stock in exchange for the 9,941,062 outstanding
shares of HealthInfusion common stock (exchange ratio of 0.447 to 1); and
the issuance of 3,084,793 shares of Coram common stock in exchange for the
12,694,621 outstanding shares of Medisys common stock (exchange ratio of
0.243 to 1).
(b) The unaudited pro forma condensed combined statements of operations
have been adjusted to reflect the Merger transaction as follows:
(i) Pursuant to the merger agreement, weighted average common and
common equivalent shares used in primary and fully diluted per share
calculations have been converted at 0.630 for T2, 0.333 for Curaflex, 0.447
for HealthInfusion and 0.243 for Medisys in computing Coram's weighted
average common and common equivalent shares and earnings per share.
(ii) To record Curaflex weighted average common equivalents that were
anti-dilutive.
(iii) To record the income tax effect of changing "S" corporations to
"C" corporations for acquisitions by T2.
(iv) To record the income tax effect of Curaflex loss on pro forma net
income.
(c) The Curaflex Health Services, Inc. unaudited pro forma condensed
combined statements of operations give effect to the following pro forma
adjustments to reflect:
(i) The amortization of additional goodwill. The period of
amortization is thirty years.
(ii) The increase in interest expense to reflect the issuance of
promissory notes related to the Comprehensive and ContinueCare
acquisitions.
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(iii) The increase in interest expense to reflect additional
borrowings in association with cash paid to Comprehensive, ContinueCare,
Home Solution and Excellence, at an assumed interest rate of 6.25%.
(iv) The decrease in interest income to reflect cash retained by the
stockholders of Comprehensive, ContinueCare, Home Solution and Excellence,
at an assumed interest rate of 2.5%.
(v) The decrease in interest expense to reflect a note payable to a
stockholder of Comprehensive which was not assumed in the acquisition for
the year ended December 31, 1993 of $2,400.
(vi) The effect on income tax expense due to the above pro forma
adjustments and the income tax effect of changing from "S" corporations to
"C" corporations for Comprehensive Pharmacy.
(vii) To record the issuance of Curaflex common stock relating to the
acquisitions of Comprehensive Home IV Pharmacy, ContinueCare, Home Solution
and Excellence.
The unaudited pro forma condensed combined statements of operations do not
reflect the potential future impact of the earn-out contingencies described in
the Comprehensive Stock Purchase Agreement dated June 29, 1993, the ContinueCare
Merger Agreement dated June 29, 1993, the Home Solutions Stock Purchase
Agreement dated September 27, 1993 and the Excellence Asset Purchase Agreement
dated September 30, 1993. In addition, the unaudited pro forma condensed
combined financial data may not include all potential fair value adjustments
which will be identified within the twelve months succeeding the acquisitions.
Furthermore, the condensed combined statements of operations do not give effect
to expenses of pooling and Coram's plans to consolidate the constituent
companies' existing regional centers, local centers and satellite facilities and
to effect other changes to gain efficiencies and reduce operating costs.
Presently, Coram has not completed its plans for the restructuring nor its
estimate of the costs of such restructuring. Accordingly, no amount has been
included in the Pro Forma Condensed Balance Sheet and Statement of Operations
for the anticipated restructuring.
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<PAGE> 158
CURAFLEX SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data has been derived from
the financial statements of Curaflex. The restated consolidated financial
statements of Curaflex for the years ended December 31, 1991, 1992 and 1993 and
as of December 31, 1992 and 1993 and the related report of KPMG Peat Marwick are
included elsewhere in this Joint Proxy Statement/Prospectus. The selected
consolidated financial data set forth below for the years ended December 31,
1989 and 1990 and as of December 31, 1989, 1990 and 1991 are derived from
audited financial statements not included herein. The following data should be
read in conjunction with "Curaflex Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of Curaflex included elsewhere in this Joint Proxy
Statement/Prospectus.
The consolidated selected financial data as of and for the three months
ended March 31, 1993 and 1994 are derived from the unaudited Consolidated
Financial Statements of Curaflex and its Subsidiaries and should be read in
conjunction with such unaudited Consolidated Financial Statements and related
notes and "Curaflex Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Joint Proxy
Statement/Prospectus. In the opinion of Curaflex's management, the unaudited
Consolidated Financial Statements include all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of the
information set forth therein. The results of operations for the three months
ended March 31, 1994 are not necessarily indicative of the results that may be
expected for the full year.
Since Curaflex did not initiate its shift to the home infusion therapy
business until 1989, Curaflex's results of operations for 1989 are not
necessarily comparable with Curaflex's results of operations for subsequent
periods because 1989 reflects the limited infusion services provided by Curaflex
before its business focus had changed.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------- -----------------------
1989 1990 1991 1992 1993 1993 1994
--------- --------- --------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Net revenue............................... $ 11,491 $ 33,221 $ 60,081 $ 75,127 $ 89,152 $ 20,595 $ 24,974
Cost of revenue........................... 8,444 17,045 28,329 37,102 53,041 11,148 15,779
--------- --------- --------- ---------- ---------- ---------- ----------
Gross margin.............................. 3,047 16,176 31,752 38,025 36,111 9,447 9,195
Selling, general and administrative
expense................................. 11,211 17,547 25,367 30,699 34,298 7,068 8.940
Provision for estimated uncollectible
accounts receivable..................... 1,044 2,481 3,618 5,679 5,557 1,161 1,385
Restructuring and merger expenses......... -- -- -- 2,385 3,910 3,910 --
--------- --------- --------- ---------- ---------- ---------- ----------
Operating income (loss)................... (9,208) (3,852) 2,767 (738) (7,654) (2,692) (1,130)
Interest income........................... 226 258 231 1,253 549 307 77
Interest expense.......................... (1,114) (846) (989) (705) (1,104) (185) (565)
Minority interest in net income of
consolidated joint ventures............. -- (235) (93) (807) (1,019) (205) (90)
Equity in net income of unconsolidated
joint ventures.......................... 49 75 343 163 361 (75) 105
Other income.............................. 115 356 309 298 323 76 12
--------- --------- --------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations
before income taxes..................... (9,932) (4,250) 2,568 (536) (8,544) (2,774) (1,591)
Income taxes (benefit).................... 537 780 1,076 339 (105) 871 --
--------- --------- --------- ---------- ---------- ---------- ----------
Income (loss) from continuing
operations.............................. (10,469) (5,030) 1,492 (875) (8,439) (1,903) (1,591)
Discontinued operations income (loss)..... (5,194) 256 -- -- -- -- --
--------- --------- --------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
items................................... (15,663) (4,774) 1,492 (875) (8,439) (1,903) (1,591)
Extraordinary items....................... 25 707 457 -- -- -- --
Cumulative effect of accounting change for
income taxes............................ -- -- -- -- (176) (176) --
--------- --------- --------- ---------- ---------- ---------- ----------
Net income (loss)......................... $ (15,638) $ (4,067) $ 1,949 $ (875) $ (8,615) $ (2,079) $ (1,591)
======== ======== ======== ========= ========= ========= =========
Net income (loss) per common share from
continuing operations................... $ (2.81) $ (1.17) $ 0.17 $ (0.08) $ (0.59) $ (0.15) $ (0.11)
======== ======== ======== ========= ========= ========= =========
Net income (loss) per common share........ $ (4.20) $ (0.95) $ 0.22 $ (0.08) $ (0.60) $ (0.16) $ (0.11)
======== ======== ======== ========= ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding.... 3,724 4,292 9,010 10,799 14,258 12,600 14,986
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------------- -----------
1989 1990 1991 1992 1993 1994
-------- ------- ------- ------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(1)
Cash............................................................ $ 1,546 $ 2,502 $ 3,369 $ 1,528 $ 3,888 $ 2,856
Working capital (deficit)....................................... (5,438) 7,587 13,662 38,047 18,119 351
Total assets.................................................... 14,895 22,671 37,266 83,837 110,217 111,478
Long-term obligations, less current portion, plus minority
interest...................................................... 7,466 1,133 1,096 9,347 21,651 5,473
Redeemable preferred stock...................................... 13,910 17,112 20,009 -- -- --
Total common stockholders' equity (deficit)..................... (22,349) (6,163) (532) 62,438 68,422 66,911
</TABLE>
- ---------------
(1) In March 1993, Curaflex consummated a merger with Clinical Homecare Ltd.
("CHL"), which Merger was accounted for as a pooling-of-interests.
Accordingly, Curaflex's historical consolidated financial information has
been restated to include the accounts and results of operations of CHL. In
addition, the consolidated financial information includes results of
operations from acquisitions made by Curaflex during the periods presented
from the accounting effective date of each acquisition. See Note 2 to
Curaflex's Consolidated Financial Statements appearing elsewhere in this
Joint Proxy Statement/Prospectus. In 1993, Curaflex adopted the provisions
of Statement of Financial Accounting Standards No. 109. As a result, the
period ended December 31, 1993, reflects the cumulative effect of this
accounting change.
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<PAGE> 159
CURAFLEX MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Curaflex was incorporated and commenced operations in 1985. Until early
1989, Curaflex's strategy was to provide a wide variety of home healthcare
services. In 1989, the current chief executive officer and several other senior
officers were recruited to restructure Curaflex. During its first year, the new
management team implemented a comprehensive program to achieve profitability and
long-term growth by shifting Curaflex's business from general home healthcare to
home infusion therapy. As a result, during 1990, Curaflex sold its home nursing,
DME and respiratory therapy businesses.
To build its home infusion business, Curaflex retained much of the existing
administrative and facilities infrastructure that had been used in its original
business, including seven regional centers and satellite facilities. The plan to
achieve long-term growth was to achieve market penetration by opening additional
centers, and by making selected acquisitions. During 1990 and 1991, Curaflex
opened several new centers. During 1992 and 1993, while continuing to open
additional centers, Curaflex also completed the acquisition of regional infusion
therapy providers in Kansas City, Missouri, Omaha, Nebraska, Ontario,
California, Dallas, Texas, Salt Lake City, Utah, Tampa, Florida and Charlotte,
North Carolina. Using the original centers as a base, Curaflex had expanded to
31 regional centers, six satellite facilities and seven disease-specific
outpatient centers by year-end 1993.
In March 1993, Curaflex acquired by merger Clinical Homecare, Ltd., a
national provider of infusion therapy. The transaction has been accounted for as
a pooling-of-interests and, accordingly, the historical results of Curaflex have
been restated.
While revenue growth is impacted by serving an ever expanding patient base,
it is also affected by the class of third party payors reimbursing for services
provided by Curaflex. Pharmaceutical services rendered to patients by Curaflex
have historically been billed to third party payors, including Medicare and
Medicaid, at list prices. Curaflex bills accordingly, and records contractual
adjustments against these billings in order to reflect revenue at the
anticipated level of reimbursement from these payors. More recently, the trend
has been for third party payors to negotiate prices for Curaflex services and to
sign contracts at the negotiated price.
During 1993, the home infusion industry experienced severe reductions in
the pricing of its products and services. This occurred primarily due to the
government's proposals to dramatically reform the health care delivery system in
the United States, and the resulting drive by third party payors to further
reduce the cost of services provided by companies such as Curaflex. During this
period of change, the payors had not established consistent policies with
respect to processing and reimbursement of home infusion therapy claims. This
resulted in substantial variations in payment patterns on which estimates of
collectibility were based, including retroactive implementation of case managed
discounts.
However, recently, as third party payors have gained more experience with
home infusion therapy claims, they have begun to cooperate more closely with
providers such as Curaflex, and their reimbursement procedures have become more
consistent and predictable, thus providing more reliable information with
respect to anticipated collections.
Curaflex has employed specific procedures to estimate allowances, both at
interim periods and year end, and has consistently based its estimates on the
best information available at the time. During the fourth quarter of 1993,
Curaflex reevaluated its accounts receivable and accordingly increased its
estimate of contractual allowances by $7.3 million as a result of recent
experience with more consistent and predictable payment patterns and
contractually negotiated prices, thus allowing for more refined estimates of the
actual collectibility. There can be no assurance that the reimbursement patterns
will not continue to change. However, as more and more of Curaflex's patients
are treated in accordance with negotiated contracts, which establish rates in
advance, reimbursement patterns should become more stable and predictable.
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<PAGE> 160
RESULTS OF OPERATIONS
Curaflex's acquisition of CHL has been accounted for as a
pooling-of-interests and, accordingly, the comparative period results have been
restated to include the accounts and results of CHL operations. The following
table sets forth for the periods indicated certain consolidated statement of
operations data as expressed as a percentage of net revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- -------------------
1991 1992 1993 1993 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PERCENTAGE OF NET REVENUE:
Net revenue...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue.................................. 47.2 49.4 59.5 54.1 63.2
------- ------- ------- ------- -------
Gross margin..................................... 52.8 50.6 40.5 45.9 36.8
Selling, general and administrative expense...... 42.2 40.9 38.5 34.3 35.8
Provision for estimated uncollectible accounts
receivable..................................... 6.0 7.6 6.2 5.7 5.5
Restructuring and merger expenses................ -- 3.2 4.4 19.0 --
------- ------- ------- ------- -------
Operating income (loss).......................... 4.6 (1.0) (8.6) (13.1) (4.5)
Interest income.................................. 0.4 1.7 0.6 1.5 0.3
Interest expense................................. (1.6) (1.0) (1.2) (0.9) (2.3)
Minority interest in net income of consolidated
joint ventures................................. (0.2) 1.0 (1.1) (1.0) (0.4)
Equity in net income of unconsolidated joint
ventures....................................... 0.6 0.2 0.4 (0.4) .5
Other income..................................... 0.5 0.4 0.3 0.4 --
------- ------- ------- ------- -------
Income (loss) from continuing operations before
income taxes................................... 4.3 (0.7) (9.6) (13.5) (6.4)
Income taxes (benefit)........................... 1.8 0.5 (0.1) (4.3) --
------- ------- ------- ------- -------
Income (loss) before extraordinary items......... 2.5 (1.2) (9.5) (9.2) (6.4)
Extraordinary items.............................. 0.7 -- -- -- --
Cumulative effect of accounting change for income
taxes.......................................... -- -- (0.2) (0.9) --
------- ------- ------- ------- -------
Net income (loss)................................ 3.2% (1.2)% (9.7)% (10.1)% (6.4)%
======== ======== ======== ======== ========
</TABLE>
Comparison of Three Months Ended March 31, 1994 and Three Months Ended March
31, 1993
Revenues for the three months ended March 31, 1994 increased by 21% over
the same period for the prior year. This revenue growth is due primarily to an
increasing patient base, augmented by the acquisitions made after March 31,
1993.
Cost of revenue as a percent of net revenues increased to 63.2% in the
first quarter 1994 compared to 54.1% during the same period in 1993. This
increase is due primarily to the continuing industry shift toward a managed care
environment, resulting in lower net revenues from discounts offered to certain
third party payors.
Selling, general and administrative expenses increased as a percent of net
revenue to 35.8% for the first quarter 1994 compared to 34.3% for the same
period of 1993. This increase was partially attributable to an increase in
goodwill amortization from 1993 acquisitions and an increase in marketing
expenses relating to managed care.
During the first quarter of 1993, the Company recorded a restructuring
charge of $1.6 million and merger expenses of $2.3 million, both in connection
with the merger of Curaflex and Clinical Homecare. There were no comparable
charges in the first quarter of 1994.
Interest income decreased $230 thousand to $77 thousand, primarily due to
the use of funds to finance 1993 acquisitions.
Interest expense increased $380 thousand during the three months ended
March 31, 1994 to $565 thousand, primarily due to increased borrowings under the
revolving line of credit used to finance a portion of the 1993 acquisitions and
general working capital requirements.
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<PAGE> 161
The Company recorded a tax benefit of $871 thousand in the first quarter of
1993. It appears more likely than not that an additional tax benefit during 1994
would not be utilizable by the Company, and accordingly no additional benefit
was recorded in the first quarter of 1994.
Comparison of Year Ended December 31, 1993 and Year Ended December 31, 1992
Net revenue increased 18.7% to $89.2 million for the year ended December
31, 1993, compared to $75.1 million for the same period in 1992. This revenue
growth is attributable to the increase in infusion therapies and related
services provided to a growing patient base, as well as to the purchase of
ContinueCare Health Systems, Inc., Comprehensive Pharmacy Home I.V. Services,
Inc., Home Solution, Inc., and Excellence, Inc. in 1993. The increases are
partially offset by a charge of $7.3 million for estimated contractual
allowances recorded in the fourth quarter of 1993.
Cost of revenue as a percent of net revenues increased to 59.5% in 1993
compared to 49.4% in 1992. This increase is due primarily to the pronounced
industry shift toward a managed care environment, resulting in lower net
revenues from discounts offered to certain third party payors.
Selling, general and administrative expenses decreased as a percent of net
revenue to 38.5% in 1993 compared to 40.9% in 1992. This decline is primarily
due to economies of scale and Curaflex's ability to consolidate operations.
In 1993, Curaflex recorded a restructuring charge of $1.6 million for costs
associated with the consolidation resulting from the merger with Clinical
Homecare. The Company closed four centers in cities in which Curaflex and
Clinical Homecare both had operations, thus eliminating duplicate overhead. The
charge includes $910 thousand related to severance costs, relocation and
retention bonuses during the transition, $540 thousand for the remaining
contractual commitments under leases for facilities closed, and $150 thousand
related to the write-off of leasehold improvements at closed facilities. The
Company completed the restructuring in 1993, and believes these actions will
result in annual savings of approximately $1.5 million.
Curaflex also recorded merger expenses of $2.3 million in 1993 for expenses
incurred to effect the merger with Clinical Homecare.
Interest income decreased 56.2% in 1993, to $549 thousand from $1.3 million
in 1992. This decrease was the result of using invested funds in the
acquisitions made during the year.
Interest expense increased 56.6% in 1993, to $1.1 million from $705
thousand in 1992, primarily as a result of increasing borrowing of the revolving
line of credit to finance a portion of the acquisitions.
Minority interest in net income of consolidated joint ventures increased
26.3% in 1993 to $1.0 million from $807 thousand in 1992. Equity in net income
of unconsolidated joint ventures increased 121.5% to $361 thousand in 1993, from
$163 thousand in 1992. These increases are due primarily to the improved
operating performance of the joint ventures.
Comparison of Year Ended December 31, 1992 and Year Ended December 31,
1991
Net revenue increased 25.0% to $75.1 million in 1992 from $60.1 million in
1991, an increase of $15.0 million. This increase in net revenue is attributable
primarily to volume increases in infusion therapy and related services provided
to a growing patient base, as well as Curaflex's acquisition of Total Home Care
and Home Health Depot during 1992. To a lesser extent, the net revenue increase
was attributable to the opening of new centers.
Cost of revenue as a percentage of net revenue increased to 49.4% in 1992
from 47.2% in 1991 primarily due to the beginning of an industry shift toward a
managed care environment, resulting in lower net revenues from discounts offered
to certain third party payors.
Selling, general and administrative expense decreased as a percentage of
net revenue to 40.9% in 1992 from 42.2% in 1991. Efficiencies resulting from
increases in business volume more than offset the impact of inflation on
salaries and overhead.
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<PAGE> 162
Curaflex records a provision for estimated uncollectible accounts
receivable. The provision is adjusted periodically based upon the Company's
evaluation of historical collection experience and trends. This provision
relating to Clinical Homecare accounts receivable was adjusted in the fourth
quarter of 1992 due to changing reimbursement patterns experienced in 1992. This
adjustment resulted in an increase in the provision as a percentage of net
revenue to 7.6% in 1992 from 6.0% in 1991.
The restructuring charge represents a pre-tax charge recorded in 1992
related to the consolidation of certain pharmacy operations into larger regional
centers in several of Curaflex's markets. The charge includes $60 thousand
related to the severance and relocation costs, $1.5 million for the future
remaining contractual commitments under leases for facilities closed, and $786
thousand related to the write-off of leasehold improvements at closed
facilities.
Curaflex had interest income of $1.3 million in 1992, as compared to $231
thousand in 1991. This change resulted primarily from investing the proceeds of
Curaflex's March 1992 initial public offering in investment grade securities.
Interest expense for 1992 declined 28.7% to $705 thousand from $989 thousand in
1991 due primarily to the retirement of bank debt, offset, in part, by increased
interest expense due to the Total Home Care and Home Health Depot acquisitions.
Curaflex recorded income taxes in 1992 of $339 thousand relating to
Clinical Homecare operations. Income taxes for 1991 of $1.1 million represent an
effective income tax rate of 41.9% before utilization of net operating loss
carryforwards.
The extraordinary item in 1991 of $457 thousand resulted from the tax
benefit of certain net operating loss carryforwards. No such item was recognized
in 1992.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1993, Curaflex had net borrowings against its bank line
of credit of $16.1 million. Of that amount, $3.8 million was assumed in the
March 5, 1993 merger with CHL. On November 22, 1993, Curaflex amended its credit
agreement to increase its credit facility from $15 million to $25 million in the
form of a three-year revolving credit agreement which is secured by the accounts
receivable and the general assets of Curaflex. The credit agreement provides
covenants that Curaflex will maintain certain financial ratios and net worth. At
December 31, 1993, Curaflex was in violation of certain of those covenants;
however, the participating financial institutions have granted Curaflex a waiver
of these covenants for the period ended December 31, 1993, and have amended the
credit agreement with regard to certain of the covenants. See note 6 to
Curaflex's Consolidated Financial Statements appearing elsewhere in this joint
Proxy Statement/Prospectus. Curaflex's cash and equivalent and investment
balances at December 31, 1993 total $3.9 million. Curaflex believes it has
sufficient liquidity and capital resources to meet its needs for the foreseeable
future. However, the substantial working capital required to fund Curaflex's
accounts receivable, together with acquisitions, may require Curaflex to obtain
additional external financing to meet its needs. There is no assurance that such
financing will be available, or be available on terms acceptable to Curaflex.
As of March 31, 1994, Curaflex had net borrowings against its bank line of
credit of $20.6 million. The Company has a three-year $25 million revolving line
of credit which is secured by the accounts receivable and the general assets of
Curaflex. The Company's bank line contains certain financial covenants. The
failure of the Company to comply with these covenants gives the bank the right
to declare the amount outstanding under the line immediately due and payable
upon notice. The Company was not in compliance with these covenants for the year
ended December 31, 1993, but was able to obtain a waiver of the financial
covenants from the bank through December 31, 1993, and amended the credit
agreement with regard to certain of these covenants. The Company, as of March
31, 1994, is not in compliance with the amended financial covenants. The bank
has refused to grant the Company a waiver of these covenants, but instead has
agreed to forbear from declaring the Company in default until the earlier of the
completion of the Merger or June 30, 1994. There can be no assurances that
further forbearance will be given if the Company continues to be in
noncompliance with financial covenants under its bank line after June 30, 1994.
Because of the failure to comply with the covenants, the Company has classified
the debt as current in its financial statements as of March 31, 1994.
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<PAGE> 163
In the event the Merger is not consummated by June 30, 1994 and the bank
declines to give further forbearance, the Company would be forced to attempt to
renegotiate its current credit agreement. If such attempt to renegotiate the
credit agreement fails and the bank declares the Company to be in default, the
Company would need to obtain a substitute line of credit or other additional
external financing to pay off its existing credit line and to meet the Company's
working capital needs going forward. The Company's failure to obtain such a
substitute line of credit or external financing in that event would have a
material adverse effect on the Company's operations and its working capital
position. No assurance can be given that the Company would be able to obtain
such financing or that, if obtained, such financing would be on terms favorable
to the Company.
For the three months ended March 31, 1994, Curaflex's operating activities
produced a negative cash flow of $2.8 million which was mainly attributable to
the increase in accounts receivable and the decrease in accounts payable.
Capital expenditures of $1.1 million were the primary cause for investing
activities using cash of $1.9 million during the first quarter of 1994.
Additional borrowings against the revolving line of credit of $4.5 million,
offset by repayments of other debt provided $3.7 million from financing
activities during the first quarter of 1994.
For the year ended December 31, 1993, Curaflex's operating activities
produced a negative cash flow of $4.0 million, mainly attributable to the
increase in accounts receivable and other assets. Net proceeds from the sale of
investments of $13.5 million offset by capital expenditures of $6.3 million and
business acquisitions of $12.2 million combined for $6.1 million cash used by
investing activities. Bank borrowings of $19.1 million offset by the repayment
of notes payable and obligations provided $12.4 million from financing
activities.
For the year ended December 31, 1992, Curaflex's operating activities
produced a negative cash flow of $8.6 million, principally due to the increase
in accounts receivable of $10.7 million. Net purchases of investments of $13.8
million plus capital expenditures of $3.4 million and acquisition of businesses
of $11.3 million combined for $28.1 million of cash used by investing
activities. Proceeds from Curaflex's 1992 initial public offering of $40.7
million offset by repayment of debt provided $34.9 million of cash from
financing activities.
For the year ended December 31, 1991, Curaflex's operating activities
produced negative cash flow of $12.0 million principally due to the increase in
accounts receivable. Proceeds from the private sale of common and preferred
stock of $6.5 million combined with net bank borrowings of $7.0 provided $13.7
million of cash from financing activities.
Accounts receivable can be outstanding for extended periods of time in the
home infusion therapy industry because of requirements to provide payors with
detailed documentation to support reimbursement claims, and the time required by
most payors to process claims. Certain accounts receivable frequently are
outstanding for more than 90 days, particularly where the claim relates to
services for a patient (1) receiving a new infusion therapy requiring additional
medical review or (2) covered by Medicare or Medicaid. Approximately 19% of net
revenue in the year ended December 31, 1992 was attributable to patients covered
by Medicare or Medicaid. For the year ended December 31, 1993, net revenue
attributable to patients covered by Medicare or Medicaid had increased to 21%.
To date, capital expenditures have been primarily related to capital
equipment and leasehold improvements associated with addition of regional
centers and satellite facilities, recent acquisitions and the expansion of
Curaflex's corporate office. Although Curaflex does not have pending any
material commitments regarding capital expenditures, Curaflex anticipates making
additional capital expenditures in connection with the development of improved
management reporting systems.
FUTURE HEALTH CARE PROPOSALS AND LEGISLATION
The current Presidential administration has the stated goal of improving
the national health care system. Its proposals include steps to contain health
care costs and cutback the Medicare and Medicaid programs. It is uncertain what
legislation, if any, will be approved, and whether any such proposals will be
implemented or what effect they would have on Curaflex. There can be no
assurance that any such proposals or other changes in the health care system
will not have an adverse effect on Curaflex.
144
<PAGE> 164
HEALTHINFUSION SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of December 31,
1989, 1990, 1991, 1992 and 1993 and for the years ended December 31, 1989, 1990,
1991, 1992 and 1993 are derived from the audited Consolidated Financial
Statements of HealthInfusion and should be read in conjunction with such
Consolidated Financial Statements and related notes as of December 31, 1992 and
1993 and for the years ended December 31, 1991, 1992 and 1993 and
"HealthInfusion Management's Discussion and Analysis of Financial Condition and
Results of Operations," included elsewhere in this Joint Proxy
Statement/Prospectus. Such Consolidated Financial Statements were audited by
Arthur Andersen & Co., independent certified public accountants, as indicated in
their reports included elsewhere in this Joint Proxy Statement/Prospectus.
The consolidated selected financial data as of and for the three months
ended March 31, 1993 and 1994 are derived from the unaudited Consolidated
Financial Statements of HealthInfusion and should be read in connection with
such unaudited Consolidated Financial Statements and related notes and
"HealthInfusion Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Joint Proxy
Statement/Prospectus. In the opinion of HealthInfusion's management, the
unaudited Consolidated Financial Statements include all adjustments (consisting
of only normal recurring adjustments) necessary for a fair presentation of the
information set forth therein. The results of operations for the three months
ended March 31, 1994 are not necessarily indicative of the results that may be
expected for the full year.
In March 1991, HealthInfusion acquired HealthCare Affiliates, Inc. ("HCA"),
a Texas corporation. In March 1992, HealthInfusion acquired Homedic Lifeline,
Inc., a New Jersey corporation ("Homedic"), Housecalls Home I.V. Therapy, Ltd.
and Southwest Specialty Compounding, Inc., Arizona corporations (collectively
"Housecalls"), and Healthcare Solutions, Inc., a California corporation
("Healthcare Solutions"). In June 1992, HealthInfusion purchased the remaining
50% interest in Preferred HealthInfusion Therapy, Ltd., a Florida limited
partnership ("Preferred HealthInfusion"). In January 1993, HealthInfusion
acquired Vital Choice, Inc., an Oregon corporation ("Vital Choice"). In
September 1993, HealthInfusion acquired Health Quest Infusion Therapies
Corporation, an Indiana corporation, HealthQuest Infusion Therapy Services
Corporation, an Indiana corporation, HealthQuest Infusion Therapy Services
Corporation II, an Indiana corporation, and HQIT Corporation II, an Indiana
corporation (collectively "Health Quest"). Also in September 1993,
HealthInfusion acquired 60% of the outstanding stock of Dickson Research Group,
Inc., a Pennsylvania corporation ("Dickson Research"). In October 1993,
HealthInfusion acquired 100% of the outstanding stock of Dialysis On Call, Inc.,
a Florida corporation. See "Business of HealthInfusion -- Background and Recent
Developments" and Note 3 to HealthInfusion's Consolidated Financial Statements.
145
<PAGE> 165
All share data has been restated for the 50% stock dividend (treated as a
stock split) paid to the shareholders of record of HealthInfusion on November
29, 1991.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1989 1990 1991 1992 1993 1993 1994
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS OF DOLLARS, EXCEPT FOR PER SHARE (UNAUDITED)
DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................................. $ 5,807 $10,500 $29,248 $49,749 $56,682 $12,979 $16,374
Cost of revenues......................... 2,320 4,783 16,240 29,323 36,666 8,303 10,961
------- ------- ------- ------- ------- ------- -------
Operating profit......................... 3,487 5,717 13,008 20,426 20,016 4,676 5,413
------- ------- ------- ------- ------- ------- -------
Expenses
Selling, general and administrative.... 493 1,854 4,883 6,806 9,613 1,689 2,674
Provision for bad debts................ 238 276 549 1,206 5,659 398 505
Related party management fees.......... 96 40 -- -- -- -- --
Amortization of excess of cost over
fair value of net assets acquired.... -- -- 296 758 1,052 234 301
------- ------- ------- ------- ------- ------- -------
Total expenses.................. 827 2,170 5,728 8,770 16,324 2,321 3,480
------- ------- ------- ------- ------- ------- -------
Income from operations................... 2,660 3,547 7,280 11,656 3,692 2,355 1,933
------- ------- ------- ------- ------- ------- -------
Other income (expense):
Interest income........................ 23 248 338 88 15 5 18
Interest expense....................... (18) (87) (609) (858) (1,046) (241) (361)
Other income (expense), net............ -- -- -- -- -- -- (20)
Business combination cost.............. -- (75) -- (9) -- -- --
------- ------- ------- ------- ------- ------- -------
Total other income (expense).... 5 86 (271) (779) (1,031) (236) (363)
------- ------- ------- ------- ------- ------- -------
Income before income taxes and minority
interest............................... 2,665 3,633 7,009 10,877 2,661 2,119 1,570
Provision for income taxes or pro forma
adjustment to reflect income taxes(1).. 1,016 1,356 2,696 4,287 1,387 861 764
------- ------- ------- ------- ------- ------- -------
Income before minority interest.......... 1,649 2,277 4,313 6,590 1,274 1,258 806
Minority interest........................ 8 (103) (72) (268) (154) (11) 156
------- ------- ------- ------- ------- ------- -------
Net income............................... $ 1,657 $ 2,174 $ 4,241 $ 6,322 $ 1,120 $ 1,247 $ 962
======== ======== ======== ======== ======== ======== ========
Net income per common share:
Primary................................ $.33 $.38 $.54 $.67 $.12 $ .13 $ .10
Fully diluted.......................... $.33 $.38 $.51 $.65 $.12 $ .13 $ .10
Weighted average common shares
outstanding:
Primary................................ 5,073 5,774 7,884 9,423 9,719 9,693 10,036
Fully diluted.......................... 5,073 5,774 8,666 10,380 9,719 10,650 10,036
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------- -----------
1989 1990 1991 1992 1993 1994
------- ------- ------- ------- ------- -----------
(IN THOUSANDS OF DOLLARS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets........................ $ 2,104 $ 9,376 $21,093 $26,165 $30,473 $34,319
Total assets.......................... 2,582 10,943 41,477 65,813 81,331 85,819
Current liabilities................... 2,554 2,066 3,179 10,197 17,016 20,375
Long-term debt, net of current
portion............................. 56 459 7,112 7,022 8,505 8,806
Total stockholders' equity
(deficit)........................... (120) 8,204 30,755 48,004 54,817 55,864
</TABLE>
- ---------------
(1) HealthInfusion acquired Intracare, Inc. in May 1990. Prior to such
acquisition, Intracare, Inc. was an S Corporation for income tax reporting
purposes. Accordingly, taxable income was taxed directly to its
shareholders. A pro forma adjustment to reflect income taxes at an estimated
rate of 38% has been provided for periods presented prior to such
acquisition.
See "Business of HealthInfusion -- Background and Recent Developments" and
the accompanying HealthInfusion financial statements for a discussion of
business combinations.
146
<PAGE> 166
HEALTHINFUSION MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
On May 31, 1990, HealthInfusion acquired all of the operations and assets
of Intracare, Inc. ("Intracare") and five of Intracare's joint venture partners
in exchange for $1,218,000 in cash and 4,800,000 shares of common stock (the
"Business Combination"). See "Business of HealthInfusion -- Background and
Recent Developments." In accordance with generally accepted accounting
principles, assets and liabilities transferred between entities under common
control are to be accounted for at historical cost, in a manner similar to that
in a pooling of interests accounting, as if such entities had been combined
since inception. Accordingly, the historical amounts of assets, liabilities and
stockholders' equity or partners' capital of each of the entities included in
the business combination are combined and no goodwill was recorded as a result
of the Business Combination.
Prior to May 31, 1990, Intracare was an S corporation for income tax
reporting purposes and the joint ventures whose interests were acquired were
partnerships; accordingly, their taxable income was taxed directly to the
shareholders or partners. A pro forma adjustment to reflect income taxes at an
estimated rate of 38% has been provided for periods presented prior to May 31,
1990, as if all operations were taxable as one corporation.
Management anticipates that HealthInfusion's revenues and earnings will
increase in 1994 primarily as a result of HealthInfusion's recent acquisitions
(see "Business of HealthInfusion -- Recent Developments") and the continued
growth of HealthInfusion's existing business operations and the continued
development of other complimentary operations such as hospice, dialysis, case
management and contract research services. However, management also anticipates
that net income as a percentage of revenues will continue to decrease as the
result of (i) the integration of acquired businesses, (ii) increased marketing
and business development activities, (iii) the increase in the percentage of
business from managed care contracts, and (iv) the increase in corporate and
field infrastructure necessary to properly manage the increased size of
HealthInfusion. Amortization of purchase price in excess of assets acquired is
also expected to increase due to HealthInfusion's recent acquisitions.
The following table sets forth, for the periods indicated, certain
information relating to HealthInfusion's operations expressed as a percentage of
HealthInfusion's revenues:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ---------------
1991 1992 1993 1993 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................... 55.5 58.9 64.7 64.0 66.9
Operating profit........................... 44.5 41.1 35.3 36.0 33.1
Selling, general and administrative
expenses................................. 16.7 13.7 17.0 13.0 16.3
Provision for bad debts.................... 1.9 2.4 10.0 3.1 3.1
Income from operations..................... 24.9 23.4 6.5 18.1 11.8
Net income................................. 14.5 12.7 2.0 9.6 5.9
</TABLE>
RESULTS OF OPERATIONS
Comparison of three months ended March 31, 1993 and three months ended March
31, 1994.
Revenues increased $3.4 million or 26.2% to $16.4 million for the three
months ended March 31, 1994 compared to $13.0 million for the same period in
1993 primarily as a result of the purchase of Vital Choice, Inc. ("Vital"),
Health Quest Infusion Therapies Corporation, Health Quest Infusion Therapy
Services Corporation, Health Quest Infusion Therapy Services Corporation II, and
HQIT Corporation II (collectively "Health Quest"), Dickson Research Group, Inc.
("Dickson Research"), and Dialysis On Call, Inc.
147
<PAGE> 167
("Dialysis On Call") on January 25, September 8, September 29, and October 1,
1993, respectively, and to a lesser extent, an increase in the number of
patients served by existing facilities.
Cost of revenues as a percentage of revenues increased to 66.9% in 1994
compared to 64.0% in 1993. This increase is primarily due to price competition,
increased nursing expenses required to service managed care contracts and
increased personnel, rent and depreciation expense at the branch facilities
required to support HealthInfusion's internal growth and the acquisitions of
Vital, Health Quest, Dickson Research and Dialysis On Call.
Selling, general and administrative expenses as a percentage of revenues
increased to approximately 16.3% in 1994 compared to approximately 13.0% in
1993. Operating expenses increased as HealthInfusion continued to build its
corporate and field infrastructure to better manage and support the Company's
continued internal growth and to support the acquisitions of Vital, Health
Quest, Dickson Research and Dialysis On Call and the opening of the First Circle
division. Specifically, during the second half of 1993, HealthInfusion expanded
corporate headquarters, added additional payroll and accounts payable employees
and MIS personnel to support the implementation of a new fully integrated
software system. HealthInfusion also added the position of a Chief Operating
Officer and a Vice President of Receivables to facilitate current and future
growth strategies. During the first quarter of 1994, HealthInfusion added
additional accounts receivable personnel at corporate to handle collections for
all accounts receivable with a balance outstanding in excess of 90 days.
HealthInfusion's policy is to record revenues net of contractual allowances
which represents the difference between gross charges and amounts estimated to
be received from third-party payors, including Medicare and private insurance
carriers. HealthInfusion has consistently maintained specific controls and
procedures designed to estimate contractual allowances, including controls at
interim periods. HealthInfusion also records a provision for bad debts to
provide for that portion of net revenues which it estimates will not be
collectable. The provision for bad debts was $505,274 for the three months ended
March 31, 1994 compared to $398,171 for the three months ended March 31, 1993.
The provision is adjusted based upon an evaluation of historical collection
experience and industry trends.
Amortization of the excess of cost over fair value of net assets acquired
increased in 1994 due primarily to the acquisitions of Vital, Health Quest,
Dickson Research and Dialysis On Call. Interest expense increased in 1994
primarily due to increased borrowings which were used for the acquisitions of
Vital, Health Quest, Dickson Research and Dialysis On Call in January 1993,
September 1993, September 1993 and October 1993, respectively.
HealthInfusion's effective combined Federal and state income tax rate was
48.6% in 1994 compared to 40.6% in 1993. The 1994 rate was higher primarily as a
result of the increased amortization of the excess of cost over fair value of
net assets acquired.
The weighted average common shares outstanding on a primary basis increased
to 10,035,684 during 1994 compared to 9,693,148 during 1993, primarily due to
the acquisitions of Vital, Health Quest and Dialysis On Call. The weighted
average common shares outstanding on a fully diluted basis were 10,035,684
during 1994 compared to 10,650,086 during 1993 primarily due to the 956,936
shares subject to the convertible debentures issued by the Company in connection
with its acquisition of HCA not being dilutive during 1994.
Comparison of year ended December 31, 1992 and year ended December 31, 1993.
Revenues increased $7.0 million or 13.9% to $56.7 million in 1993 from
$49.7 million in 1992 primarily as a result of the purchases of Homedic,
Healthcare Solutions and Housecalls on March 4, March 25 and March 26, 1992,
respectively, and Vital Choice, Health Quest, Dickson Research Group and
Dialysis On Call on January 25, September 8, September 29 and October 1, 1993,
respectively, and to a lesser extent an increase in the number of patients
served by existing facilities. See "Business -- Background and Recent
Developments."
Cost of revenues as a percentage of revenues increased to 64.7% in 1993
compared to 58.9% in 1992. Those increases are primarily due to price
competition, increased nursing expenses required to service managed care
contracts, and increased personnel, rent and depreciation expenses at the branch
facilities
148
<PAGE> 168
required to support HealthInfusion's internal growth and the acquisitions of
Homedic, Healthcare Solutions, Housecalls, Vital Choice and Health Quest.
Selling, general and administrative expenses as a percentage of revenues
was 17.0% in 1993 compared to 13.7% in 1992. Operating expenses increased during
this period as HealthInfusion built its corporate and field infrastructure to
better manage and support the company's continued internal growth and to support
the acquisitions of Homedic, Healthcare Solutions, Housecalls, Vital Choice,
Health Quest, Dickson Research and Dialysis On Call and the opening of the First
Circle division. Specifically, to support this growth, during 1993,
HealthInfusion expanded corporate headquarters, added additional payroll and
accounts payable employees and MIS personnel to support the implementation of a
new fully integrated software system. HealthInfusion also added the positions of
a Chief Operating Officer and Vice President of Receivables to facilitate
current and future growth strategies. In addition, during the second half of
1993, management adopted a plan to reorganize and diversify HealthInfusion into
other complementary outpatient care businesses. In connection with this effort,
HealthInfusion incurred significant expenses to develop new or enhance existing
businesses in the following areas: hospice, dialysis, contract research, disease
specific centers and specialized infusion therapy programs aimed at hospitals.
HealthInfusion's policy is to record revenues net of contractual allowances
which represents the difference between gross charges and amounts estimated to
be received from third-party payors, including Medicare and private insurance
carriers. HealthInfusion has consistently maintained specific controls and
procedures designed to estimate contractual allowances, including controls at
interim periods. HealthInfusion also records a provision for bad debts to
provide for that portion of net revenues which it estimates will not be
collectable. The provision for bad debts was $5.6 million for the year ended
December 31, 1993 compared to $1.2 million for the year December 31, 1992. The
provision is adjusted based upon an evaluation of historical collection
experience and industry trends. Home infusion therapy is a relatively new area
of healthcare. Accordingly, significant changes in reimbursement patterns have
been experienced and have accelerated with the maturity of both the providers
and payors particularly during 1993. The increase in the provision for bad debts
is a direct result of this changing reimbursement environment and the Company's
access to better information regarding actual discounts and contractual
allowances expected to be realized.
Amortization of the excess of cost over fair market value of net assets
acquired increased in 1993 due primarily to the acquisitions of Homedic,
Healthcare Solutions, Housecalls, Preferred HealthInfusion, Vital Choice, Health
Quest, Dickson Research and Dialysis On Call. Interest expense increased in 1993
primarily due to increased borrowings which were used for the acquisitions of
Homedic, Healthcare Solutions and Housecalls in March 1992, Preferred
HealthInfusion in June 1992, Vital Choice in January 1993, Health Quest and
Dickson Research Group in September 1993 and Dialysis On Call in October 1993.
HealthInfusion's effective combined Federal and state income tax rate was
52.1% in 1993 compared to 39.4% in 1992. The 1993 rate was higher primarily as a
result of the increased amortization of the excess of cost over fair value of
net assets acquired.
The weighted average common shares outstanding on a primary basis increased
to 9,718,644 during 1993 compared to 9,422,893 during 1992, primarily due to the
acquisitions of Vital Choice, Health Quest, Dickson Research Group and Dialysis
On Call. The weighted average common shares outstanding on a fully diluted basis
were 9,718,644 during 1993 compared to 10,379,831 during 1992 primarily due to
the fact that the 956,938 shares subject to the convertible debentures issued by
the Company in connection with its acquisition of HCA were not dilutive during
1993. See "Business -- Background and Recent Developments."
Comparison of Year Ended December 31, 1991 and Year Ended December 31, 1992.
Revenues increased 70% to $49.7 million in 1992 from $29.2 million in 1991,
a $20.5 million increase. Approximately $12.4 million of the increase was
attributable to HealthInfusion's purchase of Homedic, Healthcare Solutions and
Housecalls. See "Business of HealthInfusion -- Background and Recent
Developments." An increase in the number of patients served by existing
facilities also contributed significantly to the growth in revenues. To a lesser
extent, the revenue increase was attributable to other acquisitions and to price
increases.
149
<PAGE> 169
Cost of revenues as a percentage of revenues was 58.9% in 1992 compared to
55.5% in 1991, primarily due to increased personnel, rent and depreciation
expense required to support HealthInfusion's growth. To a lesser extent, the
increase in cost of revenues as a percentage of revenues resulted from HCA's and
Homedic's use of employee nurses, compared to HealthInfusion's greater reliance
on independent nursing agencies to provide patient care. Selling, general and
administrative expenses as a percentage of revenues was 13.7% in 1992 compared
to 16.7% in 1991 primarily due to economies of scale realized from the increase
in HealthInfusion revenues. Amortization of the excess of cost over fair market
value of net assets acquired increased in 1992 due primarily to the acquisitions
of Homedic, Healthcare Solutions and Housecalls. Interest expense increased in
1992 primarily due to increased borrowings which were used for the acquisitions
of Homedic, Healthcare Solutions and Housecalls in March 1992 and Preferred
HealthInfusion in June 1992.
HealthInfusion's effective combined Federal and state income tax rate was
39.4% in 1992 compared to 38.5% in 1991. The 1992 rate was higher primarily as a
result of the amortization of the excess of cost over fair value of net assets
acquired.
The weighted average common shares outstanding on a fully diluted basis
increased to 10,379,831 during 1992 compared to 8,666,278 during 1991, due
primarily to HealthInfusion's June 1991 public offering of 1,878,357 shares, the
issuance of 337,269 shares in connection with the acquisitions of Healthcare
Solutions and Housecalls during March 1992 and the 956,938 shares subject to the
convertible debentures issued by HealthInfusion in connection with its
acquisition of HCA. See "Business of HealthInfusion -- Background and Recent
Developments."
QUARTERLY RESULTS OF OPERATIONS
HealthInfusion's results of operations have fluctuated from quarter to
quarter in the past and HealthInfusion anticipates that such fluctuations will
continue in the future. These variations result from a number of factors,
including (i) the opening of new facilities, (ii) acquisitions, (iii) changes in
patient mix, payor mix and patient census, (iv) changing reimbursement patterns,
particularly during 1993, (v) to a lesser extent, seasonality and (vi) most
recently the costs associated with the development of new businesses. There can
be no assurance that revenue growth or profitability on a quarterly basis will
be sustained in the future.
The following table sets forth selected operating results for each of
HealthInfusion's specified fiscal quarters. The information for each of these
quarters is unaudited but includes all normal recurring adjustments and accruals
which HealthInfusion considers necessary for a fair presentation thereof.
However, these quarterly results are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
1992
-------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues............................................ $10,366 $13,533 $13,307 $12,543
Income from operations.............................. $ 2,197 $ 3,263 $ 3,097 $ 3,099
Net income.......................................... $ 1,188 $ 1,771 $ 1,632 $ 1,731
Net income per share (fully diluted)................ $ .13 $ .18 $ .17 $ .18
Weighted average common shares outstanding.......... 10,225 10,424 10,416 10,395
</TABLE>
<TABLE>
<CAPTION>
1993 1994
------------------------------------------- -------
FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues................................. $12,979 $14,346 $14,457 $14,900 $16,374
Income from operations................... $ 2,355 $ 2,668 $ 2,297 $(3,628) $ 1,933
Net income............................... $ 1,247 $ 1,442 $ 1,230 $(2,799) $ 962
Net income per share (fully diluted)..... $ .13 $ .15 $ .13 $ (.28) $ .10
Weighted average common shares
outstanding............................ 10,650 10,553 10,578 9,998 10,030
</TABLE>
150
<PAGE> 170
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $3.0 million during the three
months ended March 31, 1994 compared to cash provided by operating activities of
$1.4 million during the comparable period in 1993. The decrease in cash provided
by operations reflects increases in accounts receivable, inventories and other
current and long term assets related to the continued expansion of existing
facilities and the acquisitions of Vital Choice during January 1993, Health
Quest and Dickson Research Group in September 1993 and Dialysis On Call in
October 1993 and the opening of the First Circle division. The First Circle
division was created to coordinate total patient care for self-insured
employers, health maintenance organizations, commercial insurance companies and
hospitals. Specifically, a portion of the increase in accounts receivable (which
HealthInfusion expects to be temporary) is due to the transition of collections
for accounts receivable in excess of 90 days from the individual branch
locations to corporate.
During the three months ended March 31, 1994, HealthInfusion's net cash
used in investing activities was approximately $569 thousand. These investments
primarily related to cash used for capital expenditures and payments for
acquisitions. During the three months ended March 31, 1994, capital expenditures
of $510,401 primarily related to capital equipment and leasehold improvements
associated with the addition and expansion of regional centers. HealthInfusion
does not have pending any material commitments regarding capital expenditures.
Net cash provided by financing activities was approximately $3.8 million
during the three months ended March 31, 1994. These funds were provided from
HealthInfusion's revolving lines of credit described below and were used in
connection with the acquisitions and capital expenditures described above. At
March 31, 1994, HealthInfusion had outstanding bank borrowings under its
revolving credit facility of approximately $13.6 million. Available credit as of
such date was approximately $4.9 million.
Although management anticipates that income from operations will increase,
operating liquidity may decrease because HealthInfusion's expanded operations
will require increased investment in accounts receivable which may not be offset
by increases in accounts payable. Delays resulting from increased third-party
payor scrutiny of invoices, refusal to pay or an increased proportion of
Medicare and Medicaid patients could have a material adverse effect on
HealthInfusion's liquidity and general financial position.
Management believes that available cash, funds generated from operations
and funds available under its line of credit will be sufficient for
HealthInfusion to satisfy its capital requirements associated with future growth
and to finance working capital requirements for the foreseeable future.
Inflation has not significantly impacted HealthInfusion's financial
position or operations.
FUTURE HEALTH CARE PROPOSALS AND LEGISLATION
The current Presidential administration has the stated goal of improving
the national health care system. Its proposals include steps to contain health
care costs and cutback the Medicare and Medicaid programs. It is uncertain what
legislation, if any, will be approved, and whether any such proposals will be
implemented or what effect they would have on HealthInfusion. There can be no
assurance that any such proposals or other changes in the health care system
will not have an adverse effect on HealthInfusion.
151
<PAGE> 171
MEDISYS SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
The following selected consolidated financial data have been derived from
the financial statements of Medisys. The consolidated financial statements of
Medisys for the years ended December 31, 1991, 1992 and 1993 and as of December
31, 1992 and 1993 and the related report of Coopers & Lybrand are included
elsewhere in this Joint Proxy Statement/Prospectus. The selected consolidated
financial data set forth below for the years ended December 31, 1989 and 1990
and as of December 31, 1989, 1990 and 1991 are derived from audited financial
statements not included herein. The consolidated selected financial data as of
and for the three months ended March 31, 1993 and 1994 are derived from the
unaudited Consolidated Financial Statements of Medisys and its Subsidiaries and
should be read in conjunction with such unaudited Consolidated Financial
Statements and related notes thereto. In the opinion of Medisys' management, the
unaudited Consolidated Financial Statements include all adjustments (consisting
of only normal recurring adjustments) necessary for a fair presentation of the
information set forth therein. The results of operations for the three months
ended March 31, 1994 are not necessarily indicative of the results that may be
expected for the full year. The following data should be read in conjunction
with "Medisys Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements of Medisys
included elsewhere in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- -------------------
1989 1990 1991 1992 1993 1993 1994
------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA(1)
Net revenues.............................. $4,592 $7,483 $13,624 $23,662 $51,381 $12,170 $13,508
Income from operations.................... 1,041 1,217 1,817 1,364 3,075 997 695
Net income................................ 942 954 1,282 1,551 652 788 277
Net income per share:
Primary................................. $ .14 $ .13 $ .16 $ .15 $ .05 $ .06 $ .02
Fully diluted........................... $ .14 $ .13 $ .16 $ .15 $ .05 $ .06 $ .02
Weighted average number of shares
outstanding:
Primary................................. 6,556 7,205 8,102 10,506 12,403 12,231 12,487
Fully diluted........................... 6,556 7,205 8,174 10,575 13,129 13,108 12,777
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1989 1990 1991 1992 1993 MARCH 31, 1994
------ ------ ------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1)
Accounts receivable net..................... $1,843 $3,314 $ 6,469 $11,055 $14,537 $14,786
Working capital............................. 580 2,794 14,090 6,955 4,487 8,207
Total assets................................ 2,707 5,638 17,492 37,786 41,651 42,111
Total short and long-term debt.............. 893 1,266 488 8,907 9,562 6,258
Stockholders' equity........................ 1,025 3,439 14,724 24,727 26,941 30,903
</TABLE>
- ---------------
(1) The combined financial information includes results of operations from
acquisitions made by Medisys during the periods presented from the
accounting effective date of each such acquisition. See Note 2 to Medisys'
Consolidated Financial Statements appearing elsewhere in this Joint Proxy
Statement/Prospectus.
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<PAGE> 172
MEDISYS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Medisys commenced operations with its first regional center in the
Minneapolis-Saint Paul market in 1987. Medisys established additional regional
centers in Milwaukee, Wisconsin and St. Louis, Missouri in 1990, in Dallas,
Texas in 1991, and in Chico, California and Cincinnati, Ohio in 1992. Medisys
also added regional centers in Phoenix, Arizona, Chicago, Illinois and Stockton,
California through acquisitions in 1992. In July 1993, Medisys completed a
merger with American Home Therapies, Inc. ("AHT") with operations in St Louis,
Missouri and Kansas City, Kansas. Medisys intends to enter selected additional
metropolitan area markets by opening new regional centers and acquiring
established providers, and intends to expand operations in its existing regional
centers.
Medisys' revenues are derived from the provision of health care services
and products to patients in their homes, long-term care facilities and in
retirement communities. A majority of revenue is generated from the sale of
pharmaceuticals in connection with Medisys' healthcare services. Payments for
these services and products are received almost exclusively from third-party
payors, including health maintenance organizations and other managed care plans,
private insurance companies, governmental health care programs and contracted
institutions. The profitability of alternate site health care companies is
affected by the mix of third-party payors that provide reimbursement for the
services and products delivered. Government payors, such as Medicaid programs
and the federal Medicare program, tend to provide narrower coverage and lower
reimbursement rates than do private insurance companies. Certain managed care
providers are able to negotiate rates lower than those paid by other private
payors. In future years, the levels of profitability of health care companies,
including Medisys, could be adversely affected by continuing efforts of
governmental and private payors to reduce costs of health care by lowering
reimbursement rates, limiting the number of providers, increasing the review of
bills for services and negotiating for reduced contract rates.
The following table sets forth, for the periods indicated, certain line
items derived from Medisys' statements of operations expressed as a percentage
of net revenues, adjusted to eliminate merger related expenses and provide
income taxes on AHT's S corporation earnings. The acquisition of AHT was
accounted for as a pooling of interests; accordingly, the financial information
for Medisys for all years presented has been restated to include the results of
operations of AHT. This table and the subsequent discussion should be read in
conjunction with the Selected Historical Financial Data and the Consolidated
Financial Statements and Notes thereto included elsewhere in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -----------------
1991 1992 1993 1993 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Direct costs............................. 53.4 62.4 64.9 65.0 67.3
----- ----- ----- ----- -----
Gross profit................... 46.6 37.6 35.1 35.0 32.7
Selling, general and administrative
expenses............................... 33.3 31.8 29.1 26.9 27.5
----- ----- ----- ----- -----
Income from operations......... 13.3 5.8 6.0 8.1 5.2
----- ----- ----- ----- -----
Other income (expense)................... (0.4) 0.9 0.2 (0.0) (0.8)
----- ----- ----- ----- -----
Income before income taxes and
minority interest............ 12.9 6.7 6.2 8.1 4.4
Income tax provision..................... 4.5 2.7 2.8 3.8 2.3
----- ----- ----- ----- -----
Income before minority
interests.................... 8.4 4.0 3.4 4.3 2.1
Minority interests....................... (1.1) 0.2 0.2 0.0 0.0
----- ----- ----- ----- -----
Net income..................... 7.3% 4.2% 3.6% 4.3% 2.1%
===== ===== ===== ===== =====
</TABLE>
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<PAGE> 173
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
Net revenues for the first quarter of 1994 were $13,507,588, compared to
$12,170,423 for 1993, representing an increase of 11.0%. The revenue growth was
primarily the result of volume increases, rather than price increases. The
Company's comprehensive pharmacy services business represented approximately 36%
of net revenues for the first quarter of 1994 compared to 35.0% for 1993.
Direct costs of operations increased as a percentage of net revenues to
67.3% for the first quarter of 1994 from 65.0% for the first quarter of 1993 and
64.9% for the year 1993. The increase in the direct cost percentage was
primarily due to an increase in personnel costs as a percentage of net revenues,
although actual personnel costs for the first quarter of 1994 were comparable to
the fourth quarter of 1993.
Selling, general and administrative expenses increased as a percentage of
net revenues to 27.5% for the first quarter of 1994 from 26.9% for the first
quarter of 1993, but decreased from 29.1% for the year 1993.
Income from operations was $695,435, or 5.2% of net revenues for the first
quarter of 1994, compared to $997,349, or 8.1% of net revenues for the first
quarter of 1993 and 6.0% of net revenues for the year 1993. The decrease in 1994
compared to the year 1993 was primarily due to the increase in direct costs as a
percentage of net revenues in the first quarter of 1994.
Other income (expense) was ($104,198) for the first quarter of 1994
compared to ($3,145) for the first quarter of 1993. This change in other expense
was primarily due to an increase in interest expense on borrowings to finance
growth in accounts receivable and acquisition payments.
Prior to the merger in July of 1993, AHT was an S corporation and therefore
paid no income taxes. Accordingly, the actual income tax provision includes no
provision for income taxes on AHT's S corporation earnings. After pro forma
adjustment to provide income taxes on AHT's S corporation earnings, the pro
forma adjusted effective income tax rate would have been 53.1% for the first
quarter of 1994 compared to 46.9% for the first quarter of 1993, primarily as a
result of the relationship of nondeductible amortization of intangible to
pre-tax income.
As a result of the foregoing, net income was $277,228, or $.02 per share
for the first quarter of 1994, compared to $787,504, or $.06 per share for 1993.
After pro forma adjustment to provide income taxes on AHT's S corporation
earnings, net income would have been approximately $277,000, or $.02 per share
for 1994, compared to $528,000, or $.04 per share for 1993.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1993
Medisys generated net revenues of $51,380,838 for 1993, compared to
$23,661,673 for 1992 and $13,623,933 for 1991, representing increases of 117.1%
from 1992 to 1993 and 73.7% from 1991 to 1992.
Medisys' net revenues for 1993 increased by 85.8% as the result of
acquisitions and 31.3% from growth in operations that existed at the beginning
of 1992. The increase in net revenues from 1991 to 1992 was the result of a
41.3% growth in operations that existed at the end of 1991 and by 32.4% as the
result of acquisitions. The revenue growth from existing regional centers in
1992 and 1993 was primarily the result of volume increases, rather than price
increases, as Medisys expanded physician and payor relationships to gain
additional market share.
Direct costs of operations as a percentage of net revenues for 1993 were
64.9%, compared to 62.4% for 1992 and 53.4% for 1991. The increase in such
percentage from 1992 to 1993 was primarily the result of increased revenues from
comprehensive pharmacy services businesses acquired starting in the second
quarter of 1992. This line of business, which has a higher direct cost
percentage than Medisys' infusion therapy business, represented approximately
35% of net revenues for 1993. The increase in direct costs as a percentage of
net revenues from 1991 to 1992 was primarily the result of a decrease in net
revenues caused by increasing contractual adjustments by third-party payors.
Contractual allowances represent the difference between Medisys' list prices and
the anticipated level of reimbursement from third-party payors.
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<PAGE> 174
In the fourth quarter of 1992, contractual allowances were increased by
approximately $1,300,000, primarily related to Medicare and Medicare-related
accounts receivable. Home infusion therapy is a relatively new area of health
care. As payors have increased their experience with home infusion therapy
claims and Medisys' relationships with payors have strengthened, payor
reimbursement policies have become more consistent and predictable, with more
reliable information available. Medisys has always had specific procedures and
controls in place to estimate allowances, including controls at interim periods,
and has estimated contractual allowances on an interim basis with the best
information available. The $1,300,000 increase in the allowance resulted from
better information available regarding expected contractual allowances and
related ongoing discount rates. This improved information allowed Medisys to
develop more refined estimates.
Selling, general and administrative expenses decreased as a percentage of
net revenues from 33.3% in 1991 to 31.8% in 1992 and 29.1% in 1993, as a result
of the increase in Medisys net revenues over this period, enabling Medisys to
spread the fixed portion of its overhead over a larger base of net revenues.
Income from operations was $3,074,708 for 1993, compared to $1,364,320 for
1992 and $1,816,802 for 1991. The increase in operating income from 1992 to 1993
was primarily the result of the increase in net revenues offset by an increase
in the direct cost percentage. The decrease in income from operations for 1992
was primarily the result of the increase in contractual adjustments by
third-party payors, including the fourth quarter adjustment of approximately
$1,300,000.
Other income (expense) was ($455,187) in 1993, $211,877 in 1992 and
($57,921) in 1991. The decrease in 1993 was primarily related to $558,220 of
costs associated with the merger of AHT and lower interest income as a result of
expenditures for acquisitions in 1992, offset by an increase in other income
primarily related to a gain on discontinuing a partnership. Net other income for
1992 resulted primarily from the investment of proceeds of Medisys' public
offering of Medisys Common Stock. Net other expense for 1991 was primarily
related to interest expense, due to increased borrowing to finance accounts
receivable.
Prior to the merger in July of 1993, AHT was a S corporation and therefore
paid no income taxes. Accordingly, the income tax provision includes no
provision for current incomes taxes on AHT's S Corporation earnings and a
provision of $1,180,000 for previously unrecognized deferred income taxes of
AHT. The pro forma adjusted income tax provision would have been 45.0%, 40.1.%
and 34.7% of income before income taxes and minority interests for 1993, 1992
and 1991, respectively. The increases in 1993 and 1992 were primarily the result
of nondeductible amortization of intangibles.
Minority interests were $81,498 for 1993, $47,801 for 1992 and ($154,132)
for 1991. Minority interests represent the portion of income (loss) from
operations allocable to minority ownership in subsidiaries and joint ventures.
As a result of the foregoing, net income was $652,019, or $.05 per share
for 1993, compared to $1,550,998, or $.15 per share for 1992, and $1,281,749, or
$.16 per share for 1991. After pro forma adjustments to eliminate merger-related
expenses and provide income taxes on AHT's S corporation earnings, net income
would have been approximately $1,831,000, or $.14 per share for 1993, compared
to $992,000, or $.09 per share for 1992, and $997,000, $.12 per share for 1991.
Management believes that inflation has not had a material effect on
Medisys' operations or financial condition. There can be no assurance, however,
that Medisys' business will not be affected by inflation in the future.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, Medisys has financed its operations through equity
placements, working capital lines of credit secured primarily by accounts
receivable and funds generated through operations.
155
<PAGE> 175
Cash Flows from Operating Activities
Medisys' net accounts receivable have increased from $11,054,946 as of
December 31, 1992 to $14,537,385 as of December 31, 1993, and $14,786,083 as of
March 31, 1994, as the result of an increase in net revenues and accounts
receivable added through acquisitions. Accounts receivable are generally
outstanding for longer periods of time in the health care industry than many
other industries because of requirements to provide third-party payors with
additional information subsequent to billing and the time required by such
payors to process claims. Medisys' number of days net revenues in net accounts
receivable ("DSO") was approximately 95 days at December 31, 1993 and 97 days at
March 31, 1994. The improvement in DSO in 1993 was the result of changes in
Medisys' billing and collection process and acquisition of companies with lower
DSO's than the infusion therapy businesses. This reduction in DSO resulted in an
improvement in cashflow from operations, increasing cash flow provided by
operations to $351,767 in 1992 from cash used by operations in 1991 of
($608,343). Cash flows from operations decreased in 1993 to ($317,620) primarily
related to merger expenses of $558,220. Cash flow from operations was $(87,655)
for the first quarter of 1994, compared to $866,921 for the first quarter of
1993. This decrease was primarily the result of a decrease in net income and the
timing of payments for accounts payable and income taxes.
Cash Flows from Investing Activities
Medisys opened regional centers in Milwaukee, Wisconsin in 1990, in Kansas
City, Kansas and Dallas, Texas in 1991 and in Cincinnati, Ohio and Chico,
California in 1992. In 1992, Medisys acquired regional centers in Phoenix,
Arizona, Chicago, Illinois and Stockton, California and added to the Dallas,
Texas regional center. The estimated total cost of acquisitions in 1992 was
approximately $21,073,000 of which $6,064,000 was paid in cash, $6,735,000 in
Medisys Common Stock and $8,274,000 in notes payable. In 1993, Medisys recorded
$3,765,000 of previously contingent consideration ($3,015,000 payable in common
stock and $750,000 payable in cash) and approximately $440,000 of additional
acquisition costs.
Cash Flows from Financing Activities
Medisys has an operating line of credit of $7,500,000. The line of credit
is collateralized by Medisys' accounts receivable, inventories and other assets.
In the first quarter of 1994, notes payable increased $545,000, primarily to
fund increases in accounts receivable and other assets. As of March 31, 1994,
the Company had cash and unused line of credit of approximately $1,815,000.
Proceeds from the increase in notes payable in 1993 were utilized primarily to
fund payments of long-term debt and purchases of equipment. As of December 31,
1993, Medisys had cash and unused lines of credit of approximately $2,650,000.
The available cash and unused lines of credit will be utilized by Medisys as
working capital.
In accordance with the terms of the line of credit, Medisys may not declare
a dividend in any calendar year greater than 25% of the current year's net
income. Medisys currently intends to retain any earnings for use in its
operations and does not anticipate paying cash dividends in the foreseeable
future.
As of December 31, 1992, availability under the line of credit of
$3,600,000 and cash equivalents of $1,325,000 were used as collateral for
outstanding letters of credit totaling $4,500,000. The letters of credit were
issued to secure the payment of debt associated with an acquisition.
Long-term debt payable at December 31, 1993, is payable $461,569 in cash
and $4,150,000 in Medisys Common Stock, of which $4,209,157 is due in 1994 and
$402,412 in 1995. The payment of these obligations is not expected to have a
material adverse effect on Medisys' results of operations or liquidity.
In June 1990, Medisys completed a private placement of Medisys Common Stock
that generated net proceeds of $1,440,494. In 1991, Medisys received $947,319 in
proceeds from the exercise of options and warrants to purchase an aggregate of
381,385 shares of Medisys Common Stock. These proceeds were used for working
capital to finance the growth of Medisys' operations in existing locations and
expansion of home infusion therapy operations into new regional centers. In
December 1991, Medisys completed a public offering of Medisys Common Stock that
generated net proceeds of $9,197,614 from the issuance of 1,700,000 shares. In
January 1992, an overallotment option to purchase an additional 255,000 shares
of Medisys Common Stock
156
<PAGE> 176
was exercised for net proceeds of $1,413,349. In 1992, Medisys also received
$272,522 in proceeds from the exercise of warrants and options to purchase an
aggregate of 103,002 shares of Medisys Common Stock. These proceeds were used to
fund four acquisitions that were completed in 1992, open additional regional
centers and for general working capital purposes.
Each start-up of a new regional center affects Medisys' profitability due
to substantial pre-opening expenses and initial operating losses. Medisys
intends to enter additional metropolitan area markets either through start-up
operations or through acquisitions. In addition to financing acquisition and
expansion plans, available resources will be used to finance growth in Medisys'
accounts receivable as Medisys' net revenues grow.
At the present time, Medisys has no material capital commitments and has
not made any commitments regarding acquisition or expansion opportunities,
except as described above and the merger with Curaflex, HealthInfusion and T2.
At March 31, 1994, Medisys had incurred approximately $900,000 of costs in
connection with the Merger. Such costs will be expensed when it is determined
that the Merger will be accounted for as a pooling-of-interests. Medisys' future
capital requirements will depend upon a variety of factors, including the number
of new markets entered by Medisys and the timing of such expansion, which cannot
be predicted accurately. Medisys anticipates that existing cash and cash
equivalents, together with funds from operations and proceeds from the operating
line of credit, will be sufficient to meet its working capital and other
requirements for at least 12 months.
FUTURE HEALTH CARE PROPOSALS AND LEGISLATION
The current Presidential administration has the stated goal of improving
the national health care system. Its proposals include steps to contain health
care costs and cutback the Medicare and Medicaid programs. It is uncertain what
legislation, if any, will be approved, and whether any such proposals will be
implemented or what effect they would have on Medisys. There can be no assurance
that any such proposals or other changes in the health care system will not have
an adverse effect on Medisys.
157
<PAGE> 177
BUSINESS OF T2
T2 Medical, Inc., is a national provider of alternate site health care
treatment services. T2's primary business is the provision of infusion therapies
to patients at the patient's home or at one of T2's IntraCare ambulatory
infusion therapy facilities. T2 also provides infusion therapy and related
services in connection with its joint ventures that provide maternity risk
management services and specialized pediatric services. Other services offered
by T2 and its subsidiaries include lithotripsy services, ambulatory surgical
center services and physician practice management services. T2 conducts its home
and ambulatory infusion therapy and maternity risk management and specialized
pediatric services operations in more than 100 cities and 38 states. T2 or its
subsidiaries provides management services to 102 physician-owned infusion
therapy companies. The principal executive offices of T2 are located at 1121
Alderman Drive, Alpharetta, Georgia 30202.
T2 was founded on the principle that active physician involvement in the
delivery of alternate site health care services is essential to providing the
highest quality of care to patients. Historically, T2 developed and established
new infusion therapy companies through its relationships with physicians who had
ownership interests either in T2 or in the infusion therapy companies managed by
T2. However, the changing nature of health care regulation, financing and
delivery has necessitated a reassessment of T2's relationship with these
physicians. While T2 will continue to work closely with physicians to maintain
the quality of care provided, T2 does not intend to develop additional home
infusion therapy companies owned by physicians and managed by T2. T2 is
currently reviewing all of its relationships with the infusion therapy companies
it manages and may acquire such companies or restructure the management
agreements it has with such companies in order to ensure continuing compliance
with applicable laws and respond to public sentiment against physician ownership
in the infusion therapy industry. Furthermore, T2 has begun modifying its
marketing efforts to focus on developing contractual relationships with
hospitals and managed care entities, including preferred provider organizations,
health maintenance organizations, self-insured companies and other third party
payors. T2 also is pursuing relationships with or interests in managed service
organizations and other networks of health care service providers that can offer
a broad range of services to third party payors. T2 management believes that
such managed care networks and third party payors will play an increasing role
in deciding how health care services are provided and financed.
On May 17, 1994, T2 transferred its interest in its joint venture with
Tokos Medical Corporation ("Tokos") to Tokos. The joint venture, which was
operated under the name Women's Homecare, provided maternity risk management
services.
Additional information regarding the business of T2 is available in the T2
Annual Report on Form 10-K for the year ended September 30, 1993, as amended;
the T2 Quarterly Report on Form 10-Q for the quarter ended December 31, 1993;
the T2 Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 and
the other materials incorporated herein by reference.
Effective March 1, 1994, Anthony C. Smith resigned his position on the
Company's Board of Directors and all committees thereof. Mr. Smith formerly
served as a member of T2's Stock Option Committee, Executive Compensation
Committee and Audit Committee.
Based on discussions subsequent to May 13, 1994, regarding the possible
settlement of certain shareholder litigation currently pending against T2, T2
intends to record a provision of $15,000,000 in its financial statements for the
quarter ending June 30, 1994, with respect to its potential net losses in
connection with the resolution of such litigation. There can be no assurance,
however, that such litigation will be settled or that any settlement will be on
terms currently under discussion. See "Risk Factors -- Potential Adverse Effect
of Certain T2 Proceedings and Litigation."
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<PAGE> 178
BUSINESS OF CURAFLEX
DESCRIPTION OF BUSINESS
General. Curaflex Health Services, Inc. is a national provider of
comprehensive home infusion therapy and related services. Curaflex provides a
full range of infusion therapies, including antibiotic, total parenteral
nutrition, chemotherapy, pain management, hydration, enteral nutrition and other
therapies. Curaflex conducts its home infusion therapy operations through 31
regional centers and six satellite facilities strategically located in major
markets throughout the United States. In addition, Curaflex provides infusion
therapy, as part of a broader program of clinical care, at seven
disease-specific outpatient centers focusing on the treatment of complex
long-term diseases such as cancer and AIDS/HIV.
In March 1993, Curaflex acquired Clinical Homecare Ltd. ("CHL") through the
merger of a wholly-owned subsidiary of Curaflex into CHL. Former stockholders of
CHL received approximately 4 million newly-issued shares of Curaflex common
stock in exchange for their shares of CHL common stock and CHL redeemable
preferred stock. In addition, Curaflex assumed outstanding stock options and
stock warrants which had represented the right to acquire shares of CHL common
stock or CHL redeemable preferred stock, which options and warrants now
represent the right to receive, upon exercise, an aggregate of approximately
828,000 additional shares of Curaflex common stock. CHL, through its subsidiary
Clinical Homecare Corporation, provides a wide range of infusion therapies
including home parenteral nutrition, home antibiotic therapy, home enteral
nutrition therapy, pain management, hydration therapy, aerosol pentamidine
therapy and chemotherapy. During 1993, Curaflex also acquired the infusion
therapy businesses of Comprehensive Pharmacy Home I.V. Services, Inc.,
ContinueCare Health Systems, Inc., Home Solution, Inc., and Excellence, Inc.,
and in 1992 acquired the similar businesses, Total Home Care, Inc. and Home
Health Depot, Inc.
The Home Infusion Therapy Market. Home infusion therapy principally
involves the intravenous administration of nutrients, antibiotics or other
medications to patients in their homes, usually as a continuation of treatment
initiated in the hospital. The primary factors contributing to the rapid growth
of the home infusion therapy market are cost containment pressures, incentives
by third party payors to use home care, rapid growth of the elderly population
and increased acceptance of home infusion therapy by the medical community and
patients. Additionally, the number of therapies that can be administered safely
in the home has increased significantly in recent years because of technological
innovations such as more sophisticated portable infusion control devices,
implantable injection ports, new vascular access devices and advances in drug
therapy. Curaflex obtains use of these technological innovations by purchasing
products utilizing such innovations from third-party suppliers. Consequently,
more infections and diseases that would otherwise have required patients to be
hospitalized are now considered treatable in the home.
Infusion Therapies Provided by Curaflex. Curaflex offers a full range of
infusion therapies to patients. The following table sets forth the approximate
percentage of net revenue derived from all infusion therapies offered by
Curaflex in 1992 and 1993:
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUE
---------------------------------------
YEAR ENDED YEAR ENDED
THERAPY DECEMBER 31, 1992 DECEMBER 31, 1993
------- ----------------- -----------------
<S> <C> <C>
Antibiotic................................. 32% 31%
Total Parenteral Nutrition................. 24 30
Chemotherapy............................... 8 5
Pain Management............................ 2 2
Aerosolized Pentamidine.................... 1 1
Enteral Nutritional........................ 2 2
Other Therapies............................ 31 29
--- ---
Total...................................... 100% 100%
=== ===
</TABLE>
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<PAGE> 179
A brief description of the principal infusion therapies offered by Curaflex
is set forth below.
Antibiotic Therapy. Antibiotic therapy is used to treat complicated
infections for which antibiotics infused directly into the bloodstream are more
effective than intramuscular injections or oral dosages. Typically, antibiotic
treatment is a continuation of a drug treatment initiated in the hospital to
treat a variety of infections such as osteomyelitis (bone infections), Lyme
disease, pneumocystis carinii pneumonia ("PCP") and other infections associated
with AIDS/HIV, and wound infections.
Total Parenteral Nutrition Therapy. Total parenteral nutrition therapy
("TPN") is the intravenous feeding of life sustaining nutrients to patients with
impaired or altered digestive tracts due to gastrointestinal illness such as
inflammatory bowel disease, ulcerated colitis or Crohn's disease. TPN is
typically administered through a central venous catheter, which is surgically
implanted into a major blood vessel during hospitalization to permit the
required nutrients to be fed directly into the bloodstream. The parenteral
solutions contain necessary life sustaining nutrients and elements, including
dextrose, amino acids, electrolytes, vitamins, fatty acids and trace minerals.
TPN is typically a long-term infusion therapy, and some patients must continue
therapy for life.
Chemotherapy. Chemotherapy is the intravenous administration of
cancer-inhibiting drugs through either rapid or continuous infusion. Curaflex's
oncology program encompasses chemotherapy, blood product therapies and
biotechnology drugs. The home treatment regimens utilize recent innovations in
medication and treatment protocols for the treatment and prevention of the side
effects of chemotherapy. Curaflex believes that a majority of chemotherapy
currently is administered in the physician's office. However, various forms of
cancer such as lung, breast, colon and prostate cancer are particularly
conducive to home or alternative site treatment because of continuous
chemotherapy protocols utilizing infusion pumps that administer chemotherapeutic
agents over an extended period of time. Outpatient chemotherapy treatments are
typically administered periodically with a course of treatment lasting several
months.
Pain Management Therapy. Pain management therapy is the administration of
pain controlling drugs such as morphine and Demerol to terminally or chronically
ill patients and is often administered in conjunction with intravenous
chemotherapy. Also, many patients may require pain management therapy for an
interim period following outpatient surgery. Use of intravenous pain management
therapy is expected to grow as the number of cancer and AIDS patients continues
to escalate.
Other Infusion Therapies. Curaflex is engaged in other infusion therapies
such as hydration therapy, which is the administration of fluids typically in
conjunction with intravenous chemotherapy. Other non-intravenous infusion
therapies include aerosolized Pentamidine, which is administered through a hand
held nebulizer for prophylactically treating AIDS patients to inhibit the
occurrence of PCP, the leading cause of AIDS-related death. Curaflex also offers
enteral nutritional therapy, which is the direct infusion of nutrients through a
feeding tube into a portion of the patient's digestive tract that is still
functional. Curaflex also provides patients with biological response modifiers
including recently FDA approved drugs available due to breakthroughs in
recombinant DNA technology. These drugs include colony stimulating factors such
as G-CSF, GM-CSF, Erythropoietin and Interferons that enhance the hematopoietic
system to boost production of white or red blood cells. In addition, Curaflex
provides therapies for other diseases such as thalessemia, alpha-1-antititrypsin
(AAT) deficiency, hemophilia, primary immune deficiencies, growth deficiencies
and recurring gastrointestinal diseases. Curaflex regularly evaluates new
infusion therapies and expects to continue to expand the range of infusion
therapies it offers.
Clinical Standards. Curaflex's business objectives feature a strong
emphasis on providing high quality clinical care. All of Curaflex's regional
centers have licensed pharmacies staffed by experienced clinical pharmacists.
Curaflex's nursing staff is composed exclusively of registered nurses, all of
whom are experienced in infusion therapy and most of whom have additional
experience and certification in specialized clinical areas such as oncology and
nutritional support. In addition, most of the regional center general managers
have clinical backgrounds as either pharmacists or registered nurses.
Curaflex has initiated a process of accreditation review by JCAHO, a
non-profit, private organization that has established generally accepted written
standards for healthcare organizations, including home infusion
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companies. Curaflex's goal is to have all of its existing centers
JCAHO-accredited by the end of 1994. As of February 28, 1994, 26 of Curaflex's
regional centers have been accredited by JCAHO, and Curaflex believes that all
of its regional centers are operating in accordance with JCAHO standards.
Field Operations. As of December 31, 1993, Curaflex operated 31 regional
centers, six satellite facilities and seven disease-specific outpatient centers,
all of which are strategically located in major metropolitan areas. Curaflex
intends to expand its infusion therapy services in the future by opening
additional regional centers in selected markets and by opening additional
satellite facilities in geographic areas adjacent to its regional centers.
Curaflex also plans to develop additional disease-specific outpatient centers in
other desirable geographic areas.
The following table sets forth the location of each of the regional
centers, satellite facilities and disease-specific outpatient centers operated
by Curaflex as of December 31, 1993:
<TABLE>
<CAPTION>
LOCATION
--------
<S> <C>
REGIONAL CENTERS Cincinnati, Ohio
Houston, Texas Kansas City, Missouri
Dallas, Texas Denver, Colorado
New Orleans, Louisiana Austin, Texas
Atlanta, Georgia Providence, Rhode Island
Chicago, Illinois Columbia, Maryland
Fountain Valley, California Seattle, Washington
Ft. Lauderdale, Florida Orlando, Florida
New York, New York Omaha, Nebraska
Oklahoma City, Oklahoma Tampa, Florida
Philadelphia, Pennsylvania Salt Lake City, Utah
Ontario, California Boston, Massachusetts
St. Louis, Missouri Buffalo, New York
Sherman Oaks, California Cleveland, Ohio
Phoenix, Arizona Charlotte, North Carolina
San Francisco, California
Fairfield, New Jersey
SATELLITE FACILITIES DISEASE-SPECIFIC OUTPATIENT CENTERS
Macon, Georgia Plymouth, Massachusetts
Levittown, New York Miami, Florida
Hartford, Connecticut Providence, Rhode Island
Columbus, Ohio Watchung, New Jersey
Clinton, New Jersey Orange County, California
Syracuse, New York Bradenton, Florida
Ft. Lauderdale, Florida
</TABLE>
Regional Centers. Curaflex's regional centers operate under the direction
of a General Manager in accordance with the policies, procedures and objectives
of Curaflex. Each regional center maintains a licensed pharmacy equipped with a
sterile product compounding facility, known as a "clean room," where all patient
medications and nutritional solutions are prepared. Each regional center
constitutes a profit center for Curaflex, and is responsible for developing
business as well as providing services in its designated market area.
Satellite Facilities. Curaflex's satellite facilities are smaller offices
without pharmacies that support the delivery of home infusion therapy to
patients under a nurse's direction. Each satellite facility is designed to
extend the market of the regional center to which it is assigned. Medications
and support services are supplied by the parent regional center. Curaflex
believes that its satellite facilities provide a local presence and
responsiveness to patient needs, and that over time some of its satellite
facilities will mature into regional centers.
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Disease-specific Outpatient Centers. Curaflex is developing
disease-specific outpatient centers to further its strategic objective of
attracting patients with complex long-term illnesses early in their disease
cycle and maintaining these patients through the various stages of their
treatment. The outpatient treatment centers will provide patients likely to need
home infusion therapy at some point in the course of their treatment with
diagnosis, monitoring, counseling or treatment services, which cannot be
provided in the home, together with a broad range of non-hospital based infusion
therapy options.
Curaflex has four comprehensive AIDS/Treatment Centers located in
Providence, Rhode Island, Miami, Florida, Ft. Lauderdale, Florida and Bradenton,
Florida. The Centers, which are wholly owned by Curaflex and directed by a
specialty physician employed by Curaflex, offer a broad program of care,
including psychosocial counseling. Curaflex also has an HIV/AIDS resource center
in Watchung, New Jersey. This wholly owned center provides HIV/AIDS counseling
and psychosocial assistance with patients.
In addition, Curaflex operates, pursuant to five-year management services
agreements between Curaflex and the corporations that own the centers, two
cancer treatment centers in Plymouth, Massachusetts and Orange County,
California. These centers focus on the treatment of cancer patients using both
traditional and innovative infusional chemotherapy protocols.
Reimbursement for Services. Reimbursement is provided by private sources
such as insurance companies, self-insured employers and patients, and through
the federal Medicare and state Medicaid programs. Private healthcare insurance
typically reimburses a higher amount for a given therapy and provides a broader
range of benefits than other payors. The following table sets forth, for the
periods indicated, the approximate percentage of Curaflex's net revenue
attributable to each type of payor:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Private................................................. 83% 81% 79%
Medicare and Medicaid................................... 17% 19% 21%
---- ---- ----
Total......................................... 100% 100% 100%
==== ==== ====
</TABLE>
Quality Assurance. Curaflex utilizes performance objectives covering all
aspects of its clinical and business operations and defines quality in terms of
conformance to and achievement of these objectives. Twenty-six of Curaflex's
regional centers have received JCAHO accreditation, which includes an assessment
of the quality assurance system used in all of Curaflex's centers. Curaflex also
has additional programs to assure patient and physician satisfaction with the
care provided. Quality in business operations is assured through a combination
of training programs, management oversight and periodic reviews of specific
operating targets and standards.
Sales and Marketing. Curaflex's products and services are marketed through
its sales force. Most patients who utilize Curaflex's products and services are
referred by managed care facilities, third-party payors, medical groups and
physicians. Curaflex's sales force targets their efforts at these and other
referral sources. Curaflex believes that JCAHO accreditation of its centers is
important to its sales and marketing efforts.
Acquisition of Clinical Homecare Ltd. ("CHL"). Effective March 5, 1993, CHL
became a wholly-owned subsidiary of Curaflex through the merger of a
wholly-owned subsidiary of Curaflex with and into CHL. Former CHL stockholders
received Curaflex common stock in exchange for their shares of CHL common stock
and CHL redeemable preferred stock based on specified exchange ratios. In
addition, options and warrants which formerly represented the right to purchase
shares of CHL common stock or CHL redeemable preferred stock are now deemed to
be options or warrants to purchase shares of Curaflex common stock (adjusted to
account for the stock exchange ratios used in the acquisition).
CHL's subsidiary Clinical Homecare Corporation has been in the
home-infusion therapy business since August 1983, operating out of Fairfield,
New Jersey. CHL offers a variety of home infusion therapies, including
parenteral nutrition, antibiotic therapy, enteral nutrition therapy, pain
management, hydration
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therapy, aerosol pentamidine therapy and chemotherapy. CHL supplied its
patients' infusion therapy needs from its pharmacies located in the states of
New Jersey, New York, Ohio, Massachusetts, Texas and California.
CHL had net revenues in 1992 of $23.6 million, as compared to $21.5 million
in 1991 and $13.8 million in 1990. Net income in 1992 was $408,000, as compared
to approximately $778,000 in 1991 and $647,000 in 1990. Substantially all of
CHL's revenues are paid by third-party payors. During 1992, approximately 73% of
CHL's revenues were paid by private insurance carriers and 27% were paid by
Medicare and Medicaid programs. In 1991, those percentages were 66% from private
insurers and 34% from Medicare and Medicaid.
Governmental Regulation. Curaflex's business is subject to substantial
governmental regulation. Changes in the law or new interpretations of existing
laws can have a material effect on permissible activities of Curaflex, the
relative costs associated with doing business and the amount of reimbursement by
government and other third party payors.
The federal government and all states in which Curaflex currently operates
regulate various aspects of Curaflex's business. In particular, Curaflex's
business is subject to state laws governing pharmacies, home health agencies and
home intravenous drug therapy providers, as well as federal laws covering the
repackaging, dispensing and transportation of drugs, state and federal laws
prohibiting the payment of remuneration for patient referrals and state and
federal laws relating to the handling and disposal of medical waste as well as
occupational safety and health standards. Failure of Curaflex to comply with
these laws could adversely affect Curaflex's ability to provide or receive
reimbursement for its therapies and services, and could also subject Curaflex
and its officers to penalties.
Each of Curaflex's regional centers is licensed as a pharmacy and, as a
result, is subject to federal and state laws and regulations governing
pharmacies. At the federal level, such laws, among other things, require
Curaflex to comply with certain rules concerning the dispensing of controlled
substances, including security, record keeping, inventory controls, prescription
and labelling requirements. Curaflex's pharmacists and nurses also are subject
to state licensing requirements. JCAHO has established written nursing standards
for home care services, including standards for services provided by infusion
therapy companies. Curaflex believes that it is in compliance with such
standards.
Curaflex receives a majority of its reimbursement for services rendered
from private payor sources that are not government regulated. See
"Reimbursement" above. Curaflex does, however, participate in government
reimbursement programs such as Medicare and Medicaid. For participation in these
programs, Curaflex is required to maintain necessary licenses and retain
provider numbers to file claims with respective government programs.
Curaflex is also subject to state and federal laws prohibiting payments for
patient referrals and regulating reimbursement procedures and practices under
Medicare, Medicaid and state programs. The federal Medicare and Medicaid
legislation contains anti-kickback provisions which prohibit any remuneration in
return for the referral of Medicare or Medicaid patients. Courts have, to date,
interpreted these anti-kickback laws to apply to a broad range of financial
relationships. Violations of these provisions may result in civil and criminal
penalties, including fines of up to $15,000 for each separate service billed to
Medicare in violation of the anti-kickback provisions, exclusion from
participation in the Medicare and state health programs such as Medicaid and
imprisonment for up to five years. Several states also have statutes prohibiting
financial arrangements with healthcare providers which, while similar in many
respects to the federal legislation, vary from state to state, are often vague
and have infrequently been interpreted by courts or regulatory agencies.
Possible sanctions for violation of these state restrictions include loss of
licensure and civil and criminal penalties. Due to the potentially broad
proscriptions contained in these federal and state laws, there can be no
assurance that all of Curaflex's business practices would be construed to comply
with these laws in all respects. However, in the situations where Curaflex
purchases services from or otherwise contracts with healthcare providers who may
be in a position to refer patients to Curaflex, Curaflex has exercised care in
an effort to structure such arrangements to comply with applicable federal and
state laws. Curaflex maintains an internal regulatory compliance review program
and retains special counsel, as necessary, to monitor compliance with such laws
and regulations and with federal antitrust laws.
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In May 1991, the United States Department of Health and Human Services
adopted regulations creating certain "safe harbors" from federal criminal and
civil penalties by identifying certain types of joint venture and management
arrangements that would not be treated as violating the federal anti-kickback
laws relating to referrals of patients for services paid by the Medicare and
Medicaid programs. It is not possible to accurately predict the ultimate impact
of these regulations on Curaflex's business.
Curaflex is subject to state and federal laws relating to the handling and
disposal of medical waste. Curaflex disposes of its medical waste through
hazardous waste vendors which are primarily responsible for compliance with such
laws. Curaflex, however, is responsible under certain state laws for the
packaging of, labeling of and maintenance for collection of medical waste
intended for transport off-site. In addition, Curaflex is subject to state and
federal laws relating to occupational safety and health standards designed to
protect the employees of Curaflex. Curaflex believes that it is in material
compliance with such laws and standards.
Curaflex is unable to predict what additional legislation, if any, may be
enacted in the future relating to Curaflex's business or the healthcare
industry, including third party reimbursement, or what effect any such
legislation may have on Curaflex.
Suppliers. Curaflex purchases drugs and other materials and leases certain
equipment required in connection with Curaflex's business from many suppliers.
Curaflex has not experienced and does not anticipate that it will experience
difficulty in purchasing supplies or leasing equipment from current suppliers.
In the event that its current suppliers cease to sell materials or lease
equipment to Curaflex, Curaflex believes that alternative sources can be located
to adequately meet the needs of Curaflex.
Competition. The home infusion therapy market is highly competitive, and
Curaflex expects that competitive pressures will intensify. Curaflex competes
with a large number of companies in all of the metropolitan areas in which its
regional centers are located. Many of these competitors are local operations
servicing a single area; however, there are a number of national and regional
home infusion therapy companies, many of which are larger and have significantly
greater marketing and financial resources than Curaflex. Competitors also
include home healthcare providers that offer infusion therapy as only one of
their home products and services.
Caremark, Inc., is the largest competitor of Curaflex. Medical Care
America, Inc. (recently acquired by Caremark, Inc.), T2, Home Nutritional
Services, Inc. and National Medical Care, a subsidiary of W.R. Grace & Co., are
other major competitors, all of which are larger than Curaflex. Curaflex
competes on the basis of a number of factors, including quality of clinical care
and services, ability to service widespread geographic areas, ability to develop
and maintain relationships with referral sources and price.
Insurance. Curaflex has general liability insurance of $1 million per
occurrence and $2 million in the aggregate and professional liability insurance
of $3 million per claim and $5 million in the aggregate, with excess coverage of
$10 million for each occurrence and in the aggregate on both policies. These
policies provide coverage on an occurrence basis, have certain exclusions from
coverage and are renewed annually. No difficulty has been experienced to date in
obtaining or retaining insurance but no assurance can be given that Curaflex
will be able to obtain insurance in the future at satisfactory rates or in
adequate amounts. Moreover, there can be no assurance that Curaflex's current
insurance coverage is adequate to provide for any claims that may arise and the
related settlements, if any, or the effects on Curaflex's reputation and
business of any claim involving performance of Curaflex's services.
Employees. As of December 31, 1993, Curaflex had approximately 625
full-time and 45 part-time employees. Curaflex's ability to remain competitive
will depend on its ability to attract and retain qualified personnel. None of
Curaflex's employees are represented by a labor union, and management considers
its relations with its employees to be good.
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PROPERTIES
Curaflex's corporate office occupies approximately 34,000 square feet in an
office complex in Ontario, California. This space is leased under an agreement
that expires in 2002. As of December 31, 1993, Curaflex had 31 regional centers
located in 21 states. These regional centers, which occupy approximately 2,500
to 10,000 square feet, are typically located in office complexes with lease
agreements expiring between 1994 and 2002. In addition, as of December 31, 1993,
Curaflex had (1) six satellite facilities, occupying approximately 400 to 1,000
square feet, which are also typically located in office complexes, and (2) seven
disease-specific outpatient centers, occupying approximately 4,000 to 8,000
square feet. Curaflex believes that its facilities are adequate and suitable for
its existing operations, and all facilities material to Curaflex's operations
are adequately utilized at the present time.
LEGAL PROCEEDINGS
Curaflex is involved in various claims and legal actions arising in the
ordinary course of business, none of which is material in the opinion of
management.
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MANAGEMENT OF CURAFLEX
DIRECTORS AND EXECUTIVE OFFICERS
The current executive officers and directors of Curaflex are as follows:
CURAFLEX EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ----------------------------- ----- ------------------------------------------
<S> <C> <C>
Charles A. Laverty 48 Chairman of the Board, President and Chief
Executive Officer
Norman H. Werthwein 49 Senior Vice President and Chief Financial
Officer
Kevin M. Higgins 52 Vice President, General Counsel, and
Secretary
M. Cassandra Harris 38 Division Vice President
David C. Garland 45 Division Vice President
Bernard Lambrese 38 Division Vice President
R. Weldon Cole 42 Division Vice President
Ralph B. Strong 42 Vice President, Reimbursement
Thomas M. Bates 53 Vice President, Human Resources
Gary Goltz 40 Vice President, Managed Care
Thomas McNulty 37 Vice President, Clinical Services
Michael M. Rothkopf, M.D. 40 Vice President, Medical Affairs
Donald Peterson 52 Vice President and Treasurer
John S. Chamberlin 65 Director
C. Sage Givens 37 Director
Philip D. Green 43 Director
Donald E. Strange 49 Director
George H. Strong 67 Director
Edgar Udine 64 Director
James R. Yarter 56 Director
</TABLE>
Curaflex's Restated Certificate of Incorporation (the "Restated
Certificate") provides for the Board of Directors to be divided into three
classes, with each class to be as nearly equal in number of directors as
possible. At each annual meeting of stockholders, the successors to the class of
directors whose term expires at that time are elected to hold office for a term
of three years, and until their respective successors are elected and qualified,
so that the term of one class of directors expires at each such annual meeting.
The terms of John S. Chamberlin and Donald E. Strange expire in 1996; the terms
of Charles A. Laverty, Philip D. Green and James R. Yarter expire in 1995; and
the terms of C. Sage Givens, George H. Strong and Edgar Udine expire in 1994.
See "The Merger -- Rights of Security Holders."
The holders of a majority of the shares of Curaflex Common Stock
outstanding on the applicable record date are entitled to elect the members of
the Board of Directors. In March 1993, in connection with Curaflex's acquisition
of Clinical Homecare Ltd., the Curaflex Board of Directors, by resolution,
appointed Edgar Udine to fill a newly-created position on the Board.
Officers are elected by, and serve at the discretion of, the Board of
Directors. There are no family relationships among any of the directors or
officers of Curaflex.
Charles A. Laverty has been Chairman of the Board, President, Chief
Executive Officer and a Director of Curaflex since February 1989. Prior to
joining Curaflex, Mr. Laverty served as President and Chief Executive Officer of
InfusionCare, Inc., a home infusion services company, from October 1988 to
February 1989. From May 1988 until October 1988, Mr. Laverty was Chief Operating
Officer of Foster Medical Corporation
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("Foster"), a durable medical equipment supply company. From April 1986 to May
1988, Mr. Laverty held several positions, including Vice President and General
Manager of the Western United States for Foster.
Norman H. Werthwein joined Curaflex as Senior Vice President and Chief
Financial Officer in January 1992. From January 1990 until joining Curaflex, Mr.
Werthwein was Senior Vice President and Chief Financial Officer of Victoria
Creations, a designer and manufacturer of costume jewelry. From April 1988 to
January 1990, Mr. Werthwein was Chief Financial Officer of Angela Cummings,
Inc., a designer and manufacturer of fine jewelry. From January 1987 to April
1988, Mr. Werthwein served as Senior Vice President, Finance and Administration
and Chief Financial Officer of Foster.
Kevin M. Higgins has been Curaflex's Vice President, General Counsel and
Secretary since July 1989. From March 1987 to May 1989, Mr. Higgins was Vice
President and General Counsel of Foster and its successor company, Abbey/Foster
Medical ("Abbey"). Prior to joining Foster, Mr. Higgins was employed by Avon
Products, Inc. ("Avon"), an international manufacturer and distributor of
cosmetics products, for 15 years in a variety of legal and governmental affairs
responsibilities, including Corporate Director of Government Affairs from 1984
to 1987.
M. Cassandra Harris has been a Division Vice President since February 1993.
Ms. Harris served as Curaflex's Vice President, Central Operations from April
1989 to December 1992, at which time Ms. Harris was named Vice President,
Birthcare Services. Prior to joining Curaflex, Ms. Harris held several
positions, including Vice President of Central Operations, with Foster and Abbey
from February 1985 to April 1989.
David C. Garland has been a Division Vice President since March 1993. Mr.
Garland served as Curaflex's Vice President, Marketing and New Business
Development from February 1989 to March 1993. Mr. Garland was employed by
InfusionCare from November 1987 to February 1989 in the position of Vice
President of Sales and Marketing. From April 1986 to November 1987, Mr. Garland
was the President and founder of David C. Garland and Associates, a marketing
and consulting company specializing in healthcare.
Bernard Lambrese has been Curaflex's Division Vice President since July
1993. From January 1993 to July 1993, Mr. Lambrese served as Curaflex's Regional
Manager. In November 1991, Mr. Lambrese assumed the position of General Manager
for the Rhode Island Center after Clinical Partners was acquired by Curaflex.
From April 1990 to November 1991, Mr. Lambrese was the Executive Director of
Clinical Partners, an organization which provided managed care services for
people with HIV. From February 1987 to April 1990, Mr. Lambrese held the
position of General Manager for CarePlus, a national home infusion therapy
company.
R. Weldon Cole has been a Division Vice President of Curaflex since March
1993. Mr. Cole served as Curaflex's Vice President, Managed Care from November
1992 to March 1993. Mr. Cole joined Curaflex in September 1989, serving as
Regional Manager of the Southwest until his promotion to Vice President, Field
Operations in September 1991. From 1988 to 1989, Mr. Cole was a Division
Director of Girling Medical Equipment & Supply, Inc. From 1985 until 1988, Mr.
Cole held several positions, including Regional Manager, with Foster.
Ralph B. Strong has been Curaflex's Vice President, Reimbursement, since
March 1993. From September 1991 to March 1993, Mr. Strong was Vice President,
Finance and Treasurer. Mr. Strong joined Curaflex in October 1989 as Controller.
From 1985 to 1989, Mr. Strong was the Director of Finance at Caremark
Therapeutic Services, a division of Caremark, Inc., a home infusion services
company.
Michael M. Rothkopf, M.D. has been Curaflex's Vice President, Medical
Affairs, since March 1993. Dr. Rothkopf served as Chairman of the Board and
Executive Vice President of Clinical Homecare Ltd. ("CHL") from December 1989
until March 1993, when CHL was acquired by Curaflex. In addition, Dr. Rothkopf
served as Executive Vice President and Secretary and as a Director of CHL's
operating subsidiary, Clinical Homecare Corporation, since its formation in
August 1983. Since June 1985, Dr. Rothkopf has been a partner in Metabolic
Associates, a private medical practice, and since June 1992, Dr. Rothkopf has
served as a Director of Sun Pharm Investors, L.P., a development stage
pharmaceutical entity.
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Thomas M. Bates has been Curaflex's Vice President, Human Resources since
February 1993. From 1986 until he joined Curaflex, Mr. Bates was Vice President
in charge of Human Resources and Facilities Management for Amperif Corporation,
a high-technology manufacturing company.
Gary Goltz has been Curaflex's Vice President of Managed Care since July
1993, following the acquisition of Comprehensive Pharmacy Home IV Services. From
March 1989 to June 1993, Mr. Goltz served as President of Comprehensive Pharmacy
Home IV Services. From April 1988 to February 1989, Mr. Goltz worked for Foster
Medical Corporation as Division Vice President of Contract Administration.
Thomas McNulty has been Vice President, Clinical Services for Curaflex
since September 1992. Prior to that, Mr. McNulty served as Curaflex's National
Director of Pharmacy Services, starting in November 1989. During 1989, Mr.
McNulty served as Director of Pharmacy Services for Therafusion, Inc., and from
1986 to 1989 Mr. McNulty served as Clinical Pharmacist for Queen of Angels
Medical Center in Los Angeles, California.
Donald Peterson has been Curaflex's Vice President, Treasurer since July
1993. Prior to joining Curaflex, Mr. Peterson served as a Vice President of
Union Bank in Riverside, California, from August 1990 to June 1993. From July
1986 to August 1990, Mr. Peterson was Vice President/Director of Private Banking
at Bank of America in Los Angeles, California. From July 1980 to June 1986, Mr.
Peterson served as Vice President and Manager for Crocker Bank.
John S. Chamberlin has been a Director of Curaflex since October 1992.
Since 1988, Mr. Chamberlin has been a private investor and advisor to investment
firms. From 1985 to 1988, Mr. Chamberlin was President and Chief Operating
Officer of Avon Products, Inc. and from 1976 to 1985, he was the Chairman and
Chief Executive Officer of Lenox, Incorporated. Mr. Chamberlin also currently
serves as Chairman of Life Fitness Co., Chairman of WNS, Incorporated and Senior
Advisor to Mancuso & Company and serves as a Director for The Scotts Co. and
HealthSouth Rehabilitation Corporation.
C. Sage Givens has been a Director of Curaflex since 1990. Ms. Givens is
General Partner of First Century Management Company, which is the sole general
partner of First Century Partnership III, a private venture capital fund and a
stockholder of Curaflex. Ms. Givens has advised the fund on its healthcare
investments since 1983. Ms. Givens also serves as a Director of HealthSouth
Rehabilitation Corporation, PhyCor and Oclassen Pharmaceuticals.
Philip D. Green has been a Director of Curaflex since 1989. Mr. Green is
one of the founding partners in the Washington, D.C. law firm Green, Stewart &
Farber, which was formed in January 1989. Prior to this time, Mr. Green was one
of the founding partners in the Washington, D.C. law firm Schwalb, Donnenfeld,
Bray & Silbert, formed in 1978. Mr. Green is currently a Director and the
President of Neuromedical Technologies, Inc., a medical device research and
development company.
Donald E. Strange has been a Director of Curaflex since February 1992.
Currently, Mr. Strange is Chairman of Nephros Corporation, a medical diagnostic
products company. Mr. Strange is also the Chairman and Chief Executive Officer
of Trans Care Corporation, which he founded in December 1993. Since December
1992, Mr. Strange has been Chairman and Chief Executive Officer of SIGECOM,
Ltd., a healthcare services investment and advisory company. From July 1991
until December 1992, Mr. Strange was Chief Operating Officer and a Director of
EPIC Healthcare Group, a hospital management company. From 1990 to 1991, Mr.
Strange served as Chairman of U.S. HomeCare Corporation, a home healthcare
company. From 1989 to 1991, Mr. Strange was Chairman and Chief Executive Officer
of SIGECOM, Ltd., and Mr. Strange was an Executive Vice President of Avon
Products, Inc. ("Avon"), an international manufacturer and distributor of
cosmetics products, and President of Avon's Healthcare Group from 1987 to 1989.
George H. Strong has been a Director of Curaflex since 1991. Since January
1985, Mr. Strong has been a private venture capital investor and consultant. Mr.
Strong also serves as a Director of HealthSouth Rehabilitation Corporation and
CoreFunds, Inc. From 1978 to 1984, Mr. Strong was a founder, Director and Senior
Vice President of Universal Health Services, Inc., a hospital management
corporation.
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Edgar Udine has been a Director of Curaflex since March 1993. Mr. Udine
served as President and Chief Executive Officer and as a Director of Clinical
Homecare Ltd. ("CHL") from December 31, 1989 until March 4, 1993, when CHL was
acquired by Curaflex. In addition, Mr. Udine served as President and Chief
Executive Officer and as a Director of CHL's operating subsidiary, Clinical
Homecare Corporation, since its formation in August 1983. Currently, Mr. Udine
performs services for Curaflex under a consulting arrangement.
James R. Yarter has been a Director of Curaflex since 1989. Mr. Yarter has
been involved in the medical industry for over 25 years. Starting with C.R. Bard
in 1965, he was eventually made President of Inspiron Division and finally a
Corporate Group Vice President. Most recently, he was Chairman and Chief
Executive Officer of Pancretec Inc. which he sold to Abbott Laboratories in
1989.
COMPENSATION COMMITTEE INTERLOCKS/INSIDER PARTICIPATION
None of the persons who served as members of the Compensation Committee of
the Board of Directors during any part of 1993 (John S. Chamberlin, C. Sage
Givens, Philip D. Green, Donald E. Strange and James R. Yarter) are or have been
officers or employees of Curaflex or any of its subsidiaries. In addition, there
are no Compensation Committee interlocks between Curaflex and other entities
involving Curaflex executive officers and Curaflex Board members who serve as
executive officers of such entities.
Mr. Green is partner in Green, Stewart & Farber, a Washington, D.C. law
firm that serves as outside healthcare counsel to Curaflex. Curaflex paid to the
law firm fees in the amount of $327,067 during the year ended December 31, 1993.
Ms. Givens is a General Partner of First Century Management Company, the
sole General Partner of First Century Partnership III. In October 1991, Curaflex
sold 51,189 shares of its Series C Preferred Stock to First Century Partnership
III for $9.75 per share.
In January 1994, Mr. Strange entered into an agreement with Curaflex
whereby, in exchange for consulting services related to a proposed business
combination with T2, upon consummation of a business combination with T2, Mr.
Strange would receive an option to purchase 150,000 shares of Curaflex Common
Stock, at an exercise price equal to the closing price for Curaflex Common Stock
on The Nasdaq National Market on the last trading day on or before January 6,
1994. Accordingly, upon consummation of the Merger, Mr. Strange will receive an
option to purchase 150,000 shares of Curaflex Common Stock at an exercise price
of $6.13 per share (which, pursuant to the Merger, will be converted into an
option to purchase 49,950 shares of Coram Common Stock at an exercise price of
$18.41 per share). The option will be vested and exercisable in full upon its
grant, and will remain exercisable for ten years following the date of such
grant.
COMPENSATION OF DIRECTORS
Each of Curaflex's outside Directors receives an annual retainer of $10,000
and receives $1,000 for each regular meeting of the Board of Directors and
$1,500 (for the chairperson) or $1,000 (for each member) for each committee
meeting at which he or she attends. In addition, the outside Directors were
reimbursed for expenses incurred in attending Board meetings.
Mr. Yarter has a consulting arrangement with Curaflex providing for the
payment to Mr. Yarter of $2,000 per month. Mr. Yarter received $24,000 pursuant
to this consulting arrangement in 1993. Mr. Strong has a consulting arrangement
with Curaflex providing for the payment of $1,000 per day of consulting services
rendered to Curaflex. Mr. Strong did not receive any payment under this
arrangement in 1993. Ms. Givens received an option on August 26, 1993 to
purchase 10,000 shares of Curaflex Common Stock, at an exercise price of $5.375
per share, in consideration of special consulting services rendered for Curaflex
in 1993. Mr. Udine, the President and Chief Executive Officer and a Director of
Clinical Homecare Ltd. prior to its acquisition by Curaflex in March 1993, has
entered into a three-year consulting agreement with Curaflex under which he
receives $110,000 per year.
Each director who is not an executive officer of Curaflex is eligible to
receive automatic annual grants of stock options to purchase 10,000 shares of
common stock under Curaflex's Directors' Nonqualified Stock
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<PAGE> 189
Option Plan (the "Director Plan"). In addition, John Chamberlin, C. Sage Givens
and George Strong received option grants in 1993 to purchase, respectively,
40,000, 10,000 and 20,000 shares of Curaflex Common Stock under Curaflex's 1990
Stock Option Plan. Each of the option grants vests monthly over a twelve month
period and has an exercise price equal to the fair market value of Curaflex
common stock on the date of grant. The chart below summarizes the 1993 option
grants made to the non-employee directors of Curaflex:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993
------------------------------
WEIGHTED AVERAGE
NUMBER EXERCISE PRICE
DIRECTOR OF SHARES PER SHARE
------------------------------------------------------- --------- ----------------
<S> <C> <C>
John S. Chamberlin..................................... 50,000 $ 6.06
C. Sage Givens......................................... 20,000 $ 5.59
Philip D. Green........................................ 10,000 $ 5.81
Donald E. Strange...................................... 10,000 $ 5.81
George H. Strong....................................... 30,000 $ 5.77
James R. Yarter........................................ 10,000 $ 5.81
</TABLE>
CERTAIN TRANSACTIONS
In June 1991, Curaflex pledged a certificate of deposit in the amount of
$110,000 as security for a personal loan made by Bank of America to Charles A.
Laverty, Curaflex's Chief Executive Officer, which loan has been repaid. In
November 1992, Curaflex made a loan to Mr. Laverty of $400,000 in order to allow
Mr. Laverty to address income taxes payable upon his exercise of options to
purchase 193,000 shares of Curaflex Common Stock at an exercise price of $0.48
per share. The entire principal of the loan along with accrued interest at an
annual rate of 3.61% (which interest rate was, at the time of the loan, the
"applicable federal rate" under the Internal Revenue Code of 1986, as amended)
was due originally on November 1, 1993. As of November 1, 1993, Curaflex
extended the due date of the loan until November 1, 1994. See "The
Merger -- Interests of Certain Persons in the Merger."
170
<PAGE> 190
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the annual, long-term and other compensation
earned for services rendered in all capacities to Curaflex and its subsidiaries
for the years ended December 31, 1993, 1992 and 1991, by Curaflex's Chief
Executive Officer and each of Curaflex's next four most highly compensated
executive officers for the 1993 fiscal year (collectively, the "Curaflex Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL NUMBER OF
COMPENSATION OTHER SECURITIES
NAME AND -------------------- ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION OPTIONS(#) COMPENSATION($)(C)
- -------------------------- ----- --------- -------- ------------ ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Charles Laverty 1993 315,625 100,000 -- 275,000 66,096
Chief Executive 1992 296,675 152,500 47,500(a) 100,000 --
Officer 1991 223,958 -- -- 516 --
Norman Werthwein 1993 180,833 50,000 -- 25,000 7,228
Chief Financial 1992 174,600 25,000 -- 75,000 --
Officer 1991 -- -- -- -- --
Kevin Higgins 1993 158,000 50,000 -- 25,000 10,371
Secretary, General 1992 149,792 -- -- 20,000 --
Counsel 1991 137,190 -- -- 8,016 --
Leo Hendler(b) 1993 125,000 15,000 -- 25,000 6,109
Former Vice President - 1992 16,587 -- -- -- --
Division I 1991 -- -- -- -- --
Michael Rothkopf, M.D. 1993 168,569 -- -- -- --
Vice President - 1992 171,200 -- -- -- --
Medical Affairs 1991 169,131 -- -- -- --
</TABLE>
- ---------------
(a) This amount was paid to Mr. Laverty to offset federal and state income taxes
payable by Mr. Laverty with respect to his bonus paid in 1992.
(b) Mr. Hendler ceased being an executive officer of Curaflex effective as of
January 24, 1994.
(c) Amounts reflect (i) premiums paid by Curaflex for long-term disability
insurance for such executive officer, (ii) premiums paid by Curaflex for
life insurance for such executive officer, the beneficiary of which is
Curaflex, but pursuant to which Curaflex has agreed to pay a designated
amount realized on the life insurance to beneficiaries designed by such
executive officer, (iii) in the case of Mr. Laverty, premiums paid by
Curaflex for life insurances for Mr. Laverty, the beneficiary of which is as
designated by Mr. Laverty, and (iv) the contribution made by Curaflex to the
Curaflex's Section 401(k) Plan on behalf of such executive which matches his
contribution to such plan, up to a maximum annual match of $500. The clauses
(i), (ii) and (iii) premiums for each executive officer were as follows for
1993:
<TABLE>
<CAPTION>
OFFICER DISABILITY PREMIUMS LIFE INSURANCE PREMIUMS
-------------------------------------- ------------------- -----------------------
<S> <C> <C>
Charles Laverty....................... $10,113 $55,483
Norman Werthwein...................... 1,496 5,232
Kevin Higgins......................... 4,415 5,456
Leo Hendler........................... 2,149 3,960
</TABLE>
171
<PAGE> 191
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of
stock options made during the year ended December 31, 1993 to each of the
Curaflex Named Executive Officers and the potential realizable value of such
options at December 31, 1993. No stock appreciation rights ("SARs") were granted
during such fiscal year to any Curaflex Named Executive Officer.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OPTION TERM(3)
GRANTED IN FISCAL PRICE EXPIRATION --------------------
NAME (#)(1) YEAR ($/SH)(2) DATE 5%($) 10%($)
- ----------------------------- ----------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Charles Laverty.............. 275,000 23.0% 6.125 03/24/03 1,059,294 2,684,460
Norman Werthwein............. 25,000 2.0% 6.125 03/24/03 96,299 244,042
Kevin Higgins................ 25,000 2.0% 6.125 03/24/03 96,299 244,042
Leo Hendler.................. 25,000 2.0% 6.125 03/24/03 96,299 244,042
Michael Rothkopf M.D. ....... -- -- -- -- -- --
</TABLE>
- ---------------
(1) The options were granted under the Curaflex 1990 Stock Option Plan with an
exercise price equal to 100% of the fair market value of the option shares
on the grant date. The options have a maximum term of 10 years measured from
such grant date, subject to earlier termination upon the optionee's
cessation of employment with Curaflex. The options will become exercisable
for the option shares in 48 equal and successive monthly installments upon
the optionee's continued period of employment. The options will become
immediately exercisable for all the option shares should the optionee's
employment involuntarily terminate within 12 months after (i) the
acquisition of Curaflex by merger or asset sale, (ii) a change in beneficial
ownership of 20% or more of the outstanding Curaflex Common Stock or (iii) a
change in the composition of a majority of the members of the Curaflex Board
of Directors through a contested election for Board membership.
(2) The exercise price may be paid in cash, in shares of Curaflex Common Stock
valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. Under
the terms of the 1990 Stock Option Plan, Curaflex may also finance the
option exercise by loaning the optionee sufficient funds to pay the exercise
price for the purchased shares and the federal and state tax liability
incurred in connection with such exercise.
(3) There is no assurance provided to any executive officer or any other holder
of Curaflex Common Stock that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of Curaflex Common Stock does in fact
appreciate over the option term, no value will be realized from the option
grants made to the executive officers.
172
<PAGE> 192
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning each exercise of
stock options during the year ended December 31, 1993 by each of the Curaflex
Named Executive Officers and the year-end value of their unexercised options. No
SARs were exercised during such fiscal year, nor were any SARs outstanding at
the end of that fiscal year.
<TABLE>
<CAPTION>
NUMBERS OF VALUES OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
SHARES VALUE OPTIONS AT OPTIONS AT
ACQUIRED ON REALIZED 12/31/93(#) 12/31/93($)
NAME EXERCISE(#) (1)($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
- ------------------------------ ----------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Charles Laverty............... -- -- 317,493/27,969 1,105,383/0
Norman Werthwein.............. -- -- 47,915/52,085 0/0
Kevin Higgins................. -- -- 72,427/35,943 295,421/19,958
Leo Hendler................... -- -- 4,687/20,313 0/0
Michael Rothkopf MD........... 305,296 856,142 0/0 0/0
</TABLE>
- ---------------
(1) In February 1993, Dr. Rothkopf exercised options to purchase 709,991 shares
of common stock of Clinical Homecare Ltd. ("CHL Common Stock"), which shares
were converted into 305,296 shares of Curaflex Common Stock pursuant to
Curaflex's acquisition of CHL. Value realized is based on the closing sale
price of CHL Common Stock on the date of exercise minus the exercise price.
(2) Value is based on the closing sale price of Curaflex Common Stock as of
December 31, 1993 ($5.625) minus the exercise price.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In January 1991, Curaflex entered into a three-year employment agreement
with Charles A. Laverty, its Chairman, President and Chief Executive Officer. On
the anniversary date of each contract year, the agreement automatically renews
for an additional three-year period unless either Curaflex or Mr. Laverty elects
not to have the term of the agreement so renewed. Among other things, the
agreement provides for Mr. Laverty to receive (i) a base salary in an amount not
less than $225,000 per year (for 1993, Mr. Laverty is paid a base salary of
$300,000) and (ii) depending on the manner of termination of his employment,
severance pay equal to two years of Mr. Laverty's salary or, in certain cases,
the greater of two years of his salary or the balance of his salary during the
then current term of the agreement. The employment agreement prohibits Mr.
Laverty from directly or indirectly competing with Curaflex for two years after
termination of employment. In November 1993, Curaflex amended Mr. Laverty's
employment agreement to increase his annual salary to $375,000. In addition,
pursuant to the terms of his employment agreement Curaflex funds life insurance
covering Mr. Laverty in the amount of $2,500,000 for the benefit of his estate.
Pursuant to Mr. Laverty's employment agreement, in the event of Mr.
Laverty's death while he is employed by Curaflex or within 12 months following
termination of his employment, Mr. Laverty's estate will have the right to sell
to Curaflex certain options for up to 415,184 shares of Curaflex Common Stock or
the shares underlying such options (if such options have been exercised) at a
per share price of $6.36 (less the exercise price per share in the case of
unexercised options). Curaflex is obligated to purchase and maintain term life
insurance covering Mr. Laverty in an amount not less than $2.6 million to fund
its repurchase obligation.
In addition to the foregoing, Kevin M. Higgins, Vice President, General
Counsel and Secretary, and M. Cassandra Harris, Divisional Vice President, each
have a contractual severance arrangement with Curaflex providing for payment by
Curaflex of an amount equal to six months of such officer's salary at the time
of termination if such officer's employment is terminated without cause.
If the Merger is consummated, Mr. Laverty will enter into a new employment
agreement with Coram. See "The Merger -- Interests of Certain Persons in the
Merger."
173
<PAGE> 193
CURAFLEX PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to Curaflex with
respect to beneficial ownership of Curaflex Common Stock as of April 30, 1994 by
(1) each person who is known by Curaflex to own beneficially more than 5% of the
outstanding shares of Curaflex Common Stock, (2) each of Curaflex's directors,
(3) the Curaflex Named Executive Officers and (4) all current directors and
executive officers as a group. Except as otherwise noted, each beneficial owner
listed has sole dispositive and voting power with respect to the Curaflex Common
Stock indicated.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
STOCKHOLDER OWNED OWNED
------------------------------------------------------ ------------ ------------
<S> <C> <C>
5% Stockholders:
Michael Rothkopf(1)................................. 942,608 6.3
49 Hamilton Drive East
North Caldwell, New Jersey 07006
Directors and Named Executive Officers:
John S. Chamberlin(2)............................... 60,000 *
C. Sage Givens(3)................................... 735,515 4.9
Philip D. Green(4).................................. 37,499 *
Leo G. Hendler(5)................................... 25,271 *
Kevin Higgins(6).................................... 87,197 *
Charles A. Laverty(7)............................... 543,191 3.6
Donald E. Strange(8)................................ 230,300 1.5
George H. Strong(9)................................. 57,499 *
Edgar Udine......................................... 828,613 5.5
Norman Werthwein(10)................................ 65,691 *
James R. Yarter(11)................................. 47,499 *
All officers and directors as a group (20
persons)(12)........................................ 3,997,035 24.6
</TABLE>
- ---------------
* Less than 1%.
(1) Mr. Rothkopf is also Vice President, Medical Affairs, of Curaflex.
(2) Includes 60,000 shares issuable on exercise of options held by Mr.
Chamberlin that are exercisable within 60 days after April 30, 1994.
(3) Includes 701,008 shares held by First Century Partnership III, a venture
capital fund over which Ms. Givens has shared voting and shared investment
power. Ms. Givens disclaims beneficial ownership of the shares held by such
venture capital fund. Includes 28,333 shares issuable on exercise of
options held by Ms. Givens that are exercisable within 60 days after April
30, 1994.
(4) Includes 37,499 shares issuable on exercise of options held by Mr. Green
that are exercisable within 60 days after April 30, 1994.
(5) Includes 25,000 shares issuable on exercise of options held by Mr. Hendler
that are exercisable within 60 days of April 30, 1994.
(6) Includes 80,864 shares issuable on exercise of options held by Mr. Higgins
that are exercisable within 60 days after April 30, 1994.
(7) Includes 364,368 shares issuable on exercise of options held by Mr. Laverty
that are exercisable within 60 days after April 30, 1994. Excludes 100,000
shares issuable upon exercise of an option which will be issued to Mr.
Laverty upon consummation of the Merger.
(8) Includes 210,000 shares issuable on exercise of options held by Mr. Strange
that are exercisable within 60 days after April 30, 1994, and includes 300
shares held by Mr. Strange's minor son. Includes 150,000 shares issuable on
exercise of an option which will be issued to Mr. Strange upon consummation
of the Merger. See "Management of Curaflex -- Compensation Committee
Interlocks/Insider Participation."
(9) Includes 46,666 shares issuable on exercise of options held by Mr. Strong
that are exercisable within 60 days after April 30, 1994.
(10) Includes 62,499 shares issuable on exercise of options held by Mr.
Werthwein that are exercisable within 60 days after April 30, 1994.
(11) Includes 37,499 shares issuable on exercise of options held by Mr. Yarter
that are exercisable within 60 days after April 30, 1994.
174
<PAGE> 194
(12) Includes 1,229,118 shares issuable on exercise of options held by certain
officers and directors that are exercisable within 60 days after April 30,
1994. Also includes 150,000 shares issuable on exercise of an option which
will be granted to Mr. Strange upon consummation of the Merger. Also
includes 701,008 shares held by First Century Partnership III, a venture
capital fund over which Ms. Givens has shared voting and shared investment
power; Ms. Givens disclaims beneficial ownership of such shares. Does not
include shares held by Mr. Hendler, who ceased being an executive officer
of Curaflex as of January 24, 1994.
DESCRIPTION OF CAPITAL STOCK OF CURAFLEX
The authorized capital stock of Curaflex consists of 40,000,000 shares of
common stock, $.001 par value, and 4,000,000 shares of preferred stock, $.001
par value.
COMMON STOCK
As of April 30, 1994, there were 14,988,097 shares of Curaflex Common Stock
outstanding, held of record by 784 stockholders. The holders of Curaflex Common
Stock are entitled to one vote for each share held of record on all matters
submitted to a vote of stockholders. The holders of Curaflex Common Stock have
no cumulative voting rights in the election of directors. Subject to the prior
rights of holders of preferred stock of Curaflex which may be issued, the
holders of Curaflex Common Stock are entitled to dividends, when and if declared
by the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of the liquidation, dissolution or winding up of Curaflex,
the holders of Curaflex Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preferences of any
outstanding shares of preferred stock. Holders of Curaflex Common Stock have no
preemptive rights and have no right to convert Curaflex Common Stock into any
other securities. All outstanding shares of the Curaflex Common Stock are, and
all shares of Curaflex Common Stock issued pursuant to the Merger will be when
issued, fully paid and nonassessable.
PREFERRED STOCK
No shares of preferred stock of Curaflex are outstanding. The Board of
Directors has the authority, without further stockholder approval, to issue
authorized but unissued shares of preferred stock in one or more series and to
determine the preferences, rights, privileges and restrictions of any series,
including the dividend rights, conversion rights, voting rights, rights and
terms of redemption, liquidation preferences, the number of shares constituting
any such series and the designation of such series. Such issuance of preferred
stock may adversely affect, among other things, the voting rights of existing
stockholders. Moreover, unissued and unreserved preferred stock could be
utilized as a method of discouraging, delaying or preventing a change in control
of Curaflex. In addition, the mere existence of such unissued and unreserved
preferred stock may have a depressive effect on the market price of Curaflex
Common Stock. Curaflex has no present plans to issue any shares of preferred
stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
Curaflex is subject to Section 203 of the DGCL, which imposes restrictions
on business combinations (as defined therein) with interested persons (being any
person who acquired 15% or more of Curaflex's outstanding voting stock). In
general, Curaflex is prohibited from engaging in business combinations with an
interested person for a period of three years from the date a person becomes an
interested person, subject to certain exceptions. By restricting the ability of
Curaflex to engage in business combinations with an interested person, the
application of Section 203 to Curaflex may provide a barrier to hostile or
unwanted takeovers. Moreover, the application of Section 203 to Curaflex, along
with the fact that Curaflex has a Board of Directors divided into three classes
with staggered terms of three years each, may have the effect of discouraging
bidders from offering stockholders a premium on their shares. See "The
Merger -- Rights of Security Holders."
175
<PAGE> 195
BUSINESS OF HEALTHINFUSION
DESCRIPTION OF BUSINESS
HealthInfusion is a national provider of home infusion therapy services and
currently operates 35 branch facilities serving 26 states. HealthInfusion also
provides services to the contract research industry for the research and
development of new products and services and provides case management and acute
care dialysis services. Since opening its first branch facility in July 1988,
HealthInfusion's revenues have increased from 1989 reported revenues of $5.8
million to 1993 revenues of $56.7 million through both internal expansion and
acquisitions.
HealthInfusion intends to continue its growth as a national provider of
home infusion services by (i) increasing revenues at existing branch facilities,
(ii) acquiring established home infusion providers, and (iii) opening new
facilities in selected markets. HealthInfusion intends to expand the market
share of existing, acquired and newly opened branch facilities by increasing its
marketing efforts, on both a local and national basis, to a wide variety of
patient referral sources, including physician groups, hospitals, insurance
companies, managed care providers and other third-party payors.
Infusion therapy is the administration to a patient of nutrients,
antibiotics or other medications either intravenously or through a feeding tube.
HealthInfusion's services include educating patients and their caregivers,
compounding prescriptions and conducting other pharmacy operations, providing
nursing services through independent agencies and registered nurses employed by
HealthInfusion, monitoring patient compliance with the prescribed plan of care,
maintaining patient records, consulting with attending physicians, and
processing reimbursement claims.
HealthInfusion believes that its success is primarily attributable to (i)
the clinical expertise and technical competence of HealthInfusion's senior
management and professional staff, which ensure high quality services and
enhance relationships with referral sources, (ii) the use of decentralized
management systems supported by corporate-level financial, operational and
quality controls to ensure that HealthInfusion's branch facilities remain
responsive to local market needs, and (iii) the cost-effectiveness and
flexibility provided by the use of independent nursing agencies in most of
HealthInfusion's branch facilities.
The home infusion therapy market has grown considerably in recent years,
primarily due to (i) the cost-effectiveness of home treatment compared to
hospital treatment, (ii) the quality-of-life advantages of enabling patients to
continue their therapies in a familiar environment, and (iii) the increased
acceptance of home infusion therapy by the medical community, patients and
third-party payors. Such growth has also been accelerated by the ongoing
advances in medical technology that permit the treatment of an increasing number
of illnesses with home infusion therapies. In 1993, HealthInfusion derived
approximately 34% and 37% of its revenues from parenteral nutrition and
antibiotic therapy, respectively.
THE HOME INFUSION THERAPY MARKET
Home infusion therapy principally involves the intravenous administration
of physician-prescribed nutrients, antibiotics or other medications to patients
in their homes, usually as a continuation of a treatment program initiated in a
hospital.
Management believes that the growth of the home infusion therapy industry
is primarily attributable to (i) increased cost containment efforts that have
encouraged home health care; (ii) medical advances that enable doctors to treat
more illnesses through home infusion therapy; and (iii) the desire of
hospitalized patients to be treated in their homes. The growth of the industry
is also the result of improved delivery technology that permits the treatment of
more diseases at home and the growing awareness and acceptance among physicians
and third-party payors of home infusion therapy as an alternative to in-hospital
treatment. These factors have combined to increase the number of referring
hospitals and physicians.
BACKGROUND AND RECENT DEVELOPMENTS
The following is a brief description of certain material developments
affecting HealthInfusion's business.
176
<PAGE> 196
The Business Combination. HealthInfusion's predecessor, Intracare, Inc., a
Florida corporation ("Intracare"), was organized in February 1988 and partially
developed the business of HealthInfusion's Miami, Tampa and Jacksonville
facilities by establishing joint venture relationships with groups of physicians
involved in medical specialties that Intracare believed had a recurring need for
home infusion therapy. HealthInfusion was incorporated in December 1989 by the
principal shareholders of Intracare to acquire all of the outstanding capital
stock of Intracare and all of the interests of Intracare's partners in five of
the eight joint ventures then managed by Intracare. In May 1990, HealthInfusion
made such acquisitions in exchange for 4,800,000 shares of HealthInfusion Common
Stock and $1,218,000 of the net cash proceeds from HealthInfusion's initial
public offering.
Healthcare Affiliates. In March 1991, HealthInfusion acquired substantially
all of the assets of HCA, with home infusion therapy facilities located in
Houston, Oklahoma City, Tulsa, Chicago, Philadelphia and Merrillville, Indiana.
The purchase terms included (i) an initial payment of approximately $7.0 million
in cash, (ii) the issuance of $3.5 million of 9% subordinated convertible
debentures due September 1994 (the "1994 Debentures"), (iii) the assumption of
approximately $2.2 million of indebtedness, and (iv) the subsequent issuance of
$7.0 million of 9% subordinated convertible debentures due June 30, 1996 (the
"1996 Debentures") based on the revenues of HCA's business during the six months
ended June 30, 1991.
Homedic. In March 1992, HealthInfusion acquired Homedic, with home infusion
therapy facilities serving Baltimore, southern New Jersey and Philadelphia. In
connection with this acquisition, HealthInfusion paid approximately $3.0 million
in cash at the time of the closing and paid additional consideration of $500,000
in September 1993 based on Homedic's 1992 and annualized 1993 earnings before
interest and taxes. Management believes that Homedic's significant operating
experience with managed care customers will provide HealthInfusion with valuable
knowledge relating to this increasingly important referral source.
Housecalls. In March 1992, HealthInfusion acquired Housecalls, providing
home infusion therapy services in Phoenix. In connection with this acquisition,
HealthInfusion paid approximately $3.8 million in cash and issued 227,159 shares
of HealthInfusion Common Stock. Housecalls is a provider of home infusion
therapy in Arizona and the acquisition, therefore, provides HealthInfusion with
an immediate presence in a major western United States market.
Healthcare Solutions. In March 1992, HealthInfusion acquired Healthcare
Solutions, with four home infusion therapy facilities in southern California. In
connection with this acquisition, HealthInfusion paid $3.0 million in cash and
issued 110,110 shares of HealthInfusion Common Stock. Based on Healthcare
Solutions's net revenues and profit margins during 1992, HealthInfusion issued
to the former shareholders of Healthcare Solutions 176,470 shares of
HealthInfusion Common Stock in 1993. Management believes that Healthcare
Solutions presented a particularly attractive acquisition opportunity by
allowing HealthInfusion to enter the southern California market with an
established branch network.
Vital Choice. In January 1993, HealthInfusion acquired 100% of the
outstanding stock of Vital Choice, with the issuance of 187,807 shares of
HealthInfusion Common Stock. Vital Choice 1992 revenues were approximately $3.7
million. Vital Choice is a provider of home infusion therapy in Oregon and the
acquisition provides HealthInfusion with a presence in a major northwest United
States market.
Health Quest. In September 1993, HealthInfusion acquired 100% of the
outstanding stock of Health Quest through the issuance of 428,571 shares of
HealthInfusion Common Stock. Based on the earnings before tax for a 12-month
period, HealthInfusion may be required to pay additional consideration to the
former shareholders of Health Quest in August 1994. The additional consideration
will be based on a sliding scale formula up to a maximum of 1.5 times the
increase in earnings before tax during the 12 months subsequent to the
acquisition. Health Quest is a provider of home infusion therapy in Indiana and
Michigan. Health Quest's 1992 revenues were approximately $6.0 million.
Dickson Research. In September 1993, HealthInfusion acquired 60% of the
outstanding stock of Dickson Research for $1.2 million in cash, with an option
to purchase the remaining 40% of the outstanding stock. Based on net revenues
and pre-tax profits, HealthInfusion may be required to pay additional
177
<PAGE> 197
consideration of up to $2,520,000 in HealthInfusion Common Stock. Dickson
Research 1992 revenues were approximately $1.4 million.
Dialysis On Call. In October 1993, HealthInfusion acquired 100% of the
stock of Dialysis On Call, Inc., through the issuance of 42,666 shares of
HealthInfusion Common Stock and $480,000 in cash. Dialysis On Call is a
Florida-based provider of hospital and in-patient hemodialysis services.
Dialysis On Call revenues in 1992 were approximately $1.0 million. In September
1994, HealthInfusion will be required to pay to the sole shareholder of Dialysis
On Call approximately 32,400 shares of HealthInfusion common stock. In addition,
HealthInfusion may be required to pay additional cash consideration of $160,000
and $240,000 in HealthInfusion common stock if Dialysis On Call meets certain
revenue and profit projections.
Current Facilities. The following table sets forth, by internal expansion
and acquisitions, certain information with respect to HealthInfusion's
facilities:
<TABLE>
<CAPTION>
FACILITY LOCATION -- INFUSION DATE COMMENCED SERVICE
-------------------------------------------------------- ----------------------
<S> <C>
Internally Developed:
Miami, Florida........................................ July 1988
Jacksonville, Florida................................. November 1988
St. Petersburg, Florida............................... February 1989
Boca Raton, Florida................................... June 1989
Raleigh/Durham, North Carolina........................ January 1990
New York, New York.................................... March 1990
Atlanta, Georgia...................................... July 1991
Youngstown, Ohio...................................... December 1991
Mays Landing, New Jersey.............................. December 1991
Tampa, Florida........................................ December 1992
Washington, D.C....................................... May, 1993
Pensacola, Florida.................................... November 1993
Seattle, Washington................................... December 1993
Acquired October 1990:
Orlando, Florida...................................... November 1986
Acquired March 1991:
Merrillville, Indiana................................. July 1988
Houston, Texas........................................ January 1989
Oklahoma City, Oklahoma............................... April 1989
Chicago, Illinois..................................... September 1989
Tulsa, Oklahoma....................................... April 1990
Acquired September 1991:
Fayetteville, North Carolina.......................... December 1987
Acquired March 1992:
Pennsauken, New Jersey................................ September 1984
Kenilworth, New Jersey................................ April 1991
Acquired March 1992:
Torrance, California.................................. May 1986
Santa Ana, California................................. June 1988
San Diego, California................................. May 1990
Chatsworth, California................................ March 1991
Acquired March 1992:
Phoenix, Arizona...................................... January 1989
Acquired September 1992:
Naples, Florida....................................... May 1990
</TABLE>
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<PAGE> 198
<TABLE>
<CAPTION>
FACILITY LOCATION -- INFUSION DATE COMMENCED SERVICE
-------------------------------------------------------- ----------------------
<S> <C>
Acquired January 1993:
Medford, Oregon....................................... December 1986
Eugene, Oregon........................................ August 1989
Portland, Oregon...................................... September 1989
Bend, Oregon.......................................... January 1992
Acquired September 1993:
South Bend, Indiana................................... August 1989
Lansing, Michigan..................................... July 1986
Detroit, Michigan..................................... March 1990
</TABLE>
<TABLE>
<CAPTION>
FACILITY LOCATION -- CONTRACT RESEARCH
<S> <C>
Acquired September 1993:
Berwyn, Pennsylvania.................................. September 1990
</TABLE>
<TABLE>
<CAPTION>
FACILITY LOCATION -- DIALYSIS
--------------------------------------------------------
<S> <C>
Acquired October 1993:
Coral Springs, Florida................................ October 1982
</TABLE>
GROWTH STRATEGY
HealthInfusion intends to continue its growth as a national provider of
home infusion services by (i) expanding the business of its existing operations,
(ii) acquiring established home infusion providers, and (iii) opening new branch
facilities in selected markets. HealthInfusion is continually evaluating
potential acquisition candidates and suitable locations for new facilities.
HealthInfusion does not presently have any agreements, arrangements or
understandings regarding any such acquisition candidates or opening of
additional facilities. HealthInfusion's growth strategy is dependent in large
part on the ability of HealthInfusion to attract and retain key management,
marketing and operating personnel at the local facility level.
HealthInfusion's acquisition strategy includes (i) identifying businesses
with stable referral sources that it can acquire at attractive purchase prices,
(ii) minimizing its initial cash investment by utilizing deferred payment
mechanisms and financing a significant portion of the purchase price with common
stock, (iii) retaining management and using "earn-outs" based on revenues and/or
profits to provide incentives to such management, and (iv) using its strategic
management expertise and corporate information and control systems to enhance
the growth and profitability of acquired operations.
The decision to open a new facility is based on several criteria, including
HealthInfusion's relationships with key referral sources in the market area,
potential competition and the reimbursement dynamics and therapeutic needs of
the patient population. Management estimates that a new branch facility
generally requires working capital during the first year of the facility's
operation of approximately $500,000 to $1 million to finance the facility's
build-out, inventory, accounts receivable and initial start-up losses. See
"HealthInfusion Management's Discussion and Analysis of Financial Condition and
Results of Operations."
OPERATING PHILOSOPHY
Critical elements to the success of all home infusion therapy providers
include adjusting to a changing economic and regulatory environment, obtaining
payment from third-party payors, controlling costs, marketing to key referral
sources, maintaining high quality care and adapting to satisfy the needs of
local markets. As part of its operating philosophy, HealthInfusion's corporate
staff works closely with the local management of each facility to develop,
implement and monitor both operating and financial plans and strategies.
HealthInfusion also seeks to increase the earnings and cash flow of existing,
acquired and recently opened branches by
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facilitating internal growth, reducing costs, improving margins and controlling
working capital. The following elements are integral aspects of the general
operating philosophy:
- CLINICAL FOCUS. HealthInfusion's President and Vice
President -- Operations hold doctorate degrees in pharmacy, and
HealthInfusion emphasizes the training and clinical expertise of each
member of its professional staff. HealthInfusion believes that this
medical orientation provides employees with a comprehensive understanding
of patients' needs and enhances HealthInfusion's ability to establish
relationships with referral sources. HealthInfusion's overall technical
competence also provides a competitive advantage in identifying,
evaluating and attracting suitable acquisition candidates and skilled
employees. Another benefit of HealthInfusion's clinical focus is the
ability of HealthInfusion's health care staff to work closely with
attending physicians in developing and monitoring treatment protocols. In
addition, HealthInfusion has from time to time reviewed and tested, in
conjunction with hospitals, pharmaceutical companies and physician
groups, new medications and delivery technologies for application in the
home. Management believes that the resulting access to new therapies
provides a competitive marketing advantage and enables HealthInfusion to
better serve patients' clinical needs.
- DECENTRALIZATION OF MANAGEMENT. While maintaining certain critical
financial, operational and quality controls at the corporate level,
HealthInfusion endeavors to ensure, through integrated management
information systems, that its local managers have the autonomy and
ability to perform effectively by providing them with marketing, billing,
purchasing and other local decision-marking authority sufficient to
enable HealthInfusion to remain responsive to local market needs.
Management believes that such flexibility also results in greater
efficiencies in dealing with local referral sources, third-party payors
and patients. In addition, because local managers are compensated in part
upon their branch facility's financial performance, accounts receivable
management is emphasized at all levels of HealthInfusion's organization.
- NURSING SERVICES. HealthInfusion uses, to the extent feasible under local
market conditions, registered nurses from independent nursing agencies to
provide patient care. Registered nurses employed by HealthInfusion
generally serve in a supervisory capacity, providing an additional level
of quality assurance. Management believes that this strategy enables
HealthInfusion to (i) respond to fluctuations in patient levels and the
specific needs of local markets, (ii) use nursing agencies as additional
referral sources, and (iii) market HealthInfusion to third-party payors
as a more cost-efficient provider than many of its competitors.
INFUSION THERAPIES PROVIDED BY HEALTHINFUSION
HealthInfusion offers a full range of home infusion therapies rather than a
single therapy, a strategy that management believes has strengthened
HealthInfusion's relationships with physicians, discharge planners and other
referral sources. These therapies include the in-home administration of
nutrients, antibiotics and other medications to patients intravenously (into a
vein), subcutaneously (under the skin), intramuscularly (into the muscle),
through respiratory inhalation (into the lungs), intrathecally or epidurally
(via spinal routes) or through feeding tubes. HealthInfusion regularly evaluates
new infusion therapies and expects to continue to expand the range of therapies
it offers. The following table sets forth the percentage of HealthInfusion's
revenues from all infusion therapies:
<TABLE>
<CAPTION>
1991 1992 1993
------ ------ ------
<S> <C> <C> <C>
Parenteral Nutrition Therapy.......................... 45% 36% 34%
Antibiotic Therapy.................................... 36 33 37
Chemotherapy.......................................... 3 4 4
Enteral Nutrition Therapy............................. 2 4 4
Other................................................. 14 23 21
------ ------ ------
100% 100% 100%
==== ==== ====
</TABLE>
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<PAGE> 200
Parenteral Nutrition Therapy. Parenteral nutrition therapy is prescribed
for individuals unable to eat or digest food due to a failure of their
gastrointestinal tracts. Parenteral nutrition is typically administered through
central vein catheters that are surgically implanted during hospitalization.
Solutions used in this therapy typically contain amino acids (protein), dextrose
(carbohydrate), lipids (fat), electrolytes, vitamins and trace minerals. Some
patients requiring this type of therapy periodically require routine
re-hospitalization throughout their treatment. Some patients may also require
therapy for life.
Antibiotic Therapy. Antibiotic and anti-infection therapies are used to
treat a variety of infections, including Lyme disease, osteomyelitis (bone
infections), bacterial endocarditis (heart valve infections), septicemia (blood
infections), wound infections, bone and joint infections and infections
associated with cystic fibrosis and diabetes. By intravenously administering
antibiotics into the bloodstream (as opposed to ingesting them orally), the
efficacy of the medication is generally increased. Antibiotic therapy is also
becoming a significant therapy for treating individuals suffering from AIDS.
Because of the gradual destruction of the immune system by the AIDS virus,
orally administered drugs typically become less effective against opportunistic
infections, and consequently antibiotics must be introduced intravenously.
Chemotherapy. For cancer patients, chemotherapy drugs need to be precisely
administered in order to maximize their effectiveness against malignant tumors,
while minimizing nausea and vomiting. By continuously administering the
prescribed medication in conjunction with intermittent injections, the toxicity
of chemotherapy and associated side effects can be better controlled.
Enteral Nutrition Therapy. Home enteral nutrition is administered to
patients with a functioning gastrointestinal tract who are unable to orally
digest adequate life sustaining nutrients. Administration of nutrients is
usually accomplished by inserting a feeding tube into a digestive tract that is
functional. Enteral nutrition therapy is utilized for patients recovering from
head and neck surgery, or being treated for anorexia, physical impairment (such
as caused by strokes), hypermetabolic states (such as caused by burns) and some
forms of cancer.
Other Therapies. HealthInfusion also provides other therapies such as (i)
pain management therapy for the control of acute/chronic pain, (ii) hydration
therapy for restoring body fluids, (iii) immunoglobulin therapy for patients
with depressed immunity, (iv) aerosolized pentamidine therapy for the treatment
of pneumonia associated with AIDS, (v) chelation therapy for the treatment of
iron overload associated with repeated blood-transfusions, (vi) prolastin
therapy for the treatment of certain congenital pulmonary enzyme deficiencies,
(vii) inotropic therapy for patients with congestive heart failure, (viii)
anti-coagulant therapy for prevention of blood clots, (ix) tocolytic therapy for
preterm labor, (x) growth hormones, (xi) neupogen therapy, and (xii) epogen
therapy.
MARKETING AND SALES
HealthInfusion's principal marketing and sales efforts are intended to
generate patient referrals from physicians, hospitals, HMOs, clinics and nursing
agencies which specialize in the care and support of patients with a recurring
need for home infusion therapy services. At December 31, 1993, HealthInfusion
employed approximately 35 sales and marketing personnel. HealthInfusion's
marketing efforts emphasize the training and clinical expertise of its
professional staff, the high quality of HealthInfusion care and service and the
general benefits of infusion therapy. These referral sources tend to be
concentrated among a limited number of caregivers, allowing HealthInfusion to
conduct a directed selling effort through approximately 32 sales personnel. The
underlying theme of HealthInfusion's marketing efforts is to educate prospective
referral sources on the general benefits of infusion therapy and the specific
attributes of services and high quality care provided by HealthInfusion.
Management believes that referral relationships must be established
primarily on a local basis. Accordingly, HealthInfusion devotes significant
resources to training branch managers and local sales personnel in marketing and
sales skills. HealthInfusion has a vice president of national accounts who is
primarily responsible for marketing to HMOs, insurance companies and other
third-party payors using case managers. HealthInfusion's senior management,
consultants and regional vice presidents also devote considerable time in
assisting local marketing and sales efforts.
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DELIVERY OF PATIENT SERVICES
The decision to proceed with home infusion therapy is made jointly by the
patient, the attending physician and a HealthInfusion patient service
coordinator. This decision involves obtaining and evaluating information about
the patient's medical history, home environment and insurance, as well as
discussing the patient's willingness and ability to participate in the
self-administration of home infusion therapy.
After a patient is referred to HealthInfusion, a pharmacist takes the
prescription order from the attending physician and HealthInfusion clinical
personnel coordinate the delivery of patient care tailored to the individual's
specific needs. Prior to commencement of home infusion therapy, a registered
nurse, who is either employed by HealthInfusion or from an independent agency,
visits the patient's home to help assess his or her suitability for home
infusion therapy and trains the patient or care partner in the techniques
necessary for self-administration of the therapy. This training is supplemented
by an individualized training manual provided to the patient.
Throughout the course of treatment, a HealthInfusion licensed pharmacist
compounds or supervises the preparation of all prescribed drugs and solutions. A
registered nurse is present at the time of the patient's first home treatment to
assist the new patient in administering the solutions and related supplies and
to answer questions concerning the prescribed therapy and HealthInfusion's
services. In certain cases where the patient is incapable of self-administering
the therapy, a registered nurse is also present at each administration of the
therapy.
HealthInfusion's employees and independent registered nurses visit patients
periodically to review training, catheter placement and compliance with the
patient care plan, and HealthInfusion's personnel are available to respond to
patient needs 24 hours a day, seven days a week.
QUALITY ASSURANCE
General. Quality of service is emphasized throughout HealthInfusion, both
in the hiring and training of its clinical personnel and in the methods by which
patient services are delivered. HealthInfusion has established written policies
and procedures prescribing standards for patient care and has established an
internal quality assurance program including chart audits, pharmacy surveys,
patient interviews and customer questionnaires. HealthInfusion also conducts
periodic operational audits of each regional facility to assure compliance with
these standards, and HealthInfusion's employee and independent registered nurses
generally have several years of either intravenous therapy, oncology or other
critical care experience. Each of HealthInfusion's 35 infusion facilities is
supervised by a branch manager who reports to one of five regional vice
presidents. HealthInfusion's management information systems permit
HealthInfusion to monitor closely HealthInfusion's regional facilities, identify
areas requiring improvement, integrate acquired operations, process Medicare,
Medicaid and other third-party claims and facilitate the collection of accounts
receivable.
Medical Advisory Boards. To further assist in HealthInfusion's efforts to
maintain high standards of clinical care, in January 1991 HealthInfusion
established a national advisory board, comprised of prominent medical or
academic professionals specializing in infectious diseases and oncology, to
provide advice on specific medical issues related to the delivery of home
infusion therapy. In addition, HealthInfusion maintains local medical advisory
boards for many of its branch facilities to regularly review policies,
procedures and selected patient cases with HealthInfusion personnel. Members of
HealthInfusion's senior management team also periodically consult with medical
specialists on clinical procedures, new therapies, patient outcome data and
other aspects of HealthInfusion's research and development activities.
JCAHO. The Joint Commission on Accreditation of Healthcare Organizations
("JCAHO") has established written standards for home care services, including
standards for services provided by home infusion therapy companies. Twenty-nine
of HealthInfusion's infusion facilities have been surveyed and received JCAHO
accreditation, with a majority having been accredited with commendation.
HealthInfusion is in the process of scheduling its remaining six infusion
facilities for JCAHO survey and believes that all facilities are in compliance
with accreditation standards. The objective standards of JCAHO are one of the
few methods by which referring health care professionals may assess the quality
of health care services.
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Management believes that JCAHO accreditation demonstrates achievement of high
standards, and that such accreditation provides an effective marketing tool.
REIMBURSEMENT FOR SERVICES
HealthInfusion works closely with the patients it serves to properly
document and file claims for timely and direct reimbursement from third-party
payors and governmental agencies. Generally, HealthInfusion contacts the
third-party payor prior to the commencement of services or delivery of product
in order to determine the patient's coverage and the percentage of costs that
the payor will reimburse. HealthInfusion's reimbursement specialists carefully
review such issues as lifetime limits, pre-existing condition clauses, the
availability of special state programs and other reimbursement-related issues.
HealthInfusion will often negotiate with the third-party payor on the patient's
behalf to help ensure that coverage is available. In addition, HealthInfusion
typically obtains an assignment of benefits from the patient that enables
HealthInfusion to file claims for its services with the third-party payor. As a
result, third-party payors pay HealthInfusion directly for the reimbursable
amounts of its charges. Once reimbursement processing for a patient has been
established by a third-party payor, claims processing and reimbursement tend to
become routine, subject to continued patient eligibility and other coverage
limitations.
The following table sets forth certain information with respect to the
percentage of HealthInfusion's revenues attributable to various reimbursement
sources:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1991 1992 1993
------ ------ ------
<S> <C> <C> <C>
Private payors, including insurance companies................. 70% 63% 60%
Medicare and other governmental programs...................... 27 29 32
Managed care contracts(1)..................................... 3 8 8
------ ------ ------
100% 100% 100%
==== ==== ====
</TABLE>
- ---------------
(1) Reflects HMOs, but not insurance companies and other third-party payors that
utilize case managers.
Like other health care companies, HealthInfusion's revenues and
profitability are adversely affected by the continuing efforts of third-party
payors to contain or reduce the costs of health care by lowering reimbursement
rates, increasing case management review of bills for services and negotiating
reduced contract pricing. HealthInfusion has responded to these developments by
pre-qualifying the insurance coverage of patients prior to the delivery of
services, hiring a national accounts manager to target case managers and
generally educating third-party payors on the benefits of home infusion
therapies. However, there is no assurance that HealthInfusion's profit margins
will not deteriorate because of the ongoing initiatives of managed care
providers aimed at reducing the costs of home health care delivery.
COMPETITION
The home infusion therapy market is highly competitive and management
anticipates that competition, particularly for patient referrals, will intensify
in substantially all of the metropolitan areas in which its facilities are
located. Management believes that most companies, hospitals and other health
care organizations offering home infusion therapies operate in only a single
local market. However, the industry has been subject to market consolidation in
recent years and HealthInfusion believes that such trend will continue.
HealthInfusion currently competes with other home infusion therapy companies,
hospitals, physician groups and other health care organizations. A number of
companies that offer home infusion services on a regional or national basis are
larger and have significantly greater resources than HealthInfusion.
Management believes that the primary competitive factors in the home
infusion therapy industry are (i) quality of care, including responsiveness of
service and quality of professional personnel, (ii) ability to establish and
maintain relationships with referring physicians, hospitals, health maintenance
organizations, clinics and nursing agencies, (iii) price, (iv) breadth of
infusion therapies offered, and (v) general reputation
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with physicians, other referral sources and potential patients. Management also
believes that HealthInfusion competes successfully in all such areas.
REGULATION
The Federal government and all states in which HealthInfusion currently
operates regulate various aspects of HealthInfusion's business. Each of
HealthInfusion's pharmacies is subject to Federal and state laws and regulations
governing pharmacies. Federal laws require, among other things, that
HealthInfusion's facilities comply with certain rules applicable to controlled
substances. These rules include an obligation to register with the Drug
Enforcement Administration of the United States Department of Justice and to
meet certain requirements concerning security, record keeping, inventory
controls, prescription forms, order forms and labeling.
Each branch facility's pharmacists and nurses also are subject to state
licensing requirements and laws regarding standards of professional conduct.
HealthInfusion has pharmacy licenses in each of the states in which it operates
a pharmacy. However, HealthInfusion also delivers products from its licensed
pharmacies to patients in several states in which HealthInfusion does not
operate a pharmacy. Management believes that HealthInfusion's operations comply
in all material respects with applicable pharmacy licensing requirements.
HealthInfusion is also subject to laws and regulations which relate to
businesses generally, including antitrust, occupational health and safety and
environmental laws such as those relating to the disposal and handling of
hazardous and infectious wastes. None of these laws have had or are expected to
have a material effect on HealthInfusion's business.
In addition, certain state agencies have construed statutes that require
providers of health care services to obtain certificates of need ("CON") as
being applicable to home infusion therapy providers, generally where Medicare
nursing services are provided. State statutes relating to CONs generally require
state approval of a proposed facility or health service based on an assessment
of public need in a particular geographic area and, accordingly, such approvals
are sometimes difficult to obtain. HealthInfusion has never sought to obtain any
CONs and does not presently intend to obtain any CONs in any state in which it
does business. In those states in which CONs are required in order to provide
HealthInfusion's current range of services, HealthInfusion makes arrangements
with one or more home health agencies which have obtained CON approval (usually
for nursing services) to enable HealthInfusion to provide services in those
states.
As a provider of services under the Medicare and Medicaid programs,
HealthInfusion is also subject to the Medicare and Medicaid fraud and abuse
laws. These laws prohibit any bribe, kickback or rebate in return for the
referral of Medicare or Medicaid patients. Violations of these provisions may
result in civil and criminal penalties and exclusion from participation in the
Medicare and Medicaid programs. While management believes that HealthInfusion's
existing operations comply with applicable Medicare and Medicaid fraud and abuse
laws, there can be no assurance that enforcement of such laws will not have a
material adverse effect on HealthInfusion.
Several states in which HealthInfusion operates have laws that prohibit
certain direct or indirect payments or fee-splitting arrangements between health
care providers, if such arrangements are designed to induce or encourage the
referral of patients to a particular provider. Possible sanctions for violation
of these restrictions include loss of licensure and civil and criminal
penalties. Such statutes vary from state to state, often are vague and seldom
have been interpreted by the courts or regulatory agencies.
More importantly, certain states have adopted legislation which would
expressly prohibit or restrict the ability of physicians to refer patients to an
entity with which they have a financial relationship. For example, Michigan
forbids practitioners from "directing or requiring" patients to receive services
in a facility in which the practitioner has a financial interest. In 1991, New
Jersey enacted a statute that prohibits physicians from referring patients to a
health care service provider in which the physician and/or his immediate family
has a significant beneficial interest. The statute provides an exception where
the beneficial interest was held prior to effective date thereof and the
physician discloses the interest to his patient.
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HealthInfusion is studying the various proposed state regulations and
monitoring legislative activity with respect to limiting physician referrals to
entities in which they have an investment to determine what action, if any, may
be necessary to comply with pending legislation or new interpretations of
existing laws applicable to HealthInfusion's business. There can be no assurance
that the enactment of legislation which prohibits physician shareholders from
making referrals to HealthInfusion would not have a material adverse effect on
HealthInfusion's business.
SUPPLIES AND EQUIPMENT
HealthInfusion purchases drugs, solutions and other materials and leases
certain equipment required in connection with HealthInfusion's business from
many suppliers. HealthInfusion has not experienced and does not anticipate that
it will experience any significant difficulty in purchasing supplies or leasing
equipment from current suppliers. In the event that such suppliers are unable to
sell supplies or lease equipment to HealthInfusion, management believes that
other suppliers are available to adequately meet HealthInfusion's needs at
comparable prices.
EMPLOYEES
On December 31, 1993, HealthInfusion had approximately 377 employees
serving in the following areas:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER
-----------
<S> <C>
Administrative at branch locations........................... 99
Nursing...................................................... 82
Pharmacy Operations.......................................... 96
Sales and Marketing.......................................... 35
Corporate Management......................................... 65
---
Total.............................................. 377
===
</TABLE>
HealthInfusion believes that its employee relations are good. None of
HealthInfusion's employees are covered by collective bargaining arrangements.
TRADEMARKS AND LICENSES
HealthInfusion has registered the trademark "HealthInfusion." Management
does not believe that its business is dependent upon the use of any trademark,
license (other than regulatory licenses that its facilities are required to
obtain as discussed in "Business of HealthInfusion -- Regulation") or similar
property.
PROPERTIES
Facilities. HealthInfusion's branch facilities typically are leased and
consist of 2,000 to 6,000 square feet of office space in suburban office parks
in close proximity to major medical facilities. A typical branch has a fully
equipped pharmacy, offices for administrative personnel and a small storage
warehouse. Facilities are staffed with three to fifteen full-time employees, and
a typical branch includes a manager, a licensed pharmacist, registered nurses
and sales and administrative personnel. Each HealthInfusion facility serves the
metropolitan area in which it is located, generally within a two-hour driving
radius, as well as outlying locations where it can arrange appropriate nursing
services. HealthInfusion believes that its facilities are adequate for its
existing operations and does not anticipate that it will encounter any
significant difficulties in obtaining adequate space to accommodate its needs.
All of HealthInfusion's facilities are fully utilized at the present time. See
"Business of HealthInfusion -- Growth Strategy" and Note 11 of Notes to
HealthInfusion's Consolidated Financial Statements.
LEGAL PROCEEDINGS
Insurance. In recent years, physicians, hospitals and other participants
in the health care market have become subject to an increasing number of
lawsuits alleging malpractice, product liability or related legal theories, many
of which involve large claims and significant defense costs. HealthInfusion has
in force general
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liability insurance with coverage limits of $1 million per incident and $2
million in the aggregate annually, and professional liability insurance on each
of its professionals with coverage limits of $10 million in the aggregate
annually. HealthInfusion has not experienced difficulty in obtaining insurance
in the past and management believes that HealthInfusion's insurance coverage is
adequate to provide for any claims that may arise and related settlements, if
any.
Litigation. There are no material legal proceedings pending, or to the
knowledge of management, threatened against HealthInfusion.
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MANAGEMENT OF HEALTHINFUSION
The executive officers and directors of HealthInfusion are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH HEALTHINFUSION
- --------------------------- --- ----------------------------------------
<S> <C> <C>
Miles E. Gilman 36 President, Chief Executive Officer and
Director
W. Barry Tanner 44 Chief Operating Officer and Director
Jack T. Thompson 38 Vice President -- Finance, Chief
Financial Officer and Treasurer
David C. McCormick 36 Vice President -- Operations
Melvin E. Levinson, M.D. 65 Chairman of the Board
Jeffrey M. Fine 51 Vice Chairman of the Board
Stuart R. Kaufman 51 Director
William D. Gunter, Jr. 59 Director
Caroline L. Williams 47 Director
</TABLE>
Mr. Gilman, a co-founder and President and director of HealthInfusion since
its organization in February 1988, has served as HealthInfusion's President and
Chief Executive Officer since its incorporation in December 1989. Mr. Gilman
served as the Executive Director of Medical Park, one of the former joint
venture partners of Intracare and also the owner and operator of a free-standing
multimodality medical diagnostic imaging and testing center, from September 1985
to December 1989; as the Executive Director of Kendall Therapy Center, Ltd., an
owner and operator of an outpatient radiation center, from February 1988 to
December 1989; and as the Executive Director of Surgical Park Center, Ltd.
("Surgical Park"), an owner and operator of a free-standing surgical center,
from January 1987 to December 1989. Mr. Gilman received a doctorate degree in
Pharmacy from Mercer University in 1982.
Mr. Tanner, a director of HealthInfusion since May 1990, has served as
Chief Operating Officer since August 1993. From December 1991 to August 1993,
Mr. Tanner served as Senior Vice President of Prime Capital Corporation, a
medical equipment leasing company. From July 1990 until December 1991, he served
as President of LifeCare Management Corp., a health care consulting company
based in Boston, Massachusetts. From March 1988 until June 1990, he was employed
as President, Chief Operating Officer and a director of Chancellor Corp., a
publicly traded company engaged in equipment leasing. From 1986 until joining
Chancellor Corp., Mr. Tanner served as President of Scientific Leasing, Inc., a
publicly traded company engaged in leasing major medical equipment.
Mr. Thompson, a certified public accountant, has served as HealthInfusion's
Vice President of Finance, Chief Financial Officer and Treasurer since April
1991. Mr. Thompson was employed by Arthur Andersen & Co. from 1978 until such
date. While employed by Arthur Andersen & Co., Mr. Thompson was engaged
primarily in the auditing of public companies and merger and acquisition
activities.
Mr. McCormick, Vice President -- Operations of HealthInfusion since its
incorporation in December 1989, served as Vice President of Clinical Operations
of Intracare from July 1988 until May 1990. From January 1986 to June 1988, Mr.
McCormick was a Branch Manager of Infusion Care, the home infusion therapy
division of Foster Medical Corporation. Mr. McCormick received a doctorate
degree in Pharmacy from Mercer University in 1983.
Dr. Levinson, a co-founder and director of HealthInfusion since its
organization in February 1988, has served as Chairman of HealthInfusion since
its incorporation in December 1989. Dr. Levinson is also a principal of KMF
Associates, Inc., a consulting firm that provides consulting services to
HealthInfusion. Dr. Levinson has engaged in the practice of medicine as his
principal occupation for the past 30 years, most recently as a partner in
Levinson Surgical Associates, P.A. from July 1987 to August 1992.
Mr. Fine, a co-founder and director of HealthInfusion since its
organization, has served as HealthInfusion's Vice Chairman since December 1989.
Mr. Fine is also a principal of KMF Associates, Inc., a consulting firm that
provides consulting services to HealthInfusion. Mr. Fine has engaged in the
practice of law as his principal occupation since 1969.
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Mr. Kaufman, a co-founder and director of HealthInfusion since its
organization in February 1988, served as Executive Vice President of Corporate
Development of HealthInfusion from December 1989 until October 1993. Mr. Kaufman
is also a principal of KMF Associates, Inc., a consulting firm that provides
consulting services to HealthInfusion. Mr. Kaufman served as a Marketing
Director of Medical Park from January 1987 to December 1989 and as Marketing
Director of Florida Complete Home Care, a skilled care nursing agency, from
January 1985 until December 1986.
Mr. Gunter, a director of HealthInfusion since May 1990, has served as
President of Rogers-Atkins-Gunter & Associates Insurance, Inc., an insurance
agency, since January 1992, having previously served as Senior Vice President
from January 1989 until such date. Mr. Gunter has also served as Chief Executive
Officer of Bill Gunter & Associates, a government and insurance consulting firm,
since January 1989. From 1976 to 1988, Mr. Gunter served as the Treasurer and
Insurance Commissioner and State Fire Marshall of the State of Florida. Mr.
Gunter is also a former Florida Representative to the United States Congress and
a former Florida State Senator.
Ms. Williams, a director of HealthInfusion since February 1992, served as a
Vice President/Program Support of TechnoServe, a non-profit organization that
provides consulting assistance on agricultural practices and business management
to farmer-owned businesses in third-world countries, from July 1992 to September
1993. From 1971 until January 1992, Ms. Williams was employed by Donaldson,
Lufkin & Jenrette Securities Corporation, where she served as Managing Director
from 1988 until January 1992 and Senior Vice President from 1982 until 1988. Ms.
Williams also serves as a director of Argyle Television Holding, Inc., a
privately held company that owns four television stations.
DIRECTOR COMPENSATION
HealthInfusion pays each director who is not an employee a $10,000 annual
retainer and reimburses such persons for their expenses in connection with their
activities as directors of HealthInfusion. In addition, in September 1991,
HealthInfusion adopted an independent director stock grant program pursuant to
which, effective as of March 1, 1992, 1993 and 1994, each independent director
then serving would receive 1,500 shares of HealthInfusion Common Stock for
service on the Board, plus 750 shares for service on the Board's Compensation
Committee and 750 shares for service on the Board's Audit Committee, as well as
a cash payment sufficient to satisfy the director's income tax liability with
respect to such program. Pursuant to such program, in March 1993 each of Messrs.
Tanner and Gunter received 3,000 shares of HealthInfusion Common Stock and a tax
reimbursement of $3,360 with respect to their 1993 service on the Board and its
Audit and Compensation Committees. Mr. Tanner resigned his position on the Audit
and Compensation Committees effective with his appointment as Chief Operating
Officer of HealthInfusion in August 1993. In addition, in March 1993, Ms.
Williams received 2,250 shares and a tax reimbursement of $2,520 with respect to
her 1993 service on the Board and the Compensation Committee. Also, in December
1993, Ms. Williams received 750 additional shares of HealthInfusion Common Stock
as a result of her appointment as a member of the Board's Audit Committee, and a
tax reimbursement payment of $630. In addition, each of Mr. Gunter and Ms.
Williams received $30,000 in 1993 as compensation for serving as Chairperson of
the Board's Audit and Compensation Committees, respectively.
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EXECUTIVE COMPENSATION
The following table sets forth the annual, long-term and other compensation
earned for services rendered in all capacities to HealthInfusion and its
subsidiaries for each of the years ended December 31, 1991, 1992 and 1993, by
HealthInfusion's Chief Executive Officer and each of HealthInfusion's next four
most highly compensated executive officers for the 1993 fiscal year
(collectively the "HealthInfusion Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION> LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION NUMBER OF
------------------------------------- SECURITIES ALL OTHER
NAME AND OTHER ANNUAL UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS (1)(2)
- ----------------------------- ---- -------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Miles E. Gilman.............. 1993 $275,000 $ -- $63,611(3) -- $4,497
President and Chief 1992 250,000 -- 47,133(3) -- 4,364
Executive Officer 1991 195,000 176,000 -- --
Stuart R. Kaufman............ 1993 168,750 -- 39,912(4) -- 4,497
Executive Vice President- 1992 225,000 -- 42,405(4) -- 4,364
Corporate Development 1991 170,000 163,900 -- --
Jack T. Thompson............. 1993 181,300 -- 23,280(5) -- 4,497
Vice President-Finance, 1992 175,000 -- 21,671(5) -- 4,364
Chief Financial 1991 124,000 107,500 -- 45,000
Officer and Treasurer
David C. McCormick........... 1993 141,250 -- 21,398(6) -- 3,855
Vice President- 1992 130,000 -- 13,685(6) -- 4,364
Operations 1991 116,750 69,170 -- --
David P. Bull................ 1993 130,000 -- -- -- 4,497
Vice President-Sales 1992 115,000 -- --(7) -- 4,364
and Marketing 1991 93,475 63,525 -- 30,000
</TABLE>
- ---------------
(1) Disclosure not required for 1991.
(2) Represents HealthInfusion's matching contribution for each HealthInfusion
Named Officer pursuant to HealthInfusion's 401(k) Plan.
(3) Includes $54,982 and $34,615 for vacation and sick days in 1993 and 1992,
respectively, and $8,629 and $12,518 for reimbursed taxes in 1993 and 1992,
respectively.
(4) Includes $25,457 and $31,154 for vacation and sick days in 1993 and 1992,
respectively, and $14,455 and $11,251 for reimbursed taxes in 1993 and 1992,
respectively.
(5) Includes $23,280 and $21,671 for vacation and sick days in 1993 and 1992,
respectively.
(6) Includes $17,500 and $10,500 for vacation and sick days in 1993 and 1992,
respectively.
(7) Mr. Bull resigned his position with HealthInfusion in October 1993.
OPTION GRANT TABLE
No options or stock appreciation rights were granted to any HealthInfusion
Named Executive Officer in 1993.
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AGGREGATED FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning unexercised
stock options held by the HealthInfusion Named Executive Officers as of December
31, 1993. No stock options were exercised by any of the HealthInfusion Named
Executive Officers during 1993. No stock appreciation rights were exercised
during 1993, nor were any stock appreciation rights outstanding at the end of
such year.
<TABLE>
<CAPTION>
DOLLAR VALUE OF
NUMBER OF UNEXERCISED UNEXERCISED
OPTIONS AT 1993 IN-THE-MONEY OPTIONS AT
YEAR-END 1993 YEAR-END
NAME (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)(1)
------------------------------------ --------------------------- ------------------------------
<S> <C> <C>
Miles E. Gilman..................... 86,250/ 0 $109,781/$ 0
Stuart R. Kaufman................... 86,250/ 0 $109,781/$ 0
Jack T. Thompson.................... 30,000/15,000 $ 0/$ 0
David C. McCormick.................. 30,750/ 8,250 $ 38,801/$10,684
David P. Bull....................... 30,000/ 0 $ 23,850/$ 0
</TABLE>
- ---------------
(1) Value is calculated as the excess of the market value of HealthInfusion's
Common Stock at December 31, 1993 ($6.63) over the exercise price.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Effective October 1991, HealthInfusion entered into new employment
agreements with each of Messrs. Gilman, Kaufman, Thompson and McCormick
providing for their continued employment through December 31, 1994 (with
automatic annual renewals absent HealthInfusion's prior written notice to the
contrary). Pursuant to the employment agreements, Messrs. Gilman, Kaufman,
Thompson and McCormick receive annual base salaries, subject to cost of living
adjustments, of $250,000, $225,000, $175,000, and $130,000, respectively.
Effective September 1993, HealthInfusion entered into an employment agreement
with Mr. Tanner, providing for his continued employment through August 31, 1996
(with automatic renewals absent HealthInfusion's prior written notice to the
contrary), pursuant to which Mr. Tanner receives a base annual salary, subject
to cost of living adjustment, of $225,000. Effective October 1, 1993, the
expiration date of the initial term of Mr. Gilman's employment agreement was
changed to December 31, 1998 (with automatic renewals absent HealthInfusion's
prior notice to the contrary), and Mr. Gilman's annual base salary was increased
to $350,000, subject to cost of living adjustments. Also effective October 1,
1993, Mr. Kaufman's employment agreement was terminated, and replaced with a new
consulting agreement with KMF Associates, Inc. described below. If the Merger is
consummated, such agreements will be terminated on the terms described elsewhere
in this Joint Proxy Statement/Prospectus under the caption "The Merger --
Interests of Certain Persons in the Merger."
Each employment agreement also provides for the executive's participation
in the Incentive Compensation Plan described below, as well as an automobile
allowance of $500 or $600 per month. In addition, each employment agreement
provides that the executive will continue to receive his base salary for the
balance of the employment agreement term if HealthInfusion terminates his
employment without Cause (as defined) or if the executive terminates his
employment after his base salary is reduced, he is requested to engage in
conduct that is reasonably likely to be illegal or his position, duties or
responsibilities are significantly diminished (in each case following the
executive's objection and an opportunity for HealthInfusion to cure). Finally,
each employment agreement prohibits the executive from directly or indirectly
competing with HealthInfusion for one year after termination of his employment
for any reason.
Effective October 1, 1991, HealthInfusion also entered into severance
agreements with each of Messrs. Gilman, Thompson and McCormick. Also, in
September 1993, HealthInfusion entered into a severance agreement with Mr.
Tanner. The severance agreements will become effective on, and provide for each
such person's continued employment or retention following, a "Change in Control"
(as defined) of HealthInfusion. Such agreements generally provide that upon (1)
termination by HealthInfusion of the executive's employment for any reason other
than death, "Disability" or "Cause" (as defined), (2) termination by the
executive for "Good Reason" (generally defined as the diminution of the
executive's duties or
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other breach by HealthInfusion of the agreement), or (3) termination by the
executive during a 30-day period commencing one year after the Change in
Control, the executive will receive, in addition to the base salary, bonus and
other compensation accrued through the date of termination, a lump sum cash
payment generally equal to two and one-half (2 1/2) times the executive's
then-existing base and incentive compensation (pursuant to an amendment
effective October 1, 1993, three (3) times in the case of Mr. Gilman). All of
HealthInfusion's payments to the executive (whether pursuant to the change in
control severance agreement or otherwise) will be reduced to the extent
necessary to avoid the payments being nondeductible pursuant to Section 280G of
the Code. See "The Merger -- Interests of Certain Persons in the Merger."
Mr. Kaufman also had a severance agreement with HealthInfusion, which
provided for payments as described above. Mr. Kaufman's severance agreement was
terminated effective October 1, 1993, the date on which the Consulting Agreement
with KMF Associates, Inc. became effective and Mr. Kaufman's employment with
HealthInfusion was terminated.
Each HealthInfusion Named Officer holds options to purchase HealthInfusion
Common Stock granted under HealthInfusion's Amended and Restated Stock Option
Plan. To the extent not already exercisable, such options generally become
exercisable upon (1) a merger, consolidation or similar corporate transaction in
which ownership of more than 49% of the voting power of HealthInfusion's voting
stock is transferred, (2) a merger or consolidation or similar corporate
transaction in which HealthInfusion does not survive, or (3) a sale or other
disposition of all or substantially all of HealthInfusion's assets.
CONSULTING AGREEMENTS
Effective October 1, 1993, HealthInfusion entered into a consulting
agreement (the "Consulting Agreement") with KMF Associates, Inc. (the
"Consultant"). Messrs. Levinson, Fine and Kaufman are the sole shareholders,
directors and officers of the Consultant. The Consulting Agreement provides for
(1) a five-year term, (2) payment of an annual consulting fee of $660,000,
payable in arrears in accordance with the HealthInfusion's normal payroll
procedures (subject to cost of living adjustments), and (3) a severance payment
of three times such base compensation in the event of a termination resulting
from or in connection with a "Change in Control" (as defined). The Merger
constitutes such a Change in Control. See "The Merger -- Interests of Certain
Persons in the Merger." HealthInfusion paid KMF Associates, Inc. $165,000 of
consulting fees in 1993.
The Consulting Agreement also prohibits the Consultant from directly or
indirectly competing with HealthInfusion in the State of Florida or within a
100-mile radius of any office maintained by HealthInfusion during the term of
the Consulting Agreement. All of HealthInfusion's payments to the Consultant,
whether pursuant to a Change in Control or otherwise, will be reduced to the
extent necessary to avoid the payments being nondeductible pursuant to Section
280G of the Code.
The Consulting Agreement replaced (i) prior consulting agreements with
Messrs. Levinson and Fine, which provided for payment to each of Messrs.
Levinson and Fine of an annual retainer of $110,000 through December 31, 1994
(with automatic annual renewals absent HealthInfusion's prior written notice to
the contrary) and payment of $100,000 to Messrs. Levinson and Fine if such
agreements were terminated without Cause (as defined), (ii) prior change in
control severance agreements with Messrs. Levinson and Fine, which provided for
a lump sum cash payment generally equal to two and one-half (2 1/2) times each
of Messrs. Levinson's and Fine's then-existing consulting retainer, and (iii)
HealthInfusion's prior employment agreement and change in control severance
agreement with Mr. Kaufman. Under the prior consulting agreements,
HealthInfusion paid Messrs. Levinson and Fine $82,500 each for consulting
services in 1993.
INCENTIVE COMPENSATION PLAN
Effective October 1991, HealthInfusion adopted an Incentive Compensation
Plan (the "Incentive Plan") for 1992 through 1996 that generally provides as
follows. Prior to March 15 of each year (a "Year"), the Compensation Committee
of the Board is required to select participants and establish an earnings per
share 'target' for purposes of that Year's Incentive Plan awards. If
HealthInfusion's actual earnings per share equals or exceeds such target, each
participant will receive (i) a cash bonus equal to 10% of his base salary for
such
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<PAGE> 211
Year, (ii) an amount of HealthInfusion Common Stock (the "Stock Bonus")
determined by dividing 30% of his base salary by fifty percent (50%) of the
average of the high and low closing prices for HealthInfusion Common Stock
during such Year (or, if lower, 50% of the closing sales price on the last
trading day of such year), and (iii) a cash payment sufficient to satisfy the
participant's income tax liability with respect to his Stock Bonus. For 1993,
the Incentive Plan participants were HealthInfusion's five executive officers.
No payments were made for the 1993 Year under the Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS/INSIDER PARTICIPATION
From January 1, 1993 through August 1, 1993, Mr. Tanner served as a member
of the HealthInfusion Compensation Committee, along with Mr. Gunter and Ms.
Williams. Mr. Tanner resigned his position with the HealthInfusion Compensation
Committee, effective upon his appointment as Chief Operating Officer of
HealthInfusion in August 1993. The HealthInfusion Compensation Committee has
consisted of Ms. Williams (chairperson) and Mr. Gunter since Mr. Tanner's
resignation in August 1993. The terms of Mr. Tanner's employment agreement with
HealthInfusion, including compensation terms, were reviewed and approved by Ms.
Williams and Mr. Gunter after Mr. Tanner's resignation from the Compensation
Committee.
Rogers, Atkins, Gunter & Associates Insurance, Inc. ("Rogers, Atkins") acts
as HealthInfusion's insurance agent and received approximately $112,000 in
commissions and fees with respect to services provided by Rogers, Atkins in
1993. Mr. Gunter, a member of the HealthInfusion Compensation Committee, is an
officer and owns over 10% of Rogers, Atkins.
CERTAIN TRANSACTIONS
Rogers, Atkins acts as HealthInfusion's insurance agent and received
approximately $112,000 in commissions and fees with respect to services provided
by Rogers, Atkins in 1993. Mr. Gunter, a director of HealthInfusion, is an
officer of and owns over 10% of Rogers, Atkins.
Mr. Fine, a director of HealthInfusion, has from time to time performed
certain legal services for HealthInfusion. Mr. Fine was paid approximately
$72,000 for such services rendered in 1993.
Messrs. Levinson, Fine and Kaufman, directors of HealthInfusion, are the
sole shareholders of KMF Associates, Inc., a company that provides consulting
services to HealthInfusion, pursuant to a consulting agreement. The consulting
agreement, effective as of October 1, 1993, provides for payment of an annual
consulting fee in the amount of $660,000. HealthInfusion paid KMF Associates,
Inc. consulting fees of $165,000 in 1993. Prior to October 1, 1993, each of
Messrs. Levinson and Fine received consulting fees of $82,500 under a prior
consulting agreement. See "-- Consulting Agreements" above.
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HEALTHINFUSION PRINCIPAL SHAREHOLDERS
The following table sets forth as of April 30, 1994, information with
respect to the beneficial ownership of HealthInfusion Common Stock by (1) each
shareholder known by HealthInfusion to beneficially own more than 5% of
HealthInfusion Common Stock, (2) each director and HealthInfusion Named
Executive Officer (see "Executive Compensation") of HealthInfusion who owns any
shares, and (3) all directors and executive officers of HealthInfusion as a
group.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED(2)
NAME AND ADDRESS ---------------------------
OF BENEFICIAL OWNER(1) SHARES PERCENT
---------------------- ---------- -------
<S> <C> <C>
Invesco MIM PLC.................................. 610,000(3) 6.1
Melvin E. Levinson, M.D.......................... 810,449(4)(5) 8.1
Jeffrey M. Fine.................................. 793,949(4)(5) 8.0
Stuart R. Kaufman................................ 753,862(5)(6) 7.6
Miles E. Gilman.................................. 751,762(5) 7.5
David C. McCormick............................... 225,508(7) 2.3
Jack T. Thompson................................. 52,775(8) *
W. Barry Tanner.................................. 16,000(9) *
William D. Gunter, Jr............................ 21,000(10) *
Caroline L. Williams............................. 4,500 *
All directors and executive
officers as a group (9 persons)................ 3,387,618(4)(6)(11) 32.5
</TABLE>
---------------
* Less than 1%
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is 5200 Blue Lagoon Drive, Suite 200, Miami, Florida 33126.
(2) Unless otherwise indicated, each person has sole voting and investment
power with respect to all such shares.
(3) Based solely on Schedule 13G, dated February 8, 1994. The address of
Invesco MIM PLC is 11 Devonshire Square, London, EC2M 4YR, England.
(4) Includes 42,187 shares of Common Stock owned of record by Medical Park.
Messrs. Levinson and Fine control two of the three corporate general
partners of Medical Park.
(5) Includes 75,000 shares subject to options that became exercisable in full
on May 23, 1991 and 11,250 shares subject to options that became
exercisable in full on December 28, 1993.
(6) Includes 1,500 shares held of record by Mr. Kaufman's wife and 600 shares
held of record by his minor child.
(7) Includes 39,000 shares subject to options, including 8,250 shares subject
to options that vest as a result of the Merger.
(8) Includes 45,000 shares subject to options.
(9) Includes 2,500 shares subject to options that became exercisable in full on
May 23, 1991 and 7,500 shares subject to options that became exercisable in
full on December 28, 1993.
(10) Includes 7,500 shares subject to options that became exercisable in full on
May 23, 1991 and 7,500 shares subject to options that became exercisable in
full on December 28, 1993.
(11) Includes (a) 310,000 shares subject to options that became exercisable in
full on May 23, 1991 held by Messrs. Gilman, Kaufman, Levinson, Fine,
Tanner and Gunter, (b) 45,000 shares subject to options that became
exercisable in full on December 28, 1993 held by Messrs. Gilman, Kaufman,
Levinson and Fine, (c) 15,000 shares subject to options that became
exercisable in full on December 28, 1993 by Messrs. Tanner and Gunter, (d)
45,000 shares subject to options held by Mr. Thompson, and (e) 39,000
shares subject to options held by Mr. McCormick, including 8,250 shares
that will vest as a result of the Merger.
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DESCRIPTION OF CAPITAL STOCK OF HEALTHINFUSION
HealthInfusion's authorized capital stock consists of 40,000,000 shares of
Common Stock, par value $.01 per share, and 1,000,000 shares of Preferred Stock,
par value $.01 per share ("HealthInfusion Preferred Stock"). At April 30, 1994,
9,962,562 shares of HealthInfusion Common Stock were outstanding and held of
record by approximately 815 shareholders. No shares of HealthInfusion Preferred
Stock have been issued. The following statements are brief summaries of certain
provisions of HealthInfusion's Amended and Restated Articles of Incorporation
relating to its capital stock.
COMMON STOCK
Holders of HealthInfusion Common Stock are entitled to one vote per share
on all matters submitted to a vote of shareholders, including the election of
directors. The HealthInfusion Common Stock does not have cumulative voting
rights, which means that the holders of a majority of the shares voting for
election of directors can elect all members of the Board of Directors. A
majority vote is also sufficient for other actions that require the vote or
concurrence of shareholders. See "HealthInfusion Principal Shareholders."
Dividends may be paid to holder of HealthInfusion Common Stock when and if
declared by the Board of Directors out of funds legally available therefor. Upon
liquidation or dissolution of HealthInfusion, holders of HealthInfusion's Common
Stock will be entitled to share ratably in the assets of HealthInfusion legally
available for distribution to shareholders in the event of liquidation or
dissolution.
The holders of HealthInfusion Common Stock have no preemptive or conversion
rights and are not subject to further calls or assessments by HealthInfusion.
The registrar and transfer agent of the Common Stock is Mellon Financial
Services.
PREFERRED STOCK
Although HealthInfusion has no present plans to issue shares of
HealthInfusion Preferred Stock, HealthInfusion Preferred Stock may be issued
from time to time in one or more classes or series with such designations,
powers, preferences, rights, qualifications, limitations and restrictions as may
be fixed by HealthInfusion's Board of Directors. The Board of Directors, without
obtaining shareholder approval, could issue HealthInfusion Preferred Stock with
voting and/or conversion rights and thereby dilute the voting power and equity
of the holders of HealthInfusion Common Stock and adversely effect the market
price of such stock. The issuance of HealthInfusion Preferred Stock could also
be used as an antitakeover measure by HealthInfusion without any further action
by the shareholders.
CERTAIN FLORIDA LEGISLATION
Florida has enacted legislation which may deter or frustrate takeovers of
Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless such voting rights are approved by a majority vote of the
corporation's disinterested shareholders. The Florida Control Share Act may have
the effect of discouraging bidders from offering shareholders a premium on their
shares. The Florida Fair Price Act generally requires supermajority approval by
disinterested directors or shareholders of certain specified transactions
between a corporation and holders of more than 10% of the outstanding shares of
the corporation (or their affiliates). Florida law and HealthInfusion's Articles
of Incorporation also authorize HealthInfusion to indemnify HealthInfusion's
directors, officers, employees and agents. Pursuant to such authorization,
HealthInfusion has entered into an agreement with each of its directors and
certain of its executive officer providing for indemnification to the fullest
extent allowed by law. See "The Merger -- Rights of Security Holders."
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BUSINESS OF MEDISYS
BACKGROUND
Medisys, Inc. was incorporated in Minnesota in 1986 and was reincorporated
in Delaware in September 1989. As used herein the term "Medisys" refers to
Medisys, Inc., a Delaware corporation, and its subsidiaries, and to its
predecessor, CareVan Mobile Medical Offices of Minnesota, Inc., a Minnesota
corporation. In July 1993, Medisys completed a merger with American Home
Therapies, Inc. ("AHT"). The merger was accounted for as a pooling of interests;
accordingly, information concerning Medisys for all periods presented has been
restated to include AHT. Medisys' corporate offices are located at 4550 West
77th Street, Edina, Minnesota 55435. Medisys' telephone number is (612)
835-8300.
Medisys' revenues, operating profits and assets are attributable to the
single industry segment of alternate site (i.e., outside the hospital) health
care services and related products, including home infusion therapy and
comprehensive pharmacy services to long-term care facilities and retirement
communities.
Home infusion therapy involves the intravenous or other administration of
physician-prescribed nutrients, antibiotics, chemotherapeutic agents and other
medications to patients in their homes. Such therapy is usually provided as a
continuation of treatment initiated in a hospital or as a substitute for
hospitalization. Comprehensive pharmacy services and products include
prescription dispensing, pharmaceuticals consulting, infusion therapy, enteral
therapy and providing medical supplies to patients in long-term care facilities
and retirement communities.
Medisys was founded on physician-developed guidelines and protocols for the
treatment in the home of various illnesses that have been treated primarily in
hospitals. Medisys' physician advisors continue to develop additional treatment
guidelines and protocols, allowing Medisys to expand its range of infusion
therapy services. Medisys believes that its full range of services and related
products, specialized clinical programs and reputation for quality patient care
enhance its ability to attract and retain key referral sources.
Medisys, through AHT, commenced its home infusion therapy operations in
1985 in the St. Louis, Missouri market. Medisys opened its regional center to
serve the Minneapolis-Saint Paul market in 1987 and in Milwaukee, Wisconsin in
1990. In 1991, Medisys opened regional centers in Kansas City, Kansas and
Dallas, Texas. In 1992, Medisys added regional centers in Phoenix, Arizona,
Chicago, Illinois and Stockton, California, through acquisitions, and opened
regional centers in Chico, California and Cincinnati, Ohio. Each of these
regional centers operates a licensed pharmacy and provides infusion therapy
services and products, including a full range of clinical programs with the
exception of the perinatal program, which is only provided in the
Minneapolis-Saint Paul market. Regional centers in Phoenix, Arizona, Dallas,
Texas and Chico and Stockton, California also provide comprehensive pharmacy
services.
In January 1992, Medisys completed a public offering of 1,955,000 shares of
its common stock and received approximately $10,600,000 in net proceeds, after
deducting expenses of the offering, which proceeds have been used by Medisys to
pursue its expansion strategy.
Medisys completed four acquisitions in 1992 using a combination of cash and
shares of Medisys' common stock. In December 1992, Medisys acquired AllCare
Health Services, Inc. and AllCare Home Care, Inc., related companies that have
been engaged in providing home infusion therapy and related products and
services in the Chicago, Illinois market. Medisys expanded its operations in the
long-term care facilities market by acquiring three companies engaged in
providing comprehensive pharmacy services to patients in long-term care
facilities and retirement communities in three different markets, including:
Pharmacy Consultants of Arizona, Inc. of Phoenix, Arizona acquired in May 1992,
Pharmacy Ventures, Inc. of Dallas, Texas acquired in October 1992 and Delta
Pharmacy, Inc. of Stockton, California acquired in December 1992. In July 1993,
Medisys acquired AHT, with operations in St. Louis, Missouri and Kansas City,
Kansas, which has been engaged in providing home infusion therapy and related
products and services.
Medisys markets its services and products to physicians, physician practice
groups, hospitals, long-term care facilities and other institutional health care
providers, third-party payors and large self-insured employers. Once a patient
is referred to Medisys, Medisys' professional health care staff works closely
with the attending
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physician and other health care professionals, as appropriate, to coordinate the
care of the patient. Medisys' staff also works closely with the third-party
payor to verify health care benefits and obtain appropriate authorization for
Medisys' services.
ALTERNATE SITE HEALTH CARE MARKET
The market for alternate site health care, particularly home infusion
therapy, has grown rapidly since its initial development in the late 1970's.
Medisys believes that the growth in the alternate site health care industry is
attributable to (i) advances in drug delivery technology, allowing physicians to
treat a wider range of medical conditions outside hospitals, (ii) the adoption
of cost containment measures by federal and state regulators and third-party
payors, (iii) the cost-effectiveness of alternate site treatment over hospital
treatment, (iv) increased awareness and acceptance of home infusion therapy
among physicians and third-party payors, (v) the aging of the population, and
(vi) the desire of patients to be treated in their homes. Medisys believes that
these factors will continue to contribute to growth in the market for alternate
site health care services and products. This market is currently served by a
variety of sources, including larger national or regional companies, smaller
companies operating in a single market, hospitals, long-term care facility
chains, physician groups and other health care providers.
CLINICAL PROGRAMS
Medisys provides comprehensive infusion therapy services through
specialized clinical programs tailored to meet the needs of specific medical
practice patterns. These clinical programs are marketed to physicians who
practice related medical specialties and then customized to the physician's
particular patient requirements. Medisys believes that each of these clinical
programs develops its own reputation within the community, resulting in greater
acceptance by both physicians and patients.
Infectious Disease. The infectious disease program has Medisys' largest
volume of patients and greatest variety of physician specialty involvement.
Physicians who treat infectious disease conditions include family practitioners,
internists, surgeons, oncologists, urologists and infectious disease
specialists. Infectious diseases are commonly treated with antibiotic therapies,
and include such conditions as osteomyelitis, AIDS-related infections, Lyme
disease, bacterial endocarditis and wound infections.
Nutrition. Medisys' clinical program for nutritional support offers both
parenteral (intravenous) nutrition therapy and enteral nutrition therapy, which
involves ingestion of nutrients through a feeding tube into a functioning
digestive tract. This program provides nutrition to patients who are unable to
ingest food through normal means, who have an obstruction of the intestine, or
who may have absorption difficulties due to a missing or inactive intestine.
Patients receiving these therapies often require the support for the remainder
of their lives. Patients receiving nutritional support often suffer from other
medical conditions requiring other therapies, such as chemotherapy, blood
transfusions or antibiotics, which are delivered in conjunction with nutritional
support.
Oncology. The market for oncology home infusion therapies has grown
significantly in recent years. The oncology program is one of the most rapidly
growing of Medisys' clinical programs and constitutes a higher percentage of
Medisys' net revenues than is typical for many home infusion therapy companies.
Medisys believes this is attributable to Medisys' specially trained personnel
and ability to deliver a wide range of oncology infusion therapies. Nurses who
have certification in oncology lead this program and provide a high level of
expertise. The oncology program encompasses chemotherapy, biological therapies
and blood product therapies. The home therapy regimens utilize recent
innovations in medication and treatment protocols for the treatment and
prevention of the side effects of chemotherapy. As compared to hospital
treatment, Medisys' oncology program enables patients to spend more time with
their families and friends in a familiar environment.
HIV/AIDS. A multi-disciplinary approach is used to provide a full range of
services to meet the specific needs of each individual with HIV or AIDS. This
approach involves a team of health care professionals, including a physician,
nurse, pharmacist, nutrition consultant, social worker and chaplain. The
therapies
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delivered in this program are expanding as new technologies become available.
The HIV/AIDS program is dedicated to helping each person live fully and
independently.
Pediatrics. The pediatric program is designed for the needs of young
patients and their families. Medisys' professional staff involved in the
pediatric program is experienced in the needs of young children. This program
includes the delivery of a wide range of infusion therapies with services
customized for the unique dosing requirements of children.
Perinatal. The perinatal program treats women in their home for various
conditions of pregnancy, and also includes care and treatment of the newborn.
The nurses providing the care in this program have critical care (level III)
labor and delivery experience. The conditions treated include preterm labor,
pregnancy induced hypertension, hyperemesis (extreme nausea and vomiting) and
other conditions that frequently would require hospitalization during pregnancy.
This program results in significant cost savings over hospitalization for the
care of both the mother and the infant.
Long-Term Care. The long-term care program provides a full range of
infusion therapies to patients in long-term care facilities and is well-suited
to meet the needs of the patient and staff in the long-term care environment.
Medisys provides support to the staff of the institution to help meet unique
regulatory and documentation requirements. This program reduces hospitalization,
allows individuals to be treated in their home setting (the long-term care
facility), and provides another alternate site option for the administration of
infusion therapy.
Other Therapies. Medisys delivers additional therapies to patients outside
of the hospital setting, including Factor VIII (an agent used to facilitate
blood clotting for hemophiliac patients), blood transfusions, biological
therapies, such as the administration of colony stimulating factors in the
treatment of immuno-suppressed patients, hydration therapy, intravenous
anticoagulation therapy for patients suffering from deep vein thrombophlebitis,
and Alpha I antrypsin deficiency administration to patients with an enzyme
deficiency impairing lung functioning. The medical profession continues to
develop new therapies and delivery protocols facilitating alternate site care
for more medical conditions.
PHARMACY PROGRAMS
Infusion Therapy. Each of Medisys' regional centers provides intravenous
medications and solutions from state-of-the-art infusion pharmacies. These
licensed pharmacies are staffed by licensed pharmacists, experienced in infusion
therapy and are equipped with the latest in high technology supplies and
equipment. The licensed pharmacists work closely with Medisys' clinical nursing
staff to evaluate each therapy and to determine the optimal method for
medication administration in each case.
Long-Term Medication Distribution. In the markets where Medisys provides
comprehensive pharmacy services to long-term care facilities and retirement
communities, it maintains closed-door institutional pharmacies. These pharmacies
are staffed by licensed pharmacists who dispense prescription and over-the-
counter medications to individuals living in the contracted facilities. The
medications are dispensed utilizing customized drug distribution systems. The
specific system implemented in each facility depends on the needs identified by
facility staff and on state regulations. In most cases, a unit dose medication
system is chosen which facilitates appropriate medication administration and
minimizes waste. Routine and emergency delivery of medications is provided by
Medisys. Prescription services are available on a 24-hour per day basis. All
services provided by Medisys' institutional pharmacies meet state and federal
pharmacy and long-term care facility regulations.
Enteral and Medical Supply Services. Medisys provides Enteral nutrition
formulas and supplies and other disposable medical supplies, including
urological, ostomy, diabetic and tracheostomy supplies through either its
infusion or institutional pharmacies. While these products are utilized in both
the home care and long-term care setting, Medisys has experienced the greatest
utilization from the long-term care market. Medisys believes that this is
attributable to the service component of these programs and to the higher demand
for these products by the elderly residents of long-term care facilities.
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Long-Term Care Medical Records. The long-term care medical records program
provides a full range of computerized medical records to contracted facilities.
These computerized medical records are utilized by the facility nursing staff to
document daily patient call activities such as medication administration,
medication side effect monitoring and treatment administration. The staff
utilizes computerized care plans to monitor overall patient progress and sends
computerized physician orders to attending physicians for review and signature.
All of these documents facilitate long-term care facility compliance with state
and federal regulations, particularly OBRA 87.
Long-Term Care Pharmaceutical Consulting. Medisys employs licensed
pharmacists with strong educational and clinical backgrounds in geriatrics and
long-term care to provide pharmaceutical consulting services to contracted
facilities. These consulting services are required by law and include monthly
medication therapy monitoring of each long-term care facility resident's drug
therapy for appropriateness, monitoring for long-term care facility compliance
with pharmacy related regulations, participation in facility quality assurance
activities, and in-service education. The facilities rely on the consultant
pharmacist to insure compliance with pharmacy related regulations. This
compliance is measured by annual reviews of the facilities by state health
department inspectors.
Clinical Pharmacy. Medisys' clinical pharmacy program is designed to
provide physicians access to a level of pharmacy service equal to that available
in the hospital setting. Medisys employs pharmacists with clinical degrees and
expertise, who specialize in clinical pharmacy areas such as nutrition support
and pharmacokinetics. Physicians may request the service of these pharmacists to
help monitor and adjust medication and nutrition therapies and to respond to
drug information inquiries. Further, these pharmacists are integrally involved
in Medisys' quality assurance and improvement activities.
PATIENT SERVICES
Quality Assurance. Medisys is committed to providing full service, high
quality health care services and related products. Medisys' nursing staff
consists exclusively of licensed, registered nurses with clinical backgrounds
and experience in infusion care in areas such as oncology, critical care,
pediatrics and long-term care. Each of Medisys' nurses also receives continuing
training in one or more of Medisys' specialized clinical programs. Medisys'
pharmacy staff consists of licensed pharmacists with extensive experience in
long-term care and infusion therapy. Medisys' pharmacy staff includes
individuals with advanced clinical degrees (i.e., PharmD) including backgrounds
in nutrition, pharmacokinetics and geriatric drug therapy.
Medisys believes that the clinical expertise of its employees gives
referral sources confidence that the patient will receive high quality health
care. Medisys, in conjunction with its medical advisors, has also devoted
considerable resources to the development and refinement of Medisys' treatment
guidelines and protocols, in order to assure consistent delivery of high quality
care.
Medisys maintains a Quality Assurance and Utilization Review Committee in
each of its regional centers, except Phoenix, Arizona and Stockton, California,
where committees are being formed. These committees are overseen by the Medical
Affairs Committee of Medisys' Board of Directors and generally include
representatives of third-party payors, independent physicians and Medisys staff
members. These committees meet quarterly to monitor compliance with Medisys'
treatment guidelines and protocols by Medisys' professional health care staff
and to monitor physician usage of Medisys' services for appropriateness to the
needs of patients. The utilization review function is important to the cost
containment efforts of third-party payors. Compensation for Quality Assurance
and Utilization Review Committee members varies by regional center, with
compensation for non-employee members ranging from zero to $300 per meeting.
Employees of Medisys who are members of such committees are not compensated for
such service beyond their regular salary.
Since its inception, Medisys' medical complication rate has averaged less
than 1% of the episodes of care given. Medisys also surveys its patients to
determine their level of satisfaction with Medisys' services, and has adopted a
Bill of Rights for its patients that is followed by Medisys' professional health
care staff in the delivery of services.
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Medisys' regional centers in the Minneapolis-Saint Paul metropolitan area,
Illinois, Missouri, Texas, Wisconsin, Kansas and Ohio have been accredited by
the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO").
While accreditation from the JCAHO is not required for Medisys to conduct its
business, Medisys believes that accreditation enhances Medisys' reputation for
quality and may provide an advantage over competitors unable to obtain such
accreditation.
Delivery of Services. Home infusion therapy patients are typically referred
to Medisys for treatment by physicians and other referral sources. The attending
physician or a member of the physician's staff typically calls Medisys' clinical
intake line. Both a registered nurse and a pharmacist are available 24 hours a
day to take the necessary information for implementation of the home infusion
therapy services, including demographic data, medical history and the
physician's orders for care. Medisys' professional health care staff, consisting
of experienced nurses and pharmacists, works closely with the attending
physician or the attending physician's staff to assess the patient's suitability
for home infusion therapy and to coordinate the delivery of care. At this point,
Medisys' staff also works with the third-party payors to verify home care
benefits and obtain appropriate authorization for Medisys' services. Following
the admissions process, the patient will typically be placed within one of
Medisys' clinical programs described above, where nurses with specialized
experience provide services tailored to the particular patient's needs. Medisys'
services can be initiated as quickly as within several hours of the referral.
Medisys' infusion therapies are delivered to patients through a variety of
methods, including intravenous, subcutaneous, epidural, intrathecal,
intramuscular and topical, although infusions are most commonly administered
intravenously or subcutaneously. The skill of the clinical staff in each of the
infusion methods is important to assure proper delivery of therapy free of
complications. Medisys' infusion therapy services are delivered by licensed,
registered nurses using customized vehicles to visit the patient's home. Medisys
emphasizes primary care nursing, where one nurse has responsibility for the
coordination of care of a patient and, whenever practical, the assigned nurse
makes all visits to the patient.
The care of the patient remains under the ultimate supervision and control
of the patient's physician during the period Medisys provides services. Medisys
receives written orders from the attending physician for all of the services
provided by Medisys' professional health care staff. The staff works closely
with the attending physician to coordinate appropriate and efficient care and to
meet the specific needs of the patient. Medisys pays physicians for case
management services pursuant to current procedural terminology, or "CPT," codes
approved by the American Medical Association for case management services.
Medisys does not reimburse physicians for case management services for patients
eligible for Medicare or Medicaid benefits.
Products and services are provided to residents in long-term care
facilities or to the long-term care facility staff itself upon request by the
facility nursing or administrative staff or by the individual's physician.
Typically a contractual arrangement exists between a long-term care facility and
Medisys. The facility staff will direct referrals for contracted services to
Medisys, unless directed otherwise by the physician or patient. Upon receipt of
a new referral or physician order, the request is directed to the appropriate
pharmacy or clinical program. The requested services are provided by and
monitored through the specialized programs.
The services of Medisys' professional health care staff are available from
each regional center seven days a week, 24 hours a day.
EXPANSION STRATEGY
Medisys' expansion strategy has been to grow its operations in its existing
regional centers, and to enter selected additional metropolitan area markets by
opening new regional centers and acquiring established alternate site health
care providers. Medisys used a significant portion of the net proceeds from the
public offering of Medisys' common stock completed in January 1992 to pursue
this expansion strategy throughout 1992.
On December 4, 1992, Medisys acquired through statutory mergers all of the
stock of AllCare Health Services, Inc. and AllCare Home Care, Inc. (the "AllCare
Companies"), which have been engaged in providing home infusion therapy and
related products and services in the Chicago, Illinois market. The
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aggregate consideration payable to the former shareholders of the AllCare
Companies will be equal to a minimum of $8 million and a maximum of $11 million,
with the difference to be paid on a contingent basis if the business of the
AllCare Companies achieve certain pre-tax income figures for the fiscal year
ended December 31, 1992 and certain revenue targets for the fiscal years ending
December 31, 1993 and 1994. Of the $3 million contingent portion of the purchase
price, $1.2 million was paid based on pre-tax income for the year ended December
31, 1992. The remaining $1.8 million will be paid on the basis of achieving
revenue targets in 1993 and 1994. The aggregate purchase price will be paid
approximately 40% in cash and 60% in shares of Medisys Common Stock. Of this
purchase price, an aggregate of $7,784,000 was paid on December 4, 1992,
consisting of an aggregate of $3,892,000 in cash and 729,109 shares of common
stock of Medisys, in November 1993, 349,996 shares of common stock of Medisys
were issued in connection with the first contingent payment, and in February
1994, 158,291 shares of Medisys Common Stock were issued in connection with the
1993 revenue targets. Medisys also received a credit against the purchase price
in the amount of $216,000 for the issuance of options to purchase shares of
common stock of Medisys in exchange for options to purchase common stock of the
AllCare Companies. An aggregate of 93,671 of the shares of common stock of
Medisys issued on the closing date have been withheld and placed in escrow to
serve as a source of funds for the indemnification obligations of the former
shareholders of the AllCare Companies until March 31, 1994. The Allcare
Companies earned pre-tax income of $513,621 on net revenues of $4,541,909 for
the nine months ended September 30, 1992.
In January of 1993, Medisys received notice from the former shareholders of
the AllCare Companies of alleged misrepresentations and breaches of warranties
by Medisys under the merger agreement in connection with adjustments to Medisys'
contractual allowances relating to its accounts receivable taken in 1992. In
conjunction with finalization of the first contingent payment, the former
shareholders of AllCare released Medisys from any related claims.
During 1992, Medisys also expanded its operations in the long-term care
facilities market by acquiring three companies engaged in providing
comprehensive pharmacy services to patients in long-term care facilities and
retirement communities in three different markets. In May 1992, Medisys acquired
Pharmacy Consultants of Arizona, Inc. ("Pharmacy Consultants"), based in the
Phoenix, Arizona market. In October 1992, Medisys acquired Pharmacy Ventures,
Inc. ("Pharmacy Ventures"), based in Dallas, Texas, and in December 1992,
Medisys acquired Delta Pharmacy, Inc. ("Delta Pharmacy"), based in Stockton,
California.
The aggregate consideration payable to the former shareholder of Pharmacy
Consultants will be $1.8 million, subject to possible downward adjustment based
upon revenues over the two-year period following the closing date. The aggregate
purchase price is to be paid 50% in cash and 50% in common stock of Medisys. Of
this purchase price, an aggregate of $1.2 million was paid on May 22, 1992, the
closing date, consisting of $720,000 in cash and 60,000 shares of common stock
of Medisys. An additional $153,000 in cash and 44,250 shares of common stock of
Medisys was paid on the first anniversary of the closing. The balance of the
potential purchase price of $270,000 will be paid on the second anniversary of
the closing date, assuming that revenue targets have been achieved. Pharmacy
Consultants achieved pre-tax income of $200,938 on net revenues of $3,697,072
for the fiscal year ended April 30, 1992.
Medisys acquired all of the outstanding shares of Pharmacy Ventures on
October 26, 1992 through a statutory merger with a wholly owned subsidiary of
Medisys. The aggregate consideration payable to the former shareholders of
Pharmacy Ventures will be equal to a multiple of the pre-tax income of Pharmacy
Ventures for the fiscal year ended December 31, 1992, subject to possible
downward adjustment if certain revenue targets relating to the business of
Pharmacy Ventures are not achieved for the fiscal years ending December 31, 1993
and 1994. The aggregate purchase price, currently estimated to be approximately
$3,105,000, plus an additional amount of up to $500,000 if revenue targets are
achieved in 1993 and 1994, is to be paid 50% in cash and 50% in common stock of
Medisys. Of this purchase price, an aggregate of $1,281,280, consisting of
$768,768 in cash and 88,671 shares of common stock of Medisys was paid on
October 26, 1992. An additional $593,320 consisting of $355,992 in cash and
47,469 shares of Medisys Common Stock, was paid upon completion of the
determination of the pre-tax income of Pharmacy Ventures for the year ended
December 31, 1992. An additional 22% of the aggregate consideration will be paid
upon the determination of the revenues for the fiscal year ending December 31,
1993, and the balance will be paid upon determination of
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the revenues for the fiscal year ending December 31, 1994, in each case assuming
the revenue targets have been achieved. In March 1994, $370,656 in cash and
74,134 shares of Medisys common stock were issued in connection with 1993
revenue targets. Pharmacy Ventures earned pre-tax income of $258,009 on net
revenues of $1,803,595 for the nine months ended September 30, 1992.
Medisys acquired all of the outstanding shares of Delta Pharmacy on
December 18, 1992 through a statutory merger with a wholly owned subsidiary of
Medisys. The aggregate consideration payable to the former shareholders of Delta
Pharmacy is equal to up to $7 million, subject to possible downward adjustment
to $5.6 million if revenues relating to the operations of Delta Pharmacy in 1993
do not equal or exceed 1992 revenues. In addition to the foregoing sums, the
former shareholders are entitled to receive performance incentive payments of up
to $2.5 million in the event that the revenues from Delta Pharmacy's business
meet certain growth objectives for the years ended December 31, 1993 and 1994.
The aggregate consideration to be paid to the former shareholders of Delta
Pharmacy, including the purchase price and the performance incentive payments,
will be paid approximately 47.4% in cash and 52.6% in common stock of Medisys.
Of this purchase price, an amount of $1,850,000 was paid on December 18, 1992,
consisting of 319,515 shares of common stock of Medisys, $3,750,000 was paid in
cash in January 1993 and an amount of $1,400,000 was paid in July 1993,
consisting of 112,263 shares of common stock of Medisys and $750,000 in cash. As
a result of entering into the Merger Agreement with Curaflex and HealthInfusion,
timing of the $2.5 million incentive payments was accelerated and in February
1994 the incentive payments were paid, consisting of 569,999 shares of Medisys
common stock. The pre-tax income of Delta Pharmacy was $698,365 for the nine
months ended September 30, 1992 on net revenues of $6,861,637.
The results of operations for the acquired companies described above have
been included in the consolidated financial statements of Medisys only for
periods since the date of the closing of the respective acquisitions.
In July 1993, Medisys acquired through a statutory merger American Home
Therapies, Inc. ("AHT"), which has provided home infusion therapy and related
products and services in the St. Louis and Kansas markets. The aggregate
consideration paid to the former shareholders of AHT consisted of 4.3 million
shares of common stock of Medisys. AHT achieved pre-tax income of $1,471,627 on
net revenues of $8,806,064 for the year ended December 31, 1992. The transaction
was accounted for as a pooling-of-interests; accordingly, the financial
information for all periods presented herein has been restated to include the
results of operations of AHT.
Medisys also opened regional centers in the Chico, California market in
September of 1992 and in Cincinnati, Ohio in October of 1992.
Medisys intends to continue to expand its operations in its existing
regional centers, and enter selected additional metropolitan area markets by
opening new regional centers and acquiring established alternate site health
care providers. Management is continually evaluating new markets and potential
acquisition candidates, although management does not anticipate that Medisys
will be as active in pursuing acquisitions in 1993 as it was in 1992 as Medisys
will focus on integrating the acquisitions completed in 1992 and 1993. Other
than with respect to the Merger with Curaflex, HealthInfusion and T2, Medisys
does not presently have any definitive agreement, letter of intent or continuing
negotiations in progress with respect to any other acquisition candidate.
The decision to enter a new metropolitan area market, either by opening a
new, regional center or through an acquisition, will depend on several criteria,
including (i) the availability of suitable locations for regional centers, (ii)
the availability of suitable acquisition candidates, (iii) the ability of
Medisys to attract and retain skilled management and licensed clinical
professionals, (iv) the ability of Medisys to generate relationships with key
referral sources, (v) the ability of Medisys to finance its working capital
needs, (vi) potential competition and (vii) the reimbursement dynamics and
therapeutic needs of the patient population.
The successful implementation of this expansion strategy will require
Medisys to continue to develop relationships with physicians, physician groups,
hospitals and other institutional health care providers, third-party payors and
large self-insured employers. There can be no assurance that Medisys will be
able to
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effectively implement this expansion strategy due to intense competition in the
alternate site health care market for referral sources.
Medisys also hopes to expand through the establishment of joint ventures or
similar arrangements with institutional health care providers. In January 1993,
Medisys entered into a joint venture with an affiliate of an Illinois hospital.
Medisys owns a 50% interest in a joint venture with Health Affiliates, Inc. in
the Minneapolis-Saint Paul metropolitan area, which was discontinued in December
1993 due to a change in ownership of Health Affiliates, Inc. The joint venture
provides home infusion therapy services to patients referred by physicians
affiliated with Abbott-Northwestern Hospitals, one of the largest acute care
facilities in the Minneapolis-Saint Paul market. Medisys intends to vigorously
pursue its marketing efforts through physician and patient relationships
developed prior to and during the operation of the joint venture to continue to
serve the patient population served by this joint venture.
Medisys also believes that alternate site delivery of care will continue to
develop and result in additional opportunities for Medisys and other alternate
site health care companies. Such opportunities include the delivery of infusion
therapy services and products to long-term care facilities, ambulatory care
centers and physicians' offices, and the development of free-standing infusion
therapy centers. Medisys intends to continue to expand its business by pursuing
alternate site health care opportunities.
MARKETING AND SALES
Medisys employs its own marketing and sales staff, consisting of 24 full
time employees as of November 30, 1993, which markets Medisys' products and
services through direct contact with existing and potential referral sources and
through supplemental marketing materials. Medisys has a sales staff in each of
its regional centers, and markets its products and services to:
- Physicians and physician practice groups, with a particular focus on
physicians who have a high potential to encourage use of Medisys'
services as part of a regular practice pattern, such as infectious
disease specialists, gastrointestinal specialists and oncologists. In
order to develop Medisys' growing specialty services, Medisys also
focuses its marketing efforts on perinatologists, obstetricians who
manage difficult pregnancies, pediatricians and specialists who treat
patients with HIV/AIDS.
- Third-party payors and their case management personnel, health
maintenance organizations and preferred provider organizations; contracts
with these organizations permit direct referrals from their physician
networks and case managers.
- Hospitals and other institutional health care providers; Medisys works
with hospital discharge planners seeking methods for reducing the length
of time a patient is hospitalized.
- Independent long-term care facilities and long-term care facility chains,
with a focus on those facilities with high potential for utilization of
Medisys' broad range of services, particularly infusion therapy.
- Large self-insured employers and employer consortiums, which are
motivated to explore alternative methods to lower health care costs.
Part of Medisys' strategy is to increase revenues by expanding its core
business with its current base of referral sources, adding new referral sources,
and attracting existing and additional referral sources to new therapy services.
Medisys' marketing strategy includes distribution of information to referral
sources concerning the availability of alternate site health care and the
related cost advantages, in order to increase the level of awareness, acceptance
and utilization of alternate site health care.
Due to escalating cost containment efforts, third-party payors are
participating to a greater extent in decisions regarding health care
alternatives and are consequently becoming more important in the referral
process. Medisys' contracts with third-party payors typically appoint Medisys as
a participating provider in the third-party payor's plan, permitting Medisys to
provide services directly to the plan's members at pre-determined prices. These
contracts with third-party payors are generally renewed annually unless either
party gives a non-renewal notice.
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The sales staff contacts referral sources after services have been provided
to determine the level of satisfaction with patient care and to solidify
Medisys' position as a provider of alternate site health care.
REIMBURSEMENT FOR SERVICES
Medisys' revenues are derived from the provision of services and products
to patients and long-term care facilities. Payments for these services and
products are received almost exclusively from third-party payors, including
health maintenance organizations and other managed care plans, private insurance
companies, governmental health care programs and contracted institutions. As a
result, Medisys is subject to lengthy reimbursement periods due to third-party
payment procedures. Prior to the commencement of services or delivery of
products, Medisys' reimbursement specialists contact third-party payors to
determine coverages and reimbursement rates. The reimbursement specialists then
work closely with physicians, patients and third-party payors to maintain the
necessary documentation for reimbursement. Medisys typically obtains an
assignment of benefits from the patient that enables Medisys to file claims for
its services and receive payment directly from the third-party payors. After the
patient has been admitted into one of Medisys' programs, Medisys continues to
monitor patient eligibility for benefits and other coverage limitations.
Due to lengthy reimbursement periods, the management of accounts receivable
is important to Medisys' working capital requirements. Medisys' senior
management team has focused on collection performance through (i) additions to
the billing and collection staff, (ii) management incentives based on billing
and collecting efforts, (iii) regular monthly meetings with significant
third-party payors to review claims processing and (iv) improvements to
administrative support systems designed to enhance Medisys' collection
performance.
A high percentage of Medisys' net revenues is derived from managed care
plans, which is attributable to the prevalence of managed care plans in the
Minneapolis-Saint Paul metropolitan area, currently one of Medisys' principal
markets. Managed care plans are typically able to negotiate lower reimbursement
rates than other private third-party payors.
Like other health care providers, Medisys' revenues and profitability have
been and will continue to be affected by governmental and private third-party
payor efforts to contain or reduce the costs of health care by lowering
reimbursement rate increasing review of bills for services and negotiating
reduced contract pricing. Alternative site health care services, which generally
are less costly to third-party payors than hospital-based care have benefitted
from such cost-containment measures in the past. However, if expenditures in the
alternate site health care market continue to grow, initiatives aimed at
reducing the cost of health care delivery at non-hospital sites may escalate.
ACCREDITATION AND GOVERNMENT REGULATION
The federal government and all states in which Medisys currently operates,
or in which Medisys may expand its operations, regulate various aspects of
Medisys' business. Medisys believes that it is in substantial compliance with
the federal and state laws and regulations applicable to its operations. Most
states require home health care providers to be licensed and Medisys is
appropriately licensed in all states in which it currently operates. Various
other states have adopted laws and regulations with which Medisys would be
required to comply if it commenced business in those states, including possibly
the requirement to obtain a home health agency certificate of need in order to
provide the full range of services offered by Medisys.
Each of Medisys' regional centers is subject to certain federal laws and
regulations promulgated by the U.S. Health Care Financing Administration with
respect to the provision of services to Medicare beneficiaries. Many third-party
payors require health care providers to be certified by Medicare in order to be
eligible for reimbursement for medical services. As a provider of services under
the Medicare program, Medisys and physicians who have an ownership interest in
Medisys are subject to the Medicare Fraud and Abuse Statutes. These laws
prohibit the payment or receipt of any form of remuneration in return for
referring patients to providers of services for which Medicare payments are
made. Violations of the law may result in civil and criminal penalties,
including substantial fines, loss of the right to participate in the Medicare
program and imprisonment. The U.S. Department of Health and Human Services has
recently promulgated "safe harbor"
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regulations that define certain business relationships and structures that can
safely be undertaken without violation of the fraud and abuse statutes. Medisys
believes that its operations currently comply in all respects with these safe
harbor regulations to the extent they are applicable.
If Medisys is unable to maintain its Medicare certification or comply with
state licensing requirements, its ability to effectively market its products and
services could be adversely affected.
Many of the states in which Medisys currently operates or in which Medisys
may expand have laws that prohibit certain direct and indirect payment
arrangements between health care providers that are designed to induce or
encourage the referral of patients to, or the recommendation of, a particular
provider for medical services. Possible sanctions for violation of these types
of provisions include loss of licensure and civil and criminal penalties. These
statutes vary from state to state, are often vague and have seldom been
interpreted by the courts or regulatory agencies. Medisys believes that it is in
substantial compliance with these laws in the states in which it currently
operates.
Medisys' regional centers are required to maintain pharmacy licenses issued
by the states in which they operate, and any pharmacists employed by the
regional centers must be licensed. Medisys will be required to obtain pharmacy
licenses in other states before commencing pharmacy operations in such states.
The registered nurses employed in Medisys' home infusion therapy services must
also be licensed by the appropriate state regulatory body.
Although Medisys does not believe that it will need to undertake any
significant expense or modification to its plan of operations to comply with
federal and state regulations currently proposed or in effect, providers of
alternate site health care services may be subject to increasing regulation in
the future. Compliance with such regulations could increase the cost of or
otherwise restrict Medisys' operations, and may affect Medisys in other respects
not presently foreseeable.
Legislation has been introduced in Congress that would prohibit physicians
and certain other health care providers from having an ownership interest in
testing facilities or other entities providing health care services to their
patients who are eligible for Medicare or Medicaid. It is possible that other
third-party payors could adopt similar rules. These rules could adversely affect
Medisys' ability to expand into additional markets.
COMPETITION
The alternate site health care market is highly competitive and management
anticipates that competition will intensify. Medisys currently competes with
larger national and regional companies, smaller companies operating in a single
market, hospitals, long-term care facility chains, physician groups, managed
care and other health care providers. Large national providers along with
regional and single-market providers present competition in each of the markets
in which Medisys operates regional centers. The influence of hospitals branching
out to provide home infusion therapy services is particularly evident in the
Minnesota, Wisconsin and Illinois markets. Competition from managed care
providers is particularly evident in the Minnesota and Ohio regions.
The industry has been subject to market consolidation in recent years as
larger national or regional companies have acquired small companies servicing a
single local market. Medisys believes that this trend will continue. A number of
companies offer alternate site health care services on a national or regional
basis and have significantly greater resources than Medisys, including Caremark,
Inc., Medical Care America, Inc. (recently acquired by Caremark, Inc.), T2, Home
Nutritional Services, Inc., H.M.S.S., Inc. (a subsidiary of Secomerica Inc.),
Curaflex, and Home Intensive Care, Inc. (a subsidiary of W.R. Grace & Co.).
Also, a number of companies provide pharmacy services to long-term care
facilities on a national or regional basis and have significantly greater
resources than Medisys, including OmniCare, Inc., VitaLink Pharmacy Services,
Inc., Uni Care, Inc., Grand Care, Inc., MediSave Pharmacies, Inc., Walgreen
Company and Pharmacy Corporation of America.
Medisys believes that the primary competitive factors in the alternate site
health care industry are (i) quality of care, including responsiveness of
service and quality of professional health care personnel,
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(ii) reputation within the community among physicians, referral sources and
patients, (iii) range of services offered and (iv) price.
Medisys also believes that it will face competition from the development of
alternative means of treating infections or administering nutrition which do not
involve infusion therapy, such as orally administered medications, transdermal
patches and implantable infusion pumps.
EMPLOYEES
As of November 30, 1993, Medisys had 373 full-time employees and 208
part-time employees. Of this total, 181 are licensed, registered nurses and 68
are licensed pharmacists. Medisys anticipates hiring additional personnel as its
services and revenues grow. Medisys considers its relations with its employees
to be good. None of Medisys' employees is represented by a labor union or is
subject to any collective bargaining arrangements.
PROPERTIES
Medisys currently leases space for its offices and its pharmacy operations
in each of its regional centers. The leases for the regional facilities
generally range from one-year to five-year terms and expire at varying dates
through 1997. Medisys' regional centers typically are located in suburban office
parks and comprise anywhere from 1,400 to 17,000 square feet of space. Each
regional facility has a fully equipped pharmacy and offices for administrative
personnel. Medisys believes that its facilities, which are currently fully
utilized, are adequate for its existing operations and that suitable alternative
facilities are available on acceptable terms in the event that additional space
is required or any of Medisys' existing facilities become unavailable for any
reason.
Equipment used at the regional facilities includes primarily pharmacy
mixing equipment, infusion pumps, computer equipment and vehicles. All such
equipment is readily available on acceptable terms.
INSURANCE
In recent years, physicians, hospitals and other participants in the health
care market have become subject to an increasing number of lawsuits alleging
malpractice, product liability or related legal theories, many of which involve
large claims and significant defense costs. Medisys has in force professional
liability insurance with per location coverage limits of $1,000,000 per incident
and $3,000,000 in the aggregate annually and general liability insurance
coverage with per location coverage limits of $1,000,000 per incident and
$2,000,000 in the aggregate annually. Medisys also has in force an umbrella
insurance policy, with an aggregate annual limit of $10,000,000. Medisys has not
experienced difficulty in obtaining insurance in the past. While management
believes that Medisys' insurance coverage is adequate to provide for any claims
that may arise and related settlements, if any, no assurance can be given that
one or more future claims could exceed the limits of Medisys' insurance coverage
or not be covered at all.
LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to the knowledge of
Medisys' management, threatened against Medisys.
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MANAGEMENT OF MEDISYS
DIRECTORS AND EXECUTIVE OFFICERS
The members of Medisys' Board of Directors and the executive officers of
Medisys are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---------------------- --- ----------------------------------------------------
<S> <C> <C>
Khalid Mahmud, M.D. 55 Chairman of the Board, Chief Medical Officer and
Director
Mary B. Bennett 37 Vice President of Operations and Secretary
William J. Brummond 42 Chief Executive Officer and Director
David J. Byrd 40 Chief Financial Officer and Treasurer
Michael A. Noble 34 Vice President of Operations
David G. Swendsen 42 Vice President of Business Development
Christopher J. York 33 Vice President of Operations
Sandra A. Smilanich 38 Vice President of Program Development
John D. Hirsch, M.D. 46 Director and Medical Director of American Home
Therapies, Inc., a subsidiary of Medisys
Robert D. Holmen 56 Director
Kathryn R. Love, M.D. 46 Director
David L. Printy 47 Director
Robert L. Rasmussen 50 Director
L. Peter Smith 45 Director and Director of Business Development of
CareVan Medical Systems of Illinois, Inc., a
subsidiary of Medisys
</TABLE>
Dr. Mahmud has been Chairman of the Board, Chief Medical Officer and a
Director of Medisys since inception in September 1986. Since 1975, Dr. Mahmud
has been on staff at North Memorial Medical Center, and was Medical Director of
Oncology from 1984 until 1992, and was previously Chief of Medicine. Since 1982,
Dr. Mahmud has been an Associate Professor, Department of Family Practice at the
University of Minnesota. Dr. Mahmud is board certified in Internal Medicine,
Hematology and Oncology, a fellow of the American College of Physicians, a
member of the American Society of Hematology, the American Society of Clinical
Oncology and the American Medical Association and a director of the American
Academy of Home Care Physicians.
Mr. Brummond has been Chief Executive Officer of Medisys since April 1990
and has been a Director of Medisys since April 1987. In addition, Mr. Brummond
served as Chief Financial Officer of Medisys from April 1987 through March 1991,
and Secretary of Medisys from April 1987 through September 1990. From June 1986
until July 1987, Mr. Brummond was a self-employed management consultant
specializing in publishing operations and finance controls. From June 1980 until
May 1986, Mr. Brummond served as Director of Business Operations for Winston
Press, Inc., a unit of CBS, Inc. Publishing Group.
Ms. Bennett is currently employed by Medisys as the Vice President of
Operations and Secretary and has been with Medisys since June 1987. From 1985 to
1987, Ms. Bennett was the Director of Operations for Health-At-Home, Inc., a
Twin Cities-based home health care provider. From 1984 to 1985, Ms. Bennett
worked as an independent consultant and auditor for American Claims Evaluation,
Inc., of Jericho, New York. From 1982 to 1983, Ms. Bennett served as the Program
Coordinator for Medical/Surgical Nursing for the Golden Valley Health Center.
Mr. Byrd became the Chief Financial Officer of Medisys on April 1, 1991.
From October 1986 through March 1991, Mr. Byrd was a Partner in the accounting
firm of Coopers & Lybrand. Prior to October 1986, Mr. Byrd was a senior manager
with Coopers & Lybrand.
Mr. Noble is currently Vice President of Operations and has been with
Medisys since August 1993. From June 1990 until July 1993 Mr. Noble was Vice
President of American Home Therapies, Inc., a subsidiary of Medisys. From 1983
to 1990, Mr. Noble was employed by Caremark, a division of Baxter Healthcare
Corporation, where he held numerous positions in sales and management.
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Mr. Swendsen is currently employed as Medisys' Vice President of Business
Development and has been with Medisys since February 1989. From 1985 to February
1989, Mr. Swendsen was employed by Becton Dickinson and Company, a medical
supply company, as a regional manager. From 1973 to 1985 Mr. Swendsen was
employed by the Deseret Company, a division of Warner-Lambert, Inc., where he
held numerous positions in sales and sales management.
Mr. York is currently employed as Medisys' Vice President of Operations and
has been with Medisys since June 1993. From 1988 to 1993, Mr. York was a General
Manager and Region Vice President at Critical Care America, a national Home
Infusion Therapy company. From 1983 to 1988, Mr. York held a variety of sales
and management positions with Kendall HealthCare Products Company. From 1982 to
1983, Mr. York was employed by the Procter and Gamble Company.
Ms. Smilanich is currently the Vice President of Program Development and
has been with Medisys since August 1991. From July 1989 until July 1991, Ms.
Smilanich was Director of Pharmacy Operations for Quality Care Pharmacy, which
provides comprehensive pharmacy services to long-term care facilities and
IV/enteral and supply services to rural Minnesota and North and South Dakota.
From 1985 until July 1989, she was Chief Financial Officer and Director of
pharmacy operations for Appel Com-Pharm Inc., which provided comprehensive
pharmacy services to long-term care facilities. Prior to that, Ms. Smilanich was
director of IV therapy for Appel Pharmacy/Com-Pharm, responsible for development
and implementation of a long-term care IV therapy program.
Dr. Hirsch has been a Director of Medisys since September of 1993. He is
the founder and Medical Director of American Home Therapies, Inc., a subsidiary
of Medisys. Dr. Hirsch is a board certified general surgeon and a Fellow of the
American College of Surgeons. He is in private practice of surgery in St. Louis
and the senior partner in Suburban Surgical Associates, Inc.
Mr. Holmen has been a Director of Medisys since December 1987. From January
1983 to December 1989, Mr. Holmen was employed as Senior Vice President of the
Center for Policy Studies in Minneapolis, Minnesota. The Center is a private,
nonprofit health policy research and education organization devoted to the
improved delivery and financing of health care. Since March 1973, Mr. Holmen has
been the principal of R. D. Holmen & Associates, a management consulting firm
specializing in health care.
Dr. Love has been a Director of Medisys since February 1987. Dr. Love
practices in the areas of internal medicine and infectious diseases and is board
certified in both specialties. Dr. Love is an Associate Clinical Professor of
Medicine at the University of Minnesota and Hospital Epidemiologist at
Abbott-Northwestern Hospital in Minneapolis, positions which she has held for
more than five years. Dr. Love has served on the Board of HealthSpan, Inc. since
January 1993 and has been Chairman of the Board of Abbott-Northwestern Physician
Hospital Organization since January 1993.
Mr. Printy has been a Director of Medisys since December 1990. Since
December 1993 Mr, Printy has been President of Complete Financial Services Inc.,
a financial service/software firm serving the accounting profession. From March
1987 to March 1994 he has served as a Director of Vital Heart Systems, Inc. Mr.
Printy served as the President and Chief Executive Officer of Vital Heart
Systems, Inc. from October 1990 through February 1993 and Chairman of the Board
from July 1990 to March 1994. From 1980 to 1989, Mr. Printy was President and
Chief Executive Officer of Independence One Investment Services Corp. (formerly
Morrison Asset Management, Inc.), a subsidiary of Michigan National Corporation
("MNC") and a registered investment advisor, and served as President and
Director of its subsidiaries Michigan National Investment Corp. and Pattern
Recognition Investment Management, Inc. registered investment advisors. During
this period, Mr. Printy also served as Senior Vice President of Michigan
National Bank, a subsidiary of MNC. Mr. Printy has also served on the Board of
Directors of Medivators Inc., a medical device manufacturing company, since
September 1991 and as Vice Chairman of the Board of DaVinci Scientific Corp.,
which provides management and investment services to medical technology
companies.
Mr. Rasmussen has been a Director of Medisys since April 1991. Since
October 1991, Mr. Rasmussen has been Senior Vice President of Norwest Insurance,
a commercial insurance brokerage firm. From August 1990 to October 1991, Mr.
Rasmussen was Chief Executive Officer of Regional Capital, Inc, a financial
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service marketing company. For approximately 12 years prior to August 1990, Mr.
Rasmussen was employed in various capacities with Norwest Bank Minnesota, N.A.,
most recently as Vice President and Division Head of Correspondent Banking. Mr.
Rasmussen serves on the Board of Directors of Omegon, a non-profit residential
treatment center for adolescents.
Mr. Smith has been a Director of Medisys since November of 1993. He
currently serves as Director of Business Development of CareVan Medical Systems
of Illinois, Inc., a subsidiary of Medisys. Mr. Smith served as the Managing
Partner of AllCare Health Services, Inc., which was acquired by Medisys in
December of 1992. Mr. Smith is also President and serves on the Board of
Directors of Ralin Medical, Inc. ("Ralin"), a company specializing in ambulatory
cardiac monitoring. Prior to joining Ralin in 1990, Mr. Smith served in various
capacities with Baxter Healthcare ("Baxter"). From 1984 through 1989 he was
President of Travacare and then Caremark, the home infusion therapy division of
Baxter. Mr. Smith also serves on the Board of Directors of Sabratek, Inc. and
AMSYS, Inc.
DIRECTOR COMPENSATION
Upon election to the Medisys Board and every third year thereafter, as
compensation for their services as directors, each of the non-employee directors
will receive options under the Option Plan to purchase 10,000 shares of Medisys
Common Stock vesting in increments of one-third of such shares on each of the
first three anniversaries of the date of grant at an exercise price equal to the
fair market value on the date of grant. For the fiscal year ended December 31,
1992, Medisys did not pay directors fees; however, Medisys did reimburse
directors for out-of-pocket expenses incurred in connection with attending
Medisys Board or committee meetings. Effective January 1, 1993, Medisys pays
directors $500 for each Medisys Board meeting attended and $250 for each
committee meeting attended.
Effective July 1, 1988, Medisys entered into an agreement with Kathryn R.
Love, M.D., a director of Medisys, pursuant to which Medisys provided home
infusion therapy services to patients referred to Medisys by Dr. Love and
provided billing and collection services for Dr. Love. Medisys received an
administration fee equal to a percentage of patient billings for patients
referred by Dr. Love, and was reimbursed for the costs of all home infusion
therapy services and products provided by Medisys to these patients. Dr. Love
was responsible for payment of the cost of the home infusion therapy services
provided to these patients if Medisys was unable to collect from the third-party
payor responsible for payment or from the patient. In the 36-month period ended
December 31, 1993, Medisys received total reimbursements and management fees in
the amount of $544,000. In the year ended December 31, 1993, Medisys received
total reimbursements and management fees in the amount of $1,000. The agreement
with Dr. Love was terminated June 30, 1993.
Dr. Love is on the medical staff of Abbott-Northwestern Hospital. Medisys
entered into a joint venture agreement with an affiliate of Abbott-Northwestern
Hospital. This joint venture ceased business operations as of June 30, 1993 and
effective December 28, 1993, Medisys acquired the interest of its joint venture
partners in exchange for $168,000.
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EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the annual and long-term compensation earned
for services rendered in all capacities to Medisys and its subsidiaries for the
fiscal years ending December 31, 1993, December 31, 1992 and December 31, 1991
by the Chief Executive Officer and each of the next four highest paid executive
officers of Medisys for the 1993 fiscal year (collectively the "Medisys Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------- NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) UNDERLYING OPTIONS
- ---------------------------------------- ------ -------- ---------- --------------------
<S> <C> <C> <C> <C>
William J. Brummond 1993 $190,000 $ 33,480 --
Chief Executive Officer 1992 140,000 12,258 60,000(2)
1991 100,000 18,000 --
David J. Byrd(3) 1993 $110,000 $ 20,000 --
Chief Financial Officer 1992 100,000 2,327 40,000
1991 60,000 14,000
Mary B. Bennett 1993 109,000 38,445 --
Vice President of Operations 1992 95,000 3,411 --
1991 71,500 16,000 15,000
Sandra A. Smilanich(4) 1993 107,000 7,500 --
Vice President of 1992 75,000 10,746 --
Program Development 1991 26,000 1,500 40,000
David G. Swendsen 1993 100,000 5,000 --
Vice President of 1992 85,000 4,477 --
Business Development 1991 76,500 12,000 15,000
</TABLE>
- ---------------
(1) Cash bonuses for services rendered have been included as compensation for
the year earned, even though a portion of such bonuses were actually paid in
the following year. Such bonuses were payable pursuant to the Medisys
Executive Incentive Compensation Plan (the "Incentive Plan"). The Incentive
Plan is based upon meeting certain performance objectives relating to
profitability of Medisys, revenues of Medisys and individual performance
objectives established for each executive officer.
(2) On January 20, 1992 Mr. Brummond was granted options to purchase 30,000
shares at $8.00 per share, which options were cancelled on October 20, 1992
in connection with an option repricing pursuant to which Mr. Brummond
received options to purchase 30,000 shares at a purchase price of $5.00 per
share.
(3) Mr. Byrd became an employee of Medisys in April 1991.
(4) Ms. Smilanich became an employee of Medisys in August 1991.
OPTION GRANTS
No options or stock appreciation rights ("SARs") were granted during the
1993 fiscal year to any of the Medisys Named Executive Officers.
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OPTION EXERCISES AND HOLDINGS
The following table provides information for the year ended December 31,
1993 as to each exercise of stock options by the Medisys Named Executive
Officers and the year-end value of their unexercised options. No SARs were
exercised during such fiscal year, nor were any SARs outstanding at the end of
that fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1993 AT DECEMBER 31, 1993(2)
NUMBER OF SHARES VALUE --------------------------- ---------------------------
NAME ACQUIRED ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- -------------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. Brummond... -- $ -- 80,000 10,000 $ 106,875 $ --
David J. Byrd......... -- -- 40,000 -- -- --
Mary B. Bennett....... 20,000 50,500 55,000 -- 84,250 --
Sandra A. Smilanich... -- -- 35,000 -- -- --
David G. Swendsen..... -- -- 85,000 -- 157,188 --
</TABLE>
- ---------------
(1) Value realized is calculated as the excess of the market value of Medisys
Common Stock on the exercise date over the exercise price.
(2) Value is calculated as the excess of the market value of Medisys Common
Stock at December 31, 1993 ($3.53 per share) over the exercise price.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
AGREEMENTS
Medisys entered into employment agreements with Dr. Mahmud effective
September 1, 1987 and with William J. Brummond effective January 1, 1992, which
remain effective until terminated by one of the parties on 30 days' notice. Dr.
Mahmud is employed by Medisys on a part-time basis and devotes approximately 25%
of his business hours to Medisys. If Medisys terminates the employment of Dr.
Mahmud for cause or if either Dr. Mahmud or Mr. Brummond resigns, Medisys is
obligated to pay the employee his base salary through the date of such
termination or resignation, as the case may be. If Medisys terminates Dr. Mahmud
without cause or terminates Mr. Brummond for any reason, Medisys is obligated to
pay the employee an amount equal to his then current annual base salary. If
Medisys is sold and the employee is terminated within twelve (12) months of such
sale, the employee is entitled to payment equal to two times his then current
annual base salary.
Dr. Mahmud, the Chairman of the Board, Chief Medical Officer and a director
of Medisys, provided home infusion therapy services to patients referred to
Medisys by Dr. Mahmud, as a member of Minneapolis Medical Specialists, P.A.
("MMS"). In the 36-month period ended December 31, 1993, Medisys paid case
management fees in the amount of $98,000 to MMS. In the year ended December 31,
1993, Medisys paid case management fees in the amount of $17,000 to MMS.
Medisys has also entered into employment agreements with each of Mary B.
Bennett, David J. Byrd, Sandra A. Smilanich and David G. Swendsen providing that
if his or her employment with Medisys is terminated in connection with a change
in control of Medisys, the employee is entitled to severance pay equal to two
years of base salary, and if his or her employment is terminated otherwise than
in connection with a change in control and without cause, the employee is
entitled to severance pay equal to one year of base salary.
Christopher J. York has an employment agreement that provides that if his
employment with Medisys is terminated without cause, he is entitled to severance
pay equal to one month of base salary for each full year of employment, with a
minimum of three months and a maximum of six months. Michael A. Noble has an
employment agreement that provides that if his employment with Medisys is
terminated without cause, he is entitled to severance pay equal to $8,333 for
each full year of employment plus $100,000 if terminated prior to one full year
of employment, or $2,252 per month, up to the thirty-sixth month after
employment, if terminated after one full year but before three full years of
employment.
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All of the above employment agreements include noncompete clauses for one
year following termination.
Certain of the above agreements will be terminated upon consummation of the
Merger. See "The Merger -- Interests of Certain Persons in the Merger."
COMPENSATION COMMITTEE INTERLOCKS/INSIDER PARTICIPATION
None of the members of the Medisys Compensation Committee of the Board of
Directors (Kathryn R. Love, M.D., Robert L. Rasmussen and David L. Printy) is or
has been an officer or employee of Medisys or any of its subsidiaries. In
addition, there are no Compensation Committee interlocks between Medisys and
other entities involving Medisys executive officers and Medisys Board members
who serve as executive officers of such entities.
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MEDISYS PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of Medisys' Common Stock as of April 30, 1994 for (i) each shareholder who is
known by Medisys to own beneficially more than 5% of the outstanding Medisys
Common Stock, (ii) each director and each Medisys Named Executive Officer, and
(iii) all executive officers and directors of Medisys as a group. Unless
otherwise noted, each of the shareholders listed in the table or included within
a group listed in the table possesses sole voting and investment power with
respect to the shares indicated.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OWNERSHIP(1)
--------------------------------------------- --------------------- ------------
<S> <C> <C>
Khalid Mahmud, M.D........................... 674,128(2) 5.3%
450 West 77th Street
Edina, MN 55435
William J. Brummond.......................... 326,259(3) 2.6
David J. Byrd................................ 41,001(4) *
Mary B. Bennett.............................. 32,636(5) *
Sandra A. Smilanich.......................... 35,500(6) *
David G. Swendsen............................ 21,258(7) *
John D. Hirsch............................... 2,130,650 16.8
Robert D. Holmen............................. 16,666(8) *
Kathryn R. Love, M.D......................... 47,036(9) *
Michael A. Noble............................. 780,610 6.1
David L. Printy.............................. 20,666(10) *
Robert L. Rasmussen.......................... 7,166(11) *
L. Peter Smith............................... 245,766(12) 1.9
All Officers and Directors as a Group (14
persons)................................... 4,386,465(13) 33.8%
</TABLE>
- ---------------
* Less than one percent of the outstanding shares.
(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person or member of a group to acquire them within 60 days are treated
as outstanding only when determining the amount and percent owned by such
person or group.
(2) Includes 26,666 shares that Dr. Mahmud has the right to acquire pursuant to
outstanding options. Also includes 79,685 shares held by immediate family
members and 25,000 shares held by the Shezada Begum Cancer Foundation, as
to which shares Dr. Mahmud disclaims beneficial ownership. Excludes 17,727
shares held by Minneapolis Medical Specialists Profit Sharing and Pension
Plan, an employee benefit plan in which Dr. Mahmud is a participant.
(3) Includes 80,000 shares that Mr. Brummond has the right to acquire within 60
days of April 30, 1994 pursuant to outstanding options.
(4) Includes 40,000 shares that Mr. Byrd has the right to acquire within 60
days of April 30, 1994 pursuant to outstanding options.
(5) Includes 15,000 shares Ms. Bennett has the right to acquire within 60 days
of April 30, 1994.
(6) Includes 35,000 shares Ms. Smilanich has the right to acquire within 60
days of April 30, 1994.
(7) Includes 20,000 shares Mr. Swendsen has the right to acquire within 60 days
of April 30, 1994.
(8) Includes 16,666 shares Mr. Holmen has the right to acquire within 60 days
of April 30, 1994.
(9) Includes 16,666 shares Dr. Love has the right to acquire within 60 days of
April 30, 1994.
(10) Includes 19,666 shares Mr. Printy has the right to acquire within 60 days
of April 30, 1994.
(11) Consists of 7,166 shares that Mr. Rasmussen has the right to acquire within
60 days of April 30, 1994 pursuant to outstanding options.
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(12) Includes 3,333 shares that Mr. Smith has the right to acquire within 60
days of April 30, 1994 pursuant to outstanding options.
(13) Includes 280,163 shares that officers and directors have the right to
acquire within 60 days of April 30, 1994 pursuant to outstanding options.
CERTAIN TRANSACTIONS
In July 1989, Medisys completed a merger with CareVan Mobile Medical
Officers of America, Inc. ("CareVan America") in which the former shareholders
of CareVan America received shares of Medisys Common Stock in exchange for their
shares of CareVan America. The following directors and officers of Medisys
received the following number of shares of Common Stock of Medisys in the
merger: Khalid Mahmud, M.D., 500,000 shares; William J. Brummond, 250,000
shares; Kathryn R. Love, M.D., 15,970 shares; Robert D. Holmen, 10,000 shares;
Mary B. Bennett, 10,000 shares.
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DESCRIPTION OF CAPITAL STOCK OF MEDISYS
The authorized capital stock of Medisys consists of 25,000,000 shares of
Common Stock, $.01 par value, and 1,000,000 shares of Special Stock, $.01 par
value.
COMMON STOCK
As of April 30, 1994, there were 12,694,621 shares of Medisys Common Stock
outstanding, held of record by stockholders. All such outstanding shares are
fully paid and nonassessable. The holders of Medisys Common Stock are entitled
to one vote for each share held of record on all matters voted upon by
stockholders and may not cumulate votes for the election of directors. Thus, the
owners of a majority of the shares of Medisys Common Stock outstanding may elect
all of the directors, if they choose to do so, and the owners of the balance of
such shares would not be able to elect any directors. Actions of the
stockholders may be taken by a majority of the voting power of the Medisys
Common Stock present and entitled to vote at the meeting of stockholders. Each
share of outstanding Medisys Common Stock is entitled to participate equally in
any distribution of net assets made to the stockholders in liquidation of
Medisys and is entitled to participate equally in dividends as and when declared
by the Medisys Board of Directors. There are no redemption, sinking fund,
conversion or preemptive rights with respect to the shares of Medisys Common
Stock. All shares of Medisys Common Stock have equal rights and preferences.
Norwest Bank Minnesota, N.A. is the registrar and transfer agent for Medisys
Common Stock.
SPECIAL STOCK
There are currently no shares of Special Stock outstanding. The Medisys
Board of Directors has the authority to establish by resolution from the shares
of Special Stock one or more classes or series of shares, designate each such
class or series and fix the relative rights and preferences of each such class
or series without further stockholder approval. Any issuance of Special Stock
could adversely affect, among other things, the voting rights of existing
stockholders, could be used to dilute the stock ownership of persons seeking to
gain control of Medisys and could otherwise have the effect of delaying,
deferring or preventing a change in control of Medisys. In addition, the mere
existence of the Special Stock could have a depressive effect on the market
price of the Medisys Common Stock. Medisys has no present plans to issue any
shares of Special Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
Medisys is subject to Section 203 of the DGCL, which imposes restrictions
on business combinations (as defined therein) with interested persons (being any
person who acquired 15% or more of Medisys' outstanding voting stock). In
general, Medisys is prohibited from engaging in business combinations with an
interested person for a period of three years from the date a person becomes an
interested person, subject to certain exceptions. By restricting the ability of
Medisys to engage in business combinations with an interested person, the
application of Section 203 to Medisys may provide a barrier to hostile or
unwanted takeovers, which could deny Medisys shareholders the benefit of any
premium on their shares of Medisys Common Stock often associated with such
takeover bids. See "The Merger -- Rights of Security Holders."
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PROPOSAL NO. 2
APPROVAL OF CORAM HEALTHCARE CORPORATION
1994 STOCK OPTION/STOCK ISSUANCE PLAN
The stockholders of Curaflex, HealthInfusion, Medisys and T2 are each being
asked to approve the Coram Healthcare Corporation 1994 Stock Option/Stock
Issuance Plan (the "1994 Plan"), pursuant to which an aggregate of up to
7,600,000 shares of Coram Common Stock will be reserved for issuance. The Board
of Directors of each corporation has authorized the implementation of the 1994
Plan as an equity incentive program to become effective at the Effective Time of
the Merger, provided stockholder approval of each corporation is obtained.
The following is a summary of the principal features of the 1994 Plan. The
summary, however, does not purport to be a complete description of all the
provisions of the 1994 Plan. Any stockholder of T2, Curaflex, HealthInfusion or
Medisys who wishes to obtain a copy of the actual plan document may do so by
written request to the Corporate Secretary of the relevant corporation at the
principal executive offices of that corporation.
EQUITY INCENTIVE PROGRAMS
The 1994 Plan contains these separate equity incentive programs: (i) a
Discretionary Grant Program, under which key employees and consultants may be
granted options to purchase shares of Coram Common Stock, (ii) an Automatic
Grant Program, under which option grants will be made at specific intervals to
the non-employee members of the Coram Board of Directors and (iii) a Stock
Issuance Program, under which eligible individuals may be issued shares of Coram
Common Stock directly, either through the immediate purchase of the shares or as
a bonus tied to the performance of services or the attainment of financial
milestones. In addition, several special option grants under the 1994 Plan will
be made to three individuals following the Effective Time of the Merger as
follows: (i) on December 1, 1994, a non-statutory option to purchase 100,000
shares of Coram Common Stock to Charles Laverty consistent with the terms of his
employment agreement with Coram, (ii) on December 1, 1994, provided that he has
not voluntarily terminated his employment with Coram prior to such date, a
non-statutory option to purchase 3,000,000 shares of Coram Common Stock to James
M. Sweeney in his capacity as Chairman of the Coram Board of Directors and Chief
Executive Officer of Coram, provided he continues in service with Coram until
such date and (iii) on September 1, 1994, a non-statutory option to purchase
94,500 shares of Coram Common Stock to Tommy H. Carter in satisfaction of his
contractual right to receive a stock option for 150,000 shares of T2 Common
Stock in September 1994. See "The Merger -- Interests of Certain Persons in the
Merger."
Options granted under the Discretionary Grant Program may be either
incentive stock options designed to meet the requirements of Section 422 of the
Internal Revenue Code or non-statutory options not intended to satisfy such
requirements. All grants under the Automatic Grant Program will be non-statutory
options.
SHARE RESERVE
An aggregate of up to 7,600,000 shares of Coram Common Stock will be
reserved for issuance over the ten year term of the 1994 Plan. The shares
inssuable under the 1994 Plan may be drawn from either authorized but previously
unissued shares of Coram Common Stock or from reacquired shares of Coram Common
Stock, including shares purchased by Coram on the open market and held as
treasury shares.
Should an option expire or terminate for any reason prior to exercise in
full (including options cancelled in accordance with the cancellation-regrant
provisions of the 1994 Plan), the shares subject to the portion of the option
not so exercised will be available for subsequent issuance under the 1994 Plan.
Shares subject to any option surrendered in accordance with the stock
appreciation right provisions of the 1994 Plan and all share issuances under the
1994 Plan, whether or not the shares are subsequently reacquired by Coram
pursuant to its repurchase rights under the 1994 Plan, will reduce on a
share-for-share basis the number of shares of Coram Common Stock available for
subsequent issuance.
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In no event may the aggregate number of shares of Coram Common Stock for
which any one individual participating in the 1994 Plan may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances exceed 5,000,000 shares over the term of the 1994 Plan.
PLAN ADMINISTRATION
The 1994 Plan (other than the Automatic Option Grant Program) will be
administered by one or more committees comprised of members of the Coram Board
of Directors (the "Board"). Each such committee will have complete discretion
(subject to the express provisions of the 1994 Plan) to authorize stock option
grants and direct stock issuances within the scope of its administrative
jurisdiction under the 1994 Plan, and the various committees possessing such
discretionary authority will be referred to collectively in this summary as the
Plan Administrator. All grants under the Automatic Grant Program will be made in
strict compliance with the express provisions of that program, and no
administrative discretion will be exercised by any Plan Administrator with
respect to the grants made under that program.
ELIGIBILITY
Officers and other key employees of Coram or its operating subsidiaries
(including T2, Curaflex, HealthInfusion and Medisys after the Merger), the
non-employee members of the board of directors of any Coram operating subsidiary
who are not otherwise serving as members of the Coram Board, and independent
consultants and advisors to Coram and its operating subsidiaries will be
eligible to participate in the Discretionary Grant and Stock Issuance Programs.
Non-employee members of the Board will only be eligible to participate in the
Automatic Grant Program.
As of February 28, 1994, it was estimated that 7 executive officers and 10
other key employees would be eligible to participate in the 1994 Plan, and 3
non-employee Board members would be eligible to participate in the Automatic
Grant Program.
VALUATION
The fair market value per share of Coram Common Stock on any relevant date
under the 1994 Plan will be the closing selling price per share on that date on
the New York Stock Exchange or the exchange on which shares of Coram Common
Stock are then currently traded. If there is no reported selling price for such
date, then the closing selling price for the last previous date for which such
quotation exists will be determinative of fair market value.
DISCRETIONARY GRANT PROGRAM
The principal features of the Discretionary Option Grant Program may be
summarized as follows:
The exercise price per share for incentive stock options will not be less
than 100% of the fair market value per share of Coram Common Stock on the grant
date. For non-statutory options, the exercise price per share may not be less
than 85% of such fair market value. No option will have a maximum term in excess
of ten years measured from the grant date. The Plan Administrator will have
complete discretion to grant options (i) which are immediately exercisable for
vested shares, (ii) which are immediately exercisable for unvested shares
subject to Coram's repurchase rights or (iii) which become exercisable in
installments for vested shares over the optionee's period of service.
The exercise price may be paid in cash or in shares of Coram Common Stock
valued at fair market value on the exercise date. The option may also be
exercised for vested shares through a same-day sale program pursuant to which
the purchased shares are to be sold immediately and a portion of the sale
proceeds applied to the payment of the exercise price for those shares on the
settlement date.
Any option held by the optionee at the time of cessation of Service will
normally not remain exercisable beyond the limited period designated by the Plan
Administrator (not to exceed 36 months) at the time of the option grant. During
that period, the option will generally be exercisable only for the number of
shares of
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Coram Common Stock in which the optionee is vested at the time of cessation of
Service. For purposes of the 1994 Plan, an individual will be deemed to continue
in Service for so long as that person performs services for Coram or any parent
or subsidiary corporation, whether as an employee, non-employee board member or
independent consultant or advisor.
The Plan Administrator will have complete discretion to extend the period
following the optionee's cessation of Service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability of
such options in whole or in part. Such discretion may be exercised at any time
while the options remain outstanding, whether before or after the optionee's
actual cessation of Service.
Any unvested shares of Coram Common Stock will be subject to repurchase by
Coram, at the original exercise price paid per share, upon the optionee's
cessation of Service prior to vesting in those shares. The Plan Administrator
will have complete discretion in establishing the vesting schedule for any such
unvested shares and will have full authority to cancel Coram's outstanding
repurchase rights with respect to those shares in whole or in part at any time.
The optionee is not to have any stockholder rights with respect to the
option shares until the option is exercised and the exercise price is paid for
the purchased shares. Options are not assignable or transferable other than by
will or by the laws of inheritance following the optionee's death, and the
option may, during the optionee's lifetime, be exercised only by the optionee.
The Plan Administrator may grant options with tandem or limited stock
appreciation rights. Tandem stock appreciation rights will provide the holders
with the right to surrender their options for an appreciation distribution from
Coram equal in amount to the excess of (i) the fair market value of the vested
shares of Coram Common Stock subject to the surrendered option over (ii) the
aggregate exercise price payable for such shares. Such appreciation distribution
may, at the discretion of the Plan Administrator, be made in cash or in shares
of Coram Common Stock. Officers of Coram subject to the short-swing profit
restrictions of the Federal securities laws may also be granted limited stock
appreciation rights in connection with their option grants. Any option with such
a limited stock appreciation right in effect for at least six months may be
surrendered to Coram upon the successful completion of a hostile tender offer
for securities possessing more than 50% of the combined voting power of Coram's
outstanding securities. In return for the surrendered option, the officer will
be entitled to a cash distribution from Coram in an amount per surrendered
option share equal to the excess of (i) the highest price per share of Coram
Common Stock paid in such hostile tender offer over (ii) the option exercise
price.
The Plan Administrator will have the authority to effect, on one or more
separate occasions, the cancellation of outstanding options under the
Discretionary Grant Program which have exercise prices in excess of the then
current market price of Coram Common Stock and to issue replacement options with
an exercise price based on the market price of Coram Common Stock at the time of
the new grant.
The Coram Board of Directors has determined to grant to Charles A. Laverty,
on December 1, 1994, provided that he has not voluntarily terminated his
employment with Coram prior to such date, a non-statutory option under the 1994
Plan to purchase 100,000 shares of Coram Common Stock consistent with the terms
of his employment agreement with Coram. See "The Merger -- Interests of Certain
Persons in the Merger." The exercise price per share of such option will be
equal to the closing selling price per share for Coram Common Stock on the date
of grant. Such option will have a maximum term of ten years and will be
immediately exercisable. In the event of a Corporate Transaction or Change in
Control (as such terms are defined in the section below entitled Option/Vesting
Acceleration), the option will be assumed by the successor corporation and will
remain exercisable until the expiration of the ten-year option term. The
remaining terms and conditions of the option grant will be similar to those in
effect for all other non-statutory options to be granted under the Discretionary
Grant Program. A vote in favor of the 1994 Plan will accordingly constitute a
vote in favor of this special option grant.
The Coram Board of Directors has also determined to grant to James M.
Sweeney, on December 1, 1994, provided he continues in service with Coram until
such date, a non-statutory option under the 1994 Plan to purchase 3,000,000
shares of Coram Common Stock in connection with his service as Chairman of the
Coram Board of Directors and Chief Executive Officer of Coram. The exercise
price per share will be equal to the
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closing selling price per share of Coram Common Stock on the date of grant. The
option will have a maximum term of ten years and will be immediately exercisable
for all of the option shares. Twenty-five percent (25%) of the option shares
will vest upon Mr. Sweeney's completion of one year of Service measured from the
Effective Time, and the balance of the option shares will vest in successive
equal monthly installments upon Mr. Sweeney's completion of each additional
month of Service over the next thirty-six (36) months thereafter. All of the
option shares will immediately vest upon a Corporate Transaction or Change in
Control (as such terms are defined in the section below entitled Option/Vesting
Acceleration) and the option will remain so exercisable for such shares until
the expiration of the ten-year option term. The remaining terms and conditions
of the option grant will be similar to those in effect for all other
non-statutory options to be granted under the Discretionary Grant Program. A
vote in favor of the 1994 Plan will accordingly constitute a vote in favor of
this special option grant to Mr. Sweeney.
Mr. Carter will be granted a non-statutory option by the Coram Board of
Directors to purchase 94,500 shares of Coram Common Stock under the 1994 Stock
Option/Stock Issuance Plan. The grant will be made on September 1, 1994,
provided that he continues in service with Coram until such date, and will have
an exercise price per share equal to the closing selling price per share of
Coram Common Stock on the date of grant. The option will have a maximum term of
ten years and will become exercisable in three equal and successive annual
installments over Mr. Carter's continued period of Board service measured from
the grant date. In the event of a Corporate Transaction or Change of Control (as
such terms are defined in the section below entitled Option/Vesting
Acceleration), the option will be assumed by the successor corporation and will
become immediately exercisable for all of the shares of Coram Common Stock at
the time subject to the option and will remain so exercisable until the
expiration of the ten-year option term. The remaining terms and conditions of
the option grant will be similar to those in effect for all other non-statutory
options to be granted under the Discretionary Grant Program. The option will be
granted to Mr. Carter in cancellation of his existing contractual right to
receive an option grant for an 150,000 shares of T2 Common Stock in September
1994. A vote in favor of the 1994 Plan will accordingly constitute a vote in
favor of this special option grant to Mr. Carter.
AUTOMATIC GRANT PROGRAM
Under the Automatic Grant Option Program, each individual serving as a
non-employee Board member on December 1, 1994 (other than Tommy H. Carter) will
automatically receive at that time an option grant for 75,000 shares of Coram
Common Stock. A similar 75,000 share option grant will be made to each
individual who first becomes a non-employee Board member after December 1, 1994,
whether through election by Coram's stockholders or appointment by the Board. In
addition, on the date of each Annual Stockholders Meeting, beginning with the
1995 Annual Meeting, each individual who will continue to serve as a
non-employee Board member will automatically be granted, whether or not he or
she is standing for re-election at that particular Annual Meeting, a stock
option to purchase 2,500 shares of Coram Common Stock, provided such individual
has served as a non-employee Board member for at least six months. There will be
no limit on the number of such 2,500 share option grants any one non-employee
Board member may receive over his or her period of Board service.
Each option granted under the Automatic Grant Program will be subject to
the following terms and conditions:
- The exercise price per share will be equal to 100% of the fair market
value per share of Coram Common Stock on the automatic grant date.
- Each option will have a maximum term of ten years measured from the grant
date.
- Each option will be immediately exercisable for all the option shares,
but any purchased shares will be subject to repurchase by Coram at the
exercise price paid per share. Each option will vest, and Coram's
repurchase right will lapse, in a series of installments over the
optionee's period of Board service.
- As to those individuals who are serving as a non-employee Board member at
the Effective Time, the 75,000 shares subject to their initial automatic
grant will vest as to twenty-five percent (25%) of the option shares upon
the optionee's completion of one year of Board service measured from the
Effective
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Time and will vest as to the balance of the option shares in a series of
successive equal monthly installments upon the optionee's completion of
each additional month of Board service over the next thirty-six (36)
months thereafter. As to any individual who first becomes a non-employee
Board member after the Effective Time, the 75,000 shares subject to such
individual's initial automatic option grant will vest as to twenty-five
percent (25%) of the option shares upon the optionee's completion of one
year of Board service measured from the grant date and will vest as to
the balance of the option shares in a series of successive equal monthly
installments upon the optionee's completion of each additional month of
Board service over the next thirty-six (36) months thereafter. The 2,500
shares subject to each annual automatic grant will vest in a series of
twelve equal monthly installments, with the first such installment to
vest one month after the automatic grant date.
- The option will remain exercisable for a six-month period following the
optionee's cessation of Board service for any reason other than death or
permanent disability. Should the optionee die while holding one or more
automatic grants, then each such option will remain exercisable for a
twelve-month period following such optionee's death and may be exercised
by the personal representative of the optionee's estate or the person to
whom the grant is transferred by the optionee's will or the laws of
inheritance. In no event, however, may the option be exercised after the
expiration date of the option term. During the applicable exercise
period, the option may not be exercised for more than the number of
shares (if any) for which it is exercisable at the time of the optionee's
cessation of Board service.
- Should the optionee die or become permanently disabled while serving as a
Board member, then the shares of Coram Common Stock subject to each
automatic option grant held by that individual optionee will immediately
vest in full, and those vested shares may be purchased at any time within
the twelve (12)-month period following the date of the optionee's
cessation of Board service.
- The shares subject to each option will vest in full upon a Corporate
Transaction or Change in Control (as such terms are defined in the
"Option/Vesting Acceleration" section below), and the option will be
assumed by the successor corporation and remain exercisable for such
vested shares for the remainder of the ten (10) year option term, whether
or not the optionee continues in Board service.
- Upon the successful completion of a hostile tender offer for securities
possessing more than 50% of the combined voting power of Coram's
outstanding securities, each automatic option grant which has been
outstanding for at least six months may be surrendered to Coram for a
cash distribution per surrendered option share in an amount equal to the
excess of (A) the highest price per share of Coram Common Stock paid in
such hostile tender offer over (B) the exercise price payable per share.
- The remaining terms and conditions of the option will in general conform
to the terms described above for option grants made under the
Discretionary Grant Program and will be incorporated into the option
agreement evidencing the automatic grant.
A vote in favor of the 1994 Plan will constitute a vote in favor of the
automatic option grants to be made to the non-employee Board members at the
Effective Time of the Merger.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share
not less than 85% of fair market value, payable in cash or through a promissory
note payable to Coram. Shares may also be issued solely as a bonus for past
services.
Shares issued under the Stock Issuance Program may either be vested upon
issuance or subject to a vesting schedule tied to the participant's period of
Service or the attainment of designated performance goals. Unvested shares will
be subject to certain transfer restrictions and to repurchase or cancellation by
Coram upon either the participant's cessation of Service prior to vesting in
those shares or the non-attainment of the applicable performance goals. The Plan
Administrator will, however, have the discretionary authority to accelerate the
vesting of any issued shares in whole or in part at any time. Individuals
holding shares under the Stock Issuance Program will have full stockholder
rights with respect to those shares, whether the shares are vested or unvested.
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GENERAL PROVISIONS
OPTION/VESTING ACCELERATION
Outstanding options under the 1994 Plan will become immediately
exercisable, and unvested shares issued under the 1994 Plan will be subject to
accelerated vesting, in the event of certain changes in the ownership or control
of Coram. The transactions which will trigger such option/vesting acceleration
are as follows:
Corporate Transaction: any one of the following stockholder-approved
transactions:
- a merger or consolidation in which Coram is not the surviving entity,
(other than a transaction effected primarily to change the state in which
Coram is incorporated),
- the sale, transfer or other disposition of substantially all of Coram's
assets (including the outstanding capital stock of Coram's subsidiaries)
in liquidation or dissolution of Coram, or
- any reverse merger in which Coram is the surviving entity but in which
securities possessing more than 50% of the total combined voting power of
the corporation's outstanding securities are transferred to persons other
than those who held such securities immediately prior to the merger,
Change in Control: any of the following events:
- the acquisition of securities possessing more than 50% of the total
combined voting power of Coram's outstanding securities pursuant to a
tender or exchange offer made directly to the Coram stockholders which
the Board does not recommend such stockholders to accept, or
- a change in the composition of the Board over a period of thirty-six (36)
months or less such that a majority of the Board members ceases, by
reason of one or more contested elections for Board membership, to be
comprised of individuals who either (a) have been members of the Board
continuously since the beginning of such period or (b) have been elected
or nominated for election as Board members during such period by at least
a majority of the Board members described in clause (a) who were still in
office at the time such election or nomination was approved by the Board.
In the event of a Corporate Transaction, each option at the time
outstanding under the 1994 Plan will automatically become exercisable for all of
the shares of Coram Common Stock at the time subject to that option and may be
exercised for any or all of such shares as fully-vested shares. However, an
outstanding option under the Discretionary Grant Program will not so accelerate
if and to the extent: (i) such option is either to be assumed by the successor
corporation (or parent thereof) or is otherwise to be replaced by a comparable
option to purchase shares of the capital stock of the successor corporation (or
parent thereof) or (ii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of grant. However, any
outstanding option under the Discretionary Option Grant Program which does not
accelerate at the time of the Corporate Transaction will automatically
accelerate in full, in the event the optionee's Service terminates within a
designated period following such Corporate Transaction. Immediately following
the consummation of the Corporate Transaction, all outstanding options under the
1994 Plan will, to the extent not previously exercised by the optionees or
assumed by the successor corporation (or its parent company), terminate and
cease to be exercisable.
The outstanding repurchase rights of Coram under the Automatic Option Grant
and Stock Issuance Program will also terminate, and the shares subject to those
terminated rights will become fully vested, upon the Corporate Transaction,
except to the extent (i) one or more repurchase rights outstanding under the
Stock Issuance Program are expressly assigned to the successor corporation (or
its parent company) or (ii) the accelerated vesting of shares issued under the
Stock Issuance Program is precluded by other limitations imposed by the Plan
Administrator at the time of issuance.
The Plan Administrator has full power and authority, exercisable either in
advance of any actually-anticipated Change in Control or at the time of an
actual Change in Control, to provide for the automatic acceleration of one or
more outstanding options under the Discretionary Grant Program so that each such
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option will, immediately prior to the Change in Control, become exercisable for
the total number of shares of Coram Common Stock at the time subject to such
option and may be exercised for any or all of such shares as fully-vested
shares. The Plan Administrator may also provide for the automatic termination of
all of the outstanding repurchase rights held by Coram under the Discretionary
Option Grant and Stock Issuance Programs (with the concurrent vesting of the
shares subject to those terminated rights) in the event of such Change in
Control. Alternatively, the Plan Administrator may condition the acceleration of
such options and the termination of such repurchase rights upon the individual's
cessation of Service within a designated period following the Change in Control.
Upon a Change in Control, the shares subject to each outstanding option under
the Automatic Grant Program will immediately vest in full.
The acceleration of options or vesting in the event of a Corporate
Transaction, Change in Control or Subsidiary Disposition may be seen as an
anti-takeover provision and may have the effect of discouraging a merger
proposal, a takeover attempt or other efforts to gain control of Coram.
CHANGES IN CAPITALIZATION
In the event any change is made to the outstanding shares of Coram Common
Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without Coram's receipt of consideration, appropriate adjustments will
be made to (i) the maximum number and/or class of securities issuable under the
1994 Plan, (ii) the maximum number and/or class of securities for which any one
individual may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances over the term of the 1994 Plan,
(iii) the number and/or class of securities for which option grants will
subsequently be made under the Automatic Grant Program to each newly-elected or
continuing non-employee Board member, and (iv) the number and/or class of
securities subject to each outstanding option under the 1994 Plan and the
exercise price payable per share in order to prevent the dilution or enlargement
of rights under such options.
FINANCIAL ASSISTANCE
The Plan Administrator may institute a loan program in order to assist one
or more optionees in financing their exercise of outstanding options under the
Discretionary Grant Program or the purchase of shares under the Stock Issuance
Program. The form in which such assistance is to be made available (including
loans or installment payments) and the terms upon which such assistance is to be
provided will be determined by the Plan Administrator. However, the maximum
amount of financing provided any participant may not exceed the amount of cash
consideration payable for the issued shares plus all applicable Federal, state
and local taxes incurred in connection with the acquisition of the shares. Any
such financing may be subject to forgiveness in whole or in part, at the
discretion of the Plan Administrator, over the individual's period of Service.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of non-statutory
options or unvested shares under the Discretionary Grant or Stock Issuance
Program with the right to have Coram withhold a portion of the shares of Coram
Common Stock otherwise issuable to such individuals in satisfaction of the
Federal and state income and employment tax liability incurred by such
individuals in connection with the exercise of those options or the vesting of
the shares. Alternatively, the Plan Administrator may allow such individuals to
deliver previously acquired shares of Coram Common Stock in payment of such tax
liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1994 Plan in any or all respects
whatsoever. However, no such amendment may adversely affect the rights of
existing optionees or holders of unvested shares without their consent. In
addition, the Board may not, without the approval of the Coram stockholders, (i)
materially increase the maximum number of shares issuable under the 1994 Plan,
the number of shares for which automatic option grants will be made to
newly-elected or continuing non-employee Board members or the maximum number of
shares for which any one individual may be granted options, separately
exercisable stock
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appreciation rights or direct stock issuances, except to reflect certain changes
in Coram's capital structure, (ii) materially modify the eligibility
requirements for option grants or share issuances or (iii) otherwise materially
increase the benefits accruing to participants under the 1994 Plan.
The Board may terminate the 1994 Plan at any time, and the 1994 Plan will
in all events terminate on December 31, 2003. Each stock option or unvested
share issuance outstanding at the time of such termination will remain in force
in accordance with the provisions of the instruments evidencing such grant or
issuance.
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1994 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as described
below:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares were sold or otherwise made the
subject of disposition. For Federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. The optionee will make a
qualifying disposition of the purchased shares if the sale or other disposition
of such shares is made after the optionee has held the shares for more than two
years after the grant date of the option and more than one year after the
exercise date. If the optionee fails to satisfy either of these two minimum
holding periods prior to the sale or other disposition of the purchased shares,
then a disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for those shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of those
shares on the option exercise date over (ii) the exercise price paid for the
shares will be taxable as ordinary income. Any additional gain recognized upon
the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then Coram will be entitled to an income tax deduction, for the taxable year in
which such disposition occurs, equal to the excess of (i) the fair market value
of such those on the option exercise date over (ii) the exercise price paid for
the shares. In no other instance will Coram be allowed a deduction with respect
to the optionee's disposition of the purchased shares. Coram anticipates that
any compensation deemed paid by Coram in connection with most disqualifying
dispositions of incentive stock option shares under the 1994 Plan will be
deductible by Coram and will not have to be taken into account for purposes of
the $1 million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition of
unvested shares of Coram common stock under a non-statutory option. These
special provisions may be summarized as follows:
- If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by Coram at the original exercise price in the
event of the optionee's termination of service prior to vesting in those
shares, then the optionee will not recognize any taxable income at the
time of exercise but will have to report as ordinary income, as and when
the corporation's repurchase right lapses, an amount equal to the excess
of (i) the fair market value of the shares on the date the repurchase
right lapses with respect to those shares over (ii) the exercise price
paid for the shares.
222
<PAGE> 242
- The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the
non-statutory option an amount equal to the excess of (i) the fair market
value of the purchased shares on the exercise date over (ii) the exercise
price paid for such shares. If the Section 83(b) election is made, the
optionee will not recognize any additional income as and when the
repurchase right lapses.
Coram will be entitled to a business expense deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the corporation in which such ordinary income is recognized by the
optionee. Coram anticipates that the compensation deemed paid by Coram upon the
exercise of most non-statutory options under the 1994 Plan will be deductible by
Coram and will not have to be taken into account for purposes of the $1 million
limitation per covered individual on the deductibility of the compensation paid
to certain executive officers.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. Coram will be entitled to a business expense deduction equal to
the appreciation distribution for the taxable year in which the ordinary income
is recognized by the optionee.
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the 1994 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less than
the fair market value of the shares on the grant or issue date will result in a
compensation expense to Coram's earnings equal to the difference between the
exercise or issue price and the fair market value of the shares on the grant or
issue date. Such expense will be accruable by Coram over the period that the
option shares or issued shares are to vest. Option grants or stock issuances at
100% of fair market value will not result in any charge to Coram's earnings.
Whether or not granted at a discount, the number of oustanding options may be a
factor in determining Coram's earnings per share on a fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to be
charged against Coram's earnings. Accordingly, at the end of each fiscal
quarter, the amount (if any) by which the fair market value of the shares of
Coram Common Stock subject to such outstanding stock appreciation rights has
increased from the prior quarter-end will be accrued as compensation expense, to
the extent such fair market value is in excess of the aggregate exercise price
in effect for those rights.
The accounting principles applicable to employee stock plans such as the
1994 Plan are currently under review by the Financial Accounting Standards
Board, and substantial revisions to these governing principles may be
implemented during the 1994 calendar year.
STOCKHOLDER APPROVAL
The stockholders of T2, Curaflex, HealthInfusion and Medisys must each
approve the 1994 Plan. For each corporation, such approval requires the
affirmative vote of a majority of the outstanding voting shares of that
corporation present or represented and entitled to vote on Proposal No. 2 at the
1994 Special Meeting to be held separately by each corporation. If such approval
is obtained, the 1994 Plan will become effective upon the Effective Time of the
Merger. Should such stockholder approval not be obtained, then the 1994 Plan
will not become effective.
223
<PAGE> 243
EACH BOARD BELIEVES THAT IT IS IN THE BEST INTERESTS OF THE RELEVANT
CORPORATION TO IMPLEMENT AN EQUITY INCENTIVE PROGRAM FOR CORAM WHICH WILL
PROVIDE A MEANINGFUL OPPORTUNITY FOR OFFICERS, KEY EMPLOYEES AND NON-EMPLOYEE
BOARD MEMBERS TO ACQUIRE A SUBSTANTIAL PROPRIETARY INTEREST IN THE ENTERPRISE
AND THEREBY ENCOURAGE SUCH INDIVIDUALS TO REMAIN IN THE CORPORATION'S SERVICE
AND MORE CLOSELY ALIGN THEIR INTERESTS WITH THOSE OF THE OTHER STOCKHOLDERS OF
CORAM.
NEW PLAN BENEFITS
The following table sets forth certain information regarding the options
that are expected to be granted under the 1994 Plan following the Effective Time
of the Merger, to the extent such information is currently determinable. All of
these stock options will have an exercise price per share equal to the closing
selling price per share of Coram Common Stock on the New York Stock Exchange on
the relavant date of grant.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
NUMBER OF
NAME AND POSITION OPTION SHARES
------------------------------------------------------------------------ -------------
<S> <C>
James M. Sweeney........................................................ 3,000,000
Chairman of the Board and Chief Executive Officer
Charles A. Laverty...................................................... 100,000
Senior Executive Vice President and Director
Miles E. Gilman......................................................... -0-
Executive Vice President and Director
William J. Brummond..................................................... -0-
Vice President
John J. Gallatin........................................................ -0-
Vice President
Norman H. Werthwein..................................................... -0-
Acting Chief Financial Officer
John D. Hirsch, M.D..................................................... -0-
Physician Advisory Director
Tommy H. Carter......................................................... 94,500
Vice-Chairman of the Board
L. Peter Smith.......................................................... 75,000
Director
Richard A. Fink......................................................... 75,000
Director
Stephen G. Pagliuca..................................................... 75,000
Director
Executive Officer Group (7 persons)..................................... 3,100,000
Non-Executive Director Group (4 persons)................................ 319,500
Non-Executive Officer Employee Group.................................... -0-
</TABLE>
224
<PAGE> 244
PROPOSAL NO. 3
APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
The stockholders of Curaflex, HealthInfusion, Medisys and T2 are each being
asked to approve the Coram Healthcare Corporation Employee Stock Purchase Plan
(the "Purchase Plan"), pursuant to which 300,000 shares of Coram Common Stock
will be reserved for issuance. The Board of Directors of each corporation has
authorized the implementation of the Purchase Plan as a payroll-deduction based
employee stock purchase plan to become effective on or about August 1, 1994,
provided stockholder approval of each corporation is obtained.
The following is a summary of the principal features of the Purchase Plan.
The summary, however, does not purport to be a complete description of all the
provisions of the Purchase Plan. Any stockholder of Curaflex, HealthInfusion,
Medisys or T2 who wishes to obtain a copy of the actual plan document may do so
by written request to the Corporate Secretary of the relevant corporation at the
principal executive offices of that corporation.
SUMMARY OF PURCHASE PLAN
Each full-time employee who is customarily employed by Coram or any
participating subsidiary (including Curaflex, HealthInfusion, Medisys and T2
after the Merger and any other subsidiary subsequently established or acquired)
on a basis requiring more than twenty hours of service per week for more than
five months per calendar year will be eligible to participate in the Purchase
Plan for one or more offering periods. However, no executive officers of Coram
will be eligible to participate in the Purchase Plan.
The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of twenty-four months. The initial
offering period will begin on or about August 1, 1994 and will end on the last
business day in July 1996. An individual who is eligible to participate in the
Purchase Plan on the start date of a particular offering period may join the
offering period on that date. An individual who first becomes eligible to
participate in the Purchase Plan after the start date of a particular offering
period may join that offering period on the next quarterly entry date (the first
business day of each calendar quarter). Any individual who does not join the
offering period when he or she is first eligible to do so may not join that
particular offering period at any later date.
At the time the participant joins the offering period, he or she will be
granted a purchase right to acquire shares of Coram Common Stock at quarterly
intervals over the remainder of that offering period. The purchase dates will
occur on the last business day of each calendar quarter within the offering
period, and all payroll deductions collected from the participant for the period
ending with each such quarterly purchase date will automatically be applied to
the purchase of Coram Common Stock.
The purchase price per share will be 85% of the lower of (i) the fair
market value per share of Coram Common Stock on the participant's entry date
into the offering period or (ii) the fair market value per share on the
quarterly purchase date. However, for a participant who joins the offering
period after the start date, the clause (i) amount will not be less than the
fair market value per share on such start date. The fair market value per share
of Coram Common Stock on any relevant date under the Purchase Plan will be the
closing selling price per share on that date on the New York Stock Exchange or
the exchange on which shares of Coram Common Stock are then currently traded.
The purchase price is to be paid through periodic payroll deductions not to
exceed 10% of the participant's base salary. However, no participant may
purchase more than $25,000 worth of Coram Common Stock (based on the fair market
value of the common stock on his or her entry date into the offering period) for
each calendar year his or her purchase right remains outstanding. In addition,
no participant may purchase more than 100 shares of Coram Common Stock on any
quarterly purchase date.
In the event any change in the oustanding shares of Coram Common Stock is
effected without Coram's receipt of consideration, whether by reason of any
stock split, stock dividend, recapitalization or other similar change in capital
structure, appropriate adjustments will be made to (i) the maximum number and/or
class of
225
<PAGE> 245
securities issuable over the term of the Purchase Plan, (ii) the number and/or
class of securities and the purchase price per share in effect under each
outstanding purchase right in order to preclude the dilution or enlargement of
benefits thereunder, and (iii) the maximum number and/or class of securities
purchasable per participant on any one quarterly purchase date.
The participant will not have any stockholder rights with respect to the
shares subject to his or her outstanding purchase right, until such right is
exercised on each quarterly purchase date. An outstanding purchase right is
exercisable only by the participant, and purchase rights are not assignable or
transferable other than by will or the laws of inheritance following the
participant's death.
In the event Coram is acquired by merger or asset sale, all outstanding
purchase rights will automatically be exercised immediately prior to the
effective date of such acquisition at a purchase price per share equal to 85% of
the lower of (i) the fair market value per share of Coram Common Stock on the
participant's entry date into the offering period or (ii) the fair market value
per share immediately prior to such acquisition. A similar automatic exercise of
outstanding purchase rights will occur should Coram dispose of its equity
holdings in one or more of its operating subsidiaries (including T2, Curaflex,
HealthInfusion and Medisys after the Merger) by a merger or consolidation
involving that subsidiary, a sale of substantially all of the assets of that
subsidiary or Coram's sale of substantially all of the outstanding capital stock
of such subsidiary, but only the purchase rights of the participants in the
employ of the subsidiary involved in such transaction will be so exercised.
A participant may withdraw from an offering period at any time prior to the
quarterly purchase date and may elect to have his or her payroll deductions for
the quarterly period in which such withdrawal occurs either refunded immediately
or applied to the purchase of Coram Common Stock on the next quarterly purchase
date. The participant's purchase right will terminate automatically in the event
the participant ceases to remain an eligible employee for any reason, and any
payroll deductions collected from such individual during the quarterly period in
which such cessation of status occurs will be refunded.
The Coram Board of Directors may amend or terminate the Purchase Plan
immediately after any quarterly purchase date. However, the Board may not,
without stockholder approval, (i) materially increase the number of shares of
Coram Common Stock available for issuance under the Purchase Plan, (ii) alter
the purchase price formula so as to reduce the purchase price payable for the
issued shares or (iii) materially modify the eligibility requirements for
participation or the benefits available to participants. The Purchase Plan will
in all events terminate on the last business day of December 2003.
The Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant, and
no deductions will be allowable to Coram, upon either the grant or the exercise
of the purchase rights. Taxable income will not be recognized until there is a
sale or other disposition of the shares acquired under the Purchase Plan or in
the event the participant should die while still owning the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two years after his or her entry date into the offering period or within
one year after the actual purchase date, the participant will recognize ordinary
income in the year of sale or disposition equal to the amount by which the fair
market value of the shares on the purchase date exceeded the purchase price of
those shares. If the participant sells disposes of the purchased shares more
than two years after entry into the offering period and more than one year after
the actual purchase date, then the participant will recognize ordinary income in
the year of sale or disposition equal to the lesser of (i) the amount by which
the fair market value of the shares on the sale or disposition date exceeded the
purchase price paid for those shares or (ii) 15% of the fair market value of the
shares on the date the participant entered the offering period. Any additional
gain upon the disposition will be taxed as a long-term capital gain.
If the participant still owns the purchased shares at the time of death,
the lesser of (i) the amount by which the fair market value of the shares on the
date of death excees the purchase price or (ii) 15% of the fair
226
<PAGE> 246
market value of the shares on the date the participant entered the offering
period will constitute ordinary income in the year of death.
If the purchased shares are sold or otherwise disposed of within two years
after the participant's entry date into the offering period or within one year
after the actual purchase date, then Coram will be entitled to a deduction in
the year of sale or disposition equal to the amount of ordinary income
recognized by the participant as a result of such sale or disposition. In all
other cases, no deduction will be allowed.
Under current accounting rules, the issuance of Coram Common Stock under
the Purchase Plan will not result in a compensation expense chargeable against
Coram's reported earnings. However, the accounting principles applicable to
employee stock purchase plans such as the Purchase Plan are currently under
review by the Financial Accounting Standards Board, and substantial revisions to
these governing principles may be implemented in the future.
STOCKHOLDER APPROVAL
The stockholders of T2, Curaflex, HealthInfusion and Medisys must each
approve the 1994 Plan. For each corporation, such approval requires the
affirmative vote of a majority of the outstanding voting shares of that
corporation present to represented and entitled to vote on Proposal No. 3 at the
1994 Special Meeting to be held separately by each corporation. If such approval
is obtained, the Purchase Plan will become effective with the initial offering
period beginning on or about August 1, 1994. Should such stockholder approval
not be obtained, then the Purchase Plan will not be implemented.
THE BOARD OF DIRECTORS OF EACH CORPORATION RECOMMENDS THAT STOCKHOLDERS OF
THAT CORPORATION VOTE FOR THE APPROVAL OF THE PURCHASE PLAN. EACH BOARD BELIEVES
THAT IT IS IN THE BEST INTERESTS OF THE RELEVANT CORPORATION TO PROVIDE THEIR
EMPLOYEES WITH AN OPPORTUNITY TO ACQUIRE AN EQUITY INTEREST IN THE ENTERPRISE
AND THEREBY MORE CLOSELY ALIGN THEIR INTERESTS WITH THOSE OF THE OTHER
STOCKHOLDERS OF CORAM.
LEGAL MATTERS
The validity of the shares of Coram Common Stock to be issued in connection
with the Merger will be passed on for Coram by Brobeck, Phleger & Harrison,
Newport Beach, California. In addition, Brobeck, Phleger & Harrison, Newport
Beach, California, outside counsel to T2, will issue a legal opinion to T2
regarding certain federal income tax consequences of the Merger. Morrison &
Foerster, Irvine, California, outside counsel to Curaflex, will issue a legal
opinion to Curaflex regarding certain federal tax consequences of the Merger.
Oppenheimer, Wolff & Donnelly, Minneapolis, Minnesota, outside counsel to
Medisys, will issue a legal opinion to Medisys regarding certain federal tax
consequences of the Merger. Arthur Andersen & Co., independent public
accountants, will issue an opinion to HealthInfusion regarding certain federal
tax consequences of the Merger. Richard A. Fink, a partner of Brobeck, Phleger &
Harrison, has been designated by T2 as a director of Coram. Pursuant to the
terms of the Automatic Grant Program Mr. Fink will be granted a non-statutory
option to purchase up to 75,000 shares of Coram Common Stock. See "Proposal No.
2: Approval of Coram Healthcare Corporation 1994 Stock Option/Stock Issuance
Plan -- Automatic Grant Program."
EXPERTS
The consolidated financial statements of T2 Medical, Inc. and the related
financial statement schedules incorporated by reference in this Joint Proxy
Statement/Prospectus from the Company's Annual Report on Form 10-K for the year
ended September 30, 1993 have been audited by Deloitte & Touche, independent
auditors, as stated in their report (which report expresses an unqualified
opinion and includes an explanatory paragraph relating to material uncertainties
concerning pending claims against T2), which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements and schedules of Curaflex Health
Services, Inc. as of December 31, 1992 and 1993, and for the three years ended
December 31, 1991, 1992 and 1993, included herein and elsewhere in this Joint
Proxy Statement/Prospectus have been included in reliance on the reports of KPMG
227
<PAGE> 247
Peat Marwick, independent certified public accountants, appearing elsewhere in
this Joint Proxy Statement/Prospectus and on the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements and schedules of HealthInfusion, Inc.
and subsidiaries included in this Joint Proxy Statement/Prospectus have been
audited by Arthur Andersen & Co., independent public accountants, as indicated
in their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing in giving said
reports. Arthur Anderson & Co., independent public accountants, will also issue
an opinion to HealthInfusion regarding certain federal tax consequences of the
Merger.
The financial statements and schedules of Medisys, Inc. included in this
Joint Proxy Statement/Prospectus have been audited by Coopers & Lybrand,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
228
<PAGE> 248
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
CURAFLEX HEALTH SERVICES, INC.
AND SUBSIDIARIES
Independent Auditors' Report.................. F-2
Consolidated Balance Sheets................... F-3
Consolidated Statements of Operations......... F-4
Consolidated Statements of Common
Stockholders' Equity (Deficit).............. F-5
Consolidated Statements of Cash Flows......... F-6
Notes to Consolidated Financial Statements.... F-7
EXCELLENCE, INC.
Report of Independent Certified Public
Accountants................................. F-21
Balance Sheets................................ F-22
Statements of Income.......................... F-23
Statements of Retained Earnings............... F-24
Statements of Cash Flows...................... F-25
Notes to Financial Statements................. F-26
CONTINUECARE HEALTH SYSTEMS, INC.
Report of Independent Accountants............. F-29
Balance Sheet................................. F-30
Statement of Income and Retained Earnings..... F-31
Statement of Cash Flows....................... F-32
Notes to Financial Statements................. F-33
HOME SOLUTION, INC.
Report of Independent Certified Public
Accountants................................. F-39
Balance Sheets................................ F-40
Statements of Earnings and Retained
Earnings.................................... F-41
Statements of Cash Flows...................... F-42
Notes to Financial Statements................. F-43
COMPREHENSIVE PHARMACY HOME IV SERVICES, INC.
Independent Auditors' Report.................. F-46
Balance Sheets................................ F-47
Statements of Operations...................... F-48
Statements of Stockholders' Equity............ F-49
Statements of Cash Flows...................... F-50
Notes to Financial Statements................. F-51
HEALTHINFUSION, INC. AND SUBSIDIARIES
Report of Independent Certified Public
Accountants................................. F-55
Consolidated Balance Sheets................... F-56
Consolidated Statements of Operations......... F-57
Consolidated Statements of Stockholders'
Equity...................................... F-58
Consolidated Statements of Cash Flows......... F-59
Notes to Consolidated Financial Statements.... F-60
Consolidated Balance Sheets................... F-73
Consolidated Statements of Operations......... F-74
Consolidated Statements of Cash Flows......... F-75
Notes to Consolidated Financial Statements.... F-76
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
MEDISYS, INC.
Report of Independent Accountants............. F-79
Consolidated Balance Sheets................... F-80
Consolidated Statements of Operations......... F-81
Consolidated Statements of Changes in
Stockholders' Equity........................ F-82
Consolidated Statements of Cash Flows......... F-83
Notes to Consolidated Financial Statements.... F-84
Consolidated Balance Sheets................... F-93
Consolidated Statements of Operations......... F-94
Consolidated Statements of Cash Flows......... F-95
Notes to Consolidated Financial Statements.... F-96
AMERICAN HOME THERAPIES, INC.
Report of Independent Certified Public
Accountants................................. F-97
Combined Balance Sheets....................... F-98
Combined Statements of Earnings............... F-99
Combined Statements of Changes In
Stockholders' Equity........................ F-100
Combined Statements of Cash Flows............. F-101
Notes to Combined Financial Statements........ F-102
DELTA PHARMACY, INC.
Report of Independent Public Accountants...... F-106
Balance Sheets................................ F-107
Statements of Income.......................... F-108
Statements of Stockholders' Equity............ F-109
Statements of Cash Flows...................... F-110
Notes to Financial Statements................. F-111
PHARMACY CONSULTANTS OF ARIZONA, INC.
Report of Independent Accounts................ F-116
Balance Sheet................................. F-117
Statement of Operations and Retained
Earnings.................................... F-118
Statement of Cash Flows....................... F-119
Notes to Financial Statements................. F-120
PHARMACY VENTURES, INC.
Report of Independent Accountants............. F-123
Balance Sheet................................. F-124
Statement of Operations and Retained
Deficit..................................... F-125
Statement of Cash Flows....................... F-126
Notes to Financial Statements................. F-127
ALLCARE HEALTH SERVICES, INC. AND ALLCARE HOME
CARE, INC.
Independent Auditor's Report.................. F-129
Combined Balance Sheets....................... F-130
Combined Statements of Income................. F-131
Combined Statements of Changes in
Stockholders' Equity........................ F-132
Combined Statements of Cash Flows............. F-133
Notes to Financial Statements................. F-134
</TABLE>
F-1
<PAGE> 249
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Curaflex Health Services, Inc.:
We have audited the accompanying consolidated balance sheets of Curaflex
Health Services, Inc. and subsidiaries as of December 31, 1992 and 1993, and the
related consolidated statements of operations, common stockholders' equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Curaflex
Health Services, Inc. and subsidiaries as of December 31, 1992 and 1993 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in note 8 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG Peat Marwick
Ontario, California
February 28, 1994
F-2
<PAGE> 250
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1992 1993 1994
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash........................................................ $ 1,528 $ 3,888 $ 2,856
Investments, at cost which approximates market.............. 13,733 -- --
Accounts receivable, net of allowances of $7,068 in 1992,
$15,364 in 1993 and $10,646 in 1994...................... 29,615 29,569 31,017
Notes receivable (note 10).................................. 400 425 421
Inventories................................................. 2,354 2,584 2,641
Prepaid expenses............................................ 2,214 1,618 1,567
Other current assets........................................ 255 179 241
-------- -------- -----------
Total current assets................................ 50,099 38,263 38,743
Equipment, furniture and fixtures, net of accumulated
depreciation of $3,027 in 1992, $5,093 in 1993 and $5,714 at
March 31, 1994 (note 3)..................................... 6,116 11,084 11,608
Joint ventures and other assets (note 4)...................... 7,207 10,302 10,694
Goodwill, net of accumulated amortization of $417 in 1992,
$1,746 in 1993 and $2,126 in 1994 (note 2).................. 20,415 50,568 50,433
-------- -------- -----------
Total assets........................................ $ 83,837 $110,217 $ 111,478
-------- -------- -----------
-------- -------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt (note 6)......................... $ 2,536 $ 6,381 $ 25,913
Accounts payable............................................ 2,647 7,144 9,134
Accrued compensation........................................ 1,356 1,244 1,246
Other accrued liabilities................................... 4,311 5,375 2,801
Accrued restructuring charge (note 5)....................... 1,202 -- --
-------- -------- -----------
Total current liabilities........................... 12,052 20,144 39,094
Long-term debt, excluding current maturities (note 6)......... 8,355 21,129 5,183
Minority interest in consolidated joint ventures.............. 542 522 290
Other liabilities............................................. 450 -- --
Commitments and contingencies (notes 2 and 9).................
-------- -------- -----------
Total liabilities................................... 21,399 41,795 44,567
Stockholders' equity (note 7):
Preferred stock, par value $.001, authorized 4 million
shares, no shares issued or outstanding
Common stock, par value $.001, authorized 40 million shares;
issued and outstanding 12 million shares in 1992, 15
million shares in 1993 and 15 million shares at March 31,
1994..................................................... 12 15 15
Additional paid-in capital............................... 92,887 107,537 107,617
Accumulated deficit...................................... (29,596) (38,265) (39,856)
Less:
Treasury stock, 42 thousand common shares, at cost....... (5) (5) (5)
Stock purchase note...................................... (860) (860) (860)
-------- -------- -----------
Total stockholders' equity.......................... 62,438 68,422 66,911
Subsequent event (note 12)
-------- -------- -----------
Total liabilities and stockholders' equity.......... $ 83,837 $110,217 $ 111,478
-------- -------- -----------
-------- -------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 251
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- -------------------
1991 1992 1993 1993 1994
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue................................ $60,081 $75,127 $89,152 $20,595 $24,974
Cost of revenue............................ 28,329 37,102 53,041 11,148 15,779
------- ------- ------- ------- -------
Gross margin..................... 31,752 38,025 36,111 9,447 9,195
Selling, general and administrative
expense.................................. 25,367 30,699 34,298 7,068 8,940
Provision for estimated uncollectible
accounts receivable...................... 3,618 5,679 5,557 1,161 1,385
Merger expenses............................ -- -- 2,310 2,310 --
Restructuring charge (note 5).............. -- 2,385 1,600 1,600 --
------- ------- ------- ------- -------
Operating income (loss).......... 2,767 (738) (7,654) (2,692) (1,130)
Interest income............................ 231 1,253 549 307 77
Interest expense (note 6).................. (989) (705) (1,104) (185) (565)
Minority interest in net income of
consolidated joint ventures.............. (93) (807) (1,019) (205) (90)
Equity in net income of unconsolidated
joint ventures (note 4).................. 343 163 361 (75) 105
Other income............................... 309 298 323 76 12
------- ------- ------- ------- -------
Income (loss) before income
taxes.......................... 2,568 (536) (8,544) (2,774) (1,591)
Income taxes (benefit) (note 8)............ 1,076 339 (105) 871 --
------- ------- ------- ------- -------
Income (loss) before
extraordinary items and
cumulative effect of accounting
changes........................ 1,492 (875) (8,439) (1,903) (1,591)
Extraordinary item, utilization of
operating loss carryforwards (note 8).... 457 -- -- -- --
Cumulative effect of accounting change for
income taxes (note 8).................... -- -- (176) (176) --
------- ------- ------- ------- -------
Net income (loss)................ $ 1,949 $ (875) $(8,615) $(2,079) $(1,591)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Income (loss) per common share (note 1):
Income (loss) before extraordinary items
and accounting change................. $ 0.17 $ (0.08) $ (0.59) $ (0.15) $ (0.11)
Extraordinary item....................... 0.05 -- -- -- --
Accounting change for income taxes....... -- -- (0.01) (0.01) --
------- ------- ------- ------- -------
Net income (loss) per common
share.......................... $ 0.22 $ (0.08) $ (0.60) $ (0.16) $ (0.11)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Weighted average number of common and
common equivalent shares outstanding..... 9,010 10,799 14,258 12,600 14,986
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 252
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- PAID-IN ACCUMULATED TREASURY STOCK
SHARES AMOUNT CAPITAL DEFICIT STOCK PURCHASE NOTE TOTAL
------ ------ -------- ------------ -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990............. 3,296 $ 3 $ 24,824 $(30,232) $ (293) $(860) $ (6,558)
Exercise of stock options and
warrants........................... 58 -- 93 -- -- -- 93
Retirement of treasury stock......... (2) -- (288) -- 288 -- --
Retirement of common stock........... (11) -- -- -- -- -- --
Additional issuance costs of Series B
preferred stock.................... -- -- (21) -- -- -- (21)
Issuance costs of Series C preferred
stock.............................. -- -- (61) -- -- -- (61)
Issuance of common stock............. 886 1 4,119 -- -- -- 4,120
Issuance of warrants................. -- -- 150 -- -- -- 150
Dividends............................ -- -- -- (129) -- -- (129)
Other................................ -- -- (75) -- -- -- (75)
Net income........................... -- -- -- 1,949 -- -- 1,949
------ ------ -------- ------------ -------- ------ --------
Balance, December 31, 1991............. 4,227 4 28,741 (28,412) (5) (860) (532)
Sale of common stock, net of issuance
costs.............................. 3,450 4 40,755 -- -- -- 40,759
Issuance of shares under employee
stock purchase plan................ 6 -- -- -- -- -- --
Conversion of Series A, B and C
senior preferred stock to common
stock.............................. 3,694 4 20,005 -- -- -- 20,009
Purchase and retirement of common
stock.............................. (2) -- (16) -- -- -- (16)
Exercise of stock options............ 328 -- 255 -- -- -- 255
Issuance of common stock in
acquisitions....................... 305 -- .. 3,090 -- -- -- 3,090
Additional issuance costs of Series C
preferred stock.................... -- -- (6) -- -- -- (6)
Issuance of common stock in
connection with medical fees
compensation....................... 15 -- 63 -- -- -- 63
Dividends............................ -- -- -- (309) -- -- (309)
Net loss............................. -- -- -- (875) -- -- (875)
------ ------ -------- ------------ -------- ------ --------
Balance, December 31, 1992............. 12,023 12 92,887 (29,596) (5) (860) 62,438
Issuance of shares under employee
stock purchase plan................ 44 -- 225 -- -- -- 225
Issuance of common stock in
acquisitions....................... 2,262 2 14,133 -- -- -- 14,135
Issuance of common stock............. 9 -- 63 -- -- -- 63
Exercise of stock options............ 645 1 294 -- -- -- 295
Purchase and retirement of common
stock.............................. (11) -- (67) -- -- -- (67)
Refund of issuance costs of Series B
preferred stock.................... -- -- 2 -- -- -- 2
Dividends............................ -- -- -- (54) -- -- (54)
Net loss............................. -- -- -- (8,615) -- -- (8,615)
------ ------ -------- ------------ -------- ------ --------
Balance, December 31, 1993............. 14,972 15 107,537 (38,265) (5) (860) 68,422
Issuance of shares under employee stock
purchase plan (unaudited)............ 16 -- 80 -- -- -- 80
Net loss (unaudited)................... -- -- -- (1,591) -- -- (1,591)
------ ------ -------- ------------ -------- ------ --------
Balance, March 31, 1994 (unaudited).... 14,988 $ 15 $107,617 $(39,856) $ (5) $(860) $(66,911)
------ ------ -------- ------------ -------- ------ --------
------ ------ -------- ------------ -------- ------ --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 253
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ---------------------
1991 1992 1993 1993 1994
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 1,949 $ (875) $ (8,615) $ (2,079) $ (1,591)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Provision for estimated uncollectible
accounts receivable.................. 3,618 5,679 5,557 1,161 1,385
Depreciation and amortization........... 961 1,612 4,001 794 1,272
Minority interest in net income of
consolidated joint ventures.......... 93 807 1,019 205 90
Equity in net income of unconsolidated
joint ventures....................... (343) (163) (361) 75 (105)
Net loss (gain) on sale of
investments.......................... -- 278 (115) (106) --
Deferred expenses....................... (107) 465 -- -- --
Change in assets and liabilities, net of
acquisitions:
Increase in accounts and notes
receivable......................... (15,150) (10,701) (4,629) (2,590) (2,809)
(Increase) decrease in inventories... (353) (522) 60 (68) (57)
(Increase) in prepaid expenses and
other assets....................... (1,516) (7,316) (1,080) (864) (448)
Increase (decrease) in current and
other liabilities.................. (775) 2,656 190 (620) (581)
Decrease in income taxes............. (383) (532) -- -- --
-------- -------- -------- -------- --------
Net cash used by operating
activities....................... (12,006) (8,612) (3,973) (4,092) (2,844)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of equipment, furniture and
fixtures.................................. (1,926) (3,381) (6,317) (1,120) (1,146)
Purchase of investments..................... -- (49,950) (2,043) (526) --
Proceeds from sales and maturities of
investments............................... -- 36,298 15,541 6,801 --
Decrease in accounts receivable of
discontinued business..................... 1,222 260 -- -- --
Payments for acquisitions of businesses..... -- (11,326) (12,214) (184) (245)
Capital contributions to unconsolidated
joint ventures............................ -- (7) (763) (330) (209)
Distribution of earnings from unconsolidated
joint ventures............................ -- 435 225 30 70
Minority interest in consolidated joint
ventures.................................. (80) (428) (546) (155) (323)
-------- -------- -------- -------- --------
Net cash (used) by investing
activities......................... (784) (28,099) (6,117) 4,516 (1,853)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Sale of common and preferred stock, net of
repurchases and issuance costs............ 6,540 40,736 223 51 80
Debt borrowings............................. 12,161 5,471 19,112 1,150 4,492
Repayment of debt........................... (5,082) (11,283) (7,126) (1,357) (907)
Exercise of stock options and warrants...... 168 255 295 288 --
Dividends................................... (129) (309) (54) (54) --
-------- -------- -------- -------- --------
Net cash provided by financing
activities......................... 13,658 34,870 12,450 78 3,665
-------- -------- -------- -------- --------
Net increase (decrease) in cash...... 868 (1,841) 2,360 502 (1,032)
Cash at beginning of year..................... 2,501 3,369 1,528 1,364 3,888
-------- -------- -------- -------- --------
Cash at end of year........................... $ 3,369 $ 1,528 $ 3,888 $ 1,866 $ 2,856
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest.................................. $ 959 $ 528 $ 1,157 $ 195 $ 628
Income taxes.............................. $ 1,043 $ 1,185 $ 10 $ 7 $ 65
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 254
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993 AND THE
THREE MONTHS ENDED MARCH 31, 1993 (UNAUDITED) AND MARCH 31, 1994 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Curaflex Health Services, Inc., its subsidiaries and its 51% owned joint venture
partnerships (the "Company"). Significant inter-company transactions and
balances have been eliminated.
On March 5, 1993, a subsidiary of the Company completed its merger with
Clinical Homecare, LTD. ("CHL"), which became a wholly-owned subsidiary of the
Company. CHL, a New Jersey-based national infusion therapy provider, offers a
variety of therapies including home parenteral nutrition, home antibiotic
therapy, home enteral nutrition therapy, pain management, hydration therapy,
aerosol pentamidine therapy and chemotherapy. The Company issued 4,023,940
shares of common stock for all the outstanding common stock and preferred stock
of CHL. This represents an exchange ratio of .43 shares of Curaflex stock for
each share of CHL common stock and 2.15 shares of Curaflex stock for each share
of CHL preferred stock. This transaction was accounted for as a pooling of
interests and, accordingly, the Company's historical consolidated financial
statements have been restated to include the accounts and results of operations
of CHL.
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying consolidated financial
statements are summarized below (in thousands).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1991 1992
------- -------
<S> <C> <C>
Net revenue:
Curaflex Health Services, Inc. ........................ $38,562 $51,516
Clinical Homecare, Ltd. ............................... 21,519 23,611
------- -------
Combined....................................... $60,081 $75,127
------- -------
------- -------
Extraordinary item:
Curaflex Health Services, Inc. ........................ $ 457 $ --
Clinical Homecare, Ltd. ............................... -- --
------- -------
Combined....................................... $ 457 $ --
------- -------
------- -------
Net income (loss):
Curaflex Health Services, Inc. ........................ $ 1,171 $(1,283)
Clinical Homecare, Ltd. ............................... 778 408
------- -------
Combined....................................... $ 1,949 $ (875)
------- -------
------- -------
</TABLE>
During 1993, the Company purchased the minority interest of its Network
Infusion Care Partnership for $4.3 million of Curaflex's Common Stock. Goodwill
of $5.1 million resulted from the purchase and is being amortized over 30 years.
Cash
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Investments
Investments are stated at cost plus accrued interest, which approximates
market, and comprise primarily corporate obligations. For purposes of the
consolidated statements of cash flows, the Company does not
F-7
<PAGE> 255
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
consider investments to be cash equivalents as they generally have original
maturities in excess of three months.
Revenue Recognition
Revenues are recognized as the related services are rendered or products
are delivered. Substantially all of the Company's revenues are billed to
third-party payors, including insurance companies, managed care plans,
governmental payors and contracted institutions. Revenues are recorded net of
contractual adjustments and related discounts. Contractual adjustments represent
estimated differences between service revenue at established rates and amounts
expected to be realized from third-party payors under contractual agreements.
The following table sets forth, for the periods indicated, the approximate
percentage of Curaflex's net revenue attributable to each type of payor:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Private............................................. 83% 81% 79%
Medicare and Medicaid............................... 17% 19% 21%
---- ---- ----
Total.......................................... 100% 100% 100%
---- ---- ----
---- ---- ----
</TABLE>
Inventories
Inventories, consisting primarily of pharmaceuticals, are stated at the
lower of cost or market. Cost is determined using the first-in, first-out
method.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are stated at cost and depreciated using
the straight-line and declining balance methods over their estimated useful
lives, generally three to seven years. Leasehold improvements are amortized over
the shorter of the lease term or estimated useful lives of the related assets.
Joint Ventures and Other Assets
Unconsolidated investments are accounted for using the cost method when the
Company has up to a 20% ownership interest in the investee. In cases where the
Company exhibits significant influence and has a 20%-50% ownership interest, the
investment is accounted for using the equity method. Investments in which the
Company owns a greater than 50% ownership interest are consolidated in the
financial statements.
Deferred Pre-Start Expenses
Costs relating to the opening of a new branch facility are deferred and
amortized on a straight-line basis over two years commencing with the opening of
the new branch facility.
Organization Costs
Organization costs, consisting primarily of professional fees incurred in
the formation of partnerships, joint ventures and other business entities, are
deferred and amortized on a straight-line basis over a period of five years.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
net assets acquired through business combinations accounted for as purchases and
is amortized on a straight-line basis over the expected periods to be benefited,
generally 30 years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash flows
of the acquired operation.
F-8
<PAGE> 256
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes" (see
note 8). SFAS 109 generally provides that deferred tax assets and liabilities be
recognized for temporary differences between the financial reporting basis and
the tax basis of the Company's assets and liabilities and expected benefits of
utilizing net operating loss and credit carryforwards. The impact on deferred
taxes of changes in tax rates and laws, if any, are applied to the years during
which temporary differences are expected to be settled and reflected in the
financial statements in the period of enactment.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1992 and prior years, deferred income taxes are recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for that year.
Under the deferred method, deferred taxes are not adjusted for subsequent
changes in tax rates.
Income (Loss) per Common Share
Income (loss) per common share is computed based upon the weighted average
number of common shares and common equivalent shares outstanding during each
year except in loss years.
Pursuant to Securities and Exchange Commission Staff Bulletin No. 83,
common shares issued for consideration below an assumed initial public offering
price (the "IPO Price") and common stock equivalents granted or issued (note 7)
with exercise prices below the IPO Price during the 12-month period preceding
the date of the initial filing of the Company's registration statement for the
initial public offering of its common stock have been included in the
calculation of weighted average common and common share equivalents, using the
treasury stock method, as if they were outstanding for all periods presented.
The effects of common stock equivalents on the calculation of loss per
common share for the years ended December 31, 1992 and 1993 are antidilutive in
nature and, other than as discussed above, have been excluded from the
calculation of weighted average common and common equivalent shares outstanding
for those years.
The computations of the weighted average common shares and common
equivalents outstanding follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- ------------------
1991 1992 1993 1993 1994
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average number of common shares
outstanding during the year.................. 4,336 10,769 14,258 12,600 14,986
Incremental shares assumed to be outstanding
pursuant to SEC Staff Accounting Bulletin No.
83:
Assumed conversion of Series C preferred
stock................................... 371 -- -- -- --
Assumed exercise of stock options and
warrants................................ 237 30 -- -- --
Dilutive effect of assumed conversion of Series
A and B preferred stock and exercise of
options and warrants......................... 4,066 -- -- -- --
------ ------- ------- ------- -------
Weighted average number of common and common
equivalent shares............................ 9,010 10,799 14,258 12,600 14,986
------ ------- ------- ------- -------
------ ------- ------- ------- -------
</TABLE>
Reclassifications
Certain reclassifications have been made to conform prior year amounts to
the current year presentation.
F-9
<PAGE> 257
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) ACQUISITIONS
Home Health Depot, Inc.
On May 28, 1992, the Company completed the acquisition of Home Health
Depot, Inc. ("HHD"), a regional infusion therapy provider located in Kansas
City, Missouri through an Asset Purchase Agreement. The purchase price consisted
of $3 million in cash (from the net proceeds of the Company's initial public
offering) and $2.3 million in notes, payable over three years at prime plus 1%.
In addition, subject to HHD achieving certain financial performance criteria for
1992, 1993 and 1994, Curaflex may be required to pay up to an additional $1.5
million. One-half of this amount, evidenced by a contingent earn-out note, is
payable in cash, and the remaining one-half (at the Company's option) is payable
in the form of shares of Curaflex common stock. The value of such shares will be
based upon the publicly traded price per share for Curaflex common stock on the
date of issuance to HHD. The Company was required to pay $500 thousand of the
$1.5 million in the first quarter of 1993 for 1992 performance. The performance
criteria for 1993 was not met, and therefore, no payment is due.
The purchase price resulted in an excess of acquisition costs over net
assets acquired of $5.3 million. Such goodwill (which will increase for any
additional payments required under earn-out agreements) is being amortized on a
straight-line basis over 30 years.
Total Home Care, Inc.
In September 1992, the Company completed the acquisition of Total Home
Care, Inc., a Nebraska corporation ("THC"), by means of an asset purchase
agreement. The initial purchase price consisted of $6 million in cash (from the
net proceeds of the Company's initial public offering), a promissory note in the
principal amount of $3 million and common stock with a fair market value of $2.5
million.
In addition, subject to THC achieving certain financial performance
criteria for 1993, 1994 and 1995, Curaflex may be required to pay to THC up to
$4 million as additional consideration, plus 30% of performance in excess of
certain other financial performance criteria. These amounts, evidenced by a
contingent earn-out note, are payable in the form of shares of the common stock
of Curaflex. The value of such shares will be $9.96 per share of Curaflex common
stock. THC has the option to take all or part of the earn-out in cash. The
Company recorded a liability of $724 thousand for 1993 performance. THC has
exercised its option to take this payment in cash.
The purchase price resulted in an excess of acquisition costs over net
assets acquired of $12.2 million. Such goodwill (which will increase for any
additional payments required under earn-out agreements) is being amortized on a
straight-line basis over 30 years.
ContinueCare Health Systems Inc.
Effective June 29, 1993, the Company completed the acquisition of
ContinueCare Health Systems, Inc., ("ContinueCare") pursuant to the terms of the
Agreement and Plan of Merger between Curaflex Acquisition, Inc., a wholly owned
subsidiary of the Company, and ContinueCare. Under the terms of the Merger
Agreement, the outstanding shares of common stock of ContinueCare were converted
into $6.5 million worth of Curaflex common stock (with the value of the stock
based on the average closing price for Curaflex common stock on the NASDAQ
National Market System for the 20 business days prior to close of the
transaction, ($5.8906 per share)). In addition, the transaction included $3.5
million in cash consideration, payable in the form of a 30 day, 6% interest
bearing note.
In addition, subject to ContinueCare achieving certain financial
performance criteria for the six months ended December 31, 1993, and the years
ended June 30, 1994, 1995 and 1996, Curaflex may be required to pay the former
stockholders of ContinueCare up to $5 million as additional consideration. These
amounts,
F-10
<PAGE> 258
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
evidenced by a contingent earn-out note, are payable in cash or shares of
Curaflex stock, at the former stockholders' option, with the provision that the
cumulative cash payments will not exceed $6.5 million. The Company has recorded
a liability of $333 thousand for 1993 performance.
The purchase price resulted in an excess of acquisition costs over net
assets acquired (goodwill) of $10.5 million. Such goodwill (which will increase
for any additional payments required under the earn-out agreement) is being
amortized on a straight-line basis over 30 years.
Comprehensive Pharmacy Home IV, Inc.
Under the terms of a Purchase Agreement, the Company purchased 100% of the
stock of Comprehensive Pharmacy Home IV, Inc. ("Comprehensive") for (i) $3.5
million in cash consideration; (ii) $1 million in Curaflex common stock (with
the value of the stock based on the closing price on the day before the close of
the transaction, $6.125); (iii) $2.3 million in promissory notes payable over
three years at 7%; and (iv) the right to receive up to $1 million in cash in
contingent earn-out consideration, based on financial performance. Goodwill of
$6.9 million, recognized as a result of the purchase, is being amortized over 30
years using a straight line basis. The Company has recorded a liability of $333
thousand for 1993 performance.
Under the terms of both the Purchase Agreement of Comprehensive and the
Merger Agreement with ContinueCare, the effective date for accounting and
consolidation of these two acquisitions is April 1, 1993. Accordingly, the
results of operations since April have been included in the Company's
Consolidated Statement of Operations for the year ended December 31, 1993.
Home Solution, Inc.
On September 27, 1993, the Company completed the acquisition of Home
Solution, Inc. ("Solution") pursuant to the terms of the Agreement and Plan of
Merger (the "Merger Agreement"). Under the terms of the Merger Agreement, (a)
Solution was merged into Curaflex Acquisition Subsidiary, Inc. a wholly-owned
subsidiary of Curaflex and (b) each outstanding share of common stock of
Solution was converted into a pro rata share of the following: (i) $1.35 million
worth of Curaflex common stock (with the value of the stock based on the average
closing price for Curaflex common stock on the NASDAQ National Market System for
the twenty business days prior to close of the transaction ($5.6437 per share),
(ii) $1.35 million in cash payable October 1, 1993, and (iii) the right to
receive up to $2.2 million in contingent earn-out consideration, based on
financial performance over the next five years. The Company has recorded a
liability of $305 thousand for 1993 performance. The earn-out is payable 50%
cash and 50% in common stock of Curaflex.
Under the terms of the Merger Agreement, the effective date for accounting
and consolidation is July 1, 1993. Accordingly, the acquisition has been
accounted for as a purchase, and the results of operations since July are
included in the Company's Consolidated Statements of Operations for the year
ended December 31, 1993.
Goodwill of $3.1 million recognized as a result of the purchase is being
amortized on a straight line basis over 30 years.
Excellence, Inc.
Under the terms of the Purchase Agreement dated September 30, 1993, the
Company acquired the assets of Excellence, Inc. and Excellence, Inc. of North
Carolina for (i) $1.8 million in cash payable on October 1, 1993, (ii) $700
thousand worth of Curaflex common stock (with the value of the stock based on
the average publicly traded price per share for common stock twenty (20)
business days prior to the closing date -- ($5.7656 per share), and (iii) the
right to receive up to $1.8 million in contingent consideration, based on
F-11
<PAGE> 259
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
financial performance for 1994, 1995 and 1996. The earn-out is payable in cash
or, at the option of payee, Curaflex common stock.
The Excellence acquisition has been accounted for as a purchase with
September 30, 1993 as the effective date for accounting and consolidation
purposes.
Goodwill of $2.6 million, recognized as a result of the purchase, is being
amortized over 30 years using a straight line basis.
Summarized below are the unaudited pro forma results of operations of the
Company as though the 1992 and 1993 acquisitions had occurred at the beginning
of the previous year (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Net revenues...................................... $66,943 $92,139 $94,695
Net income (loss)................................. 1,673 478 (7,906)
Net income (loss) per common share................ .18 .04 (0.53)
</TABLE>
Supplementary information related to the acquisitions for the 1992 and 1993
consolidated statement of cash flows is as follows (in thousands):
<TABLE>
<CAPTION>
1992 1993
------- -------
<S> <C> <C>
Fair value of assets acquired (including goodwill)....... $21,050 $33,885
Plus liabilities discharged.............................. -- 1,270
Less liabilities assumed................................. (1,237) (5,690)
Less notes issued........................................ (5,300) (3,050)
Less common stock issued................................. (3,090) (14,135)
------- -------
11,423 12,280
Less cash acquired....................................... (97) (66)
------- -------
Net cash paid, including transaction notes............... $11,326 $12,214
------- -------
------- -------
</TABLE>
(3) EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1992 1993 1994
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land and building............................ $ -- $ 78 $ 78
Property and equipment....................... 2,503 4,486 2,806
Computer equipment and software.............. 2,867 7,316 8,679
Furniture and fixtures....................... 1,960 2,071 3,437
Leasehold improvements....................... 1,224 1,568 1,664
Vehicles..................................... 589 658 658
------ ------- -----------
9,143 16,177 17,322
Accumulated depreciation and amortization.... (3,027) (5,093) (5,714)
------ ------- -----------
$6,116 $11,084 $11,608
------ ------- -----------
------ ------- -----------
</TABLE>
F-12
<PAGE> 260
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) JOINT VENTURES AND OTHER ASSETS
Joint ventures and other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1992 1993
------ ------- MARCH 31,
1994
-----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred pre-start expense................... $1,212 $ 1,796 $ 1,543
Organization costs........................... 1,645 1,518 1,636
Partnership advances......................... 1,772 2,604 1,848
Notes and interest receivable................ 1,245 1,817 1,797
Investment in partnerships................... 111 963 1,207
Deposits..................................... 538 604 635
Deferred merger expenses..................... 409 549 1,575
Other........................................ 275 451 453
------ ------- -----------
$7,207 $10,302 $10,694
------ ------- -----------
------ ------- -----------
</TABLE>
In January, 1990, the Company entered into a partnership agreement with an
entity to provide home infusion therapy in the state of New Jersey. The Company
owns a 50% interest in the partnership, and accounts for the investment under
the equity method.
Unaudited summary combined financial information for the New Jersey
partnership as of and for the years ended December 31, 1991, 1992 and 1993
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1991 1992 1993
------ ------ ------ MARCH 31,
1994
--------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets.................. $1,057 $ 724 $1,314 $1,322
Current liabilities............. 221 228 289 389
------ ------ ------ -------
Working capital............... 836 496 1,025 933
------ ------ ------ -------
Partners' equity.............. $ 836 $ 496 $1,025 $ 933
------ ------ ------ -------
------ ------ ------ -------
Net revenue..................... $1,998 $1,758 $1,956 $ 340
------ ------ ------ -------
------ ------ ------ -------
Income (loss) before income $ 686 $ 480 $ 789 $ (2)
taxes.........................
------ ------ ------ -------
------ ------ ------ -------
</TABLE>
(5) RESTRUCTURING COSTS
During the fourth quarter of 1992, the Company recorded a restructuring
charge of $2.4 million for costs associated with the consolidation of certain
pharmacy operations into larger regional centers. The Company recorded an
additional restructuring charge of $1.6 million during the first quarter of 1993
for costs associated with the merger of the Company with Clinical Homecare, LTD.
The categories of costs and expenses included in the restructuring charges
are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------- ------------------
1992 1993 1993 1994
------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Costs related to consolidation of
facilities:
Severance, retention bonuses, and
relocation......................... $ 60 $ 910 $ 910 $ --
Remaining contractual commitments
under leases for facilities closed,
and other direct costs of
consolidation...................... 1,540 540 540 --
Adjustments to asset values resulting
from consolidation:
Leasehold improvements, equipment and
other assets....................... 785 150 150 --
------ ------ ------- -------
$2,385 $1,600 $ 1,600 $ --
------ ------ ------- -------
------ ------ ------- -------
</TABLE>
F-13
<PAGE> 261
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) LONG-TERM DEBT
Long-term debt is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1992 1993 1994
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Bank loans.................................. $ 4,387 $16,100 $20,593
Notes payable from acquisitions............. 5,850 7,110 5,608
Earn-out notes payable...................... 500 1,695 1,695
Equipment installment notes payable......... -- 1,683 2,390
Obligations under capital leases............ 154 922 810
------- ------- -----------
10,891 27,510 31,096
Less: current maturities............... 2,536 6,381 25,913
------- ------- -----------
$ 8,355 $21,129 $ 5,183
------- ------- -----------
------- ------- -----------
</TABLE>
>On September 30, 1992, Clinical Homecare, Ltd. entered into a $6 million
revolving credit facility with a bank. The facility would mature and require
repayment in full in three years. Availability of funds under the facility was
limited to $6 million or 70% of eligible accounts receivable as defined in the
agreement. The loan was collateralized by substantially all assets of Clinical,
contained certain restrictive covenants and bore interest at rates either of
LIBOR plus 3% or the bank's prime rate plus 1% (7% at December 31, 1992), at
Clinical's option. Clinical paid fees of approximately $30 thousand in
connection with obtaining the loan and an additional 3/8 of 1% on the unused
portion of the facility.
On July 30, 1993, after it's merger with Clinical, the Company replaced the
$6 million line of credit with a new $15 million three-year revolving credit
agreement which is secured by the accounts receivable and general assets of the
Company. The credit agreement was amended November 22, 1993 to increase the line
of credit to $25 million. The agreement provides for fixed and variable rate
options which vary depending upon the Company's leverage ratio. The fixed rates
range from 2 1/4% to 2 3/4% over cost of funds, and the variable rates range
from 1/4% to 3/4% over bank reference rate. The Company is charged a
commitment fee of 3/8% on the average unused portions.
The credit agreement provides that the Company will maintain certain
financial and operating covenants which include, among other provisions,
maintaining a minimum consolidated net worth and other financial ratios. The
Company was not in compliance with certain covenants at December 31, 1993;
however, the participating financial institutions have granted a waiver of these
covenants for the period ended December 31, 1993, and have amended the credit
agreement with regard to certain of the covenants. As of March 31, 1994,
Curaflex had net borrowings against its bank line of credit of $20.6 million.
The Company has a three-year $25 million revolving line of credit which is
secured by the accounts receivable and the general assets of Curaflex. The
Company's bank line contains certain financial covenants. The failure of the
Company to comply with these covenants gives the bank the right to declare the
amount outstanding under the line immediately due and payable upon notice. The
Company was not in compliance with these covenants for the year ended December
31, 1993, but was able to obtain a waiver of the financial covenants from the
bank through December 31, 1993, and amended the credit agreements with regard to
certain of these covenants. The Company, as of March 31, 1994, is not in
compliance with the amended financial covenants. The bank has refused to grant
the Company a waiver of these covenants, but instead has agreed to forbear from
declaring the Company in default until the earlier of the completion of the
Merger or June 30, 1994. There can be no assurances that further forbearance
will be given if the Company continues to be in noncompliance with financial
covenants under its bank line after June 30, 1994. Because of the failure to
comply with the covenants, the Company has reclassified the debt as current in
its financial statements as of March 31, 1994.
F-14
<PAGE> 262
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the event the Merger is not consummated by June 30, 1994 and the bank
declines to give further forbearance, the Company would be forced to attempt to
renegotiate the current credit agreement.
The Company expects to use this credit facility for acquisitions and
general working capital requirements. Borrowings on the credit facility at
December 31, 1993 are $16.1 million, of which $14 million is at a fixed rate of
6.0% through February 1994, and the remainder at reference rate (prime) plus
1/4%, or 6 3/4%, at December 31, 1993. As of March 31, 1994, the Company had
net borrowings against its bank line of credit of $20.6 million, $14 million at
a fixed rate of 6.25% through April 1994, with the remaining balance at 7% at
March 31, 1994.
Notes payable from acquisitions bear interest at differing rates, from 6%
to 7%, based upon the prime lending rate. Earn-out notes payable are
non-interest bearing. Equipment installment notes payable bear interest at rates
up to 10.25%. Obligations under capital leases bear interest at rates ranging
from 10% to 13%.
Aggregate maturities of outstanding debt for the next five years are as
follows: 1994 -- $6.4 million; 1995 -- $3.6 million; 1996 -- $17.4 million;
1997 -- $68 thousand; and 1998 -- $71 thousand.
(7) STOCKHOLDERS' EQUITY
Preferred and Common Stock
On January 6, 1992, the Company amended its Restated Certificate of
Incorporation to increase the authorized number of shares of the Company's
preferred stock and common stock to 4 million shares and 40 million shares,
respectively.
On March 19, 1992, the Company completed its initial public offering of 3
million common shares at $13.00 per share. On April 7, 1992, the underwriters
for the Company exercised their over allotment option for 450 thousand shares of
common stock. Proceeds from the sale of the common stock, net of issuance cost,
totaled $40.8 million. Concurrent with the offering, all outstanding preferred
stock was converted to common stock.
During 1992 and 1993, the Company issued 305 thousand and 2.3 million
shares of common stock, respectively, as a result of various acquisitions.
Stock Options and Warrants
In connection with stock issuances and acquisitions, the Company issued
warrants to purchase eleven thousand shares of common stock at prices ranging
from $9.44 to $187.50 per share. Warrants to purchase three thousand shares of
common stock at prices ranging from $90.00 to $187.50 expired on December 5,
1992. Warrants to purchase eight thousand shares of common stock at $9.44 per
share expired in May 1993.
In connection with the Company's credit agreement with a bank, warrants to
purchase 78 thousand shares of Series B preferred stock and 15 thousand shares
of Series C preferred stock at exercise prices of $6.36 and $9.75 per share,
respectively, were issued during 1991. These warrants, if exercised, will
convert to 78 thousand shares and 17 thousand shares of common stock,
respectively. These warrants all expire in 1996.
In 1991, in connection with Clinical's private placement of notes and
issuance of preferred stock, warrants to purchase 630 thousand and 124 thousand,
respectively, were issued. These warrants converted to 271 thousand and 53
thousand, respectively, of Curaflex warrants upon the merger of Clinical and
Curaflex. The exercise prices are $7.56 and $5.58, respectively, and all the
warrants expire in 1997.
At December 31, 1993, and at March 31, 1994, four thousand warrants
exercisable at $4.19 per share of common stock are outstanding. These warrants
do not have an expiration date.
In June 1992, the Company issued warrants to acquire 43 thousand shares of
common stock at $7.56 per share to a public relations firm for services rendered
pursuant to a three-year agreement. The expense associated with the issuance of
such warrants over the life of the agreement is immaterial. At December 31,
1993, all such warrants were exercisable.
The Company has two stock option plans which provide for issuance of
options to employees, directors and medical advisory board members. Options
generally vest over 4 to 5 years. At December 31, 1993, and at
F-15
<PAGE> 263
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 1994, options to purchase approximately 1.3 million shares and 1.4
million shares, respectively, are exercisable.
A summary of transactions under the stock option plans is as follows (in
thousands):
<TABLE>
<CAPTION>
PER SHARE
SHARES EXERCISE PRICE
-------- --------------
<S> <C> <C>
Balance at January 1, 1991......................... 1,595 $ .46 - 15.41
Options granted.................................. 358 1.34 - 8.72
Options exercised................................ (34) .46 - 15.41
Options cancelled................................ (120) .46 - 15.41
-------- --------------
Balance at January 1, 1992......................... 1,799 .46 - 8.72
Options granted.................................. 714 2.53 - 13.00
Options exercised................................ (328) .46 - 8.00
Options cancelled................................ (93) .46 - 13.00
-------- --------------
Balance at January 1, 1993......................... 2,092 .46 - 13.00
Options granted.................................. 1,183 4.36 - 7.85
Options exercised................................ (645) .46 - 3.00
Options cancelled................................ (141) .46 - 13.00
-------- --------------
Balance at December 31, 1993....................... 2,489 .46 - 13.00
Options granted.................................. 90 5.00 - 6.00
Options exercised................................ -- --
Options cancelled................................ (86) .95 - 13.00
-------- --------------
Balance at March 31, 1994.......................... 2,493 $ .46 - 13.00
-------- --------------
-------- --------------
</TABLE>
Employee Stock Purchase Plan
In January 1992, the Company's stockholders approved an Employee Stock
Purchase Plan ("ESPP") under which eligible employees, officers and directors of
the Company were granted the opportunity to purchase shares of the Company's
common stock. The Plan provides that eligible employees may contribute up to 10%
of their compensation toward the quarterly purchase of the Company's common
stock, limited to 500 shares per employee per quarter. The employees' purchase
price under the Plan is the lower of the 85% of the closing market price on the
last trading day of the previous quarter or 85% of the closing market price on
the last trading day of the current quarter. No compensation expense is recorded
in connection with the Plan.
At December 31, 1992 and 1993, 6 thousand and 44 thousand shares,
respectively, of the 500 thousand common shares authorized for purchase under
the Plan have been purchased by plan participants at prices of $4.78 to $6.70
per share. As of March 31, 1994 an additional 16 thousand shares were purchased
at a price of $4.78 per share.
A former member of management entered into a stock purchase note in the
amount of $860 thousand. Accrued interest in the note was $232 thousand, $309
thousand and $329 thousand at December 31, 1992, December 31, 1993, and March
31, 1994, respectively.
(8) INCOME TAXES
As discussed in note 1, the Company adopted SFAS 109 as of January 1, 1993.
The cumulative effect of this change in accounting for income taxes is $176
thousand as of January 1, 1993 and is reported separately in the consolidated
statement of operations for the year ended December 31, 1993. Prior years'
financial statements have not been restated to apply the provisions of SFAS 109.
F-16
<PAGE> 264
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income tax expense (benefit) attributable to income from continuing
operations was $1.1 million, $339 thousand, and $(105) thousand for the years
ended December 31, 1991, 1992, and 1993, respectively, and consists of the
following (in thousands):
<TABLE>
<CAPTION>
1991 1992 1993
------ ---- -----
<S> <C> <C> <C>
Federal:
Current.......................................... $ 967 $ 15 $ --
Deferred......................................... (112) 257 (89)
State:
Current.......................................... 253 5 --
Deferred......................................... (32) 62 (16)
------ ---- -----
$1,076 $339 $(105)
------ ---- -----
------ ---- -----
</TABLE>
No additional tax benefit was computed for the quarter ended March 31,
1994, since it does not appear likely that the Company would be able to utilize
the benefit in 1994.
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. Federal income tax rate of 34 percent in 1991 and 1992; 35 percent in
1993 to pretax income from continuing operations as a result of the following
(in thousands):
<TABLE>
<CAPTION>
1991 1992 1993
------ ----- -------
<S> <C> <C> <C>
Expected federal income tax...................... $ 874 $ 412 $(2,905)
Tax benefit of losses not recognized............. -- -- 2,677
Increase (decrease) in income taxes resulting
from:
Amortization of goodwill....................... -- 204
State income taxes............................. 178 84 --
Minority interest.............................. -- (158) --
Other, net..................................... 24 1 (81)
------ ----- -------
$1,076 $ 339 $ (105)
------ ----- -------
------ ----- -------
</TABLE>
The significant components of deferred income tax expense attributable to
loss from continuing operations for the year ended December 31, 1993 are as
follows (in thousands):
<TABLE>
<S> <C>
Deferred tax benefit (exclusive of the effects of other components
listed below).................................................... $(3,587)
Increase in beginning-of-the-year balance of the valuation
allowance for deferred tax assets................................ 3,482
-------
$ (105)
-------
-------
</TABLE>
For the years ended December 31, 1991 and 1992, deferred income tax expense
of $(144) thousand and $319 thousand, respectively, results from timing
differences in the recognition of income and expense for income tax and
financial reporting purposes. The sources and tax effects of those timing
differences are presented below (in thousands):
<TABLE>
<CAPTION>
1991 1992
----- ----
<S> <C> <C>
Cash to accrual method adjustment............................ $ (30) $327
Bad debts.................................................... (73) 86
Accrued liabilities.......................................... (26) (88)
Other........................................................ (15) (6)
----- ----
$(144) $319
----- ----
----- ----
</TABLE>
F-17
<PAGE> 265
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1993 are presented below (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful
accounts..................................................... $ 751
Compensated absences, principally due to accrual for financial
reporting purposes........................................... 281
Net operating loss carryforwards................................ 12,773
Accounts payable and accrued expenses, principally due to
utilization of the cash basis for tax purposes............... 354
Plant and equipment, principally due to differences in
depreciation................................................. 187
Other........................................................... 170
--------
Total gross deferred tax assets......................... 14,516
Less valuation allowance................................ (12,419)
--------
Net deferred tax assets................................. 2,097
--------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation................................................. 148
Goodwill, principally due to differences in amortization........ 389
Deferred charges and intangible assets.......................... 1,545
Other........................................................... 15
--------
Total gross deferred tax liabilities.................... 2,097
--------
Net deferred tax asset.................................. $ --
--------
--------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1993 was
$8.9 million. The net change in the total valuation allowance for the year ended
December 31, 1993 was an increase of $3.5 million.
At December 31, 1993, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $33 million which are available to
offset future federal taxable income, expiring in 2003 through 2008.
(9) COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain of its facilities and equipment under various
capital and operating lease arrangements. The following is a schedule of future
minimum rental payments (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------- ------- ---------
<S> <C> <C>
1994................................................ $ 518 $ 3,932
1995................................................ 308 3,103
1996................................................ 170 2,314
1997................................................ 68 1,648
1998................................................ 17 1,152
Thereafter............................................... -- 3,564
------- ---------
Total minimum lease payments................... 1,081 15,713
Less amounts representing interest............. 159 --
------- ---------
Net minimum lease payments..................... $ 922 $15,713
------- ---------
------- ---------
</TABLE>
F-18
<PAGE> 266
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Rent expense for the years ended December 31, 1991, 1992 and 1993 was
approximately $1.7 million, $2.4 million and $3.6 million, respectively.
Retirement Savings Plan
In 1990, the Company adopted the Curaflex Health Services, Inc. Retirement
Savings Plan (the "401(k) Plan"). The 401(k) Plan generally covers all employees
of the Company who have completed one year of service with at least 1,000 hours
of service during the year. Employees may elect to defer, in the form of
contributions to the 401(k) Plan, up to 12% of their annual compensation,
subject to the Federal maximum limit. Effective January 1, 1992, the Company has
agreed to match each employee's contribution to the 401(k) Plan up to a maximum
of $500 per employee per year, subject to certain length of service
requirements. For the years ended December 31, 1992 and 1993, matching
contributions of $65 thousand and $108 thousand have been made by the Company.
Employees are fully vested in contributions made by them to the 401(k)
Plan. Employees become vested in contributions made by the Company after
completion of two years of service.
Employment Contract
During 1991, the Company entered into an employment contract with a member
of management. Among other things, the contract provides for a specified
continuation of salary payments for termination without cause and includes
certain agreements not to compete. In addition, in the event of the death of
such member of management, his estate may require the Company to purchase
unexercised options or the underlying stock of exercised options for up to
415,184 shares of common stock at a per share price of $6.36.
Litigation
The Company is involved in various claims and legal actions arising in the
ordinary course of business, none of which in the opinion of management is
material to the Company's consolidated financial position.
Insurance
In November 1992, the Company became self-insured for employee health
benefits up to $60 thousand per claim, not to exceed an annual aggregate amount.
The Company has purchased insurance to reimburse any single medical claim which
exceeds $60 thousand or claims which, in the aggregate, exceed a pre-determined
level ($1.1 million for the policy year ended December 31, 1993). The Company
has recorded estimates which, in management's opinion, are adequate to cover
losses which will result from employee medical claims incurred prior to December
31, 1993.
(10) RELATED PARTY TRANSACTIONS
In November 1992, the Company loaned $400 thousand to a member of
management at an interest rate of 3.61% per annum. The principal amount of the
loan and all interest accumulated thereon is due in one payment on November 1,
1994.
A director of the Company is associated with a law firm that rendered
various legal services to the Company. The legal fees to the firm approximated
$217 thousand, $328 thousand, $327 thousand and $68 thousand during 1991, 1992,
1993 and for the three months ended March 31, 1994, respectively.
Amounts paid under employment and consulting agreements to principal
stockholders for the years ended December 31, 1991, 1992 and 1993 amounted to
approximately $320 thousand, $389 thousand and $386 thousand, respectively.
Further commitments under such agreements aggregate approximately $386 thousand
and $290 thousand in 1994 and 1995, respectively.
F-19
<PAGE> 267
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) FOURTH QUARTER ADJUSTMENTS
Curaflex has employed specific procedures to estimate contractual
allowances, both at interim periods and year end, and has consistently based its
estimates on the best information available at the time. During the fourth
quarter of 1993, Curaflex reevaluated its accounts receivable and accordingly
increased its estimate of contractual allowances by $7.3 million as a result of
recent experience with more consistent and predictable payment patterns and
contractually negotiated prices, thus allowing for more refined estimates of the
actual collectibility.
(12) SUBSEQUENT EVENT
On February 6, 1994, the Company announced the signing of a definitive
agreement providing for the merger of the Company with T2 Medical, Inc. (T2
Medical), an alternative site health care provider, HealthInfusion, Inc.
(HealthInfusion), a home infusion therapy company, and Medisys, Inc., (Medisys)
a comprehensive home infusion therapy company which involves intravenous or
other administration of physician-prescribed medications to patients in their
homes.
Under the terms of the agreement, all shares of common stock of Curaflex,
T2 Medical, HealthInfusion and Medisys issued and outstanding prior to the
merger will be exchanged for shares of common stock of a newly formed company
("Coram") on the following basis: each stockholder of Curaflex will receive .333
shares of Coram's common stock in exchange for each share of Curaflex common
stock; each stockholder of T2 Medical will receive .630 shares of Coram's common
stock in exchange for each share of T2 Medical common stock; each stockholder of
HealthInfusion will receive .447 shares of Coram's common stock in exchange for
each share of HealthInfusion common stock; and each stockholder of Medisys will
receive .243 shares of Coram's common stock in exchange for each share of
Medisys common stock. The exchange ratios reflect pro forma ownership of the new
company of 13% for Curaflex stockholders, 67% for T2 Medical stockholders, 12%
for HealthInfusion stockholders, and 8% for Medisys stockholders, and
incorporate a 1-for-3 reverse stock split. The merger will be accounted for as a
"pooling of interests" and, accordingly, the Company's historical consolidated
financial statements presented in future reports will be restated to include the
financial position and results of operations of the four companies.
The pro forma financial information does not necessarily reflect the
operations that would have occurred had the four companies been combined as a
single entity during such periods. The pro forma results of operations assuming
the merger had occurred at the beginning of the previous year are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------ -----------------------------------
1991 1992 1993 MARCH 31, 1994 MARCH 31, 1993
-------- -------- -------- ------------------ --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue............... $275,363 $399,482 $475,957 $113,065 $113,416
Net income................ 43,424 66,557 33,914 3,573 9,643
Net income per common
share................... 1.39 1.85 0.89 0.09 0.26
</TABLE>
F-20
<PAGE> 268
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Excellence, Inc.
We have audited the accompanying balance sheets of Excellence, Inc. as of
December 31, 1992 and 1991, and the related statements of income, retained
earnings, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Excellence, Inc. at December
31, 1992 and 1991, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG
Tampa, Florida
November 20, 1993
F-21
<PAGE> 269
EXCELLENCE, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1992 1991
-------- --------
<S> <C> <C>
Current assets:
Cash................................................................. $ 10,945 $ --
Accounts receivable (net of allowances for contractual adjustments
and uncollectible accounts of approximately $263,000 and $228,000
at December 31, 1992 and 1991, respectively)....................... 437,626 360,000
Inventories of supplies.............................................. 52,208 56,093
-------- --------
Total current assets......................................... 500,779 416,093
Other assets........................................................... 2,972 3,260
Property and equipment:
Autos and trucks..................................................... 18,400 18,400
Furniture and fixtures............................................... 34,247 28,890
Equipment and other.................................................. 96,867 33,472
Leasehold improvements............................................... 4,500 4,500
-------- --------
154,014 85,262
Less accumulated depreciation and amortization....................... (50,222) (19,937)
-------- --------
103,792 65,325
-------- --------
Total assets................................................. $607,543 $484,678
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 53,408 $111,886
Accrued payroll and payroll taxes.................................... 106,274 44,585
Notes payable -- stockholders........................................ 55,000 55,512
Current portion of capital lease obligation.......................... 4,752 --
-------- --------
Total current liabilities.................................... 219,434 211,983
Capital lease obligation, less current portion......................... 9,125 --
Stockholders' equity:
Common stock, $1.00 par value: 7,500 shares authorized;
100 shares issued and outstanding................................. 100 100
Retained earnings.................................................... 378,884 272,595
-------- --------
Total stockholders' equity................................... 378,984 272,695
-------- --------
Total liabilities and stockholders' equity................... $607,543 $484,678
-------- --------
-------- --------
</TABLE>
See accompanying notes.
F-22
<PAGE> 270
EXCELLENCE, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
PERIOD ENDED -------------------------
SEPTEMBER 30, 1993 1992 1991
------------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues....................................... $2,497,700 $2,827,143 $2,656,299
Costs and expenses:
Cost of sales................................ 952,000 1,120,717 1,149,096
Selling, general and administrative.......... 1,390,700 1,472,080 974,392
Interest..................................... -- 7,288 5,015
---------- ---------- ----------
2,342,700 2,600,085 2,128,503
---------- ---------- ----------
Net income..................................... $ 155,000 $ 227,058 $ 527,796
---------- ---------- ----------
---------- ---------- ----------
Pro forma net income data (unaudited):
Net income, as reported...................... $ 155,000 $ 227,058 $ 527,796
Pro forma net income tax provision........... 67,000 91,000 201,000
---------- ---------- ----------
Pro forma net income........................... $ 88,000 $ 136,058 $ 326,796
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
F-23
<PAGE> 271
EXCELLENCE, INC.
STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1992 1991
--------- ---------
<S> <C> <C>
Retained earnings, beginning of year................................. $ 272,595 $ 444,253
Net income......................................................... 227,058 527,796
Capital contributions.............................................. 195,836 --
Distributions (1992 -- $3,166.05 per share; 1991 -- $6,994.54 per
share).......................................................... (316,605) (699,454)
--------- ---------
Retained earnings, end of year....................................... $ 378,884 $ 272,595
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-24
<PAGE> 272
EXCELLENCE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1992 1991
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income......................................................... $ 227,058 $ 527,796
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................................... 30,574 16,709
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net............... (77,626) 35,167
(Increase) decrease in inventories............................ 3,885 (22,238)
Increase in other assets...................................... -- (2,000)
Increase (decrease) in accounts payable....................... (58,478) 75,004
Increase in accrued liabilities............................... 61,689 23,849
--------- ---------
Net cash provided by operating activities.......................... 187,102 654,287
INVESTING ACTIVITIES
Purchase of property and equipment................................. (52,137) (63,147)
--------- ---------
Net cash used in investing activities.............................. (52,137) (63,147)
FINANCING ACTIVITIES
Principal payments of capital lease obligation..................... (2,739) --
Capital contributions.............................................. 195,836 --
Distributions paid to stockholders................................. (316,605) (699,454)
Principal payments of notes payable................................ (512) (500)
--------- ---------
Net cash used in financing activities.............................. (124,020) (699,954)
--------- ---------
Net increase (decrease) in cash.................................... 10,945 (108,814)
Cash, beginning of year............................................ -- 108,814
--------- ---------
Cash, end of year.................................................. $ 10,945 $ --
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-25
<PAGE> 273
EXCELLENCE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1992
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Excellence, Inc. (the Company) was incorporated in Florida on January 25,
1989 for the main purpose of providing home infusion therapy services in
Florida. The Company commenced operations in North Carolina in 1993.
Revenue Recognition
Patient revenues are recorded net of contractual adjustments related to
third-party payors when services are billed. Services are billed daily when
certain documentation of services rendered is completed. Contractual adjustments
have been provided based on the Company's historical experience. The Company
generally accepts payment from certain governmental insurers for satisfaction of
services provided at rates different from established rates.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Equipment under capital
leases is stated at the lower of the present value of minimum lease payments at
the beginning of the lease term or fair value at inception of the lease.
Depreciation on property, plant and equipment is calculated on the
straight-line method over the estimated useful lives of the assets. Equipment
held under capital leases and leasehold improvements are amortized on the
straight-line method over the lesser of the lease term or estimated useful life
of the asset.
Inventories of Supplies
Inventories of supplies are valued at the lower of average cost or market.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under these provisions, the Company generally does
not record federal income taxes as the Company's stockholders will report the
Company's income on an individual basis.
2. LEASES
The Company became obligated in 1992 under a capital lease for computer
equipment with a book value of $16,616. Amortization expense related to such
equipment is included with depreciation expense and accumulated depreciation.
The gross amount of computer equipment and related accumulated amortization
recorded under the capital lease at December 31, 1992 is as follows:
<TABLE>
<S> <C>
Computer equipment......................................... $16,616
Less accumulated depreciation.............................. (2,077)
-------
$14,539
-------
-------
</TABLE>
F-26
<PAGE> 274
EXCELLENCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992
Future minimum payments under the capital lease obligation are as follows:
<TABLE>
<S> <C>
1993....................................................... $ 6,178
1994....................................................... 6,739
1995....................................................... 3,370
-------
16,287
Less imputed interest...................................... (2,410)
-------
13,877
Less current portion....................................... (4,752)
-------
$ 9,125
-------
-------
</TABLE>
The Company also has several noncancelable operating leases, primarily for
office space, that expire over the next several years and provide for renewal
options. Operating lease expense was approximately $69,000 and $32,000 for the
years ended December 31, 1992 and 1991, respectively.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1992 are as follows:
<TABLE>
<S> <C>
1993....................................................... $65,451
1994....................................................... 27,270
-------
$92,721
-------
-------
</TABLE>
3. DEBT
The Company has a $200,000 revolving line of credit to finance short-term
working capital needs. The line of credit bears interest at prime rate (6% at
December 31, 1992) plus 1% and is secured by the Company's accounts receivable.
No amounts were outstanding under the line of credit at December 31, 1992 or
1991. The line of credit expires in March 1994.
The Company has a $55,000 note payable to stockholders. The note bears
interest at 9% and is payable on demand.
4. PRO FORMA INCOME TAXES
As described in Note 1, the Company elected S corporation status under the
provisions of the Internal Revenue Code. Upon the execution of the Asset
Purchase Agreement (Note 5), substantially all of the assets of the Company were
acquired by Curaflex Health Services, Inc., an entity subject to federal and
state income taxes. Tax expense was computed using the provisions of Financial
Accounting Standards Board Statement No. 109 "Accounting for Income Taxes."
F-27
<PAGE> 275
EXCELLENCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992
The following unaudited pro forma information reflects income tax expense
that the Company would have incurred if it had been subject to federal and state
income taxes for fiscal years 1991 and 1992.
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1992 1991
------- --------
<S> <C> <C>
Pro forma income tax provision:
Current:
Federal............................................ $29,000 $206,000
State.............................................. 5,000 35,000
Deferred.............................................. 57,000 (40,000)
------- --------
$91,000 $201,000
------- --------
------- --------
</TABLE>
Deferred income taxes primarily relate to accruals that are deductible in
different periods.
The pro forma income tax expense differed from the amounts computed by
applying the federal statutory rate of 34% to income before income taxes as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1992 1991
------- --------
<S> <C> <C>
Tax expense at statutory rate........................... $77,000 $180,000
State income taxes, net of federal benefit.............. 8,000 19,000
Other................................................... 6,000 2,000
------- --------
$91,000 $201,000
------- --------
------- --------
</TABLE>
5. CONTINGENCY
The Florida Department of Labor (DOL) is currently conducting a compliance
audit of the Company's payroll practices. The Company believes that they are in
compliance with DOL regulations. No amounts related to this audit have been
accrued in the accompanying financial statements because an estimate of any
possible loss or range of loss cannot be determined.
6. SUBSEQUENT EVENTS (UNAUDITED)
The Company began operations in North Carolina in 1993. For the nine months
ended September 30, 1993, revenues approximated $160,000 and net loss
approximated $142,000.
The Company entered into an Asset Purchase Agreement (the Agreement) dated
September 30, 1993 with Curaflex Health Services, Inc. (Curaflex). The Agreement
provides for the sale to Curaflex of substantially all the assets used by the
Company in the conduct of its home infusion therapy business in Florida and in
North Carolina. The Agreement also provides for the assumption of certain
liabilities and obligations of the Company by Curaflex.
The Agreement provides for a purchase price of $2,500,000 in the form of
cash and common stock of Curaflex. In addition, Curaflex shall pay to the
Company an amount not to exceed $1,800,000 based on the financial performance of
the Company's home infusion therapy operations over the next three years as set
forth in the Agreement.
The Agreement also provides for employment and noncompete agreements with
the stockholders of the Company.
F-28
<PAGE> 276
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
ContinueCare Health Systems, Inc.
In our opinion, the accompanying balance sheet and the related statements
of income and retained earnings and of cash flows present fairly, in all
material respects, the financial position of ContinueCare Health Systems, Inc.
at December 31, 1992, 1991 and 1990, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1992, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE
February 12, 1993, except for Note 13,
which is as of December 21, 1993
F-29
<PAGE> 277
CONTINUECARE HEALTH SYSTEMS, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1992 1991 1990
---------- ---------- ----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 355,923 $ 270,730 $ 72,014
Accounts receivable, less allowances for contractual
adjustments and doubtful accounts................. 1,140,078 636,300 584,919
Current portion of note receivable................... 28,379 25,943
Inventories.......................................... 84,466 51,898 45,605
Deferred tax asset................................... 64,210 89,390 40,007
Inventory of discontinued operations................. 172,406 310,761
---------- ---------- ----------
Total current assets......................... 1,673,056 1,246,667 1,053,306
Property and equipment, less accumulated
depreciation and amortization........................ 211,556 211,248 259,643
Note receivable........................................ 10,041 38,422
Other assets........................................... 8,470 2,646 14,180
---------- ---------- ----------
Total assets................................. $1,903,123 $1,498,983 $1,327,129
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............. $ 295,405 $ 181,562 $ 329,209
Current portion of long-term debt and
capital lease obligations......................... 40,453 62,097 136,558
Income taxes payable................................. 318,742 223,887
Accruals and estimated losses during phase-out of
discontinued operations........................... 243,334
---------- ---------- ----------
Total current liabilities.................... 335,858 805,735 689,654
Long-term debt and capital lease obligations........... 100,145 137,993 179,658
---------- ---------- ----------
Total liabilities............................ 436,003 943,728 869,312
---------- ---------- ----------
Commitments and contingencies (Note 7)
Shareholders' equity:
Common stock......................................... 312 312 312
Additional paid-in capital........................... 52,688 52,688 52,688
Retained earnings.................................... 1,414,120 502,255 404,817
---------- ---------- ----------
Total shareholders' equity................... 1,467,120 555,255 457,817
---------- ---------- ----------
Total liabilities and shareholders' equity... $1,903,123 $1,498,983 $1,327,129
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to the consolidated financial statements.
F-30
<PAGE> 278
CONTINUECARE HEALTH SYSTEMS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
PERIOD ENDED ----------------------------------------
MARCH 31, 1993 1992 1991 1990
-------------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................ $1,155,300 $4,649,202 $2,587,481 $1,112,351
Cost of revenues........................ 301,200 1,244,554 699,237 294,220
-------------- ---------- ---------- ----------
Gross profit.......................... 854,100 3,404,648 1,888,244 818,131
-------------- ---------- ---------- ----------
Salaries and benefits................... 374,600 1,391,084 612,719 228,675
Provision for doubtful accounts......... (3,900) 41,654 139,309 27,881
Depreciation and amortization........... 13,000 48,367 45,026 27,459
Other operating expenses................ 156,400 478,044 319,778 129,873
-------------- ---------- ---------- ----------
540,100 1,959,149 1,116,832 413,888
-------------- ---------- ---------- ----------
Operating income...................... 314,000 1,445,499 771,412 404,243
Other income and (expense):
Other income............................ 2,400
Interest income......................... 3,100 6,932 8,695 1,810
Interest expense........................ -- (9,320) (11,938) (6,296)
-------------- ---------- ---------- ----------
Income before income taxes.............. 319,500 1,443,111 768,169 399,757
Income taxes............................ 118,200 531,246 281,650 136,004
-------------- ---------- ---------- ----------
Income from continuing operations....... 201,300 911,865 486,519 263,753
Discontinued operations:
Loss from discontinued operations, net
of income tax benefit of $114,155
and $15,792, respectively.......... 188,059 30,962
Loss on disposal of discontinued
operations, including provision for
estimated losses during phase-out
period of $216,477, net of income
tax benefit of $122,023............ 201,022
-------------- ---------- ---------- ----------
Net income.............................. 201,300 911,865 97,438 232,791
Retained earnings, beginning of year.... 1,414,120 502,255 404,817 172,026
-------------- ---------- ---------- ----------
Retained earnings, end of year.......... $1,615,420 $1,414,120 $ 502,255 $ 404,817
-------------- ---------- ---------- ----------
-------------- ---------- ---------- ----------
</TABLE>
See notes to the consolidated financial statements.
F-31
<PAGE> 279
CONTINUECARE HEALTH SYSTEMS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1992 1991 1990
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 911,865 $ 97,438 $ 232,791
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense............ 48,367 45,026 27,459
Gain on sale of fixed assets..................... (6,133) (18,882)
Increase in accounts and note receivable, net.... (477,833) (115,746) (287,485)
(Increase) decrease in inventories............... 139,838 132,062 (134,411)
(Increase) decrease in deferred tax asset........ 25,180 (49,383) (40,007)
Increase (decrease) in accounts payable and
accrued liabilities............................ 113,843 (147,647) 245,835
Increase (decrease) in income taxes payable...... (318,742) 94,855 160,219
Increase (decrease) in accruals and estimated
losses during phase out of discontinued
operations..................................... (243,334) 243,334
--------- --------- ---------
Net cash provided by operating activities... 193,051 281,057 204,401
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of fixed assets.................. 38,630 42,683
Capital expenditures................................ (72,172) (59,862)
(Increase) decrease in other assets................. (5,824) 11,534 28,181
--------- --------- ---------
Net cash used in investing activities....... (39,366) 54,217 (31,681)
--------- --------- ---------
Cash flows from financing activities:
Principal payments on long-term debt and capital
lease obligations................................ (68,492) (136,558) (113,049)
--------- --------- ---------
Net cash used in financing activities....... (68,492) (136,558) (113,049)
--------- --------- ---------
Net increase in cash and cash equivalents............. 85,193 198,716 59,671
Cash and cash equivalents:
Beginning of year................................... 270,730 72,014 12,343
--------- --------- ---------
End of year......................................... $ 355,923 $ 270,730 $ 72,014
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest......................................... $ 8,597 $ 15,714 $ 19,981
Taxes............................................ 824,808 950
Supplemental disclosure of non-cash investing and
financing activities:
Assets acquired under long-term debt and capital
leases........................................... $ 9,000 $ 20,432 $ 141,163
</TABLE>
See notes to the consolidated financial statements.
F-32
<PAGE> 280
CONTINUECARE HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Business
ContinueCare Health Systems, Inc. (the "Company"), specializes in home and
other alternate-site infusion therapy services in the North Texas area. The
Company was founded in 1987 and is a fully licensed pharmacy and a class B home
health agency.
Revenues and the allowance for doubtful accounts
Revenues are derived from infusion therapy services and include the rental
of infusion pumps, the sale of pharmaceuticals and supplies, and the provision
of nursing care which are all part of the infusion therapy service. Revenues are
recognized as pharmaceuticals and supplies are shipped and the related services
are rendered. A portion of the Company's patients are serviced under third party
and government sponsored insurance programs for which payment is made based on
cost as defined under the programs or at predetermined rates, rather than
customary charges. Revenues are presented net of reserve provisions to reduce
customary charges to amounts receivable from such programs.
A provision for doubtful accounts is made for revenues estimated to be
uncollectible and is adjusted periodically based upon the Company's evaluation
of current industry conditions, historical collection experience, and other
relevant factors which, in the opinion of management, deserve recognition in
estimating the allowance for uncollectible accounts.
Cost of revenues
Cost of revenues is the cost of pharmaceuticals, supplies and rental
equipment used in the infusion therapy process.
Cash equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Inventories
Inventories of pharmaceuticals and supplies are stated at lower of cost
(first-in, first-out) or market.
Property and equipment
Property and equipment are stated at cost. Depreciation is recorded on the
straight-line balance method over the estimated useful lives of the assets which
range from 5 to 15 years. Upon retirement or disposal of assets, the asset and
accumulated depreciation accounts are adjusted accordingly and any gain or loss
is reflected in earnings. Maintenance costs and repairs are expensed as
incurred; betterments are capitalized.
Income taxes
Certain income and expense items are recorded on a different basis for
financial accounting than for income tax purposes. Deferred taxes are provided
in the financial statements for significant timing differences.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
SFAS No. 109 generally requires an asset and liability approach and is effective
for fiscal years beginning after December 15, 1992. As of December 31,
F-33
<PAGE> 281
CONTINUECARE HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1992, the Company had not adopted the provisions of the Statement. The method of
adoption and its effect on the Company's financial position or results of
operations has not been determined.
NOTE 2 -- DISCONTINUED OPERATIONS
In March and September 1991, the Company finalized its plans to discontinue
its retail pharmacy and durable medical equipment centers, respectively. The
results of operations associated with these discontinued business segments are
classified as discontinued operations in the accompanying statement of
operations for the three years ended December 31, 1992. The retail pharmacy was
sold in April 1991 for $102,000 and a $78,000 note receivable and the durable
medical equipment center was sold in March 1992 for $51,000. The loss from the
durable medical equipment center's operations during the phase-out period
subsequent to December 31, 1991 and the loss on the disposal of the segment have
been reflected in "accruals and estimated losses during phase-out of
discontinued operations" in the accompanying December 31, 1991 balance sheet. As
of December 31, 1992, the Company had sold all assets and satisfied all
liabilities associated with these business segments and, accordingly, no assets
or liabilities of discontinued operations are reflected in the accompanying 1992
balance sheet. Revenues associated with the discontinued segments during the
years ended December 31, 1991 and 1990 were $836,410 and $1,811,672,
respectively.
NOTE 3 -- ACCOUNTS RECEIVABLE
Accounts receivable are presented net of allowances for contractual
adjustments and doubtful accounts at December 31, 1992, 1991 and 1990 of
$198,000, $158,000 and $205,000, respectively.
The Company receives payments for services rendered to patients from (i)
commercial insurance companies, (ii) privately sponsored managed care programs
for which payment is made based on terms defined under formal contracts, (iii)
the federal and state governments under the Medicare, Medicaid and CHAMPUS
programs and (iv) other payors. Insurance, contracted, and other receivables
consist of receivables from various payors, involved in diverse activities and
subject to differing economic conditions. The Company's patients are located
primarily in the North Texas area and are therefore subject to the economic
conditions prevalent in this location. Substantially all of the Company's
revenues are billed to third-party reimbursement sources. Accordingly, the
ultimate collectibility of a substantial portion of the Company's accounts
receivable is susceptible to changes in third-party reimbursement policies.
NOTE 4 -- NOTE RECEIVABLE
The note receivable at December 31, 1992 and 1991 represents part of the
consideration received for inventory and equipment sold when the Company
discontinued its retail pharmacy center (Note 2). The note bears an interest
rate of 9% and is due April, 1994.
F-34
<PAGE> 282
CONTINUECARE HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
Land............................................... $ 37,565 $ 37,565 $ 37,565
Building........................................... 39,674 39,674 39,674
Building improvements.............................. 31,550 31,550 31,550
Vehicles........................................... 23,679 40,682 41,564
Furniture, fixtures and equipment.................. 211,600 196,910 223,362
-------- -------- --------
344,068 346,381 373,715
Accumulated depreciation and amortization.......... 132,512 135,133 114,072
-------- -------- --------
$211,556 $211,248 $259,643
-------- -------- --------
-------- -------- --------
</TABLE>
NOTE 6 -- FINANCING ARRANGEMENTS
Notes payable at December 31 consist of the following:
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
Note payable secured by land, building and personal
guaranty of shareholders, bearing interest rate
of prime plus 1%, due April, 1996................ $ 81,652 $ 87,652 $ 93,052
Note payable secured by accounts receivable,
inventory, furniture and fixtures and key-man
life insurance, paid April, 1991................. 81,769
Other notes payable secured by automobiles......... 12,653 26,060 32,778
-------- -------- --------
94,305 113,712 207,599
Less: current portion.............................. 17,365 28,407 100,789
-------- -------- --------
$ 76,940 $ 85,305 $106,810
-------- -------- --------
-------- -------- --------
</TABLE>
In March, 1992, the Company entered into a $500,000 revolving line of
credit agreement with a bank to be used for working capital needs. The credit
agreement bears interest at a variable rate and terminates in March, 1993. The
credit agreement is secured by accounts receivable, inventory and key-man life
insurance. As of December 31, 1992, the Company did not have any balance
outstanding on the line of credit.
The note payable due April 1996 had an original maturity of April 1993. On
February 5, 1993, the Company obtained an agreement from a bank to refinance the
debt on a long-term basis. Accordingly, the note payable has been reclassified
as a long-term liability at December 31, 1992.
As of December 31, 1992, the maturities of long-term debt were as follows:
<TABLE>
<S> <C>
1993....................................................... $17,365
1994....................................................... 8,521
1995....................................................... 6,754
1996....................................................... 61,665
-------
$94,305
-------
-------
</TABLE>
F-35
<PAGE> 283
CONTINUECARE HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- LEASES
The Company is obligated under various capital leases for office and
medical equipment. At December 31, 1992, 1991 and 1990, the gross amount of
equipment and related accumulated amortization recorded under capital leases
were as follows:
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
Equipment.......................................... $126,433 $181,929 $162,751
Accumulated amortization........................... 78,329 91,172 52,385
-------- -------- --------
$ 48,104 $ 90,757 $110,366
-------- -------- --------
-------- -------- --------
</TABLE>
Amortization of assets held under capital leases is included with
depreciation expense. The Company also has one noncancelable operating lease for
equipment that expires in 1995. Rental expense for the lease approximated $800
in 1990 and $4,750 in 1991 and 1992. Future minimum lease payments under the
noncancelable operating lease and the present value of future minimum capital
lease payments as of December 31, 1992 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- -------
<S> <C> <C>
Year ending December 31:
1993................................................... $26,939 $ 4,750
1994................................................... 16,625 4,750
1995................................................... 10,614 3,960
1996................................................... -- --
1997................................................... -- --
------- -------
Total minimum lease payments............................. 54,178 $13,460
-------
-------
Less amount representing interest........................ 7,885
-------
Present value of minimum capital lease payments.......... 46,293
Less current installments................................ 23,088
-------
Obligations under capital leases, excluding current
installments........................................... $23,205
-------
-------
</TABLE>
NOTE 8 -- INCOME TAXES
Income tax expense (benefit) for the three years ended December 31, 1992
consist of the following:
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- ---------
<S> <C> <C> <C>
Continuing operations:
Federal -- Current.............................. $426,424 $235,271 $ 166,436
Deferred............................. 45,180 14,879 (30,432)
State -- Current................................ 59,642 31,500
-------- -------- ---------
531,246 281,650 136,004
-------- -------- ---------
Discontinued operations:
Federal......................................... (215,678) (15,792)
State........................................... (20,500)
-------- -------- ---------
-- (236,178) (15,792)
-------- -------- ---------
Total................................... $531,246 $ 45,472 $ 120,212
-------- -------- ---------
-------- -------- ---------
</TABLE>
F-36
<PAGE> 284
CONTINUECARE HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation between the statutory federal income tax
rate and the Company's effective income tax rate on continuing operations for
the three years ended December 31, 1992:
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
Income taxes based on statutory federal rate....... $490,657 $261,177 $135,917
State income taxes, net............................ 39,364 20,790 --
Other.............................................. 1,225 (317) 87
-------- -------- --------
$531,246 $281,650 $136,004
-------- -------- --------
-------- -------- --------
</TABLE>
Deferred taxes are provided for those items reported in different periods
for income tax and financial statement purposes. The deferred tax provision on
continuing operations was comprised of the tax effects of the following
differences for the three years ended December 31, 1992:
<TABLE>
<CAPTION>
1992 1991 1990
-------- ------- --------
<S> <C> <C> <C>
Depreciation........................................ $ 1,795 $ 2,541 $ 1,347
Gain/loss on disposal of assets..................... 1,571 (376)
Allowances for contractual adjustments and doubtful
accounts.......................................... (13,545) 12,197 (32,412)
Loss on disposal of segment......................... 53,070
Other............................................... 2,289 141 1,009
-------- ------- --------
$ 45,180 $14,879 $(30,432)
-------- ------- --------
-------- ------- --------
</TABLE>
NOTE 9 -- COMMON STOCK
The Company's common stock is recorded at its par value of $0.10 per share.
100,000 shares of common stock were authorized and 3,120 shares were issued and
outstanding at December 31, 1992, 1991 and 1990, respectively.
NOTE 10 -- STOCK OPTIONS
The Company has issued options to certain employees of the Company to
purchase the Company's common stock at a price of $1.00 per share. As of
December 31, 1992 and 1991, 550 options had been granted and were outstanding.
The options are only exercisable upon the merger, sale, or public offering of
stock of the Company.
NOTE 11 -- PROFESSIONAL LIABILITY RISKS
The Company is subject to claims and legal actions by patients in the
ordinary course of business. The Company maintains insurance for losses up to $1
million per claim and $3 million in the aggregate related to incidents which
occur during the period of coverage.
NOTE 12 -- EMPLOYEE BENEFIT PLANS
The Company has a defined contribution pension plan in which all employees
who have attained at least twenty-one years of age and 90 days of service are
eligible to participate. Employees may contribute up to 15% of their annual
compensation. The Company matches twenty-five percent of employees contributions
up to a maximum of five percent of their salary as defined in the Plan.
Employees are vested in the plan after five years of service.
The Company also has a noncontributory profit sharing plan in which all
full-time employees who have attained one year of service prior to January 1 of
each year are eligible to participate. Company contributions are made at the
discretion of the Board of Directors. Employees are vested in the plan after
five years of service. Company contributions in 1992, 1991 and 1990 were
$100,000, $50,000 and $30,000, respectively.
F-37
<PAGE> 285
CONTINUECARE HEALTH SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- EVENTS SUBSEQUENT TO DECEMBER 31, 1992
Effective June 29, 1993, the Company merged with and into Curaflex
Acquisition, Inc. ("Newco"), a Delaware corporation, all of whose capital stock
is owned directly by Curaflex Health Services, Inc. ("Curaflex"). The Company
ceased to exist, and Newco does business as "ContinueCare/Curaflex Health
Services, Inc."
F-38
<PAGE> 286
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Curaflex Health Services, Inc.
We have audited the accompanying balance sheets of Home Solution, Inc., as
of December 31, 1992 and 1991, and the related statements of earnings and
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial position of Home Solution, Inc., as of
December 31, 1992 and 1991, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
GRANT THORNTON
Salt Lake City, Utah
November 30, 1993
F-39
<PAGE> 287
HOME SOLUTION, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1992 1991
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................................ $234,794 $198,892
Accounts receivable, less allowance for doubtful accounts and
contractual adjustments of $69,000 in 1992 and $62,000 in 1991.... 292,064 498,307
Inventories.......................................................... 60,008 67,989
Other current assets................................................. 7,466 4,506
-------- --------
Total current assets......................................... 594,332 769,694
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization (Notes B and C)......................................... 46,059 21,895
-------- --------
$640,391 $791,589
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable..................................................... $ 31,827 $ 90,530
Current maturities of long-term obligations (Note C)................. 12,872 3,761
Accrued and other current liabilities................................ 1,692 54,945
-------- --------
Total current liabilities.................................... 46,391 149,236
LONG-TERM OBLIGATIONS, less current maturities (Note C)................ 15,086 4,943
COMMITMENTS (Notes D and E)............................................ -- --
STOCKHOLDERS' EQUITY
Common stock, $0.50 par value, authorized 100,000 shares; issued and
outstanding 1,736 shares.......................................... 868 868
Additional paid-in capital........................................... 200,632 200,632
Retained earnings.................................................... 377,414 435,910
-------- --------
578,914 637,410
-------- --------
$640,391 $791,589
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-40
<PAGE> 288
HOME SOLUTION, INC.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED -------------------------
JUNE 30, 1993 1992 1991
------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenue......................................... $ 1,075,300 $2,001,384 $1,626,175
Cost of revenue..................................... 263,100 620,100 459,640
------------- ---------- ----------
Gross margin.............................. 812,200 1,381,284 1,166,535
Selling, general, and administrative expenses....... 438,100 800,289 614,238
Provision for estimated uncollectible accounts
receivable........................................ 49,200 69,000 62,000
------------- ---------- ----------
487,300 869,289 676,238
------------- ---------- ----------
Earnings from operations.................. 324,900 511,995 490,297
Other income (expense)
Interest income................................... 2,111 6,145 20,615
Interest expense.................................. (1,711) (2,136) (1,002)
------------- ---------- ----------
400 4,009 19,613
------------- ---------- ----------
NET EARNINGS.............................. 325,300 516,004 509,910
Retained earnings at beginning of period............ 377,414 435,910 15,760
Distributions to stockholders....................... (480,000) (574,500) (89,760)
------------- ---------- ----------
Retained earnings at end of period.................. $ 222,714 $ 377,414 $ 435,910
------------- ---------- ----------
------------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-41
<PAGE> 289
HOME SOLUTION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1992 1991
--------- ---------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Net earnings....................................................... $ 516,004 $ 509,910
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization................................... 12,606 14,094
Provision for estimated uncollectible accounts receivable....... 69,000 62,000
Changes in assets and liabilities
Accounts receivable........................................... 137,243 (405,038)
Inventories................................................... 7,981 (18,315)
Other current assets.......................................... (2,960) 7,663
Accounts payable and accrued liabilities...................... (111,956) 85,152
--------- ---------
Total adjustments.......................................... 111,914 (254,444)
--------- ---------
Net cash provided by operating activities.................. 627,918 255,466
--------- ---------
Cash flows from investing activities
Purchase of property and equipment.............................. (36,770) (29,098)
--------- ---------
Net cash used in investing activities...................... (36,770) (29,098)
--------- ---------
Cash flows from financing activities
Proceeds from issuance of long-term obligations................. 27,974 11,550
Repayments of long-term obligations............................. (8,720) (2,846)
Distributions to stockholders................................... (574,500) (89,760)
--------- ---------
Net cash used in financing activities...................... (555,246) (81,056)
--------- ---------
Net increase in cash and cash equivalents.................. 35,902 145,312
Cash and cash equivalents at beginning of year....................... 198,892 53,580
--------- ---------
Cash and cash equivalents at end of year............................. $ 234,794 $ 198,892
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest............................. $ 2,136 $ 1,002
NONCASH FINANCING ACTIVITIES
In 1991, the Company issued 236 shares of common stock in
satisfaction of notes payable to stockholders in the amount of
$200,000.
</TABLE>
The accompanying notes are an integral part of these statements.
F-42
<PAGE> 290
HOME SOLUTION, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the accompanying financial statements follows.
1. History and business activity
Home Solution, Inc. (the Company) was incorporated in 1990 under the laws
of the State of Utah. The Company provides home infusion therapy to patients in
the greater Salt Lake City, Utah, area.
2. Revenue recognition
Revenue is recognized when infusion services are provided. Revenue is
recorded net of estimated contractual adjustments with insurance companies and
governmental agencies.
3. Inventories
Inventories are stated at the lower of cost (determined on the first-in,
first-out method) or market. Inventories consist of drugs and supplies used in
the care of patients.
4. Property and equipment
Property and equipment is stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are computed using accelerated
methods over the estimated useful lives of the assets of 5 to 10 years.
5. Income taxes
The Company has elected to be taxed as a Subchapter S Corporation, whereby
the income taxes on net earnings are payable personally by its stockholders.
Accordingly, income taxes have not been provided for in the accompanying
financial statements.
6. Cash equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment and estimated useful lives are as follows:
<TABLE>
<CAPTION>
YEARS 1992 1991
------ ------- -------
<S> <C> <C> <C>
Leasehold improvements.................................. 10 $ 7,130 $ 7,130
Office and warehouse equipment.......................... 5-7 24,126 16,280
Transportation equipment................................ 5 44,046 15,123
------- -------
75,302 38,533
Less accumulated depreciation and amortization.......... 29,243 16,638
------- -------
$46,059 $21,895
------- -------
------- -------
</TABLE>
F-43
<PAGE> 291
HOME SOLUTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992 AND 1991
NOTE C -- LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
1992 1991
------- ------
<S> <C> <C>
11.5% note to a bank, payable in monthly installments of
$382 including interest, collateralized by
transportation equipment................................ $ 4,968 $8,704
9.25% note to a bank, payable in monthly installments of
$477 including interest, collateralized by
transportation equipment................................ 11,558 --
Prime plus 1.4% (7.4% at December 31, 1992) note to a
bank, payable in monthly installments of $406 plus
interest, collateralized by transportation equipment.... 11,432 --
------- ------
27,958 8,704
Less current maturities................................... 12,872 3,761
------- ------
$15,086 $4,943
------- ------
------- ------
</TABLE>
Future maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1993..................................................... $12,872
1994..................................................... 10,518
1995..................................................... 4,568
Thereafter................................................. --
-------
$27,958
-------
-------
</TABLE>
NOTE D -- LEASE COMMITMENTS
The Company conducts its operations utilizing leased facilities and
equipment under noncancelable operating leases which expire through July 1995.
The leases generally provide that personal property taxes, insurance, and
common maintenance expenses are obligations of the Company. It is expected that
in the normal course of business, leases that expire will be renewed or replaced
by leases on the same or similar facilities and equipment. The future minimum
annual commitments relating to the facilities and equipment are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1993.................................................... $ 77,179
1994.................................................... 46,114
1995.................................................... 23,865
Thereafter................................................ --
--------
$147,158
--------
--------
</TABLE>
Total rent expense for the years ended December 31, 1992 and 1991, was
approximately $96,000 and $95,000, respectively.
F-44
<PAGE> 292
HOME SOLUTION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992 AND 1991
NOTE E -- STOCK REDEMPTION AGREEMENT
The Company and its stockholders have entered into a stock redemption
agreement which requires the Company to purchase all of the common stock of a
stockholder upon his or her death. The purchase price to be paid by the Company
shall be the value of the stock at the date of death. Such value is to be
redetermined from time to time by the mutual agreement of the Company and its
stockholders. The Company shall pay at least 10% of the purchase price of the
stock within 90 days of death with the balance payable in 9 equal annual
installments, including interest at 10%. The Company maintains term life
insurance policies on each stockholder sufficient to fund the redemption
obligation in the event of the death of a stockholder.
NOTE F -- EMPLOYEE BENEFIT PLAN
During 1991, the Company established a 401(k) retirement plan for the
benefit of its employees. All employees are eligible to participate at the first
plan entry date after their employment. Contributions to the plan are at the
discretion of the employees and the Company. There were no Company contributions
to the plan in either 1992 or 1991.
NOTE G -- RELATED PARTY TRANSACTIONS
The Company leases certain equipment from a director/stockholder under two
leases which expire in 1992 and 1993. Total lease expense under these leases was
approximately $21,000 and $24,000 in 1992 and 1991, respectively.
Effective July 1, 1992, the Company entered into an agreement with
International Health Care Consultants, Inc. (IHCC), a company related through
common ownership, to provide certain consulting services and to license certain
computer software. Under this agreement, the Company paid IHCC approximately
$21,000 in 1992.
NOTE H -- SUBSEQUENT EVENT
On September 27, 1993, the Company entered into an agreement for merger
with Curaflex Health Services, Inc. (Curaflex) to be effective as of July 1,
1993. The merger was effected through a cash payment plus issuance of Curaflex
common stock to the Company's stockholders. The merger agreement provides for
additional earn-out consideration to the Company's stockholders based upon the
financial performance of the Company after the merger for the second half of
1993, and for the calendar years 1994, 1995, 1996, and 1997.
F-45
<PAGE> 293
INDEPENDENT AUDITORS' REPORT
The Stockholders
Comprehensive Pharmacy Home IV Services, Inc.:
We have audited the accompanying balance sheets of Comprehensive Pharmacy
Home IV Services, Inc. (the "Company") as of December 31, 1992 and 1991, and the
related statements of operations, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1992. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in note 7, the Company was acquired by a wholly-owned
subsidiary of Curaflex Health Services, Inc. on June 29, 1993. The terms of the
Purchase Agreement defined the effective date for accounting for the acquisition
as of April 1, 1993.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Comprehensive Pharmacy Home
IV Services, Inc. at December 31, 1992 and 1991, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1992 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick
Ontario, California
July 13, 1993
F-46
<PAGE> 294
COMPREHENSIVE PHARMACY HOME IV SERVICES, INC.
BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1992 1991
--------- ---------
<S> <C> <C>
Current assets:
Cash................................................................. $ 85,626 $ 69,202
Accounts receivable, net of allowances of $23,471 in 1992 and $32,724
in 1991........................................................... 688,199 701,546
Inventory............................................................ 30,995 33,472
Prepaid expenses..................................................... 103,586 43,581
--------- ---------
Total current assets......................................... 908,406 847,801
Equipment, furniture and fixtures, net of accumulated depreciation of
$62,847 in 1992 and $34,199 in 1991 (note 2)......................... 90,350 52,086
--------- ---------
Total assets................................................. $ 998,756 $ 899,887
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable (note 3)......................... $ -- $ 33,854
Credit facility borrowings (note 3).................................. -- 5,000
Accounts payable..................................................... 93,592 119,237
Accrued expenses..................................................... 24,802 37,159
Stockholders' distributions payable.................................. 118,500 147,606
State income taxes payable........................................... 15,503 4,462
Deferred state taxes................................................. 18,866 15,652
--------- ---------
Total current liabilities.................................... 271,263 362,970
Long-term notes payable, excluding current portion (note 3)............ -- 90,000
Notes payable to stockholders (note 3)................................. -- 60,000
--------- ---------
271,263 512,970
Stockholders' equity:
Common stock no par value, 10,000 shares, authorized issued and
outstanding at December 31, 1992 and 1991......................... 20,000 20,000
Retained earnings.................................................... 707,493 366,917
--------- ---------
Total stockholders' equity................................... 727,493 386,917
Commitments (notes 5 and 6)
--------- ---------
Total liabilities and stockholders' equity................... $ 998,756 $ 899,887
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE> 295
COMPREHENSIVE PHARMACY HOME IV SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
PERIOD ENDED --------------------------------------
MARCH 31, 1993 1992 1991 1990
--------------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue............................. $ 814,900 $2,662,523 $2,141,036 $950,617
Cost of revenue......................... 263,200 1,175,578 1,039,182 482,042
--------- ---------- ---------- --------
Gross margin.................. 546,700 1,486,945 1,101,854 468,575
Selling, general and administrative
expense............................... 255,700 543,228 475,212 342,070
Provision for estimated uncollectible
accounts receivable................... 17,300 49,580 21,593 6,484
--------- ---------- ---------- --------
Operating income.............. 273,700 894,137 605,049 120,021
Interest expense, net................... 700 (5,653) (28,023) (23,879)
Other income............................ 1,200 3,324 3,399 950
--------- ---------- ---------- --------
Income from operations before income
taxes................................. 275,600 891,808 580,425 97,092
State income taxes...................... -- 33,232 14,713 5,601
--------- ---------- ---------- --------
Net income.................... $ 275,600 $ 858,576 $ 565,712 $ 91,491
--------- ---------- ---------- --------
--------- ---------- ---------- --------
Net income per common share... $ 27.56 $ 85.86 $ 56.57 $ 9.15
--------- ---------- ---------- --------
--------- ---------- ---------- --------
Weighted average number of common shares
of stock outstanding.................. 10,000 10,000 10,000 10,000
--------- ---------- ---------- --------
--------- ---------- ---------- --------
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE> 296
COMPREHENSIVE PHARMACY HOME IV SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
----------------- EARNINGS
SHARES AMOUNT (DEFICIT)
------ ------- ---------
<S> <C> <C> <C>
Balance at December 31, 1989.................................. 10,000 $20,000 $(110,680)
Net income.................................................... -- -- 91,491
------ ------- ---------
Balance at December 31, 1990.................................. 10,000 20,000 (19,189)
Net income.................................................... -- -- 565,712
Distributions to stockholders................................. -- -- 179,606
------ ------- ---------
Balance at December 31, 1991.................................. 10,000 20,000 366,917
Net income.................................................... -- -- 858,576
Distributions to stockholders................................. -- -- (518,000)
------ ------- ---------
Balance at December 31, 1992.................................. 10,000 $20,000 $ 707,493
------ ------- ---------
------ ------- ---------
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE> 297
COMPREHENSIVE PHARMACY HOME IV SERVICES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
<TABLE>
<CAPTION>
1992 1991 1990
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 858,576 $ 565,712 $ 91,491
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for estimated uncollectible accounts
receivable.................................... 49,580 21,593 6,484
Depreciation and amortization.................... 29,188 16,628 14,568
Loss (gain) on sale of equipment................. 5,721 (119) --
Increase in accounts receivable.................. (36,233) (464,230) (160,869)
Increase in inventory and prepaid expenses....... (57,528) (45,569) (4,254)
Decrease in accounts payable and accrued
expenses...................................... (67,108) 213,117 30,766
Increase in income taxes payable................. 14,255 15,313 --
--------- --------- ---------
Net cash provided (used) by operating
activities.................................. 796,451 322,445 (21,814)
--------- --------- ---------
Cash flows from investing activities:
Purchase of equipment, furniture and fixtures......... (73,173) (7,220) (7,308)
Proceeds from sale of equipment, furniture and
fixtures........................................... -- 6,900 --
Net cash used by investing activities......... (73,173) (320) (7,308)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt........................ -- 65,000 200,000
Repayments of debt.................................... (188,854) 163,177 (146,380)
Distributions to stockholders......................... (518,000) (179,606) --
--------- --------- ---------
Net cash provided (used) by financing
activities.................................. (706,854) (277,783) 53,620
--------- --------- ---------
Net increase in cash.................................... 16,424 44,342 24,498
Cash at beginning of year............................... 69,202 24,860 362
--------- --------- ---------
Cash at end of year..................................... $ 85,626 $ 69,202 $ 24,860
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest...................................... $ 14,163 $ 30,675 $ 24,688
--------- --------- ---------
--------- --------- ---------
Income taxes.................................. $ 3,664 $ -- $ 800
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE> 298
COMPREHENSIVE PHARMACY HOME IV SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1992, 1991 AND 1990
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Comprehensive Pharmacy Home IV Services, Inc. (the "Company"), a California
Subchapter S corporation, was incorporated and commenced operations in March
1989 for the purpose of providing sub-acute medical services. The Company
provides prescription pharmaceuticals, supplies, nursing services and durable
medical equipment to patients in their home for intravenous injections. The
Company serves the Southern California area.
Basis of Presentation
The Company uses the accrual basis of accounting. Revenues are recognized
in the accounting period in which they are earned and become measurable.
Expenses are recognized in the period incurred.
Inventory
Inventory consists of pharmaceutical and infusion therapy products and
supplies. Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out ("FIFO") method.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are stated at cost. Depreciation and
amortization are provided for using the straight-line method over the estimated
useful lives of the asset, generally five to seven years, or the lease term
whichever is shorter.
Net Revenue
The Company provides home health care services and recognizes revenue as
services are provided. Patient revenue is recorded at established rates with
contractual adjustments deducted to arrive at net revenue.
The Company contracts with various managed care organizations and
third-party payors to provide health care service to enrollees. These contracts
set established rates for services provided by the Company.
Six customers represented more than 10% of the Company's net revenue in
1992, 1991 and 1990 as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUE
--------------------------
CUSTOMER 1992 1991 1990
-------- ---- ---- ----
<S> <C> <C> <C>
Huntington Medical Group............................ -- -- 10%
Medi-Cal............................................ 10% -- --
PacifiCare.......................................... 22% 26% 18%
Pacific Mutual...................................... -- -- 12%
</TABLE>
The Company provides services to Medicare and Medi-Cal beneficiaries.
Payment for these services is subject to certain limitations. Such payments are
subject to review and denial by proper fiscal intermediaries based upon the
intermediaries determination of clinical appropriateness of the service. In the
opinion of management, payment adjustments, if any, resulting from such a review
would not be material to the financial position or results of operations of the
Company.
F-51
<PAGE> 299
COMPREHENSIVE PHARMACY HOME IV SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Income Taxes
The stockholders of the Company have elected to be taxed under provisions
of Subchapter S of the Internal Revenue Code and similar provisions of the
California Revenue and Taxation Code. Because of the Company's tax status as an
S-Corporation, the Company is not subject to Federal income tax on earnings
subsequent to the election date and is subject to tax in California at a rate of
2.5%. Such taxes are provided on income reported for financial statement
purposes. Difference between income for financial statement and tax return
purposes are not significant.
Implementation of Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes," which requires that taxes be determined using the
asset and liability method, which will be adopted upon the acquisition and
subsequent conversion of the Company to a Subchapter C corporation, will not
have a material effect on the financial statements.
Earnings Per Share
Income (loss) per common share is computed based on the weighted average
number of common shares during the year. The weighted average number of shares
outstanding was 10,000 for the three years ended December 31, 1992, 1991 and
1990.
Allocation of Net Income
Net income for tax and financial reporting purposes is allocated among the
stockholders in proportion to their ownership interest.
Cash and Cash Equivalents
For the purpose of the statements of cash flows, the Company considers all
highly liquid debt instruments with an original maturity to the Company of three
months or less to be cash equivalents.
(2) EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures at December 31 consists of the following:
<TABLE>
<CAPTION>
1992 1991
--------- ---------
<S> <C> <C>
Furniture and fixtures................................. $ 29,705 $17,213
Equipment.............................................. 43,502 15,973
Vehicles............................................... 51,865 29,164
Leasehold improvements................................. 28,125 23,935
--------- ---------
153,197 86,285
Less accumulated depreciation and amortization......... 62,847 34,199
--------- ---------
$ 90,350 $52,086
--------- ---------
--------- ---------
</TABLE>
F-52
<PAGE> 300
COMPREHENSIVE PHARMACY HOME IV SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) NOTES PAYABLE
The Company's long-term notes payable at December 31 is summarized as
follows:
<TABLE>
<CAPTION>
1992 1991
--------- ---------
<S> <C> <C>
Note payable to bank. Principal is payable in monthly
installments of $2,380, plus interest at 1% over a
bank's prime lending rate (7.5% at December 31,
1991), with the remaining unpaid balance due June 17,
1995. Note payable is secured by substantially all of
the assets of the Company. Repaid in 1992. .......... $ -- $ 98,340
Note payable to bank. Payable in monthly installments
of $632, 10.5% interest rate per annum, secured by
equipment, with the remaining unpaid balance due
February 11, 1996. Repaid in 1992. .................. -- 25,514
Notes payable to stockholders. Interest is payable
annually at 10%. Principal is due and payable at
December 31, 1993. Repaid in 1992. .................. -- 60,000
--------- ---------
$ -- $ 183,854
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1992, the Company has a $100,000 line of credit with a
bank. The line of credit is secured by substantially all of the assets of the
Company and bears interest at 1.50% over the bank's prime lending rate (7.00%
and 8.00% at December 31, 1992 and 1991, respectively). At December 31, 1992,
there were no outstanding borrowings.
(4) RETIREMENT PLAN
In July 1990, the Company instituted a 401(k) profit sharing plan (the
"Plan") available to employees of the Company that have been employed over one
year with the Company and have more than 1,000 hours of service. Participation
in the Plan is voluntary and participants may contribute 2% to 15% of their
annual compensation. Employer contributions are discretionary and are based upon
number of years of service of the employee and the employee's contribution.
Vesting in the Plan is based upon the Plan date or the hire date of the
employee, whichever is later, and years of service. Employee contributions to
the Plan are 100% vested at the time of contribution.
Company contributions were approximately $11,123 and $5,672 in 1992 and
1991, respectively. There were no contributions made in 1990.
(5) MEDICAL MALPRACTICE
The Company maintains a medical malpractice insurance policy which provides
coverage on a claims made basis. Terms of the policy are $1,000,000 per
occurrence per year with aggregate coverage of $3,000,000 per year.
The Company maintains general liability insurance with terms of $1,000,000
per occurrence per year with aggregate coverage of $3,000,000 per year.
(6) COMMITMENTS
The Company is obligated under a noncancelable operating lease for real
property which expires in May 1993. At December 31, 1992, future minimum rental
commitments totaled $7,275. Total rent expense incurred for the years ended
December 31, 1992, 1991 and 1990 was $8,012, $9,180 and $9,060, respectively.
F-53
<PAGE> 301
COMPREHENSIVE PHARMACY HOME IV SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) SUBSEQUENT EVENT
On June 29, 1993, the Company was acquired by a wholly-owned subsidiary of
Curaflex Health Services, Inc. ("Curaflex"). Under the terms of a Purchase
Agreement, stockholders of the Company sold 100% of the stock of Comprehensive
Pharmacy Home IV Services, Inc. for (i) $3,480,000 in cash consideration, (ii)
$1,000,000 in Curaflex Common stock (with the value of the stock based on the
closing price on the day before the close of the transaction, $6.125), (iii)
$2,300,000 in promissory notes payable over 3 years at 7% and (iv) the right to
receive up to $1,000,000 in contingent earn-out consideration, based on the
financial performance of the combined operations of the Ontario/Rancho Cucamonga
operations of Curaflex and Comprehensive over the next 3 years, payable in cash.
Pursuant to the terms of the Purchase Agreement, Curaflex entered into an
employment agreement with one of the former stockholders who also became an
officer of Curaflex.
Under the terms of the Purchase Agreement, the effective date of accounting
for the acquisition is April 1, 1993.
F-54
<PAGE> 302
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
HealthInfusion, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of
HealthInfusion, Inc. (a Florida corporation) and subsidiaries as of December 31,
1992 and 1993, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HealthInfusion, Inc. and
subsidiaries as of December 31, 1992 and 1993 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
Miami, Florida,
March 18, 1994.
F-55
<PAGE> 303
HEALTHINFUSION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1992 1993
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 1,825,443 $ 1,222,335
Accounts receivable, net of allowances of $1,655,306 and
$3,699,382, respectively..................................... 21,894,689 24,016,082
Inventories..................................................... 1,305,758 1,521,137
Due from affiliates............................................. 50,800 56,200
Income tax receivable........................................... -- 1,128,973
Current deferred income tax..................................... 416,604 1,056,210
Other current assets............................................ 671,943 1,471,580
----------- -----------
Total current assets.................................... 26,165,237 30,472,517
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $1,127,296 and $1,843,116, respectively..... 2,471,340 4,473,107
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, less
accumulated amortization of $1,054,077 and $2,106,504,
respectively.................................................... 36,355,726 44,426,980
OTHER ASSETS, including amounts due from related party of $444,000
in 1993......................................................... 820,970 1,958,806
----------- -----------
Total assets............................................ $65,813,273 $81,331,410
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses........................... $ 5,263,702 $ 6,560,117
Accrued income taxes............................................ 344,710 --
Revolving line of credit........................................ 4,537,887 10,123,382
Current portion of long-term debt............................... 51,102 332,268
----------- -----------
Total current liabilities............................... 10,197,401 17,015,767
----------- -----------
LONG-TERM DEBT, net of current portion............................ 7,022,146 8,504,808
----------- -----------
DEFERRED INCOME TAXES............................................. 471,413 752,504
----------- -----------
MINORITY INTEREST................................................. 118,723 241,629
----------- -----------
COMMITMENTS (NOTE 11)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
no shares issued or outstanding.............................. -- --
Common stock, $.01 par value; 40,000,000 shares authorized;
9,222,743 and 9,923,187 shares issued and outstanding,
respectively................................................. 92,227 99,232
Additional paid-in capital...................................... 35,946,728 41,632,442
Retained earnings............................................... 11,964,635 13,085,028
----------- -----------
Total stockholders' equity.............................. 48,003,590 54,816,702
----------- -----------
Total liabilities and stockholders' equity.............. $65,813,273 $81,331,410
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-56
<PAGE> 304
HEALTHINFUSION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1991 1992 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES............................................ $29,247,471 $49,749,497 $56,681,762
COST OF REVENUES.................................... 16,239,699 29,323,995 36,665,927
----------- ----------- -----------
OPERATING PROFIT.................................... 13,007,772 20,425,502 20,015,835
----------- ----------- -----------
EXPENSES:
Selling, general and administrative............... 4,883,311 6,806,258 9,613,156
Provision for bad debts........................... 548,453 1,205,399 5,658,519
Amortization of excess of cost over fair value of
net assets acquired............................ 295,984 758,026 1,052,016
----------- ----------- -----------
Total expenses............................ 5,727,748 8,769,683 16,323,691
----------- ----------- -----------
Income from operations............................ 7,280,024 11,655,819 3,692,144
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income................................... 338,091 87,599 14,886
Interest expense.................................. (609,301) (857,656) (1,046,352)
Business combination costs........................ -- (9,000) --
----------- ----------- -----------
Total other income (expense).............. (271,210) (779,057) (1,031,466)
----------- ----------- -----------
Income before income taxes and minority
interest....................................... 7,008,814 10,876,762 2,660,678
PROVISION FOR INCOME TAXES.......................... 2,696,168 4,286,969 1,386,640
----------- ----------- -----------
Income before minority interest................... 4,312,646 6,589,793 1,274,038
MINORITY INTEREST................................... (71,661) (267,326) (153,645)
----------- ----------- -----------
NET INCOME.......................................... $ 4,240,985 $ 6,322,467 $ 1,120,393
----------- ----------- -----------
----------- ----------- -----------
NET INCOME PER COMMON SHARE:
Primary........................................... $ .54 $ .67 $ .12
----------- ----------- -----------
----------- ----------- -----------
Fully Diluted..................................... $ .51 $ .65 $ .12
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Primary........................................... 7,884,082 9,422,893 9,718,644
----------- ----------- -----------
----------- ----------- -----------
Fully Diluted..................................... 8,666,278 10,379,831 9,718,644
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-57
<PAGE> 305
HEALTHINFUSION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDING DECEMBER 31, 1991, 1992 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1990.......................... 6,250,277 $62,503 $ 6,740,314 $ 1,401,183 $ 8,204,000
Net income................................... -- -- -- 4,240,985 4,240,985
Issuance of stock in connection with
secondary offering......................... 1,878,357 18,783 14,784,067 -- 14,802,850
Partial conversion of $3.5 million
subordinated convertible debentures........ 375,000 3,750 2,574,375 -- 2,578,125
Issuance of stock in connection with
acquisitions............................... 92,713 927 928,823 -- 929,750
Payment of fractional shares in connection
with 50% stock dividend, effected as a
stock split................................ -- -- (736) -- (736)
--------- ------- ----------- ----------- ------------
Balance,
December 31, 1991.......................... 8,596,347 85,963 25,026,843 5,642,168 30,754,974
Net income................................... -- -- -- 6,322,467 6,322,467
Issuance of stock in connection with
acquisitions............................... 601,571 6,015 10,692,960 -- 10,698,975
Issuance of stock to executives and members
of Board of Directors...................... 17,950 180 190,346 -- 190,526
Issuance of stock in connection with the
exercise of stock options.................. 6,875 69 36,579 -- 36,648
--------- ------- ----------- ----------- ------------
Balance,
December 31, 1992.......................... 9,222,743 92,227 35,946,728 11,964,635 48,003,590
Net income................................... -- -- -- 1,120,393 1,120,393
Issuance of stock in connection with
acquisitions............................... 691,444 6,915 5,650,554 -- 5,657,469
Issuance of stock to members of Board of
Directors.................................. 9,000 90 35,160 -- 35,250
--------- ------- ----------- ----------- ------------
Balance,
December 31, 1993.......................... 9,923,187 $99,232 $41,632,442 $13,085,028 $ 54,816,702
--------- ------- ----------- ----------- ------------
--------- ------- ----------- ----------- ------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-58
<PAGE> 306
HEALTHINFUSION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1991 1992 1993
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 4,240,985 $ 6,322,467 $ 1,120,393
Adjustments to reconcile net income to net cash provided
by (used in) operating activities --
Depreciation and amortization............................. 805,989 1,408,965 1,995,057
Provision for bad debts................................... 548,453 1,205,399 5,658,519
Minority interest......................................... 71,661 267,326 153,645
Loss on disposition of assets............................. -- 1,288 2,539
Shares issued to executives and directors................. -- 190,526 35,250
Benefit for deferred income taxes......................... (915,578) (235,085) (358,515)
Impact of changes in assets and liabilities (net of effect
of acquisitions):
Accounts receivable.................................. (5,333,775) (6,768,103) (5,037,333)
Inventories.......................................... (248,567) (20,604) 142,674
Other current assets................................. (279,792) (97,456) (594,211)
Other assets......................................... (361,436) (233,406) (1,333,811)
Accounts payable and accrued expenses................ 450,285 717,663 (494,017)
Income tax receivable/payable........................ 609,314 (417,983) (1,473,683)
----------- ------------ ------------
Net cash provided by (used in) operating
activities.................................... (412,461) 2,340,997 (183,493)
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
(NET OF EFFECT OF ACQUISITIONS):
Investments in marketable securities...................... 1,696,928 2,303,072 --
Capital expenditures...................................... (695,409) (841,726) (511,844)
Payment for acquisitions, net of cash acquired............ (10,774,126) (10,997,861) (4,371,516)
Minority interest capital contributions................... 63,000 34,500 12,250
Minority interest distributions........................... (34,900) (190,743) (79,681)
Advances to/receipts from affiliates...................... 69,184 (1,316) (5,400)
Note receivable from related party........................ 29,000 -- --
Proceeds from sale of assets.............................. -- -- 17,335
----------- ------------ ------------
Net cash used in investing activities........... (9,646,323) (9,694,074) (4,938,856)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES (NET OF EFFECT OF
ACQUISITIONS):
Payments on revolving line of credit and long-term debt... (5,298,773) (1,575,318) (1,137,049)
Proceeds from issuance on revolving line of credit and
long-term debt.......................................... 4,546,385 5,258,852 5,656,290
Net proceeds from issuance of stock....................... 14,843,115 -- --
Net proceeds from exercise of stock options............... -- 36,648 --
----------- ------------ ------------
Net cash provided by financing activities....... 14,090,727 3,720,182 4,519,241
----------- ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... 4,031,943 (3,632,895) (603,108)
CASH AND CASH EQUIVALENTS, beginning of period................. 1,426,395 5,458,338 1,825,443
----------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of period....................... $ 5,458,338 $ 1,825,443 $ 1,222,335
----------- ------------ ------------
----------- ------------ ------------
SUPPLEMENTAL DISCLOSURES:
Interest paid................................................ $ 609,000 $ 837,450 $ 1,011,365
----------- ------------ ------------
----------- ------------ ------------
Income taxes paid............................................ $ 2,986,500 $ 4,959,801 $ 3,256,750
----------- ------------ ------------
----------- ------------ ------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of stock in connection with acquisitions............ $ 929,750 $ 10,698,975 $ 5,657,469
----------- ------------ ------------
----------- ------------ ------------
Issuance of debt in connection with acquisition.............. $ 7,000,000 $ -- $ --
----------- ------------ ------------
----------- ------------ ------------
Capital lease for computer equipment and software............ $ -- $ -- $ 1,700,000
----------- ------------ ------------
----------- ------------ ------------
Partial conversion of $3.5 million subordinated convertible
debentures................................................ $ 2,578,125 $ -- $ --
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-59
<PAGE> 307
HEALTHINFUSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
HealthInfusion, Inc. and Subsidiaries ("HealthInfusion" or the "Company"),
a Florida corporation, was incorporated in December 1989 by the principal
shareholders of Intracare, Inc. ("Intracare") to acquire Intracare and all of
the interests of Intracare's partners in five original joint ventures. Effective
May 31, 1990, HealthInfusion acquired Intracare and all of the interests of
Intracare's partners in such joint ventures. Subsequent to the acquisition,
Intracare has operated as a wholly-owned subsidiary of HealthInfusion until its
liquidation into HealthInfusion effective January 1, 1993. The Company provides
home infusion therapy services and supplies, provides services to the contract
research industry for the research and development of new products and services,
and provides case management and acute care dialysis services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of
HealthInfusion and all of HealthInfusion's 100% owned subsidiaries, Dickson
Research Group, Inc., a 60% owned contract research organization acquired in
September, 1993, as well as joint ventures that are 50% owned and considered to
be under the control of HealthInfusion. All significant intercompany balances
and transactions have been eliminated in consolidation.
Revenues
Revenues are recognized at the time the service is provided. A portion of
revenues are derived from Federal and state medical assistance programs.
Approximately 27%, 29% and 32% of revenues for the years ending December 31,
1991, 1992 and 1993, respectively, was derived from such programs. The remaining
revenue was derived from commercial third-party payors. Payment from government
programs and third-party payors is dependent on the specific benefits included
under the program or the patient's policy. The Company provides an allowance for
contractual adjustments to cover the difference between the Company's billed
charges and expected collections from Federal and state medical assistance
programs, third-party payors and patients. Accordingly, revenues are reflected
in the consolidated financial statements, net of contractual allowances.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased as cash equivalents.
Inventories
Inventories of pharmaceuticals and supplies are stated at the lower of cost
(first-in, first-out) or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are provided for using the straight-line method over estimated useful lives of
the assets as follows:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE
----------------------
<S> <C>
Furniture, fixtures and office equipment............... 5 years
Vehicles............................................... 5 years
Leasehold improvements................................. Term of lease
</TABLE>
F-60
<PAGE> 308
HEALTHINFUSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Excess of Cost over Fair Value of Net Assets Acquired (Goodwill)
Goodwill is generally being amortized on a straight-line basis over forty
years. Subsequent to an acquisition, the Company continually evaluates whether
events and circumstances have occurred that indicate the remaining estimated
useful life of goodwill may warrant revision or that the remaining balance of
goodwill may not be recoverable. When factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of the related
business segment's undiscounted operating income over the remaining life of the
goodwill or estimated fair market value in measuring whether the goodwill is
recoverable.
Income Taxes
Effective January 1, 1992, the Company changed its method of accounting for
income taxes by adopting Statement of Financial Standards (SFAS) No. 109,
"Accounting for Income Taxes." SFAS 109 requires an asset and liability approach
to accounting for income taxes and establishes less restrictive criteria for
recognizing deferred tax assets. The adoption of SFAS 109 did not have a
material impact on the Company's results of operations or financial position.
Net income per common share
Net income per primary common share is calculated by dividing net income by
the weighted average number of shares and share equivalents outstanding during
each year. Net income per fully diluted common share for 1991 and 1992 is
calculated considering the impact of all the Company's outstanding options and
warrants, if exercised, as well as the impact of outstanding convertible
debentures, when dilutive. Net income per fully diluted common share is
equivalent to net income per primary common share for 1993 (see Note 12).
(3) BUSINESS COMBINATION AND ACQUISITIONS
On March 7, 1991, the Company purchased the net assets of HealthCare
Affiliates, Inc. ("HCA"), a Texas corporation in the home infusion therapy
business. The purchase price included an initial payment of approximately $7
million in cash and $3.5 million of 9% subordinated convertible debentures due
September 1994, convertible at $6.875 per share, and the assumption of
approximately $2.2 million of indebtedness. The original purchase agreement
provided that depending on the revenues of HCA's business during the six months
ending June 30, 1991, HealthInfusion would be required to issue to HCA up to
$8.9 million principal amount of 9% subordinated convertible debentures due June
30, 1996. On June 5, 1991, the agreement was amended to provide for the issuance
of a total of $7 million in 9% subordinated convertible debentures due June 30,
1996 related to the earnout period. The debentures are convertible into common
stock at a rate of $7.315 per share.
In connection with the acquisition, assets and liabilities assumed were as
follows:
<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
Fair value of assets acquired............................ $ 4,860
Liabilities assumed...................................... 3,172
-------
Net assets acquired...................................... 1,688
Purchase price (including acquisition costs)............. 18,287
-------
Excess of cost over fair value of net assets acquired.... $16,599
-------
-------
</TABLE>
The excess of cost over fair value of net assets acquired, including the $7
million subordinated convertible debentures, is being amortized over 40 years.
This acquisition was accounted for as a purchase. Accordingly, HCA's results of
operations subsequent to March 7, 1991, are included in the Company's operating
results.
F-61
<PAGE> 309
HEALTHINFUSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In January 1991, the Company purchased the remaining 50% interest in
Intracare of Jacksonville, one of Intracare's 50% owned joint ventures.
Consideration for the purchase was $10,340 in cash and 15,000 common shares. The
acquisition is not material to the Company's operations.
Effective July 1, 1991, the Company purchased the remaining 50% interest in
HealthInfusion of New York. Consideration for the purchase was $100,000 in cash
and 30,000 shares of common stock. The purchase agreement also includes an
earn-out provision based on the average of total after-tax net income of this
location during the four years ending December 31, 1994. The acquisition is not
material to the Company's operations.
On September 30, 1991, the Company purchased the stock of Cumberland Home
Therapeutics, Inc. ("CHT"), a home infusion therapy business. The purchase price
was $300,000 in cash and 32,713 shares of common stock. The excess of cost over
fair value of net assets acquired of approximately $700,000 is being amortized
over 40 years. The acquisition is not material to the Company's operations.
On March 4, 1992, HealthInfusion purchased 100% of the outstanding common
stock of Homedic/Lifeline, Inc. ("Homedic"), a New Jersey corporation, for an
initial cash payment of approximately $3,000,000, including approximately
$1,500,000 used to retire existing debt. During September 1993, additional cash
payments of $500,000 were made to satisfy earn out provisions in the contract.
The excess of cost over fair value of net assets acquired of approximately
$3,200,000 is being amortized over 40 years.
On March 25, 1992, HealthInfusion acquired 100% of the outstanding common
stock of Healthcare Solutions, Inc. ("HCS"), a California corporation, for an
initial cash payment of $3,000,000 and the issuance of 110,110 shares of common
stock. An additional 176,470 shares were issued in connection with earn out
provisions in the contract. The excess of cost over fair value of net assets
acquired of approximately $6,100,000 is being amortized over 40 years.
On March 26, 1992, HealthInfusion acquired 100% of the outstanding common
stock of Housecalls Home I.V. Therapy, Ltd., and Southwest Specialty
Compounding, Inc. (collectively "Housecalls"), Arizona corporations, for a cash
payment of $3,786,000 and the issuance of 227,159 shares of common stock. The
excess of cost over fair value of net assets acquired of approximately
$9,200,000 is being amortized over 40 years.
In connection with the above 1992 acquisitions, assets and liabilities
assumed were as follows:
<TABLE>
<CAPTION>
(THOUSANDS)
<S> <C>
Fair value of assets acquired............................ $ 5,558
Liabilities assumed...................................... 2,991
-------
Net assets acquired...................................... 2,567
Purchase price (including acquisition costs)............. 21,063
-------
Excess of cost over fair value of net assets acquired.... $18,496
-------
-------
</TABLE>
In June 1992, the Company purchased the remaining 50% interest in Preferred
HealthInfusion. Consideration for the purchase was $620,000 in cash and 87,832
shares of common stock. The excess of cost over fair value of net assets
acquired of approximately $2,000,000 is being amortized over 40 years. The
acquisition is not material to the Company's operations.
On September 17, 1992, the Company completed a pooling of interest business
combination with 47,614 shares of common stock of HealthInfusion exchanged for
100% of the common stock of Naples Home Medical Services, Inc., a Florida
corporation. The consolidated financial statements reflect the results of
operations and financial position as if both companies were combined for all
periods presented.
F-62
<PAGE> 310
HEALTHINFUSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On January 25, 1993, HealthInfusion acquired 100% of the outstanding common
stock of Vital Choice, Inc. ("Vital"), an Oregon corporation, through the
issuance of 187,807 shares of common stock. The excess of cost over fair value
of net assets acquired of approximately $2,400,000 is being amortized over 40
years.
On September 8, 1993, HealthInfusion acquired 100% of the outstanding stock
of Health Quest Infusion Therapies Corporation, an Indiana corporation, Health
Quest Infusion Therapy Services Corporation, an Indiana corporation, Health
Quest Infusion Therapy Services Corporation II, an Indiana corporation, and HQIT
Corporation II, an Indiana corporation (collectively "Health Quest"), through
the issuance of 428,571 shares of common stock. Based on the earnings before tax
for the twelve month period ending August 31, 1994, HealthInfusion may be
required to pay additional consideration. The additional consideration will be
based on a sliding scale formula up to a maximum of 1.5 times the increase in
earnings before tax during the twelve months subsequent to the acquisition. The
excess of cost over fair value of net assets acquired of approximately
$2,900,000 is being amortized over 40 years.
In connection with the acquisitions of Vital and Health Quest assets and
liabilities assumed were as follows:
<TABLE>
<CAPTION>
(THOUSANDS)
<S> <C>
Fair value of assets acquired............................ $ 3,511
Liabilities assumed...................................... 3,072
-------
Net assets acquired...................................... 439
Purchase price (including acquisition costs)............. 5,739
-------
Excess of cost over fair value of net assets acquired.... $ 5,300
-------
-------
</TABLE>
On September 29, 1993, the Company acquired 60% of the outstanding stock of
Dickson Research Group, Inc. (Dickson Research Group), a Pennsylvania
corporation, for $1.2 million in cash with an option to purchase the remaining
40% of the outstanding stock. Based on net revenues and pre-tax profits,
HealthInfusion may be required to pay additional consideration of up to
$2,520,000 in the Company's common stock. The excess of cost over fair value of
net assets acquired of approximately $1,700,000 is being amortized over 40
years. The acquisition is not material to the Company's operations.
On October 1, 1993, the Company acquired 100% of the common stock of
Dialysis On Call, Inc. (Dialysis On Call), a Florida corporation, through the
issuance of 42,666 shares of common stock and $480,000 in cash. In September
1994, HealthInfusion will be required to pay to the sole shareholder of Dialysis
On Call approximately 32,400 shares of HealthInfusion common stock. Such amount
has been recorded in the accompanying 1993 consolidated balance sheet. In
addition, HealthInfusion may be required to pay additional cash consideration of
$160,000 and HealthInfusion common stock with a value of $240,000 if Dialysis On
Call meets certain revenue and profit projections. The excess of cost over fair
value of net assets acquired of approximately $1,000,000 is being amortized over
40 years. The acquisition is not material to the Company's operations.
The following table presents unaudited, pro forma operating results for the
Company's continuing operations as if the acquisitions of Homedic, HCS,
Housecalls, Vital and Health Quest occurred as of the beginning of the periods
presented. These pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of what would have occurred had the
acquisitions actually been made as of the beginning of the periods presented, or
of results that may occur in the future. The results of operations of Intracare
of Jacksonville, HealthInfusion of New York, CHT, Preferred HealthInfusion,
Dickson Research Group and Dialysis On Call are not material and have not been
included in the pro forma results.
F-63
<PAGE> 311
HEALTHINFUSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1992 1993
------- -------
(THOUSANDS)
<S> <C> <C>
Revenues................................................. $62,805 $61,073
------- -------
------- -------
Operating expenses....................................... $49,918 $56,810
------- -------
------- -------
Net income............................................... $ 6,859 $ 1,374
------- -------
------- -------
Net income per common share.............................. $ .65 $ .14
------- -------
------- -------
Common shares used in computation........................ 11,112 10,130
------- -------
------- -------
</TABLE>
Pro forma adjustments have been applied above to reflect the purchases of
Homedic, Housecalls, HCS, Vital and Health Quest, the amortization of the excess
of the cost over fair value of the assets acquired, interest on new debt, lost
interest income on the cash used to effect the acquisitions, reduction of salary
for terminated employees, elimination of corporate allocations and the tax
effect of operating results and pro forma adjustments.
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1992 1993
---------- ----------
<S> <C> <C>
Furniture, fixtures and office equipment............ $2,885,599 $5,406,371
Vehicles............................................ 423,811 420,522
Leasehold improvements.............................. 268,723 349,730
Construction in progress............................ 20,503 139,600
---------- ----------
3,598,636 6,316,223
Less: Accumulated depreciation and amortization..... (1,127,296) (1,843,116)
---------- ----------
$2,471,340 $4,473,107
---------- ----------
---------- ----------
</TABLE>
(5) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1992 1993
---------- ----------
<S> <C> <C>
Accounts payable.................................... $3,491,165 $4,151,623
Accrued employee compensation....................... 1,478,726 1,973,230
Accrued rent........................................ 178,615 105,884
Other............................................... 115,196 329,380
---------- ----------
$5,263,702 $6,560,117
---------- ----------
---------- ----------
</TABLE>
(6) PROFIT SHARING PLAN
Effective January 1, 1991, the Company adopted a 401(k) Profit Sharing Plan
and Trust (the "401(k) Plan") for the benefit of eligible employees who have
completed 1,000 hours of continuous service and are at least 21 years old. Each
participating employee can elect to make contributions to the 401(k) Plan,
primarily on a tax-deferred basis, of up to fourteen percent of his or her
compensation. The Company contributes funds to the 401(k) Plan in an amount
equal to 50% of each participant's contribution up to a maximum of three percent
of the participant's compensation. All of the 401(k) Plan's funds are held in a
trust. The trustees are presently two directors of the Company. The 401(k) Plan
funds are invested and administered by an outside
F-64
<PAGE> 312
HEALTHINFUSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
agency. Under the 401(k) Plan, contributions are invested, at the direction of
the participants, in any or all of seven investment accounts. The portion of
each employee's account attributable to Company contributions begins to vest
after one year of service and becomes fully vested after four years. Benefits
paid under the 401(k) Plan may be paid upon retirement, death, termination of
service or certain conditions of hardship. Contributions made to the 401(k) Plan
by the Company during the years ended December 31, 1991, 1992 and 1993 were
$74,713, $136,278 and $167,315, respectively.
(7) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1992 1993
---------- ----------
<S> <C> <C>
Subordinated convertible debentures, at 9% with semi-annual
interest payments, due June 30, 1996, convertible into
common stock at the conversion rate of $7.315 per share... $7,000,000 $7,000,000
Lease payable at 7.9% payable in monthly installments of
approximately $36,000 through December 1998,
collateralized by computer equipment and software......... -- 1,700,000
Note payable to bank at 7.5% through 2004 upon completion of
construction, collateralized by construction in
progress.................................................. -- 65,441
Bank installment notes payable at rates ranging from 9.8% to
11.99%, at various maturity dates through 1995,
collateralized by equipment and vehicles.................. 73,248 71,635
---------- ----------
7,073,248 8,837,076
Less: Current portion....................................... (51,102) (332,268)
---------- ----------
$7,022,146 $8,504,808
---------- ----------
---------- ----------
</TABLE>
Equipment under capitalized leases had a book value of $1,700,000 as of
December 31, 1993.
The Company is obligated to make principal payments on long-term debt
outstanding at December 31, 1993 as follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1994............................................. $ 332,268
1995............................................. 401,302
1996............................................. 7,337,888
1997............................................. 365,509
1998............................................. 400,109
----------
Total............................................ $8,837,076
----------
----------
</TABLE>
Revolving Line of Credit
The Company had a $10 million unsecured line of credit facility that had a
maturity date of June 30, 1994. On August 11, 1993, the Company entered into a
new agreement for a $25 million line of credit secured by accounts receivable
and inventories, replacing the existing $10 million line of credit facility. The
facility requires unused availability fees of .375% per annum on the unused
portion of the line and contains restrictive covenants requiring the maintenance
of certain financial ratios, limitations on capital expenditures and
restrictions on cash dividends. The Company was in compliance with all
covenants, as amended, as of December 31, 1993. Outstanding balances bear
interest at prime or LIBOR plus 1.25%. At December 31, 1993, balances
outstanding under the line were $10,123,382, which bear interest at a range of
4.57% to 6%.
F-65
<PAGE> 313
HEALTHINFUSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1991 1992 1993
---------- ---------- ----------
<S> <C> <C> <C>
Federal................................ $2,276,223 $3,610,079 $1,167,697
State.................................. 419,945 676,890 218,943
---------- ---------- ----------
Total........................ $2,696,168 $4,286,969 $1,386,640
---------- ---------- ----------
---------- ---------- ----------
Current................................ $3,611,746 $4,522,054 $1,745,155
Deferred............................... (915,578) (235,085) (358,515)
---------- ---------- ----------
Total........................ $2,696,168 $4,286,969 $1,386,640
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Deferred taxes arise primarily due to the Company filing income tax returns
on a cash basis through 1990, increases in accounts receivable reserves which
are not currently deductible for income tax purposes and the acquisitions of
certain companies previously on the cash basis for income tax reporting
purposes. The Company converted to the accrual basis for tax purposes in 1991.
The components of the benefit for deferred income taxes are as follows:
<TABLE>
<CAPTION>
1991 1992 1993
----------- --------- ---------
<S> <C> <C> <C>
Accounts receivable.................. $(1,032,617) $(526,857) $(744,128)
Accounts payable and accrued
expenses........................... 142,686 264,191 169,548
Other, net........................... (25,647) 27,581 216,065
----------- --------- ---------
Total...................... $ (915,578) $(235,085) $(358,515)
----------- --------- ---------
----------- --------- ---------
</TABLE>
At December 31, 1992 and 1993, deferred income tax assets and liabilities
consisted of the following:
<TABLE>
<CAPTION>
1992 1993
--------- ----------
<S> <C> <C>
Current Deferred Income Tax
Accounts receivable allowances.................. $ 632,816 $1,312,383
Cash to accrual basis adjustment resulting from
business combination......................... (38,157) (37,661)
Cash to accrual basis adjustment resulting from
acquisitions................................. (120,119) (172,474)
Book/tax basis differences in prepaid expenses
and accruals................................. (57,936) (46,038)
--------- ----------
$ 416,604 $1,056,210
--------- ----------
--------- ----------
Deferred Income Taxes
Cash to accrual basis adjustment resulting from
business combination......................... $ (38,157) $ --
Cash to accrual basis adjustment resulting from
acquisitions................................. (234,533) (156,270)
Book/tax basis differences in property and
equipment.................................... (120,181) (124,116)
Book/tax basis differences in deferred start up
costs........................................ (62,424) (120,413)
Book/tax basis differences in deferred finance
costs........................................ (16,118) (131,705)
Book/tax basis differences in goodwill.......... -- (220,000)
--------- ----------
$(471,413) $ (752,504)
--------- ----------
--------- ----------
</TABLE>
F-66
<PAGE> 314
HEALTHINFUSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table reconciles the Federal statutory income tax rate and
the Company's effective income tax rate:
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Provision for income taxes at Federal statutory
rate............................................. 34.0% 34.0% 34.0%
State taxes, net of Federal income tax benefit..... 4.0 4.1 5.4
Minority interest.................................. (0.4) (0.9) (0.7)
Tax exempt interest income......................... (0.6) (0.2) --
Amortization of goodwill........................... 1.5 2.4 13.4
---- ---- ----
Total.................................... 38.5% 39.4% 52.1%
---- ---- ----
---- ---- ----
</TABLE>
(9) STOCKHOLDERS' EQUITY
The Company has authorized 1,000,000 shares of preferred stock for
issuance. The rights of the preferred stock as to dividends, redemption,
liquidation and conversion, if any, will be determined by the Board of Directors
upon issuance. There were no shares of preferred stock issued or outstanding
during 1991, 1992 or 1993.
During 1990 the Company granted its underwriter a warrant to purchase up to
120,000 shares of its common stock at a price of $6.40 per share. The warrant
became exercisable on May 31, 1991 and has a three year term.
In January 1991, the Company issued 15,000 shares of common stock in
connection with the purchase of the remaining 50% interest in Intracare of
Jacksonville, one of Intracare's 50% owned joint ventures.
In July 1991, the Company completed a secondary stock offering of 2.7
million shares of common stock. The Company sold 1,878,357 shares of common
stock and certain shareholders sold 821,643 shares. The Company received
proceeds of approximately $14.8 million.
In connection with the secondary offering, HCA converted 375,000 shares of
their $3.5 million subordinated convertible debentures and the Company
extinguished the remaining debentures with a portion of the proceeds.
On July 1, 1991, the Company issued 30,000 shares of common stock to Alpha
Medical Management of New York, Inc. in connection with the purchase of the
remaining 50% interest in Intracare of New York, one of Intracare's 50% owned
joint ventures.
On September 30, 1991, the Company issued 32,713 shares of common stock in
connection with the purchase of CHT, a North Carolina corporation.
In October 1991, 15,000 shares of common stock were issued related to the
formation of Preferred Infusion Therapy, Ltd., a 50.1% owned joint venture
located in Tampa, Florida.
In December 1991, the Company's Board of Directors declared a 50 percent
stock dividend on its common stock, which resulted in the issuance of
approximately 2,844,846 additional common shares. In accordance with generally
accepted accounting principles, the dividend was effected as a stock split.
During 1992, the Company issued 6,875 shares of common stock in connection
with the exercise of stock options.
On March 25, 1992, the Company issued 110,110 shares of common stock in
connection with the purchase of HCS, a California corporation.
F-67
<PAGE> 315
HEALTHINFUSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On March 26, 1992, the Company issued 227,159 shares of common stock to the
former shareholders of Housecalls in connection with the purchase of Housecalls,
Arizona corporations.
On March 31, 1992, the Company issued 17,950 shares of common stock as
compensation to the executives and independent member of the Board of Directors.
In June 1992, the Company issued 87,832 shares of common stock in
connection with the purchase of the remaining 50% interest in Preferred Infusion
Therapy, Ltd.
On September 17, 1992, the Company completed a pooling of interest business
combination with 47,614 shares of common stock of HealthInfusion exchanged for
100% of the common stock of Naples Home Medical Services, Inc., a Florida
corporation. The common stock is considered outstanding effective May 15, 1990.
As of December 31, 1992, the Company recorded 176,470 shares of common
stock in connection with the earn out related to the purchase of HCS.
During 1993, the Company issued 9,000 shares of common stock as
compensation to the independent members of the Board of Directors.
On January 25, 1993, the Company issued 187,807 shares of common stock in
connection with the purchase of Vital, an Oregon corporation.
On September 10, 1993, the Company issued 428,571 shares of common stock in
connection with the purchase of Health Quest, Indiana corporations.
On October 1, 1993, the Company issued 42,666 shares of common stock in
connection with the purchase of Dialysis On Call, a Florida corporation.
HealthInfusion is required to issue approximately 32,400 shares of common stock
to the sole shareholder of Dialysis On Call in September 1994.
(10) STOCK OPTION PLAN
The Company's Employee Stock Option Plan (the "Plan") provides that
employees may be granted stock options enabling them to purchase shares of the
Company's stock at a price equivalent to 100% of the fair market value of the
stock on the date of grant. Options are exercisable over various periods, as
determined by the Board of Directors, and expire not more than ten years from
the date of grant. Options which are forfeited become available for future
grants. The total number of shares which may be issued under the Plan is
900,000.
There were options for 571,950 shares granted during 1990 under the Plan,
of which options for 441,000 shares were granted at an exercise price of $5.33
per share and options for 130,950 shares were granted at an exercise price of
$5.50 per share.
There were 12,000 options canceled during 1991 which had an exercise price
of $5.33 per share and 6,000 options canceled during 1991, which had an exercise
price of $5.50 per share due to employee terminations. During 1991, the Company
granted options to certain executives of 30,000, 22,500 and 45,000 shares at an
exercise price of $5.83, $6.00 and $8.00, respectively, and also granted 79,500
options to key employees at an exercise price of $13.67 per share.
During 1992, the Company granted 50,000 options to employees at an exercise
of price of $8.00 per share. There were 4,800, 19,500 and 1,500 options canceled
during 1992 which had exercise prices of $5.50, $13.67 and $8.00 per share due
to employee terminations. Employees and a Board of Director exercised 6,875
options at an exercise price of $5.33 per share during 1992.
F-68
<PAGE> 316
HEALTHINFUSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1993, the Company granted 17,500 options to employees at exercise
prices of $6.875 per share. There were 67,250 options canceled during 1993 which
had exercise prices of $5.33 to $13.67 per share due to employee terminations.
At December 31, 1992 and 1993 there were 748,275 and 698,525 options
outstanding at exercise prices ranging from $5.33 to $13.67 per share.
A summary of transactions under the stock option plan is as follows:
<TABLE>
<CAPTION>
AVAILABLE EXERCISE PRICE
FOR GRANT OUTSTANDING PER SHARE
--------- ----------- --------------
<S> <C> <C> <C>
Balance at December 31, 1990................ 328,050 571,950 $5.33 -$ 5.50
Options Granted........................... (177,000) 177,000 $5.83 -$13.67
Options Exercised......................... -- -- --
Options Canceled.......................... 18,000 (18,000) $5.33 -$ 5.50
-------- ------- -------------
Balance at December 31, 1991................ 169,050 730,950 $5.33 -$13.67
Options Granted........................... (50,000) 50,000 $8.00
Options Exercised......................... -- (6,875) $5.33
Options Canceled.......................... 25,800 (25,800) $5.50 -$13.67
-------- ------- -------------
Balance at December 31, 1992................ 144,850 748,275 $5.33 -$13.67
Options Granted........................... (17,500) 17,500 $6.875
Options Exercised......................... -- -- --
Options Canceled.......................... 67,250 (67,250) $5.33 -$13.67
-------- ------- -------------
Balance at December 31, 1993................ 194,600 698,525 $5.33 -$13.67
-------- ------- -------------
-------- ------- -------------
</TABLE>
(11) COMMITMENTS
Operating Leases
The Company leases offices and storage space under operating leases. The
following schedule summarizes future minimum lease payments required under
operating leases as of December 31, 1993:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1994........................................... $2,060,475
1995........................................... 1,464,595
1996........................................... 919,514
1997........................................... 709,386
1998........................................... 426,653
----------
$5,580,623
----------
----------
</TABLE>
Rent expense amounted to $681,833, $1,296,023 and $1,742,475 during the
years ended December 31, 1991, 1992 and 1993, respectively.
Consulting Agreements
Certain of the Company's directors were employed as consultants during
1991, 1992 and 1993. Fees paid to these directors amounted to $274,400, $430,000
and $312,100 for the years ended December 31, 1991, 1992 and 1993, respectively.
F-69
<PAGE> 317
HEALTHINFUSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following schedule summarizes future minimum commitments under
agreements with terms in excess of one year as of December 31, 1993:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1994........................................... $ 681,600
1995........................................... 681,600
1996........................................... 681,600
1997........................................... 681,600
1998........................................... 511,200
----------
$3,237,600
----------
----------
</TABLE>
Employment Agreements and Incentive Compensation Plan
The Company has entered into employment agreements with executive officers
which provide, among other things, for specified compensation levels. The
Company also has adopted an Incentive Compensation Plan effective through 1996.
The Incentive Compensation Plan provides that if target net earnings are met (as
approved by the Compensation Committee), the participants will receive a bonus
of 40% of base salary payable in 25% cash and 75% stock. Total compensation
under these employment agreements amounted to $862,849, $1,053,152 and
$1,151,753 during the years ended December 31, 1991, 1992 and 1993,
respectively. Total minimum future commitments for executive officers employed
at December 31, 1993 under these agreements, are as follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
1994............................................. $ 958,900
1995............................................. 589,400
1996............................................. 512,600
1997............................................. 357,200
1998............................................. 357,200
----------
$2,775,300
----------
----------
</TABLE>
F-70
<PAGE> 318
HEALTHINFUSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) NET INCOME PER COMMON SHARE
Net income per common share is calculated by dividing net income by the
weighted average number of shares and share equivalents outstanding.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------
1991 1992 1993
----------------------- ------------------------ -----------------------
FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income............... $4,240,985 $4,240,985 $6,322,467 $ 6,322,467 $1,120,393 $1,120,393
Interest expense on $7.0
million convertible
debentures, tax
effected assuming
effective rate of
38%.................... -- 195,300 -- 390,600 -- --
---------- ---------- ---------- ----------- ---------- ----------
Net income used in
calculation of net
income per common
share.................. $4,240,985 $4,436,285 $6,322,467 $ 6,713,067 $1,120,393 $1,120,393
---------- ---------- ---------- ----------- ---------- ----------
Weighted average number
of shares
outstanding............ 7,478,481 7,478,481 8,919,025 8,919,025 9,548,616 9,548,616
Incremental shares, after
application of the
treasury stock method,
of stock options and
warrants............... 405,601 620,939 503,868 503,868 170,028 170,028
Additional shares from
$7.0 million
convertible
debentures............. -- 566,858 -- 956,938 -- --
---------- ---------- ---------- ----------- ---------- ----------
Shares used in
calculation of net
income per common
share.................. 7,884,082 8,666,278 9,422,893 10,379,831 9,718,644 9,718,644
---------- ---------- ---------- ----------- ---------- ----------
---------- ---------- ---------- ----------- ---------- ----------
</TABLE>
(13) RELATED PARTY TRANSACTIONS
Due from affiliates represents an amount due from Respacare, Inc., a
company affiliated through common ownership. At December 31, 1992 and 1993, this
amount was $50,800 and $56,200, respectively.
In 1993, the Company loaned $444,000 to a minority owner and employee of a
60% owned subsidiary. The amounts are collateralized by the 40% shares of stock
owned by the minority holder and are due on demand.
A director of the Company was paid $40,000, $35,000 and $72,000 during
1991, 1992 and 1993 for legal services performed.
A director of the Company is an officer and owns over 10% of a company that
served as insurance agent for the Company during 1992 and 1993. During 1992 and
1993, commissions and fees of $95,000 and $112,000 were paid.
See discussion of consulting fees paid to directors and officers in Note
11.
(14) FOURTH QUARTER ADJUSTMENTS
HealthInfusion has consistently maintained specific controls and procedures
designed to estimate contractual allowances, including controls at interim
periods. HealthInfusion also records a provision for bad debts to provide for
that portion of net revenues which it estimates will not be collectable. The
provision is adjusted based upon an evaluation of historical collection
experience and industry trends. During the fourth
F-71
<PAGE> 319
HEALTHINFUSION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
quarter of 1993, the estimate of contractual allowances and provision for bad
debts was increased by $4.0 million. This increase is a direct result of the
changing reimbursement environment and the Company's access to better
information regarding actual discounts and contractual allowances expected to be
realized.
(15) SUBSEQUENT EVENTS
On February 6, 1994, the Company announced the signing of a definitive
agreement providing for the merger of the Company with Curaflex Health Services,
Inc. (Curaflex), a home infusion therapy company, Medisys, Inc. (Medisys), a
comprehensive home infusion therapy company which involves intravenous or other
administration of physician-prescribed medications to patients in their homes
and T2 Medical, Inc. (T2), a home infusion therapy company.
Under the terms of the definitive agreement, all shares of common stock of
Curaflex, HealthInfusion, Medisys and T2 issued and outstanding prior to the
merger will be exchanged for shares of common stock of a newly-formed company on
the following basis: each shareholder of Curaflex will receive 0.333 shares of
the new company's common stock in exchange for each share of Curaflex common
stock, each shareholder of HealthInfusion will receive 0.447 shares of the new
company's common stock in exchange for each share of HealthInfusion common
stock, each shareholder of Medisys will receive 0.243 shares of the new
company's common stock in exchange for each share of Medisys common stock and
each shareholder of T2 will receive 0.63 shares of the new company's common
stock in exchange for each share of T2 common stock. The exchange ratios reflect
pro forma ownership of the new company of 13% of Curaflex shareholders, 12% for
HealthInfusion shareholders, 8% for Medisys shareholders and 67% for T2
shareholders and incorporate a 1-for-3 reverse stock split. The merger will be
accounted for as a "pooling-of-interests" and, accordingly, the Company's
historical consolidated financial statements presented in future reports will be
restated to include the accounts and results of operations of the four
companies.
F-72
<PAGE> 320
HEALTHINFUSION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1993 1994
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 1,222,335 $ 1,449,477
Accounts receivable, net of allowances of $3,699,382 and
$3,897,760, respectively..................................... 24,016,082 28,391,993
Inventories..................................................... 1,521,137 1,590,415
Due from affiliates............................................. 56,200 56,200
Income tax receivable........................................... 1,128,973 224,165
Current deferred income tax..................................... 1,056,210 1,145,675
Other current assets............................................ 1,471,580 1,460,786
----------- -----------
Total current assets......................................... 30,472,517 34,318,711
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization of $1,843,116 and $2,043,791, respectively......... 4,473,107 4,685,829
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, less
accumulated amortization of $2,106,504 and $2,411,162,
respectively.................................................... 44,426,980 44,168,772
OTHER ASSETS, including amounts due from related party of $444,000
and $604,000, respectively...................................... 1,958,806 2,645,476
----------- -----------
Total assets................................................. $81,331,410 $85,818,788
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses........................... $ 6,560,117 $ 6,483,693
Revolving line of credit........................................ 10,123,382 13,580,702
Current portion of long-term debt............................... 332,268 310,593
----------- -----------
Total current liabilities.................................... 17,015,767 20,374,988
----------- -----------
LONG-TERM DEBT, net of current portion............................ 8,504,808 8,806,344
----------- -----------
DEFERRED INCOME TAXES............................................. 752,504 699,836
----------- -----------
MINORITY INTEREST................................................. 241,629 73,400
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares authorized; no
shares issued or outstanding................................. -- --
Common stock, $.01 par value; 40,000,000 shares authorized;
9,923,187 and 9,941,062 shares issued and outstanding in 1993
and 1994, respectively....................................... 99,232 99,411
Additional paid-in capital...................................... 41,632,442 41,717,312
Retained earnings............................................... 13,085,028 14,047,497
----------- -----------
Total stockholders' equity................................... 54,816,702 55,864,220
----------- -----------
Total liabilities and stockholders' equity................... $81,331,410 $85,818,788
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
F-73
<PAGE> 321
HEALTHINFUSION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1993 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1993 1994
----------- -----------
<S> <C> <C>
REVENUES.......................................................... $12,979,195 $16,373,914
COST OF REVENUES.................................................. 8,303,105 10,960,895
---------- ----------
OPERATING PROFIT.................................................. 4,676,090 5,413,019
---------- ----------
EXPENSES:
Selling, general and administrative............................. 1,688,844 2,674,325
Provision for bad debts......................................... 398,171 505,274
Amortization of excess of cost over fair value of net assets
acquired..................................................... 233,752 300,434
---------- ----------
Total expenses.......................................... 2,320,767 3,480,033
---------- ----------
Income from operations.......................................... 2,355,323 1,932,986
---------- ----------
OTHER INCOME (EXPENSE):
Interest income................................................. 5,171 18,318
Interest expense................................................ (241,051) (361,565)
Other income (expense), net..................................... -- (19,970)
---------- ----------
Total other income (expense)............................ (235,880) (363,217)
---------- ----------
Income before income taxes and minority interest................ 2,119,443 1,569,769
PROVISION FOR INCOME TAXES........................................ 861,013 763,385
---------- ----------
Income before minority interest................................. 1,258,430 806,384
MINORITY INTEREST................................................. (11,492) 156,085
---------- ----------
NET INCOME........................................................ $1,246,938 $ 962,469
---------- ----------
---------- ----------
NET INCOME PER COMMON SHARE:
Primary......................................................... $ .13 $ .10
---------- ----------
---------- ----------
Fully Diluted................................................... $ .13 $ .10
---------- ----------
---------- ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Primary......................................................... 9,693,148 10,035,684
---------- ----------
---------- ----------
Fully Diluted................................................... 10,650,086 10,035,684
---------- ----------
---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-74
<PAGE> 322
HEALTHINFUSION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1993 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 1,246,938 $ 962,469
Adjustments to reconcile net income to net cash provided by
(used in) operating activities --
Depreciation and amortization................................ 433,787 557,815
Provision for bad debts...................................... 398,171 505,274
Loss on disposition of assets................................ -- 44,522
Minority interest............................................ 11,492 (156,085)
Shares issued to executives and directors.................... 33,000 16,500
Benefit for deferred income taxes............................ (65,000) (142,133)
Impact of changes in assets and liabilities (net of effect of
the acquisitions):
Accounts receivable........................................ 289,675 (4,881,185)
Inventories................................................ 1,371 (69,278)
Other current assets....................................... (551,709) 10,794
Other assets............................................... (260,213) (686,670)
Accounts payable and accrued expenses...................... (552,156) (76,424)
Income tax receivable/payable.............................. 426,135 904,808
----------- -----------
Net cash provided by (used in) operating activities..... 1,411,491 (3,009,593)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
(NET OF EFFECT OF ACQUISITIONS):
Capital expenditures............................................ (92,557) (510,401)
Payment for acquisitions, net of cash acquired.................. (1,728,993) (46,450)
Minority interest distributions................................. (35,248) (12,144)
Advances to affiliates.......................................... (5,400) --
----------- -----------
Net cash used in investing activities................... (1,862,198) (568,995)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
(NET OF EFFECT OF ACQUISITIONS):
Payments on revolving line of credit and long-term debt......... (1,012,279) (133,793)
Proceeds from issuance on revolving line of credit and long-term
debt......................................................... 1,149,876 3,870,974
Net proceeds from exercise of stock options..................... -- 68,549
----------- -----------
Net cash provided by financing activities....................... 137,597 3,805,730
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (313,110) 227,142
CASH AND CASH EQUIVALENTS, beginning of period.................... 1,825,443 1,222,335
----------- -----------
CASH AND CASH EQUIVALENTS, end of period.......................... $ 1,512,333 $ 1,449,477
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES:
Interest paid................................................... $ 83,551 $ 197,158
----------- -----------
----------- -----------
Income taxes paid............................................... $ 499,879 $ 19,500
----------- -----------
----------- -----------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of stock in connection with acquisitions............... $ 2,094,048 $ --
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-75
<PAGE> 323
HEALTHINFUSION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) INTERIM FINANCIAL INFORMATION
The unaudited consolidated financial information for the three months ended
March 31, 1993 and 1994 reflect all adjustments (consisting of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the operating results and financial position for the interim
periods. Although HealthInfusion, Inc.'s ("the Company") operations are not
highly seasonal, the results of operations for the three month period ended
March 31, 1994 are not necessarily indicative of the results for the full year.
(2) REVENUES
Revenues are recorded in the period in which services are provided. Such
revenues are reflected in the consolidated financial statements net of
contractual allowances which represent the difference between gross charges and
amounts estimated to be received from third-party payors, including Medicare and
private insurance carriers.
(3) ACQUISITIONS
On January 25, 1993, HealthInfusion acquired 100% of the outstanding common
stock of Vital Choice, Inc. ("Vital"), an Oregon corporation, through the
issuance of 187,807 shares of common stock. The excess of cost over fair value
of net assets acquired of approximately $2,500,000 is being amortized over 40
years.
On September 8, 1993, HealthInfusion acquired 100% of the outstanding stock
of Health Quest Infusion Therapies Corporation, Health Quest Infusion Therapy
Services Corporation, Health Quest Infusion Therapy Services Corporation II, and
HQIT Corporation II, Indiana corporations (collectively "Health Quest") through
the issuance of 428,571 shares of common stock. Based on the earnings before tax
for the twelve month period ending August 31, 1994, HealthInfusion may be
required to pay additional consideration. The additional consideration will be
based on a sliding scale formula up to a maximum of 1.5 times the increase in
earnings before tax during the twelve months subsequent to the acquisition. The
excess of cost over fair value of net assets acquired of approximately
$2,900,000 is being amortized over 40 years.
On September 29, 1993, the Company acquired 60% of the outstanding stock of
Dickson Research Group, Inc. ("Dickson Research"), a Pennsylvania corporation,
for $1.2 million in cash with an option to purchase the remaining 40% of the
outstanding stock. Based on net revenues and pre-tax profits, HealthInfusion may
be required to pay additional consideration of up to $2,520,000 in the Company's
common stock. The excess of cost over fair value of net assets acquired of
approximately $1,700,000 is being amortized over 40 years. The acquisition is
not material to the Company's operations.
On October 1, 1993, the Company acquired 100% of the common stock of
Dialysis On Call, Inc. ("Dialysis On Call"), a Florida corporation, through the
issuance of 42,666 shares of common stock and $480,000 in cash. In September
1994, HealthInfusion will be required to pay to the sole shareholder of Dialysis
On Call approximately 32,400 shares of HealthInfusion common stock. Such amount
has been recorded in the accompanying consolidated balance sheet. In addition,
HealthInfusion may be required to pay additional cash consideration of $160,000
and HealthInfusion common stock with a value of $240,000, if Dialysis On Call
meets certain revenue and profit projections. The excess of cost over fair value
of net assets acquired of approximately $1,000,000 is being amortized over 40
years. The acquisition is not material to the Company's operations.
F-76
<PAGE> 324
HEALTHINFUSION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table presents unaudited, pro forma operating results for the
Company's continuing operations as if the acquisitions of Vital and Health Quest
occurred as of the beginning of the period presented. These pro forma results
have been prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisitions actually been made
as of the beginning of the period presented, or of results that may occur in the
future. The results of operations of Dickson Research and Dialysis On Call are
not material and have not been included in the pro forma results.
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT FOR
NET INCOME PER COMMON SHARE)
MARCH 31, 1993
----------------------------
<S> <C>
Revenues................................... $ 14,692
--------
--------
Operating expenses......................... $ 12,054
--------
--------
Net income................................. $ 1,390
--------
--------
Net income per common share................ $ .13
--------
--------
Common shares used in computation.......... 11,131
--------
--------
</TABLE>
Pro forma adjustments have been applied above to reflect the purchases of
Vital and Health Quest, the amortization of the excess of cost over fair value
of the assets acquired, reduction of salary for terminated employees,
elimination of corporate allocations and the tax effect of operating results and
pro forma adjustments.
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER MARCH 31,
31, 1993 1994
----------- -----------
<S> <C> <C>
Furniture, fixtures and office equipment.................. $ 5,086,077 $ 5,152,372
Vehicles.................................................. 420,522 413,651
Leasehold improvements.................................... 349,730 297,430
Construction in progress 139,600 545,873
Land...................................................... 320,294 320,294
----------- -----------
6,316,223 6,729,620
Less: Accumulated depreciation and amortization........... (1,843,116) (2,043,791)
----------- -----------
$ 4,473,107 $ 4,685,829
----------- -----------
----------- -----------
</TABLE>
(5) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER MARCH 31,
31, 1993 1994
---------- ----------
<S> <C> <C>
Accounts payable............................................ $4,151,623 $3,944,868
Accrued employee compensation............................... 1,973,230 2,029,579
Accrued rent................................................ 105,884 87,701
Other....................................................... 329,380 421,545
---------- ----------
$6,560,117 $6,483,693
---------- ----------
---------- ----------
</TABLE>
F-77
<PAGE> 325
HEALTHINFUSION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(6) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER MARCH 31,
31, 1993 1994
---------- ----------
<S> <C> <C>
Subordinated convertible debentures, at 9% with semi-annual
interest payments, due June 30, 1996, convertible into
common stock at the conversion rate of $7.315 per share... $7,000,000 $7,000,000
Lease payable at 7.9% payable in monthly installments of
approximately $36,000 through December 1998 collateralized
by computer equipment and software........................ 1,700,000 1,643,876
Note payable to bank at 7.5% payable through 2004 upon
completion of construction, collateralized by construction
in progress............................................... 65,441 446,545
Bank installment notes payable at rates ranging from 9.8% to
11.99%, at various maturity dates through 1995,
collateralized by equipment and vehicles.................. 71,635 26,516
---------- ----------
8,837,076 9,116,937
Less: Current Portion....................................... (332,268) (310,593)
---------- ----------
$8,504,808 $8,806,344
---------- ----------
---------- ----------
</TABLE>
Revolving Line of Credit
The Company has a $25 million line of credit secured by accounts receivable
and inventories. The $25 million facility requires unused availability fees of
.375% per annum on the unused portion of the line and contains restrictive
covenants requiring the maintenance of certain financial ratios, limitations on
capital expenditures and restrictions on cash dividends. Outstanding balances
bear interest at prime or LIBOR plus 1.25%. At March 31, 1994, the balance
outstanding under the line was $13,580,702. Outstanding balances bear interest
at 6.25% and 4.89% at March 31, 1994.
(7) NET INCOME PER COMMON SHARE
Net income per common share at March 31, 1993 and 1994 is calculated by
dividing net income by the weighted average number of shares and share
equivalents outstanding.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------
1993 1994
------------------------ -------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income......................... $1,246,938 $ 1,246,938 $ 962,469 $ 962,469
Interest expense on $7.0 million
convertible debentures, tax
effected assuming effective rate
of 38%........................... -- 97,650 -- --
---------- ----------- ----------- -----------
Net income used in calculation of
net income per common share...... $1,246,938 $ 1,344,588 $ 962,469 $ 962,469
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Weighted average number of shares
outstanding...................... 9,363,310 9,363,310 9,930,623 9,930,623
Incremental shares from use of
treasury stock method for stock
options and warrants............. 329,838 329,838 105,061 105,061
Additional shares from convertible
debentures....................... -- 956,938 -- --
---------- ----------- ----------- -----------
Shares used in calculations of net
income per common share.......... 9,693,148 10,650,086 10,035,684 10,035,684
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
F-78
<PAGE> 326
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Medisys, Inc.:
We have audited the consolidated balance sheets of Medisys, Inc. and
Subsidiaries as of December 31, 1993 and 1992, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The consolidated financial statements have been restated to give
retroactive effect to the merger of Medisys, Inc. and Subsidiaries and American
Home Therapies, Inc., on July 30, 1993, which has been accounted for as a
pooling of interests as described in note 2 to the consolidated financial
statements.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Medisys,
Inc. and Subsidiaries as of December 31, 1993, and 1992, and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
We previously audited and reported on the consolidated statements of
operations, changes in stockholders equity and cash flows of Medisys, Inc. and
Subsidiaries for the year ended December 31, 1991, prior to their restatement
for the 1993 pooling of interests. The contribution of Medisys, Inc. and
Subsidiaries to total revenues and net income represented 67 and 42 percent of
the respective restated totals. Separate financial statements of the other
company included in the 1991 restated consolidated statements of operations,
changes in stockholders' equity, and cash flows were audited and reported on
separately by other auditors. We have also audited the combination of the
accompanying consolidated statements of operations, changes in stockholders'
equity and cash flows for the year ended December 31, 1991, after restatement
for the 1993 pooling of interests; in our opinion, such consolidated statements
have been properly combined on the basis described in note 1 of the notes to the
consolidated financial statements.
As discussed in note 1 to the consolidated financial statements, in 1993
the Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
COOPERS & LYBRAND
Minneapolis, Minnesota
February 11, 1994
F-79
<PAGE> 327
MEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1992 1993
------------ -----------
RESTATED
(SEE NOTE 2)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 3,011,087 $ 624,147
Restricted cash equivalents..................................... 1,325,000
Accounts receivable, net of estimated uncollectibles of
$1,190,000 and $968,000 in 1993 and 1992, respectively....... 11,054,946 14,537,385
Income taxes receivable......................................... 352,655
Inventories..................................................... 1,663,063 1,989,094
Other assets.................................................... 456,940 834,931
Deferred income taxes........................................... 122,765 169,100
------------ -----------
Total current assets.................................... 17,986,456 18,154,657
Equipment, net of accumulated depreciation of $2,585,000 and
$1,883,000 in 1993 and 1992, respectively....................... 2,117,157 2,549,901
Intangible assets, net of accumulated amortization of $956,000 and
$290,000 in 1993 and 1992, respectively......................... 17,682,364 20,946,238
------------ -----------
Total assets............................................ $ 37,785,977 $41,650,796
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable................................................... 500,000 4,950,000
Current portion of long-term debt............................... 6,759,807 4,209,157
Accounts payable................................................ 2,798,613 2,949,002
Accrued payroll and other expenses.............................. 973,331 1,188,843
Income taxes payable............................................ 370,388
------------ -----------
Total current liabilities............................... 11,031,751 13,667,390
------------ -----------
Deferred income taxes............................................. 77,582 585,200
Long-term debt, less current portion.............................. 1,647,473 402,412
Minority interests................................................ 302,594 55,170
Stockholders' equity:
Common stock, $.01 par value, 25,000,000 and 15,000,000 shares
authorized in 1993 and 1992, respectively; 11,738,557 and
11,155,080 shares issued and outstanding in 1993 and 1992,
respectively................................................. 111,551 117,386
Additional paid-in capital...................................... 21,315,936 23,827,173
Retained earnings............................................... 3,299,090 2,996,065
------------ -----------
Total stockholders' equity.............................. 24,726,577 26,940,624
------------ -----------
Total liabilities and stockholders' equity.............. $ 37,785,977 $41,650,796
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-80
<PAGE> 328
MEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------
1991 1992 1993
----------- ------------ ------------
RESTATED RESTATED
(SEE NOTE 2) (SEE NOTE 2)
<S> <C> <C> <C>
Net revenues........................................ $13,623,933 $ 23,661,673 $ 51,380,838
Direct costs........................................ 7,276,243 14,763,684 33,367,952
----------- ------------ ------------
Gross profit.............................. 6,347,690 8,897,989 18,012,886
Selling, general and administrative expenses........ 4,530,888 7,533,669 14,938,178
----------- ------------ ------------
Income from operations.................... 1,816,802 1,364,320 3,074,708
----------- ------------ ------------
Other income (expense):
Interest income................................... 49,202 285,243 15,181
Interest expense.................................. (136,572) (41,316) (189,659)
Other............................................. 29,449 (32,050) 277,511
Merger expenses................................... (558,220)
----------- ------------ ------------
(57,921) 211,877 (455,187)
----------- ------------ ------------
Income before income taxes and minority
interests............................... 1,758,881 1,576,197 2,619,521
----------- ------------ ------------
Income tax provision:
Current........................................... 303,000 168,000 1,313,000
Deferred.......................................... 20,000 (95,000) (444,000)
Merger deferred................................... -- -- 1,180,000
----------- ------------ ------------
323,000 73,000 2,049,000
----------- ------------ ------------
Income before minority interests.......... 1,435,881 1,503,197 570,521
Minority interests.................................. (154,132) 47,801 81,498
----------- ------------ ------------
Net income................................ $ 1,281,749 $ 1,550,998 $ 652,019
----------- ------------ ------------
----------- ------------ ------------
Net income per common and common equivalent share:
Primary................................... $0.16 $0.15 $0.05
----------- ------------ ------------
----------- ------------ ------------
Fully Diluted............................. $0.16 $0.15 $0.05
Weighted average common and common equivalent shares
outstanding:
Primary................................... 8,102,000 10,506,000 12,403,000
----------- ------------ ------------
----------- ------------ ------------
Fully Diluted............................. 8,174,000 10,575,000 13,129,000
----------- ------------ ------------
----------- ------------ ------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-81
<PAGE> 329
MEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT EQUITY EARNINGS EQUITY
---------- -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1990
(previously reported)............. 3,213,017 $ 32,130 $ 2,524,427 $ (130,217) $ 2,426,340
Pooling of interests................ 4,300,000 43,000 (37,500) 1,007,185 1,012,685
---------- -------- ----------- ---------- -------------
Balance, December 31, 1990
(Restated, see Note 2)............ 7,513,017 75,130 2,486,927 876,968 3,439,025
Issuance of common stock for cash,
net of offering costs of
$302,414.......................... 2,081,385 20,814 10,134,764 10,155,578
Issuance of common stock for
services.......................... 5,893 59 23,691 23,750
Purchase of common stock............ (23) (41) (41)
Tax benefit realized upon exercise
of stock options.................. 75,000 75,000
AHT dividends....................... (250,625) (250,625)
Net income.......................... 1,281,749 1,281,749
---------- -------- ----------- ---------- -------------
Balance, December 31, 1991.......... 9,600,272 96,003 12,720,341 1,908,092 14,724,436
Issuance of common stock for cash,
net of offering costs of $9,551... 358,002 3,580 1,682,591 1,686,171
Issuance of common stock for
services.......................... 430 4 2,996 3,000
Purchase of common stock............ (919) (9) (7,531) (7,540)
Issuance of common stock for
acquisitions...................... 1,197,295 11,973 6,722,539 6,734,512
Tax benefit realized upon exercise
of stock options.................. 195,000 195,000
AHT dividends....................... (160,000) (160,000)
Net income.......................... 1,550,998 1,550,998
---------- -------- ----------- ---------- -------------
Balance, December 31, 1992.......... 11,155,080 111,551 21,315,936 3,299,090 24,726,577
Issuance of common stock for cash... 29,500 295 38,332 38,627
Issuance of common stock for
acquisitions...................... 553,977 5,540 2,447,905 2,453,445
Tax benefit realized upon exercise
of stock options.................. 25,000 25,000
AHT dividends....................... (955,044) (955,044)
Net income.......................... 652,019 652,019
---------- -------- ----------- ---------- -------------
Balance, December 31, 1993.......... 11,738,557 $117,386 $23,827,173 $2,996,065 $ 26,940,624
---------- -------- ----------- ---------- -------------
---------- -------- ----------- ---------- -------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-82
<PAGE> 330
MEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1991 1992 1993
----------- ----------- ------------
RESTATED RESTATED
(SEE NOTE 2) (SEE NOTE 2)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 1,281,749 $ 1,550,998 $ 652,019
Adjustments to reconcile net income to net cash
from operating activities:
Minority interests............................. 154,132 (47,801) (81,498)
Depreciation and amortization.................. 226,886 547,217 1,473,093
Provision for doubtful accounts................ 225,790 597,727 1,013,850
Deferred income taxes.......................... 25,965 (95,148) 736,283
Other.......................................... 21,904 3,000
Changes in operating assets and liabilities,
net of purchase acquisitions:
Accounts receivable....................... (3,381,483) (1,184,337) (4,496,289)
Inventories and other assets.............. (205,613) (408,337) (704,022)
Accounts payable and accrued expenses..... 848,422 227,868 365,901
Income taxes payable/receivable........... 193,905 (839,420) 723,043
----------- ----------- -----------
Net cash provided (used) by operating
activities................................ (608,343) 351,767 (317,620)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of equipment............................ (457,828) (1,003,072) (1,239,948)
Purchases of businesses, net of cash acquired in
1992 of $329,229............................... (5,735,066) (1,189,251)
Restricted cash equivalents....................... (1,325,000) 1,325,000
----------- ----------- -----------
Net cash used by investing activities..... (457,828) (8,063,138) (1,104,199)
----------- ----------- -----------
Cash flows from financing activities:
Notes payable agreements:
Borrowings..................................... 1,557,000 500,000 9,284,657
Payments....................................... (2,260,735) (884,824) (4,834,657)
Payments on long-term debt........................ (4,346,895)
Proceeds from issuance of common stock............ 10,155,578 1,686,171 38,627
AHT Dividends..................................... (250,625) (160,000) (955,044)
Other............................................. 35,510 249,371 (151,809)
----------- ----------- -----------
Net cash provided (used) by financing
activities.............................. 9,236,728 1,390,718 (965,121)
----------- ----------- -----------
Net increase (decrease) in cash..................... 8,170,557 (6,320,653) (2,386,940)
Cash and cash equivalents, beginning of year........ 1,161,183 9,331,740 3,011,087
----------- ----------- -----------
Cash and cash equivalents, end of year.............. $ 9,331,740 $ 3,011,087 $ 624,147
----------- ----------- -----------
----------- ----------- -----------
Supplemental cash flow activity:
Cash paid during the year for interest............ $ 141,223 $ 21,316 $ 169,873
Income taxes paid................................. 34,095 790,000 871,625
Common stock issued for services.................. 23,750 3,000
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-83
<PAGE> 331
MEDISYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Business Description:
Medisys, Inc. and Subsidiaries (the Company) are primarily engaged in
providing alternate site health care services, including home infusion therapy
services and related products and comprehensive pharmacy services to long-term
care facilities and retirement communities.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company,
its subsidiaries and controlled joint venture. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
consolidated financial statements of the Company have been prepared to give
retroactive effect to the merger with American Home Therapies, Inc. (AHT), in
July 1993, which has been accounted for as a pooling of interests as described
in note 2.
Cash and Cash Equivalents:
Cash and cash equivalents, as well as restricted cash equivalents, include
investments in highly liquid debt instruments with a maturity of three months or
less at date of acquisition.
Inventories:
Inventories, consisting primarily of pharmaceuticals and medical supplies,
are stated at the lower of cost or market, with cost determined on the first-in,
first-out basis.
Equipment:
Equipment is recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets which range
from three to ten years.
Expenditures for maintenance and repairs are charged to operations as
incurred, while major renewals and betterments are capitalized. The assets and
related accumulated depreciation accounts are adjusted for asset retirements and
disposals with the resulting gains or losses included in operations.
Income Taxes:
The Company accounts for income taxes using the liability method. Deferred
income taxes are recorded to reflect the tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year end, based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. Temporary differences
relate primarily to cash to accrual adjustments, depreciation, accrued time off
and the allowance for doubtful accounts. Income tax expense is the tax payable
for the year and the change during the year in deferred tax assets and
liabilities.
Effective January 1, 1993, the Company adopted Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes" (SFAS No. 109).
The adoption of SFAS No. 109 did not materially affect the Company's financial
position or results of operations.
In July 1993, American Home Therapies, Inc. (AHT), was acquired by the
Company. Prior to the acquisition, AHT was a modified-cash basis S corporation
under the Internal Revenue Code. Accordingly, no provision for income taxes had
been provided for AHT income prior to the acquisition. As of the acquisition
date, AHT's tax status was changed from an S to a C corporation under the
Internal Revenue Code. As
F-84
<PAGE> 332
MEDISYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
required by SFAS 109, deferred taxes related to AHT's cumulative temporary
differences as of the acquisition date have been accrued and charged to income
as "merger deferred taxes".
Intangible Assets:
Intangible assets consist primarily of the excess of cost over the fair
market value of net tangible assets acquired in connection with acquisitions,
and are being amortized on a straight-line basis principally over thirty years.
Revenue Recognition:
Revenues are recognized as the related services are rendered or products
are delivered. Substantially all of the Company's revenues are billed to
third-party payors, including insurance companies, managed care plans,
governmental payors and contracted institutions. Revenues are recorded net of
contractual adjustments and related discounts. Contractual adjustments represent
estimated differences between service revenue at established rates and amounts
expected to be realized from third-party payors under contractual agreements.
Net Income Per Common Share:
Net income per common share is computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
outstanding during each period. Common stock equivalents result from dilutive
stock options, warrants and debt payable in common stock. In addition, fully
diluted earnings per share includes contingently issuable shares under
acquisition agreements.
2. BUSINESS COMBINATIONS:
American Home Therapies Merger:
In July, 1993, the Company acquired all of the outstanding shares of
American Home Therapies, Inc., (AHT) a privately held home infusion therapy
provider with operations in St. Louis, and Kansas City, Missouri for 4,300,000
shares of common stock. The business combination was accounted for as a pooling
of interests; accordingly, the consolidated financial statements of the Company
for periods prior to the combination have been restated to include the financial
position, results of operations and cash flows of AHT as if it had always been
combined with the company.
Net revenues and net income of the separate companies for the six months
ended June 30, 1993, and for the years ended December 31, 1992 and 1991, were as
follows:
<TABLE>
<CAPTION>
1993
------------ 1992 1991
(SIX MONTHS) ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Net Revenues:
Medisys........................... $ 18,803,555 $15,667,231 $ 9,139,573
AHT............................... 5,658,801 7,994,442 4,484,360
------------ ----------- -----------
Combined.................. $ 24,462,356 $23,661,673 $13,623,933
------------ ----------- -----------
------------ ----------- -----------
Net Income:
Medisys........................... $ 224,986 $ 79,371 $ 533,199
AHT............................... 1,314,056 1,471,627 748,550
Estimated merger expenses......... (1,597,280)
------------ ----------- -----------
Combined.................. $ (58,238) $ 1,550,998 $ 1,281,749
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
F-85
<PAGE> 333
MEDISYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net income for AHT includes no provision for income taxes, since AHT was a
modified-cash basis S corporation under the Internal Revenue Code through the
date of the merger. Estimated merger expenses include amounts to establish
deferred income tax liabilities associated with AHT changing its income tax
reporting status from an S corporation to a C corporation under the Internal
Revenue Code and other merger related expenses.
Acquisitions of Businesses:
During 1992 the Company acquired Pharmacy Consultants, Inc., in May;
Pharmacy Ventures, Inc., in October; and, Delta Pharmacy, Inc., in December.
These businesses are primarily engaged in providing comprehensive pharmacy
services to long-term care and retirement communities. Also during December, the
Company acquired AllCare Health Services, Inc., and AllCare Home Care, Inc.
(AllCare), businesses engaged in providing home infusion therapy services and
related products. The acquisitions were accounted for utilizing the purchase
method and, accordingly, the net assets and operating results of the acquired
companies have been included in the Company's consolidated financial statements
since their respective acquisition dates. As of each respective acquisition
date, the aggregate purchase consideration exceeded the estimated fair value of
net tangible assets acquired, as presented below, which was recorded as excess
of cost over fair value and is being amortized over thirty years.
<TABLE>
<CAPTION>
PHARMACY PHARMACY
CONSULTANTS VENTURES ALLCARE DELTA
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Estimated fair value of assets acquired......... $ 979,962 $ 675,441 $2,127,763 $2,500,061
Liabilities assumed............................. 553,554 194,106 773,804 1,190,488
----------- ---------- ---------- ----------
Net assets at estimated fair value.... 426,408 481,335 1,353,959 1,309,573
----------- ---------- ---------- ----------
Cash paid....................................... 879,368 838,907 4,151,555 194,465
Common stock issued............................. 480,000 512,512 3,892,000 1,850,000
Amounts payable in:
Cash.......................................... 180,000 834,000 3,750,000
Common stock.................................. 420,000 1,090,000 2,000,000
----------- ---------- ---------- ----------
Total purchase price.................. 1,959,368 3,275,419 10,043,555 5,794,465
----------- ---------- ---------- ----------
Cost in excess of fair value.................... $ 1,532,960 $2,794,084 $8,689,596 $4,484,892
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Number of shares of common stock issued......... 60,000 88,671 729,109 319,515
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
In connection with the acquisitions, the purchase agreements provide for
additional contingent consideration. The amount of the additional consideration,
if any, is based on future revenue levels of the acquired companies. If these
contingent amounts are paid, they will be recorded as additional cost in excess
of fair value in the period in which payment of such amounts become probable.
During 1993, $3,765,000 of previously contingent consideration primarily
related to Delta ($3,015,000 payable in common stock and $750,000 payable in
cash) and approximately $440,000 of additional acquisition costs were recorded
as additional cost in excess of fair value. Also, $275,000 of deferred tax
assets related to the acquired companies were recorded with a corresponding
reduction in cost in excess of fair value.
Remaining contingent payments extend through 1995 and will not exceed the
following amounts:
<TABLE>
<CAPTION>
PHARMACY
VENTURES ALLCARE
-------- ---------
<S> <C> <C>
Payable in cash...................................... $262,000 $ 400,000
Payable in common stock.............................. 262,000 800,000
-------- ---------
Total...................................... $524,000 $1,200,000
-------- ---------
-------- ---------
</TABLE>
F-86
<PAGE> 334
MEDISYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The number of shares of common stock to be distributed to settle amounts
payable in common stock will be determined based upon the quoted market value of
the Company's common stock at specified future dates, with some payments subject
to specified minimum and maximum market values, all as defined in the
acquisition agreements. Based on the December 31, 1993 quoted market value,
approximately 280,000 shares of common stock would be distributed to settle
amounts payable in common stock.
The following presents unaudited pro forma results of operations of the
Company as if the acquisitions had occurred on January 1, 1991, after giving
effect to pro forma adjustments. Pro forma adjustments include amortization of
cost in excess of fair value, adjustments in interest expense and interest
income for cash paid for acquisitions and adjustments to income taxes to reflect
a change in tax status of certain acquisitions. Also, the number of actual
outstanding shares has been adjusted to reflect all shares issued and required
to be issued pursuant to acquisition agreements as if such shares were
outstanding as of January 1, 1991, for purposes of calculating income per common
and common equivalent shares. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations which would actually have occurred had the acquisitions been in
effect for the periods indicated or which may occur in the future.
<TABLE>
<CAPTION>
1992 1991
---------- ----------
<S> <C> <C>
Net Revenue:
Medisys......................................... $23,661,673 $13,623,933
Pharmacy Consultants............................ 1,217,777 3,623,565
Pharmacy Ventures............................... 1,955,698 1,212,156
AllCare......................................... 5,726,872 3,821,156
Delta........................................... 8,720,748 6,956,801
---------- ----------
Pro forma combined...................... $41,282,768 $29,237,755
---------- ----------
---------- ----------
Net income Medisys................................ 1,550,998 1,281,749
Pharmacy Consultants............................ 37,462 133,571
Pharmacy Ventures............................... 308,994 41,959
AllCare......................................... 825,460 98,379
Delta........................................... 503,071 138,367
Pro forma adjustments........................... (1,119,300) (756,547)
---------- ----------
Pro forma combined...................... $2,106,685 $ 937,478
---------- ----------
---------- ----------
Net income per common and common equivalent
share........................................... $0.17 $0.09
----- -----
----- -----
</TABLE>
3. LINE OF CREDIT:
In 1992, the Company obtained a bank line of credit of $7,500,000. Amounts
borrowed under the line of credit bear interest at .75% above the bank's prime
rate (prime rate was 6.0% at December 31, 1993), and are advanced based on a
borrowing base formula which resulted in a borrowing base of $6,990,000 at
December 31, 1993. Borrowings are collateralized by accounts receivable and
other assets of the Company. At December 31, 1993, the amount outstanding was
$4,950,000. There were no amounts outstanding under the line of credit at
December 31, 1992.
Covenants included in the line of credit require the Company to maintain a
debt (excluding debt payable in common stock) to tangible net worth ratio of not
more than 1.35 to 1.0, current ratio of at least 1.5 to 1.0 and tangible net
worth of not less than $10,200,000. The Company may only pay dividends up to an
amount no greater than 25% of the current year net income. At December 31, 1993,
the Company received a waiver for violation of certain of the loan covenants.
F-87
<PAGE> 335
MEDISYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1992, the Company had outstanding letters of credit in the
amount of $4,500,000 related to an acquisition. Letters of credit were
collateralized by $1,325,000 of cash equivalents, with the remaining $3,175,000
reducing the Company's borrowing availability under its line of credit.
At December 31, 1992, AHT had an unsecured line of credit with a commercial
bank under which it could borrow up to $500,000 through December 31, 1999.
Borrowings under this line were due on demand. Interest, computed at the prime
rate (prime rate was 6% at December 31, 1992), was payable monthly. There was
$500,000 outstanding at December 31, 1992. This line of credit was repaid and
terminated effective in July, 1993, when AHT merged with the Company.
4. LONG-TERM DEBT:
Long-term debt at December 31, 1993 and 1992 consisted of the following:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Note payable for purchase of Pharmacy Consultants, Inc., due in
annual installments through 1994, including interest at 7%,
unsecured, payable in common stock................................ $ 270,000 $ 600,000
Note payable for purchase of Pharmacy Ventures, Inc., due in
installments through 1995, unsecured, payable $415,000 in cash and
$780,000 in common stock.......................................... 1,195,000 1,924,000
Note payable for purchase of AllCare Health Services, Inc. and
AllCare Home Care, Inc., due in 1994, unsecured, payable in common
stock............................................................. 600,000 2,000,000
Note payable for purchase of Delta Pharmacy, Inc., due in 1994,
unsecured, payable in common stock................................ 2,500,000 3,750,000
Other............................................................... 46,569 133,280
---------- ----------
4,611,569 8,407,280
Less current maturities............................................. 4,209,157 6,759,807
---------- ----------
$ 402,412 $1,647,473
---------- ----------
---------- ----------
</TABLE>
The aggregate amount of maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
NOTES PAYABLE
---------------------
COMMON
CASH STOCK TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
1994...................................... $443,157 $3,766,000 $4,209,157
1995...................................... 18,412 384,000 402,412
-------- ---------- ----------
Total obligation................ $461,569 $4,150,000 $4,611,569
-------- ---------- ----------
-------- ---------- ----------
</TABLE>
The number of shares of common stock to be distributed to settle amounts
payable in common stock will be determined based upon the quoted market value of
the Company's common stock at specified future dates, with some payments subject
to specified minimum and maximum market values, all as defined in the
acquisition agreements. Based on the December 31, 1993 quoted market value,
approximately 970,000 shares of common stock would be distributed to settle
amounts payable in common stock.
5. LEASE COMMITMENTS:
The Company leases office and other operating space under various operating
leases. The leases provide for monthly rental payments including real estate
taxes and other operating costs. In addition, the Company
F-88
<PAGE> 336
MEDISYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
leases equipment under various operating leases. At December 31, 1993, the
aggregate minimum lease commitments under all noncancellable operating leases
are as follows:
<TABLE>
<S> <C>
1994................ $1,173,884
1995................ 818,956
1996................ 538,733
1997................ 444,270
1998................ 99,890
</TABLE>
Total rental expense for 1993, 1992 and 1991, was $1,347,880, $848,764 and
$444,804, respectively.
6. INCOME TAXES:
The income tax provision differs from amounts computed by applying the
statutory federal income tax rate to income before income taxes, as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Income tax expense at federal statutory rate................ 35% 34% 34%
Increase (reduction) in tax resulting from:
Graduated rate effect..................................... (1)
State income taxes, net of federal income tax benefit..... 6 1 2
Amortization of intangibles............................... 9 3 1
AHT's S corporation status through July, 1993............. (19) (32) (15)
AHT deferred income taxes established..................... 42
Merger costs.............................................. 7
Minority interests........................................ 1 1 (3)
Adjustments of prior year tax provisions.................. (2)
Recognition of net operating loss carryforward benefit.... (1)
Other..................................................... 2
---- ---- ----
Effective income tax rate......................... 82% 5% 18%
</TABLE>
The temporary differences which give rise to the deferred tax asset and
liability as of December 31, 1993 and January 1, 1993 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1993 1993
------------ ----------
<S> <C> <C>
Accrued paid time off............................... $ 89,000 $ 32,000
Allowance for uncollectible accounts................ 449,000 147,000
Fixed asset basis differences....................... (29,000) (27,000)
Cash to accrual adjustments to be recognized........ (956,200) (135,582)
Other............................................... 31,100 28,765
------------ ----------
Total............................................. $ (416,100) $ 45,183
------------ ----------
------------ ----------
</TABLE>
7. STOCKHOLDERS' EQUITY:
As of December 31, 1992, the Company had 15,000,000 authorized shares of
common stock and 1,000,000 authorized undesignated shares. In July 1993, the
shareholders of the Company approved an increase in the number of authorized
shares of common stock to 25,000,000.
F-89
<PAGE> 337
MEDISYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS:
The Medisys 1989 Stock Option Plan (the Plan) provides for the granting of
options by the Board of Directors to purchase up to an aggregate of 1,400,000
shares of common stock at not less than the estimated fair value of the common
stock as of the date of grant. The term of each option, which is fixed by the
Board of Directors at the time of grant, may not exceed ten years from the date
the option is granted. Stock options and shares reserved for grant under the
Plan are as follows:
<TABLE>
<CAPTION>
AVAILABLE
FOR GRANT OUTSTANDING PRICE PER SHARE
---------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1990................ 225,450 274,550 $ 1.10 to $1.93
Increase in Plan options.................... 200,000
Granted..................................... (180,000) 180,000 $ 3.00 to $4.75
---------- ------------
Balance at December 31, 1991................ 245,450 454,550 $ 1.10 to $4.75
Granted..................................... (177,500) 177,500 $ 5.00 to $8.80
Cancelled................................... 5,500 (5,500) $ 3.00 to $8.00
Exercised................................... (84,500) $ 1.10 to $4.75
---------- ------------
Balance at December 31, 1992................ 73,450 542,050 $ 1.10 to $8.80
Increase in Plan options.................... 700,000
Granted..................................... (166,000) 166,000 $3.625 to $5.00
Cancelled................................... 94,500 (94,500) $ 5.00 to $8.80
Exercised................................... (27,000) $ 1.10 to $3.00
---------- ------------
Balance at December 31, 1993................ 701,950 586,550
---------- ------------
---------- ------------
Options exercisable at December 31, 1993.... 445,202 $ 1.10 to $5.00
------------
------------
</TABLE>
In 1992, as part of the AllCare acquisition, AllCare options were converted
to options to purchase common stock of the Company. At December 31, 1993,
options to purchase 77,537 shares at $.75 per share exercisable through April,
2002, were outstanding.
In 1992, the Company granted an option outside the Plan to purchase 10,000
shares of common stock at a price of $10.00 per share, exercisable through
January, 1997. In addition, the Company issued a warrant to purchase 97,750
shares of common stock at a price of $7.20 per share, exercisable through
December, 1997. In 1993, the Company canceled an option granted in 1992 outside
the plan to a former director to purchase 15,000 shares of common stock at a
price of $10.00 per share.
At December 31, 1993, warrants issued in conjunction with a prior year
merger to purchase 21,429 shares at $4.20 per share exercisable through October,
1994, were outstanding.
In 1990, the Company granted a Director an option outside the Plan to
purchase 8,000 shares of common stock at a price of $4.25 per share exercisable
through October, 1997.
In 1989, the Company granted a former Director an option outside the Plan
to purchase 50,000 shares of common stock at a price of $1.10 per share,
exercisable through June, 1996. The Company also granted an option outside the
Plan to purchase 25,000 shares of common stock at a price of $1.75 per share,
exercisable through October, 1997. In addition, during 1989, the Company issued
warrants to purchase 51,428 shares of common stock at a price of $1.75 per
share, exercisable through June, 1995. In 1992, 2,788 warrants were exercised.
In 1988, the Company granted a stockholder an option outside the Plan to
purchase 125,000 shares at $.50 per share. This option was exercised in 1991.
F-90
<PAGE> 338
MEDISYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS:
In 1991, the Company adopted the Medisys, Inc. 401(k) Profit Sharing Plan,
a defined contribution plan, which was designed to qualify under Section 401(a)
of the Internal Revenue Code and covers substantially all of the Company's
employees. Employees contribute up to 15% of their earnings, subject to IRS
limitations. The Company may make a discretionary contribution to the plan. No
discretionary contribution was made during the years ended December 31, 1993,
1992 and 1991.
Effective January 1, 1991, AHT adopted a profit-sharing plan for the
benefit of its employees meeting certain eligibility requirements. AHT's
contributions are discretionary and amounted to $10,000 for each year ended
December 31, 1992, and 1991. There were no contributions for the year ended
December 31, 1993.
On April 1, 1992, AHT adopted a 401(k) plan for the benefit of all eligible
employees. AHT makes contributions to the plan based on a percentage of the
employees' contributions up to a maximum Company contribution of 1.5% of the
participants' eligible salaries. AHT's contributions for the years ended
December 31, 1993 and 1992 amounted to $9,493 and $14,260, respectively.
10. OTHER AGREEMENT:
The Company had an agreement with a member of the Company's Board of
Directors whereby the Company provides home infusion therapy services to
patients referred by the director. This agreement was terminated July 1, 1993.
The Company was reimbursed for all direct costs of providing therapy and
received a management fee based on a percentage of patient billings. Total
reimbursements and management fees were $1,000, $276,000 and $267,000 in 1993,
1992 and 1991, respectively.
11. COMMITMENTS AND CONTINGENCIES:
The Company by the nature of its business is subject to professional
liability risk and contingencies associated with third-party payors. However,
management believes that there are no material contingencies not provided for in
these financial statements or that the Company has sufficient defenses and/or
insurance coverage.
12. SUBSEQUENT EVENT:
On February 6, 1994, the Company announced the signing of a definitive
agreement providing for the merger of the Company with T2 Medical, Inc. ("T2"),
HealthInfusion, Inc. (HealthInfusion") and Curaflex Health Services, Inc.
("Curaflex"), comprehensive home infusion therapy companies. Completion of the
merger is subject to approval by each Company's shareholders and other
conditions to closing.
Under the terms of the definitive agreement, all shares of common stock of
T2, Curaflex, HealthInfusion and Medisys issued and outstanding prior to the
merger will be exchanged for shares of common stock of a newly-formed company on
the following basis: each shareholder of T2 will receive 0.630 shares of the new
company's common stock in exchange for each share of T2 common stock, Each
shareholder of Curaflex will receive 0.333 shares of the new company's common
stock in exchange for each share of Curaflex common stock, each shareholder of
HealthInfusion will receive 0.447 shares of the new company's common stock in
exchange for each share of HealthInfusion common stock and each shareholder of
Medisys will receive 0.243 shares of the new company's common stock in exchange
for each share of Medisys common stock. The exchange ratios reflect pro forma
ownership of the new company of 67% for T2 shareholders, 13% for Curaflex
shareholders, 12% for HealthInfusion shareholders and 8% for Medisys
shareholders. The merger is expected to be accounted for as a "pooling of
interests", and, accordingly, the merged companies' historical consolidated
financial statements presented in future reports will be restated to include the
accounts and results of operations of the four companies. At December 31, 1993,
the Company had incurred approximately
F-91
<PAGE> 339
MEDISYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$400,000 of costs in connection with this merger; such costs will be expensed
when it is determined that the merger will be accounted for as a
pooling-of-interests.
13. QUARTERLY DATA (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
FIRST(1) SECOND(1) THIRD FOURTH(2) YEAR
-------- --------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
Net revenues:
1992..................................... 4,348 5,789 6,391 7,134 23,662
1993..................................... 12,170 12,292 12,759 14,160 51,381
Gross profit:
1992..................................... 1,941 2,563 2,451 1,943 8,898
1993..................................... 4,265 4,233 4,454 5,061 18,013
Net income:
1992..................................... 440 646 755 (290) 1,551
1993..................................... 788 (846) 476 234 652
Proforma net income (3):
1992..................................... 377 536 506 (427) 992
1993..................................... 527 512 416 376 1,831
Net income per share:
1992..................................... $0.04 $0.06 $0.07 ($0.03) $0.15
1993..................................... $0.06 ($0.06) $0.04 $0.02 $0.06
Proforma net income per share (3):
1992..................................... $0.04 $0.05 $0.05 ($0.04) $0.09
1993..................................... $0.04 $0.04 $0.03 $0.03 $0.14
</TABLE>
- ---------------
(1) Restated from Form 10Q to reflect AHT acquisition and certain
reclassifications.
(2) During the fourth quarter of 1992, the Company increased its contractual
allowances by approximately $1,300,000, primarily related to Medicare and
Medicare-related accounts receivable.
(3) Adjusted to eliminate merger expenses, merger deferred taxes and provide
income tax on AHT's subchapter S corporation earnings.
F-92
<PAGE> 340
MEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1994 AND DECEMBER 31, 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
----------- -----------
UNAUDITED
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 669,158 $ 624,147
Accounts receivable, net........................................ 14,786,083 14,537,385
Inventories..................................................... 1,881,408 1,989,094
Other assets.................................................... 1,284,415 834,931
Deferred income taxes........................................... 169,100 169,100
----------- -----------
Total current assets.................................... 11,790,164 18,154,657
Equipment and leasehold improvements, net....................... 2,427,466 2,549,901
Intangible assets, net.......................................... 20,893,158 20,946,238
----------- -----------
Total assets............................................ $42,110,788 $41,650,796
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................... $ 762,919 $ 4,209,156
Notes payable................................................... 5,495,000 4,950,000
Accounts payable................................................ 2,490,792 2,949,003
Accrued payroll and other expenses.............................. 1,495,180 1,188,843
Income taxes payable............................................ 339,272 370,388
----------- -----------
Total current liabilities............................... 10,583,163 13,667,390
----------- -----------
Long-term debt, less current portion.............................. 0 402,412
Deferred income taxes............................................. 585,200 585,200
Other............................................................. 39,596 55,170
Commitments
Stockholders' equity
Common stock, $.01 par value, 25,000,000 shares authorized,
12,694,621 and 11,738,557 shares issued and outstanding
respectively................................................. 126,946 117,386
Additional paid-in capital...................................... 27,502,586 23,827,173
Retained earnings............................................... 3,273,297 2,996,065
----------- -----------
Total stockholders' equity.............................. 30,902,829 26,940,624
----------- -----------
Total liabilities and stockholders' equity.............. $42,110,788 $41,650,796
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-93
<PAGE> 341
MEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
MARCH 31, 1994 AND DECEMBER 31, 1993
<TABLE>
<CAPTION>
THREE MONTHS
---------------------------
1994 1993
----------- -----------
RESTATED
UNAUDITED
<S> <C> <C>
Net revenues...................................................... $13,507,588 $12,170,423
Direct costs...................................................... 9,097,041 7,905,076
----------- -----------
Gross profit............................................ 4,410,547 4,265,347
Selling, general and administrative expense....................... 3,524,937 3,109,540
Amortization of intangibles....................................... 190,175 158,458
----------- -----------
3,715,112 3,267,998
----------- -----------
Income from operations.................................. 695,435 997,349
----------- -----------
Other income (expense):
Interest income................................................. 2,884 5,796
Interest expense................................................ (85,668) (18,054)
Other........................................................... (21,414) 9,113
----------- -----------
Total other income (expense)............................ (104,198) (3,145)
----------- -----------
Income before income taxes.............................. 591,237 994,204
Income tax provision.............................................. 314,009 206,700
----------- -----------
Net income.............................................. $ 277,228 $ 787,504
----------- -----------
----------- -----------
Net income per common share:
Primary......................................................... $ 0.02 $ 0.06
----------- -----------
----------- -----------
Fully diluted................................................... $ 0.02 $ 0.06
----------- -----------
----------- -----------
Weighted average common shares outstanding:
Primary......................................................... 12,487,000 12,231,000
----------- -----------
----------- -----------
Fully diluted................................................... 12,777,000 13,108,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-94
<PAGE> 342
MEDISYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
MARCH 31, 1994 AND 1993
<TABLE>
<CAPTION>
THREE MONTHS
-------------------------
1994 1993
-------- ---------
RESTATED
UNAUDITED
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 277,228 $ 787,504
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization................................. 413,441 329,571
Provision for doubtful accounts............................... 225,360 145,830
Other......................................................... (15,574) (17,631)
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable......................................... (464,058) (1,133,376)
Inventories and other assets................................ (341,063) (203,641)
Accounts payable and accrued expenses....................... (151,873) 516,799
Income taxes payable/receivable............................. (31,116) 441,865
--------- -----------
Net cash from operating activities....................... (87,655) 866,921
--------- -----------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements................ (168,831) (223,339)
Purchases of businesses.......................................... (79,830) (305,433)
Restricted cash equivalents...................................... 0 1,325,000
--------- -----------
Net cash from investing activities....................... (248,661) 796,228
--------- -----------
Cash flows from financing activities:
Notes payable borrowings (payments), net......................... 545,000 75,000
Principal payments on long-term debt............................. (390,294) (3,754,990)
Proceeds from issuance of common stock........................... 226,621 8,748
--------- -----------
Net cash from financing activities....................... 381,327 (3,671,242)
--------- -----------
Net change in cash................................................. 45,011 (2,008,093)
Cash and cash equivalents, beginning of period..................... 624,147 3,011,087
--------- -----------
Cash and cash equivalents, end of period........................... $ 669,158 $ 1,002,994
--------- -----------
--------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-95
<PAGE> 343
MEDISYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994 AND 1993
(UNAUDITED)
1. BASIS OF PRESENTATION:
The unaudited interim financial statements have been prepared in accordance
with generally accepted accounting principles, pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in the financial
statements have been omitted or condensed pursuant to such rules and
regulations. The accompanying unaudited financial statements should be read in
conjunction with the Company's December 31, 1993 financial statements and
related notes.
The financial statements reflect all adjustments, of only a normally
recurring nature, necessary to fairly present the results of operations and
financial position of the Company for the interim period.
2. BUSINESS COMBINATIONS:
In July 1993, the Company completed a merger with American Home Therapies,
Inc. ("AHT") in exchange for 4,300,000 shares of the Company's common stock. The
acquisition was accounted for as a pooling of interests; accordingly, the
financial information for the Company for all periods have been restated to
include the results of AHT. Net revenues and net income of the separate
companies for the three months ended March 31, 1993, were as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1993 1993
----------- --------
<S> <C> <S> <C>
Net revenues: Net income:
Medisys................. $ 9,382,615 Medisys.............. $204,045
AHT................... 2,787,808 AHT.................. 583,459
----------- --------
Combined.............. $12,170,423 Combined............. $787,504
----------- --------
----------- --------
</TABLE>
Net income for AHT includes no provision for income taxes, since AHT was an S
corporation through the date of the merger.
In February, 1994, the Company entered into a definitive agreement
providing for the merger of the Company with T2 Medical, Inc., HealthInfusion,
Inc. and Curaflex Health Services, Inc., comprehensive home infusion therapy
companies. Completion of the merger is subject to approval by each company's
shareholders and other conditions to closing.
F-96
<PAGE> 344
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
American Home Therapies, Inc. and Affiliate
We have audited the accompanying combined balance sheet of American Home
Therapies, Inc. (a Missouri corporation) and Affiliate (see note A to the
financial statements) as of December 31, 1991, and the related combined
statements of earnings, stockholders' equity, and cash flows for the year then
ended. We have also audited the accompanying balance sheet of American Home
Therapies, Inc. as of December 31, 1990, and the related statements of earnings,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of American Home
Therapies, Inc. and Affiliate as of December 31, 1991, and the combined results
of their operations and their combined cash flows for the year then ended, and
the financial position of American Home Therapies, Inc. as of December 31, 1990,
and the results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
FLOM LOPATA & COMPANY
St. Louis, Missouri
December 10, 1992
F-97
<PAGE> 345
AMERICAN HOME THERAPIES, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1991 1990
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (note A)................................ $ 68,935 $ 125,192
Accounts receivable -- trade, net (note A)........................ 1,662,162 819,668
Due from related parties.......................................... 25,866 2,164
Prepaid expenses.................................................. 4,788 --
---------- ----------
Total current assets...................................... 1,761,751 947,024
PROPERTY AND EQUIPMENT -- AT COST (note A)
Furniture and fixtures............................................ 147,484 51,668
Computer and office equipment..................................... 120,039 63,952
Pharmacy and warehouse equipment.................................. 104,320 50,147
Automobiles and trucks............................................ 83,204 56,422
---------- ----------
455,047 222,189
Less accumulated depreciation..................................... 86,759 29,689
---------- ----------
368,288 192,500
OTHER ASSETS........................................................ 12,568 1,546
---------- ----------
$2,142,607 $1,141,070
---------- ----------
---------- ----------
LIABILITIES
CURRENT LIABILITIES
Notes payable to banks (note B)................................... $ 325,000 $ --
Current maturities of long-term obligation........................ 3,089 6,736
Accounts payable.................................................. 205,595 48,113
Accrued liabilities (note G)...................................... 79,636 61,154
---------- ----------
Total current liabilities................................. 613,320 116,003
LONG-TERM OBLIGATION, less current maturities....................... 9,294 12,382
COMMITMENTS (notes C and I)
STOCKHOLDERS' EQUITY (notes D, E and I)
Common stock...................................................... 5,707 5,700
Additional paid-in capital........................................ 693 --
Retained earnings................................................. 1,513,848 1,007,185
---------- ----------
1,520,248 1,012,885
Less common stock in treasury -- at cost.......................... 255 200
---------- ----------
1,519,993 1,012,685
---------- ----------
$2,142,607 $1,141,070
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-98
<PAGE> 346
AMERICAN HOME THERAPIES, INC. AND AFFILIATE
COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1991 1990
---------- ----------
<S> <C> <C>
Net sales (notes A and F)........................................... $5,182,178 $2,415,152
Cost of sales....................................................... 2,311,306 965,549
---------- ----------
Gross profit.............................................. 2,870,872 1,449,603
Selling, general, and administrative expenses (note A).............. 2,127,577 731,284
---------- ----------
Earnings from operations.................................. 743,295 718,319
Other income (expense)
Interest income................................................... 15,875 7,614
Interest expense.................................................. (1,882) (8,081)
Loss on disposal of equipment..................................... -- (33,901)
---------- ----------
13,993 (34,368)
---------- ----------
NET EARNINGS (note H)..................................... $ 757,288 $ 683,951
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-99
<PAGE> 347
AMERICAN HOME THERAPIES, INC. AND AFFILIATE
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1991 AND 1990
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
------ ---------- ---------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1990....................... $5,200 $ -- $ 473,234 $ (200)
Issuance of 500 shares of American Home
Therapies, Inc. common stock................... 500 -- -- --
Net earnings..................................... -- -- 683,951 --
Dividends paid................................... -- -- (150,000) --
------ ---------- ---------- --------
Balance at December 31, 1990..................... 5,700 -- 1,007,185 (200)
Issuance of 700 shares of American Home
Therapies-Kansas City, Inc..................... 7 693 -- --
Repurchase of 55 shares of American Home
Therapies, Inc. common stock................... -- -- -- (55)
Net earnings..................................... -- -- 757,288 --
Dividends paid................................... -- -- (250,625) --
------ ---------- ---------- --------
Balance at December 31, 1991..................... $5,707 $ 693 $1,513,848 $ (255)
------ ---------- ---------- --------
------ ---------- ---------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-100
<PAGE> 348
AMERICAN HOME THERAPIES, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1991 1990
--------- ---------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net earnings....................................................... $ 757,288 $ 683,951
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization................................... 57,070 14,996
Loss on disposal of equipment................................... -- 33,901
Changes in assets and liabilities:
Accounts receivable -- trade, net............................. (842,494) (343,960)
Due from related parties...................................... (23,702) (2,164)
Prepaid expenses.............................................. (4,788) --
Other assets.................................................. (11,022) (1,200)
Accounts payable and accrued liabilities...................... 175,964 20,077
--------- ---------
Total adjustments.......................................... (648,972) (278,350)
--------- ---------
Net cash provided by operating activities.................. 108,316 405,601
Cash flows from investing activities:
Capital expenditures, net.......................................... (232,858) (226,767)
Cash flows from financing activities:
Borrowings under lines of credit................................... 325,000 --
(Repayment) borrowings of long-term debt, net...................... (6,735) 1,631
Repurchase of common stock......................................... (55) --
Common stock issued................................................ 700 500
Dividends paid..................................................... (250,625) (150,000)
--------- ---------
Net cash provided by (used in) financing activities........ 68,285 (147,869)
--------- ---------
Net (decrease) increase in cash and cash equivalents....... (56,257) 30,965
Cash and cash equivalents at beginning of year....................... 125,192 94,227
--------- ---------
Cash and cash equivalents at end of year............................. $ 68,935 $ 125,192
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest............................. $ 1,882 $ 8,081
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-101
<PAGE> 349
AMERICAN HOME THERAPIES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1991 AND 1990
Business Activity
American Home Therapies, Inc. (AHT) and American Home Therapies-Kansas
City, Inc. (AHTKC) principal business is providing infusion therapy to patients
in their homes. Home infusion therapy is the intravenous administration of
nutritional solutions or drugs in the patient's home or an alternate site
outside a clinic or hospital environment. In June, 1990 the Company began
independent operations and now services patients in the states of Missouri,
Illinois and Kansas from sites in St. Louis, Missouri and Kansas City, Kansas.
Through May, 1990 the Company serviced its patients under a subcontract
arrangement with an unrelated third party.
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Combination
The accompanying 1991 financial statements include the accounts of American
Home Therapies, Inc. and American Home Therapies-Kansas City, Inc., which are
affiliated through common control and management. American Home Therapies-Kansas
City, Inc. began operations in 1991. All significant intercompany items have
been eliminated.
2. Accounts Receivable
Accounts receivable are comprised of receivables from third-party payors
(such as Blue Cross/Blue Shield, Medicare, Medicaid, health maintenance
organizations and commercial insurance companies), individual patients and other
healthcare institutions. An allowance for doubtful accounts of approximately
$650,000 and $240,000 at December 31, 1991 and 1990, respectively, has been
provided to cover the difference between billable charges and expected
collections from customers.
3. Inventories
The Company has agreements with vendors to provide inventories on a
consignment basis. These agreements expire in July, 1995.
4. Property and Equipment
Property and equipment are stated at cost. Depreciation is provided for on
a straight-line method over the estimated useful lives of such assets for
financial reporting purposes.
5. Revenue Recognition
The Company recognizes revenues in the period the products are delivered
and related services are rendered. The Company provides services to certain
patients on behalf of other healthcare institutions. Contracted discounts and
allowances are provided to these institutions and third party payors to arrive
at net sales. Certain revenues are derived under federal and state third-party
reimbursement programs and are based, in part, on cost reimbursement principles.
These charges are subject to audit and retroactive adjustment by the respective
third party fiscal intermediaries. In the opinion of management, retroactive
adjustments, if any, would not be material to the Company's financial position
or results of operations.
6. Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
F-102
<PAGE> 350
AMERICAN HOME THERAPIES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE B -- NOTES PAYABLE
In April, 1990 the Company borrowed $149,000 from two of its shareholders.
In October, 1990 these advances were paid in full.
In March, 1991 the Company finalized an agreement for an unsecured line of
credit with a commercial bank under which it may borrow up to $250,000.
Borrowings under this line are due on demand. Interest, computed at the prime
rate, is payable monthly. The balance outstanding on this line of credit was
$225,000 at December 31, 1991.
In December, 1991 the Company obtained an additional $100,000 unsecured
line of credit with another commercial bank. This line expired January 31, 1992
and was subsequently extended to December 31, 1992. Interest on loans under this
line is at the prime rate plus one percent and is payable monthly. The balance
outstanding on this line of credit was $100,000 at December 31, 1991.
Subsequent to December 31, 1991 all loans under these agreements were paid
in full.
NOTE C -- COMMITMENTS
The Company conducts its operations in leased facilities under operating
leases that expire in September, 1994 and November, 1995 in Kansas City and St.
Louis, respectively. The Company maintains other operating leases which expire
in 1994. In addition, the Company leases equipment on a month-to-month basis.
The Company paid rent of approximately $159,000 in 1991 and $54,000 in 1990 for
all operating leases. The future annual minimum rentals at December 31, 1991 are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
<S> <C>
1992......................................................... $162,643
1993......................................................... 162,625
1994......................................................... 149,971
1995......................................................... 88,130
--------
Total minimum lease payments...................................... $563,369
--------
--------
</TABLE>
NOTE D -- STOCKHOLDERS' AGREEMENT
The Company is party to an agreement, as amended, with its stockholders
whereby the Company may repurchase certain stockholders' shares at a
predetermined price. Also pursuant to the agreement, the Company is required to
make annual distributions of not less than the aggregate income taxes payable
personally by the stockholders arising from the Company's taxable earnings (see
note I).
F-103
<PAGE> 351
AMERICAN HOME THERAPIES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE E -- CAPITAL STOCK
The capital stock of American Home Therapies, Inc. and Affiliate consisted
of the following as of December 31, 1991 and 1990:
<TABLE>
<CAPTION>
1991 1990
------ ------
<S> <C> <C>
Common stock
American Home Therapies, Inc.
Authorized 30,000 shares of $1 par value;
issued 5,700 shares......................................... $5,700 $5,700
American Home Therapies-Kansas City, Inc.
Class A
Authorized 15,000 shares of $.01 par value;
issued 700 shares........................................ 7 --
Class B
Authorized 15,000 shares of $.01 par value.................. -- --
------ ------
$5,707 $5,700
------ ------
------ ------
Treasury stock
American Home Therapies, Inc.
255 shares and 200 shares in 1991 and 1990 respectively -- at
cost......................................................... $ 255 $ 200
------ ------
------ ------
</TABLE>
NOTE F -- SIGNIFICANT CUSTOMERS
Sales to two customers were 23% and 11% of total sales for the year ended
December 31, 1991. Management believes that the Company has strong relationships
with these customers. There were no individually significant customers in 1990.
NOTE G -- PROFIT-SHARING PLAN
During 1990, the Company participated in a profit-sharing plan and trust
and a money-purchase plan and trust for the benefit of its employees meeting
certain eligibility requirements. Total contributions for 1990 were $10,360. At
December 31, 1990 the Company was not liable for any contributions under these
plans. As of January 1, 1991 the Company terminated its participation in these
plans.
Effective January 1, 1991 the Company adopted another profit-sharing plan
for the benefit of its employees meeting certain eligibility requirements. The
Company's contributions are discretionary and were $10,000 for the year ended
December 31, 1991.
NOTE H -- INCOME TAXES
The income taxes on the Company's net earnings are payable personally by
the stockholders pursuant to elections under Subchapter S of the Internal
Revenue Code. Accordingly, income taxes are not provided for in the financial
statements. Had these elections not been made, the income tax expense for
financial statement purposes would have been approximately $277,000 for 1991 on
an assumed consolidated basis and $248,000 for 1990. The Company utilizes a
modified cash method of accounting for income tax purposes.
F-104
<PAGE> 352
AMERICAN HOME THERAPIES, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE I -- SUBSEQUENT EVENTS
On April 1, 1992 the Company adopted a 401(k) plan for the benefit of all
eligible employees. The Company will make contributions to the plan based on a
percentage of the employees' contributions up to a maximum Company contribution
of 1.5% of the participants' eligible salaries.
On April 1, 1992 the Board of Directors declared a dividend of $29.09 on
each share outstanding as of December 30, 1991. The dividends, which totalled
$160,000, were paid in April, 1992.
On November 24, 1992 the Company's stockholders entered into a non-binding
agreement with an unrelated public company. The agreement provides, among other
things, for the shareholders of AHT and AHTKC to receive shares of the public
company's common stock in exchange for 100% of their stock in the Companies.
F-105
<PAGE> 353
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Stockholders of Delta Pharmacy, Inc., dba
Delta Pharmaceutical Services
Stockton, California
We have audited the accompanying balance sheets of Delta Pharmacy, Inc.,
dba Delta Pharmaceutical Services as of December 31, 1991 and October 31, 1992,
and the related statements of income, stockholders' equity and cash flows for
the two years ended December 31, 1991, and the ten month period ended October
31, 1992. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial position of Delta Pharmacy, Inc., dba
Delta Pharmaceutical Services as of December 31, 1991 and October 31, 1992, and
the results of its operations and its cash flows for the two years ended
December 31, 1991, and the ten month period ended October 31, 1992, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND
Sacramento, California
December 23, 1992
F-106
<PAGE> 354
DELTA PHARMACY, INC.
DBA
DELTA PHARMACEUTICAL SERVICES
BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1991 1992
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 84,772 $ 402,683
Accounts receivable (net of allowance of $106,200 and $90,200
at October 31, 1992 and December 31, 1991, respectively)... 1,106,511 1,083,676
Inventories................................................... 321,439 621,702
Investments................................................... -- 135,063
Deferred taxes................................................ -- 22,612
Other......................................................... 4,272 17,184
------------ -----------
Total current assets.................................. $1,516,994 $2,282,920
Property and equipment, net..................................... 284,755 252,413
Deferred taxes.................................................. -- 2,308
Other........................................................... 39,378 3,501
------------ -----------
Total assets.......................................... $1,841,127 $2,541,142
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 374,309 $ 343,156
Accrued expenses.............................................. 207,041 223,822
Income taxes payable.......................................... -- 144,720
Payable to parent for income taxes for 1992................... -- 103,769
Due to parent................................................. 456,592 445,506
------------ -----------
Total current liabilities............................. 1,037,942 1,260,973
------------ -----------
Stockholders' equity:
Common stock, at stated value (50,000 shares authorized, 1,500
shares issued and outstanding)............................. 1,500 1,500
Retained earnings............................................. 801,685 1,278,669
------------ -----------
Total stockholders' equity............................ 803,185 1,280,169
------------ -----------
Total liabilities and stockholders' equity............ $1,841,127 $2,541,142
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-107
<PAGE> 355
DELTA PHARMACY, INC.
DBA
DELTA PHARMACEUTICAL SERVICES
STATEMENTS OF INCOME
FOR THE TWO YEARS ENDED DECEMBER 31, 1991,
THE TEN MONTH PERIOD ENDED OCTOBER 31, 1992 AND
THE PERIOD FROM JANUARY 1, 1992 THROUGH DECEMBER 18, 1992
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JANUARY 1,
1992 THROUGH
1990 1991 1992 DECEMBER 18, 1992
---------- ---------- ---------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.............................. $5,107,239 $6,956,801 $7,594,246 $ 8,720,748
Cost of goods sold.................... 2,552,208 3,435,129 3,694,275 4,346,914
---------- ---------- ---------- -----------
Gross profit..................... 2,555,031 3,521,672 3,899,971 4,373,834
---------- ---------- ---------- -----------
Operating expenses:
Labor and related costs............. 1,226,049 1,771,146 1,897,186 2,144,171
Selling, general and
administrative................... 1,408,831 1,624,586 1,315,997 1,469,190
Unrealized loss on investments...... -- -- 20,827 20,827
---------- ---------- ---------- -----------
Total operating expenses......... 2,634,880 3,395,732 3,234,010 3,634,188
---------- ---------- ---------- -----------
Income (loss) from operations.... (79,849) 125,940 665,961 739,646
Other income, net..................... 27,273 12,427 34,592 11,914
---------- ---------- ---------- -----------
Income (loss) before income
taxes.......................... (52,576) 138,367 700,553 751,560
Provisions for income taxes........... 6,270 -- 223,569 248,489
---------- ---------- ---------- -----------
Net income (loss)................ $ (58,846) $ 138,367 $ 476,984 $ 503,071
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-108
<PAGE> 356
DELTA PHARMACY, INC.
DBA
DELTA PHARMACEUTICAL SERVICES
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TWO YEARS ENDED DECEMBER 31, 1991 AND
THE TEN MONTH PERIOD ENDED OCTOBER 31, 1992
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS
------ ------ ----------
<S> <C> <C> <C>
Balance, January 1, 1990...................................... 1,500 $1,500 $ 722,164
Net loss.................................................... (58,846)
------ ------ ----------
Balance, December 31, 1990.................................... 1,500 1,500 663,318
Net income.................................................. 138,367
------ ------ ----------
Balance, December 31, 1991.................................... 1,500 1,500 801,685
Net income.................................................. 476,984
------ ------ ----------
Balance, October 31, 1992..................................... $1,500 $1,500 $1,278,669
------ ------ ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-109
<PAGE> 357
DELTA PHARMACY, INC.
DBA
DELTA PHARMACEUTICAL SERVICES
STATEMENTS OF CASH FLOWS
FOR THE TWO YEARS ENDED DECEMBER 31, 1991 AND
THE TEN MONTH PERIOD ENDED OCTOBER 31, 1992
<TABLE>
<CAPTION>
1990 1991 1992
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income...................................... $(58,846) $ 138,367 $ 476,984
Reconciliation of net (loss) income to net cash
provided by operating activities:
Depreciation...................................... 119,213 124,483 95,880
Provision for bad debts........................... 8,191 62,800 16,000
Unrealized loss on investments.................... -- -- 20,827
Changes in assets and liabilities:
(Increase) decrease in accounts receivable..... (2,849) (427,067) 6,835
Increase in inventories........................ (44,517) (93,540) (300,263)
(Increase) decrease in other assets............ (16,196) 15,843 22,965
Increase (decrease) in accounts payable........ 79,125 150,992 (31,153)
Increase in deferred income taxes.............. -- -- (24,920)
(Decrease) increase in accrued expenses........ (19,334) 109,104 16,781
Increase in income taxes payable............... -- -- 144,720
Increase in payable to parent for income
taxes........................................ -- -- 103,769
-------- --------- ---------
Net cash provided by operating
activities.............................. 64,787 80,982 548,425
-------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment.................... (60,970) (161,279) (63,538)
Purchases of investments............................... -- -- (179,055)
Proceeds from sale of investments...................... -- -- 23,165
-------- --------- ---------
Net cash used in investing activities..... (60,970) (161,279) (219,428)
-------- --------- ---------
Cash flows from financing activities:
Advances from (repayment to) parent.................... 3,034 -- (11,086)
-------- --------- ---------
Net cash provided (used) by financing
activities.............................. 3,034 -- (11,086)
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents..... 6,851 (80,297) 317,911
Cash and cash equivalents, beginning of period........... 158,218 165,069 84,772
-------- --------- ---------
Cash and cash equivalents, end of period................. $165,069 $ 84,772 $ 402,683
-------- --------- ---------
-------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for:
Income taxes........................................ $ -- $ -- $ --
Interest............................................ -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements
F-110
<PAGE> 358
DELTA PHARMACY, INC.
DBA
DELTA PHARMACEUTICAL SERVICES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
Delta Pharmacy, Inc., dba Delta Pharmaceutical Services (the Company),
primarily owns and operates an institutional pharmacy providing comprehensive
health care services in the long-term and home-care markets.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
temporary cash investments with a maturity of three months or less and money
market accounts to be cash equivalents. At October 31, 1992, the Company held
approximately $173,000 in a money market account with a major brokerage firm.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market and are comprised primarily of products held for resale.
Investments
Investments consist primarily of marketable equity securities and are
stated at market. The determination of cost of investments sold is by the
specific identification method.
Revenue Recognition
The Company records fees at the time the service or supplies are provided.
Revenue is reported at the estimated net realizable amounts expected to be
received from individuals, third party payors, or others for services and
supplies provided. Accounts receivable outstanding on the accompanying balance
sheets are primarily from long-term care facilities, individuals and state
medical assistance programs.
Included in revenues is consulting revenue of $64,056 and $135,403 for the
years ended December 31, 1990 and 1991 and $114,124 for the ten month period
ended October 31, 1992, respectively. The corresponding costs are included in
operating expenses.
Interim Period
The statements of operations for the period from January 1, 1992 through
December 18, 1992 is unaudited, but, in the opinion of management of the
Company, includes all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly, in all material respects, the results
of operations.
2. INVESTMENTS:
The detail of investments owned at October 31, 1992, is as follows:
<TABLE>
<CAPTION>
UNREALIZED
COST MARKET LOSS
--------- --------- ----------
<S> <C> <C> <C>
Common stock.............................. $ 155,890 $ 135,063 $(20,827)
----------
----------
Value allowance........................... $(20,827)
----------
----------
</TABLE>
A net realized loss of approximately $200 from the sale of marketable
securities was included in the determination of net income for the ten month
period ended October 31, 1992.
F-111
<PAGE> 359
DELTA PHARMACY, INC.
DBA
DELTA PHARMACEUTICAL SERVICES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT, NET:
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1991 1992
------------ -----------
<S> <C> <C>
Furniture, fixtures and equipment............... $701,615 $ 765,153
Leasehold improvements.......................... 18,358 18,358
------------ -----------
719,973 783,511
Less accumulated depreciation and
amortization.................................. 435,218 531,098
------------ -----------
$284,755 $ 252,413
------------ -----------
------------ -----------
</TABLE>
Depreciation and amortization is computed for financial reporting purposes
using the straight-line and declining balance methods. The following is a
summary of the estimated useful lives on which depreciation is based:
<TABLE>
<S> <C>
Furniture fixtures and equipment............................ 5 years
Leasehold improvements...................................... 5 years
</TABLE>
Maintenance, repairs and minor replacements are charged to expense. Major
renovations and replacements are capitalized to appropriate property and
equipment accounts. Upon sale or retirement of property, the cost and related
accumulated depreciation are eliminated from the accounts and the related gain
or loss is taken into income.
4. INCOME TAXES:
For periods through June 15, 1992, the Company was included in consolidated
income tax returns of its parent, Crestwood Management Services, Inc. The
parent's income tax allocation policy was determined on an annual basis and
primarily resulted in the Company recording intercompany income tax provisions
determined on a separate return basis, without regard to deferred taxes, through
December 31, 1990. For the year ended December 31, 1991, no intercompany income
tax provisions were made.
For the period January 1, 1992 through June 15, 1992, the Company recorded
an intercompany tax provision considering the availability of a net operating
loss carryforward of the parent and without regard to deferred taxes.
For the period from June 16, 1992 through October 31, 1992, the Company
determined its tax provision as a separate entity as it is no longer included in
the consolidated return of its former parent, due to ownership changes.
F-112
<PAGE> 360
DELTA PHARMACY, INC.
DBA
DELTA PHARMACEUTICAL SERVICES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The provision for income taxes is composed of the following:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1
YEARS ENDED TO
DECEMBER 31, OCTOBER 31,
-------------------- -----------
1990 1991 1992
------- ------- -----------
<S> <C> <C> <C>
Currently payable:
Federal or parent........................ $ 3,236 $ -- $ 180,233
State or parent.......................... 3,034 -- 68,256
------- ------- -----------
6,270 -- 248,489
------- ------- -----------
Deferred:
Federal.................................. -- -- (21,555)
State.................................... -- -- (3,365)
------- ------- -----------
-- -- (24,920)
------- ------- -----------
Provision for income taxes................. $ 6,270 $ -- $ 223,569
------- ------- -----------
------- ------- -----------
</TABLE>
Total sources of deferred income taxes are as follows:
<TABLE>
<S> <C> <C> <C>
State income taxes......................... $ -- $ -- (7,242)
Depreciation............................... -- -- (2,308)
Employee compensation...................... -- -- (8,155)
Other...................................... -- -- (7,215)
------- ------- -----------
$ -- $ -- $ (24,920)
------- ------- -----------
------- ------- -----------
</TABLE>
The provision for income taxes varies from the amount computed by applying
the federal tax statutory rate of 34% as follows:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1
YEARS ENDED TO
DECEMBER 31, OCTOBER 31,
--------------------- -----------
1990 1991 1992
-------- -------- -----------
<S> <C> <C> <C>
Tax computed at statutory rates.................. $(20,008) $ 47,045 $ 238,188
State income taxes, net of federal deduction..... -- 8,880 44,297
Effect of federal graduated tax rates............ -- (23,643) --
Other............................................ 1,619 2,147 2,725
-------- -------- -----------
Tax on income before tax allocation adjustment... (18,389) 34,429 285,210
-------- -------- -----------
Tax allocation adjustment........................ 24,659 (34,429) (61,641)
-------- -------- -----------
Provision for income taxes....................... $ 6,270 $ -- $ 223,569
-------- -------- -----------
-------- -------- -----------
</TABLE>
5. RELATED PARTY TRANSACTIONS:
The Company provides pharmaceutical dispensing, infusion therapy and
pharmacy consulting services to nursing facilities owned and operated by
Crestwood Hospitals, Inc. (which is related to the Company through common
ownership), and the patients of these facilities. Sales of pharmaceutical and
infusion therapy products and services to Crestwood nursing facilities are made
at prices charged to other customers. Revenues from sales to Crestwood nursing
facilities and patients, which are included in net revenues in the statements of
income, were approximately $3,000,000 and $3,374,000 for the years ended
December 31, 1990 and 1991 and
F-113
<PAGE> 361
DELTA PHARMACY, INC.
DBA
DELTA PHARMACEUTICAL SERVICES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
$3,400,000 for the ten months ended October 31, 1992, respectively. Accounts
receivable from Crestwood nursing facilities and patients were $263,000 and
$253,000 as of December 31, 1991 and October 31, 1992, respectively.
Crestwood provides various services to the Company, including among others,
payroll and payables processing and employee benefit plan administrative
services. For the years ended December 31, 1990 and 1991, management fees of
$140,000 and $70,000, respectively, were charged to the Company. There were no
fees charged to the Company in the ten month period ended October 31, 1992.
Crestwood provides insurance coverage for group health and auto liability
through its outside insurance programs and charges the Company based on the
relative percentage of insurance costs incurred by Crestwood on the Company's
behalf. Total insurance costs allocated were $42,460 and $80,268 for the years
ended December 31, 1990 and 1991 and $63,757 for the ten month period ended
October 31, 1992, respectively.
The Company leases its corporate offices from DPS Investments, a
partnership which is related to the Company through common ownership. Rent
expense under the lease was $110,512 and $110,709 for the years ended December
31, 1990 and 1991 and $100,312 for the ten month period ended October 31, 1992,
respectively. The current lease commitment, effective December 18, 1992, is to
December 31, 1995, and is as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
----------------------- ---------
<S> <C>
1992 (November 1, 1992 to December 31, 1992)...................... $ 17,819
1993.............................................................. 72,960
1994.............................................................. 75,876
1995.............................................................. 78,912
---------
$ 245,567
---------
---------
</TABLE>
The Company has agreed to enter into pharmacy, infusion therapy and
consulting agreements with Crestwood whereby the Company has the option to
provide pharmaceutical products and services, infusion therapy products and
services, and pharmacy consulting services to Crestwood. The agreements will
remain in effect indefinitely, unless terminated by either party upon 30 days
written notice.
6. COMMITMENTS:
The Company utilized certain equipment under operating leases that expire
at various dates through 1996. Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
----------------------- --------
<S> <C>
1992 (November 1, 1992 to December 31, 1992)...................... $ 21,491
1993.............................................................. 97,490
1994.............................................................. 40,892
1995.............................................................. 7,797
1996.............................................................. 3,581
--------
$171,251
--------
--------
</TABLE>
Rent expense under these operating leases was $16,927 and $75,336 for the
years ended December 31, 1990 and 1991 and $76,661 for the ten month period
ended October 31, 1992, respectively.
F-114
<PAGE> 362
DELTA PHARMACY, INC.
DBA
DELTA PHARMACEUTICAL SERVICES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. RETIREMENT PLAN:
The Company is a participant in a defined contribution retirement plan
through Crestwood for which substantially all full time employees are eligible.
Pension costs are funded as accrued. The Company makes a discretionary
contribution to the plan which is allocated to each participant based on salary
as a percentage of total participant salaries. Pension expense was $1,580 and
$6,461 for the years ended December 31, 1990 and 1991, respectively. There was
no contribution to the plan in the ten month period ended October 31, 1992.
8. DEPOSITS IN EXCESS OF FEDERAL INSURANCE LIMITS:
The Company deposits its cash in one financial institution. These deposits
exceeded the federally insured limit by approximately $173,000 at October 31,
1992.
9. SUBSEQUENT EVENT:
Effective December 18, 1992, the Company's outstanding common stock was
acquired by Medisys, Inc.
F-115
<PAGE> 363
REPORT OF INDEPENDENT ACCOUNTANTS
To the Sole Stockholder and Director
Pharmacy Consultants of Arizona, Inc.
We have audited the accompanying balance sheet of Pharmacy Consultants of
Arizona, Inc. as of April 30, 1992, and the related statements of operations and
retained earnings, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pharmacy Consultants of
Arizona, Inc. as of April 30, 1992, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND
Phoenix, Arizona
July 10, 1992
F-116
<PAGE> 364
PHARMACY CONSULTANTS OF ARIZONA, INC.
BALANCE SHEET
APRIL 30, 1992
A S S E T S
<TABLE>
<S> <C>
Current assets:
Cash........................................................................... $ 7,028
Accounts receivable, net of allowance for doubtful accounts of $100,000........ 592,409
Inventories.................................................................... 215,048
Prepaid expenses............................................................... 3,628
Deferred income taxes.......................................................... 38,783
----------
Total current assets................................................... 856,896
Property and equipment, net...................................................... 138,639
Deposits and other............................................................... 7,874
----------
$1,003,409
----------
----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank overdraft................................................................. $ 11,451
Notes payable to bank.......................................................... 128,159
Current portion of capital lease obligations................................... 62,971
Accounts payable............................................................... 218,105
Accrued expenses............................................................... 64,191
Income taxes payable........................................................... 68,618
Due to officer................................................................. 9,429
----------
Total current liabilities.............................................. 562,924
Capital lease obligations, net................................................... 36,416
----------
Total liabilities...................................................... 599,340
----------
Stockholder's equity:
Common stock, no par value; 1,000,000 shares authorized, 658,000 shares issued
and outstanding............................................................. 5,000
Retained earnings.............................................................. 399,069
----------
Total stockholder's equity............................................. 404,069
----------
$1,003,409
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-117
<PAGE> 365
PHARMACY CONSULTANTS OF ARIZONA, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED APRIL 30, 1992 AND
THE PERIOD FROM JANUARY 1, 1992 THROUGH APRIL 30, 1992
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 1, 1992
THROUGH APRIL 30,
-------------------
1992 1992
---------- -------------------
(UNAUDITED)
<S> <C> <C>
Net revenues................................................... $3,697,072 $ 1,217,777
Direct costs................................................... 2,918,381 895,701
---------- -----------
Gross profit......................................... 778,691 322,076
Selling, general and administrative............................ 535,771 245,683
---------- -----------
Income from operations............................... 242,920 76,393
Other income (expense):
Interest..................................................... (43,632) (14,144)
Miscellaneous................................................ 1,650 (4,514)
---------- -----------
Income before taxes.................................. 200,938 57,735
Income taxes................................................... 79,000 20,273
---------- -----------
Net income........................................... 121,938 $ 37,462
-----------
-----------
Retained earnings at beginning of year......................... 277,131
----------
Retained earnings at end of year............................... $ 399,069
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-118
<PAGE> 366
PHARMACY CONSULTANTS OF ARIZONA, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED APRIL 30, 1992
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 121,938
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 52,463
Bad debt provision.......................................................... 111,205
Gain on sale of equipment................................................... (3,000)
Change in assets and liabilities, net:
Increase in accounts receivable........................................... (126,513)
Increase in inventories................................................... (19,420)
Increase in prepaid expenses.............................................. (3,629)
Decrease in deposits and other............................................ 717
Decrease in deferred income taxes......................................... 4,735
Increase in bank overdraft................................................ 11,451
Decrease in accounts payable.............................................. (53,513)
Decrease in accrued expenses.............................................. (15,911)
Increase in due to officer................................................ 3,575
Increase in income taxes payable.......................................... 38,982
---------
Net cash provided by operating activities.............................. 123,080
---------
Cash flows from investing activities:
Purchases of property and equipment............................................ (10,484)
Proceeds from sale of property and equipment................................... 3,000
---------
Net cash used in investing activities.................................. (7,484)
---------
Cash flows from financing activities:
Principal payments on notes payable to bank.................................... (56,456)
Principal payments on capital lease obligations................................ (62,121)
---------
Net cash used in financing activities.................................. (118,577)
---------
Net decrease in cash............................................................. (2,981)
Cash at beginning of year........................................................ 10,009
---------
Cash at end of year.............................................................. $ 7,028
---------
---------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.................................................................... $ 44,415
Income taxes................................................................ 34,487
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-119
<PAGE> 367
PHARMACY CONSULTANTS OF ARIZONA, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED APRIL 30, 1992
1. DESCRIPTION OF BUSINESS:
Pharmacy Consultants of Arizona, Inc. (the "Company") was incorporated in
the State of Arizona on November 1, 1985. The Company is a provider of pharmacy
services to long-term care and retirement communities.
2. SIGNIFICANT ACCOUNTING POLICIES:
Inventories
Inventories consist primarily of pharmaceuticals and are stated at the
lower of cost or market. The cost of all inventories is determined on a
first-in, first-out (FIFO) basis.
Property and Equipment
Property and equipment are recorded at cost and include expenditures which
substantially extend useful lives of property and equipment. Maintenance and
repair costs are charged to expense as incurred. Upon retirement or disposal,
the asset cost and related accumulated depreciation are removed from the
respective amounts and the resulting gain or loss is included in operations.
Depreciation is computed using an accelerated method based on the estimated
useful lives of the assets which range from 5 to 7 years.
Income Taxes
Income taxes are provide in accordance with Statement of Financial
Accounting Standards No. 96, "Accounting for Income Taxes." Under the provisions
of Statement No. 96, deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year end. Management
does not anticipate an impact resulting when the Company adopts Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes."
Interim Period
The statement of operations for the period from January 1, 1992 through
April 30, 1992, is unaudited, but, in the opinion of management of the Company,
includes all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly, in all material respects, the results of
operations.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<S> <C>
Furniture, fixtures and equipment................................. $391,671
Leasehold improvements............................................ 14,142
--------
405,813
Less accumulated depreciation and amortization.................... 267,174
--------
$138,639
--------
--------
</TABLE>
Assets included above which are under capital lease obligations amount to
$193,330 less $102,276 accumulated amortization at April 30, 1992.
F-120
<PAGE> 368
PHARMACY CONSULTANTS OF ARIZONA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE TO BANK:
Notes payable to bank consist of the following:
<TABLE>
<S> <C>
Promissory note, monthly installments of $8,333 plus interest at prime
plus 2 1/2%, remaining principal and interest due on October 1, 1992.... $ 66,668
Promissory note, monthly installments of $2,024 including interest at
prime plus 2%, remaining principal and interest due on May 15, 1995..... 61,491
--------
$128,159
--------
--------
</TABLE>
Substantially all accounts receivable and inventory are pledged as
collateral for the notes payable to bank. At April 30, 1992 the prime interest
rate was 6 1/2%. Subsequent to April 30, 1992, the outstanding principal and
interest on the notes payable to bank were paid in full.
5. CAPITAL LEASE OBLIGATIONS:
The Company leases equipment under capital lease agreements with lease
periods expiring on various dates through the year 1995. Future minimum lease
payments under capital leases together with the present value of the net minimum
lease payments as of April 30, 1992 are as follows:
<TABLE>
<S> <C>
For years ended April 30:
1993................................................................. $ 74,645
1994................................................................. 37,592
1995................................................................. 2,070
--------
114,307
Less amount representing interest......................................... 14,920
--------
$ 99,387
--------
--------
</TABLE>
6. INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<S> <C>
Current............................................................... $74,265
Deferred.............................................................. 4,735
--------
$79,000
--------
--------
</TABLE>
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the income tax basis of the Company's assets
and liabilities. The principal items that result in such differences are the
accounts receivable allowance and vacation accrual. The Company recorded no
valuation allowance for the deferred tax asset because this amount can be
carried back against income taxes paid in prior years.
The primary difference in the Company's effective rate of 39% and the
Federal Statutory rate of 34% is state income taxes.
F-121
<PAGE> 369
PHARMACY CONSULTANTS OF ARIZONA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS:
The Company leases it pharmacy and corporate office space under various
operating lease agreements with lease periods expiring through 1994. In addition
to minimum rentals, certain lease agreements provide for scheduled increases
based on the consumer price index, along with the payment of taxes and
maintenance. At April 30, 1992, the future minimum payments required under all
noncancellable operating leases are as follows:
<TABLE>
<S> <C>
1993....................................................................... $49,166
1994....................................................................... 28,801
--------
$77,967
--------
--------
</TABLE>
Rent expense was $79,219 for the year ended April 30, 1992.
In October 1991, the Company purchased contractual obligations relating to
the provision of pharmaceutical supplies and services for five nursing homes.
Under the terms of the purchase agreement, the purchase price to be paid by the
Company is 10% of the monthly gross billings to the five nursing homes over a
two year period ending September 1993. In the event any of the five nursing
homes terminate their contract before the two year period expires, the minimum
purchase price is $60,000. As of April 30, 1992, the Company has paid $31,386
under this purchase agreement.
8. RELATED PARTIES:
The Company's due to officer balance of $9,429 at April 30, 1992 represents
deductions from an officer's payroll to improve the Company's cash flow, as well
as an accumulation of the Company's expenses paid by the officer offset by
individual expenses of the officer paid by the Company. Subsequent to April 30,
1992, the amount due to the officer was paid in full.
9. SUBSEQUENT EVENT:
In May 1992, the Company was acquired by MEDISYS, Inc.
F-122
<PAGE> 370
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
Pharmacy Ventures, Inc.
D.B.A. Five Star Pharmacy:
We have audited the accompanying balance sheet of Pharmacy Ventures, Inc.
D.B.A. Five Star Pharmacy as of September 30, 1992, and the related statements
of operations and retained deficit, and cash flows for the nine-month period
then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pharmacy Ventures, Inc.
D.B.A. Five Star Pharmacy as of September 30, 1992, and the results of its
operations and its cash flows for the nine-month period then ended in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND
Dallas, Texas
December 22, 1992
F-123
<PAGE> 371
PHARMACY VENTURES, INC.
D.B.A. FIVE STAR PHARMACY
BALANCE SHEET
SEPTEMBER 30, 1992
<TABLE>
<S> <C>
A S S E T S
CURRENT ASSETS:
Cash........................................................................... $ 78,395
Accounts receivable, net of allowance for doubtful accounts of $44,000......... 329,355
Inventories.................................................................... 167,233
---------
Total current assets................................................... 574,983
PROPERTY AND EQUIPMENT, net...................................................... 109,532
Organization costs, net of accumulated amortization.............................. 6,790
---------
$ 691,305
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.............................................. $ 33,147
Accounts payable............................................................... 140,871
Accrued expenses............................................................... 56,720
---------
Total current liabilities.............................................. 230,738
LONG-TERM DEBT, less current portion............................................. 30,218
---------
Total liabilities...................................................... 260,956
---------
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 1,000 shares authorized, 500 shares
issued and outstanding...................................................... 500
Paid-in capital................................................................ 726,160
Retained deficit............................................................... (296,311)
---------
Total stockholders' equity............................................. 430,349
---------
$ 691,305
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-124
<PAGE> 372
PHARMACY VENTURES, INC.
D.B.A. FIVE STAR PHARMACY
STATEMENT OF OPERATIONS AND RETAINED DEFICIT
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1992
AND THE PERIOD FROM JANUARY 1, 1992 THROUGH OCTOBER 26, 1992
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JANUARY 1,
1992 THROUGH
1992 OCTOBER 26, 1992
---------- ----------------
(UNAUDITED)
<S> <C> <C>
Net revenues..................................................... $1,803,595 $1,955,698
Direct costs..................................................... 1,261,951 1,338,382
---------- ----------
Gross profit................................................... 541,644 617,316
Selling, general and administrative.............................. 269,635 294,322
---------- ----------
Income before taxes............................................ 272,009 322,994
State income taxes............................................... 14,000 14,000
---------- ----------
Net income..................................................... 258,009 $ 308,994
----------
----------
Retained deficit January 1, 1992................................. (523,320)
Dividends paid to stockholders ($6.20 per share)................. (31,000)
----------
Retained deficit September 30, 1992.............................. $ (296,311)
----------
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-125
<PAGE> 373
PHARMACY VENTURES, INC.
D.B.A. FIVE STAR PHARMACY
STATEMENT OF CASH FLOWS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1992
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 258,009
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and amortization............................................... 30,323
Loss on disposal of equipment............................................... 1,561
CHANGE IN ASSETS AND LIABILITIES, NET:
Increase in accounts receivable........................................... (169,748)
Increase in inventories................................................... (92,132)
Increase in accounts payable.............................................. 51,078
Increase in accrued expenses.............................................. 34,322
---------
Net cash provided by operating activities.............................. 113,413
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................ (42,877)
Proceeds from disposal of property and equipment............................... 4,227
---------
Net cash used in investing activities.................................. (38,650)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt....................................... 37,717
Principal payments on long-term debt........................................... (19,983)
Dividends paid to stockholders................................................. (31,000)
---------
Net cash used in financing activities.................................. (13,266)
---------
Net increase in cash............................................................. 61,497
Cash at beginning of period...................................................... 16,898
---------
Cash at end of period............................................................ $ 78,395
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest.................................................................... $ 3,208
State income taxes.......................................................... --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-126
<PAGE> 374
PHARMACY VENTURES, INC.
D.B.A. FIVE STAR PHARMACY
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Pharmacy Ventures, Inc. D.B.A. Five Star Pharmacy (the "Company") was
incorporated in the State of Texas on October 19, 1988. The Company is a
provider of pharmacy services to long-term care and retirement communities. The
Company grants credit to its customers, substantially all of whom are located in
North Texas.
2. SIGNIFICANT ACCOUNTING POLICIES:
Inventories
Inventories consist primarily of pharmaceuticals and are stated at the
lower of cost or market. The cost of all inventories is determined on a
first-in, first-out ("FIFO") basis.
Property and Equipment
Property and equipment are recorded at cost and include expenditures which
substantially extend useful lives of property and equipment. Maintenance and
repair costs are charged to expenses as incurred. Upon retirement or disposal,
the asset cost and related accumulated depreciation are removed from the
respective accounts and the resulting gain or loss is included in operations.
Depreciation is computed using an accelerated method based on the estimated
useful lives of the assets which range from five to seven years.
Federal Income Taxes
The Company has elected to become an "S" Corporation and be taxed under
Section 1362 of the Internal Revenue Code. The income of the Company is
reportable by the stockholders on their individual federal income tax returns;
accordingly, no provision for federal income tax is shown in the financial
statements.
Interim Period:
The statement of operations for the period from January 1, 1992 through
October 26, 1992 are unaudited, but, in the opinion of management of the
Company, includes all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly, in all material respects, the results
of operations.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following as of September 30, 1992:
<TABLE>
<S> <C>
Furniture, fixture and equipment.................................. $ 63,837
Computer system................................................... 68,133
Medical carts..................................................... 86,552
Automobiles....................................................... 24,782
--------
243,304
Less accumulated depreciation..................................... 133,772
--------
$109,532
--------
--------
</TABLE>
F-127
<PAGE> 375
PHARMACY VENTURES, INC.
D.B.A. FIVE STAR PHARMACY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT:
Long-term debt consists of the following as of September 30, 1992:
<TABLE>
<S> <C>
Note payable to a financial institution dated June 30, 1992,
monthly installments of $242 including interest computed at 8%
and maturing June 30, 1995. Note is collateralized by
automobile....................................................... $ 7,196
Note payable to a financial institution dated July 29, 1992,
monthly installments of $1,250 plus interest at prime plus 2.5%
(prime rate was 6.0% at September 30, 1992) beginning August 29,
1992 and maturing July 29, 1994. Note is collateralized by all
accounts receivable, inventory, furniture, fixtures and equipment
and unlimited personal guarantees of five original partners...... 27,500
Notes payable to a former stockholder consisting of five notes with
various dates ranging from April 1, 1991 through August 1, 1991
with monthly installments ranging from $163 to $480 and including
interest ranging from 9.5% to 10.5%. Maturity dates range from
May 1, 1994 to October 1, 1994................................... 28,669
-------
63,365
Less current portion............................................... 33,147
-------
$30,218
-------
-------
</TABLE>
Maturities of long-term debt for the years ending September 30 are as
follows:
<TABLE>
<S> <C>
1993............................................................... $33,147
1994............................................................... 27,850
1995............................................................... 2,368
-------
$63,365
-------
-------
</TABLE>
Interest expense for the nine-month period ended September 30, 1992 is
$2,491.
5. COMMITMENTS:
The Company leases its pharmacy and corporate office space as well as some
equipment under various operating lease agreements with lease periods expiring
through September 1994. At September 30, 1992, the future minimum payments
required under all noncancellable operating leases are as follows:
<TABLE>
<S> <C>
1993............................................................... $12,390
1994............................................................... 3,840
-------
$16,230
-------
-------
</TABLE>
Rent expense was $13,619 for the nine-month period ended September 30,
1992.
6. SUBSEQUENT EVENT:
On October 26, 1992, the Company was acquired by MEDISYS, Inc.
F-128
<PAGE> 376
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
AllCare Health Services, Inc. and AllCare Home Care, Inc.
Des Plaines, Illinois
We have audited the accompanying combined balance sheets of AllCare Health
Services, Inc. (a Delaware corporation) and AllCare Home Care, Inc. (an Illinois
corporation) as of December 31, 1991, 1990 and 1989 and the related combined
statements of changes in stockholders' equity, income, and cash flows for the
years then ended. The combined financial statements include the financial
statements of AllCare Health Services, Inc. and AllCare Home Care, Inc., which
are related through common ownership and management. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express and opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and the 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of AllCare Health
Services, Inc. and AllCare Home Care, Inc. as of December 31, 1991, 1990 and
1989, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
Karlin, Kerschner, Sharpe & Company
Northbrook, Illinois
January 19, 1993 (Note 2)
F-129
<PAGE> 377
ALLCARE HEALTH SERVICES, INC. AND ALLCARE HOME CARE, INC.
COMBINED BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1991 1990 1989
----------- ----------- ---------
<S> <C> <C> <C>
CURRENT ASSETS
Cash.................................................. $ 188,173 $ 116,004 $ 118,234
Accounts Receivable (Net of Allowance for Doubtful
Accounts of $62,150, $56,431 and $41,400,
Respectively) (Note 2)............................. 1,018,566 773,042 588,547
Advances to Affiliates (Note 4)....................... 21,832 15,886 27,244
Prepaid Expenses and Other Receivables................ 81,946 45,342 35,064
Inventory (Note 2).................................... 102,421 78,929 50,041
Life Insurance Proceeds Receivable (Note 7)........... -- 500,000 --
----------- ----------- ---------
Total Current Assets.......................... 1,412,938 1,529,203 819,130
DEPRECIABLE ASSETS (Net of Accumulated Depreciation)
(Note 2).............................................. 133,785 122,313 153,732
OTHER ASSETS
Other Investments (Note 2)............................ 25,172 -- --
Intangible Assets (Net of Accumulated Amortization)
(Note 2)........................................... 5,667 -- --
Deposits.............................................. 10,643 9,094 15,654
----------- ----------- ---------
Total Other Assets............................ 41,482 9,094 15,654
----------- ----------- ---------
Total Assets............................................ $ 1,588,205 $ 1,660,610 $ 988,516
----------- ----------- ---------
----------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note Payable (Note 3)................................. $ 57,000 $ 107,000 $ 33,250
Notes Payable -- Stockholders (Note 3)................ 142,500 -- --
Accounts Payable...................................... 265,592 177,668 102,162
Accrued Liabilities................................... 117,270 102,123 119,484
Client Credit Balances................................ 70,441 39,656 29,725
Due to Former Stockholder (Note 7).................... -- 260,685 --
----------- ----------- ---------
Total Current Liabilities..................... 652,803 687,132 284,621
Commitments (Note 5).................................... -- -- --
STOCKHOLDERS' EQUITY.................................... 935,402 973,478 703,895
----------- ----------- ---------
Total Liabilities and Stockholders' Equity.............. $ 1,588,205 $ 1,660,610 $ 988,516
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of this statement.
F-130
<PAGE> 378
ALLCARE HEALTH SERVICES, INC. AND ALLCARE HOME CARE, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JANUARY 1, FOR THE YEARS ENDED DECEMBER 31,
1992 THROUGH --------------------------------------
DECEMBER 4, 1992 1991 1990 1989
---------------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue
Services................................. $1,714,674 $1,048,880 $1,264,452
---------- ---------- ----------
Pharmaceuticals and Medical Supplies..... 2,106,626 1,565,508 1,103,669
Net Revenue...................... $5,726,872 3,821,300 2,614,388 2,368,121
---------- ---------- ---------- ----------
Direct Expenses
Services................................. 1,210,023 707,670 861,000
Pharmaceuticals and Medical Supplies..... 485,910 395,749 282,518
---------- ---------- ----------
Total Direct Expenses............ 2,709,948 1,695,933 1,103,419 1,143,518
---------- ---------- ---------- ----------
Income before Administrative Expenses...... 3,016,924 2,125,367 1,510,969 1,224,603
Administrative Expenses.................... 2,202,427 1,769,781 1,236,525 1,072,954
---------- ---------- ---------- ----------
Income from Operations before Other Income
(Expense)................................ 814,467 355,586 274,444 151,649
---------- ---------- ---------- ----------
Other Income (Expense)
Interest -- Net.......................... 10,963 5,356 2,619 9,508
Stock Award Program (Note 9)............. (262,563) -- --
---------- ---------- ---------- ----------
Total Other Income (Expense)..... 10,963 (257,207) 2,619 9,508
---------- ---------- ---------- ----------
Income from Continuing Operations.......... 825,460 98,379 277,063 161,157
Discontinued Operations
(Loss) from Operations of Discontinued
Division (Note 8)..................... -- -- (81,815) --
---------- ---------- ---------- ----------
Income before Extraordinary Item........... 825,460 98,379 195,248 161,157
Extraordinary Item -- Life Insurance
Proceeds (Note 7)........................ -- -- 500,000 --
---------- ---------- ---------- ----------
Net Income................................. $ 825,460 $ 98,379 $ 695,248 $ 161,157
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-131
<PAGE> 379
ALLCARE HEALTH SERVICES, INC. AND ALLCARE HOME CARE, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1991, 1990 AND 1989
<TABLE>
<CAPTION>
TOTAL
CAPITAL TREASURY PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
------- --------- -------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance -- January 1, 1989.......................... $14,283 $ -0- $146,360 $ 382,095 $ 542,738
Net Income for the Year Ended December 31, 1989..... 161,157 161,157
------- --------- -------- --------- -------------
Balance -- December 31, 1989........................ 14,283 -0- 146,360 543,252 703,895
Net Income for the Year Ended December 31, 1990..... 695,248 695,248
Distributions to Stockholders....................... (164,980) (164,980)
Purchase of Treasury Stock (Note 10)................ (176,528) (74,338) (250,866)
Redemption of Stock (Note 10)....................... (1,473) (8,346) (9,819)
------- --------- -------- --------- -------------
Balance -- December 31, 1990........................ 12,810 (176,528) 138,014 999,182 973,478
Net Income for the Year Ended December 31, 1991..... 98,379 98,379
Distributions to Stockholders....................... (363,800) (363,800)
Stock Awards (Note 10).............................. 1,091 176,528 115,726 293,345
Stock Issuance (Note 10)............................ 1,473 7,527 9,000
------- --------- -------- --------- -------------
Balance -- December 31, 1991........................ $15,374 $ -0- $261,267 $ 733,761 $ 1,010,402
Stock Subscription Receivable (Note 10)............. (75,000)
-------------
Total Stockholders' Equity.......................... $ 935,402
-------------
-------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-132
<PAGE> 380
ALLCARE HEALTH SERVICES, INC. AND ALLCARE HOME CARE, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1991 1990 1989
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income................................................ $ 98,379 $ 695,248 $ 161,157
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation and Amortization.......................... 49,339 34,920 34,349
Life Insurance Proceeds................................ -- (500,000) --
Stock Award Compensation............................... 202,345 -- --
(Gain) Loss on Disposal of Assets...................... 615 1,182 (801)
(Increase) in Accounts Receivable...................... (245,524) (184,493) (195,463)
(Increase) Decrease in Advances to Affiliates.......... (5,946) 11,358 4,596
Decrease in Refundable Income Taxes.................... -- -- 10,981
(Increase) Decrease in Prepaid Expenses and Other
Receivables.......................................... 3,396 (10,278) 2,133
(Increase) in Inventory................................ (23,492) (28,889) (16,006)
Increase in Accounts Payable........................... 47,924 75,505 14,903
Increase (Decrease) in Accrued Liabilities............. 15,147 (17,359) 49,564
(Decrease) in Deferred Liability....................... -- -- (5,934)
Increase in Client Credit Balances..................... 30,785 9,931 29,725
--------- --------- ---------
Net Cash Provided by Operating Activities................... 172,968 87,125 89,204
--------- --------- ---------
Cash Flows from Investing Activities:
Proceeds from Sale of Depreciable Assets.................. 1,972 -- 1,000
Purchase of Depreciable Assets............................ (53,065) (4,683) (67,076)
(Increase) Decrease in Security Deposits.................. (1,549) 6,560 (12,099)
Life Insurance Proceeds................................... 500,000 -- --
Investments............................................... (25,172) -- --
Purchase of Intangible Assets............................. (16,000) -- --
Redemption of Company Stock............................... (260,685) -- --
--------- --------- ---------
Net Cash Provided (Used) by Investing Activities............ 145,501 1,877 (78,175)
--------- --------- ---------
Cash Flows from Financing Activities:
Borrowings on Line of Credit.............................. -- 73,750 33,250
Repayment of Line of Credit............................... (50,000) -- --
Repayment of Notes Payable................................ -- -- (10,543)
Distributions to Stockholders............................. (363,800) (164,982) --
Loans from Stockholders................................... 142,500 -- --
Proceeds from Sale of Common Stock........................ 25,000 -- --
--------- --------- ---------
Net Cash Provided (Used) by Financing Activities............ (246,300) (91,232) 22,707
--------- --------- ---------
Net Increase (Decrease) in Cash............................. 72,169 (2,230) 33,736
Cash -- Beginning of Year................................... 116,004 118,234 84,498
--------- --------- ---------
Cash -- End of Year......................................... $ 188,173 $ 116,004 $ 118,234
--------- --------- ---------
--------- --------- ---------
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest............................................... $ 14,690 $ 8,381 $ 3,179
State income taxes..................................... 6,173 4,077 1,424
</TABLE>
The accompanying notes are an integral part of this statement
F-133
<PAGE> 381
ALLCARE HEALTH SERVICES, INC. AND ALLCARE HOME CARE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1991, 1990 AND 1989
NOTE 1 -- NATURE OF ORGANIZATION
AllCare Health Services, Inc. (AllCare), located in Des Plaines, Illinois,
was incorporated in the State of Delaware on November 4, 1983. It was organized
to provide in-home medical care and related services.
AllCare Home Care, Inc. (Home Care), located in Des Plaines, Illinois, was
incorporated in the State of Illinois on December 15, 1983. The Company is a
certified Medicare agency which provides home health care for Medicare patients
and its operations are funded by the federal Medicare program.
The Companies, with the consent of their shareholders, have elected under
the Internal Revenue Code to be S corporations effective October 1, 1987. In
lieu of corporation income taxes, the shareholders of an S corporation are taxed
on their proportionate share of the Company's taxable income. Therefore, no
provision or liability for federal income taxes has been included in the
financial statements. State income tax provisions of $3,854, $6,021 and $3,877
for the years ended December 31, 1991, and 1990 and 1989, respectively, have
been included in the financial statements.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Combination
The accompanying combined financial statements include the accounts of
AllCare Health Services, Inc. and AllCare Home Care, Inc., both of which are
under common control. Intercompany transactions and balances have been
eliminated in combination.
These combined financial statements include the audited financial
statements of AllCare Health Services, Inc., previously issued by us, dated
February 23, 1990, February 18, 1991 and February 14, 1992, respectively, as
well as the audited financial information of AllCare Home Care, Inc. for the
years ended December 31, 1989, 1990 and 1991 dated January 19, 1993.
Interim Period
The statement of operations for the period from January 1, 1992 through
December 4, 1992, is unaudited, but, in the opinion of management of the
Company, includes all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly, in all material aspects, the results
of operations.
B. Accounts Receivable
Home Care records revenue when services are performed. However, because
Medicare will reimburse approved costs and not revenue, a corresponding reserve
for contractual allowable is credited to reflect the actual net receivables from
Medicare. The difference between revenue billed and reimbursable costs is
referred to as a contractual allowance reflected as a reduction in gross
revenue.
C. Inventory
AllCare maintains an inventory of commonly used medical supplies and
pharmaceutical drugs for resale to patients. The inventory is stated at lower of
cost, determined on the first-in, first-out method, or market.
D. Depreciable Assets
The cost of property, fixtures and equipment is depreciated over the
estimated useful lives of the related assets. Leasehold improvements are
depreciated over the lesser of the term of the related lease or the
F-134
<PAGE> 382
ALLCARE HEALTH SERVICES, INC. AND ALLCARE HOME CARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
estimated useful lives of the assets. Depreciation is computed on the
straight-line method for financial reporting purposes and accelerated methods
for income tax purposes.
Maintenance and repairs are charged to operations when incurred. Major
betterments and renewals are capitalized. When property, fixtures and equipment
is sold or otherwise disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is included in
operations.
Depreciable assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- ESTIMATED
1991 1990 1989 LIFE
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Furniture and Operating Equipment................. $ 115,082 $ 96,970 $ 97,967 5-15 Years
Computer Equipment................................ 167,020 147,581 143,291 5 Years
Delivery Vehicles................................. 29,791 29,155 29,155 5 Years
--------- --------- ---------
Total Cost........................................ 311,893 273,706 270,413
Less Accumulated Depreciation..................... 178,108 151,393 116,681
--------- --------- ---------
Net Book Value.................................... $ 133,785 $ 122,313 $ 153,732
--------- --------- ---------
--------- --------- ---------
</TABLE>
E. Other Investments
Investments at December 31, 1991 consist primarily of 1 subscription unit
in Ralin, Inc., a developer of miniaturized cardiac event recorder and pulse
monitoring devices. The unit, which cost $25,000, consists of a promissory note
with a face value of $21,250, 22,059 shares of preferred stock and warrants to
purchase 125,000 shares of common stock.
AllCare also acquired 8 shares of common stock and a $100 face value 13.5%
senior note due December 5, 2000 of Maxicare Health Plans, Inc. under Maxicare's
Plan of Reorganization of December 5, 1990. Prior to reorganization of Maxicare,
the Company had been carrying this account at a zero value. Subsequent to
reorganization, the investment was restated at its estimated market value of
$172 at December 31, 1991.
F. Intangible Assets
Intangible assets at December 31, 1991 consist of a noncompetition
agreement, patient list and trade name acquired in connection with the purchase
of certain assets of a former home health agency.
The assets are being amortized over their estimated lives using the
straight-line method. Amortization expense charged to operations for 1991 was
$10,333.
Intangible assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
COST LIFE
------- ---------
<S> <C> <C>
Noncompetition Agreement...................................... $ 8,000 24 Months
Patient List.................................................. 6,000 12 Months
Trade Name.................................................... 2,000 6 Months
-------
Total Cost.................................................... 16,000
Less Accumulated Amortization................................. 10,333
-------
Net Book Value................................................ $ 5,667
-------
-------
</TABLE>
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<PAGE> 383
ALLCARE HEALTH SERVICES, INC. AND ALLCARE HOME CARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- NOTES PAYABLE
<TABLE>
<S> <C>
Unsecured demand notes payable to three stockholders at December 31,
1991.................................................................... $142,500
--------
--------
</TABLE>
Interest is payable quarterly at the prime rate of LaSalle National Bank
plus 1%. Interest charged to expense and accrued at December 31, 1991 is $5,087.
On July 27, 1989, the AllCare entered into a $300,000 revolving line of
credit with the Exchange National Bank of Chicago. Any amounts drawn on the line
of credit are secured by all of the Company's assets pursuant to a security
agreement executed the same day. The amounts borrowed and outstanding were $-0-,
$50,000 and $-0-at December 31, 1991, 1990 and 1989, respectively.
On October 18, 1989, Home Care entered into a $100,000 revolving line of
credit with the Exchange National Bank of Chicago. Any amounts drawn on the line
of credit are secured by all of the Company's assets pursuant to a security
agreement executed the same day. The amounts borrowed and outstanding were
$57,000, $57,000 and $33,250 at December 31, 1991, 1990 and 1989, respectively.
NOTE 4 -- RELATED PARTY TRANSACTIONS
A. Effective July 22, 1987, AllCare entered into an agreement with
Specialty Home Health Service, Inc. to provide management services, nursing
staff and supplies necessary in performing all of its home health duties.
AllCare will be compensated on a monthly basis for all direct costs plus a fixed
fee of $3,880 and a management fee of 18% of net billings of the agency. This
agreement is renewable for successive one year terms unless terminated by either
party. The amount due from this agency (included in advances to affiliates in
the accompanying balance sheets) was $20,243, $15,886 and $27,244 at December
31, 1991, 1990 and 1989, respectively. Management fees and administrative
allocations totaling $238,399, $220,203, and $381,642 were charged during 1991,
1990 and 1989, respectively.
B. In 1991, AllCare began subleasing office space and providing various
administrative services to Ralin, Inc. (Note 2) for which appropriate expense
allocations of $22,733 have been charged. The amount due from Ralin, Inc. at
December 31, 1991 (included in Advances to Affiliates in the accompanying
Balance Sheet) is $1,589.
NOTE 5 -- COMMITMENTS
Effective September 1, 1989, AllCare entered into a lease for office space
in Des Plaines, Illinois. The lease expires on August 31, 1992 and provides for
minimum monthly payments ranging from $2,780 to $6,135 over the term of the
lease. The lease was amended effective July 1, 1991 in order to expand the
Company's office space. The monthly rent was increased to $8,052.
Effective November 21, 1989, AllCare established a pharmaceutical sales
office in New York and entered into a lease for office facilities. The lease
expired on November 20, 1990 and provided for monthly payments of $1,196 over
the term of the lease.
The remaining minimum commitments under AllCare's leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1992.............................................. $64,416
-------
-------
</TABLE>
Effective September 1, 1989, Home Care entered into a lease for office
space in Des Plaines, Illinois. The lease expires on August 31, 1992 and
provides for minimum monthly payments ranging from $1,127 to $2,489 over the
term of the lease. The lease was amended effective March 1, 1992 in order to
expand the Company's office space. The monthly rent was increased to $4,023. The
lease has subsequently been extended through April 30, 1993 at the same monthly
rent.
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<PAGE> 384
ALLCARE HEALTH SERVICES, INC. AND ALLCARE HOME CARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Effective April 1, 1991, Home Care entered into a lease for a nursing
office in Chicago, Illinois. The lease expires March 31, 1992 and provides for
minimum monthly lease payments of $674 over the term of the lease. The lease has
subsequently been extended through March 31, 1993 under the same terms and
conditions as in the original lease.
The remaining minimum commitments under Home Care's leases are as follows
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1992.............................................. $53,293
-------
-------
1993.............................................. $18,113
-------
-------
</TABLE>
Total rent and related expenses incurred on all leases during the years
ended December 31, 1991, 1990 and 1989 were $120,493, $108,921 and $71,473,
respectively.
AllCare and Home Care also leases two office copiers. The remaining lease
payments to be made under the operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1992............................................... $6,343
1993............................................... 3,173
------
Total.................................... $9,516
------
------
</TABLE>
NOTE 6 -- PROFIT SHARING PLAN
During 1989, the Companies adopted a profit sharing plan pursuant to
Section 401 of the Internal Revenue Code, whereby participants may contribute a
percentage of compensation, but not in excess of the maximum allowed under the
Code.
The plan provides for a matching contribution by the Companies which
amounted to $15,341, $13,956 and $12,097 in 1991, 1990 and 1989, respectively.
In addition, the Company may make additional contributions at the discretion of
the Board of Directors. No additional contributions were authorized for 1991,
1990 or 1989.
NOTE 7 -- REPURCHASE AND REDEMPTION OF STOCK
AllCare had an agreement with one of its stockholders regarding the
repurchase of the Company's stock and from the estate of the stockholder upon
his death. The agreement set forth the method for determining the repurchase
price. The Company also owned a $500,000 key-man life insurance policy on this
stockholder to fund the repurchase. Upon the death of the stockholder December
1, 1990, the Company recorded a liability to the estate of the former
stockholder of $250,866 for the repurchase which was subsequently paid February
1, 1991. The Company also recorded a receivable for the life insurance proceeds
which it recognized as an extraordinary item. The proceeds were subsequently
received January 8, 1991.
Home Care had an agreement with one of its stockholders regarding the
redemption of the Company's stock from the estate of the stockholder upon his
death. The agreement set forth the method for determining the redemption price.
Upon the death of the stockholder December 1, 1990, the Company recorded a
liability to the estate of the former stockholder of $9,819 which was
subsequently paid February 1, 1991.
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<PAGE> 385
ALLCARE HEALTH SERVICES, INC. AND ALLCARE HOME CARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- DISCONTINUED OPERATIONS
On June 30, 1990, a division of AllCare D/B/A Atlantic Critical Therapies,
located in New York, ceased operations. Operating results of the division are
shown separately in the accompanying income statement as discontinued operations
for the period of January 1, 1990 to June 30, 1990.
NOTE 9 -- STOCK OPTIONS AND AWARDS
During 1991, AllCare instituted a stock award program and an incentive
stock plan. Under the stock award program, 203,333 treasury shares of common
stock and 109,068 shares of nonvoting restricted common stock were issued to key
employees in connection with the performance of services to the Company. The
value of the stock issued, less cash and notes received, has been charged to
expense as follows:
<TABLE>
<S> <C>
Common Stock Issued....................................................... $293,345
Cash Received............................................................. (16,000)
Promissory Note........................................................... (75,000)
--------
Total Stock Award Compensation............................................ 202,345
Additional Bonuses Paid................................................... 60,218
--------
Total Compensation Related to Stock Award Program............... $262,563
--------
--------
</TABLE>
An additional 33,284 shares were issued under this program subsequent to
December 31, 1991.
Under AllCare's 1991 Incentive Stock Plan, the Company will grant certain
key employees an option to purchase up to 117,104 shares of nonvoting restricted
common stock through May 31, 2001 at an option price of $0.939 per share, but
not less than 100% of the fair market value of the stock under the condition
that the Company reaches certain operating levels during the period from 1992
through 1995.
NOTE 10 -- CAPITAL STOCK
AllCare has authorized 2,000,000 shares of $.01 par value common stock and
300,000 shares of nonvoting $.01 par value common stock. On January 1, 1990,
828,333 shares of voting stock and no shares of nonvoting stock were issued and
outstanding.
On December 1, 1990, pursuant to a stockholder's agreement (Note 7),
203,333 shares of voting stock were repurchased and held in treasury. During
1991, the treasury shares and an additional 109,068 shares of nonvoting common
stock were issued under the Company's stock award program (Note 9). The
promissory note received for stock is included in the accompanying balance sheet
as a reduction (stock subscription receivable) of stockholders' equity. The note
is payable in two installments of $28,484, due June 1, 1992 and June 1, 1993 and
a final installment of $28,108 due April 15, 1994. These payments include both
principal and interest at 6.82% compounded annually. On December 31, 1991, there
are 828,333 shares of voting and 109,068 shares of nonvoting stock issued and
outstanding.
Home Care has authorized 1,000,000 shares of no par value common stock. On
January 1, 1990, 800,000 shares of stock were issued and outstanding. On
December 1, 1990, pursuant to a stockholder's agreement (Note 7), 196,378 shares
were redeemed. On June 1, 1991, 196,378 new shares were issued for consideration
of $9,000. The number of shares issued and outstanding at December 31, 1991 is
800,000.
F-138
<PAGE> 386
ALLCARE HEALTH SERVICES, INC. AND ALLCARE HOME CARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposits, and all highly liquid debt instruments with
original maturities of three months or less. In a series of noncash transactions
during 1991, AllCare issued stock through its stock award program (Note 9) in
the amount of $202,345 and in exchange for a promissory note of $75,000.
NOTE 12 -- SUBSEQUENT EVENT
On December 4, 1992, AllCare Health Services, Inc. and AllCare Home Care,
Inc. entered into a plan of merger with Medisys, Inc.'s (a Delaware corporation)
wholly owned subsidiaries of Carevan Medical Systems of Illinois, Inc. (a
Minnesota corporation) and Carevan Home Care of Illinois, Inc. (a Minnesota
corporation), respectively. Carevan Medical Systems and Carevan Home shall be
deemed the surviving corporations. Each of the companies will maintain its
assets and properties and carry on its business operations in substantially the
same manner as previously operated prior to the merger.
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<PAGE> 387
APPENDIX A-1
AGREEMENT AND PLAN OF MERGER
<PAGE> 388
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 6, 1994, by and among
CHM Holding Corporation, a Delaware corporation ("Newco"), Curaflex Health
Services, Inc., a Delaware corporation ("CHS"), CHS Acquisition Company, a
Delaware corporation and a wholly-owned subsidiary of Newco ("CHS Sub"),
HealthInfusion, Inc. a Florida corporation ("HII"), HII Acquisition Company, a
Florida corporation and a wholly-owned subsidiary of Newco ("HII Sub"), Medisys,
Inc. a Delaware corporation ("MI"), MI Acquisition Company, a Delaware
corporation and a wholly-owned subsidiary of Newco ("MI Sub"), T2 Medical, Inc.,
a Delaware corporation ("T2") and T2 Acquisition Company, a Delaware corporation
and a wholly-owned subsidiary of Newco ("T2 Sub"). The parties hereto are
sometimes hereinafter referred to collectively as the "Companies" or the
"Constituent Corporations," or individually as a "Company" or a "Constituent
Corporation."
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated
December 1, 1993, as amended as of February 6, 1994 ("Prior Merger Agreement")
by and among Newco, CHS, CHS Sub, HII, HII Sub, MI and MI Sub, each of CHS, HII
and MI agreed, subject to the terms and conditions set forth therein, to be
acquired by and become wholly-owned subsidiaries of Newco; and
WHEREAS, the parties to the Prior Merger Agreement have agreed to enter
into this Agreement to provide for the acquisition by Newco of CHS, HII, MI and
T2, subject to the terms and conditions set forth herein; and
WHEREAS, the respective Boards of Directors of the Companies deem it
advisable and in the best interests of their respective stockholders that each
of CHS, HII, MI and T2 be acquired by and become wholly-owned subsidiaries of
Newco and, in furtherance thereof, the Boards of Directors of the Constituent
Corporations have approved, as applicable, the merger of (i) CHS Sub with and
into CHS, (ii) HII Sub with and into HII, (iii) MI Sub with and into MI, and
(iv) T2 Sub with and into T2 upon the terms and subject to the conditions set
forth herein (individually, a "Merger" and collectively, the "Mergers"); and
WHEREAS, for federal income tax purposes, it is intended that each of the
Mergers shall qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGERS
1.1 The Mergers. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.2 hereof) of each respective Merger,
(a) CHS Sub shall be merged with and into CHS, (b) HII Sub shall be merged with
and into HII, (c) MI Sub shall be merged with and into MI, and (d) T2 Sub shall
be merged with and into T2, with CHS, HII, MI and T2 being the surviving
corporation in each respective merger (the "Surviving Corporation") and the
separate existence of each of CHS Sub, HII Sub, MI Sub and T2 Sub shall
thereupon cease. Each Merger shall have the effects set forth in Section
607.1106 of the Florida Business Corporation Act (the "FBCA") and Section 259 of
the Delaware General Corporation Law ("DGCL"), as applicable. From and after the
Effective Time of each respective Merger, each Surviving Corporation shall be a
wholly-owned subsidiary of Newco.
1.2 Effective Time of the Mergers. Each Merger shall become effective upon
the completion of the filing of (a) properly executed Articles of Merger with
the Department of State of the State of Florida with respect to the Merger of
HII and HII Sub, and (b) properly executed Certificates of Merger with the
Secretary of State of the State of Delaware reflecting the respective Mergers of
CHS and CHS Sub, of MI and MI Sub, and of T2 and T2 Sub, which filings shall be
made on the Closing Date after satisfaction of the conditions set forth in
Section VIII. None of the Mergers shall be effective until all of the Mergers
shall have become effective. When used in this Agreement, the term "Effective
Time" with respect to each such Merger
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<PAGE> 389
shall mean the date and time at which all such Articles of Merger and
Certificates of Merger are successfully filed.
ARTICLE II
NEWCO AND THE SURVIVING CORPORATIONS
2.1 Certificate of Incorporation of the Surviving Corporations. The
respective Certificate or Articles of Incorporation of each of CHS, HII, MI and
T2 shall be the respective Certificate or Articles of Incorporation of the
Surviving Corporation of each Merger in which such Company is involved, except
that such respective Certificates or Articles of Incorporation shall be amended
and restated at the Effective Time to read in their entirety substantially the
same as the Certificates and Articles of Incorporation of CHS Sub, HII Sub, MI
Sub and T2 Sub, respectively (with the names of CHS, HII, MI and T2 being
substituted for those of CHS Sub, HII Sub, MI Sub and T2 Sub).
2.2 Bylaws of the Surviving Corporation. The respective Bylaws of each of
CHS Sub, HII Sub, MI Sub and T2 Sub as in effect at the Effective Time shall be
the Bylaws of the Surviving Corporation of each Merger in which such Company is
involved until thereafter amended in accordance with applicable law.
2.3 Directors and Officers of the Surviving Corporations.
(a) The respective directors of CHS Sub, HII Sub, MI Sub and T2 Sub at the
Effective Time shall be the initial directors of the Surviving Corporation of
each Merger in which such Company is involved and shall hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualified in the manner provided in the Certificate or Articles of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law.
(b) The respective officers of CHS Sub, HII Sub, MI Sub and T2 Sub at the
Effective Time shall be the initial officers of the Surviving Corporation of
each Merger in which such Company is involved and shall hold office from the
Effective Time until removed or until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate or
Articles of Incorporation and Bylaws of the Surviving Corporation, or as
otherwise provided by law.
2.4 Directors and Officers of Newco.
(a) At or prior to the Effective Time, the Companies shall take or cause to
be taken all necessary action such that, at the Effective Time, Newco's Board of
Directors shall be increased to seven (7) members, without classifications of
directors into separate classes. Following the Effective Time, directors shall
be reelected at the annual stockholders meeting of Newco commencing in the year
1995. The directors of Newco shall be designated prior to the filing with the
SEC (as hereinafter defined) of the preliminary Proxy Statement referred to in
Section 4.7 as follows: (1) CHS, acting through its current Board Of Directors,
shall designate one of Newco's directors; (2) HII, acting through its current
Board Of Directors, shall designate one of Newco's directors; (3) MI, acting
through its current Board Of Directors, shall designate one of Newco's
directors; and (4) T2, acting through its current Board of Directors shall
designate four of Newco's directors, at least three of whom will not prior to
such designation have been an officer of T2.
(b) At or prior to the Effective Time, the Companies shall take or cause to
be taken all necessary action such that, at the Effective Time, Newco's officers
shall include the following: (i) Charles A. Laverty as Chief Executive Officer,
(ii) Miles E. Gilman as Executive Vice President, (iii) William J. Brummond as
Vice President and (iv) Norman H. Werthwein as Chief Financial Officer.
2.5 Consolidation of Corporate Headquarters. To facilitate the
consolidation of the operations of the Companies, the corporate headquarters of
Newco and its direct subsidiaries following the Merger shall be consolidated in
Ontario, California.
2.6 Change of Newco's Name. At or prior to the mailing to stockholders of
the Proxy Statement referred to in Section 4.7, the Companies shall take or
cause to be taken all necessary action such that, at the
A-2
<PAGE> 390
Effective Time, the corporate name of Newco shall be changed to another name
mutually agreeable to each of CHS, HII, MI and T2.
2.7 Employment/Severance Agreements. Prior to the Effective Time, Newco,
CHS, HII, MI and T2 shall take or cause to be taken all necessary action on its
part to enter into employment and severance agreements, on terms and conditions
as outlined in Exhibit 2.7 hereto with certain individuals, and the applicable
entity, as so described in Exhibit 2.7 hereto.
ARTICLE III
CONVERSION OF SHARES
3.1 Exchange Ratio. At the Effective Time, by virtue of the respective
Mergers and without any action on the part of the holder thereof:
(a) Each share of common stock of CHS, HII, MI and T2 ("Share") issued
and outstanding immediately prior to the Effective Time (other than the
Excluded Shares as defined in Section 3.6 below and Shares held by Newco or
any subsidiary of Newco, if any), shall be converted at the Effective Time
into the right to receive shares of common stock, par value $.001 per
share, of Newco ("Newco Shares"), in accordance with the following exchange
ratios ("Exchange Ratio"), as applicable:
(i) In the case of CHS, each CHS Share shall be converted into the
right to receive 0.333 Newco Shares;
(ii) In the case of HII, each HII Share shall be converted into the
right to receive 0.447 Newco Shares;
(iii) In the case of MI, each MI Share shall be converted into the
right to receive 0.243 Newco Shares; and
(iv) In the case of T2, each T2 Share shall be converted into the
right to receive 0.630 Newco Shares.
(b) At the Effective Time, all Shares of CHS, HII, MI and T2 (other
than the Excluded Shares) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
certificate previously representing any such Shares shall thereafter
represent the Newco Shares into which such Shares of CHS, HII, MI or T2
have been converted. Certificates representing Shares of CHS, HII, MI or T2
shall be exchanged for certificates representing whole Newco Shares issued
in consideration therefor upon the surrender of such certificate in
accordance with the provisions hereof. If prior to the Effective Time
Newco, CHS, HII, MI or T2 should split or combine the Shares or the Newco
Shares, or pay a stock dividend or other stock distribution in Shares or
Newco Shares, then the Exchange Ratio will be appropriately adjusted to
reflect such split, combination, dividend or other distribution.
(c) Each Share of CHS, HII, MI or T2 held in the treasury of any such
Company (or a subsidiary of such Company) and each such Share held by Newco
or any subsidiary of Newco immediately prior to the Effective Time shall be
canceled and retired and cease to exist, and no Newco Shares shall be
issued in exchange therefor. All Newco Shares owned by CHS, HII, MI or T2
or any subsidiary shall become treasury stock of Newco.
Each share of common stock of CHS Sub, HII Sub, MI Sub or T2 Sub issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and exchangeable for one share of common stock of the Surviving Corporation
of the respective Merger in which such Company is involved.
3.2 Exchange of Shares.
(a) Prior to the Effective Time, Newco shall select and enter into an
agreement (in form and substance reasonably satisfactory to the other Companies)
with a bank or trust company to act as Exchange Agent hereunder (the "Exchange
Agent"). No later than the Effective Time, Newco shall make available, and each
A-3
<PAGE> 391
holder of Shares (other than Excluded Shares) will be entitled to receive, upon
surrender to the Exchange Agent of one or more certificates representing such
Shares for cancellation, certificates representing the number of Newco Shares
into which such Shares are converted in the Merger. The Newco Shares into which
the Shares shall be converted in the Merger shall be deemed to have been issued
at the Effective Time.
(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding Shares (the "Certificates") whose Shares were converted into Newco
Shares pursuant to Section 3.1, (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as Newco and the other
Companies may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing Newco
Shares. Upon surrender of a Certificate for cancellation to the Exchange Agent
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole Newco Shares which such holder has the right
to receive in respect of the Certificates surrendered pursuant to the provisions
of this Article III.
(c) In the event that any stock certificate representing Shares shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such certificate to be lost, stolen or destroyed, Newco will
issue or cause to be issued in exchange for such lost, stolen or destroyed
certificate the number of Newco Shares into which such shares are converted in
the Merger in accordance with this Article III. When authorizing such issuance
in exchange therefor, the Board of Directors of Newco may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate to give Newco a bond in such sum as it may
direct as indemnity, or such other form of indemnity, as it shall direct,
against any claim that may be made against Newco with respect to the certificate
alleged to have been lost, stolen or destroyed.
3.3 Dividends; Transfer Taxes. No dividends that are declared on Newco
Shares will be paid to persons entitled to receive certificates representing
Newco Shares until such persons surrender their certificates representing
Shares. Upon such surrender, there shall be paid to the person in whose name the
certificates representing such Newco Shares shall be issued any dividends which
shall have become payable with respect to such Newco Shares between the
Effective Time and the time of such surrender. In no event shall the person
entitled to receive such dividends be entitled to receive interest on such
dividends. If any certificates for any Newco Shares are to be issued in a name
other than that in which the certificate representing Shares surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the person requesting such exchange shall pay to the Exchange Agent any transfer
or other taxes required by reason of the issuance of certificates for such Newco
Shares in a name other than that of the registered holder of the certificate
surrendered, or shall establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not applicable. Notwithstanding the foregoing,
neither the Exchange Agent nor any party hereto shall be liable to a holder of
Shares for any Newco Shares or dividends thereon or, in accordance with Section
3.4 hereof, the cash payment for fractional interests, delivered to a public
official pursuant to applicable escheat laws.
3.4 No Fractional Securities. No certificates or scrip representing
fractional Newco Shares shall be issued upon the surrender for exchange of
certificates representing Shares pursuant to this Article III and no dividend,
stock split-up or other change in the capital structure of Newco shall relate to
any fractional security, and such fractional interests shall not entitle the
owner thereof to vote or to any rights of a security holder. In lieu of any such
fractional securities, each holder of Shares who would otherwise have been
entitled to a fraction of a Newco Share upon surrender of stock certificates for
exchange pursuant to this Article III shall be paid cash upon such surrender in
an amount equal to the product of such fraction multiplied by the average
closing price for a Newco Share on the New York Stock Exchange, if listed
thereon, or on The Nasdaq National Market, if listed thereon, for the 5 trading
days immediately following the Closing Date (as defined below).
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<PAGE> 392
3.5 Closing of Transfer Books. At the Effective Time, the stock transfer
books of CHS, HII, MI and T2 shall be closed and no transfer of Shares shall
thereafter be made. If, after the Effective Time, certificates representing
Shares are presented to the Surviving Corporation, they shall be canceled and
exchanged for certificates representing Newco Shares in accordance with the
terms hereof. At and after the Effective Time, the holders of Shares to be
exchanged for Newco Shares pursuant to this Agreement shall cease to have any
rights as stockholders of CHS, HII, MI or T2 except for the right to surrender
such stock certificates in exchange for Newco Shares as provided hereunder.
3.6 Dissenting Shares. If holders of Shares are entitled to dissent from a
Merger and demand appraisal of any such Shares in accordance with the provisions
of the FBCA concerning the right of such holders to dissent from a Merger and
demand appraisal of their shares ("Dissenting Holders"), any Shares held by a
Dissenting Holder as to which appraisal has been so demanded ("Excluded Shares")
shall not be converted as described in Section 3.1, but shall from and after the
Effective Time represent only the right to receive such consideration as may be
determined to be due to such Dissenting Holder pursuant to the FBCA; provided,
however, that each Share held by a Dissenting Holder who shall, after the
Effective Time, withdraw his demand for appraisal or lose his right of appraisal
with respect to such Shares, in either case pursuant to the FBCA, shall not be
deemed Excluded Shares but shall be deemed to be converted, as of the Effective
Time, into the right to receive Newco Shares in accordance with the applicable
Exchange Ratio.
3.7 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Morrison &
Foerster, 19900 MacArthur Boulevard, 12th Floor, Irvine, California 92715, at
9:00 a.m., local time, on the first business day (the "Closing Date") after the
later of (a) the day on which the later to occur of the stockholders' meetings
referred to in Section 7.4 hereof shall have occurred or (b) the day on which
all of the conditions set forth in Article VIII hereof are satisfied or waived,
or at such other date, time and place as the Companies shall agree.
3.8 Supplementary Action. If at any time after the Effective Time, any
further assignments or assurances in law or any other things are necessary or
desirable to vest or to perfect or confirm of record in the Surviving
Corporations the title to any property or rights of any Constituent Corporation,
or otherwise to carry out the provisions of this Agreement, the officers and
directors of the Surviving Corporation are hereby authorized and empowered on
behalf of the Constituent Corporations, in the name of and on behalf of any
Constituent Corporation as appropriate, to execute and deliver any and all
things necessary or proper to vest or to perfect or confirm title to such
property or rights in the Surviving Corporation, and otherwise to carry out the
purposes and provisions of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CHS, HII, MI AND T2
As used in this Agreement, (i) the term "Material Adverse Effect" means,
with respect to CHS, HII, MI or T2, as the case may be, a material adverse
effect on the business, assets, results of operation or financial condition of
such party and its subsidiaries taken as a whole or in the ability of such party
to perform its obligations hereunder and (ii) the word "subsidiary" when used
with respect to any party means any corporation or other organization, whether
incorporated or unincorporated, of which such party or any other subsidiary of
such party is a general partner (excluding partnerships the general partnership
interests of which held by such party or any subsidiary of such party do not
have a majority of the voting interests in such partnership) or of which at
least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporations or other
organizations is directly or indirectly owned or controlled by such party and/or
by any one or more of the subsidiaries.
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Each of CHS, HII, MI and T2 represents and warrants, with respect to itself
and its subsidiaries, to the others and to Newco, except as disclosed to the
others and to Newco in writing prior to the execution of this Agreement, as
follows:
4.1 Organization. Such Company is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the corporate power to carry on its business as it is now
being conducted or presently proposed to be conducted. Such Company is duly
qualified as a foreign corporation to do business, and is in good standing (to
the extent the concept of good standing exists), in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified will not have a Material Adverse Effect. Each corporate subsidiary of
such Company is a corporation duly organized, validly existing and in good
standing (to the extent the concept of good standing exists) under the laws of
its jurisdiction of incorporation or organization, has the corporate power to
carry on its business as it is now being conducted and is duly qualified to do
business, and is in good standing (to the extent the concept of good standing
exists), in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so duly organized, validly existing
and in good standing, to have such corporate power or to be so qualified will
not have a Material Adverse Effect.
4.2 Capitalization. As of the date hereof, the authorized capital stock of
such Company is as set forth in Exhibit 4.2 hereto. As of the date hereof, the
number of Shares of such Company which are issued and outstanding is as set
forth in Exhibit 4.2 hereto. All of the issued and outstanding Shares of such
Company are validly issued, fully paid and nonassessable and free of preemptive
rights or similar rights created by statute, the Certificate or Articles of
Incorporation or Bylaws of such Company or any agreement by which such Company
or any of its subsidiaries is a party or by which it is bound. Except (a) as set
forth above or, (b) as disclosed in Exhibit 4.2 hereto, there are not as of the
date of this Agreement any shares of capital stock of such Company issued or
outstanding or any options, warrants, subscriptions, calls, rights, convertible
securities or other agreements or commitments obligating such Company to issue,
transfer or sell any shares of its capital stock. As of the date hereof, no
bonds, debentures, notes or other indebtedness having the right to vote (or
convertible into or exercisable for securities having the right to vote) on any
matters on which stockholders of such Company may vote ("Voting Debt") were
issued and outstanding with respect to such Company.
4.3 Authority Relative to this Agreement. Such Company has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement by such Company and the
consummation by such Company of the transactions contemplated hereby have been
duly authorized by the Board of Directors of such Company, and, except for
approval by the requisite votes cast by such Company's stockholders at the
meeting provided for in Section 7.4, no other corporate proceedings on the part
of such Company are necessary to approve this Agreement or the transactions
contemplated hereby.
4.4 Consents and Approvals; No Violations. Except for applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), state or
foreign laws relating to takeovers, if applicable, state securities or blue sky
laws, and, as applicable, filing and recordation of Articles of Merger under the
FBCA or a Certificate of Merger as required by the DGCL, no filing with, and no
permit, authorization, consent or approval of, any public body or authority is
necessary for the consummation by such Company of the transactions contemplated
by this Agreement. Neither the execution and delivery of this Agreement by such
Company, nor the consummation by such Company of the transactions contemplated
hereby, nor compliance by such Company with any of the provisions hereof, will
(a) result in any breach of the Certificate or Articles of Incorporation or
Bylaws of such Company, (b) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which such Company or
any of its subsidiaries is a party or by which any of them or any of their
properties or assets may be bound or (c) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to such Company, any of its
subsidiaries or any of their properties or assets, except in the case of clauses
(b) and (c) for violations, breaches or defaults that would not have a Material
Adverse Effect.
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4.5 Reports and Financial Statements. Such Company has filed all reports
required to be filed by it with the Securities and Exchange Commission (the
"SEC") pursuant to the Exchange Act since January 1, 1992, including, without
limitation, an Annual Report on Form 10-K for the year ended December 31, 1992
(in the case of each of CHS, HII and MI) and for the year ended September 30,
1993 (in the case of T2) (collectively, the "SEC Reports"), and has previously
furnished or made available to the other Companies true and complete copies of
all such SEC Reports. None of such SEC Reports, as of their respective dates (as
amended through the date hereof), contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Each of the balance sheets (including the
related notes) included in the SEC Reports fairly presents in all material
respects the consolidated financial position of such Company and its
subsidiaries as of the respective dates thereof, and the other related
statements (including the related notes) included therein fairly present in all
material respects the results of operations and cash flows of such Company and
its subsidiaries for the respective periods or as of the respective dates set
forth therein, all in conformity with generally accepted accounting principles
consistently applied during the periods involved, except as otherwise noted
therein and subject, in the case of the unaudited interim financial statements,
to normal year-end adjustments and any other adjustments described therein and
the absence of any notes thereto.
4.6 Absence of Certain Changes or Events. Except as disclosed in the SEC
Reports filed prior to the date of this Agreement, since December 31, 1992,
neither such Company nor any of its subsidiaries has: (a) taken any of the
actions set forth in Sections 6.1(b), 6.1(c) or 6.1(e) hereof; (b) incurred any
liability material to the Company and its subsidiaries on a consolidated basis,
except in the ordinary course of its business, consistent with past practices;
(c) suffered a change, or any event involving a prospective change, in the
business, assets, financial condition or results of operation of such Company or
any of its subsidiaries which has had, or is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect (other than as a
result of changes or proposed changes in federal or state health care (including
health care reimbursement) laws or regulations of general applicability or
interpretations thereof, changes in generally accepted accounting principles and
changes that could, under the circumstances, reasonably have been anticipated in
light of disclosures made in writing by such Company to the others pursuant
hereto); or (d) subsequent to the date hereof, except as permitted by Section
6.1 hereof, conducted its business and operations other than in the ordinary
course of business and consistent with past practices.
4.7 Information in Disclosure Documents and Registration Statement. None
of the information to be supplied by such Company to be included in (a) the
Registration Statement on Form S-4 (or S-1 or such other form required or deemed
appropriate by the SEC) to be filed with the SEC by Newco under the Securities
Act for the purpose of registering the Newco Shares to be issued in the Mergers
or pursuant to this Agreement (the "Registration Statement") and (b) the joint
proxy statement to be distributed in connection with the meetings of
stockholders of the Companies to vote upon this Agreement (the "Proxy
Statement"), will, in the case of the Registration Statement, at the time it
becomes effective and at the Effective Time, or, in the case of the Proxy
Statement or any amendments thereof or supplements thereto, at the time of the
mailing of the Proxy Statement and any amendments or supplements thereto, and at
the time of each of the meetings of stockholders to be held in connection with
the Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement insofar as it pertains to such Company
will comply as to form in all material respects with the provisions of the
Securities Act, and the rules and regulations promulgated thereunder. The Proxy
Statement insofar as it pertains to such Company will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated thereunder.
4.8 Litigation. As of the date of this Agreement, except as disclosed in
the SEC Reports filed prior to the date of this Agreement and except to the
extent that individually and in the aggregate they would not reasonably be
expected to have a Material Adverse Effect: (i) there is no action, suit,
judicial or administrative proceeding, arbitration or investigation pending or,
to the best knowledge of such Company, threatened against or involving such
Company or any of its subsidiaries, or any of their properties or rights,
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before any court, arbitrator, or administrative or governmental body; (ii) there
is no judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against such Company or any of its subsidiaries; and (iii) such Company and its
subsidiaries are not in violation of any term of any judgments, decrees,
injunctions or orders outstanding against them. Such Company has furnished to
the other Companies in writing, a description of all litigations, actions,
suits, proceedings, arbitrations, investigations known to it, judgements,
decrees, injunctions or orders pending, or to its best knowledge, threatened
against or involving such Company or any of its subsidiaries, or any of their
properties or rights as of the date hereof.
4.9 Contracts.
(a) Each of the material contracts, instruments, mortgages, notes, security
agreements, leases, agreements or understandings, whether written or oral, to
which such Company or any of its subsidiaries is a party that relates to or
affects the assets or operations of such Company or any of its subsidiaries or
to which such Company or any of its subsidiaries or their respective assets or
operations may be bound or subject is a valid and binding obligation of such
Company and in full force and effect (with respect to such Company or such
subsidiary), except for where the failure to be in full force and effect would
not individually or in the aggregate, have a Material Adverse Effect. Except to
the extent that the consummation of the transactions contemplated by this
Agreement may require the consent of third parties, as disclosed in writing to
the other Companies pursuant hereto, there are no existing defaults by such
Company or any of its subsidiaries thereunder or, to the knowledge of such
Company, by any other party thereto, which defaults, individually or in the
aggregate, would have a Material Adverse Effect; and no event of default has
occurred, and no event, condition or occurrence exists, that (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a default by such Company or any of its subsidiaries thereunder
which default would, individually or in the aggregate, have a Material Adverse
Effect.
(b) Except as set forth in the such Company's SEC Reports (including the
exhibits thereto) filed prior to the date of this Agreement and except for this
Agreement, as of the date of this Agreement neither such Company nor any of its
subsidiaries is a party to any oral or written (i) consulting agreement not
terminable on 60 days or less notice involving the payment of more than $50,000
per annum, in the case of any such agreement with an individual, (ii) joint
venture agreement, (iii) noncompetition or similar agreements that restricts
such Company or its subsidiaries from engaging in a line of business, (iv)
agreement with any executive officer or other employee of such Company or any
subsidiary the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving such Company
of the nature contemplated by this Agreement and which provides for the payment
of in excess of $10,000, (v) agreement with respect to any executive officer of
such Company or any subsidiary providing any term of employment beyond one year
or compensation guaranty in excess of $75,000 per annum, or (vi) agreement or
plan, including any stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
4.10 Employee Benefit Plans.
(a) Such Company has previously delivered to the other Companies a true and
complete list of each written or formal employee benefit plan (including,
without limitation, any "employee benefit plan" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
policy or agreement that is maintained (all of the foregoing, the "Benefit
Plans"), or is or was contributed to by such Company or pursuant to which such
Company or any trade or business, whether or not incorporated (an "ERISA
Affiliate"), which together with such Company would be deemed a "single
employer" within the meaning of Section 4001 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), is still potentially liable for
payments, benefits or claims. A copy of each Benefit Plan as currently in effect
and, if applicable, the most recent Annual Report, Actuarial Report or
Valuation, Summary Plan Description, Trust Agreement and a Determination Letter
issued by the IRS for each Benefit Plan have heretofore been
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delivered to the other Companies. No Benefit Plan was or is subject to Title IV
of ERISA or Section 412 of the Code (including any "multiemployer plan," as
defined in Section 3(37) of ERISA).
(b) Each of the Benefit Plans that are subject to ERISA is in substantial
compliance with ERISA; each of the Benefit Plans intended to be "qualified"
within the meaning of Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code") is so qualified; and no event has occurred, and to such
Company's knowledge, there exists no condition or set of circumstances, in
connection with which such Company or any ERISA Affiliate is or could be subject
to liability (except liability for benefit claims and funding obligations
payable in the ordinary course) under ERISA, the Code, or any other applicable
law with respect to any Benefit Plan.
(c) All contributions or other amounts payable by such Company or its
subsidiaries through September 30, 1993 with respect to each Benefit Plan in
respect of current or prior plan years have been either paid or accrued on the
most recent financial statements of such Company made available to the other
Companies. Any contributions or other amounts payable by such Company or its
subsidiaries for periods between September 30, 1993 and the Effective Time with
respect to each Benefit Plan in respect of current or prior plan years have been
or will be either paid or accrued in the normal course of business on the books
and records of such Company at or prior to the Effective Time. There are no
pending, or, to the best knowledge of such Company, threatened or anticipated
claims (other than routine claims for benefits) by or on behalf of or against
any of the Benefit Plans or any trusts or other funding vehicles related
thereto.
(d) No Benefit Plan provides benefits, including without limitation death
or medical benefits (whether or not insured), with respect to current or former
employees for periods extending beyond their retirement or other termination of
service (other than (i) coverage mandated by Part 6 of Subtitle B of Title I of
ERISA, Section 4980B of the Code or any comparable state law, (ii) death
benefits or retirement benefits under any "employee pension plan," as that term
is defined in Section 3(2) of ERISA, (iii) deferred compensation benefits
accrued as liabilities on the books of such Company or the ERISA Affiliates, or
(iv) benefits the full cost of which is borne by the current or former employee
or his or her beneficiary).
4.11 Taxes. For the purposes of this section, the term "tax" shall
include all taxes, charges, withholdings, fees, levies, penalties, additions,
interest or other assessments imposed by any United States federal, state or
local authority or any other taxing authority on such Company or any of its Tax
Affiliates as to their respective income, profit, franchise, gross receipts,
payroll, sales, employment, worker's compensation, use, property, withholding,
excise, occupancy, environmental, and other taxes, duties or assessments of any
nature, whatsoever. Such Company has filed or caused to be filed timely all
material federal, state, local and foreign tax returns required to be filed by
each of its and any member of its consolidated, combined, unitary or similar
group (each such member a "Tax Affiliate"). Such returns, reports and other
information are accurate and complete in all material respects. Such Company has
paid or caused to be paid or has made adequate provision or set up an adequate
accrual or reserve for the payment of, all taxes shown to be due in respect of
the periods for which returns are due, and has established (or will establish at
least quarterly) an adequate accrual or reserve for the payment of all taxes
payable in respect of the period subsequent to the last of said periods required
to be so accrued or reserved. Neither such Company nor any of its Tax Affiliates
has any material liability for taxes in excess of the amount so paid or accruals
or reserves so established. Neither such Company nor any of its Tax Affiliates
is delinquent in the payment of any tax in excess of the amount reserved or
provided therefor, and no deficiencies for any tax, assessment or governmental
charge in excess of the amount reserved or provided therefor have been
threatened, claimed, proposed or assessed. No waiver or extension of time to
assess any taxes has been given or requested. Such Company's federal and state
income tax returns have never been audited by the Internal Revenue Service or
comparable state agencies.
4.12 Compliance With Applicable Law. Except as disclosed in the SEC
Reports filed prior to the date of this Agreement, such Company and each of its
subsidiaries holds all licenses, franchises, permits, variances, exemptions,
orders, approvals and authorizations necessary for the lawful conduct of its
business under and pursuant to, and the business of each of such Company and its
subsidiaries is not being conducted in violation of, any provision of any
federal, state, local or foreign statute, law, ordinance, rule, regulation,
judgment, decree, order, concession, grant, franchise, permit or license or
other governmental authorization or approval
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applicable to such Company or any of its subsidiaries, except to the extent that
the failure to hold any such licenses, franchises, permits or authorizations, or
any such violation, would not, individually or in the aggregate, have a Material
Adverse Effect.
4.13 Subsidiaries. Exhibit 22.1 to the most recent Form 10-K included in
the SEC Reports of CHS, HII, MI and T2 lists all the subsidiaries of such
Company as of the date of this Agreement and indicates for each such corporate
subsidiary as of such date the jurisdiction of incorporation or organization.
All of the outstanding shares of capital stock or other equity interests of each
of the subsidiaries are (i) held by such Company or one of such whollyowned
subsidiaries, (ii) fully paid and nonassessable, and (iii) owned by such Company
or one of such wholly-owned subsidiaries free and clear of any claim, lien or
encumbrance.
4.14 Labor and Employment Matters. (a) Such Company and its subsidiaries
are and have been in compliance in all material respects with all applicable
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours, including, without limitation, the Immigration
Reform and Control Act ("IRCA"), the Worker Adjustment and Retraining
Notification Act ("WARN"), and such laws respecting employment discrimination,
equal opportunity, affirmative action, worker's compensation, occupational
safety and health requirements and unemployment insurance and related matters,
and are not engaged in and have not engaged in any unfair labor practice; (b) to
the knowledge of such Company, no investigation or review by or before any
governmental entity concerning any violations of any such applicable laws is
pending nor, to the knowledge of such Company is any such investigation
threatened or has any such investigation occurred during the last three years,
and no governmental entity has provided any notice to such Company or any of its
subsidiaries or otherwise asserted an intention to conduct any such
investigation; (c) there is no labor strike, dispute, slowdown or stoppage
actually pending or threatened against such Company or any of its subsidiaries;
(d) no union representation question or union organizational activity exists
respecting the employees of such Company or any of its subsidiaries; (e) no
collective bargaining agreement exists which is binding on such Company or any
of its subsidiaries; (f) neither such Company nor any of its subsidiaries has
experienced any material work stoppage or other material labor difficulty; and
(g) in the event of termination of the employment of any of the current
officers, directors, employees or agents of such Company or any of its
subsidiaries, neither such Company, any of its subsidiaries, any other Company,
the Surviving Corporation, nor Newco nor any other subsidiaries of such Company,
will pursuant to any agreement or by reason of anything done prior to the
Effective Time by such Company or any of its subsidiaries be liable to any of
said officers, directors, employees or agents for so-called "severance pay" or
any other similar payments or benefits, including, without limitation,
post-employment healthcare (other than pursuant to COBRA) or insurance benefits.
4.15 Insurance. As of the date hereof, such Company and each of its
subsidiaries are insured by insurers reasonably believed by such Company to be
of recognized financial responsibility against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged. All
material policies of insurance and fidelity or surety bonds insuring such
Company or any of its subsidiaries or their respective businesses, assets,
employees, officers and directors are in full force and effect. As of the date
hereof, there are no material claims by such Company or any of its subsidiaries
under any such policy or instrument as to which any insurance company is denying
liability or defending under a reservation of rights clause.
4.16 Contracts with Physicians, Hospitals, HMOs and Third Party
Providers. Such Company has made available to representatives of the other
Companies copies (or in the case where no written documentation exists, a
summary) of all outstanding contracts, partnerships, joint ventures and other
arrangements or understandings (written or oral) between (a) such Company or any
of its subsidiaries and (b) any physician, hospital, HMO, other managed care
organization, or other third-party provider relating to the provision of medical
or consulting services, treatments, patient referrals or similar activities.
4.17 Section 203 of the DGCL Not Applicable. The provisions of Section
203 of the DGCL will not, prior to the termination of this Agreement, assuming
the accuracy of the representations contained in Section 4.18 (without giving
effect to the knowledge qualification thereof), apply to this Agreement, the
Mergers or the transactions contemplated hereby and thereby.
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4.18 Ownership of Shares. As of the date hereof, neither such Company
nor, to its knowledge, any of its affiliates or associates (as such terms are
defined under the Exchange Act) (i) beneficially owns, directly or indirectly,
or (ii) are parties to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of, in each case, Shares of
another Company which in the aggregate represent 10% or more of the outstanding
Shares of any other Company (other than Newco).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco represents and warrants to CHS, HII, MI and T2 with respect to itself
and with respect to CHS Sub, HII Sub, MI Sub and T2 Sub, as follows:
5.1 Organization. Such Company is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the corporate power to carry on its business as it is now
being conducted or presently proposed to be conducted. Such Company has
delivered to the other Companies complete and correct copies of its Certificate
or Articles of Incorporation and Bylaws or other organizational documents. Such
Company has not engaged in any business since the date of its incorporation
other than as contemplated hereby.
5.2 Capitalization. The authorized capital stock of Newco consists of
75,000,000 shares of common stock, par value $0.001 per share, and 10,000,000
shares of preferred stock, par value $0.001 per share (the "Newco Preferred
Stock"). As of the date hereof, 1200 Newco Shares are issued and outstanding and
owned of record and beneficially only by CHS, HII, MI and T2 in equal
proportions. There are no shares of Newco Preferred Stock outstanding. All of
the issued and outstanding Newco Shares are validly issued, fully paid,
nonassessable and free of preemptive rights or similar rights created by
statute, the Certificate of Incorporation or Bylaws of Newco or any agreement to
which Newco or any of its subsidiaries is a party or by which it is bound. There
are not now, and at the Effective Time there will not be, any other shares of
capital stock of Newco issued or outstanding or any options, warrants,
subscriptions, calls, rights, convertible securities or other agreements or
commitments obligating Newco to issue, transfer or sell any shares of its
capital stock except pursuant to this Agreement. Except as provided in this
Agreement, after the Effective Time, Newco will have no obligation to issue,
transfer or sell any shares of its capital stock pursuant to any employee
benefit plan or otherwise. Other than as contemplated by Section 7.8,
immediately after the Effective Time, there will be no option, warrant, call,
right or agreement obligating Newco or any subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, any Newco Shares or obligating Newco
or any subsidiary to grant, extend, or enter into any such option, warrant,
call, right or agreement. All of the issued and outstanding capital stock of CHS
Sub, HII Sub, MI Sub and T2 Sub is owned beneficially and of record by Newco
and, in each case, consists solely of 1,000 shares of common stock, $1 par value
per share.
5.3 Authority Relative to this Agreement. Such Company has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement by such Company and the
consummation by such Company of the transactions contemplated hereby have been
duly authorized by such Company's Board of Directors and by Newco, as sole
stockholder of each of CHS Sub, HII Sub, MI Sub and T2 Sub and no other
corporate proceedings on the part of such Company are necessary to approve this
Agreement or the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by such Company and constitutes a valid and
binding agreement of such Company, enforceable against such Company in
accordance with its terms.
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ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGERS
6.1 Conduct of Business Pending the Mergers. Each Company agrees on its
own behalf and on behalf of its subsidiaries that, during the period from the
date of this Agreement and continuing until the Effective Time:
(a) the respective businesses of each Company and its subsidiaries
shall be conducted only in the ordinary and usual course of business and
consistent with past practices;
(b) such Company and its subsidiaries shall not (i) sell or pledge or
agree to sell or pledge any stock owned by it in any of its subsidiaries;
(ii) amend its Certificate or Articles of Incorporation, as applicable, or
Bylaws; or (iii) split, combine or reclassify any shares of its outstanding
capital stock or declare, set aside or pay any dividend or other
distribution payable in cash, stock or property in respect of its capital
stock, or directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock or other securities or shares of the capital
stock or other securities of any of its subsidiaries;
(c) such Company and its subsidiaries shall not (i) authorize for
issuance, issue, sell, pledge, dispose of, encumber, deliver or agree or
commit to issue, sell, pledge, or deliver any additional shares of, or
rights of any kind to acquire any shares of, its capital stock of any class
or exchangeable into shares of stock of any class or any Voting Debt
(whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise), except that
the Company may issue Shares required to be issued upon exercise of
existing stock options, warrants or similar plans, or under other
contractual commitments previously made, which options, warrants, plans or
commitments have been disclosed in writing to the other Companies pursuant
hereto; (ii) acquire, dispose of, transfer, lease, license, mortgage,
pledge or encumber any fixed or other substantial assets other than in the
ordinary course of business and consistent with past practices; (iii)
incur, assume or prepay any material indebtedness, liability or obligation
or any other material liabilities or issue any debt securities other than
in the ordinary course of business and consistent with past practices; (iv)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other person (other than a subsidiary) in a material amount other than in
the ordinary course of business and consistent with past practices; (v)
make any material loans, advances or capital contributions to, or
investments in, any other person, other than to subsidiaries, other than in
the ordinary course of business and consistent with past practices; (vi)
fail to maintain adequate insurance consistent with past practices for
their businesses and properties; or (vii) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;
provided, however, that nothing in this subsection (c) to Section 6.1 shall
prevent T2 from settling (x) any government investigations previously
disclosed in writing to the other Companies hereto ("Existing T2
Governmental Investigations") or (y) the existing T2 stockholder securities
class action litigation;
(d) such Company shall use its best efforts to preserve intact the
business organization of Company and its subsidiaries, to keep available
the services of its and their present officers and key employees, and to
preserve the goodwill of those having business relationships with it and
their respective subsidiaries; provided, however, that no breach of this
covenant shall be deemed to have occurred if a failure to comply with this
Section 6.1(d) occurs as a result of any matter arising out of the
transactions contemplated by this Agreement or any acquisition proposals
made to such Company or the public announcement thereof;
(e) such Company and its subsidiaries shall not (i) knowingly take or
allow to be taken any action which would jeopardize the treatment of the
transactions contemplated hereby as a pooling of interests for accounting
purposes or (ii) knowingly take or allow to be taken or fail to take any
action which act or omission would jeopardize qualification of any of the
Mergers as a "reorganization" within the meaning of Section 368(a) of the
Code; and
(f) such Company and its subsidiaries shall use all reasonable efforts
to prevent any representation or warranty of such Company herein from
becoming untrue or incorrect in any material respect.
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6.2 Conduct of Business of Newco, CHS Sub, HII Sub, MI Sub and T2
Sub. During the period from the date of this Agreement to the Effective Time,
Newco, CHS Sub, HII Sub, MI Sub and T2 Sub shall not engage in any activities of
any nature except as provided in or contemplated by this Agreement.
6.3 Compensation Plans. During the period from the date of this Agreement
and continuing until the Effective Time, each Company agrees as to itself and
its subsidiaries that, other than the agreements referred to in Section 2.7, it
will not, without the prior written consent of the other Companies (except as
required by applicable law or pursuant to existing contractual arrangements or
other plans or commitments as otherwise disclosed to the other Companies in
writing pursuant hereto) (a) enter into, adopt or amend any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred compensation,
employment, severance or other employee benefit plan, agreement, trust, plan,
fund or other arrangement between such Company and one or more of its officers,
directors or employees, in each case so as to materially increase the benefits
thereunder (collectively, "Compensation Plans"), (b) grant or become obligated
to grant any increase in the compensation or fringe benefits of directors,
officers or employees (including any such increase pursuant to any Compensation
Plan) or any increase in the compensation payable or to become payable to any
officer, except, with respect to employees other than officers, for increases in
compensation in the ordinary course of business consistent with past practice,
or enter into any contract, commitment or arrangement to do any of the
foregoing, except for normal increases and non-stock benefit changes in the
ordinary course of business consistent with past practice, (c) institute any new
employee benefit, welfare program or Compensation Plan, (d) make any change in
any Compensation Plan or other employee welfare or benefit arrangement or enter
into any employment or similar agreement or arrangement with any employee, or
(e) enter into or renew any contract, agreement, commitment or arrangement
providing for the payment to any director, officer or employee of such Company
of compensation or benefits contingent, or the terms of which are materially
altered in favor of such individual, upon the occurrence of any of the
transactions contemplated by this Agreement.
6.4 Current Information. From the date of this Agreement to the Effective
Time, each Company will cause one or more of its designated representatives to
confer on a regular and frequent basis (not less than semi-monthly) with
representatives of the other Companies and to report the general status of its
ongoing operations and to deliver to the other Companies (not less than
quarterly) unaudited consolidated balance sheets and related consolidated
statements of income, stockholders equity and cash flows for the period since
the last such report. Each Company will promptly notify the others of any
material change in the normal course of business or in its or its subsidiaries'
properties.
6.5 Letters of Company's Accountants. Each of CHS, HII, MI and T2 shall
use all reasonable efforts to cause to be delivered to itself, to Newco and to
the other Companies a so-called "comfort" letter of such Company's independent
auditors with respect to the financial statements and other financial
information of such Company included in the Registration Statement, each such
letter dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to each of CHS, HII,
MI, T2 and Newco, and in a form reasonably approved by the recipients prior to
delivery thereof.
6.6 Legal Conditions to Merger. Each Company shall, and shall cause its
subsidiaries to, use all reasonable efforts (a) to take, or cause to be taken,
all actions necessary to comply promptly with all legal requirements which may
be imposed on such party or its subsidiaries with respect to the Merger and to
consummate the transactions contemplated by this Agreement, subject to the
appropriate vote or consent of stockholders and (b) to obtain (and to cooperate
with the other party to obtain) any consent, authorization, order or approval
of, or any exemption by, any governmental entity and or any other public or
private third party which is required to be obtained or made by such party or
any of its subsidiaries in connection with the Merger and the transactions
contemplated by this Agreement; provided, however, that a party shall not be
obligated to take any action pursuant to the foregoing if the taking of such
action or such compliance or the obtaining of such consent, authorization,
order, approval or exemption would, in such party's reasonable opinion, (i) be
materially burdensome to such party and its subsidiaries taken as a whole or
impact in such a materially adverse manner the economic or business benefits of
the transactions contemplated by this Agreement as to render inadvisable the
consummation of the Merger or (ii) result in the imposition of a condition or
restriction on such party or on the Surviving Corporation of the type referred
to in Section 8.1(e).
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Each Company will promptly cooperate with and furnish information to the other
in connection with any such burden suffered by, or requirement imposed upon, any
of them or any of their subsidiaries in connection with the foregoing.
6.7 Affiliates. Prior to the mailing to the stockholders of each Company
of the Proxy Statement, each Company shall deliver to the other a letter
identifying all persons who are, at the time this Agreement is submitted for
approval to the stockholders of such Company, "affiliates" of such Company, for
purposes of Rule 145 under the Securities Act. Each Company shall use all
reasonable efforts to cause each person named in the letter delivered by it to
deliver to the other Companies at least 10 days prior to the Closing Date a
written "affiliates" agreement, in customary form, restricting the disposition
by such person of the Newco Shares to be received by such person in the Mergers,
as contemplated by Rule 145 under the Securities Act and as required to qualify
the Mergers for pooling of interest accounting treatment and tax-free
reorganization treatment under the Code. Certificates surrendered for exchange
by any person constituting an "affiliate" of a Company within the meaning of
Rule 145 under the Securities Act shall not be exchanged by the Exchange Agent
for Newco Shares pursuant to Section 3.2 until Newco has received such agreement
described in the preceding sentence. Such affiliates agreements shall also
provide for certain demand registration or piggy back registration rights in
favor of such affiliates as described on Exhibit 6.7 hereto.
6.8 Advice of Changes; Government Filings. Each party shall confer on a
regular and frequent basis with the other, report on operational matters and
promptly advise the other orally and in writing of any change or event having,
or which, insofar as can reasonably be foreseen, could have, a Material Adverse
Effect on such party or which would cause or constitute a material breach of any
of the representations, warranties or covenants of such party contained herein.
Each Company shall file all reports required by regulation to be filed by it
with the SEC between the date of this Agreement and the Effective Time and shall
deliver to the other party copies of all such reports promptly after the same
are filed. Except where prohibited by applicable statutes and regulations, each
party shall promptly provide the other (or its counsel) with copies of all other
filings made by such party with any state or federal government entity in
connection with this Agreement or the transactions contemplated hereby other
than confidential communications made in connection with the Existing T2
Governmental Investigations.
6.9 Accounting Methods. No Company shall change its methods of accounting
in effect at December 31, 1992, except as required by changes in generally
accepted accounting principles as concurred in by such party's independent
auditors or except as required under Section 7.13 hereof. No Company will change
its fiscal year.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Access and Information.
(a) Each Company and their respective subsidiaries shall each afford to the
other and to the other's financial advisors, legal counsel, accountants,
consultants and other representatives access during normal business hours
throughout the period from the date hereof to the Effective Time to all of its
books, records, properties, facilities, personnel commitments and records
(including but not limited to Tax Returns) and, during such period, each shall
furnish promptly to the other all information concerning its business,
properties and personnel as such other party may reasonably request. No
investigation pursuant to this Section 7.1 shall affect any representations or
warranties made herein or the conditions to the obligations of the respective
parties to consummate the Mergers.
(b) All information furnished by any Company to another Company pursuant
hereto shall be treated as the sole property of the party furnishing the
information until consummation of the Merger contemplated hereby. The parties
will hold any such information that is nonpublic in confidence to the extent
required by, and in accordance with the Confidentiality Agreement dated as of
November 15, 1993 among CHS, HII, MI, and the Confidentiality Agreement dated as
of January 19, 1994 among CHS, HII, MI and T2 (collectively,
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the "Confidentiality Agreements") and such Confidentiality Agreements shall
survive the termination of this Agreement.
7.2 Acquisition Proposals. Each Company and their respective subsidiaries
will not, and will use their best efforts to cause their respective directors,
officers, employees, financial advisors, legal counsel, accountants and other
agents and representatives (for purposes of this Section 7.2 only, being
referred to as "affiliates") not to, initiate, solicit or encourage, directly or
indirectly, or take any other action to facilitate any inquiries or the making
of any proposal with respect to, or except to the extent required in the
exercise of the fiduciary duties of its Board of Directors under applicable law
as advised by independent counsel, engage or participate in negotiations
concerning, provide any nonpublic information or data to or have any discussions
with any person other than a party hereto or their affiliates relating to, any
acquisition, tender offer (including a self-tender offer), exchange offer,
merger, consolidation, acquisition of beneficial ownership of or the right to
vote securities representing 10% or more of the total voting power of such
entity or any of its subsidiaries, dissolution, business combination, purchase
of all or any significant portion of the assets or any division of, or any
equity interest in, such entity or any subsidiary, or similar transaction other
than the Mergers (such proposals, announcements, or transactions being referred
to as "Acquisition Proposals"). Each Company will promptly notify the others
orally and in writing if any such Acquisition Proposal (including the terms
thereof and identity of the persons making such proposals) is received and
furnish to the other parties hereto a copy of any written proposal.
7.3 Registration Statement. As promptly as practicable, the Companies
shall prepare and file with the SEC the Registration Statement with respect to
the Newco Shares to be issued in the Mergers hereunder and use their best
efforts to have the Registration Statement declared effective. The Companies
shall also use their best efforts to take any action required to be taken under
state securities or blue sky laws in connection with the issuance of the Newco
Shares pursuant hereto. Each Company shall furnish all information concerning
such Company and the holders of its capital stock and shall take such other
action as may be reasonably requested in connection with such Registration
Statement and issuance of Newco Shares.
7.4 Proxy Statements; Stockholder Approvals. CHS, HII, MI and T2 acting
through their respective Boards of Directors, shall, in accordance with
applicable law and their Certificate or Articles of Incorporation (as
applicable) and Bylaws:
(a) promptly and duly call, give notice of, convene and hold as soon
as practicable following the date upon which the Registration Statement
becomes effective a meeting of their respective stockholders for the
purpose of voting to approve and adopt this Agreement and shall use their
respective best efforts, except to the extent the Board of Directors
reasonably believe is otherwise required by its fiduciary duty, to obtain
such stockholders approval;
(b) except to the extent the Board of Directors reasonably believes is
otherwise required by its fiduciary duty, recommend approval and adoption
of this Agreement by the stockholders of such Company, and include in the
Proxy Statement such recommendations, and take all lawful action to solicit
such approvals; and
(c) as promptly as practicable, prepare and file with the SEC a
preliminary Proxy Statement and, after consultation with each other,
respond to any comments of the SEC with respect to the preliminary Proxy
Statement and cause the definitive Proxy Statement to be mailed to their
respective stockholders. Whenever any event occurs which should be set
forth in an amendment or a supplement to the Proxy Statement or any filing
required to be made with the SEC, each party will promptly inform the other
and will cooperate in filing with the SEC and/or mailing to stockholders
such amendment or supplement. The Proxy Statement, and all amendments and
supplements thereto, shall comply with applicable law and be in form and
substance reasonably satisfactory to each such Company.
7.5 Stock Exchange Listing. The Companies shall take such action as may be
necessary or desirable to timely list the Newco Shares to be issued pursuant to
the Merger on the New York Stock Exchange, if such Newco Shares are eligible for
listing thereon, or under The Nasdaq National Market if not eligible for New
York Stock Exchange listing.
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7.6 Antitrust Laws. As promptly as practicable, each Company shall make
all filings and submissions under the HSR Act as may be reasonably required to
be made in connection with this Agreement and the transactions contemplated
hereby. Subject to Section 7.1 hereof, each Company will furnish to the others
such information and assistance as the other may reasonably request in
connection with the preparation of any such filings or submissions. Subject to
Section 7.1 hereof, each Company will provide the others with copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof) between such party or any of its representatives, on the one
hand, and any governmental agency or authority or members of their respective
staffs, on the other hand, with respect to this Agreement and the transactions
contemplated hereby.
7.7 Employee Benefit Plans. It is the Companies' present intent to provide
after the Effective Time to continuing employees of each Company and their
subsidiaries employee benefit programs that in the aggregate are generally not
less favorable to such employees than those being provided to such employees on
the date of this Agreement.
7.8 Stock Options, Warrants, Debentures and other Agreements. As of the
Effective Time, any stock options, warrants, convertible securities or other
contractual commitments to purchase or issue Shares of CHS, HII, MI or T2 that
are outstanding both as of the date hereof and at the Effective Time (whether or
not contingent or otherwise requiring further shareholder approval) shall be
assumed by Newco and converted into an option, warrant, convertible security or
other contractual commitment as the case may be, to purchase or issue, on the
same terms and conditions (including, without limitation, the date and exercise
provisions) as were applicable prior to the Effective Time, the number of Newco
Shares equal to the number of Shares subject to such stock option, warrant,
convertible security or other contractual commitment multiplied by the
applicable Exchange Ratio, at an exercise price per Newco Share equal to the
former exercise price per Share under such stock option, warrant, convertible
security or other contractual commitment immediately prior to the Effective Time
(without taking into account any antidilution formula) divided by the applicable
Exchange Ratio; provided, however, that in the case of any employee stock option
to which Section 421 of the Code applies by reason of its qualification under
Section 422 of the Code, the conversion formula shall be adjusted, if necessary,
to comply with Section 424(a) of the Code. No stock option or warrant shall be
converted into an option or warrant to purchase a partial Newco Share. Except as
provided above, the converted stock options, warrants, convertible securities or
other contractual commitments shall be assumed by Newco under their same terms
and conditions, but shall not be subject to further stockholder approval. Newco
agrees that as soon as reasonably practicable after the Effective Time it will
cause to be filed one or more Registration Statements on Form S-8 under the
Securities Act, or Amendments to any existing Registration Statements on Form
S-8 covering stock options and warrants, to register the Newco Shares issuable
upon exercise of the aforesaid converted options or warrants, and at or prior to
the Effective Time, Newco shall take all corporate action necessary to reserve
for issuance a sufficient number of Newco Shares for delivery upon exercise of
the options and warrants, conversion of convertible securities or otherwise
pursuant to other contractual commitments assumed pursuant to this Section 7.8.
The consummation of the Merger shall not be treated as a termination of
employment for purposes of the option plans.
7.9 Director and Officer Indemnification. All rights to indemnification
and advancement of expenses existing in favor of the directors, officers and
agents of any Company (the "Indemnified Parties") under the provisions existing
on the date hereof of any Company's Certificate or Articles of Incorporation,
Bylaws and indemnification agreements of any Company shall survive the Effective
Time for at least six years thereafter (including any directors' and officers'
liability insurance heretofore maintained if such insurance remains available
for such period on commercially reasonable terms) and Newco agrees to indemnify
and advance expenses to the Indemnified Parties to the full extent required or
permitted by any Company under the provisions existing on the date hereof of any
Company's Certificate or Articles of Incorporation, Bylaws and indemnification
agreements of any Company.
7.10 Public Announcements. So long as this Agreement is in effect, each
Company agrees that it will obtain the approval of the other party prior to
issuing any press release and will use its best efforts to consult with the
others before otherwise making any public statement or responding to any press
inquiry with respect to this Agreement or the transactions contemplated hereby,
except as may be required by law or any
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governmental agency if required by such agency or the rules of the National
Association of Securities Dealers, Inc.
7.11 Expenses. Subject to Section 9.3 hereof, whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby and thereby shall be paid by the party
incurring such expenses, except that if the Merger is not consummated CHS, HII,
MI and T2 shall share equally the expenses incurred in connection with printing
and mailing the Proxy Statement and the Registration Statement, the fees and
expenses of Gardner, Carton & Douglas and all filing fees with the SEC, under
state blue sky laws, with the New York Stock Exchange or The Nasdaq Stock
Market, Inc. and under the HSR Act.
7.12 Additional Agreements.
(a) Subject to the terms and conditions herein provided, including without
limitation those set forth in the proviso to Section 6.6 hereof, each of the
parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including using all
reasonable efforts to obtain all necessary waivers, consents and approvals, and
to effect all necessary registrations and filings. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and/or directors of the
Companies shall take all such necessary action.
(b) Subject to the terms and conditions herein provided, including without
limitation those set forth in the proviso to Section 6.6 hereof, each Company
will cooperate with the others and use all reasonable efforts to prepare all
necessary documentation to effect promptly all necessary filings and to obtain
all necessary permits, consents, approvals, orders and authorizations of or any
exemptions by, all third parties and governmental bodies necessary to consummate
the transactions contemplated by this Agreement.
(c) Each party will keep the other party apprised of the status of any
inquiries made of such party by the Federal Trade Commission, the Department of
Justice, the SEC, or any other governmental agency or authority or members of
their respective staffs with respect to this Agreement or the transactions
contemplated herein.
7.13 Company Accruals and Reserves. Prior to the Closing Date, each
Company shall review and, to the extent determined necessary or advisable,
consistent with generally accepted accounting principles and the accounting
rules, regulations and interpretations of the SEC and its staff, modify and
change its accrual, reserve and provision policies and practices to (a) reflect
the Surviving Corporation's plans with respect to the conduct of the Company's
business following the Merger and (b) make adequate provision (for the costs and
expenses relating thereto) so as to be applied consistently on a mutually
satisfactory basis with those of the other Companies. The parties agree to
cooperate in preparing for the implementation of the adjustments contemplated by
this Section 7.13. Notwithstanding the foregoing, (i) no Company shall be
obligated to take in any respect any such action pursuant to this Section 7.13
(other than pursuant to the preceding sentence) unless and until the other
Companies acknowledges that all conditions to their obligations to consummate
the Merger have been satisfied and (ii) no adjustments made solely as a result
of this Section 7.13 shall change the Exchange Ratio.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGERS
8.1 Conditions to All Companies' Obligation to Effect the Mergers. The
respective obligations of all Companies to effect the transactions contemplated
herein shall be subject to the satisfaction at or prior to the Effective Time of
the following conditions, any one of which may be waived by all, but not less
than all, Companies:
(a) Any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
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(b) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act.
(c) This Agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite vote of the stockholders of each
Company in accordance with applicable law.
(d) No preliminary or permanent injunction or other order by any
federal, state or foreign court of competent jurisdiction which prohibits
the consummation of any Merger shall have been issued and remain in effect.
No statute, rule, regulation, executive order, stay, decree, or judgment
shall have been enacted, entered, issued, promulgated or enforced by any
court or governmental authority which prohibits or restricts the
consummation of any Merger. Other than the filing of Articles of Merger
with the Department of State for the State of Florida and Certificates of
Merger with the Secretary of State of Delaware, all authorizations,
consents, orders or approvals of, or declarations or filings with, and all
expirations of waiting periods imposed by, any governmental entity (all of
the foregoing, "Consents") which are necessary for the consummation of the
Merger, other than Consents the failure to obtain which would have no
material adverse effect on the consummation of the Mergers or on the
Surviving Corporations and their subsidiaries, taken as a whole, shall have
been filed, occurred or been obtained (all such permits, approvals, filings
and consents and the lapse of all such waiting periods being referred to as
the "Requisite Regulatory Approvals") and all such Requisite Regulatory
Approvals shall be in full force and effect. All state securities or blue
sky permits and other authorizations necessary to issue the Newco Shares in
exchange for the Shares of CHS, HII, MI and T2 and to consummate the Merger
shall have been received.
(e) There shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to any
Merger, by any federal or state governmental entity which, in connection
with the grant of a Requisite Regulatory Approval, imposes any condition or
restriction upon any Surviving Corporation or its subsidiaries (or, in the
case of any disposition of assets required in connection with such
Requisite Regulatory Approval, upon any Company or its subsidiaries),
including, without limitation, requirements relating to the disposition of
assets, which in any such case would so materially adversely impact the
economic or business benefits of the transactions contemplated by this
Agreement as to render inadvisable the consummation of the Merger.
(f) The aggregate amount of cash required to be paid on account of all
Excluded Shares and with respect to any cash payments for fractional Newco
Shares pursuant to Section 3.4, shall not exceed ten percent (10%) of the
value (determined in accordance with APB Opinion No. 16) of the Newco
Shares issuable in exchange for Shares of CHS, HII, MI and T2 at the
Effective Time.
(g) Each Company shall have received a letter, dated the Closing Date
of its regularly retained independent auditors, and in form and substance
reasonably satisfactory to it to the effect that the Merger qualifies for
"pooling of interests" treatment for financial reporting purposes and that
such accounting treatment is in accordance with generally accepted
accounting principles.
(h) Newco (or, as applicable, the respective Companies) shall have
offered to enter into the agreements referred to in Section 2.7 hereof with
the parties referred to in Exhibit 2.7.
8.2 Conditions to Obligation of Each Company to Effect the Merger. The
obligation of each Company to effect the Merger shall be further subject to the
satisfaction at or prior to the Effective Time of the following additional
conditions, which may be waived by such Company:
(a) Each of the other Companies shall have performed in all material
respects its obligations under this Agreement required to be performed by
it at or prior to the Effective Time and the representations and warranties
of the other Companies contained in this Agreement shall be true and
correct in all material respects at and as of the Effective Time as if made
at and as of such time, except as contemplated by this Agreement, and each
Company shall have received a certificate of the Chairman of the Board, the
President or an Executive Vice President of each of the other Companies as
to the satisfaction of this condition.
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(b) Each Company shall have received an opinion of its outside counsel
or, in the case of HII, its outside auditors, dated as of the Effective
Time, substantially to the effect that, on the basis of facts,
representations, and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the
Merger applicable to such Company will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code and that such Company will be a party to the reorganization within the
meaning of Section 368(b) of the Code. In addition, each Company shall have
received the opinion of its, and the other Companies' respective, outside
counsel dated the Closing Date and addressed to itself and all other
Companies covering the additional matters set forth in Exhibit 8.2(b).
(c) Each Company shall have obtained the consent or approval of each
person whose consent or approval shall be required in connection with the
transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument,
except those for which failure to obtain such consents and approvals would
not, individually or in the aggregate, have a material adverse effect on
the Surviving Corporation and its subsidiaries taken as a whole or upon the
consummation of the transactions contemplated hereby.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated and the Mergers
contemplated hereby abandoned at any time prior to the Effective Time, whether
before or after approval by the stockholders of the Companies:
(a) By mutual written consent of all of the Companies.
(b) By any Company if the Mergers shall not have been consummated on
or before June 30, 1994.
(c) By any Company if there shall have been any material breach of a
material obligation of another Company hereunder and, if such breach is
curable, such default shall have not been remedied within 10 days after
receipt by the other Company, as the case may be, of notice in writing from
such Company specifying such breach and requesting that it be remedied;
provided, that such 10-day period shall be extended for so long as the
other Company shall be making diligent attempts to cure such default.
(d) By any Company if the Board of Directors of any other Company
shall have withdrawn or modified in a manner adverse to the others its
approval or recommendation of this Agreement or the Mergers, or shall have
resolved to do the same; provided, however, that a Company may not
terminate this Agreement pursuant to this clause if, as a result of a
Company's receipt of an Acquisition Proposal from a third party, a Company
withdraws or modifies its approval or recommendation of this Agreement or
the Mergers but thereafter (and prior to termination by another Company)
the recipient Company publicly reconfirms its recommendation of the
transactions contemplated hereby and notifies the other Companies of such
reconfirmation prior to termination of this Agreement by another Company
pursuant to this clause.
(e) By any Company if any court of competent jurisdiction in the
United States or other United States governmental body shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting any Merger and such order, decree, ruling or any
other action shall have become final and non-appealable.
(f) By any Company upon written notice to the others if any approval
of the stockholders of a Company required for the consummation of the
Merger submitted for their approval shall not have been obtained by reason
of the failure to obtain the required vote at a duly held meeting of
stockholders or at any adjournment thereof.
(g) By any Company, if it shall receive any Acquisition Proposal after
the date hereof from a third party or parties and the Board of Directors of
such Company shall have determined in good faith that in
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the exercise of its fiduciary duties to the stockholders of such Company
that such Company must pursue such Acquisition Proposal; provided that such
Company may only terminate this Agreement pursuant to this clause if it
simultaneously with such termination delivers to the other Companies the
termination fees provided for in Section 9.3(a) and (b) hereof.
9.2 Effect of Termination.
(a) In the event of termination of this Agreement as provided above, this
Agreement shall forthwith become of no further effect and, except for a
termination resulting from a breach by a party of this Agreement, there shall be
no liability or obligation on the part of any Company or their respective
officers or directors (except as set forth in Section 7.1(b) hereof and except
for Sections 7.11, 9.3, 10.2 and 10.6 hereof which shall survive the
termination). Nothing contained in this Section 9.2 shall relieve any party from
liability for willful breach of this Agreement that results in termination of
this Agreement. Upon request therefor, each party will redeliver all documents,
work papers and other material of any other party relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party furnishing same.
(b) Concurrently with the execution of this Agreement, Newco, CHS, CHS Sub,
HII, HII Sub, MI and MI Sub have terminated the Prior Merger Agreement, subject
to reinstatement only as provided below. In the event that prior to the mailing
of the Proxy Statement to stockholders, this Agreement is terminated under
Section 9.1(d) or (g) above as a result of (i) action by T2's or T2 Sub's Board
of Directors to withdraw, modify in an adverse manner its approval or
recommendation of this Agreement or the Mergers or (ii) a termination by T2
pursuant to Section 9.1(g), then the Prior Merger Agreement providing for the
mergers of CHS Sub into CHS, HII Sub into HII and MI Sub into MI shall be
reinstated and such parties shall be obligated to proceed with the mergers
called for thereunder subject to the terms and conditions of the Prior Merger
Agreement; provided that, upon the mailing of the Proxy Statement to
stockholders pursuant to Section 7.4(c) hereof, the reinstatement provisions of
the Prior Merger Agreement shall be terminated as provided therein.
9.3 Certain Termination Fees. If any of CHS, HII, MI or T2 (an "Operating
Company") either (1) violates its obligations set forth in Section 7.2 hereof in
any material respect or otherwise breaches in any material respect any of its
other material obligations hereunder and this Agreement is thereafter terminated
pursuant to Section 9.1(c) or (2) prior to termination of this Agreement
receives any Acquisition Proposal, and this Agreement is thereafter terminated
pursuant to Sections 9.1(d) or 9.1(g) as a result of receipt of such Acquisition
Proposal, then the Operating Company which has so violated or breached its
obligations as aforesaid or which was in receipt of such Acquisition Proposal
(the "Payor Company") shall pay to each of the other Operating Companies the
following fees:
(a) the reasonable fees and expenses of each such other Operating
Company incurred by such other Operating Company prior to such termination
(but not less than $250,000);
(b) if T2 is the Payor Company, the sum of $1.5 million shall be
payable by T2 to each of CHS, HII and MI; if CHS is the Payor Company, the
sum of $1.5 million shall be payable by CHS to each of HII, MI and T2; if
HII is the Payor Company, the sum of $1.5 million shall be payable by HII
to each of CHS, MI and T2; and if MI is the Payor Company, the sum of $750
thousand shall be payable by MI to each of CHS, HII and T2; provided that
such amounts payable under this clause (b) shall be reduced by any amounts
paid by such Payor Company under clause (a) above; and
(c) if T2 is the Payor Company, the additional sum of $3.5 million to
each of CHS, HII and MI, payable only if a T2 Acquisition Transaction is
consummated within twelve months of a termination of this Agreement as to
which a termination fee by T2 is payable under clause (a) and (b) above.
For the purpose of this Section 9.3, a "T2 Acquisition Transaction" shall
mean any transaction involving T2 (other than the Mergers) of the type
described in the definition of Acquisition Proposal in Section 7.2 hereof.
9.4 Amendment. This Agreement may be amended by action taken at any time
before or after approval hereof by the stockholders of the Companies, but, after
any such approval, no amendment shall be
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made which alters the Exchange Ratio or which in any way materially adversely
affects the rights of such stockholders, without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
9.5 Waiver. At any time prior to the Effective Time, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Such waiver shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
ARTICLE X
GENERAL PROVISIONS
10.1 Survival of Representations, Warranties and Agreements. No
representations, warranties or agreements contained herein shall survive beyond
the Effective Time except that the agreements contained in Sections 2.3, 3.1,
3.2, 3.3, 3.4, 3.5, 7.8, 7.9, 7.10, 7.12(a), 9.3, 10.1, 10.6 and 10.7 hereof,
and all other agreements of Newco, shall survive beyond the Effective Time.
10.2 Brokers. HII represents and warrants to the other Companies that,
except for its financial advisors, Hambrecht & Quist Incorporated, no broker,
finder or financial advisor is entitled to any brokerage, finder's or other fee
or commission in connection with the Mergers or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of HII and that a
true and complete copy of the engagement letter between HII and Hambrecht &
Quist Incorporated has previously been delivered to the other Companies. CHS
represents and warrants to the other Companies that, except for its financial
advisors, Smith Barney Inc., no broker, finder or financial advisor is entitled
to any brokerage, finder's or other fee or commission in connection with the
Mergers or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of CHS and that a true and complete copy of
the engagement letter among CHS and Smith Barney has previously been delivered
to Companies. MI represents and warrants to the other Companies that, except for
its financial advisers, Piper Jaffray Inc., no broker, finder or financial
advisor is entitled to any brokerage, finder's or other fee or commission in
connection with the Mergers or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of MI, and that a true and complete
copy of the engagement letter among MI and Piper Jaffray Inc. has previously
been delivered to the other Companies. T2 represents and warrants to the other
Companies that, except for its financial advisors, Kidder Peabody & Co.
Incorporated and except pursuant to its Engagement Letter dated November 29,
1993, as amended by letter dated January 28, 1994, with James M. Sweeney (as
amended, the "Engagement Letter"), no broker, finder or financial advisor is
entitled to any brokerage, finder's or other fee or commission in connection
with the Mergers or the transactions contemplated by this Agreement based upon
the arrangements made by or on behalf of T2, and that true and complete copies
of the engagement letter between T2 and Kidder Peabody & Co. Incorporated and
the Engagement Letter with Mr. Sweeney have previously been delivered to the
other Companies.
10.3 Notices. All notices, claims, demands and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or by telex or telecopy or mailed by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to CHS, to:
Curaflex Health Services, Inc.
3281 Guasti Road, Suite 800
Ontario, California 91761
Attention: Kevin M. Higgins, Esq.
Vice President and General Counsel
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<PAGE> 409
with a copy to:
Morrison & Foerster
19900 MacArthur Boulevard, Suite 1200
Irvine, California 92715
Attention: Robert M. Mattson, Jr., Esq.
(b) If to HII, to:
HealthInfusion, Inc.
5200 Blue Lagoon Drive, Suite 200
Miami, Florida 33126
Attention: Miles E. Gilman, President
with a copy to:
Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attention: Bruce E. Macdonough, Esq.
(c) If to MI, to:
Medisys, Inc.
4550 West 77th Street
Edina, Minnesota 55435
Attention: William J. Brummond, President
with a copy to:
Oppenheimer Wolff & Donnelly
3400 Plaza VII
45 South Seventh Street
Minneapolis, Minnesota 55402
Attention: Mark A. Kimball, Esq.
(d) If to T2, to:
T2 Medical, Inc.
1121 Alderman Drive
Alpharetta, Georgia 30202
Attention: Tommy H. Carter, President
with a copy to:
Brobeck Phleger and Harrison
4675 MacArthur Court
Suite 1000
Newport Beach, California 92660-1836
Attention: Richard A. Fink, Esq.
(e) If to Newco, CHS Sub, HII Sub, MI Sub or T2 Sub to:
Morrison & Foerster
19900 MacArthur Boulevard, Suite 1200
Irvine, California 92715
Attention: Robert M. Mattson, Jr.
and with a copy to all other Companies as aforesaid.
10.4 Descriptive 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.
10.5 Entire Agreement; Assignment. This Agreement (including the Exhibits,
and other documents and instruments referred to herein) and the Confidentiality
Agreement (a) constitute the entire agreement
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<PAGE> 410
and supersedes all other prior agreements and understandings, both written and
oral, among the parties or any of them, with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise. In this regard, each of CHS, HII and MI represent and warrant that,
except for the Prior Merger Agreement and the reinstatement provisions thereof
as described in Section 9.2(b) hereof, such party has no arrangement or
understanding with any other party to this Agreement with respect to a merger or
similar transaction in the event this Agreement is terminated.
10.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
provisions thereof relating to conflicts of law.
10.7 Parties in Interest. Except for Sections 2.7, 7.8, 7.9, and 7.11
hereof, nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person any rights, benefit or remedies of any nature
whatsoever or by reason of this Agreement.
10.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
10.9 Validity. The invalidity or unenforceability of any provision of this
Agreement shall not effect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
10.10 Jurisdiction and Venue. Each party hereto hereby agrees that any
proceeding relating to this Agreement and the Mergers shall be brought in a
state court of Delaware. Each party hereto hereby consents to personal
jurisdiction in any such action brought in any such Delaware court, consents to
service of process by registered mail made upon such party and such party's
agent and waives any objection to venue in any such Delaware court or to any
claim that such Delaware court is an inconvenient form.
10.11 Investigation. The respective representations and warranties of each
Company contained herein or in the certificates or other documents delivered
prior to the Closing shall not be deemed waived or otherwise affected by any
investigation made by any party hereto.
10.12 Consents. For purposes of any provision of this Agreement requiring,
permitting or providing for the consent of any or Company, the written consent
of the Chief Executive Officer of a Company shall be sufficient to constitute
such consent.
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<PAGE> 411
IN WITNESS WHEREOF, each Company has caused this Agreement to be executed
on its behalf by its officers thereunto duly authorized, all as of the date
first above written.
<TABLE>
<S> <C>
CURAFLEX HEALTH SERVICES, INC. CHM HOLDING CORPORATION
By: /s/ CHARLES A. LAVERTY By: /s/ CHARLES A. LAVERTY
-------------------------------------- -------------------------------------
Name: Charles A. Laverty Name: Charles A. Laverty
Title: Chairman, President and Chief Title: Chief Executive Officer
Executive Officer
CHS ACQUISITION COMPANY MEDISYS, INC.
By: /s/ CHARLES A. LAVERTY By: /s/ WILLIAM J. BRUMMOND
-------------------------------------- -------------------------------------
Name: Charles A. Laverty Name: William J. Brummond
Title: Authorized Officer Title: President and Chief Executive
Officer
HEALTHINFUSION, INC. MI ACQUISITION COMPANY
By: /s/ MILES E. GILMAN By: /s/ WILLIAM J. BRUMMOND
-------------------------------------- -------------------------------------
Name: Miles E. Gilman Name: William J. Brummond
Title: President and Chief Executive Title: President
Officer
HII ACQUISITION COMPANY T2 MEDICAL, INC.
By: /s/ MILES E. GILMAN By: /s/ TOMMY H. CARTER
-------------------------------------- -------------------------------------
Name: Miles E. Gilman Name: Tommy H. Carter
Title: President Title: President and Chief Executive
Officer
T2 ACQUISITION COMPANY
By: /s/ TOMMY H. CARTER
-------------------------------------
Name: Tommy H. Carter
Title: President
</TABLE>
NOTE: Exhibits and Schedules to this Agreement have been intentionally omitted.
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<PAGE> 412
APPENDIX A-2
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
<PAGE> 413
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER dated as of May 25,
1994 (this "First Amendment"), is made by and among CORAM HEALTHCARE
CORPORATION, a Delaware corporation (formerly "CHM Holding Corporation")
("Newco"), T2 Medical, Inc., a Delaware corporation ("T2"), T2 Acquisition
Company, a Delaware corporation and wholly-owned subsidiary of Newco
("T2 Sub"), Curaflex Health Services, Inc., a Delaware corporation ("CHS"), CHS
Acquisition Company, a Delaware corporation and wholly-owned subsidiary of Newco
("CHS Sub"), HealthInfusion, Inc., a Florida corporation ("HII"), HII
Acquisition Company, a Florida corporation and wholly-owned subsidiary of Newco
("HII Sub"), Medisys, Inc., a Delaware corporation ("MI"), and MI Acquisition
Company, a Delaware corporation and wholly-owned subsidiary of Newco ("MI Sub").
The parties hereto are sometimes hereinafter referred to, collectively, as the
"Companies" or the "Constituent Corporations" or, individually, as a "Company"
or a Constituent Corporation."
WHEREAS, each of the parties hereto is a party to that certain Agreement
and Plan of Merger, dated February 6, 1994 (the "Merger Agreement"), pursuant to
which and subject to the terms and conditions set forth therein, each of T2,
CHS, HII and MI agreed to be acquired by and become wholly-owned subsidiaries of
Newco; and
WHEREAS, the parties hereto desire to amend and supplement certain terms
and provisions of the Merger Agreement as more particularly set forth herein.
NOW, THEREFORE, in consideration of the foregoing, the following covenants
and agreements, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto, the
parties hereto hereby agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms used
herein shall have the same respective meanings ascribed to such terms in the
Merger Agreement.
2. Amendments.
(a) Subsection (b) of Section 2.3 of the Merger Agreement is hereby amended
by deleting subsection (b) of Section 2.3 in its entirety and inserting in its
place the following new subsection (b) of Section 2.3 which shall read as
follows:
"(b) The respective officers of T2, CHS, HII and MI at the Effective
Time shall be the initial officers of the Surviving Corporation of each
Merger in which such Company is involved and shall hold office from the
Effective Time until their respective successors are duly elected or
appointed and qualified in the manner provided in the Certificate or
Articles of Incorporation and Bylaws of the Surviving Corporation, or as
otherwise provided by law."
(b) Section 2.4 of the Merger Agreement is hereby amended by deleting
Section 2.4 in its entirety and inserting in its place the following new Section
2.4 which shall read in its entirety as follows:
"2.4 Directors and Officers of Newco.
(a) At or prior to the Effective Time, the Companies or Newco, as
appropriate, shall take or cause to be taken all necessary action such
that, at the Effective Time, Newco's Board of Directors shall be increased
to seven (7) members, without classifications of directors into separate
classes. Following the Effective Time, directors shall be reelected at the
annual stockholders meeting of Newco commencing in the year 1995. The
parties hereto hereby agree that the following individuals shall serve as
the initial directors of Newco until such reelection: (1) James M. Sweeney,
who shall also serve as the Chairman of the Board of Newco; (2) Charles A.
Laverty; (3) Miles E. Gilman; (4) L. Peter Smith; (5) Tommy H. Carter, who
shall also serve as Vice Chairman of the Board of Directors of Newco; (6)
Richard A. Fink; and (7) Stephen G. Pagliuca. The parties hereto hereby
further agree that in the event that Mr. Laverty resigns or otherwise
ceases to serve as a director of Newco prior to the end of his initial term
as a director of Newco, the remaining directors of Newco shall appoint
either C. Sage Givens or John S. Chamberlin to fill such vacant
directorship for the remainder of such term.
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<PAGE> 414
(b) At or prior to the Effective Time, the Companies or Newco, as
appropriate, shall take or cause to be taken all necessary action such
that, at the Effective Time, the following individuals shall be appointed
to the following offices of Newco, to hold office at the pleasure of the
Board of Directors of Newco until a respective successor has been duly
appointed or elected and qualified, unless sooner removed (other than
Charles A. Laverty, who will enter into an employment agreement with Newco
as more particularly described on Exhibit 2.7 hereto, which shall set
forth, among other things, the terms and conditions with respect to Mr.
Laverty's employment with Newco): (1) James M. Sweeney, Chief Executive
Officer, (2) Charles A. Laverty, Senior Executive Vice President; (3) Miles
E. Gilman, Executive Vice President; (4) Norman H. Werthwein, Acting Chief
Financial Officer; (5) William J. Brummond, Vice President; (6) John T.
Gallatin, Vice President; and (7) John D. Hirsch, M.D., Physician Advisory
Director."
(c) The Merger Agreement is hereby further amended by deleting Section 2.5
in its entirety.
(d) Section 2.6 of the Merger Agreement is hereby amended by deleting
Section 2.6 in its entirety and inserting in its place the following new Section
2.6 which shall read in its entirety as follows:
"2.6 Change of Newco's Name. At or prior to the mailing to
stockholders of the Proxy Statement referred to in Section 4.7, the
Companies or Newco, as appropriate, shall take or cause to be taken all
necessary action such that, at the Effective Time, the corporate name of
Newco shall be changed to "Coram Healthcare Corporation." "
(e) Section 6.1 of the Merger Agreement is hereby amended by deleting
subsection (f) thereof in its entirety and inserting in its place the following
new subsection (f) and additional paragraph thereafter which shall read as
follows:
"(f) such Company and its subsidiaries shall use all reasonable
efforts to prevent any representation or warranty of such Company herein
from becoming untrue or incorrect in any material respect;
provided, that, notwithstanding the foregoing, any action taken or to be
taken by Newco, the Companies or any Company which is expressly set forth
or otherwise provided for in the Proxy Statement referred to in Section 4.7
shall not be deemed to constitute a violation or breach of, or otherwise be
in conflict with, any provision of this Section 6.1."
(f) Section 6.3 of the Merger Agreement is hereby amended by deleting the
period set forth at the end of the last sentence thereof and adding to the end
of such last sentence thereof immediately following the phrase "any of the
transactions contemplated by this Agreement" set forth at the end of clause (e)
thereof, the phrase"; provided, that, notwithstanding the foregoing, any action
taken or to be taken by Newco, the Companies or any Company which is expressly
set forth or otherwise provided for in the Proxy Statement referred to in
Section 4.7 shall not be deemed to constitute a violation or breach of, or
otherwise be in conflict with, any provision of this Section 6.3."
(g) Section 8.1 of the Merger Agreement is hereby amended by adding at the
end of Section 8.1 immediately after subsection (h) thereof the following new
subsection (i) of Section 8.1 which shall read as follows:
"(i) Each of the respective current directors of T2, CHS, HII and MI
shall have resigned effective as of the Effective Time."
(h) Subsection (b) of Section 9.1 of the Merger Agreement is hereby amended
by deleting said subsection (b) in its entirety and inserting in its place the
following new subsection (b) of Section 9.1:
"(b) By any Company if the Mergers shall not have been consummated on
or before July 31, 1994."
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<PAGE> 415
(i) Section II of Exhibit 2.7 to the Merger Agreement is hereby amended by
adding at the end of the subsection thereof entitled "OTHER EXECUTIVE OFFICERS"
the following additional section entitled "NON-EMPLOYEE DIRECTORS":
"NON-EMPLOYEE DIRECTORS
To the extent it will not prevent pooling of interests treatment for
the Mergers, the outstanding MI options of the four non-employee directors
of MI which would otherwise terminate ninety days after the Effective Time
of the Merger, will be amended to provide that such options may be
exercised for one year after the Effective Time of the Merger, subject to
any required stockholder approvals in connection therewith."
(j) Schedule 1 of Exhibit 2.7 to the Merger Agreement is hereby amended by
deleting the subsection thereof entitled "LAVERTY EMPLOYMENT AGREEMENT" in its
entirety and replacing said subsection with the following new subsection:
"LAVERTY EMPLOYMENT AGREEMENT
<TABLE>
<S> <C>
Participant: o Charles A. Laverty, Senior Executive Vice President
Term: One Year
Base Salary: $450,000 per annum
Incentive Compensation: An annual bonus of up to 100% of Base Salary will be
payable in cash and/or Newco Shares, upon Newco achieving
certain performance objectives for the year in question
as set by the Chairman of Newco or by Newco's Board of
Directors or a committee thereof.
Stock Option: Options for 100,000 Newco Shares at an exercise price
equal to the average sales price of Newco common stock
for the five trading days immediately following the
Effective Time of the Mergers. Such options shall be
fully vested and immediately exercisable as of the time
of grant.
Severance: Upon the termination of Mr. Laverty's employment for any
reason (other than by Newco "for cause"), including
expiration of the term of Mr. Laverty's employment
agreement with Newco, Newco shall pay to Mr. Laverty a
severance/non-compete payment of $2,500,000, payable over
three years in thirty-six (36) equal monthly installments
(co-extensive with the three year non-compete period)
commencing the first day of the calendar month after
termination.
Other Provisions: Benefits; payment by Newco of all fees, costs and
expenses incurred by Mr. Laverty in the event Newco
requires Mr. Laverty to relocate his primary residence
(subject to Mr. Laverty's consent to such relocation),
including broker's fees, mortgage payments on his former
residence after the date of relocation until such
residence is sold and any loss sustained by him on the
sale of such residence.
Termination: Terminable at any time by Mr. Laverty but only "for
cause" by Newco. A pro rata portion of Mr. Laverty's
annual bonus, together with the remaining balance of Mr.
Laverty's annual base salary, shall be payable in the
event Mr. Laverty's employment with Newco is terminated
by Mr. Laverty after completion of at least six months of
service with Newco following the Effective Time."
</TABLE>
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<PAGE> 416
3. Miscellaneous. Except as expressly provided in this First Amendment and
the attachments hereto, the Merger Agreement shall remain unchanged and be in
full force and effect. This First Amendment shall be governed by and construed
in accordance with the laws of the State of Delaware without giving effect to
the provisions thereof relating to conflicts of law. This First Amendment may be
executed by facsimile transmission and in any number of counterparts, each of
which shall be deemed an original and all of which when taken together shall
constitute but one and the same original instrument and any of the parties
hereto may execute this First Amendment by signing any such counterpart.
IN WITNESS WHEREOF, each Company has caused this Agreement to be executed
on its behalf by its officers thereunder fully authorized, all as of the date
first above written.
<TABLE>
<S> <C>
T2 MEDICAL, INC. T2 ACQUISITION COMPANY
By: /s/ TOMMY H. CARTER By: TOMMY H. CARTER
------------------------------------ ----------------------------------
Tommy H. Carter, President and Tommy H. Carter, President
Chief Executive Officer
CURAFLEX HEALTH SERVICES, INC. CHS ACQUISITION COMPANY
By: CHARLES A. LAVERTY By: CHARLES A. LAVERTY
------------------------------------ ----------------------------------
Charles A. Laverty, Charles A. Laverty, President
Chairman, President
and Chief Executive Officer
HEALTHINFUSION, INC. HII ACQUISITION COMPANY
By: MILES E. GILMAN By: MILES E. GILMAN
------------------------------------ ----------------------------------
Miles E. Gilman, President and Miles E. Gilman, President
Chief Executive Officer
MEDISYS, INC. MI ACQUISITION COMPANY
By: WILLIAM J. BRUMMOND By: WILLIAM J. BRUMMOND
------------------------------------ ----------------------------------
William J. Brummond, President and William J. Brummond, President
Chief Executive Officer
CORAM HEALTHCARE CORPORATION
By: JAMES M. SWEENEY
------------------------------------
James M. Sweeney,
Chairman of the Board
</TABLE>
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<PAGE> 417
APPENDIX B
FLORIDA BUSINESS CORPORATION ACT
SECTIONS 607.1301, 607.1302 AND 607.1320
<PAGE> 418
APPENDIX B
607.1301 DISSENTER'S RIGHTS; DEFINITIONS.-- The following definitions
apply to ss. 607.1302 and 607.132:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a copy of the
plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT.-- (1) Any shareholder has the
right to dissent from, and obtain payment of the fair value of his shares in the
event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its parent
under s. 607.1104, and the shareholders would have been entitled to vote on
action taken, except for the applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation, other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange
pursuant to s. 607.1202, including a sale in dissolution but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation is a
party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder is
entitled to vote on the amendment and if such amendment would adversely affect
such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of
his shares;
2. Altering or abolishing the voting rights pertaining to any of his
shares, except as such rights may be affected by the voting rights of new
shares then being authorized of any existing or new class or series of
shares;
3. Effecting an exchange, cancellation, or reclassification of any of
his shares, when such exchange, cancellation, or reclassification would
alter or abolish his voting rights or alter his percentage of equity in the
corporation, or effecting a reduction or cancellation of accrued dividends
or other arrearages in respect to such shares;
4. Reducing the stated redemption price of any of his redeemable
shares, altering or abolishing any provision relating to any sinking fund
for the redemption or purchase of any of his shares, or making any of his
shares subject to redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of any of his
preferred shares which had theretofore been cumulative;
B-1
<PAGE> 419
6. Reducing the stated dividend preference of any of his preferred
shares; or
7. Reducing any stated preferential amount payable on any of his
preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of incorporation
provide that a voting or nonvoting shareholder is entitled to dissent and obtain
payment for his shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered in
his name. In that event, his rights shall be determined as if the shares as to
which he has dissented and his other shares were registered in the names of
different shareholders.
(4) Unless the articles of incorporation otherwise provide, this section
does not apply with respect to a plan of merger [or]1 share exchange or a
proposed sale or exchange of property, to the holders of shares of any class or
series which, on the record date fixed to determine the shareholders entitled to
vote at the meeting of shareholders at which such action is to be acted upon or
to consent to any such action without a meeting, were either registered on a
national securities exchange or held of record by not fewer than 2,000
shareholders.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.-- (1)(a) If a
proposed corporate action creating dissenters' rights under s. 607.1320 is
submitted to a vote at a shareholders' meeting, the meeting notice shall state
that shareholders are or may be entitled to assert dissenters' rights and be
accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A shareholder who
wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written notice
of his intent to demand payment for his shares if the proposed action is
effectuated, and
2. Not vote his shares in favor of the proposed action. A proxy or
vote against the proposed action does not constitute such a notice of
intent to demand payment.
(b) If proposed corporate action creating dissenters' rights under
s. 607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to each shareholder
simultaneously with any request for his written consent or, if such a request is
not made, within 10 days after the date the corporation received written
consents without a meeting from the requisite number of shareholders necessary
to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to paragraph
(1)(a) or, in the case of action authorized by written consent, to each
shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him, any shareholder who
elects to dissent shall file with the corporation a notice of such election,
stating his name and address, the number, classes, and series of shares as to
which he dissents, and a demand for payment of the fair value of his shares. Any
shareholder failing to file such election to dissent within the period set forth
shall be bound by the terms of the proposed corporate action. Any shareholder
filing an election to dissent shall deposit his certificates for certificated
shares with the corporation simultaneously with the filing of the election to
dissent. The corporation may restrict the transfer of uncertificated shares from
the date the shareholder's election to dissent is filed with the corporation.
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1"Of" in original.
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(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
shares. After such offer, no such notice of election may be withdrawn unless the
corporation consents thereto. However, the right of such shareholder to be paid
the fair value of his shares shall cease, and he shall be reinstated to have all
his rights as a shareholder as of the filing of his notice of election,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a
court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder
is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the shareholders' authorization date), the corporation shall make a
written offer to each dissenting shareholder who has made demand as provided in
this section to pay an amount the corporation estimates to be the fair value for
such shares. If the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders' authorization date, the
offer may be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more
than 12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was
not in existence throughout such 12-month period, for the portion thereof
during which it was in existence.
(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his shares shall be made within 90 days after the
making of such offer or the consummation of the proposed action, whichever is
later. Upon payment of the agreed value, the dissenting shareholder shall cease
to have any interest in such shares.
(7) If the corporation fails to make such offer within the period specified
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such period of 60 days may, file an action in any court of competent
jurisdiction in the county in this state where the registered office of the
corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive a payment for his shares. If the corporation fails to
institute the proceeding as herein provided, any dissenting shareholder may do
so in the name of the corporation. All dissenting shareholders (whether or not
residents of this state), other than shareholders who have agreed with the
corporation as to the value of their shares, shall be made parties to the
proceeding as an action against their shares. The corporation shall serve a copy
of the initial pleading in such proceeding upon each dissenting shareholder who
is a resident of this state in the manner provided by law for
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the service of a summons and complaint and upon each nonresident dissenting
shareholder either by registered or certified mail and publication or in such
other manner as is permitted by law. The jurisdiction of the court is plenary
and exclusive. All shareholders who are proper parties to the proceeding are
entitled to judgment against the corporation for the amount of the fair value of
their shares. The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The appraisers shall have such power and authority as is specified in the
order of their appointment or an amendment thereof. The corporation shall pay
each dissenting shareholder the amount found to be due him within 10 days after
final determination of the proceedings. Upon payment of the judgment, the
dissenting shareholder shall cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate
of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against the corporation, but all or any part of
such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the shares,
if the court finds that the action of such shareholders in failing to accept
such offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
1authorized but unissued shares of the corporation, except that, in the case of
a merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of such
dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation. (Last amended by Ch. 93-281, L. '93, eff. 5-15-93.)
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1Ch. 93-281, L. '93, eff. 5-15-93, added matter in italic and deleted1 "in
the case of other treasury shares".
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APPENDIX C
[LETTERHEAD]
February 6, 1994
The Board of Directors
Curaflex Health Services, Inc.
One Lakeshore Center
3281 Guasti Road, Suite 800
Ontario, California 91761
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the stockholders of Curaflex Health Services, Inc. ("CHS") of the
consideration to be received by such stockholders pursuant to the terms and
subject to the conditions set forth in the Agreement and Plan of Merger, dated
as of February 6, 1994 (the "Merger Agreement"), by and among CHM Holding
Corporation ("Newco"), CHS, CHS Acquisition Company, a wholly owned subsidiary
of Newco ("CHS Sub"), HealthInfusion, Inc. ("HII"), HII Acquisition Company, a
wholly owned subsidiary of Newco ("HII Sub"), Medisys, Inc. ("MI"), MI
Acquisition Company, a wholly owned subsidiary of Newco ("MI Sub"), T2 Medical,
Inc. ("T2") and T2 Acquisition Company, a wholly owned subsidiary of Newco ("T2
Sub"). As more fully described in the Merger Agreement, (i) (A) CHS Sub will be
merged with and into CHS, (B) HII Sub will be merged with and into HII, (C) MI
Sub will be merged with and into MI and (D) T2 Sub will be merged with and into
T2 (collectively, the "Merger") and (ii) (A) each outstanding share of the
common stock, par value $0.001 per share, of CHS (the "CHS Common Stock") will
be converted into the right to receive 0.333 of a share of the common stock, par
value $0.001 per share, of Newco (the "Newco Common Stock" and the ratio of the
number of shares of Newco Common Stock for which each outstanding share of CHS
Common Stock is to be exchanged, the "CHS Exchange Ratio"), (B) each outstanding
share of the common stock, par value $0.01 per share, of HII (the "HII Common
Stock") will be converted into the right to receive 0.447 of a share of Newco
Common Stock (the ratio of the number of shares of Newco Common Stock for which
each outstanding share of HII Common Stock is to be exchanged, the "HII Exchange
Ratio"), (C) each outstanding share of the common stock, par value $0.01 per
share, of MI (the "MI Common Stock") will be converted into the right to receive
0.243 of a share of Newco Common Stock (the ratio of the number of shares of
Newco Common Stock for which each outstanding share of MI Common Stock is to be
exchanged, the "MI Exchange Ratio") and (D) each outstanding share of the common
stock, par value $0.01 per share, of T2 (the T2 Common Stock") will be converted
into the right to receive 0.630 of a share of Newco Common Stock (the ratio of
the number of shares of Newco Common Stock for which each outstanding share of
T2 Common Stock is to be exchanged, the T2 Exchange Ratio").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of CHS and certain senior officers and other representatives and
advisors of HII, MI and T2 concerning the business, operations and prospectus of
CHS, HII, MI and T2. We examined certain publicly available business and
financial information relating to CHS, HII, MI and T2 as well as certain
financial forecasts and other data for CHS, HII, MI and T2 which were provided
to us by the respective managements of CHS, HII, MI and T2, including
information relating to certain strategic implications and operational benefits
anticipated from the Merger. We reviewed the financial terms of the Merger as
set forth in the Merger Agreement in relation to, among other things: current
and historical market prices and trading volumes of the CHS Common Stock, the
HII Common Stock, the MI Common Stock and the T2 Common Stock; the respective
companies' historical and projected earnings;
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and the capitalization and financial condition of CHS, HII, MI and T2. We also
considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected which we considered comparable to
the Merger and analyzed certain financial and other publicly available
information relating to the businesses of other companies whose operations we
considered comparable to those of CHS, HII, MI and T2. We also evaluated the
potential pro forma financial impact of the Merger. In addition to the
foregoing, we conducted such other analyses and examinations and considered such
other financial, economic and market criteria as we deemed necessary to arrive
at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise discussed with us.
With respect to financial forecasts and other information provided to or
otherwise discussed with us, we assumed that such forecasts and other
information were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of CHS, HII, MI
and T2 as to the expected future financial performance of CHS, HII, MI and T2.
We also assumed that the Merger will be treated as a pooling-of-interests in
accordance with generally accepted accounting principles and as a tax-free
reorganization for federal income tax purposes. Our opinion, as set forth
herein, relates to the relative values of CHS, HII, MI and T2. We are not
expressing any opinion as to what the value of the Newco Common Stock actually
will be when issued to CHS stockholders pursuant to the Merger or the price at
which the Newco Common Stock will trade subsequent to the Merger. We have not
made or been provided with an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of CHS, HII, MI or T2 nor have we made
any physical inspection of the properties or assets of CHS, HII, MI or T2. With
respect to outstanding litigation and other proceedings involving T2, we have
assumed and relied, with your consent, upon the judgment of T2's advisors that
the outcome of such litigation and proceedings are not expected, individually or
in the aggregate, to have material adverse effect on the financial condition or
results of operations of T2. Our opinion is necessarily based upon financial,
stock market and other conditions and circumstances existing and disclosed to us
as of the date hereof.
Smith Barney has been engaged to render financial advisory services to CHS
in connection with the Merger and will receive a fee for our services, a
significant portion of which is contingent upon the consummation of the Merger.
We also will receive a fee upon the delivery of this opinion. In the ordinary
course of our business, we may actively trade the equity and debt securities of
CHS, HII, MI and T2 for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, Smith Barney has provided CHS with financial advisory and
investment banking services in the past, including acting as financial advisor
to CHS in connection with its acquisition of Clinical Homecare, Ltd. in March,
1993 and as co-manager for the initial public offering by CHS in March, 1992 of
CHS Common Stock, for which services we have received customary fees.
Our advisory services and the opinion expressed herein are provided solely
for the use of the Board of Directors of CHS in its evaluation of the proposed
Merger and are not on behalf of, and are not intended to confer rights or
remedies upon, HII, MI or T2, any stockholder of CHS, HII, MI or T2, or any
person other than CHS' Board of Directors. Our opinion may not be published or
otherwise used or referred to, nor shall any public reference to Smith Barney be
made, without our prior written consent.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as describecd above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the CHS Exchange Ratio is fair,
from a financial point of view, to the holders of CHS Common Stock.
Very truly yours,
[SIG]
SMITH BARNEY INC.
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APPENDIX D
HAMBRECHT & QUIST OPINION
<PAGE> 425
February 6, 1994
The Board of Directors
HealthInfusion, Inc.
5200 Blue Lagoon Drive
Suite 200
Miami, Florida 33126
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of common stock (the "Common
Stock") of HealthInfusion, Inc. ("HealthInfusion" or the "Company") of the
consideration to be received by such shareholders in connection with the
proposed merger (the "Proposed Transaction") of the Company with T2 Medical,
Inc. ("T2"), Curaflex Health Services, Inc. ("Curaflex") and Medisys, Inc.
("Medisys").
We understand that CHM Holding Corporation ("Newco"), HII Acquisition
Company, T2 Acquisition Company, CHS Acquisition Company, MI Acquisition Company
(each wholly-owned subsidiaries of Newco), the Company, T2, Curaflex, and
Medisys propose to enter into an Agreement and Plan of Merger dated as of
February 6, 1994 (the "Agreement"). The terms of the Agreement provide, among
other things, that (i) each of the Company, T2, Curaflex and Medisys shall
become wholly-owned subsidiaries of Newco, and (ii) with respect to the holders
of common stock of the Company, T2, Curaflex and Medisys other than such stock
held by shareholders who have perfected their appraisal rights, if any, under
applicable laws, (a) each share of Common Stock, par value $.01 per share, shall
be converted into the right to receive 0.447 shares of Newco common stock, par
value $0.001 per share ("Newco Common Stock"), (b) each share of T2 common
stock, par value $.001 per share shall be converted into the right to receive
0.630 shares of Newco Common Stock, (c) each share of Curaflex common stock, par
value $.001 per share shall be converted into the right to receive 0.333 shares
of Newco Common Stock, and (d) each share of Medisys common stock, par value
$.01 per share, shall be converted into the right to receive 0.223 shares of
Newco Common Stock. For purposes of this opinion, we have assumed that the
Proposed Transaction will qualify as a reorganization under the United States
Internal Revenue Code for the shareholders of the Company and that the Proposed
Transaction will be accounted for as a pooling of interests.
Hambrecht & Quist Incorporated ("Hambrecht & Quist"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, corporate
restructurings, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. We have acted as financial advisor to the Board of Directors of
HealthInfusion in connection with the Proposed Transaction and will receive a
fee for our services (including the rendering of this opinion).
In connection with our review of the Proposed Transaction, and in arriving
at our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements of
the Company for recent years and interim periods to date and certain
other relevant financial and operating data of the Company (including
its capital structure) made available to us from the internal records
of the Company;
(ii) discussed with certain members of the management of the Company the
business, financial condition and prospects of the Company;
(iii) reviewed certain financial and operating information, including
certain projections provided by the management of the Company,
relating to the Company;
(iv) reviewed the publicly available consolidated financial statements of
T2, Curaflex and Medisys for recent years and interim periods to date
and certain other relevant financial and operating data of T2,
Curaflex and Medisys (including their respective capital structures)
made available to us from the internal records of T2, Curaflex and
Medisys, respectively;
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<PAGE> 426
(v) reviewed certain financial and operating information, including certain
projections provided by the managements of T2, Curaflex and Medisys and
discussed such projections with certain members of the managements of
T2, Curaflex and Medisys, respectively;
(vi) reviewed the recent reported prices and trading activity for the
common stock of the Company, T2, Curaflex and Medisys and compared
such information and certain financial information of the Company, T2,
Curaflex and Medisys with similar information for certain other
companies engaged in businesses we consider comparable to those of the
Company, T2, Curaflex and Medisys;
(vii) discussed with parties other than T2, Curaflex and Medisys the
possibility of a transaction or series of transactions involving a
business combination with the Company;
(viii) reviewed the terms, to the extent publicly available, of certain
comparable acquisition transactions;
(ix) reviewed the Agreement; and
(x) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
We have not independently verified any of the information concerning the
Company, T2, Curaflex, or Medisys considered in connection with our review of
the Proposed Transaction and, for purposes of the opinion set forth herein, we
have assumed and relied upon the accuracy and completeness of all such
information. We have not prepared or obtained any independent evaluation or
appraisal of any of the assets or liabilities of the Company, T2, Curaflex, or
Medisys, nor have we conducted a physical inspection of the properties and
facilities of the Company, T2, Curaflex, or Medisys. Furthermore, with your
permission, we have not prepared or obtained any evaluation or appraisal of any
potential or pending litigation that may involve T2 or accordingly
HealthInfusion, Curaflex, Medisys or Newco, including without limitation,
certain investigations specified in Item 1 and certain litigation specified in
Item 3 of the T2 Annual Report on Form 10-K for the year ended September 30,
1993. With respect to the financial forecasts and projections made available to
us and used in our analyses, we have assumed that they reflect the best
currently available estimates and judgments of the expected future financial
performance of the Company, T2, Curaflex, and Medisys. We have assumed that none
of the Company, T2, Curaflex or Medisys is a party to any pending transactions,
including external financings, recapitalizations or merger discussions, other
than the Proposed Transaction and those in the ordinary course of conducting
their respective businesses. Our opinion is necessarily based upon market,
economic, financial and other conditions as they exist and can be evaluated as
of the date of this letter and any change in such conditions would require a
reevaluation of this opinion. We express no opinion as to the price at which
Newco Common Stock will trade subsequent to the Effective Time (as defined in
the Agreement).
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be received by the holders of the Common Stock in the
Proposed Transaction is fair to such holders from a financial point of view. We
express no opinion, however, as to the adequacy of any consideration received in
the Proposed Transaction by T2, Curaflex or Medisys or any of their respective
affiliates or any holder of Common Stock that perfects its appraisal rights, if
any, under applicable laws.
Very truly yours,
[SIG]
HAMBRECHT & QUIST INCORPORATED
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APPENDIX E
(LETTERHEAD)
February 4, 1994
The Board of Directors
Medisys, Inc.
4550 West 77th Street
Edina, Minnesota 55435
Members of the Board:
In connection with the proposed merger transaction ("Merger") pursuant to
an Agreement and Plan of Merger to be dated February 4, 1994 ("Agreement"),
whereby CHMT Holding Corporation ("Newco") will establish four wholly-owned
subsidiaries: CHS Acquisition Company ("CHS Sub"), HII Acquisition Company ("HII
Sub"), MI Acquisition Company ("MI Sub") and T2 Acquisition Company ("T2 Sub"),
Curaflex Health Services, Inc. ("CHS Sub") shall be merged with and into CHS
Sub, Health Infusion, Inc. ("HII") shall be merged with and into HII Sub, T3
Medical, Inc. ("T2") shall be merged with and into T2 Sub and Medisys, Inc.
("Medisys" of "MI") shall be merged with and into MI Sub (the above-referenced
wholly-owned subsidiaries are hereinafter collectively referred to as the
"Companies"), you have requested our opinion as to the fairness, from a
financial point of view, to Medisys shareholders of the consideration to be
received in the Merger. Pursuant to the agreement, the consideration to be
received by the Medisys shareholders will consist of Newco common stock in a
transaction which will be accounted for as a pooling-of-interests.
Piper Jaffray Inc. ("Piper Jaffray"), as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, underwriting and secondary
distributions of securities, private placements, and valuations for estate,
corporate and other purposes. Piper Jaffray has previously acted as an
underwriter of Medisys securities and has provided financial advisory services
to Medisys. Piper Jaffray also provides research coverge for Medisys and makes a
market in Medisys common stock. Piper Jaffray has been engaged to act as
Medisys' financial advisor in connection with the Merger for which Medisys will
pay a fee which is contingent upon consummation of the Merger. For our services
in rendering this oinion, Medisys will also pay us a fee which is not contingent
upon the consummation of the Merger. Medisys will also indemnify us against
certain liabilities in connection with this engagement.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed a draft of the Agreement dated February 1, 1994,
audited consolidated financial statements for the Companies for the fiscal years
ended 1990, 1991 and 1992, audited consolidated financial statements for T2 for
the fiscal year ended September 30, 1993, unaudited consolidated financial
statements for the Companies for the fiscal periods ended December 31, 1993,
certain internal financial information of the Companies prepared or provided by
the Companies' management for financial planning purposes, certain publicly
available information relative to the Companies, certain other financial and
securities data of the Companies, certain financial and securities data of
companies deemed similar to MI or representative of the business sector in which
it operates, and the financial terms, to the extent publicly-available, of
certain acquisition transactions involving companies deemed similar to MI. We
have visited the MI's headquarters in Minneapolis, Minnesota; CHS' headquarters
in Ontario, California; and HII's headquarters in Miami, Florida and met with T2
management in Alpharetta,
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Georgia and Irvine, California. We have had discussions regarding the financial
condition, current operating results, business outlook and prospects for MI,
CHS, HII, T2 and Newco with members of their respective managements.
We have relied upon and assumed the accuracy, completeness and fairness of
the financial statements and other information provided by MI, CHS, HII and T2
or otherwise made available to us and have not attempted independently to verify
such information. We have further relied upon the assurances of MI, CHS, HII and
T2 management that the information provided has been prepared on a reasonable
basis and, with respect to financial planning data, reflects the best currently
available estimates, and that MI, CHS, HII and T2 management are not aware of
any information or facts that would make the information provided to us
incomplete or misleading. In arriving at our opinion, we have not performed any
appraisals or valuations of specific assets of MI, CHS, HII and T2 and express
no opinion regarding the liquidation value of MI, CHS, HII and T2. It is
proposed that Newco's common stock will be listed on the New York Stock
Exchange. We make no representation concerning the price at which such common
stock may trade. Our opinion is based upon existing conditions which are subject
to evaluation on the date hereof. Upon the advice of MI, CHS, HII and T2 and
their legal and accounting advisors, we have assumed the Merger will qualify as
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended. We have not received advice from legal counsel to MI,
CHS, HII and T2 concerning the probable outcome of, or estimated damages which
might arise from, any pending or threatened litigation, possible unasserted
claims or other contingent liabilities, to which either MI, CHS, HII and T2 or
their affiliates is a party or may be subject and have undertaken no analysis
thereof independently. Accordingly, at Medisys' direction and with its consent,
our opinion makes no assumption concerning, and therefore does not consider, the
possible assertion of claims, outcomes or damages arising out of any such
matters and their potential impact on Newco.
In arriving at our opinion, we have not performed any appraisals or
valuations of specific assets of MI, CHS, HII and T2, including without
limitation, intellectual property, and we express no opinion regarding the
liquidation value of any entity. We have not been authorized by the Board of
Directors of Medisys to solicit other entities for purposes of a business
combination with Medisys.
Based upon and subject to the foregoing and based upon such other factors
as we consider relevant, it is our opinion that the consideration to be received
by Medisys shareholders pursuant to the Agreement is fair, from a financial
point of view, to Medisys shareholders as of the date hereof.
Very truly yours,
PIPER JAFFRAY INC.
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APPENDIX F
[KIDDER, PEABODY & CO. INCORPORATED LETTERHEAD]
June 3, 1994
Board of Directors
T2 Medical, Inc.
1121 Alderman Drive
Alpharetta, GA 30202
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the outstanding shares of common stock, par value
$0.01 per share (the "T2 Common Stock"), of T2 Medical, Inc. ("T2") of the T2
Exchange Ratio (as hereinafter defined) in the Merger (as hereinafter defined)
pursuant to the Agreement and Plan of Merger, dated as of February 6, 1994, as
amended on May 25, 1994 (as amended, the "Merger Agreement"), by and among
Curaflex Health Services, Inc. ("Curaflex"), HealthInfusion, Inc.
("HealthInfusion") and Medisys, Inc. ("Medisys"), T2, Coram Healthcare
Corporation ("Coram") and four wholly-owned subsidiaries of Coram -- CHS
Acquisition Company ("CHS Acquisition"), HII Acquisition Company ("HII
Acquisition"), MI Acquisition Company ("MI Acquisition") and T2 Acquisition
Company ("T2 Acquisition").
Under the terms of the Merger Agreement, at the Effective Time (as defined
in the Merger Agreement): (i) CHS Acquisition will be merged with and into
Curaflex, HII Acquisition will be merged with and into HealthInfusion, MI
Acquisition will be merged with and into Medisys and T2 Acquisition will be
merged with and into T2 (collectively, the "Merger"); (ii) each outstanding
share of common stock, $0.001 par value, of Curaflex will be converted into
0.333 of a share of common stock, $0.001 par value, of Coram ("Coram Common
Stock"); (iii) each outstanding share of common stock, $0.01 par value, of
HealthInfusion (other than shares held by stockholders who perfect their
dissenters' rights) will be converted into 0.447 of a share of Coram Common
Stock; (iv) each outstanding share of common stock, $0.01 par value, of Medisys
will be converted into 0.243 of a share of Coram Common Stock; and (v) each
outstanding share of T2 Common Stock will be converted into 0.630 of a share of
Coram Common Stock (the "T2 Exchange Ratio"). The terms and conditions of the
Merger are more fully set forth in the Merger Agreement.
Kidder, Peabody & Co. Incorporated ("Kidder, Peabody"), as part of its
investment banking business, is regularly engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. We
will receive a fee for rendering this opinion. In the past, Kidder, Peabody has
performed investment banking and financial advisory services for T2 from time to
time for which we have received compensation. A Managing Director of Kidder,
Peabody is a member of the Board of Directors of T2, for which service he has
received director's fees and options, and Kidder, Peabody was engaged to render
financial advisory services to former affiliates of T2 in the past. We may
provide investment banking and financial advisory services to Coram in the
future.
In connection with our opinion, we have reviewed, among other things, the
Merger Agreement, the Proxy Statement/Prospectus relating to the Merger (the
"Proxy Statement/Prospectus") as filed with the Securities
F-1
<PAGE> 430
T2 Medical, Inc.
June 3, 1994
Page 2
and Exchange Commission and certain financial and other information with respect
to T2, Curaflex, HealthInfusion and Medisys (collectively, the "Companies") that
was publicly available or furnished to us by or on behalf of the Companies,
including certain financial analyses, financial forecasts, reports and other
information prepared by their respective managements and representatives. We
held discussions with the managements and representatives of the Companies
concerning the respective Companies' historical and current operations,
financial condition and prospects, as well as the strategic and operating
benefits anticipated from the Merger. In addition, we (i) reviewed the price and
trading histories of the common stocks of the Companies and compared those
prices and trading histories with those of publicly traded companies we deemed
relevant; (ii) compared the financial positions and operating results of the
Companies with those of publicly traded companies we deemed relevant; (iii)
compared certain financial terms of the Merger to certain financial terms of
selected other business combinations we deemed relevant; (iv) reviewed the
potential pro forma financial effects of the Merger; and (v) conducted such
other financial studies, analyses and investigations and reviewed such other
factors as we deemed appropriate for purposes of this opinion.
In rendering this opinion, we have relied, without independent
verification, on the accuracy and completeness of all financial and other
information reviewed by us that was publicly available or furnished to us by or
on behalf of the Companies. We have assumed that the financial forecasts which
we examined were reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of the respective managements of
the Companies with respect to the future performance of the respective
Companies. We have also assumed, with your consent, that: (i) the strategic and
operating benefits anticipated by the management and representatives of T2 will
be realized from the Merger; (ii) the Merger will be accounted for under the
pooling-of-interests method of accounting; (iii) the Merger will be a tax-free
reorganization; (iv) no adjustment will be made to the T2 Exchange Ratio or to
the exchange ratios regarding Curaflex, HealthInfusion and Medisys
(collectively, the "Exchange Ratios"); and (v) all material liabilities
(contingent or otherwise, known or unknown) of the Companies are as set forth in
the consolidated financial statements of the Companies. We have not made an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Companies, nor were we furnished with any such evaluations or
appraisals. Kidder, Peabody was not requested to, and did not, participate in
the structuring or negotiation of the Merger. Each of the Exchange Ratios was
determined in arms-length negotiations among the Companies. Our opinion is based
upon economic, monetary and market conditions existing on the date hereof.
Furthermore, we express no opinion as to the price or trading range at which
shares of Coram Common Stock will trade following the Merger.
In the ordinary course of our business, we trade the equity securities of
T2 for our own account and for the accounts of our customers and, accordingly,
may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of T2 only and may not be used for any other purpose without our prior
written consent; however, this letter may be disclosed in the Proxy
Statement/Prospectus.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the T2 Exchange Ratio is fair, from a financial point of view, to
the holders of shares of T2 Common Stock.
Very truly yours,
KIDDER, PEABODY & CO. INCORPORATED
F-2
<PAGE> 431
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by the Delaware General Corporation Law, CHM Holding's
Certificate of Incorporation (the "CHM Holding Certificate") eliminates the
liability of directors to CHM Holding or its stockholders for monetary damages
for breach of fiduciary duty as a director, except to the extent otherwise
required by the Delaware General Corporation Law.
(b) The CHM Holding Bylaws provide that CHM Holding will indemnify each
person who was or is made a party to any proceeding by reason of the fact that
such person is or was a director, officer, employee or agent of CHM Holding
against all expense, liability and loss reasonably incurred or suffered by such
person in connection therewith to the fullest extent authorized by the Delaware
General Corporation Law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
The exhibits to the Registration Statement required by Item 601 of
Regulation S-K are listed in the accompanying index to exhibits.
(B) FINANCIAL STATEMENTS AND SCHEDULES.
(1) Financial Statements
The financial statements filed as part of this Registration Statement are
indexed for each of Curaflex, HealthInfusion and Medisys on Page F-1.
(2) Schedules
The following financial statement schedules of each of Curaflex,
HealthInfusion and Medisys are included in this Form S-4:
(a) Curaflex Health Services, Inc. and Subsidiaries:
<TABLE>
<CAPTION>
SCHEDULE NO. PAGE NO. DESCRIPTION OF SCHEDULE
- ----------------- -------- ----------------------------------------------------
<S> <C> <C>
Not applicable S-1 Independent Auditor's Report
Schedule II S-2 Amounts Receivable From Related Parties and
Underwriters, Promoters, and Employees Other Than
Related Parties
Schedule VIII S-3 Valuation and Qualifying Accounts
Schedule X S-4 Supplementary Income Statement Information For the
Years Ended December 31, 1991, 1992 and 1993
</TABLE>
(b) HealthInfusion, Inc. and Subsidiaries:
<TABLE>
<CAPTION>
SCHEDULE NO. PAGE NO. DESCRIPTION OF SCHEDULE
- ----------------- -------- ----------------------------------------------------
<S> <C> <C>
Not applicable S-5 Independent Auditor's Report
Schedule II S-6 Amounts Receivable From Related Parties
Schedule VIII S-7 Valuation and Qualifying Accounts
Schedule IX S-8 Short-Term Borrowings
Schedule X S-9 Supplementary Income Statement Information For the
Years Ended December 31, 1991, 1992 and 1993
</TABLE>
II-1
<PAGE> 432
(c) Medisys, Inc. and Subsidiaries:
<TABLE>
<CAPTION>
SCHEDULE NO. PAGE NO. DESCRIPTION OF SCHEDULE
- ----------------- -------- ----------------------------------------------------
<S> <C> <C>
Not applicable S-10 Independent Auditors' Report
Schedule VIII S-11 Valuation and Qualifying Accounts and Reserves For
the Years Ended December 31, 1991, 1992 and 1993
Schedule IX S-12 Short-Term Borrowings For the Years Ended December
31, 1991, 1992 and 1993
Schedule X S-13 Supplementary Income Statement Information For the
Years Ended December 31, 1991, 1992 and 1993
</TABLE>
Schedules other than those listed above have been omitted because they
either are not required, are not applicable or the information is included in
the appropriate financial statements and notes thereto.
(C) OPINIONS OF FINANCIAL ADVISORS.
(1) The opinion of Smith Barney Inc. constitutes Appendix C to the
Joint Proxy Statement/ Prospectus.
(2) The opinion of Hambrecht & Quist constitutes Appendix D to the
Joint Proxy Statement/ Prospectus.
(3) The opinion of Piper Jaffray Inc. constitutes Appendix E to the
Joint Proxy Statement/ Prospectus.
(4) The opinion of Kidder, Peabody & Co. Incorporated constitutes
Appendix F to the Joint Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(a)(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) The registration undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to met the requirements of Section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
(c) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-2
<PAGE> 433
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Newport Beach, California, on this
day of May, 1994.
CORAM HEALTHCARE CORPORATION
By: /s/ JAMES M. SWEENEY
------------------------------
James M. Sweeney,
Chief Executive Officer and
Chairman
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, James M. Sweeney, Norman
H. Werthwein and Kevin M. Higgins, or any of them, with full power to act alone,
his true and lawful attorneys-in-fact, with full power of substitution, and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to the Registration Statement, and file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact full power and authority to do
and perform each and every act and thing requisite and necessary to be done as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact or any of them may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JAMES M. SWEENEY Chief Executive Officer May , 1994
- ----------------------------------------- and Chairman
James M. Sweeney
/s/ NORMAN H. WERTHWEIN (Principal Executive Officer)
- ----------------------------------------- Acting Chief Financial May , 1994
Norman H. Werthwein Officer (Acting Principal
Financial and Accounting
Officer)
/s/ CHARLES A. LAVERTY Senior Executive Vice President May , 1994
- -----------------------------------------
Charles A. Laverty
/s/ TOMMY H. CARTER Vice Chairman of the Board May , 1994
- -----------------------------------------
Tommy H. Carter
/s/ MILES E. GILMAN Director May , 1994
- -----------------------------------------
Miles E. Gilman
/s/ L. PETER SMITH Director May , 1994
- -----------------------------------------
L. Peter Smith
/s/ RICHARD A. FINK Director May , 1994
- -----------------------------------------
Richard A. Fink
/s/ STEPHEN G. PAGLIUCA Director May , 1994
- -----------------------------------------
Stephen G. Pagliuca
</TABLE>
II-3
<PAGE> 434
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
The Board of Directors
Curaflex Health Services, Inc.
The audits referred to in our report dated February 28, 1994 included the
related financial statement schedules as of December 31, 1993 and for each of
the years in the three year period ended December 31, 1993, included in the
registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits. In our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
KPMG Peat Marwick
Ontario, California
February 28, 1994
S-1
<PAGE> 435
SCHEDULE II
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE
DEDUCTIONS AT END OF PERIOD
BALANCE AT ------------------------- -------------------
BEGINNING OF AMOUNTS AMOUNTS NOT
NAME OF DEBTOR PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT CURRENT
- ---------------------------------- ------------ --------- --------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Charles A. Laverty(1)
Year ended December 31, 1992 $ -- $ 400 $ -- $ -- $ 400 $ --
Year ended December 31, 1993 400 17 -- -- 417 --
Irwin Kramer(2)
Year ended December 31, 1991 78 77 -- -- -- 155
Year ended December 31, 1992 155 77 -- -- -- 232
Year ended December 31, 1993 232 77 -- -- -- 309
</TABLE>
- ---------------
(1) Principal amount and all interest accumulated thereon at an interest rate of
3.61% per annum, is due in one payment on November 1, 1994. This note is
non-collateralized.
(2) Interest receivable relates to an $860 thousand stock purchase note and is
due December 31, 1999.
S-2
<PAGE> 436
SECTION VIII
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONTRACTUAL BALANCE
BALANCE AT ADDITIONS CHARGED TO ALLOWANCE AT END
BEGINNING FROM BUSINESS COSTS/ CHARGED TO OF
DESCRIPTION OF PERIOD COMBINATIONS EXPENSES REVENUES DEDUCTIONS(1) PERIOD
- ------------------------------- ---------- ------------- ---------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
and contractual adjustments:
Year ended December 31, 1991... $ 5,118 $ -- $3,618 $ 7,951 $ (8,149) $ 8,538
---------- ------------- ---------- ----------- ------------ -------
---------- ------------- ---------- ----------- ------------ -------
Year ended December 31, 1992... $ 8,538 $ 1,181 $5,679 $12,328 $(20,658) $ 7,068
---------- ------------- ---------- ----------- ------------ -------
---------- ------------- ---------- ----------- ------------ -------
Year ended December 31, 1993... $ 7,068 $ 2,834 $5,557 $40,380 $(40,475) $15,364
---------- ------------- ---------- ----------- ------------ -------
---------- ------------- ---------- ----------- ------------ -------
</TABLE>
- ---------------
(1) Amounts reflect write-off of amounts that are deemed uncollectible.
S-3
<PAGE> 437
SCHEDULE X
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO COSTS AND
EXPENSES
--------------------------
ITEM 1991 1992 1993
- ------------------------------------------------------------------- ---- ------ ------
<S> <C> <C> <C>
Maintenance and repairs............................................ -- -- --
Depreciation....................................................... $903 $1,162 $2,022
Amortization of goodwill........................................... 58 315 1,362
Amortization of organization and pre-startup costs................. -- 135 614
Amortization of patent............................................. -- -- 3
---- ------ ------
Total depreciation and amortization of intangible assets,
preoperating costs and similar deferrals............... $961 $1,612 $4,001
---- ------ ------
---- ------ ------
Taxes other than payroll and income taxes.......................... -- -- --
Royalties.......................................................... -- -- --
Advertising costs.................................................. -- -- --
</TABLE>
S-4
<PAGE> 438
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULES
To the Stockholders of
HealthInfusion, Inc. and subsidiaries:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of HealthInfusion, Inc. and subsidiaries
included in this joint proxy statement/prospectus, and have issued our report
thereon dated March 18, 1994. Our audits were made for the purpose of forming an
opinion on those financial statements taken as a whole. The schedules included
are the responsibility of the Company's management and are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Miami, Florida,
March 18, 1994.
S-5
<PAGE> 439
SCHEDULE II
HEALTHINFUSION, INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES
<TABLE>
<CAPTION>
DEDUCTIONS BALANCE AT END
BALANCE AT ------------------------ OF PERIOD
BEGINNING AMOUNTS AMOUNTS ---------------------
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
- ----------------------------------- ---------- -------- ---------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Brian Dickson.................... $ -- $444,000 $ -- $ -- $ -- $ 444,000
</TABLE>
S-6
<PAGE> 440
SCHEDULE VIII
HEALTHINFUSION, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE
BALANCE AT PROVISION FOR AT
BEGINNING DOUBTFUL ACCOUNTS END OF
OF PERIOD ACCOUNTS OTHER WRITTEN OFF PERIOD
---------- ------------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for contractual adjustments and
doubtful accounts
For the Year Ended December 31, 1991....... $ 557,267 $ 548,453 $ -- $ (256,255) $ 849,465
---------- ------------- ------- ----------- ----------
---------- ------------- ------- ----------- ----------
For the Year Ended December 31, 1992....... $ 849,465 $ 1,205,399 $ -- $ (399,558) $1,655,306
---------- ------------- ------- ----------- ----------
---------- ------------- ------- ----------- ----------
For the Year Ended December 31, 1993....... $1,655,306 $ 5,658,519 $ -- $(3,614,443) $3,699,382
---------- ------------- ------- ----------- ----------
---------- ------------- ------- ----------- ----------
</TABLE>
S-7
<PAGE> 441
SCHEDULE IX
HEALTHINFUSION, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
MAXIMUM AVERAGE WEIGHTED
CATEGORY OF WEIGHTED AMOUNT AMOUNT AVERAGE
AGGREGATE BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
SHORT-TERM AT END INTEREST DURING THE DURING THE DURING THE
BORROWINGS OF PERIOD RATE PERIOD PERIOD PERIOD
- ----------------------------------- ----------- ---------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31,
1991............................. No short-term borrowings during the year ended December 31, 1991
For the Year Ended December 31,
1992
Bank borrowings.................. $ 4,537,887 6.25% $ 4,916,636 $ 3,788,253 6.20%
----------- ---------- ------------- ------------- -------
----------- ---------- ------------- ------------- -------
For the Year Ended December 31,
1993
Bank borrowings.................. $10,123,382 4.85% $ 11,113,377 $ 6,679,370 5.84%
----------- ---------- ------------- ------------- -------
----------- ---------- ------------- ------------- -------
</TABLE>
S-8
<PAGE> 442
SCHEDULE X
HEALTHINFUSION, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
-------------------------------------
ITEM 1991 1992 1993
- ---------------------------------------------------------- -------- --------- -----------
<S> <C> <C> <C>
Goodwill amortization..................................... $295,984 $ 758,026 $ 1,052,016
Branch start-up costs..................................... 58,237 49,002 85,705
Other deferrals........................................... 34,604 57,510 129,967
-------- --------- -----------
Total amortization of assets, preoperating costs
and similar deferrals......................... $388,825 $ 864,538 $ 1,267,688
-------- --------- -----------
-------- --------- -----------
Advertising costs......................................... $296,412 $ 630,327 $ 875,924
-------- --------- -----------
-------- --------- -----------
</TABLE>
S-9
<PAGE> 443
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Medisys, Inc.
In connection with our audit of the consolidated financial statements of
Medisys, Inc. as of December 31, 1993 and 1992 and for the years then ended,
which financial statements are included in the T2/Curaflex/
HealthInfusion/Medisys Registration Statement on Form S-4, we have also audited
the Medisys, Inc. supplemental financial statement schedules included herein.
The financial statements and financial statement schedules have been
restated to give retroactive effect to the merger of Medisys, Inc. and
Subsidiaries and American Home Therapies, Inc., on July 30, 1993, which has been
accounted for as a pooling of interests as described in Notes 1 and 2 to the
consolidated financial statements.
In our opinion, these supplemental financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material aspects, the information required to be included
therein.
We previously audited and reported on the financial statements and
financial statement schedules of Medisys, Inc. and Subsidiaries as of December
31, 1991 and for the year then ended, prior to their restatement for the 1993
pooling of interests. The contribution of Medisys, Inc. and Subsidiaries to
total revenues and net income represented 67 and 42 percent of the respective
restated totals. Separate financial statements and financial statement schedules
of American Home Therapies included in the statements and schedules referred to
above were audited and reported on separately by other auditors. We have also
audited the combination of the accompanying financial statement schedules as of
December 31, 1991 and for the year then ended, after restatement for the 1993
pooling of interests; in our opinion, such supplemental financial statement
schedules have been properly combined on the basis described in Note 1 of the
notes to the consolidated financial statements.
COOPERS & LYBRAND
Minneapolis, Minnesota
February 11, 1994
S-10
<PAGE> 444
SCHEDULE VIII
MEDISYS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED CHARGED
BEGINNING TO COSTS TO OTHER BALANCE
OF AND ACCOUNTS-- DEDUCTIONS-- AT END OF
PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
---------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
1991......................... $ 82,543 $ 225,790 $ 27,843(1) $ 280,490
1992......................... 280,490 597,726 $434,886 (2) 345,168(1) 967,934
1993......................... 967,934 1,013,850 791,920(1) 1,189,864
</TABLE>
- ---------------
(1) Write-off of trade accounts receivable, net of bad debt recoveries.
(2) Allowances for doubtful accounts acquired through business combinations.
S-11
<PAGE> 445
SCHEDULE IX
MEDISYS, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992, AND 1993
<TABLE>
<CAPTION>
AVERAGE
WEIGHTED INTEREST
CATEGORY OF BALANCE AVERAGE MAXIMUM AVERAGE RATE
AGGREGATE SHORT AT END INTEREST AMOUNT AMOUNT DURING
TERM BORROWINGS(1) OF PERIOD RATE OUTSTANDING OUTSTANDING PERIOD(2)
- --------------------------------- ---------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1993
Notes payable to banks for
borrowings..................... $4,950,000 6.75% $ 4,950,000 $ 2,425,000 6.75%
1992
Notes payable to banks for
borrowings..................... 500,000 12.0% 500,000 42,000 12.0%
1991
Notes payable to banks for
borrowings..................... 325,000 8.0% 1,300,900 1,056,000 11.0%
</TABLE>
- ---------------
(1) See Note 3 of Notes to Consolidated Financial Statements for descriptions of
borrowing arrangements.
(2) Weighted average interest rate during the period is calculated by dividing
interest expense, including fees paid to factor, by the average amount
outstanding based on month-end balances.
S-12
<PAGE> 446
SCHEDULE X
MEDISYS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
<TABLE>
<CAPTION>
1991 1992 1993
-------- -------- ----------
<S> <C> <C> <C>
Maintenance and repairs................................... -- -- --
Depreciation and amortization of intangibles.............. -- -- --
Taxes other than payroll and income....................... -- -- --
Rents..................................................... $444,804 $848,764 $1,347,880
Advertising costs......................................... -- -- --
</TABLE>
S-13
<PAGE> 447
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- -------------------------------------------------------------------- ------------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of February 6, 1994, by and
among the Registrant, T2, Curaflex, HealthInfusion, Medisys, T2
Acquisition Company, CHS Acquisition Company, HII Acquisition
Company and MI Acquisition Company (the "Merger Agreement").........
2.2 First Amendment to Agreement and Plan of Merger dated as of May 25,
1994, by and among the Registrant, T2, Curaflex, HealthInfusion,
Medisys, T2 Acquisition Company, CHS Acquisition Company, HII
Acquisition Company and MI Acquisition Company......................
3.1 Certificate of Incorporation of Registrant, as amended through May
11, 1994............................................................
3.2 Bylaws of Registrant................................................
3.3 Amended Certificate of Incorporation of T2, as amended through
February 3, 1992(1).................................................
3.4 Bylaws of T2(2).....................................................
3.5 Restated Certificate of Incorporation of Curaflex(3)................
3.6 Bylaws of Curaflex(4)...............................................
3.7 Articles of Incorporation of HealthInfusion(5)......................
3.8 Bylaws of HealthInfusion(6).........................................
3.9 Certificate of Incorporation of Medisys(7)..........................
3.10 Bylaws of Medisys(8)................................................
4.1 See Certificate of Incorporation of Registrant, as amended through
May 11, 1994, at Exhibit 3.1 hereto, the Bylaws of Registrant at
Exhibit 3.2 hereto and the Merger Agreement at Exhibit 2.1 hereto...
5.1 Opinion of Brobeck, Phleger & Harrison as to the legality of the
securities being issued.............................................
8.1 Form of opinion of Brobeck, Phleger & Harrison as to certain Federal
income tax matters..................................................
8.2 Form of opinion of Morrison & Foerster as to certain Federal income
tax matters.........................................................
8.3 Form of opinion of Oppenheimer, Wolff & Donnelly as to certain
Federal income tax matters..........................................
8.4 Form of opinion of Arthur Andersen & Co. as to certain Federal
income tax matters..................................................
10.1 Form of Employment Agreement between the Registrant and Charles A.
Laverty.............................................................
10.2 Form of Severance/Non-Compete Agreement between the Registrant and
Miles E. Gilman.....................................................
10.3 Form of Severance/Non-Compete Agreement between the Registrant and
William J. Brummond.................................................
10.4 Form of Severance/Non-Compete Agreement between the Registrant and
Tommy H. Carter.....................................................
10.5 Form of Severance/Non-Compete Agreement between HealthInfusion and
W. Barry Tanner.....................................................
10.6 Form of Severance/Non-Compete Agreement between HealthInfusion and
Jack T. Thompson....................................................
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10.7 Form of Severance/Non-Compete Agreement between HealthInfusion and
David C. McCormick..................................................
10.8 Form of Severance/Non-Compete Agreement between HealthInfusion and
KMF Associates, Inc. ("KMF") and the shareholders of KMF............
10.9 Form of Severance/Non-Compete Agreement between Medisys and Khalid
Mahmud, M.D. .......................................................
10.10 Form of Severance/Non-Compete Agreement between Medisys and Mary B.
Bennett.............................................................
10.11 Form of Severance/Non-Compete Agreement between Medisys and Sandra
A. Smilanich........................................................
10.12 Form of Severance/Non-Compete Agreement between Medisys and David J.
Byrd................................................................
10.13 Form of Severance/Non-Compete Agreement between Medisys and David G.
Swendsen............................................................
10.14 Form of Severance/Non-Compete Agreement between T2 and Thomas E.
Haire...............................................................
10.15 Registrant's 1994 Stock Option/Stock Issuance Plan and related forms
of agreements.......................................................
10.16 Registrant's Employee Stock Purchase Plan...........................
10.17 Incentive Stock Option Plan of T2 dated June 1, 1986(9).............
10.18 1988 Stock Option Plan of T2, as amended and restated as of July 31,
1990 and as further amended as of (i) August 20, 1991; (ii) November
12, 1991; and (iii) July 6, 1992(10)................................
10.19 Employee Stock Purchase Plan of T2 dated December 8, 1989(11).......
10.20 Indemnification Agreement between T2 and Thomas E. Haire(12)........
10.21 Employment Agreement between T2 and David Hersh(13).................
10.22 Indemnification Agreement between T2 and David Hersh(14)............
10.23 Life insurance policies on the life of Thomas E. Haire(15)..........
10.24 Employment Agreement between T2 and Joseph C. Allegra(16)...........
10.25 Executive Agreement between T2 and Joseph C. Allegra(17)............
10.26 Employment Agreement between T2 and Joseph C. Allegra(18)...........
10.27 Indemnification Agreement between T2 and Joseph C. Allegra(19)......
10.28 T2 Directors and Officers Liability Insurance Binder(20)............
10.29 1987 Non-Qualified Stock Option Plan of T2(21)......................
10.30 401(k) Plan of T2 dated December 8, 1989(22)........................
10.31 Employment Agreement between T2 and J. Lee Ledbetter(23)............
10.32 Indemnification Agreement between T2 and J. Lee Ledbetter(24).......
10.33 Employment Agreement between T2 and Gary P. Greenhood(25)...........
10.34 Indemnification Agreement between T2 and Stanley S. Trotman(26).....
10.35 Employment Agreement between T2 and John T. Gallatin(27)............
10.36 Secured Revolving Line of Credit between T2 and Trust Company Bank,
dated as of September 20, 1993(28)..................................
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10.37 Prime Vendor Pharmaceutical Distribution Agreement, dated as of
November 30, 1992, by and between T2's wholly owned subsidiary, Home
Therapeutic Supply, Inc. and Whitmire Distribution
Corporation(29).....................................................
10.38 Debenture Purchase Agreement dated as of January 1, 1993, between T2
and Surgex, Inc.(30)................................................
10.39 Credit Agreement dated July 30, 1993 between Curaflex and Chase
Manhattan Bank, N.A.(31)............................................
10.40 First Amendment to Credit Agreement and related Facility Documents
dated as of November 16, 1993, between Curaflex and Chase Manhattan
Bank, N.A.(32)......................................................
10.41 Second Amendment to Credit Agreement and related Facility Documents
dated as of November 19, 1993, between Curaflex and Chase Manhattan
Bank, N.A.(33)......................................................
10.42 Third Amendment to Credit Agreement and related Facility Documents
dated as of March 18, 1994, between Curaflex and Chase Manhattan
Bank, N.A.(34)......................................................
10.43 Asset Purchase Agreement between Curaflex and Home Health Depot
dated May 28, 1992(35)..............................................
10.44 Asset Purchase Agreement by and among Curaflex, Total Home Care,
Inc., James B. O'Brien and John M. Blazek dated September 29,
1992(36)............................................................
10.45 Restated Agreement and Plan of Merger, dated December 9, 1992, by
and among Curaflex, Curaflex Acquisition Corporation and Clinical
Homecare Ltd.(37)...................................................
10.46 Amendment No. 2, dated March 4, 1993, to the Restated Agreement and
Plan of Merger, dated December 9, 1992, by and among Curaflex,
Curaflex Acquisition Corporation and Clinical Homecare Ltd.(38).....
10.47 Agreement and Plan of Merger, dated June 29, 1993, by and among
Curaflex, ContinueCare Health Systems, Inc., and Curaflex
Acquisition, Inc.(39)...............................................
10.48 Purchase Agreement, dated June 29, 1993, between Curaflex and the
shareholders of Comprehensive Pharmacy Home IV, Inc.(40)............
10.49 Agreement and Plan of Merger, dated September 27, 1993, by and among
Curaflex, Home Solution, Inc., and Curaflex Acquisition Subsidiary,
Inc.(41)............................................................
10.50 Purchase Agreement, dated September 30, 1993, by and among Curaflex,
Excellence, Inc., and Excellence, Inc. of North Carolina(42)........
10.51 Letter Agreement dated March 15, 1989 between Curaflex and M.
Cassandra Harris(43)................................................
10.52 Letter Agreement dated June 15, 1989 between Curaflex and Kevin M.
Higgins(44).........................................................
10.53 Curaflex's 1989 Stock Option Plan and related forms of Nonqualified
Stock Option Agreement and Optionee Restriction Agreement(45).......
10.54 Curaflex's Amended 1990 Stock Option Plan, and related forms of
Nonqualified Stock Option Agreement and Optionee Restriction
Agreement(46).......................................................
10.55 Agreement dated June 1, 1990 between Curaflex and James R.
Yarter(47)..........................................................
10.56 Agreement dated July 1, 1990 between Curaflex and George H.
Strong(48)..........................................................
10.57 Employee Stock Purchase Plan of Curaflex(49)........................
10.58 Form of Curaflex Indemnification Agreement(50)......................
10.59 Curaflex's Directors' Nonqualified Stock Option Plan of Curaflex and
related form of Nonqualified Stock Option Agreement(51).............
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10.60 Office Building Lease dated March 27, 1992, between Curaflex and
Ontario Lakeshore Partners, L.P., as amended(52)....................
10.61 Clinical Homecare Ltd. 1990 Incentive Stock Option Plan, as
amended(53).........................................................
10.62 Clinical Homecare Ltd. 1990 Stock Option Plan, as amended(54).......
10.63 401(k) Profit Sharing Plan of HealthInfusion(55)....................
10.64 Amended and Restated Stock Option Plan of HealthInfusion(56)........
10.65 Form of Indemnification Agreement between HealthInfusion and each of
HealthInfusion's directors and certain executive officers(57).......
10.66 Incentive Compensation Plan of HealthInfusion(58)...................
10.67 Form of HealthInfusion's Executive Officer Employment
Agreement(59).......................................................
10.68 Form of HealthInfusion's Change in Control Severance
Agreement(60).......................................................
10.69 Credit Agreement, dated August 11, 1993, between HealthInfusion and
Continental Bank, N.A.(61)..........................................
10.70 Asset Purchase Agreement among HealthInfusion, HCA and HCA's
principal shareholders(62)..........................................
10.71 Letter Agreement dated June 4, 1991, between HealthInfusion and
HCA(63).............................................................
10.72 Asset Purchase Agreement between HealthInfusion and its former
partner in HealthInfusion of New York(64)...........................
10.73 Stock Purchase Agreement among HealthInfusion, Homedic and the
shareholders of Homedic(65).........................................
10.74 Amended and Restated Agreement and Plan of Merger among
HealthInfusion, Housecalls Acquisition, Inc., Housecalls Home I.V.
Therapy, Ltd. ("Housecalls I") and the shareholders of Housecalls
I(66)...............................................................
10.75 Amended and Restated Agreement and Plan of Merger among
HealthInfusion, Southwest Acquisition, Inc., Southwest Specialty
Compounding, Inc. ("Housecalls II") and the shareholders of
Housecalls II(67)...................................................
10.76 Agreement and Plan of Merger among HealthInfusion, HCS Acquisition,
Inc., Healthcare Solutions and the shareholders of Healthcare
Solutions(68).......................................................
10.77 Revolving Credit Agreement between Medisys and Marquette Bank
Minneapolis, National Association dated December 16, 1992(69).......
10.78 Amendment No. 1 to Revolving Credit Agreement between Medisys and
First Bank, National Association dated June 25, 1993(70)............
10.79 Amendment No. 2 to Revolving Credit Agreement between Medisys and
First Bank, National Association dated November 17, 1993(71)........
10.80 Amendment No. 3 to Revolving Credit Agreement between Medisys and
First Bank, National Association dated March 7, 1994(72)............
10.81 Employment Agreement dated July 30, 1993 between American Home
Therapies, Inc., a subsidiary of Medisys, and Michael A.
Noble(73)...........................................................
10.82 Employment Agreement dated July 30, 1993 between American Home
Therapies, Inc., a subsidiary of Medisys, John D. Hirsch,
M.D.(74)............................................................
10.83 Employment Agreement dated December 4, 1992 between CareVan Medical
Systems of Illinois, Inc., a subsidiary of Medisys, and L. Peter
Smith(75)...........................................................
10.84 Management Agreement between Medisys and Dr. Kathryn R. Love(76)....
10.85 1989 Stock Option Plan of Medisys(77)...............................
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10.86 Form of Non-Plan Option Agreement of Medisys(78)....................
10.87 Agreement and Plan of Reorganization dated as of May 8, 1992, among
Medisys, PharmCare, Inc., Pharmacy Consultants of Arizona, Inc. and
Phil VanDenBerg(79).................................................
10.88 Agreement and Plan of Reorganization dated as of October 26, 1992,
among Medisys, PharmCare, Inc., Pharmacy Ventures, Inc., Bryan
Hammons, Andrew Cummings, Philip Russell, Michael Inman and John
Clark(80)...........................................................
10.89 Agreement and Plan of Merger dated as of December 1, 1992, among
Medisys, CareVan Medical Systems of Illinois, Inc., CareVan Home
Care of Illinois, Inc., AllCare Health Services, Inc., AllCare Home
Care, Inc. and the shareholders of AllCare Health Services, Inc. and
AllCare Home Care, Inc.(81).........................................
10.90 Agreement and Plan of Reorganization dated as of December 17, 1992,
among Medisys, PharmCare, Inc., Delta Pharmacy, Inc. and Donald N.
Issetti, James M. Dobbins, Sr., James M. Dobbins, Jr. and Bryan
Burr(82)............................................................
10.91 Agreement and Plan of Reorganization dated as of March 7, 1993,
among Medisys, CareVan Medical Systems of Missouri, Inc., American
Home Therapies, Inc., American Home Therapies of Kansas City, Inc.,
AMT Management Services, Inc., John D. Hirsch, M.D., Michael A.
Noble, Thomas J. Westrich and Ben R. Tischler(83)...................
10.92 1993 Incentive Compensation Plan of Medisys(84).....................
11.1 Statement re Computation of Per Share Earnings......................
13.1 T2's Annual Report on Form 10-K for the fiscal year ended September
30, 1993, filed with the Commission on December 29, 1993, as amended
by Form 10-K/A, filed with the Commission on January 28, 1994.......
13.2 T2's Quarterly Report on Form 10-Q for the quarter ended December
31, 1993, filed with the Commission on February 12, 1994............
13.3 T2's Quarterly Report on Form 10-Q for the quarter ended March 31,
1994, filed with the Commission on May 13, 1994.....................
21.1 The direct subsidiaries of the Registrant are T2 Medical, Inc., a
Delaware corporation, Curaflex Health Services, Inc., a Delaware
corporation, HealthInfusion, Inc., a Florida corporation, and
Medisys, Inc., a Delaware corporation. See Exhibits 21.2, 21.3, 21.4
and 21.5 hereto for the indirect subsidiaries of the Registrant.....
21.2 Subsidiaries of T2(85)..............................................
21.3 Subsidiaries of Curaflex(86)........................................
21.4 Subsidiaries of HealthInfusion(87)..................................
21.5 Subsidiaries of Medisys(88).........................................
23.1 Consent of Morrison & Foerster (included in Exhibit 8.2)............
23.2 Consent of Brobeck, Phleger & Harrison (included in Exhibits 5.1 and
8.1)................................................................
23.3 Consent of Oppenheimer, Wolff & Donnelly (included in Exhibit
8.3)................................................................
23.4 Consent of Arthur Andersen & Co. (included in Exhibit 8.4)..........
23.5 Consent of Deloitte & Touche........................................
23.6 Consent of KPMG Peat Marwick........................................
23.7 Consent of Ernst & Young............................................
23.8 Consent of Price Waterhouse.........................................
23.9 Consent of Grant Thornton...........................................
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23.10 Consent of Arthur Andersen & Co. ...................................
23.11 Consent of Coopers & Lybrand........................................
23.12 Consent of Flom, Lopata & Company...................................
23.13 Consent of Karlin, Kerschner, Sharpe & Company......................
24.1 Power of Attorney (included on page II-3 of the signature pages to
this Registration Statement)........................................
99.1 Form of Proxy for T2................................................
99.2 Form of Proxy for Curaflex..........................................
99.3 Form of Proxy for HealthInfusion....................................
99.4 Form of Proxy for Medisys...........................................
</TABLE>
- ---------------
(1) Incorporated herein by reference to Exhibit 4(a) of T2's Registration
Statement on Form S-3, Registration Number 33-47615, filed with the
Commission on May 4, 1992.
(2) Incorporated herein by reference to Exhibit 3(b) of T2's Registration
Statement on Form S-1, Registration Number 33-20602, filed with the
Commission on or about April 1, 1988.
(3) Incorporated herein by reference to Exhibit 3.1 of Curaflex's Registration
Statement on Form S-1, Registration Number 33-45130, filed with the
Commission on January 17, 1992.
(4) Incorporated herein by reference to Exhibit 3.2 of Curaflex's Registration
Statement on Form S-1, Registration Number 33-45130, filed with the
Commission on January 17, 1992.
(5) Incorporated herein by reference to Exhibit 3.1 of HealthInfusion's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, filed with
the Commission on March 31, 1994.
(6) Incorporated herein by reference to Exhibit 3.2 of HealthInfusion's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, filed with
the Commission on March 31, 1994.
(7) Incorporated herein by reference to Exhibit 3.1 of Medisys' Registration
Statement on Form S-1, Registration Number 33-43650, filed with the
Commission on November 5, 1991.
(8) Incorporated herein by reference to Exhibit 3.2 of Medisys' Registration
Statement on Form S-1, Registration Number 33-43650, filed with the
Commission on November 5, 1991.
(9) Incorporated herein by reference to Exhibit 10(a) of T2's Registration
Statement on Form S-1, Registration Number 33-20602, filed with the
Commission on or about April 1, 1988.
(10) Incorporated herein by reference to Exhibit 10(b) of T2's Annual Report on
Form 10-K for the fiscal year ended September 30, 1992, filed with the
Commission on December 29, 1992.
(11) Incorporated by reference to Exhibit 28 of T2's Registration Statement on
Form S-8, Registration number 33-32535, filed with the Commission on or
about December 12, 1989.
(12) Incorporated herein by reference to Exhibit 10(e)(v) of T2's Annual Report
on Form 10-K for the fiscal year ended September 30, 1993, filed with the
Commission on December 29, 1993, as amended by Form 10-K/A, filed with the
Commission on January 28, 1994.
(13) Incorporated herein by reference to Exhibit 10(f)(i) of T2's Registration
Statement on Form S-1, Registration Number 33-20602, filed with the
Commission on or about April 1, 1988.
(14) Incorporated herein by reference to Exhibit 10(f)(ii) of T2's Annual Report
on Form 10-K for the fiscal year ended September 30, 1993, filed with the
Commission on December 29, 1993, as amended by Form 10-K/A, filed with the
Commission on January 28, 1994.
<PAGE> 453
(15) Incorporated herein by reference to Exhibit 10(h) of T2's Registration
Statement on Form S-1, Registration Number 33-20602, filed with the
Commission on or about April 1, 1988.
(16) Incorporated herein by reference to Exhibit 10(i)(i) of T2's Registration
Statement on Form S-1, Registration Number 33-31106, filed with the
Commission on or about October 24, 1989.
(17) Incorporated herein by reference to Exhibit 10(i)(ii) of T2's Registration
Statement on Form S-1, Registration Number 33-31106, filed with the
Commission on or about October 24, 1989.
(18) Incorporated herein by reference to Exhibit 10(i)(iii) of T2's Annual
Report on Form 10-K for the fiscal year ended September 30, 1992, filed
with the Commission on December 29, 1992.
(19) Incorporated herein by reference to Exhibit 10(i)(iv) of T2's Annual Report
on Form 10-K for the fiscal year ended September 30, 1993, filed with the
Commission on December 29, 1993, as amended by Form 10-K/A, filed with the
Commission on January 28, 1994.
(20) Incorporated herein by reference to Exhibit 10(k) of T2's Registration
Statement on Form S-1, Registration Number 33-31106, filed with the
Commission on or about October 24, 1989.
(21) Incorporated herein by reference to Exhibit 10(r) of T2's Registration
Statement on Form S-1, Registration Number 33-20602, filed with the
Commission on or about April 1, 1988.
(22) Incorporated herein by reference to Exhibit 10(s) of T2's Annual Report on
Form 10-K for the fiscal year ended September 30, 1989, filed with the
Commission on or about December 29, 1988.
(23) Incorporated herein by reference to Exhibit 10(t)(i) of T2's Annual Report
on Form 10-K for the fiscal year ended September 30, 1991, filed with the
Commission on or about December 14, 1991.
(24) Incorporated herein by reference to Exhibit 10(t)(ii) of T2's Annual Report
on Form 10-K for the fiscal year ended September 30, 1993, filed with the
Commission on December 29, 1993, as amended by Form 10-K/A, filed with the
Commission on January 28, 1994.
(25) Incorporated herein by reference to Exhibit 10(w) of T2's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993, filed with the
Commission on December 29, 1993, as amended by Form 10-K/A, filed with the
Commission on January 28, 1994.
(26) Incorporated herein by reference to Exhibit 10(x) of T2's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993, filed with the
Commission on December 29, 1993, as amended by Form 10-K/A, filed with the
Commission on January 28, 1994.
(27) Incorporated herein by reference to Exhibit 10(y) of T2's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993, filed with the
Commission on December 29, 1993, as amended by Form 10-K/A, filed with the
Commission on January 28, 1994.
(28) Incorporated herein by reference to Exhibit 10(z) of T2's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993, filed with the
Commission on December 29, 1993, as amended by Form 10-K/A, filed with the
Commission on January 28, 1994.
(29) Incorporated herein by reference to Exhibit 10(b) of T2's Quarterly Report
on Form 10-Q for the period ended June 30, 1993, filed with the Commission
on August 23, 1993.
(30) Incorporated herein by reference to Exhibit 10(c) of T2's Quarterly Report
on Form 10-Q for the period ended June 30, 1993, filed with the Commission
on August 23, 1993.
(31) Incorporated herein by reference to Exhibit 10.1 of Curaflex's Quarterly
Report on Form 10-Q, filed with the Commission on November 12, 1993.
(32) Incorporated herein by reference to Exhibit 10.1a of Curaflex's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, filed with
the Commission on March 31, 1994.
(33) Incorporated herein by reference to Exhibit 10.1b of Curaflex's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, filed with
the Commission on March 31, 1994.
<PAGE> 454
(34) Incorporated herein by reference to Exhibit 10.1c of Curaflex's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, filed with
the Commission on March 31, 1994.
(35) Incorporated herein by reference to Exhibit 2.1 to Curaflex's Current
Report on Form 8-K, filed with the Commission on June 9, 1992, as amended
August 7, 1992.
(36) Incorporated herein by reference to Exhibit 2.1 to Curaflex's Current
Report on Form 8-K, filed with the Commission on October 12, 1992, as
amended November 11, 1992.
(37) Incorporated herein by reference to Appendix A to the Joint Proxy
Statement/Prospectus filed as part of Curaflex's Registration Statement on
Form S-4, Registration Number 33-57828, filed with the Commission on
February 3, 1993.
(38) Incorporated herein by reference to Exhibit 2.1 to Curaflex's Current
Report on Form 8-K, filed with the Commission on March 22, 1993.
(39) Incorporated herein by reference to Exhibit 2.1 to Curaflex's Current
Report on Form 8-K, filed with the Commission on July 14, 1993.
(40) Incorporated herein by reference to Exhibit 2.2 to Curaflex's Current
Report on Form 8-K, filed with the Commission on July 14, 1993.
(41) Incorporated herein by reference to Exhibit 2.1 to Curaflex's Current
Report on Form 8-K, filed with the Commission on October 14, 1993.
(42) Incorporated herein by reference to Exhibit 2.2 to Curaflex's Current
Report on Form 8-K, filed with the Commission on October 14, 1993.
(43) Incorporated herein by reference to Exhibit 10.2 to Curaflex's Registration
Statement on Form S-1, Registration Number 33-45130, filed with the
Commission on January 17, 1992.
(44) Incorporated herein by reference to Exhibit 10.3 to Curaflex's Registration
Statement on Form S-1, Registration Number 33-45130, filed with the
Commission on January 17, 1992.
(45) Incorporated herein by reference to Exhibit 10.4 to Curaflex's Registration
Statement on Form S-1, Registration Number 33-45130, filed with the
Commission on January 17, 1992.
(46) Incorporated herein by reference to Exhibit 10.6 to Curaflex's Registration
Statement on Form S-1, Registration Number 33-45130, filed with the
Commission on January 17, 1992.
(47) Incorporated herein by reference to Exhibit 10.9 to Curaflex's Registration
Statement on Form S-1, Registration Number 33-45130, filed with the
Commission on January 17, 1992.
(48) Incorporated herein by reference to Exhibit 10.10 to Curaflex's
Registration Statement on Form S-1, Registration Number 33-45130, filed
with the Commission on January 17, 1992.
(49) Incorporated herein by reference to Exhibit 10.19 to Curaflex's
Registration Statement on Form S-1, Registration Number 33-45130, filed
with the Commission on January 17, 1992.
(50) Incorporated herein by reference to Exhibit 10.20 to Curaflex's
Registration Statement on Form S-1, Registration Number 33-45130, filed
with the Commission on January 17, 1992.
(51) Incorporated herein by reference to Exhibit 10.21 to Curaflex's
Registration Statement on Form S-1, Registration Number 33-45130, filed by
amendment with the Commission on February 21, 1992.
(52) Incorporated herein by reference to Exhibit 10.25 to Curaflex's
Registration Statement on Form S-4, Registration Number 33-57828, filed
with the Commission on February 3, 1993.
(53) Incorporated herein by reference to Exhibit 10.28 to Curaflex's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992, filed with
the Commission on March 31, 1993.
(54) Incorporated herein by reference to Exhibit 10.29 to Curaflex's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992, filed with
the Commission on March 31, 1993.
<PAGE> 455
(55) Incorporated herein by reference to Exhibit 10.2 of HealthInfusion's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990, filed with
the Commission on April 1, 1991.
(56) Incorporated herein by reference to Exhibit 10.1 of HealthInfusion's
Registration Statement on Form S-1, Registration No. 33-48681, filed with
the Commission on May 20, 1991.
(57) Incorporated herein by reference to Exhibit 10.1 of HealthInfusion's
Registration Statement on Form S-4, Registration Number 33-33470, filed
with the Commission on February 22, 1990.
(58) Incorporated herein by reference to Exhibit 10.4 of HealthInfusion's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991, filed with
the Commission on March 30, 1992.
(59) Incorporated herein by reference to Exhibit 10.5 of HealthInfusion's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991, filed with
the Commission on March 30, 1992.
(60) Incorporated herein by reference to Exhibit 10.7 of HealthInfusion's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991, filed with
the Commission on March 30, 1992.
(61) Incorporated herein by reference to Exhibit 10.8 of HealthInfusion's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, filed with
the Commission on March 31, 1994.
(62) Incorporated herein by reference to Exhibit 2.1 of HealthInfusion's Current
Report on Form 8-K dated March 21, 1991, filed with the Commission on March
22, 1991.
(63) Incorporated herein by reference to Exhibit 10.20 of HealthInfusion's
Registration Statement on Form S-1, Registration No. 33-48681, filed with
the Commission on May 20, 1991.
(64) Incorporated herein by reference to Exhibit 10.11 of HealthInfusion's
Annual Report on Form 10-K for the fiscal year ended December 31, 1991,
filed with the Commission on March 30, 1992.
(65) Incorporated herein by reference to Exhibit 2.1 of HealthInfusion's Current
Report on Form 8-K dated March 18, 1992, filed with the Commission on March
19, 1992.
(66) Incorporated herein by reference to Exhibit 2.1 of HealthInfusion's Current
Report on Form 8-K dated March 26, 1992, filed with the Commission on March
27, 1992.
(67) Incorporated herein by reference to Exhibit 2.2 of HealthInfusion's Current
Report on Form 8-K dated March 26, 1992, filed with the Commission on March
27, 1992.
(68) Incorporated herein by reference to Exhibit 2.3 of HealthInfusion's Current
Report on Form 8-K dated March 26, 1992, filed with the Commission on March
27, 1992.
(69) Incorporated herein by reference to Exhibit 10.1 of Medisys' Annual Report
on Form 10-K for the fiscal year ended December 31, 1992, filed with the
Commission on March 31, 1993.
(70) Incorporated herein by reference to Exhibit 10.2 of Medisys' Annual Report
on Form 10-K for the fiscal year ended December 31, 1993, filed with the
Commission on March 31, 1994.
(71) Incorporated herein by reference to Exhibit 10.3 of Medisys' Annual Report
on Form 10-K for the fiscal year ended December 31, 1993, filed with the
Commission on March 31, 1994.
(72) Incorporated herein by reference to Exhibit 10.4 of Medisys' Annual Report
on Form 10-K for the fiscal year ended December 31, 1993, filed with the
Commission on March 31, 1994.
(73) Incorporated herein by reference to Exhibit 10.11 of Medisys' Annual Report
on Form 10-K for the fiscal year ended December 31, 1993, filed with the
Commission on March 31, 1994.
(74) Incorporated herein by reference to Exhibit 10.12 of Medisys' Annual Report
on Form 10-K for the fiscal year ended December 31, 1993, filed with the
Commission on March 31, 1994.
(75) Incorporated herein by reference to Exhibit 10.13 of Medisys' Annual Report
on Form 10-K for the fiscal year ended December 31, 1993, filed with the
Commission on March 31, 1994.
<PAGE> 456
(76) Incorporated herein by reference to Exhibit 10.8 of Medisys' Registration
Statement on Form S-1, Registration Number 33-43650, filed with the
Commission on November 5, 1991.
(77) Incorporated herein by reference to Exhibit 10.9 of Medisys' Registration
Statement on Form S-1, Registration Number 33-43650, filed with the
Commission on November 5, 1991.
(78) Incorporated herein by reference to Exhibit 10.10 of Medisys' Registration
Statement on Form S-1, Registration Number 33-43650, filed with the
Commission on November 5, 1991.
(79) Incorporated herein by reference to Exhibit 2.1 of Medisys' Current Report
on Form 8-K, filed with the Commission on June 6, 1992.
(80) Incorporated herein by reference to Exhibit 2.2 of Medisys' Current Report
on Form 8-K, filed with the Commission on November 10, 1992.
(81) Incorporated herein by reference to Exhibit 2.2 of Medisys' Current Report
on Form 8-K, filed with the Commission on December 16, 1992.
(82) Incorporated herein by reference to Exhibit 2.2 of Medisys' Current Report
on Form 8-K, filed with the Commission on December 30, 1992.
(83) Incorporated herein by reference to Exhibit 10.15 of Medisys' Annual Report
on Form 10-K for the fiscal year ended December 31, 1992, filed with the
Commission on March 31, 1993.
(84) Incorporated herein by reference to Exhibit 10.22 of Medisys' Annual Report
on Form 10-K for the fiscal year ended December 31, 1993, filed with the
Commission on March 31, 1994.
(85) Incorporated herein by reference to Exhibit 21 of T2's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993, filed with the
Commission on December 29, 1993, as amended by Form 10-K/A, filed with the
Commission on January 28, 1994.
(86) Incorporated herein by reference to Exhibit 21.1 of Curaflex's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, filed with
the Commission on March 31, 1994.
(87) Incorporated herein by reference to Exhibit 22.1 of HealthInfusion's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993, filed with
the Commission on , 1994.
(88) Incorporated herein by reference to Exhibit 21.1 of Medisys' Annual Report
on Form 10-K for the fiscal year ended December 31, 1993, filed with the
Commission on March 31, 1994.
<PAGE> 1
EXHIBIT 2.1 TO
REGISTRATION STATEMENT
ON FORM S-4
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 6, 1994, by and among
CHM Holding Corporation, a Delaware corporation ("Newco"), Curaflex Health
Services, Inc., a Delaware corporation ("CHS"), CHS Acquisition Company, a
Delaware corporation and a wholly-owned subsidiary of Newco ("CHS Sub"),
HealthInfusion, Inc. a Florida corporation ("HII"), HII Acquisition Company, a
Florida corporation and a wholly-owned subsidiary of Newco ("HII Sub"), Medisys,
Inc. a Delaware corporation ("MI"), MI Acquisition Company, a Delaware
corporation and a wholly-owned subsidiary of Newco ("MI Sub"), T2 Medical, Inc.,
a Delaware corporation ("T2") and T2 Acquisition Company, a Delaware corporation
and a wholly-owned subsidiary of Newco ("T2 Sub"). The parties hereto are
sometimes hereinafter referred to collectively as the "Companies" or the
"Constituent Corporations," or individually as a "Company" or a "Constituent
Corporation."
WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated
December 1, 1993, as amended as of February 6, 1994 ("Prior Merger Agreement")
by and among Newco, CHS, CHS Sub, HII, HII Sub, MI and MI Sub, each of CHS, HII
and MI agreed, subject to the terms and conditions set forth therein, to be
acquired by and become wholly-owned subsidiaries of Newco; and
WHEREAS, the parties to the Prior Merger Agreement have agreed to enter
into this Agreement to provide for the acquisition by Newco of CHS, HII, MI and
T2, subject to the terms and conditions set forth herein; and
WHEREAS, the respective Boards of Directors of the Companies deem it
advisable and in the best interests of their respective stockholders that each
of CHS, HII, MI and T2 be acquired by and become wholly-owned subsidiaries of
Newco and, in furtherance thereof, the Boards of Directors of the Constituent
Corporations have approved, as applicable, the merger of (i) CHS Sub with and
into CHS, (ii) HII Sub with and into HII, (iii) MI Sub with and into MI, and
(iv) T2 Sub with and into T2 upon the terms and subject to the conditions set
forth herein (individually, a "Merger" and collectively, the "Mergers"); and
WHEREAS, for federal income tax purposes, it is intended that each of the
Mergers shall qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGERS
1.1 The Mergers. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.2 hereof) of each respective Merger,
(a) CHS Sub shall be merged with and into CHS, (b) HII Sub shall be merged with
and into HII, (c) MI Sub shall be merged with and into MI, and (d) T2 Sub shall
be merged with and into T2, with CHS, HII, MI and T2 being the surviving
corporation in each respective merger (the "Surviving Corporation") and the
separate existence of each of CHS Sub, HII Sub, MI Sub and T2 Sub shall
thereupon cease. Each Merger shall have the effects set forth in Section
607.1106 of the Florida Business Corporation Act (the "FBCA") and Section 259 of
the Delaware General Corporation Law ("DGCL"), as applicable. From and after the
Effective Time of each respective Merger, each Surviving Corporation shall be a
wholly-owned subsidiary of Newco.
1.2 Effective Time of the Mergers. Each Merger shall become effective upon
the completion of the filing of (a) properly executed Articles of Merger with
the Department of State of the State of Florida with
(1)
<PAGE> 2
respect to the Merger of HII and HII Sub, and (b) properly executed Certificates
of Merger with the Secretary of State of the State of Delaware reflecting the
respective Mergers of CHS and CHS Sub, of MI and MI Sub, and of T2 and T2 Sub,
which filings shall be made on the Closing Date after satisfaction of the
conditions set forth in Section VIII. None of the Mergers shall be effective
until all of the Mergers shall have become effective. When used in this
Agreement, the term "Effective Time" with respect to each such Merger shall mean
the date and time at which all such Articles of Merger and Certificates of
Merger are successfully filed.
ARTICLE II
NEWCO AND THE SURVIVING CORPORATIONS
2.1 Certificate of Incorporation of the Surviving Corporations. The
respective Certificate or Articles of Incorporation of each of CHS, HII, MI and
T2 shall be the respective Certificate or Articles of Incorporation of the
Surviving Corporation of each Merger in which such Company is involved, except
that such respective Certificates or Articles of Incorporation shall be amended
and restated at the Effective Time to read in their entirety substantially the
same as the Certificates and Articles of Incorporation of CHS Sub, HII Sub, MI
Sub and T2 Sub, respectively (with the names of CHS, HII, MI and T2 being
substituted for those of CHS Sub, HII Sub, MI Sub and T2 Sub).
2.2 Bylaws of the Surviving Corporation. The respective Bylaws of each of
CHS Sub, HII Sub, MI Sub and T2 Sub as in effect at the Effective Time shall be
the Bylaws of the Surviving Corporation of each Merger in which such Company is
involved until thereafter amended in accordance with applicable law.
2.3 Directors and Officers of the Surviving Corporations.
(a) The respective directors of CHS Sub, HII Sub, MI Sub and T2 Sub at the
Effective Time shall be the initial directors of the Surviving Corporation of
each Merger in which such Company is involved and shall hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualified in the manner provided in the Certificate or Articles of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law.
(b) The respective officers of CHS Sub, HII Sub, MI Sub and T2 Sub at the
Effective Time shall be the initial officers of the Surviving Corporation of
each Merger in which such Company is involved and shall hold office from the
Effective Time until removed or until their respective successors are duly
elected or appointed and qualified in the manner provided in the Certificate or
Articles of Incorporation and Bylaws of the Surviving Corporation, or as
otherwise provided by law.
2.4 Directors and Officers of Newco.
(a) At or prior to the Effective Time, the Companies shall take or cause to
be taken all necessary action such that, at the Effective Time, Newco's Board of
Directors shall be increased to seven (7) members, without classifications of
directors into separate classes. Following the Effective Time, directors shall
be reelected at the annual stockholders meeting of Newco commencing in the year
1995. The directors of Newco shall be designated prior to the filing with the
SEC (as hereinafter defined) of the preliminary Proxy Statement referred to in
Section 4.7 as follows: (1) CHS, acting through its current Board Of Directors,
shall designate one of Newco's directors; (2) HII, acting through its current
Board Of Directors, shall designate one of Newco's directors; (3) MI, acting
through its current Board Of Directors, shall designate one of Newco's
directors; and (4) T2, acting through its current Board of Directors shall
designate four of Newco's directors, at least three of whom will not prior to
such designation have been an officer of T2.
(b) At or prior to the Effective Time, the Companies shall take or cause to
be taken all necessary action such that, at the Effective Time, Newco's officers
shall include the following: (i) Charles A. Laverty as Chief Executive Officer,
(ii) Miles E. Gilman as Executive Vice President, (iii) William J. Brummond as
Vice President and (iv) Norman H. Werthwein as Chief Financial Officer.
(2)
<PAGE> 3
2.5 Consolidation of Corporate Headquarters. To facilitate the
consolidation of the operations of the Companies, the corporate headquarters of
Newco and its direct subsidiaries following the Merger shall be consolidated in
Ontario, California.
2.6 Change of Newco's Name. At or prior to the mailing to stockholders of
the Proxy Statement referred to in Section 4.7, the Companies shall take or
cause to be taken all necessary action such that, at the Effective Time, the
corporate name of Newco shall be changed to another name mutually agreeable to
each of CHS, HII, MI and T2.
2.7 Employment/Severance Agreements. Prior to the Effective Time, Newco,
CHS, HII, MI and T2 shall take or cause to be taken all necessary action on its
part to enter into employment and severance agreements, on terms and conditions
as outlined in Exhibit 2.7 hereto with certain individuals, and the applicable
entity, as so described in Exhibit 2.7 hereto.
ARTICLE III
CONVERSION OF SHARES
3.1 Exchange Ratio. At the Effective Time, by virtue of the respective
Mergers and without any action on the part of the holder thereof:
(a) Each share of common stock of CHS, HII, MI and T2 ("Share") issued
and outstanding immediately prior to the Effective Time (other than the
Excluded Shares as defined in Section 3.6 below and Shares held by Newco or
any subsidiary of Newco, if any), shall be converted at the Effective Time
into the right to receive shares of common stock, par value $.001 per
share, of Newco ("Newco Shares"), in accordance with the following exchange
ratios ("Exchange Ratio"), as applicable:
(i) In the case of CHS, each CHS Share shall be converted into the
right to receive 0.333 Newco Shares;
(ii) In the case of HII, each HII Share shall be converted into the
right to receive 0.447 Newco Shares;
(iii) In the case of MI, each MI Share shall be converted into the
right to receive 0.243 Newco Shares; and
(iv) In the case of T2, each T2 Share shall be converted into the
right to receive 0.630 Newco Shares.
(b) At the Effective Time, all Shares of CHS, HII, MI and T2 (other
than the Excluded Shares) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
certificate previously representing any such Shares shall thereafter
represent the Newco Shares into which such Shares of CHS, HII, MI or T2
have been converted. Certificates representing Shares of CHS, HII, MI or T2
shall be exchanged for certificates representing whole Newco Shares issued
in consideration therefor upon the surrender of such certificate in
accordance with the provisions hereof. If prior to the Effective Time
Newco, CHS, HII, MI or T2 should split or combine the Shares or the Newco
Shares, or pay a stock dividend or other stock distribution in Shares or
Newco Shares, then the Exchange Ratio will be appropriately adjusted to
reflect such split, combination, dividend or other distribution.
(c) Each Share of CHS, HII, MI or T2 held in the treasury of any such
Company (or a subsidiary of such Company) and each such Share held by Newco
or any subsidiary of Newco immediately prior to the Effective Time shall be
canceled and retired and cease to exist, and no Newco Shares shall be
issued in exchange therefor. All Newco Shares owned by CHS, HII, MI or T2
or any subsidiary shall become treasury stock of Newco.
Each share of common stock of CHS Sub, HII Sub, MI Sub or T2 Sub issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of
(3)
<PAGE> 4
the holder thereof, be converted into and exchangeable for one share of common
stock of the Surviving Corporation of the respective Merger in which such
Company is involved.
3.2 Exchange of Shares.
(a) Prior to the Effective Time, Newco shall select and enter into an
agreement (in form and substance reasonably satisfactory to the other Companies)
with a bank or trust company to act as Exchange Agent hereunder (the "Exchange
Agent"). No later than the Effective Time, Newco shall make available, and each
holder of Shares (other than Excluded Shares) will be entitled to receive, upon
surrender to the Exchange Agent of one or more certificates representing such
Shares for cancellation, certificates representing the number of Newco Shares
into which such Shares are converted in the Merger. The Newco Shares into which
the Shares shall be converted in the Merger shall be deemed to have been issued
at the Effective Time.
(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding Shares (the "Certificates") whose Shares were converted into Newco
Shares pursuant to Section 3.1, (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as Newco and the other
Companies may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing Newco
Shares. Upon surrender of a Certificate for cancellation to the Exchange Agent
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole Newco Shares which such holder has the right
to receive in respect of the Certificates surrendered pursuant to the provisions
of this Article III.
(c) In the event that any stock certificate representing Shares shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such certificate to be lost, stolen or destroyed, Newco will
issue or cause to be issued in exchange for such lost, stolen or destroyed
certificate the number of Newco Shares into which such shares are converted in
the Merger in accordance with this Article III. When authorizing such issuance
in exchange therefor, the Board of Directors of Newco may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate to give Newco a bond in such sum as it may
direct as indemnity, or such other form of indemnity, as it shall direct,
against any claim that may be made against Newco with respect to the certificate
alleged to have been lost, stolen or destroyed.
3.3 Dividends; Transfer Taxes. No dividends that are declared on Newco
Shares will be paid to persons entitled to receive certificates representing
Newco Shares until such persons surrender their certificates representing
Shares. Upon such surrender, there shall be paid to the person in whose name the
certificates representing such Newco Shares shall be issued any dividends which
shall have become payable with respect to such Newco Shares between the
Effective Time and the time of such surrender. In no event shall the person
entitled to receive such dividends be entitled to receive interest on such
dividends. If any certificates for any Newco Shares are to be issued in a name
other than that in which the certificate representing Shares surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the person requesting such exchange shall pay to the Exchange Agent any transfer
or other taxes required by reason of the issuance of certificates for such Newco
Shares in a name other than that of the registered holder of the certificate
surrendered, or shall establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not applicable. Notwithstanding the foregoing,
neither the Exchange Agent nor any party hereto shall be liable to a holder of
Shares for any Newco Shares or dividends thereon or, in accordance with Section
3.4 hereof, the cash payment for fractional interests, delivered to a public
official pursuant to applicable escheat laws.
3.4 No Fractional Securities. No certificates or scrip representing
fractional Newco Shares shall be issued upon the surrender for exchange of
certificates representing Shares pursuant to this Article III and no dividend,
stock split-up or other change in the capital structure of Newco shall relate to
any fractional security, and such fractional interests shall not entitle the
owner thereof to vote or to any rights of a security holder. In lieu of any such
fractional securities, each holder of Shares who would otherwise have been
entitled to a
(4)
<PAGE> 5
fraction of a Newco Share upon surrender of stock certificates for exchange
pursuant to this Article III shall be paid cash upon such surrender in an amount
equal to the product of such fraction multiplied by the average closing price
for a Newco Share on the New York Stock Exchange, if listed thereon, or on The
Nasdaq National Market, if listed thereon, for the 5 trading days immediately
following the Closing Date (as defined below).
3.5 Closing of Transfer Books. At the Effective Time, the stock transfer
books of CHS, HII, MI and T2 shall be closed and no transfer of Shares shall
thereafter be made. If, after the Effective Time, certificates representing
Shares are presented to the Surviving Corporation, they shall be canceled and
exchanged for certificates representing Newco Shares in accordance with the
terms hereof. At and after the Effective Time, the holders of Shares to be
exchanged for Newco Shares pursuant to this Agreement shall cease to have any
rights as stockholders of CHS, HII, MI or T2 except for the right to surrender
such stock certificates in exchange for Newco Shares as provided hereunder.
3.6 Dissenting Shares. If holders of Shares are entitled to dissent from a
Merger and demand appraisal of any such Shares in accordance with the provisions
of the FBCA concerning the right of such holders to dissent from a Merger and
demand appraisal of their shares ("Dissenting Holders"), any Shares held by a
Dissenting Holder as to which appraisal has been so demanded ("Excluded Shares")
shall not be converted as described in Section 3.1, but shall from and after the
Effective Time represent only the right to receive such consideration as may be
determined to be due to such Dissenting Holder pursuant to the FBCA; provided,
however, that each Share held by a Dissenting Holder who shall, after the
Effective Time, withdraw his demand for appraisal or lose his right of appraisal
with respect to such Shares, in either case pursuant to the FBCA, shall not be
deemed Excluded Shares but shall be deemed to be converted, as of the Effective
Time, into the right to receive Newco Shares in accordance with the applicable
Exchange Ratio.
3.7 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Morrison &
Foerster, 19900 MacArthur Boulevard, 12th Floor, Irvine, California 92715, at
9:00 a.m., local time, on the first business day (the "Closing Date") after the
later of (a) the day on which the later to occur of the stockholders' meetings
referred to in Section 7.4 hereof shall have occurred or (b) the day on which
all of the conditions set forth in Article VIII hereof are satisfied or waived,
or at such other date, time and place as the Companies shall agree.
3.8 Supplementary Action. If at any time after the Effective Time, any
further assignments or assurances in law or any other things are necessary or
desirable to vest or to perfect or confirm of record in the Surviving
Corporations the title to any property or rights of any Constituent Corporation,
or otherwise to carry out the provisions of this Agreement, the officers and
directors of the Surviving Corporation are hereby authorized and empowered on
behalf of the Constituent Corporations, in the name of and on behalf of any
Constituent Corporation as appropriate, to execute and deliver any and all
things necessary or proper to vest or to perfect or confirm title to such
property or rights in the Surviving Corporation, and otherwise to carry out the
purposes and provisions of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CHS, HII, MI AND T2
As used in this Agreement, (i) the term "Material Adverse Effect" means,
with respect to CHS, HII, MI or T2, as the case may be, a material adverse
effect on the business, assets, results of operation or financial condition of
such party and its subsidiaries taken as a whole or in the ability of such party
to perform its obligations hereunder and (ii) the word "subsidiary" when used
with respect to any party means any corporation or other organization, whether
incorporated or unincorporated, of which such party or any other subsidiary of
such party is a general partner (excluding partnerships the general partnership
interests of which held by such party or any subsidiary of such party do not
have a majority of the voting interests in such partnership) or of which at
least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect
(5)
<PAGE> 6
to such corporations or other organizations is directly or indirectly owned or
controlled by such party and/or by any one or more of the subsidiaries.
Each of CHS, HII, MI and T2 represents and warrants, with respect to itself
and its subsidiaries, to the others and to Newco, except as disclosed to the
others and to Newco in writing prior to the execution of this Agreement, as
follows:
4.1 Organization. Such Company is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the corporate power to carry on its business as it is now
being conducted or presently proposed to be conducted. Such Company is duly
qualified as a foreign corporation to do business, and is in good standing (to
the extent the concept of good standing exists), in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified will not have a Material Adverse Effect. Each corporate subsidiary of
such Company is a corporation duly organized, validly existing and in good
standing (to the extent the concept of good standing exists) under the laws of
its jurisdiction of incorporation or organization, has the corporate power to
carry on its business as it is now being conducted and is duly qualified to do
business, and is in good standing (to the extent the concept of good standing
exists), in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so duly organized, validly existing
and in good standing, to have such corporate power or to be so qualified will
not have a Material Adverse Effect.
4.2 Capitalization. As of the date hereof, the authorized capital stock of
such Company is as set forth in Exhibit 4.2 hereto. As of the date hereof, the
number of Shares of such Company which are issued and outstanding is as set
forth in Exhibit 4.2 hereto. All of the issued and outstanding Shares of such
Company are validly issued, fully paid and nonassessable and free of preemptive
rights or similar rights created by statute, the Certificate or Articles of
Incorporation or Bylaws of such Company or any agreement by which such Company
or any of its subsidiaries is a party or by which it is bound. Except (a) as set
forth above or, (b) as disclosed in Exhibit 4.2 hereto, there are not as of the
date of this Agreement any shares of capital stock of such Company issued or
outstanding or any options, warrants, subscriptions, calls, rights, convertible
securities or other agreements or commitments obligating such Company to issue,
transfer or sell any shares of its capital stock. As of the date hereof, no
bonds, debentures, notes or other indebtedness having the right to vote (or
convertible into or exercisable for securities having the right to vote) on any
matters on which stockholders of such Company may vote ("Voting Debt") were
issued and outstanding with respect to such Company.
4.3 Authority Relative to this Agreement. Such Company has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement by such Company and the
consummation by such Company of the transactions contemplated hereby have been
duly authorized by the Board of Directors of such Company, and, except for
approval by the requisite votes cast by such Company's stockholders at the
meeting provided for in Section 7.4, no other corporate proceedings on the part
of such Company are necessary to approve this Agreement or the transactions
contemplated hereby.
4.4 Consents and Approvals; No Violations. Except for applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"), the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), state or
foreign laws relating to takeovers, if applicable, state securities or blue sky
laws, and, as applicable, filing and recordation of Articles of Merger under the
FBCA or a Certificate of Merger as required by the DGCL, no filing with, and no
permit, authorization, consent or approval of, any public body or authority is
necessary for the consummation by such Company of the transactions contemplated
by this Agreement. Neither the execution and delivery of this Agreement by such
Company, nor the consummation by such Company of the transactions contemplated
hereby, nor compliance by such Company with any of the provisions hereof, will
(a) result in any breach of the Certificate or Articles of Incorporation or
Bylaws of such Company, (b) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which such Company or
any of its subsidiaries is a party or by which any of them or any of their
properties or assets
(6)
<PAGE> 7
may be bound or (c) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to such Company, any of its subsidiaries or any of
their properties or assets, except in the case of clauses (b) and (c) for
violations, breaches or defaults that would not have a Material Adverse Effect.
4.5 Reports and Financial Statements. Such Company has filed all reports
required to be filed by it with the Securities and Exchange Commission (the
"SEC") pursuant to the Exchange Act since January 1, 1992, including, without
limitation, an Annual Report on Form 10-K for the year ended December 31, 1992
(in the case of each of CHS, HII and MI) and for the year ended September 30,
1993 (in the case of T2) (collectively, the "SEC Reports"), and has previously
furnished or made available to the other Companies true and complete copies of
all such SEC Reports. None of such SEC Reports, as of their respective dates (as
amended through the date hereof), contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Each of the balance sheets (including the
related notes) included in the SEC Reports fairly presents in all material
respects the consolidated financial position of such Company and its
subsidiaries as of the respective dates thereof, and the other related
statements (including the related notes) included therein fairly present in all
material respects the results of operations and cash flows of such Company and
its subsidiaries for the respective periods or as of the respective dates set
forth therein, all in conformity with generally accepted accounting principles
consistently applied during the periods involved, except as otherwise noted
therein and subject, in the case of the unaudited interim financial statements,
to normal year-end adjustments and any other adjustments described therein and
the absence of any notes thereto.
4.6 Absence of Certain Changes or Events. Except as disclosed in the SEC
Reports filed prior to the date of this Agreement, since December 31, 1992,
neither such Company nor any of its subsidiaries has: (a) taken any of the
actions set forth in Sections 6.1(b), 6.1(c) or 6.1(e) hereof; (b) incurred any
liability material to the Company and its subsidiaries on a consolidated basis,
except in the ordinary course of its business, consistent with past practices;
(c) suffered a change, or any event involving a prospective change, in the
business, assets, financial condition or results of operation of such Company or
any of its subsidiaries which has had, or is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect (other than as a
result of changes or proposed changes in federal or state health care (including
health care reimbursement) laws or regulations of general applicability or
interpretations thereof, changes in generally accepted accounting principles and
changes that could, under the circumstances, reasonably have been anticipated in
light of disclosures made in writing by such Company to the others pursuant
hereto); or (d) subsequent to the date hereof, except as permitted by Section
6.1 hereof, conducted its business and operations other than in the ordinary
course of business and consistent with past practices.
4.7 Information in Disclosure Documents and Registration Statement. None
of the information to be supplied by such Company to be included in (a) the
Registration Statement on Form S-4 (or S-1 or such other form required or deemed
appropriate by the SEC) to be filed with the SEC by Newco under the Securities
Act for the purpose of registering the Newco Shares to be issued in the Mergers
or pursuant to this Agreement (the "Registration Statement") and (b) the joint
proxy statement to be distributed in connection with the meetings of
stockholders of the Companies to vote upon this Agreement (the "Proxy
Statement"), will, in the case of the Registration Statement, at the time it
becomes effective and at the Effective Time, or, in the case of the Proxy
Statement or any amendments thereof or supplements thereto, at the time of the
mailing of the Proxy Statement and any amendments or supplements thereto, and at
the time of each of the meetings of stockholders to be held in connection with
the Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement insofar as it pertains to such Company
will comply as to form in all material respects with the provisions of the
Securities Act, and the rules and regulations promulgated thereunder. The Proxy
Statement insofar as it pertains to such Company will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated thereunder.
4.8 Litigation. As of the date of this Agreement, except as disclosed in
the SEC Reports filed prior to the date of this Agreement and except to the
extent that individually and in the aggregate they would not
(7)
<PAGE> 8
reasonably be expected to have a Material Adverse Effect: (i) there is no
action, suit, judicial or administrative proceeding, arbitration or
investigation pending or, to the best knowledge of such Company, threatened
against or involving such Company or any of its subsidiaries, or any of their
properties or rights, before any court, arbitrator, or administrative or
governmental body; (ii) there is no judgment, decree, injunction, rule or order
of any court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against such Company or any of its subsidiaries; and
(iii) such Company and its subsidiaries are not in violation of any term of any
judgments, decrees, injunctions or orders outstanding against them. Such Company
has furnished to the other Companies in writing, a description of all
litigations, actions, suits, proceedings, arbitrations, investigations known to
it, judgements, decrees, injunctions or orders pending, or to its best
knowledge, threatened against or involving such Company or any of its
subsidiaries, or any of their properties or rights as of the date hereof.
4.9 Contracts.
(a) Each of the material contracts, instruments, mortgages, notes, security
agreements, leases, agreements or understandings, whether written or oral, to
which such Company or any of its subsidiaries is a party that relates to or
affects the assets or operations of such Company or any of its subsidiaries or
to which such Company or any of its subsidiaries or their respective assets or
operations may be bound or subject is a valid and binding obligation of such
Company and in full force and effect (with respect to such Company or such
subsidiary), except for where the failure to be in full force and effect would
not individually or in the aggregate, have a Material Adverse Effect. Except to
the extent that the consummation of the transactions contemplated by this
Agreement may require the consent of third parties, as disclosed in writing to
the other Companies pursuant hereto, there are no existing defaults by such
Company or any of its subsidiaries thereunder or, to the knowledge of such
Company, by any other party thereto, which defaults, individually or in the
aggregate, would have a Material Adverse Effect; and no event of default has
occurred, and no event, condition or occurrence exists, that (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a default by such Company or any of its subsidiaries thereunder
which default would, individually or in the aggregate, have a Material Adverse
Effect.
(b) Except as set forth in the such Company's SEC Reports (including the
exhibits thereto) filed prior to the date of this Agreement and except for this
Agreement, as of the date of this Agreement neither such Company nor any of its
subsidiaries is a party to any oral or written (i) consulting agreement not
terminable on 60 days or less notice involving the payment of more than $50,000
per annum, in the case of any such agreement with an individual, (ii) joint
venture agreement, (iii) noncompetition or similar agreements that restricts
such Company or its subsidiaries from engaging in a line of business, (iv)
agreement with any executive officer or other employee of such Company or any
subsidiary the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving such Company
of the nature contemplated by this Agreement and which provides for the payment
of in excess of $10,000, (v) agreement with respect to any executive officer of
such Company or any subsidiary providing any term of employment beyond one year
or compensation guaranty in excess of $75,000 per annum, or (vi) agreement or
plan, including any stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
4.10 Employee Benefit Plans.
(a) Such Company has previously delivered to the other Companies a true and
complete list of each written or formal employee benefit plan (including,
without limitation, any "employee benefit plan" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
policy or agreement that is maintained (all of the foregoing, the "Benefit
Plans"), or is or was contributed to by such Company or pursuant to which such
Company or any trade or business, whether or not incorporated (an "ERISA
Affiliate"), which together with such Company would be deemed a "single
employer" within the meaning of Section 4001 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), is still potentially liable for
payments, benefits or claims. A copy of each Benefit Plan as currently in effect
and,
(8)
<PAGE> 9
if applicable, the most recent Annual Report, Actuarial Report or Valuation,
Summary Plan Description, Trust Agreement and a Determination Letter issued by
the IRS for each Benefit Plan have heretofore been delivered to the other
Companies. No Benefit Plan was or is subject to Title IV of ERISA or Section 412
of the Code (including any "multiemployer plan," as defined in Section 3(37) of
ERISA).
(b) Each of the Benefit Plans that are subject to ERISA is in substantial
compliance with ERISA; each of the Benefit Plans intended to be "qualified"
within the meaning of Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code") is so qualified; and no event has occurred, and to such
Company's knowledge, there exists no condition or set of circumstances, in
connection with which such Company or any ERISA Affiliate is or could be subject
to liability (except liability for benefit claims and funding obligations
payable in the ordinary course) under ERISA, the Code, or any other applicable
law with respect to any Benefit Plan.
(c) All contributions or other amounts payable by such Company or its
subsidiaries through September 30, 1993 with respect to each Benefit Plan in
respect of current or prior plan years have been either paid or accrued on the
most recent financial statements of such Company made available to the other
Companies. Any contributions or other amounts payable by such Company or its
subsidiaries for periods between September 30, 1993 and the Effective Time with
respect to each Benefit Plan in respect of current or prior plan years have been
or will be either paid or accrued in the normal course of business on the books
and records of such Company at or prior to the Effective Time. There are no
pending, or, to the best knowledge of such Company, threatened or anticipated
claims (other than routine claims for benefits) by or on behalf of or against
any of the Benefit Plans or any trusts or other funding vehicles related
thereto.
(d) No Benefit Plan provides benefits, including without limitation death
or medical benefits (whether or not insured), with respect to current or former
employees for periods extending beyond their retirement or other termination of
service (other than (i) coverage mandated by Part 6 of Subtitle B of Title I of
ERISA, Section 4980B of the Code or any comparable state law, (ii) death
benefits or retirement benefits under any "employee pension plan," as that term
is defined in Section 3(2) of ERISA, (iii) deferred compensation benefits
accrued as liabilities on the books of such Company or the ERISA Affiliates, or
(iv) benefits the full cost of which is borne by the current or former employee
or his or her beneficiary).
4.11 Taxes. For the purposes of this section, the term "tax" shall
include all taxes, charges, withholdings, fees, levies, penalties, additions,
interest or other assessments imposed by any United States federal, state or
local authority or any other taxing authority on such Company or any of its Tax
Affiliates as to their respective income, profit, franchise, gross receipts,
payroll, sales, employment, worker's compensation, use, property, withholding,
excise, occupancy, environmental, and other taxes, duties or assessments of any
nature, whatsoever. Such Company has filed or caused to be filed timely all
material federal, state, local and foreign tax returns required to be filed by
each of its and any member of its consolidated, combined, unitary or similar
group (each such member a "Tax Affiliate"). Such returns, reports and other
information are accurate and complete in all material respects. Such Company has
paid or caused to be paid or has made adequate provision or set up an adequate
accrual or reserve for the payment of, all taxes shown to be due in respect of
the periods for which returns are due, and has established (or will establish at
least quarterly) an adequate accrual or reserve for the payment of all taxes
payable in respect of the period subsequent to the last of said periods required
to be so accrued or reserved. Neither such Company nor any of its Tax Affiliates
has any material liability for taxes in excess of the amount so paid or accruals
or reserves so established. Neither such Company nor any of its Tax Affiliates
is delinquent in the payment of any tax in excess of the amount reserved or
provided therefor, and no deficiencies for any tax, assessment or governmental
charge in excess of the amount reserved or provided therefor have been
threatened, claimed, proposed or assessed. No waiver or extension of time to
assess any taxes has been given or requested. Such Company's federal and state
income tax returns have never been audited by the Internal Revenue Service or
comparable state agencies.
4.12 Compliance With Applicable Law. Except as disclosed in the SEC
Reports filed prior to the date of this Agreement, such Company and each of its
subsidiaries holds all licenses, franchises, permits, variances, exemptions,
orders, approvals and authorizations necessary for the lawful conduct of its
business under and pursuant to, and the business of each of such Company and its
subsidiaries is not being conducted in violation
(9)
<PAGE> 10
of, any provision of any federal, state, local or foreign statute, law,
ordinance, rule, regulation, judgment, decree, order, concession, grant,
franchise, permit or license or other governmental authorization or approval
applicable to such Company or any of its subsidiaries, except to the extent that
the failure to hold any such licenses, franchises, permits or authorizations, or
any such violation, would not, individually or in the aggregate, have a Material
Adverse Effect.
4.13 Subsidiaries. Exhibit 22.1 to the most recent Form 10-K included in
the SEC Reports of CHS, HII, MI and T2 lists all the subsidiaries of such
Company as of the date of this Agreement and indicates for each such corporate
subsidiary as of such date the jurisdiction of incorporation or organization.
All of the outstanding shares of capital stock or other equity interests of each
of the subsidiaries are (i) held by such Company or one of such whollyowned
subsidiaries, (ii) fully paid and nonassessable, and (iii) owned by such Company
or one of such wholly-owned subsidiaries free and clear of any claim, lien or
encumbrance.
4.14 Labor and Employment Matters. (a) Such Company and its subsidiaries
are and have been in compliance in all material respects with all applicable
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours, including, without limitation, the Immigration
Reform and Control Act ("IRCA"), the Worker Adjustment and Retraining
Notification Act ("WARN"), and such laws respecting employment discrimination,
equal opportunity, affirmative action, worker's compensation, occupational
safety and health requirements and unemployment insurance and related matters,
and are not engaged in and have not engaged in any unfair labor practice; (b) to
the knowledge of such Company, no investigation or review by or before any
governmental entity concerning any violations of any such applicable laws is
pending nor, to the knowledge of such Company is any such investigation
threatened or has any such investigation occurred during the last three years,
and no governmental entity has provided any notice to such Company or any of its
subsidiaries or otherwise asserted an intention to conduct any such
investigation; (c) there is no labor strike, dispute, slowdown or stoppage
actually pending or threatened against such Company or any of its subsidiaries;
(d) no union representation question or union organizational activity exists
respecting the employees of such Company or any of its subsidiaries; (e) no
collective bargaining agreement exists which is binding on such Company or any
of its subsidiaries; (f) neither such Company nor any of its subsidiaries has
experienced any material work stoppage or other material labor difficulty; and
(g) in the event of termination of the employment of any of the current
officers, directors, employees or agents of such Company or any of its
subsidiaries, neither such Company, any of its subsidiaries, any other Company,
the Surviving Corporation, nor Newco nor any other subsidiaries of such Company,
will pursuant to any agreement or by reason of anything done prior to the
Effective Time by such Company or any of its subsidiaries be liable to any of
said officers, directors, employees or agents for so-called "severance pay" or
any other similar payments or benefits, including, without limitation,
post-employment healthcare (other than pursuant to COBRA) or insurance benefits.
4.15 Insurance. As of the date hereof, such Company and each of its
subsidiaries are insured by insurers reasonably believed by such Company to be
of recognized financial responsibility against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged. All
material policies of insurance and fidelity or surety bonds insuring such
Company or any of its subsidiaries or their respective businesses, assets,
employees, officers and directors are in full force and effect. As of the date
hereof, there are no material claims by such Company or any of its subsidiaries
under any such policy or instrument as to which any insurance company is denying
liability or defending under a reservation of rights clause.
4.16 Contracts with Physicians, Hospitals, HMOs and Third Party
Providers. Such Company has made available to representatives of the other
Companies copies (or in the case where no written documentation exists, a
summary) of all outstanding contracts, partnerships, joint ventures and other
arrangements or understandings (written or oral) between (a) such Company or any
of its subsidiaries and (b) any physician, hospital, HMO, other managed care
organization, or other third-party provider relating to the provision of medical
or consulting services, treatments, patient referrals or similar activities.
4.17 Section 203 of the DGCL Not Applicable. The provisions of Section
203 of the DGCL will not, prior to the termination of this Agreement, assuming
the accuracy of the representations contained in
(10)
<PAGE> 11
Section 4.18 (without giving effect to the knowledge qualification thereof),
apply to this Agreement, the Mergers or the transactions contemplated hereby and
thereby.
4.18 Ownership of Shares. As of the date hereof, neither such Company
nor, to its knowledge, any of its affiliates or associates (as such terms are
defined under the Exchange Act) (i) beneficially owns, directly or indirectly,
or (ii) are parties to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of, in each case, Shares of
another Company which in the aggregate represent 10% or more of the outstanding
Shares of any other Company (other than Newco).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco represents and warrants to CHS, HII, MI and T2 with respect to itself
and with respect to CHS Sub, HII Sub, MI Sub and T2 Sub, as follows:
5.1 Organization. Such Company is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the corporate power to carry on its business as it is now
being conducted or presently proposed to be conducted. Such Company has
delivered to the other Companies complete and correct copies of its Certificate
or Articles of Incorporation and Bylaws or other organizational documents. Such
Company has not engaged in any business since the date of its incorporation
other than as contemplated hereby.
5.2 Capitalization. The authorized capital stock of Newco consists of
75,000,000 shares of common stock, par value $0.001 per share, and 10,000,000
shares of preferred stock, par value $0.001 per share (the "Newco Preferred
Stock"). As of the date hereof, 1200 Newco Shares are issued and outstanding and
owned of record and beneficially only by CHS, HII, MI and T2 in equal
proportions. There are no shares of Newco Preferred Stock outstanding. All of
the issued and outstanding Newco Shares are validly issued, fully paid,
nonassessable and free of preemptive rights or similar rights created by
statute, the Certificate of Incorporation or Bylaws of Newco or any agreement to
which Newco or any of its subsidiaries is a party or by which it is bound. There
are not now, and at the Effective Time there will not be, any other shares of
capital stock of Newco issued or outstanding or any options, warrants,
subscriptions, calls, rights, convertible securities or other agreements or
commitments obligating Newco to issue, transfer or sell any shares of its
capital stock except pursuant to this Agreement. Except as provided in this
Agreement, after the Effective Time, Newco will have no obligation to issue,
transfer or sell any shares of its capital stock pursuant to any employee
benefit plan or otherwise. Other than as contemplated by Section 7.8,
immediately after the Effective Time, there will be no option, warrant, call,
right or agreement obligating Newco or any subsidiary to issue, deliver or sell,
or cause to be issued, delivered or sold, any Newco Shares or obligating Newco
or any subsidiary to grant, extend, or enter into any such option, warrant,
call, right or agreement. All of the issued and outstanding capital stock of CHS
Sub, HII Sub, MI Sub and T2 Sub is owned beneficially and of record by Newco
and, in each case, consists solely of 1,000 shares of common stock, $1 par value
per share.
5.3 Authority Relative to this Agreement. Such Company has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement by such Company and the
consummation by such Company of the transactions contemplated hereby have been
duly authorized by such Company's Board of Directors and by Newco, as sole
stockholder of each of CHS Sub, HII Sub, MI Sub and T2 Sub and no other
corporate proceedings on the part of such Company are necessary to approve this
Agreement or the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by such Company and constitutes a valid and
binding agreement of such Company, enforceable against such Company in
accordance with its terms.
(11)
<PAGE> 12
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGERS
6.1 Conduct of Business Pending the Mergers. Each Company agrees on its
own behalf and on behalf of its subsidiaries that, during the period from the
date of this Agreement and continuing until the Effective Time:
(a) the respective businesses of each Company and its subsidiaries
shall be conducted only in the ordinary and usual course of business and
consistent with past practices;
(b) such Company and its subsidiaries shall not (i) sell or pledge or
agree to sell or pledge any stock owned by it in any of its subsidiaries;
(ii) amend its Certificate or Articles of Incorporation, as applicable, or
Bylaws; or (iii) split, combine or reclassify any shares of its outstanding
capital stock or declare, set aside or pay any dividend or other
distribution payable in cash, stock or property in respect of its capital
stock, or directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock or other securities or shares of the capital
stock or other securities of any of its subsidiaries;
(c) such Company and its subsidiaries shall not (i) authorize for
issuance, issue, sell, pledge, dispose of, encumber, deliver or agree or
commit to issue, sell, pledge, or deliver any additional shares of, or
rights of any kind to acquire any shares of, its capital stock of any class
or exchangeable into shares of stock of any class or any Voting Debt
(whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise), except that
the Company may issue Shares required to be issued upon exercise of
existing stock options, warrants or similar plans, or under other
contractual commitments previously made, which options, warrants, plans or
commitments have been disclosed in writing to the other Companies pursuant
hereto; (ii) acquire, dispose of, transfer, lease, license, mortgage,
pledge or encumber any fixed or other substantial assets other than in the
ordinary course of business and consistent with past practices; (iii)
incur, assume or prepay any material indebtedness, liability or obligation
or any other material liabilities or issue any debt securities other than
in the ordinary course of business and consistent with past practices; (iv)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other person (other than a subsidiary) in a material amount other than in
the ordinary course of business and consistent with past practices; (v)
make any material loans, advances or capital contributions to, or
investments in, any other person, other than to subsidiaries, other than in
the ordinary course of business and consistent with past practices; (vi)
fail to maintain adequate insurance consistent with past practices for
their businesses and properties; or (vii) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;
provided, however, that nothing in this subsection (c) to Section 6.1 shall
prevent T2 from settling (x) any government investigations previously
disclosed in writing to the other Companies hereto ("Existing T2
Governmental Investigations") or (y) the existing T2 stockholder securities
class action litigation;
(d) such Company shall use its best efforts to preserve intact the
business organization of Company and its subsidiaries, to keep available
the services of its and their present officers and key employees, and to
preserve the goodwill of those having business relationships with it and
their respective subsidiaries; provided, however, that no breach of this
covenant shall be deemed to have occurred if a failure to comply with this
Section 6.1(d) occurs as a result of any matter arising out of the
transactions contemplated by this Agreement or any acquisition proposals
made to such Company or the public announcement thereof;
(e) such Company and its subsidiaries shall not (i) knowingly take or
allow to be taken any action which would jeopardize the treatment of the
transactions contemplated hereby as a pooling of interests for accounting
purposes or (ii) knowingly take or allow to be taken or fail to take any
action which act or omission would jeopardize qualification of any of the
Mergers as a "reorganization" within the meaning of Section 368(a) of the
Code; and
(f) such Company and its subsidiaries shall use all reasonable efforts
to prevent any representation or warranty of such Company herein from
becoming untrue or incorrect in any material respect.
(12)
<PAGE> 13
6.2 Conduct of Business of Newco, CHS Sub, HII Sub, MI Sub and T2
Sub. During the period from the date of this Agreement to the Effective Time,
Newco, CHS Sub, HII Sub, MI Sub and T2 Sub shall not engage in any activities of
any nature except as provided in or contemplated by this Agreement.
6.3 Compensation Plans. During the period from the date of this Agreement
and continuing until the Effective Time, each Company agrees as to itself and
its subsidiaries that, other than the agreements referred to in Section 2.7, it
will not, without the prior written consent of the other Companies (except as
required by applicable law or pursuant to existing contractual arrangements or
other plans or commitments as otherwise disclosed to the other Companies in
writing pursuant hereto) (a) enter into, adopt or amend any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred compensation,
employment, severance or other employee benefit plan, agreement, trust, plan,
fund or other arrangement between such Company and one or more of its officers,
directors or employees, in each case so as to materially increase the benefits
thereunder (collectively, "Compensation Plans"), (b) grant or become obligated
to grant any increase in the compensation or fringe benefits of directors,
officers or employees (including any such increase pursuant to any Compensation
Plan) or any increase in the compensation payable or to become payable to any
officer, except, with respect to employees other than officers, for increases in
compensation in the ordinary course of business consistent with past practice,
or enter into any contract, commitment or arrangement to do any of the
foregoing, except for normal increases and non-stock benefit changes in the
ordinary course of business consistent with past practice, (c) institute any new
employee benefit, welfare program or Compensation Plan, (d) make any change in
any Compensation Plan or other employee welfare or benefit arrangement or enter
into any employment or similar agreement or arrangement with any employee, or
(e) enter into or renew any contract, agreement, commitment or arrangement
providing for the payment to any director, officer or employee of such Company
of compensation or benefits contingent, or the terms of which are materially
altered in favor of such individual, upon the occurrence of any of the
transactions contemplated by this Agreement.
6.4 Current Information. From the date of this Agreement to the Effective
Time, each Company will cause one or more of its designated representatives to
confer on a regular and frequent basis (not less than semi-monthly) with
representatives of the other Companies and to report the general status of its
ongoing operations and to deliver to the other Companies (not less than
quarterly) unaudited consolidated balance sheets and related consolidated
statements of income, stockholders equity and cash flows for the period since
the last such report. Each Company will promptly notify the others of any
material change in the normal course of business or in its or its subsidiaries'
properties.
6.5 Letters of Company's Accountants. Each of CHS, HII, MI and T2 shall
use all reasonable efforts to cause to be delivered to itself, to Newco and to
the other Companies a so-called "comfort" letter of such Company's independent
auditors with respect to the financial statements and other financial
information of such Company included in the Registration Statement, each such
letter dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to each of CHS, HII,
MI, T2 and Newco, and in a form reasonably approved by the recipients prior to
delivery thereof.
6.6 Legal Conditions to Merger. Each Company shall, and shall cause its
subsidiaries to, use all reasonable efforts (a) to take, or cause to be taken,
all actions necessary to comply promptly with all legal requirements which may
be imposed on such party or its subsidiaries with respect to the Merger and to
consummate the transactions contemplated by this Agreement, subject to the
appropriate vote or consent of stockholders and (b) to obtain (and to cooperate
with the other party to obtain) any consent, authorization, order or approval
of, or any exemption by, any governmental entity and or any other public or
private third party which is required to be obtained or made by such party or
any of its subsidiaries in connection with the Merger and the transactions
contemplated by this Agreement; provided, however, that a party shall not be
obligated to take any action pursuant to the foregoing if the taking of such
action or such compliance or the obtaining of such consent, authorization,
order, approval or exemption would, in such party's reasonable opinion, (i) be
materially burdensome to such party and its subsidiaries taken as a whole or
impact in such a materially adverse manner the economic or business benefits of
the transactions contemplated by this Agreement as to render inadvisable the
consummation of the Merger or (ii) result in the imposition of a condition or
restriction on such party or on the Surviving Corporation of the type referred
to in Section 8.1(e).
(13)
<PAGE> 14
Each Company will promptly cooperate with and furnish information to the other
in connection with any such burden suffered by, or requirement imposed upon, any
of them or any of their subsidiaries in connection with the foregoing.
6.7 Affiliates. Prior to the mailing to the stockholders of each Company
of the Proxy Statement, each Company shall deliver to the other a letter
identifying all persons who are, at the time this Agreement is submitted for
approval to the stockholders of such Company, "affiliates" of such Company, for
purposes of Rule 145 under the Securities Act. Each Company shall use all
reasonable efforts to cause each person named in the letter delivered by it to
deliver to the other Companies at least 10 days prior to the Closing Date a
written "affiliates" agreement, in customary form, restricting the disposition
by such person of the Newco Shares to be received by such person in the Mergers,
as contemplated by Rule 145 under the Securities Act and as required to qualify
the Mergers for pooling of interest accounting treatment and tax-free
reorganization treatment under the Code. Certificates surrendered for exchange
by any person constituting an "affiliate" of a Company within the meaning of
Rule 145 under the Securities Act shall not be exchanged by the Exchange Agent
for Newco Shares pursuant to Section 3.2 until Newco has received such agreement
described in the preceding sentence. Such affiliates agreements shall also
provide for certain demand registration or piggy back registration rights in
favor of such affiliates as described on Exhibit 6.7 hereto.
6.8 Advice of Changes; Government Filings. Each party shall confer on a
regular and frequent basis with the other, report on operational matters and
promptly advise the other orally and in writing of any change or event having,
or which, insofar as can reasonably be foreseen, could have, a Material Adverse
Effect on such party or which would cause or constitute a material breach of any
of the representations, warranties or covenants of such party contained herein.
Each Company shall file all reports required by regulation to be filed by it
with the SEC between the date of this Agreement and the Effective Time and shall
deliver to the other party copies of all such reports promptly after the same
are filed. Except where prohibited by applicable statutes and regulations, each
party shall promptly provide the other (or its counsel) with copies of all other
filings made by such party with any state or federal government entity in
connection with this Agreement or the transactions contemplated hereby other
than confidential communications made in connection with the Existing T2
Governmental Investigations.
6.9 Accounting Methods. No Company shall change its methods of accounting
in effect at December 31, 1992, except as required by changes in generally
accepted accounting principles as concurred in by such party's independent
auditors or except as required under Section 7.13 hereof. No Company will change
its fiscal year.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Access and Information.
(a) Each Company and their respective subsidiaries shall each afford to the
other and to the other's financial advisors, legal counsel, accountants,
consultants and other representatives access during normal business hours
throughout the period from the date hereof to the Effective Time to all of its
books, records, properties, facilities, personnel commitments and records
(including but not limited to Tax Returns) and, during such period, each shall
furnish promptly to the other all information concerning its business,
properties and personnel as such other party may reasonably request. No
investigation pursuant to this Section 7.1 shall affect any representations or
warranties made herein or the conditions to the obligations of the respective
parties to consummate the Mergers.
(b) All information furnished by any Company to another Company pursuant
hereto shall be treated as the sole property of the party furnishing the
information until consummation of the Merger contemplated hereby. The parties
will hold any such information that is nonpublic in confidence to the extent
required by, and in accordance with the Confidentiality Agreement dated as of
November 15, 1993 among CHS, HII, MI, and the Confidentiality Agreement dated as
of January 19, 1994 among CHS, HII, MI and T2 (collectively,
(14)
<PAGE> 15
the "Confidentiality Agreements") and such Confidentiality Agreements shall
survive the termination of this Agreement.
7.2 Acquisition Proposals. Each Company and their respective subsidiaries
will not, and will use their best efforts to cause their respective directors,
officers, employees, financial advisors, legal counsel, accountants and other
agents and representatives (for purposes of this Section 7.2 only, being
referred to as "affiliates") not to, initiate, solicit or encourage, directly or
indirectly, or take any other action to facilitate any inquiries or the making
of any proposal with respect to, or except to the extent required in the
exercise of the fiduciary duties of its Board of Directors under applicable law
as advised by independent counsel, engage or participate in negotiations
concerning, provide any nonpublic information or data to or have any discussions
with any person other than a party hereto or their affiliates relating to, any
acquisition, tender offer (including a self-tender offer), exchange offer,
merger, consolidation, acquisition of beneficial ownership of or the right to
vote securities representing 10% or more of the total voting power of such
entity or any of its subsidiaries, dissolution, business combination, purchase
of all or any significant portion of the assets or any division of, or any
equity interest in, such entity or any subsidiary, or similar transaction other
than the Mergers (such proposals, announcements, or transactions being referred
to as "Acquisition Proposals"). Each Company will promptly notify the others
orally and in writing if any such Acquisition Proposal (including the terms
thereof and identity of the persons making such proposals) is received and
furnish to the other parties hereto a copy of any written proposal.
7.3 Registration Statement. As promptly as practicable, the Companies
shall prepare and file with the SEC the Registration Statement with respect to
the Newco Shares to be issued in the Mergers hereunder and use their best
efforts to have the Registration Statement declared effective. The Companies
shall also use their best efforts to take any action required to be taken under
state securities or blue sky laws in connection with the issuance of the Newco
Shares pursuant hereto. Each Company shall furnish all information concerning
such Company and the holders of its capital stock and shall take such other
action as may be reasonably requested in connection with such Registration
Statement and issuance of Newco Shares.
7.4 Proxy Statements; Stockholder Approvals. CHS, HII, MI and T2 acting
through their respective Boards of Directors, shall, in accordance with
applicable law and their Certificate or Articles of Incorporation (as
applicable) and Bylaws:
(a) promptly and duly call, give notice of, convene and hold as soon
as practicable following the date upon which the Registration Statement
becomes effective a meeting of their respective stockholders for the
purpose of voting to approve and adopt this Agreement and shall use their
respective best efforts, except to the extent the Board of Directors
reasonably believe is otherwise required by its fiduciary duty, to obtain
such stockholders approval;
(b) except to the extent the Board of Directors reasonably believes is
otherwise required by its fiduciary duty, recommend approval and adoption
of this Agreement by the stockholders of such Company, and include in the
Proxy Statement such recommendations, and take all lawful action to solicit
such approvals; and
(c) as promptly as practicable, prepare and file with the SEC a
preliminary Proxy Statement and, after consultation with each other,
respond to any comments of the SEC with respect to the preliminary Proxy
Statement and cause the definitive Proxy Statement to be mailed to their
respective stockholders. Whenever any event occurs which should be set
forth in an amendment or a supplement to the Proxy Statement or any filing
required to be made with the SEC, each party will promptly inform the other
and will cooperate in filing with the SEC and/or mailing to stockholders
such amendment or supplement. The Proxy Statement, and all amendments and
supplements thereto, shall comply with applicable law and be in form and
substance reasonably satisfactory to each such Company.
7.5 Stock Exchange Listing. The Companies shall take such action as may be
necessary or desirable to timely list the Newco Shares to be issued pursuant to
the Merger on the New York Stock Exchange, if such Newco Shares are eligible for
listing thereon, or under The Nasdaq National Market if not eligible for New
York Stock Exchange listing.
(15)
<PAGE> 16
7.6 Antitrust Laws. As promptly as practicable, each Company shall make
all filings and submissions under the HSR Act as may be reasonably required to
be made in connection with this Agreement and the transactions contemplated
hereby. Subject to Section 7.1 hereof, each Company will furnish to the others
such information and assistance as the other may reasonably request in
connection with the preparation of any such filings or submissions. Subject to
Section 7.1 hereof, each Company will provide the others with copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof) between such party or any of its representatives, on the one
hand, and any governmental agency or authority or members of their respective
staffs, on the other hand, with respect to this Agreement and the transactions
contemplated hereby.
7.7 Employee Benefit Plans. It is the Companies' present intent to provide
after the Effective Time to continuing employees of each Company and their
subsidiaries employee benefit programs that in the aggregate are generally not
less favorable to such employees than those being provided to such employees on
the date of this Agreement.
7.8 Stock Options, Warrants, Debentures and other Agreements. As of the
Effective Time, any stock options, warrants, convertible securities or other
contractual commitments to purchase or issue Shares of CHS, HII, MI or T2 that
are outstanding both as of the date hereof and at the Effective Time (whether or
not contingent or otherwise requiring further shareholder approval) shall be
assumed by Newco and converted into an option, warrant, convertible security or
other contractual commitment as the case may be, to purchase or issue, on the
same terms and conditions (including, without limitation, the date and exercise
provisions) as were applicable prior to the Effective Time, the number of Newco
Shares equal to the number of Shares subject to such stock option, warrant,
convertible security or other contractual commitment multiplied by the
applicable Exchange Ratio, at an exercise price per Newco Share equal to the
former exercise price per Share under such stock option, warrant, convertible
security or other contractual commitment immediately prior to the Effective Time
(without taking into account any antidilution formula) divided by the applicable
Exchange Ratio; provided, however, that in the case of any employee stock option
to which Section 421 of the Code applies by reason of its qualification under
Section 422 of the Code, the conversion formula shall be adjusted, if necessary,
to comply with Section 424(a) of the Code. No stock option or warrant shall be
converted into an option or warrant to purchase a partial Newco Share. Except as
provided above, the converted stock options, warrants, convertible securities or
other contractual commitments shall be assumed by Newco under their same terms
and conditions, but shall not be subject to further stockholder approval. Newco
agrees that as soon as reasonably practicable after the Effective Time it will
cause to be filed one or more Registration Statements on Form S-8 under the
Securities Act, or Amendments to any existing Registration Statements on Form
S-8 covering stock options and warrants, to register the Newco Shares issuable
upon exercise of the aforesaid converted options or warrants, and at or prior to
the Effective Time, Newco shall take all corporate action necessary to reserve
for issuance a sufficient number of Newco Shares for delivery upon exercise of
the options and warrants, conversion of convertible securities or otherwise
pursuant to other contractual commitments assumed pursuant to this Section 7.8.
The consummation of the Merger shall not be treated as a termination of
employment for purposes of the option plans.
7.9 Director and Officer Indemnification. All rights to indemnification
and advancement of expenses existing in favor of the directors, officers and
agents of any Company (the "Indemnified Parties") under the provisions existing
on the date hereof of any Company's Certificate or Articles of Incorporation,
Bylaws and indemnification agreements of any Company shall survive the Effective
Time for at least six years thereafter (including any directors' and officers'
liability insurance heretofore maintained if such insurance remains available
for such period on commercially reasonable terms) and Newco agrees to indemnify
and advance expenses to the Indemnified Parties to the full extent required or
permitted by any Company under the provisions existing on the date hereof of any
Company's Certificate or Articles of Incorporation, Bylaws and indemnification
agreements of any Company.
7.10 Public Announcements. So long as this Agreement is in effect, each
Company agrees that it will obtain the approval of the other party prior to
issuing any press release and will use its best efforts to consult with the
others before otherwise making any public statement or responding to any press
inquiry with respect to this Agreement or the transactions contemplated hereby,
except as may be required by law or any
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<PAGE> 17
governmental agency if required by such agency or the rules of the National
Association of Securities Dealers, Inc.
7.11 Expenses. Subject to Section 9.3 hereof, whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby and thereby shall be paid by the party
incurring such expenses, except that if the Merger is not consummated CHS, HII,
MI and T2 shall share equally the expenses incurred in connection with printing
and mailing the Proxy Statement and the Registration Statement, the fees and
expenses of Gardner, Carton & Douglas and all filing fees with the SEC, under
state blue sky laws, with the New York Stock Exchange or The Nasdaq Stock
Market, Inc. and under the HSR Act.
7.12 Additional Agreements.
(a) Subject to the terms and conditions herein provided, including without
limitation those set forth in the proviso to Section 6.6 hereof, each of the
parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including using all
reasonable efforts to obtain all necessary waivers, consents and approvals, and
to effect all necessary registrations and filings. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and/or directors of the
Companies shall take all such necessary action.
(b) Subject to the terms and conditions herein provided, including without
limitation those set forth in the proviso to Section 6.6 hereof, each Company
will cooperate with the others and use all reasonable efforts to prepare all
necessary documentation to effect promptly all necessary filings and to obtain
all necessary permits, consents, approvals, orders and authorizations of or any
exemptions by, all third parties and governmental bodies necessary to consummate
the transactions contemplated by this Agreement.
(c) Each party will keep the other party apprised of the status of any
inquiries made of such party by the Federal Trade Commission, the Department of
Justice, the SEC, or any other governmental agency or authority or members of
their respective staffs with respect to this Agreement or the transactions
contemplated herein.
7.13 Company Accruals and Reserves. Prior to the Closing Date, each
Company shall review and, to the extent determined necessary or advisable,
consistent with generally accepted accounting principles and the accounting
rules, regulations and interpretations of the SEC and its staff, modify and
change its accrual, reserve and provision policies and practices to (a) reflect
the Surviving Corporation's plans with respect to the conduct of the Company's
business following the Merger and (b) make adequate provision (for the costs and
expenses relating thereto) so as to be applied consistently on a mutually
satisfactory basis with those of the other Companies. The parties agree to
cooperate in preparing for the implementation of the adjustments contemplated by
this Section 7.13. Notwithstanding the foregoing, (i) no Company shall be
obligated to take in any respect any such action pursuant to this Section 7.13
(other than pursuant to the preceding sentence) unless and until the other
Companies acknowledges that all conditions to their obligations to consummate
the Merger have been satisfied and (ii) no adjustments made solely as a result
of this Section 7.13 shall change the Exchange Ratio.
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGERS
8.1 Conditions to All Companies' Obligation to Effect the Mergers. The
respective obligations of all Companies to effect the transactions contemplated
herein shall be subject to the satisfaction at or prior to the Effective Time of
the following conditions, any one of which may be waived by all, but not less
than all, Companies:
(a) Any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
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(b) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act.
(c) This Agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite vote of the stockholders of each
Company in accordance with applicable law.
(d) No preliminary or permanent injunction or other order by any
federal, state or foreign court of competent jurisdiction which prohibits
the consummation of any Merger shall have been issued and remain in effect.
No statute, rule, regulation, executive order, stay, decree, or judgment
shall have been enacted, entered, issued, promulgated or enforced by any
court or governmental authority which prohibits or restricts the
consummation of any Merger. Other than the filing of Articles of Merger
with the Department of State for the State of Florida and Certificates of
Merger with the Secretary of State of Delaware, all authorizations,
consents, orders or approvals of, or declarations or filings with, and all
expirations of waiting periods imposed by, any governmental entity (all of
the foregoing, "Consents") which are necessary for the consummation of the
Merger, other than Consents the failure to obtain which would have no
material adverse effect on the consummation of the Mergers or on the
Surviving Corporations and their subsidiaries, taken as a whole, shall have
been filed, occurred or been obtained (all such permits, approvals, filings
and consents and the lapse of all such waiting periods being referred to as
the "Requisite Regulatory Approvals") and all such Requisite Regulatory
Approvals shall be in full force and effect. All state securities or blue
sky permits and other authorizations necessary to issue the Newco Shares in
exchange for the Shares of CHS, HII, MI and T2 and to consummate the Merger
shall have been received.
(e) There shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to any
Merger, by any federal or state governmental entity which, in connection
with the grant of a Requisite Regulatory Approval, imposes any condition or
restriction upon any Surviving Corporation or its subsidiaries (or, in the
case of any disposition of assets required in connection with such
Requisite Regulatory Approval, upon any Company or its subsidiaries),
including, without limitation, requirements relating to the disposition of
assets, which in any such case would so materially adversely impact the
economic or business benefits of the transactions contemplated by this
Agreement as to render inadvisable the consummation of the Merger.
(f) The aggregate amount of cash required to be paid on account of all
Excluded Shares and with respect to any cash payments for fractional Newco
Shares pursuant to Section 3.4, shall not exceed ten percent (10%) of the
value (determined in accordance with APB Opinion No. 16) of the Newco
Shares issuable in exchange for Shares of CHS, HII, MI and T2 at the
Effective Time.
(g) Each Company shall have received a letter, dated the Closing Date
of its regularly retained independent auditors, and in form and substance
reasonably satisfactory to it to the effect that the Merger qualifies for
"pooling of interests" treatment for financial reporting purposes and that
such accounting treatment is in accordance with generally accepted
accounting principles.
(h) Newco (or, as applicable, the respective Companies) shall have
offered to enter into the agreements referred to in Section 2.7 hereof with
the parties referred to in Exhibit 2.7.
8.2 Conditions to Obligation of Each Company to Effect the Merger. The
obligation of each Company to effect the Merger shall be further subject to the
satisfaction at or prior to the Effective Time of the following additional
conditions, which may be waived by such Company:
(a) Each of the other Companies shall have performed in all material
respects its obligations under this Agreement required to be performed by
it at or prior to the Effective Time and the representations and warranties
of the other Companies contained in this Agreement shall be true and
correct in all material respects at and as of the Effective Time as if made
at and as of such time, except as contemplated by this Agreement, and each
Company shall have received a certificate of the Chairman of the Board, the
President or an Executive Vice President of each of the other Companies as
to the satisfaction of this condition.
(18)
<PAGE> 19
(b) Each Company shall have received an opinion of its outside counsel
or, in the case of HII, its outside auditors, dated as of the Effective
Time, substantially to the effect that, on the basis of facts,
representations, and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the
Merger applicable to such Company will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code and that such Company will be a party to the reorganization within the
meaning of Section 368(b) of the Code. In addition, each Company shall have
received the opinion of its, and the other Companies' respective, outside
counsel dated the Closing Date and addressed to itself and all other
Companies covering the additional matters set forth in Exhibit 8.2(b).
(c) Each Company shall have obtained the consent or approval of each
person whose consent or approval shall be required in connection with the
transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument,
except those for which failure to obtain such consents and approvals would
not, individually or in the aggregate, have a material adverse effect on
the Surviving Corporation and its subsidiaries taken as a whole or upon the
consummation of the transactions contemplated hereby.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated and the Mergers
contemplated hereby abandoned at any time prior to the Effective Time, whether
before or after approval by the stockholders of the Companies:
(a) By mutual written consent of all of the Companies.
(b) By any Company if the Mergers shall not have been consummated on
or before June 30, 1994.
(c) By any Company if there shall have been any material breach of a
material obligation of another Company hereunder and, if such breach is
curable, such default shall have not been remedied within 10 days after
receipt by the other Company, as the case may be, of notice in writing from
such Company specifying such breach and requesting that it be remedied;
provided, that such 10-day period shall be extended for so long as the
other Company shall be making diligent attempts to cure such default.
(d) By any Company if the Board of Directors of any other Company
shall have withdrawn or modified in a manner adverse to the others its
approval or recommendation of this Agreement or the Mergers, or shall have
resolved to do the same; provided, however, that a Company may not
terminate this Agreement pursuant to this clause if, as a result of a
Company's receipt of an Acquisition Proposal from a third party, a Company
withdraws or modifies its approval or recommendation of this Agreement or
the Mergers but thereafter (and prior to termination by another Company)
the recipient Company publicly reconfirms its recommendation of the
transactions contemplated hereby and notifies the other Companies of such
reconfirmation prior to termination of this Agreement by another Company
pursuant to this clause.
(e) By any Company if any court of competent jurisdiction in the
United States or other United States governmental body shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting any Merger and such order, decree, ruling or any
other action shall have become final and non-appealable.
(f) By any Company upon written notice to the others if any approval
of the stockholders of a Company required for the consummation of the
Merger submitted for their approval shall not have been obtained by reason
of the failure to obtain the required vote at a duly held meeting of
stockholders or at any adjournment thereof.
(g) By any Company, if it shall receive any Acquisition Proposal after
the date hereof from a third party or parties and the Board of Directors of
such Company shall have determined in good faith that in
(19)
<PAGE> 20
the exercise of its fiduciary duties to the stockholders of such Company
that such Company must pursue such Acquisition Proposal; provided that such
Company may only terminate this Agreement pursuant to this clause if it
simultaneously with such termination delivers to the other Companies the
termination fees provided for in Section 9.3(a) and (b) hereof.
9.2 Effect of Termination.
(a) In the event of termination of this Agreement as provided above, this
Agreement shall forthwith become of no further effect and, except for a
termination resulting from a breach by a party of this Agreement, there shall be
no liability or obligation on the part of any Company or their respective
officers or directors (except as set forth in Section 7.1(b) hereof and except
for Sections 7.11, 9.3, 10.2 and 10.6 hereof which shall survive the
termination). Nothing contained in this Section 9.2 shall relieve any party from
liability for willful breach of this Agreement that results in termination of
this Agreement. Upon request therefor, each party will redeliver all documents,
work papers and other material of any other party relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the party furnishing same.
(b) Concurrently with the execution of this Agreement, Newco, CHS, CHS Sub,
HII, HII Sub, MI and MI Sub have terminated the Prior Merger Agreement, subject
to reinstatement only as provided below. In the event that prior to the mailing
of the Proxy Statement to stockholders, this Agreement is terminated under
Section 9.1(d) or (g) above as a result of (i) action by T2's or T2 Sub's Board
of Directors to withdraw, modify in an adverse manner its approval or
recommendation of this Agreement or the Mergers or (ii) a termination by T2
pursuant to Section 9.1(g), then the Prior Merger Agreement providing for the
mergers of CHS Sub into CHS, HII Sub into HII and MI Sub into MI shall be
reinstated and such parties shall be obligated to proceed with the mergers
called for thereunder subject to the terms and conditions of the Prior Merger
Agreement; provided that, upon the mailing of the Proxy Statement to
stockholders pursuant to Section 7.4(c) hereof, the reinstatement provisions of
the Prior Merger Agreement shall be terminated as provided therein.
9.3 Certain Termination Fees. If any of CHS, HII, MI or T2 (an "Operating
Company") either (1) violates its obligations set forth in Section 7.2 hereof in
any material respect or otherwise breaches in any material respect any of its
other material obligations hereunder and this Agreement is thereafter terminated
pursuant to Section 9.1(c) or (2) prior to termination of this Agreement
receives any Acquisition Proposal, and this Agreement is thereafter terminated
pursuant to Sections 9.1(d) or 9.1(g) as a result of receipt of such Acquisition
Proposal, then the Operating Company which has so violated or breached its
obligations as aforesaid or which was in receipt of such Acquisition Proposal
(the "Payor Company") shall pay to each of the other Operating Companies the
following fees:
(a) the reasonable fees and expenses of each such other Operating
Company incurred by such other Operating Company prior to such termination
(but not less than $250,000);
(b) if T2 is the Payor Company, the sum of $1.5 million shall be
payable by T2 to each of CHS, HII and MI; if CHS is the Payor Company, the
sum of $1.5 million shall be payable by CHS to each of HII, MI and T2; if
HII is the Payor Company, the sum of $1.5 million shall be payable by HII
to each of CHS, MI and T2; and if MI is the Payor Company, the sum of $750
thousand shall be payable by MI to each of CHS, HII and T2; provided that
such amounts payable under this clause (b) shall be reduced by any amounts
paid by such Payor Company under clause (a) above; and
(c) if T2 is the Payor Company, the additional sum of $3.5 million to
each of CHS, HII and MI, payable only if a T2 Acquisition Transaction is
consummated within twelve months of a termination of this Agreement as to
which a termination fee by T2 is payable under clause (a) and (b) above.
For the purpose of this Section 9.3, a "T2 Acquisition Transaction" shall
mean any transaction involving T2 (other than the Mergers) of the type
described in the definition of Acquisition Proposal in Section 7.2 hereof.
9.4 Amendment. This Agreement may be amended by action taken at any time
before or after approval hereof by the stockholders of the Companies, but, after
any such approval, no amendment shall be
(20)
<PAGE> 21
made which alters the Exchange Ratio or which in any way materially adversely
affects the rights of such stockholders, without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
9.5 Waiver. At any time prior to the Effective Time, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Such waiver shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
ARTICLE X
GENERAL PROVISIONS
10.1 Survival of Representations, Warranties and Agreements. No
representations, warranties or agreements contained herein shall survive beyond
the Effective Time except that the agreements contained in Sections 2.3, 3.1,
3.2, 3.3, 3.4, 3.5, 7.8, 7.9, 7.10, 7.12(a), 9.3, 10.1, 10.6 and 10.7 hereof,
and all other agreements of Newco, shall survive beyond the Effective Time.
10.2 Brokers. HII represents and warrants to the other Companies that,
except for its financial advisors, Hambrecht & Quist Incorporated, no broker,
finder or financial advisor is entitled to any brokerage, finder's or other fee
or commission in connection with the Mergers or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of HII and that a
true and complete copy of the engagement letter between HII and Hambrecht &
Quist Incorporated has previously been delivered to the other Companies. CHS
represents and warrants to the other Companies that, except for its financial
advisors, Smith Barney Inc., no broker, finder or financial advisor is entitled
to any brokerage, finder's or other fee or commission in connection with the
Mergers or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of CHS and that a true and complete copy of
the engagement letter among CHS and Smith Barney has previously been delivered
to Companies. MI represents and warrants to the other Companies that, except for
its financial advisers, Piper Jaffray Inc., no broker, finder or financial
advisor is entitled to any brokerage, finder's or other fee or commission in
connection with the Mergers or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of MI, and that a true and complete
copy of the engagement letter among MI and Piper Jaffray Inc. has previously
been delivered to the other Companies. T2 represents and warrants to the other
Companies that, except for its financial advisors, Kidder Peabody & Co.
Incorporated and except pursuant to its Engagement Letter dated November 29,
1993, as amended by letter dated January 28, 1994, with James M. Sweeney (as
amended, the "Engagement Letter"), no broker, finder or financial advisor is
entitled to any brokerage, finder's or other fee or commission in connection
with the Mergers or the transactions contemplated by this Agreement based upon
the arrangements made by or on behalf of T2, and that true and complete copies
of the engagement letter between T2 and Kidder Peabody & Co. Incorporated and
the Engagement Letter with Mr. Sweeney have previously been delivered to the
other Companies.
10.3 Notices. All notices, claims, demands and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or by telex or telecopy or mailed by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to CHS, to:
Curaflex Health Services, Inc.
3281 Guasti Road, Suite 800
Ontario, California 91761
Attention: Kevin M. Higgins, Esq.
Vice President and General Counsel
(21)
<PAGE> 22
with a copy to:
Morrison & Foerster
19900 MacArthur Boulevard, Suite 1200
Irvine, California 92715
Attention: Robert M. Mattson, Jr., Esq.
(b) If to HII, to:
HealthInfusion, Inc.
5200 Blue Lagoon Drive, Suite 200
Miami, Florida 33126
Attention: Miles E. Gilman, President
with a copy to:
Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida 33131
Attention: Bruce E. Macdonough, Esq.
(c) If to MI, to:
Medisys, Inc.
4550 West 77th Street
Edina, Minnesota 55435
Attention: William J. Brummond, President
with a copy to:
Oppenheimer Wolff & Donnelly
3400 Plaza VII
45 South Seventh Street
Minneapolis, Minnesota 55402
Attention: Mark A. Kimball, Esq.
(d) If to T2, to:
T2 Medical, Inc.
1121 Alderman Drive
Alpharetta, Georgia 30202
Attention: Tommy H. Carter, President
with a copy to:
Brobeck Phleger and Harrison
4675 MacArthur Court
Suite 1000
Newport Beach, California 92660-1836
Attention: Richard A. Fink, Esq.
(e) If to Newco, CHS Sub, HII Sub, MI Sub or T2 Sub to:
Morrison & Foerster
19900 MacArthur Boulevard, Suite 1200
Irvine, California 92715
Attention: Robert M. Mattson, Jr.
and with a copy to all other Companies as aforesaid.
10.4 Descriptive 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.
10.5 Entire Agreement; Assignment. This Agreement (including the Exhibits,
and other documents and instruments referred to herein) and the Confidentiality
Agreement (a) constitute the entire agreement
(22)
<PAGE> 23
and supersedes all other prior agreements and understandings, both written and
oral, among the parties or any of them, with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise. In this regard, each of CHS, HII and MI represent and warrant that,
except for the Prior Merger Agreement and the reinstatement provisions thereof
as described in Section 9.2(b) hereof, such party has no arrangement or
understanding with any other party to this Agreement with respect to a merger or
similar transaction in the event this Agreement is terminated.
10.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
provisions thereof relating to conflicts of law.
10.7 Parties in Interest. Except for Sections 2.7, 7.8, 7.9, and 7.11
hereof, nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person any rights, benefit or remedies of any nature
whatsoever or by reason of this Agreement.
10.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
10.9 Validity. The invalidity or unenforceability of any provision of this
Agreement shall not effect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
10.10 Jurisdiction and Venue. Each party hereto hereby agrees that any
proceeding relating to this Agreement and the Mergers shall be brought in a
state court of Delaware. Each party hereto hereby consents to personal
jurisdiction in any such action brought in any such Delaware court, consents to
service of process by registered mail made upon such party and such party's
agent and waives any objection to venue in any such Delaware court or to any
claim that such Delaware court is an inconvenient form.
10.11 Investigation. The respective representations and warranties of each
Company contained herein or in the certificates or other documents delivered
prior to the Closing shall not be deemed waived or otherwise affected by any
investigation made by any party hereto.
10.12 Consents. For purposes of any provision of this Agreement requiring,
permitting or providing for the consent of any or Company, the written consent
of the Chief Executive Officer of a Company shall be sufficient to constitute
such consent.
(23)
<PAGE> 24
IN WITNESS WHEREOF, each Company has caused this Agreement to be executed
on its behalf by its officers thereunto duly authorized, all as of the date
first above written.
<TABLE>
<S> <C>
CURAFLEX HEALTH SERVICES, INC. CHM HOLDING CORPORATION
By: /s/ CHARLES A. LAVERTY By: /s/ CHARLES A. LAVERTY
------------------------------------- -------------------------------------
Name: Charles A. Laverty Name: Charles A. Laverty
Title: Chairman, President and Chief Title: Chief Executive Officer
Executive Officer
CHS ACQUISITION COMPANY MEDISYS, INC.
By: /s/ CHARLES A. LAVERTY By: /s/ WILLIAM J. BRUMMOND
------------------------------------- -------------------------------------
Name: Charles A. Laverty Name: William J. Brummond
Title: Authorized Officer Title: President and Chief Executive
Officer
HEALTHINFUSION, INC. MI ACQUISITION COMPANY
By: /s/ MILES E. GILMAN By: /s/ WILLIAM J. BRUMMOND
------------------------------------- -------------------------------------
Name: Miles E. Gilman Name: William J. Brummond
Title: President and Chief Executive Title: President
Officer
HII ACQUISITION COMPANY T2 MEDICAL, INC.
By: /s/ MILES E. GILMAN By: /s/ TOMMY H. CARTER
------------------------------------- -------------------------------------
Name: Miles E. Gilman Name: Tommy H. Carter
Title: President Title: President and Chief Executive
Officer
T2 ACQUISITION COMPANY
By: /s/ TOMMY H. CARTER
-------------------------------------
Name: Tommy H. Carter
Title: President
</TABLE>
NOTE: Exhibits and Schedules to this Agreement have been intentionally omitted.
(24)
<PAGE> 1
EXHIBIT 2.2 TO
REGISTRATION STATEMENT
ON FORM S-4
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER dated as of May 25,
1994 (this "First Amendment"), is made by and among CORAM HEALTHCARE
CORPORATION, a Delaware corporation (formerly "CHM Holding
Corporation")("Newco"), T2 Medical, Inc., a Delaware corporation ("T2"), T2
Acquisition Company, a Delaware corporation and wholly-owned subsidiary of Newco
("T2 Sub"), Curaflex Health Services, Inc., a Delaware corporation ("CHS"), CHS
Acquisition Company, a Delaware corporation and wholly-owned subsidiary of Newco
("CHS Sub"), HealthInfusion, Inc., a Florida corporation ("HII"), HII
Acquisition Company, a Florida corporation and wholly-owned subsidiary of Newco
("HII Sub"), Medisys, Inc., a Delaware corporation ("MI"), and MI Acquisition
Company, a Delaware corporation and wholly-owned subsidiary of Newco ("MI Sub").
The parties hereto are sometimes hereinafter referred to, collectively, as the
"Companies" or the "Constituent Corporations" or, individually, as a "Company"
or a Constituent Corporation."
WHEREAS, each of the parties hereto is a party to that certain Agreement
and Plan of Merger, dated February 6, 1994 (the "Merger Agreement"), pursuant to
which and subject to the terms and conditions set forth therein, each of T2,
CHS, HII and MI agreed to be acquired by and become wholly-owned subsidiaries of
Newco; and
WHEREAS, the parties hereto desire to amend and supplement certain terms
and provisions of the Merger Agreement as more particularly set forth herein.
NOW, THEREFORE, in consideration of the foregoing, the following covenants
and agreements, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto, the
parties hereto hereby agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms used
herein shall have the same respective meanings ascribed to such terms in the
Merger Agreement.
2. Amendments.
(a) Subsection (b) of Section 2.3 of the Merger Agreement is hereby amended
by deleting subsection (b) of Section 2.3 in its entirety and inserting in its
place the following new subsection (b) of Section 2.3 which shall read as
follows:
"(b) The respective officers of T2, CHS, HII and MI at the Effective
Time shall be the initial officers of the Surviving Corporation of each
Merger in which such Company is involved and shall hold office from the
Effective Time until their respective successors are duly elected or
appointed and qualified in the manner provided in the Certificate or
Articles of Incorporation and Bylaws of the Surviving Corporation, or as
otherwise provided by law."
(b) Section 2.4 of the Merger Agreement is hereby amended by deleting
Section 2.4 in its entirety and inserting in its place the following new Section
2.4 which shall read in its entirety as follows:
"2.4 Directors and Officers of Newco.
(a) At or prior to the Effective Time, the Companies or Newco, as
appropriate, shall take or cause to be taken all necessary action such
that, at the Effective Time, Newco's Board of Directors shall be increased
to seven (7) members, without classifications of directors into separate
classes. Following the Effective Time, directors shall be reelected at the
annual stockholders meeting of Newco commencing in the year 1995. The
parties hereto hereby agree that the following individuals shall serve as
the initial directors of Newco until such reelection: (1) James M. Sweeney,
who shall also serve as the Chairman of the Board of Newco; (2) Charles A.
Laverty; (3) Miles E. Gilman; (4) L. Peter Smith; (5) Tommy H. Carter, who
shall also serve as Vice Chairman of the Board of Directors of Newco; (6)
Richard A. Fink;
(25)
<PAGE> 2
and (7) Stephen G. Pagliuca. The parties hereto hereby further agree that
in the event that Mr. Laverty resigns or otherwise ceases to serve as a
director of Newco prior to the end of his initial term as a director of
Newco, the remaining directors of Newco shall appoint either C. Sage Givens
or John S. Chamberlin to fill such vacant directorship for the remainder of
such term.
(b) At or prior to the Effective Time, the Companies or Newco, as
appropriate, shall take or cause to be taken all necessary action such
that, at the Effective Time, the following individuals shall be appointed
to the following offices of Newco, to hold office at the pleasure of the
Board of Directors of Newco until a respective successor has been duly
appointed or elected and qualified, unless sooner removed (other than
Charles A. Laverty, who will enter into an employment agreement with Newco
as more particularly described on Exhibit 2.7 hereto, which shall set
forth, among other things, the terms and conditions with respect to Mr.
Laverty's employment with Newco): (1) James M. Sweeney, Chief Executive
Officer, (2) Charles A. Laverty, Senior Executive Vice President; (3) Miles
E. Gilman, Executive Vice President; (4) Norman H. Werthwein, Acting Chief
Financial Officer; (5) William J. Brummond, Vice President; (6) John T.
Gallatin, Vice President; and (7) John D. Hirsch, M.D., Physician Advisory
Director."
(c) The Merger Agreement is hereby further amended by deleting Section 2.5
in its entirety.
(d) Section 2.6 of the Merger Agreement is hereby amended by deleting
Section 2.6 in its entirety and inserting in its place the following new Section
2.6 which shall read in its entirety as follows:
"2.6 Change of Newco's Name. At or prior to the mailing to
stockholders of the Proxy Statement referred to in Section 4.7, the
Companies or Newco, as appropriate, shall take or cause to be taken all
necessary action such that, at the Effective Time, the corporate name of
Newco shall be changed to "Coram Healthcare Corporation." "
(e) Section 6.1 of the Merger Agreement is hereby amended by deleting
subsection (f) thereof in its entirety and inserting in its place the following
new subsection (f) and additional paragraph thereafter which shall read as
follows:
"(f) such Company and its subsidiaries shall use all reasonable
efforts to prevent any representation or warranty of such Company herein
from becoming untrue or incorrect in any material respect;
provided, that, notwithstanding the foregoing, any action taken or to be
taken by Newco, the Companies or any Company which is expressly set forth
or otherwise provided for in the Proxy Statement referred to in Section 4.7
shall not be deemed to constitute a violation or breach of, or otherwise be
in conflict with, any provision of this Section 6.1."
(f) Section 6.3 of the Merger Agreement is hereby amended by deleting the
period set forth at the end of the last sentence thereof and adding to the end
of such last sentence thereof immediately following the phrase "any of the
transactions contemplated by this Agreement" set forth at the end of clause (e)
thereof, the phrase"; provided, that, notwithstanding the foregoing, any action
taken or to be taken by Newco, the Companies or any Company which is expressly
set forth or otherwise provided for in the Proxy Statement referred to in
Section 4.7 shall not be deemed to constitute a violation or breach of, or
otherwise be in conflict with, any provision of this Section 6.3."
(g) Section 8.1 of the Merger Agreement is hereby amended by adding at the
end of Section 8.1 immediately after subsection (h) thereof the following new
subsection (i) of Section 8.1 which shall read as follows:
"(i) Each of the respective current directors of T2, CHS, HII and MI
shall have resigned effective as of the Effective Time."
(h) Subsection (b) of Section 9.1 of the Merger Agreement is hereby amended
by deleting said subsection (b) in its entirety and inserting in its place the
following new subsection (b) of Section 9.1:
"(b) By any Company if the Mergers shall not have been consummated on
or before July 31, 1994."
(26)
<PAGE> 3
(i) Section II of Exhibit 2.7 to the Merger Agreement is hereby amended by
adding at the end of the subsection thereof entitled "OTHER EXECUTIVE OFFICERS"
the following additional section entitled "NON-EMPLOYEE DIRECTORS":
"NON-EMPLOYEE DIRECTORS
To the extent it will not prevent pooling of interests treatment for
the Mergers, the outstanding MI options of the four non-employee directors
of MI which would otherwise terminate ninety days after the Effective Time
of the Merger, will be amended to provide that such options may be
exercised for one year after the Effective Time of the Merger, subject to
any required stockholder approvals in connection therewith."
(j) Schedule 1 of Exhibit 2.7 to the Merger Agreement is hereby amended by
deleting the subsection thereof entitled "LAVERTY EMPLOYMENT AGREEMENT" in its
entirety and replacing said subsection with the following new subsection:
"LAVERTY EMPLOYMENT AGREEMENT
<TABLE>
<S> <C>
Participant: - Charles A. Laverty, Senior Executive Vice President
Term: One Year
Base Salary: $450,000 per annum
Incentive Compensation: An annual bonus of up to 100% of Base Salary will be
payable in cash and/or Newco Shares, upon Newco achieving
certain performance objectives for the year in question
as set by the Chairman of Newco or by Newco's Board of
Directors or a committee thereof.
Stock Option: Options for 100,000 Newco Shares at an exercise price
equal to the average sales price of Newco common stock
for the five trading days immediately following the
Effective Time of the Mergers. Such options shall be
fully vested and immediately exercisable as of the time
of grant.
Severance: Upon the termination of Mr. Laverty's employment for any
reason (other than by Newco "for cause"), including
expiration of the term of Mr. Laverty's employment
agreement with Newco, Newco shall pay to Mr. Laverty a
severance/non-compete payment of $2,500,000, payable over
three years in thirty-six (36) equal monthly installments
(co-extensive with the three year non-compete period)
commencing the first day of the calendar month after
termination.
Other Provisions: Benefits; payment by Newco of all fees, costs and
expenses incurred by Mr. Laverty in the event Newco
requires Mr. Laverty to relocate his primary residence
(subject to Mr. Laverty's consent to such relocation),
including broker's fees, mortgage payments on his former
residence after the date of relocation until such
residence is sold and any loss sustained by him on the
sale of such residence.
Termination: Terminable at any time by Mr. Laverty but only "for
cause" by Newco. A pro rata portion of Mr. Laverty's
annual bonus, together with the remaining balance of Mr.
Laverty's annual base salary, shall be payable in the
event Mr. Laverty's employment with Newco is terminated
by Mr. Laverty after completion of at least six months of
service with Newco following the Effective Time."
</TABLE>
(27)
<PAGE> 4
3. Miscellaneous. Except as expressly provided in this First Amendment and
the attachments hereto, the Merger Agreement shall remain unchanged and be in
full force and effect. This First Amendment shall be governed by and construed
in accordance with the laws of the State of Delaware without giving effect to
the provisions thereof relating to conflicts of law. This First Amendment may be
executed by facsimile transmission and in any number of counterparts, each of
which shall be deemed an original and all of which when taken together shall
constitute but one and the same original instrument and any of the parties
hereto may execute this First Amendment by signing any such counterpart.
IN WITNESS WHEREOF, each Company has caused this Agreement to be executed
on its behalf by its officers thereunder fully authorized, all as of the date
first above written.
<TABLE>
<S> <C>
T2 MEDICAL, INC. T2 ACQUISITION COMPANY
By: /s/ TOMMY H. CARTER By: /s/ TOMMY H. CARTER
-------------------------------- -------------------------------
Tommy H. Carter, President and Tommy H. Carter, President
Chief Executive Officer
CURAFLEX HEALTH SERVICES, INC. CHS ACQUISITION COMPANY
By: /s/ CHARLES A. LAVERTY By: /s/ CHARLES A. LAVERTY
------------------------------- ------------------------------
Charles A. Laverty, Charles A. Laverty, President
Chairman, President
and Chief Executive Officer
HEALTHINFUSION, INC. HII ACQUISITION COMPANY
By: /s/ MILES E. GILMAN By: /s/ MILES E. GILMAN
-------------------------------- -------------------------------
Miles E. Gilman, President and Miles E. Gilman, President
Chief Executive Officer
MEDISYS, INC. MI ACQUISITION COMPANY
By: /s/ WILLIAM J. BRUMMOND By: /s/ WILLIAM J. BRUMMOND
------------------------------- ------------------------------
William J. Brummond, President William J. Brummond, President
and Chief Executive Officer
CORAM HEALTHCARE CORPORATION
By: /s/ JAMES M. SWEENEY
-------------------------------
James M. Sweeney,
Chairman of the Board
</TABLE>
(28)
<PAGE> 1
EXHIBIT 3.1 TO
REGISTRATION STATEMENT
ON FORM S-4
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
CHM HOLDING CORPORATION
CHM Holding Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:
FIRST: The Corporation has not received any payment for any of its
stock.
SECOND: The amendment to the Corporation's Certificate of
Incorporation set forth in the following resolutions was adopted by a
majority of the Corporation's Board of Directors and was duly adopted in
accordance with the provisions of Section 241 of the Delaware General
Corporation Law:
RESOLVED, that the Certificate of Incorporation of the Corporation
be amended by deleting Article FIRST in its entirety and inserting in
its place the following new Article FIRST which shall read in full as
follows:
"FIRST. The name of the Corporation is Coram Healthcare Corporation."
RESOLVED, that the Certificate of Incorporation be amended by
deleting Article FOURTH, Section A, in its entirety and inserting in its
place the following new Article FOURTH, Section A which shall read in
full as follows:
"FOURTH. A. AUTHORIZED CAPITAL STOCK. The total number of shares
that the Corporation shall have authority to issue shall be
85,000,000 shares, of which 75,000,000 shares shall be Common Stock,
$.001 par value, and 10,000,000 shares shall be Preferred Stock,
$.001 par value."
RESOLVED, that the Certificate of Incorporation of the Corporation
be amended by deleting Article FIFTH, Section A, in its entirety and
inserting in its place the following new Article FIFTH, Section A which
shall read in full as follows:
"FIFTH. A. NUMBER, ELECTION AND TERMS OF DIRECTORS. The business
of the Corporation shall be managed by a Board of Directors. The
number of directors of the Corporation shall be fixed from time to
time by or pursuant to the Bylaws of the Corporation. With the
exception of the first Board of Directors, which shall be elected by
the incorporator(s), and except as otherwise provided in or fixed by
or pursuant to the provisions of Article Fourth hereof relating to
the right of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation
to elect directors under specified circumstances, the directors shall
be elected each year at the stockholders' annual meeting. Elected
directors shall hold office until the next annual meeting and until
their successors shall be duly elected and qualified."
(29)
<PAGE> 2
IN WITNESS WHEREOF, CHM Holding Corporation has caused this Certificate to
be signed and attested by its duly authorized officers this 11th day of May,
1994.
CHM HOLDING CORPORATION
By: /s/ JAMES M. SWEENEY
--------------------------------
James M. Sweeney, Chairman and
Chief Executive Officer
ATTEST:
/s/ KEVIN M. HIGGINS
- -------------------------------------
Kevin M. Higgins, Secretary
(30)
<PAGE> 3
CERTIFICATE OF INCORPORATION
OF
CHM HOLDING CORPORATION
FIRST
The name of the Corporation is CHM Holding Corporation.
SECOND
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of the Corporation's registered agent at that
office is The Corporation Trust Company.
THIRD
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware as presently in effect or as it may hereafter be amended.
FOURTH
A. AUTHORIZED CAPITAL STOCK. The total number of shares which the
Corporation shall have the authority to issue shall be 60,000,000 shares, of
which 50,000,000 shares shall be Common Stock, $.001 par value, and 10,000,000
shares shall be Preferred Stock, $.001 par value.
B. COMMON STOCK. The Board of Directors is hereby authorized to cause
shares of Common Stock to be issued from time to time for such consideration as
may be fixed from time to time by the Board of Directors, or by way of stock
split pro rata to the holders of the Common Stock. The Board of Directors may
also determine the proportion of the proceeds received from the sale of such
stock which shall be credited upon the books of the Corporation to capital or
capital surplus.
Each share of the Common Stock shall be equal in all respects to every
other share of the Common Stock. Subject to any special voting rights of the
holders of Preferred Stock fixed by or pursuant to the provisions of Paragraph C
of this Article Fourth, the shares of Common Stock shall entitle the holders
thereof to one vote for each share upon all matters upon which stockholders have
the right to vote.
No holder of shares of Common Stock shall be entitled as such as a matter
of right to subscribe for or purchase any part of any new or additional issues
of stock, or securities convertible into stock, of any class whatsoever, whether
now or hereafter authorized, and whether issued for cash, property, services or
otherwise.
After the requirements with respect to preferential dividends on Preferred
Stock (fixed by or pursuant to the provisions of Paragraph C of this Article
Fourth), if any, shall have been met and after the Corporation shall have
complied with all the requirements, if any, with respect to the setting aside of
sums as sinking funds or redemption or purchase accounts (fixed by or pursuant
to the provisions of Paragraph C of this Article Fourth) and subject further to
any other conditions which may be fixed by or pursuant to the provisions of
Paragraph C of this Article Fourth, then, but not otherwise, the holders of
Common Stock shall be entitled to receive dividends, if any, as may be declared
from time to time by the Board of Directors, ratably in proportion to the number
of shares of Common Stock held by each such holder.
After distribution in full of the preferential amount (fixed by or pursuant
to the provisions of Paragraph C of this Article Fourth), if any, to be
distributed to the holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets, dissolution or winding
up of the Corporation, the holders of the Common Stock shall be entitled to
receive all the remaining assets of the Corporation, tangible and intangible, of
whatever kind available for distribution to stockholders, ratably in proportion
to the number of shares of Common Stock held by each.
(31)
<PAGE> 4
C. PREFERRED STOCK. The Preferred Stock may be issued from time to time
in one or more classes or series. The Board of Directors of the Corporation
shall have the authority to the fullest extent permitted under the General
Corporation Law of Delaware to fix by resolution from time to time the
designation of one or more classes or series of Preferred Stock and the voting
powers, full or limited or no voting powers, and such designations, preferences
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof and to fix or alter the
number of shares comprising any such class or series subject to the requirements
of the Delaware General Corporation Law. The authority of the Board of Directors
with respect to each such class or series shall include, without limitation of
the foregoing, the right to determine and fix:
1. The distinctive designation of such class or series, and the
number of shares to constitute such class or series;
2. The rate and times at which, dividends, if any, on the shares of
such class or series shall be declared and paid, or set aside for payment,
whether dividends at the rate so determined shall be cumulative or
accruing, whether the shares of such class or series shall be entitled to
any participating or other dividends at the rate so determined, and if so,
on what terms, and the extent of the preference or relation, if any, of
such dividends to the dividends payable on any other class or classes, or
series of the same or other classes of stock;
3. The right or obligation, if any, of the Corporation to redeem
shares of the particular class or series of Preferred Stock and, if
redeemable, the price, terms and manner of such redemption;
4. The special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or
involuntary liquidation, merger, consolidation, distribution or sale of
assets, dissolution or winding up of the Corporation;
5. The terms and conditions, if any, upon which shares of such class
or series shall be convertible into, or exchangeable for shares of capital
stock of any other class or series, including the price or prices or the
rate or rates of conversion or exchange and the terms of adjustment, if
any;
6. The obligation, if any, of the Corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund
of a similar nature or otherwise, and the terms and conditions of such
obligations;
7. The voting rights, if any, including special voting rights with
respect to the election of directors and matters adversely affecting any
class or series of Preferred Stock; and
8. Limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred
Stock; and
9. Such other preferences, powers, qualifications, special or
relative rights and privileges thereof as the Board of Directors of the
Corporation, acting in accordance with this Certificate of Incorporation,
may deem advisable and are not inconsistent with law and the provisions of
this Certificate of Incorporation.
D. OTHER PROVISIONS
1. The relative powers, preferences, and rights of each series of Preferred
Stock shall, in each case, be as fixed from time to time by the Board of
Directors in the resolution or resolutions adopted pursuant to authority granted
in Paragraph C of this Article Fourth, and the consent by class or series vote
or otherwise, of the holders of the Preferred Stock or such of the series of the
Preferred Stock as are from time to time outstanding shall not be required for
the issuance by the Board of Directors of any other series of Preferred Stock
whether the powers, preferences and rights of such other series shall be fixed
by the Board of Directors as senior to, or on a parity with, powers, preferences
and rights of such outstanding series, or any of them, provided, however, that
the Board of Directors may provide in such resolution or resolutions adopted
with respect to any series of Preferred Stock that the consent of the holders of
a majority (or such greater proportion as shall be therein
(32)
<PAGE> 5
fixed) of the outstanding shares of such series voting thereon shall be required
for the issuance of any or all other series of Preferred Stock.
2. Subject to the provisions of Section 1 of this Paragraph D, shares of
any series of Preferred Stock may be issued from time to time as the Board of
Directors shall determine and on such terms and for such consideration as shall
be fixed by the Board of Directors.
3. Common Stock may be issued from time to time as the Board of Directors
shall determine and on such terms and for such consideration as shall be fixed
by the Board of Directors.
4. No holder of any of the shares of any class or series of shares or
securities convertible into such shares of any class or series of shares, or of
options, warrants or other rights to purchase or acquire shares of any class or
series of shares or of other securities of the Corporation shall have any
preemptive right to purchase, acquire, subscribe for any unissued shares of any
class or series or any additional shares of any class or series to be issued by
reason of any increase of the authorized capital stock of the Corporation of any
class or series, or bonds, certificate of indebtedness, debenture or other
securities convertible into or exchangeable for shares of any class or series,
or carrying any right to purchase or acquire shares of any class or series, but
any such unissued shares, additional authorized issue of shares of any class or
series of shares or securities convertible into or exchangeable for shares, or
carrying any right to purchase or acquire shares, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons, firms,
corporations or associations, and upon such terms, as may be deemed advisable by
the Board of Directors in the exercise of its sole discretion.
5. The Corporation reserves the right to increase or decrease its
authorized capital stock, or any class or series thereof or to reclassify the
same and to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation or in any amendment thereto, in the manner now or
hereafter prescribed by law, but subject to such conditions and limitations as
are hereinbefore prescribed, and all rights conferred upon stockholders in this
Certificate of Incorporation or any amendment thereto, are granted subject to
this reservation.
FIFTH
A. NUMBER, ELECTION AND TERMS OF DIRECTORS. The business of the
Corporation shall be managed by a Board of Directors. The number of directors of
the Corporation shall be fixed from time to time by or pursuant to the By-Laws
of the Corporation. Except as otherwise provided in or fixed by or pursuant to
the provisions of Article Fourth hereof relating to the rights of the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect directors under specified circumstances,
the directors shall be classified, with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
possible, as shall be provided in the manner specified in the By-Laws of the
Corporation. One class shall be originally elected for a term expiring at the
annual meeting of stockholders to be held in 1995, another class shall be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 1996, and another class shall be originally elected for a term
expiring at the annual meeting of stockholders to be held in 1997, with each
member of each class to hold office until a successor is elected and qualified.
At each annual meeting of stockholders of the Corporation and except as
otherwise provided in or fixed by or pursuant to the provisions of Article
Fourth hereof relating to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect directors under specified circumstances, the successors of
the class of directors whose term expires at that meeting shall be elected to
hold office for a term of three years.
B. STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES AND INTRODUCTION OF
BUSINESS. Advance notice of stockholder nominations for the election of
directors, and advance notice of business to be brought by stockholders before
an annual meeting of stockholders, shall be given in the manner provided in the
By-Laws of the Corporation.
C. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as otherwise required
by law and except as otherwise provided in or fixed by or pursuant to the
provisions of Article Fourth hereof
(33)
<PAGE> 6
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances: (i) newly created directorships
resulting from any increase in the number of directors and any vacancies on the
Board of Directors resulting from death, resignation, disqualification, removal
or other cause shall be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors; (ii) any director elected in accordance with the preceding clause
(i) shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified; and (iii)
no decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
D. REMOVAL. Except as otherwise provided in or fixed by or pursuant to the
provisions of Article Fourth hereof relating to the rights of the holders of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect directors under specified circumstances,
any director may be removed from office only for cause and only by the
affirmative vote of the holders of 80% of the combined voting power of the then
outstanding shares of the Corporation's stock entitled to vote generally, voting
together as a single class. Whenever in this Article Fifth or in Article Sixth
hereof or in Article Seventh hereof, the phrase, "the then outstanding shares of
the Corporation's stock entitled to vote generally" is used, such phrase shall
mean each then outstanding share of any class or series of the Corporation's
stock that is entitled to vote generally in the election of the Corporation's
directors.
E. AMENDMENT OR REPEAL. Notwithstanding any other provisions of this
Article Fifth or of any other Article hereof or of the By-Laws of the
Corporation (and notwithstanding the fact that a lesser percentage may be
specified from time to time by law, this Article Fifth, any other Article
hereof, or the By-Laws of the Corporation), the provisions of this Article Fifth
may not be altered, amended or repealed in any respect, nor may any provision
inconsistent therewith be adopted, unless such alteration, amendment, repeal or
adoption is approved by the affirmative vote of at least 80% of the combined
voting power of the then outstanding shares of the Corporation's stock entitled
to vote generally, voting together as a single class.
SIXTH
Both stockholders and directors shall have power, if the By-Laws so
provide, to hold their meetings and to have one or more offices within or
without the State of Delaware.
Except as otherwise fixed by resolution of the Board of Directors pursuant
to the provisions of Article Fourth hereof relating to the rights of the holders
of Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of such holders. Except as otherwise required by law and subject
to the rights of the holders of Preferred Stock, special meetings of
stockholders may be called only by the Chairman on his or her own initiative,
the Chief Executive Officer (if different from the Chairman) on his or her own
initiative or the Board of Directors pursuant to a resolution approved by a
majority of the entire Board of Directors. Notwithstanding anything contained in
this Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the voting power of all shares of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to alter, amend, adopt any provision
inconsistent with or repeal this Article Sixth.
SEVENTH
The Board of Directors shall have power to adopt, amend and repeal the
By-Laws of the Corporation to the maximum extent permitted from time to time by
Delaware law; provided, however, that any By-Laws adopted by the Board of
Directors under the powers conferred hereby may be amended or repealed by the
Board of Directors or by the holders of at least a majority of the combined
voting power of the then outstanding shares of the Corporation's stock entitled
to vote generally, voting together as a single class, except that, and
notwithstanding any other provisions of this Article Seventh or any other
Article hereof or of the By-
(34)
<PAGE> 7
Laws of the Corporation (and notwithstanding the fact that a lesser percentage
may be specified from time to time by law, this Article Seventh, any other
Article hereof or the By-Laws of the Corporation), the provisions of Article II,
Sections 5 or 11 of the By-Laws, those of Article III, Sections 1, 3 and 4 of
the By-Laws and the rights of the directors and officers of the Corporation with
respect to indemnification under Article IX of the By-Laws may not be altered,
amended or repealed in any respect, nor may any provision inconsistent therewith
be adopted, unless such alteration, amendment, repeal or adoption is approved by
the affirmative vote of the holders of at least 80% of the combined voting power
of the then outstanding shares of the Corporation's stock entitled to vote
generally, voting together as a single class (except that rights of directors or
officers of the Corporation with respect to indemnification under Article IX may
be enlarged by such lesser vote as may otherwise be required if enlargement of
such indemnification rights is permitted by applicable law). Notwithstanding any
other provisions of this Article Seventh or of any other Article hereof or of
the By-Laws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified from time to time by law, this Article Seventh, any
other Article hereof or the By-Laws of the Corporation), the provisions of this
Article Seventh may not be altered, amended or repealed in any respect, nor may
any provision inconsistent therewith be adopted, unless such alteration,
amendment, repeal or adoption is approved by the affirmative vote of the holders
of at least 80% of the combined voting power or the then outstanding shares of
the Corporation's stock entitled to vote generally, voting together as a single
class.
EIGHTH
A director of this Corporation shall not be personally liable to this
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to this Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of this Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of this Corporation shall not adversely affect any right or protection of a
director of this Corporation existing at the time of such repeal or
modification.
NINTH
RIGHT OF INDEMNIFICATION. The Corporation may, to the fullest extent to
which it is empowered to do so by the General Corporation Law of the State of
Delaware or any other applicable laws, as they may from time to time be in
effect, indemnity any person who was or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, against all expenses
(including attorneys' fees), judgments, fines and amounts incurred by him or her
in connection with such action, suit or proceeding.
TENTH
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute or this Certificate of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
(35)
<PAGE> 8
ELEVENTH
Election of directors need not be by written ballot.
TWELFTH
The name and mailing address of the incorporator is:
Stephen M. Gatlin
Gardner, Carton & Douglas
321 North Clark, Suite 3400
Chicago, Illinois 60610-4795
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
Delaware, do make this certificate, hereby declaring and certifying that this is
my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 30th day of November, 1993.
/s/ STEPHEN M. GATLIN
--------------------------
Stephen M. Gatlin
(36)
<PAGE> 1
EXHIBIT 3.2 TO
REGISTRATION STATEMENT
ON FORM S-4
BY-LAWS
OF
CORAM HEALTHCARE CORPORATION
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle.
SECTION 2. Other Offices. The corporation may have offices, both within and
without the State of Delaware, as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 1. Place of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 of Article I hereof.
SECTION 2. Annual Meetings. The annual meetings of the stockholders of the
corporation for the purpose of election of directors and for such other business
as may lawfully come before it, shall be held on such date and at such time as
may be designated from time to time by the Board of Directors.
SECTION 3. Special Meetings. Special Meetings of the stockholders of the
corporation may be called, for any purpose or purposes, by the Chairman of the
Board or the Chief Executive Officer or by the Board of Directors at any time.
Upon written request of any stockholder or stockholders holding in the aggregate
fifteen percent (15%) of the voting power of all stockholders delivered in
person or sent by registered mail to the chairman of the Board, the Chief
Executive Officer or the Secretary of the Corporation, the Secretary shall call
a special meeting of stockholders to be held at the office of the corporation
required to be maintained pursuant to Section 2 of Article I hereof at such time
as the Secretary may fix, such meeting to be held not less than ten (10) nor
more than sixty (60) days after the receipt of such request, and, if the
Secretary shall neglect or refuse to call such meeting, within seven (7) days
after the receipt of such request, the stockholder making such request may do
so.
SECTION 4. Notice of Meetings.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, written notice of each meeting of stockholders, specifying the
place, date and hour and purpose or purposes of the meeting, shall be given not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote thereat, directed to his or her address as
it appears upon the books of the Corporation; except that where the matter to be
acted on is a merger or consolidation of the Corporation or a sale, lease or
exchange of all or substantially all of its assets, such notice shall be given
not less than twenty (20) nor more than sixty (60) days prior to such meeting.
(b) If at any meeting action is proposed to be taken which, if taken, would
entitle stockholders fulfilling the requirements of section 262(d) of the
Delaware General Corporation Law to an appraisal of the fair value of their
shares, the notice of such meeting shall contain a statement of that purpose and
to that effect and shall be accompanied by a copy of that statutory section.
(37)
<PAGE> 2
(c) When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken unless the adjournment is for more
than thirty (30) days, or unless after the adjournment a new record date is
fixed for the adjourned meeting, in which event a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
(d) Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, either before or after such meeting, and to the extent
permitted by law, will be waived by any stockholder by his or her attendance
thereat, in person or by proxy. Any stockholder so waiving notice of such
meeting shall be bound by the proceedings of any such meeting in all respects as
if due notice thereof had been given.
(e) Unless and until voted, every proxy shall be revocable at the pleasure
of the person who executed it or of his legal representatives or assigns, except
in those cases where an irrevocable proxy permitted by statute has been given.
SECTION 5. Quorum and Voting.
(a) At all meetings of stockholders, except where otherwise provided by
law, the Certificate of Incorporation or these By-Laws, the presence, in person
or by proxy duly authorized, of the holders of a majority of outstanding shares
of stock entitled to vote shall constitute a quorum for the transaction of
business. Shares, the voting of which at said meeting have been enjoined, or
which for any reason cannot be lawfully voted at such meeting, shall not be
counted to determine a quorum at said meeting. In the absence of a quorum, any
meeting of stockholders may be adjourned, from time to time, by vote of the
holders of a majority of the shares represented thereat, but no other business
shall be transacted at such meeting. At such adjourned meeting at which a quorum
is present or represented any business may be transacted which might have been
transacted at the original meeting. The stockholders present at a duly called or
convened meeting, at which a quorum is present, may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
(b) Except as otherwise provided by law, the Certificate of Incorporation
or these By-Laws, all action taken by the holders of a majority of the voting
power represented at any meeting at which a quorum is present shall be valid and
binding upon the corporation.
(c) Where a separate vote by a class or classes is required, a majority of
the outstanding shares of such class or classes, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on the matter and the affirmative vote of the majority of
shares of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class.
SECTION 6. Voting Rights.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, at each meeting of stockholders, every stockholder of the
corporation shall be entitled to one vote in person or by proxy for each share
of stock of the corporation held by him and registered in his name on the books
of the corporation. Only persons in whose names shares entitled to vote stand on
the stock records of the corporation on the record date for determining the
stockholders entitled to vote at said meeting shall be entitled to vote at such
meeting except as otherwise provided by law. Shares standing in the names of two
or more persons shall be voted or represented in accordance with the
determination of the majority of such persons, or, if only one of such persons
is present in person or represented by proxy, such person shall have the right
to vote such shares and such shares shall be deemed to be represented for the
purpose of determining a quorum.
(b) Every person entitled to vote shall have the right to do so either in
person or by an agent or agents authorized by a written proxy executed by such
person or his duly authorized agent, which proxy shall be filed with the
Secretary of the corporation at or before the meeting at which it is to be used.
Said proxy so appointed need not be a stockholder. No proxy shall be voted on
after three years from its date unless the proxy provides for a longer period.
(38)
<PAGE> 3
(c) Without limiting the manner in which a stockholder may authorize
another person or persons to act for him as proxy pursuant to subsection (b) of
this section, the following shall constitute a valid means by which a
stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing another person or
persons to act for him as proxy. Execution may be accomplished by the
stockholder or his authorized officer, director, employee or agent signing
such writing or causing his or her signature to be affixed to such writing
by any reasonable means including, but not limited to, by facsimile
signature.
(2) A stockholder may authorize another person or persons to act for
him as proxy by transmitting or authorizing the transmission of a telegram,
cablegram, or other means of electronic transmission to the person who will
be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will
be the holder of the proxy to receive such transmission, provided that any
such telegram, cablegram or other means of electronic transmission must
either set forth or be submitted with information from which it can be
determined that the telegram, cablegram or other electronic transmission
was authorized by the stockholder. Such authorization can be established by
the signature of the stockholder on the proxy, either in writing or by a
signature stamp or facsimile signature, or by a number or symbol from which
the identity of the stockholder can be determined, or by any other
procedure deemed appropriate by the inspectors or other persons making the
determination as to due authorization. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors or, if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied.
(d) Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to subsection (c) of this section
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
SECTION 7. Voting Procedures and Inspectors of Elections.
(a) The corporation shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting and make a written report
thereof. The corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares outstanding and
the voting power of each, (ii) determine the shares represented at a meeting and
the validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors, and (v) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of the duties of
the inspectors.
(c) The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting. No ballot, proxies or votes, nor any revocations thereof or changes
thereto, shall be accepted by the Inspectors after the closing of the pools
unless the Court of Chancery upon application by a stockholder shall determine
otherwise.
(d) In determining the validity and counting of proxies and ballots, the
inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with
Section 212(c)(2) of the Delaware General Corporation Law, ballots and the
regular books and records of the corporation, except that the inspectors may
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder holds
of record. If the inspectors consider other reliable information
(39)
<PAGE> 4
for the limited purpose permitted herein, the inspectors at the time they make
their certification pursuant to subsection (b)(v) of this section shall specify
the precise information considered by them including the person or persons from
whom they obtained the information, when the information was obtained, the means
by which the information was obtained and the basis for the inspectors belief
that such information is accurate and reliable.
SECTION 8. List of Stockholders. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at said meeting, arranged in alphabetical order, showing the address of and
the number of shares registered in the Section name of each stockholder. Such
list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held and which place shall be specified in the notice of the
meeting, or, if not specified, at the place where said meeting is to be held,
and the list shall be produced and kept at the time and place of meeting during
the whole time thereof, and may be inspected by any stockholder who is present.
SECTION 9. Stockholder Proposals at Annual Meetings. At an annual meeting
of the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, otherwise
properly brought before the meeting by or at the direction of the Board of
Directors or otherwise properly brought before the meeting by a stockholder. In
addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation, not less than thirty (30)
days nor more than sixty (60) days prior to the meeting; provided, however, that
in the event that less than forty (40) days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the date on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of the stockholder proposing such business, (iii) the class and number
of shares of the corporation which are beneficially owned by the stockholder,
and (iv) any material interest of the stockholder in such business.
Notwithstanding anything in the By-Laws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Section 9, provided, however, that nothing in this Section 9 shall
be deemed to preclude discussion by any stockholder of any business properly
brought before the annual meeting in accordance with said procedure.
The Chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 9, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
SECTION 10. Nominations of Persons for Election to the Board of
Directors. In addition to any other applicable requirements, only persons who
are nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any stockholder of the corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 10. Such nominations, other than
those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the corporation not less than thirty (30)
days nor more than sixty (60) days prior to the meeting; provided,
(40)
<PAGE> 5
however, that in the event that less than forty (40) days notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, (i) the name, age, business
address and residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class and number of shares of the
corporation which are beneficially owned by the person, and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934; and (b) as to the stockholder giving
the notice, (i) the name and record address of the stockholder, and (ii) the
class and number of shares of the corporation which are beneficially owned by
the stockholder. The corporation may require any proposed nominee to furnish
such other information as may reasonably be required by the corporation to
determine the eligibility of such proposed nominee to serve as a director of the
corporation. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth herein.
These provisions shall not apply to nomination of any persons entitled to be
separately elected by holders of preferred stock.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he or she should so determine, he or she shall so
declare to the meeting and the defective nomination shall be disregarded.
SECTION 11. Stockholder Action; How Taken. Any action required or permitted
to be taken by the stockholders of the corporation must be effected at a duly
called annual or special meeting of such holders and may not be effected by any
consent in writing by such holders.
ARTICLE III
DIRECTORS
SECTION 1. Number and Term of Office. The number of directors which shall
constitute the whole of the Board of Directors shall be such number as the Board
of Directors shall from time to time designate, except that, in the absence of
such designation, the number of directors of the corporation shall be seven (7).
The directors shall be elected by a plurality vote of the shares represented in
person or by proxy, at the stockholders' annual meeting in each year and
entitled to vote on the election of directors. Elected directors shall hold
office until the next annual meeting and until their successors shall be duly
elected and qualified. Directors need not be stockholders. If, for any cause,
the successor to a Director whose term shall then expire shall not have been
elected at an annual meeting, such director may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these By-Laws.
SECTION 2. Powers. The powers of the corporation shall be exercised, its
business conducted and its property controlled by or under the direction of the
Board of Directors.
SECTION 3. Vacancies. Unless otherwise provided in the Certificate of
Incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director, and each director so elected shall hold office for the
unexpired portion of the term of the director whose place shall be vacant, and
until his successor shall have been duly elected and qualified. A vacancy in the
Board of Directors shall be deemed to exist under this section in the case of
the death, removal or resignation of any director, or if the stockholders fail
at any meeting of stockholders at which directors are to be elected (including
any meeting referred to in Section 4 below) to elect the fully number of
directors of the class eligible.
(41)
<PAGE> 6
SECTION 4. Resignations and Removals.
(a) Any director may resign at any time by delivering his written
resignation to the Secretary, such resignation to specify whether it will be
effective at a particular time, upon receipt by the Secretary or at the pleasure
of the Board of Directors. If no such specification is made it shall be deemed
effective at the pleasure of the Board of Directors. When one or more directors
shall resign from the Board, effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office for the unexpired portion of the term of the director whose
place shall be vacated and until his successor shall have been duly elected and
qualified.
(b) Except as provided in the Certificate of Incorporation, at a special
meeting of stockholders called for the purpose in the manner hereinabove
provided, the Board of Directors, or any individual director, may be removed
from office, only for cause or by the affirmative vote of the holders of 80% or
more of the outstanding shares of capital stock of the corporation entitled to
vote generally in the election of directors cast at a meeting of stockholders
called for that purpose, and a new director or directors elected by a vote of
stockholders holding a majority of the outstanding shares of capital stock of
the corporation entitled to vote generally in the election of directors.
SECTION 5. Meetings.
(a) The annual meeting of the Board of Directors shall be held immediately
after the annual stockholders' meeting and at the place where such meeting is
held or at the place announced by the Chairman at such meeting. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings of the Board
of Directors shall be held in the office of the corporation required to be
maintained pursuant to Section 2 of Article I hereof. Regular meetings of the
Board of Directors may also be held at any place within or without the State of
Delaware which has been designated by resolutions of the Board of Directors or
the written consent of all directors.
(c) Special meetings of the Board of Directors may be held at any time and
place within or without the State of Delaware whenever called by the Chairman of
the board, by the President, or by a majority of the directors then in office.
(d) Written notice of the time and place of all regular and special
meetings of the Board of Directors shall be delivered personally to each
director or sent by telegram or facsimile transmission at least 48 hours before
the start of the meeting, or sent by first class mail at least 120 hours before
the start of the meeting. Notice of any meeting may be waived in writing at any
time before or after the meeting and will be waived by any director by
attendance thereat.
SECTION 6. Quorum and Voting.
(a) A quorum of the Board of Directors shall consist of a majority of the
exact number of directors fixed from time to time in accordance with Section 1
of Article III of these By-Laws, but not less than one; provided, however, at
any meeting whether a quorum be present or otherwise, a majority of the
directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting.
(b) At each meeting of the Board at which a quorum is present all questions
and business shall be determined by a vote of a majority of the directors
present, unless a different vote be required by law, the Certificate of
Incorporation, or these By-Laws.
(c) Any member of the Board of Directors, or of any committee thereof, may
participate in a meeting by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting.
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(d) The transactions of any meeting of the Board of Directors, or any
committee thereof, however called or noticed, or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum be present and if, either before or after the meeting, each of the
directors not present shall sign a written waiver of notice, or a consent to
holding such meeting, or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
SECTION 7. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or of such
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board or committee.
SECTION 8. Fees and Compensation. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by resolution of the Board of
Directors or by a Committee thereof duly appointed pursuant to Section 9(b) of
this Article III.
SECTION 9. Committees.
(a) Executive Committee: Unless otherwise provided in the Certificate of
Incorporation, the Board of Directors may, by resolution passed by a majority of
the whole Board, appoint an Executive Committee of not less than one member,
each of whom shall be a director. The Executive Committee, to the extent
provided in the resolution and as permitted by law, shall have and may exercise
when the Board of Directors is not in session all the powers and authority of
the Board in the management of the business and affairs of the corporation;
provided that, unless the resolution expressly so provides, the Executive
Committee shall not have the power or authority to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to Section 253 of the Delaware General Corporation Law; and
provided further, that the Executive Committee shall not have the power or
authority to amend the Certificate of Incorporation (except that the Executive
Committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the Delaware General Corporation Law, fix any
of the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of the assets of the corporation, or the
conversion into, or exchange of shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation), to adopt an agreement of merger or consolidation under Sections
251 or 252 of the Delaware General Corporation law, to recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, to recommend to the stockholders of the
Corporation a dissolution of the Corporation or a revocation of a dissolution,
or to amend these By-Laws.
(b) Other Committees: Except as otherwise provided in the Certificate of
Incorporation, the Board of Directors may, by resolution passed by a majority of
the whole Board, from time to time appoint such other committees as may be
permitted by law. Such other committees appointed by the Board of Directors
shall have such powers and perform such duties as may be prescribed by the
resolution or resolutions creating such committee, but in no event shall any
such committee have the powers denied to the Executive Committee in these
By-Laws.
(c) Term: Unless otherwise provided by a resolution passed by a majority of
the whole Board, a member of any committee of the Board of Directors shall serve
a term coexistent with his term as a member of the Board of Directors. Except as
otherwise provided in the Certificate of Incorporation, (i) the Board, subject
to the provisions of subsections (a) or (b) of this Section 9, may at any time
increase or decrease the number of members of a committee or terminate the
existence of a committee; provided, that no committee shall consist of less than
one member, (ii) the membership of a committee member shall terminate on the
date of his death or voluntary resignation, but the Board may at any time for
any reason remove any individual committee member and the Board may fill any
committee vacancy created by death, resignation, removal or increase in the
number of members of the committee, and (iii) the Board of Directors may
designate one or
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more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(d) Meetings: Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 9 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter; special meetings of any such
committee may be held at the principal office of the corporation required to be
maintained pursuant to Section 2 of Article I hereof; or at any place which has
been designated from time to time by resolution of such committee or by written
consent of all members thereof, and may be called by any director who is a
member of such committee, upon written notice to the members of such committee
of the time and place of such special meeting given in the manner provided for
the giving of written notice to members of the Board of Directors of the time
and place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time after the meeting
and will be waived by any director by attendance thereat. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
ARTICLE IV
OFFICERS
SECTION 1. Officers Designated. The officers of the corporation shall be a
Chairman of the Board of Directors, a Vice Chairman of the Board of Directors, a
Chief Executive Officer, one or more Vice-Presidents, a Secretary and a
Treasurer or Chief Financial Officer. The order of the seniority of the Vice
Presidents shall be in the order of their nomination, unless otherwise
determined by the Board of Directors. The Board of Directors or the President
may also appoint one or more Assistant Secretaries, Assistant Treasurers, and
such other officers and agents with such powers and duties as it or he shall
deem necessary. The Board of Directors may assign such additional titles to one
or more of the officers as they shall deem appropriate. Any one person may hold
any number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 2. Tenure and Duties of Officers.
(a) General: All officers shall hold office at the pleasure of the Board of
Directors and until their successors shall have been duly elected and qualified,
unless sooner removed. Any officer elected or appointed by the Board of
Directors may be removed at any time by the Board of Directors. If the office of
any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors. Nothing in these By-Laws shall be construed as creating any
kind of contractual right to employment with the corporation.
(b) Duties of the Chairman of the Board of Directors: The Chairman of the
Board of Directors shall preside at all meetings of the shareholders and the
Board of Directors at which he is present. The Chairman of the Board of
Directors shall perform such other duties and have such other powers as the
Board of Directors shall designate from time to time.
(c) Duties of the Vice Chairman of the Board of Directors: The Vice
Chairman of the Board of Directors shall preside at all meetings of the
shareholders and the Board of Directors at which the Chairman of the Board of
Directors is not present. The Vice Chairman of the Board of Directors shall
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time.
(d) Duties of the Chief Executive Officer: The Chief Executive Officer
shall be the chief executive officer of the corporation with overall management
and supervisory control of the business and affairs of the
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corporation subject to the direction and control of the Board of Directors. In
addition, the Chief Executive Officer shall be the chief operating officer of
the corporation with general management and day-to-day control of the business
and affairs of the corporation subject to the direction and control of the Chief
Executive Officer and of the Board of Directors. The Chief Executive Officer
shall perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(e) Duties of Vice-Presidents: The Vice-Presidents, in the order of their
seniority, may assume and perform the duties of the Chief Executive Officer in
the absence or disability of the Chief Executive Officer or whenever the office
of the Chief Executive Officer is vacant. The Vice-Presidents shall perform such
other duties and have such other powers as the Board of Directors or the Chief
Executive Officer shall designate from time to time.
(f) Duties of Secretary: The Secretary shall attend all meetings of the
shareholders and of the Board of Directors and any committee thereof, and shall
record all acts and proceedings thereof in the minute book of the corporation.
The Secretary shall give notice, in conformity with these By-Laws, of all
meetings of the shareholders, and of all meetings of the Board of Directors and
any Committee thereof requiring notice. The Secretary shall perform such other
duties and have such other powers as the Board of Directors shall designate from
time to time. The Chief Executive Officer may direct any Assistant Secretary to
assume and perform the duties of the Secretary in the absence or disability of
the Secretary, and each Assistant Secretary shall perform such other duties and
have such other powers as the Board of Directors or the Chief Executive Officer
shall designate from time to time.
(g) Duties of Treasurer or Chief Financial Officer: The Treasurer or Chief
Financial Officer shall keep or cause to be kept the books of account of the
corporation in a thorough and proper manner, and shall render statements of the
financial affairs of the corporation in such form and as often as required by
the Board of Directors or the Chief Executive Officer. The Treasurer or Chief
Financial Officer, subject to the order of the Board of Directors, shall have
the custody of all funds and securities of the corporation. The Treasurer or
Chief Financial Officer shall perform all other duties commonly incident to his
or her office and shall perform such other duties and have such other powers as
the Board of Directors or the Chief Executive Officer shall designate from time
to time. The Chief Executive Officer may direct any Assistant Treasurer to
assume and perform the duties of the Treasurer or Cheif Financial Officer in the
absence or disability of the Treasurer or Cheif Financial Officer, and each
Assistant Treasurer shall perform such other duties and have such other powers
as the Board of Directors or the Chief Executive Officer shall designate from
time to time.
ARTICLE V
EXECUTION OF CORPORATE INSTRUMENTS, AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 1. Execution of Corporate Instruments.
(a) The Board of Directors may, in its discretion, determine the method and
designate the signatory officer or officers, or other person or persons, to
execute any corporate instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such execution
or signature shall be binding upon the corporation.
(b) Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, formal contracts of the corporation, promissory
notes, deeds of trust, mortgages and other evidences of indebtedness of the
corporation, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the corporation,
shall be executed, signed or endorsed by the Chairman of the Board, the Vice
Chairman or the Chief Executive Officer; such documents may also be executed by
any Vice-President and by the Secretary or Treasurer or any Assistant Secretary
or Assistant Treasurer. All other instruments and documents requiring the
corporate signature, but not requiring the corporate seal, may be executed as
aforesaid or in such other manner as may be directed by the Board of Directors.
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(c) All checks and drafts drawn on banks or other depositories on funds to
the credit of the corporation, or in special accounts of the corporation, shall
be signed by such person or persons as the Board of Directors shall authorize so
to do.
SECTION 2. Voting of Securities Owned by Corporation. All stock and other
securities of other corporations owned or held by the corporation for itself, or
for other parties in any capacity, shall be voted, and all proxies with respect
thereto shall be executed, by the person authorized so to do by resolution of
the Board of Directors or, in the absence of such authorization, by the Chairman
of the Board, or by the Chief Executive Officer, or by any Vice-President.
ARTICLE VI
SHARES OF STOCK
SECTION 1. Form and Execution of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certification of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by, or in the
name of the corporation by, the Chairman of the Board, or by the Chief Executive
Officer or any Vice-President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. If the corporation shall be
authorized to issue more than one class of stock or more than one series of any
class, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock, provided that, except as otherwise provided in section 202 of the
Delaware General Corporation Law, in lieu of the foregoing requirements, there
may be set forth on the face or back of the certificate which the corporation
shall issue to represent such class or series of stock, a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 2. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
indemnify the corporation in such manner as it shall require and/or to give the
corporation a surety bond in such form and amount as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost or destroyed.
SECTION 3. Transfers. Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a certificate or
certificates for a like number of shares, properly endorsed.
SECTION 4. Fixing Record Dates.
(a) In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting. If no record
date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the
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day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the date on which the meeting is held. A determination of stockholders
of record entitled notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by the Delaware General Corporation Law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the books in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, returned receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
SECTION 5. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
OTHER SECURITIES OF THE CORPORATION
All bonds, debentures and other corporate securities of the corporation,
other than stock certificates, may be signed by the Chairman of the Board, or
the Chief Executive Officer or any Vice-President or such other person as may be
authorized by the Board of Directors and the corporate seal impressed thereon or
a facsimile of such seal imprinted thereon and attested by the signature of the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer;
provided, however, that where any such bond, debenture or other corporate
security shall be authenticated by the manual signature of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signature of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation, or such other person as may be
authorized by the Board of Directors, or bear imprinted thereon the facsimile
signature of such person. In case any officer who shall have signed or attested
any bond, debenture or other corporate security, or whose facsimile signature
shall appear thereon or before the bond, debenture or other corporate security
so signed or attested shall have been delivered, such bond, debenture or other
corporate security nevertheless may be adopted by the corporation and issued and
delivered
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as though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE VII
CORPORATE SEAL
The corporate seal shall consist of a die bearing the name of the
corporation and the state and date of its incorporation. Said seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE IX
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 1. Right to Indemnification. Each person who was or is a party or
is threatened to be made a party to or is involved (as a party, witness, or
otherwise), in any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "Proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation or
of a partnership, joint venture, trust, or other enterprise, including service
with respect to employee benefit plans, whether the basis of the Proceeding is
alleged action in an official capacity as a director, officer, employee, or
agent or in any other capacity while serving as a director, officer, employee,
or agent (hereafter an "Agent"), shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended or interpreted (but, in the
case of any such amendment or interpretation, only to the extent that such
amendment or interpretation permits the corporation to provide broader
indemnification rights than were permitted prior thereto) against all expenses,
liability, and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties, and amounts paid or to be paid in settlement, and any
interest, assessments, or other charges imposed thereon, and any federal, state,
local, or foreign taxes imposed on any Agent as a result of the actual or deemed
receipt of any payments under this Article) reasonably incurred or suffered by
such person in connection with investigating, defending, being a witness in, or
participating in (including on appeal), or preparing for any of the foregoing
in, any Proceeding (hereinafter "Expenses"); provided, however, that, except as
provided in Section 3 of this Article IX, the corporation shall indemnify any
such Agent seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the corporation's Board of Directors. The right to indemnification
conferred in this Article shall be a contract right.
SECTION 2. Authority to Advance Expenses. Expenses incurred by an officer
or director in defending a Proceeding (whether the basis of the Proceeding is an
alleged action in an official capacity or in any other capacity while serving as
a director or officer, including, without limitation, service to an employee
benefit plan) shall be paid by the corporation in advance of the final
disposition of such Proceeding, provided, however, that such Expenses incurred
by a director or officer in his capacity as a director or officer shall be
advanced only upon delivery to the corporation of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Article or otherwise. Expenses incurred by other Agents of
the corporation may be advanced upon such terms and conditions as the Board of
Directors deems appropriate. Any obligation to reimburse the corporation for
Expense advances shall be unsecured and no interest shall be charged thereon.
SECTION 3. Right of Claimant to Bring Suit. If a claim under Section 1 or 2
of this Article is not paid in full by the corporation within ninety (90) days
after a written claim has been received by the corporation, the claimant may at
any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense (including attorneys' fees) of
prosecuting such claim. The burden of proof of such proceeding shall be on the
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claimant to establish that such claimant is entitled to be indemnified under
this Article. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending a Proceeding in
advance of its final disposition where the required undertaking has been
tendered to the corporation) that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed. The burden of
proving such a defense shall be on the corporation. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper under the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant had not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
SECTION 4. Provisions Nonexclusive. The rights conferred on any person by
this Article shall not be exclusive of any other rights that such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. To the extent that any provision of the
Certificate, agreement, or vote of the stockholders or disinterested directors
is inconsistent with these bylaws, the provision, agreement, or vote shall take
precedence.
SECTION 5. Authority to Insure. The corporation may purchase and maintain
insurance to protect itself and any Agent against any Expense, whether or not
the corporation would have the power to indemnify the Agent against such Expense
under applicable law or the provisions of this Article.
SECTION 6. Survival of Rights. The rights provided by this Article shall
continue as to a person who has ceased to be an Agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
SECTION 7. Settlement of Claims. The corporation shall not be liable to
indemnify any Agent under this Article (a) for any amounts paid in settlement of
any action or claim effected without the corporation's written consent, which
consent shall not be unreasonably withheld; or (b) for any judicial award if the
corporation was not given a reasonable and timely opportunity, at its expense,
to participate in the defense of such action.
SECTION 8. Effect of Amendment. Any amendment, repeal, or modification of
this Article shall not adversely affect any right or protection of any Agent
existing at the time of such amendment, repeal, or modification. This Section 8
shall not be altered, amended or repealed in any respect, nor may any provision
inconsistent therewith be adopted, unless such alteration, amendment, repeal or
adoption is made in accordance with Article Seventh of the corporation's
Certificate of Incorporation.
SECTION 9. Subrogation. In the event of payment under this Article, the
corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Agent, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the corporation effectively to
bring suit to enforce such rights.
SECTION 10. No Duplication of Payments. The corporation shall not be liable
under this Article to make any payment in connection with any claim made against
the Agent to the extent the Agent has otherwise actually received payment (under
any insurance policy, agreement, vote, or otherwise) of the amounts otherwise
indemnifiable hereunder.
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ARTICLE X
NOTICES
Whenever, under any provisions of these By-Laws, notice is required to be
given to any stockholder, the same shall be given in writing, timely and duly
deposited in the United States Mail, postage prepaid, and addressed to his last
known post office address as shown by the stock record of the corporation or its
transfer agent. Any notice required to be given to any director may be given by
the method hereinabove stated, or by telegram or other means of electronic
transmission, except that such notice other than one which is delivered
personally, shall be sent to such address or (in the case of facsimile
telecommunication) facsimile telephone number as such director shall have filed
in writing with the Secretary of the corporation, or, in the absence of such
filing, to the last known post office address of such director. If no address of
a stockholder or director be known, such notice may be sent to the office of the
corporation required to be maintained pursuant to Section 2 of Article I hereof.
An affidavit of mailing, executed by a duly authorized and competent employee of
the corporation or its transfer agent appointed with respect to the class of
stock affected, specifying the name and address or the names and addresses of
the stockholder or stockholders, director or directors, to whom any such notice
or notices was or were given, and the time and method of giving the same, shall
be conclusive evidence of the statements therein contained. All notices given by
mail, as above provided, shall be deemed to have been given as at the time of
mailing and all notices given by telegram or other means of electronic
transmission shall be deemed to have been given as at the sending time recorded
by the telegraph company or other electronic transmission equipment operator
transmitting the same. It shall not be necessary that the same method of giving
be employed in respect of all directors, but one permissible method may be
employed in respect of any one or more, and any other permissible method or
methods may be employed in respect of any other or others. The period or
limitation of time within which any stockholder may exercise any option or
right, or enjoy any privilege or benefit, or be required to act, or within which
any director may exercise any power or right, or enjoy any privilege, pursuant
to any notice sent him in the manner above provided, shall not be affected or
extended in any manner by the failure of such a stockholder or such director to
receive such notice. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation, or of these
By-Laws, a waiver thereof in writing signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Whenever notice is required to be given, under any provision
of law or of the Certificate of Incorporation or By-Laws of the corporation, to
any person with whom communication is unlawful, the giving of such notice to
such person shall not be required and there shall be no duty to apply to any
governmental authority or agency for a license or permit to give such notice to
such person. Any action or meeting which shall be taken or held without notice
to any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given. In the event that the action
taken by the corporation is such as to require the filing of a certificate under
any provision of the Delaware General Corporation Law, the certificate shall
state, if such is the fact and if notice is required, that notice was given to
all persons entitled to receive notice except such persons with whom
communication is unlawful.
ARTICLE XI
AMENDMENTS
Except as provided in the Certificate of Incorporation, these By-Laws may
be repealed, altered or amended or new By-Laws adopted by written consent of
stockholders in the manner authorized by Section 11 of Article II, or at any
meeting of the stockholders, either annual or special, by the affirmative vote
of a majority of the stock entitled to vote at such meeting. Except as provided
in the Certificate of Incorporation, the Board of Directors shall also have the
authority to repeal, alter or amend these By-Laws or adopt new By-Laws by
unanimous written consent or at any annual, regular, or special meeting by the
affirmative vote of a majority of the whole number of directors, subject to the
power of the stockholders to change or repeal such By-Laws and provided that the
Board of Directors shall not make or alter any By-Laws fixing the
qualifications, classifications, or term of office of directors.
(50)
<PAGE> 15
CERTIFICATE OF SECRETARY
The undersigned, Secretary of Coram Healthcare Corporation, a Delaware
corporation, hereby certifies that the foregoing is a full, true and correct
copy of the By-laws of said Corporation, with all amendments to date of this
Certificate.
WITNESS the signature of the undersigned and the seal of the Corporation
this 10th day of May, 1994.
/s/ KEVIN M. HIGGINS
-----------------------------
Kevin M. Higgins, Secretary
(51)
<PAGE> 1
EXHIBIT 5.1 TO
REGISTRATION STATEMENT
ON FORM S-4
[Letterhead of Brobeck, Phleger & Harrison]
June 3, 1994
Coram Healthcare Corporation
One Lakeshore Centre
33281 Guasti Road, Suite 700
Ontario, California 91761
Gentlemen:
At your request, we have examined the Registration Statement ("Registration
Statement") on Form S-4 dated May , 1994 to be filed with the Securities and
Exchange Commission on that date, in connection with the registration under the
Securities Act of 1933, as amended, of 42,311,537 shares of your Common Stock,
$.001 par value ("the Common Stock") issuable in connection with the merger (the
"Merger") contemplated by the Agreement and Plan of Merger dated as of February
6, 1994, as amended by that certain First Amendment to Agreement and Plan of
Merger dated as of May 25, 1994 by and among Coram Healthcare Corporation
(formerly CHM Holding Corporation), a Delaware corporation ("Coram"), T2
Medical, Inc., a Delaware corporation, Curaflex Health Services, Inc., a
Delaware corporation, HealthInfusion, Inc., a Florida corporation, Medisys,
Inc., a Delaware corporation, T2 Acquisition Company, a Delaware corporation,
CHS Acquisition Company, a Delaware corporation, HII Acquisition Company, a
Florida corporation, and MI Acquisition Company, a Delaware corporation (the
"Merger Agreement").
As counsel to Coram in connection with the Registration Statement, we have
examined the proceedings taken and are familiar with the proceedings proposed to
be taken by Coram in connection with entering into the Merger Agreement and
authorizing the issuance of the shares of Common Stock to be issued in the
Merger (the "Merger Shares").
Based upon the foregoing, it is our opinion that, upon conclusion of the
proceedings being taken or contemplated by us, as your counsel, to be taken
prior to the issuance of the Merger Shares, including, without limitation,
following stockholder approval thereof in the manner contemplated by the
Registration Statement and Merger Agreement, and upon completion of the
proceedings being taken in order to permit such transactions to be carried out
in accordance with the securities laws of the various states where required, the
Merger Shares when issued and sold in the manner set forth in the Registration
Statement, will be validly issued, fully paid and nonassessable shares of Common
Stock.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to us under the caption "Legal Matters" in the
Joint Proxy Statement/Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ BROBECK, PHLEGER &
HARRISON
Brobeck, Phleger & Harrison
(52)
<PAGE> 1
EXHIBIT 8.1 TO
REGISTRATION STATEMENT
ON FORM S-4
[Letterhead of Brobeck, Phleger & Harrison]
, 1994
Coram Healthcare Corporation
One Lakeshore Centre
33281 Guasti Road, Suite 700
Ontario, California 91761
T2 Medical, Inc.
1121 Alderman Drive
Alpharetta, Georgia 30202
RE: Coram Acquisition of T2 Medical/Tax Opinion
Gentlemen:
You have requested our opinion with respect to certain federal income tax
consequences of the acquisition of T2 Medical, Inc. ("T2") by Coram Healthcare
Corporation ("Coram"). The acquisition will be accomplished by a merger of a
wholly owned subsidiary of Coram, T2 Acquisition Company ("Subsidiary"), with
and into T2 (the "Merger") pursuant to an Agreement and Plan of Merger dated as
of February 6, 1994, as amended on May 25, 1994 (as amended, the "Merger
Agreement"), among Coram, T2, Subsidiary and other parties.
In rendering the opinion expressed herein, we have reviewed the Merger
Agreement and the Proxy Statement describing the Merger (the "Proxy Statement").
Terms not otherwise defined in this letter shall have the meaning ascribed to
them in the Proxy Statement.
We have relied upon the accuracy of the factual statements and
representations set forth in the Merger Agreement and the Proxy Statement. In
addition, we have relied upon certain further representations relating to the
Merger provided by Coram, T2 and certain shareholders of T2. This opinion is
expressly conditioned upon the accuracy, as of the effective time of the Merger
(the "Effective Time"), of the aforementioned factual statements and
representations. We have not undertaken, nor are we in a position to undertake,
any independent investigation to verify the accuracy of such factual statements
or representations.
FACTS RELATING TO THE MERGER
Based on the aforementioned statements and representations, we understand
the relevant facts relating to the Merger to be as follows:
(i) Coram, T2 and Subsidiary are Delaware corporations.
(ii) At the Effective Time, Subsidiary will be merged with and into T2 in
accordance with the applicable provisions of the Delaware General Corporation
Law. T2 will be the surviving corporation, and the separate existence of
Subsidiary will cease as a result of the Merger. T2 will succeed to all assets,
rights, liabilities and obligations of Subsidiary as a matter of law and will
otherwise continue unaffected and unimpaired by the Merger. Each outstanding
share of Subsidiary's stock will be converted into one share of common stock of
T2.
(53)
<PAGE> 2
(iii) At the Effective Time, all issued and outstanding shares of T2 common
stock ("T2 Stock") will automatically be converted into shares of Coram common
stock ("Coram Stock") in accordance with the terms of the Merger Agreement. At
the Effective Time T2 will have no capital stock outstanding other than the T2
Stock.
(iv) No fractional shares of Coram Stock will be issued in connection with
the Merger. Each T2 shareholder who otherwise would be entitled to a fractional
share of Coram Stock will be entitled to a cash payment in lieu of such
fractional shares as prescribed in the Merger Agreement.
(v) The Merger Agreement was negotiated by Coram and T2 at arm's length,
and the performance of the Merger Agreement is intended to provide each T2
shareholder with Coram Stock having a fair market value approximately equal to
the fair market value of the T2 Stock to be surrendered in exchange therefor.
(vi) The T2 shareholders do not, and will not on or before the Effective
Time, have a plan or intention to sell, exchange, or otherwise dispose of Coram
Stock to be received in the Merger (or to dispose of T2 Stock in anticipation of
the Merger) such that the shareholders of T2 will not receive or retain a
meaningful continuing equity ownership in Coram that is sufficient to satisfy
the continuity of interest requirements as specified in Section 1.368-1(b) of
the Treasury Regulations and as interpreted in certain Internal Revenue Service
rulings and federal judicial decisions.
(vii) Coram has no present plan or intention to reacquire any of the shares
of Coram Stock to be issued in the Merger.
(viii) Coram has no present plan or intention to liquidate T2 to merge T2
with or into another corporation after the Merger, or to cause T2 to sell or
otherwise dispose of any of its assets after the Merger (except for dispositions
of assets made in the ordinary course of business or the payment of expenses
incurred by T2 pursuant to the Merger).
(ix) Subsidiary will have no liabilities that are assumed by T2 in the
Merger and will not transfer to T2 any assets subject to liabilities in the
Merger.
(x) Prior to the Merger, Coram will be in control of Subsidiary within the
meaning of Section 368(c) of the Internal Revenue Code of 1986, as amended (the
"Code").
(xi) Coram has no plan or intention to cause T2 to issue additional shares
of its stock that would result in Coram losing "control" of T2 within the
meaning of Section 368(c) of the Code.
(xii) Following the Merger, Coram will cause T2 to continue its historic
business.
(xiii) Coram, T2 and the shareholders of T2 will each pay their own
expenses incurred in connection with the Merger.
(xiv) There is no intercorporate indebtedness existing between Coram and T2
that was issued, acquired, settled or that will be settled at a discount.
(xv) Coram does not own, nor has it ever owned, any shares of the stock of
T2.
(xvi) No two parties to the Merger are investment companies as defined in
Sections 368(a)(2)(F)(iii) and (iv) of the Code.
(xvii) On the date of the Merger, the fair market value of the assets of T2
will exceed its liabilities.
(xviii) Neither Coram, T2 nor Subsidiary is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code.
(xix) The payment of cash in lieu of fractional shares of Coram Stock is
solely for the purpose of avoiding the expense and inconvenience to Coram of
issuing fractional shares and does not represent separately bargained-for
consideration. No T2shareholder will receive cash in an amount equal to or
greater than the value of one full share of Coram Stock.
(54)
<PAGE> 3
(xx) Following the Merger, T2 will hold "substantially all" of its and
Subsidiary's assets within the meaning of Section 368(a)(2)(E)(i) of the Code
and the regulations promulgated thereunder. For this purpose, any amounts paid
by T2 or Subsidiary to T2 shareholders who receive cash or other property, any
amounts used by T2 or Subsidiary to pay reorganization expenses, and any
redemptions and distributions (except for regular, normal dividends) made by T2
in contemplation of the Merger, in connection with the Merger and/or pursuant to
a plan or intention at the Effective Time will be included as assets held by T2
or Subsidiary, respectively, immediately prior to the Merger and not held by T2
or Subsidiary after the Merger.
(xxi) Upon the Merger, shares of T2 Stock representing "control" of T2, as
defined in Section 368(c) of the Code will be exchanged solely for voting stock
of Coram. For this purpose, any shares of T2 Stock exchanged for cash or other
property originating from Coram will be treated as outstanding T2 Stock on the
date of the Merger.
(xxii) Upon the Merger, T2 will not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any person
could acquire stock in T2that, if exercised or converted, would affect Coram's
acquisition or retention of control of T2, as defined in Section 368(c) of the
Code.
OPINIONS
We are of the opinion that, assuming the consummation of the Merger in
accordance with the Merger Agreement and the accuracy of the factual statements
and representations set forth above as of the Effective Time, the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Sections 368(a) of the Code and Coram and T2 will each be a party to the
reorganization within the meaning of Section 368(b) of the Code. Accordingly,
the following tax consequences will result to the T2shareholders:
1. No gain or loss will be recognized by a T2shareholder upon receipt of
shares of Coram Stock in exchange for his or her shares of T2 Stock
pursuant to the Merger Agreement.
2. The aggregate tax basis of the shares of Coram Stock received by a T2
shareholder in exchange for his or her shares of T2 Stock will be the
same as the aggregate tax basis of the T2 Stock surrendered in the
Merger (less any basis attributable to a fractional share of Coram Stock
deemed to be received and disposed of).
3. The holding period of the Coram Stock received by a T2 shareholder in
the Merger will include the period during which such shareholder owned
the shares of T2 Stock surrendered in exchange for the Coram Stock,
provided the T2 Stock so surrendered was held as a capital asset at the
Effective Time.
4. Any shareholder of T2 who receives cash in lieu of a fractional share of
Coram Stock will recognize gain or loss for federal income tax purposes
equal to the difference between the cash received in lieu of such
fractional share of Coram Stock and the basis which would otherwise be
allocable to the fractional share of Coram Stock. For this purpose, the
basis which would otherwise be allocable to a fractional share of Coram
Stock will be determined as if such shareholder had received such
fractional share of Coram Stock in the Merger.
Our opinion is subject to the exceptions, limitations and qualifications
set forth below.
A. This opinion represents only our best legal judgment as to the probable
outcome of the tax issues addressed herein and is not binding on the Internal
Revenue Service or the courts. Our opinion is based on the Code and existing
judicial decisions and administrative pronouncements, all of which are subject
to change at any time, prospectively or retroactively. No assurance can be given
that future legislation, regulations, administrative pronouncements or court
decisions will not significantly change the law and materially affect the
conclusions expressed herein. Any such change could significantly alter the tax
consequences of the Merger.
B. This opinion addresses only the tax consequences specifically enumerated
above and does not address any other federal, state, local or foreign tax
consequences that may result to Coram, T2 or their shareholders from the Merger
or any other transaction (including any transaction undertaken in connection
with the Merger). In addition, we express no opinion regarding the tax
consequences of the Merger that may be
(55)
<PAGE> 4
relevant to particular classes of T2 shareholders such as dealers in securities,
corporate shareholders subject to the alternative minimum tax and foreign
persons. We furthermore express no opinion as to the tax treatment of the Merger
to holders of warrants, options or other rights to purchase T2 Stock. Finally,
we express no opinion as to the tax consequences to any party of any
compensation for services paid in connection with or pursuant to the Merger.
C. No opinion is expressed as to the tax consequences of the Merger if all
of the transactions described in the Merger Agreement are not consummated in
accordance with the terms of such Merger Agreement and without waiver or breach
of any material provision thereof or if all of the representations, statements
and assumptions upon which we relied are not true and accurate at all relevant
times. In the event any of such statements, representations or assumptions is
incorrect, our opinion might be altered and may not be relied upon.
D. This opinion is intended solely for the purpose of the satisfaction of
the condition set forth in Section 8.2(b) of the Merger Agreement. This opinion
may not be relied upon by any person or entity other than Coram and T2, and may
not be made available to any other person or entity without our prior written
consent. We hereby consent to the inclusion of this opinion as an exhibit to the
Registration on Form S-4 of Coram.
Very truly yours,
BROBECK, PHLEGER & HARRISON
(56)
<PAGE> 1
Exhibit 8.2 to
Registration Statement
on Form S-4
[Letterhead of Morrison & Foerster]
_______, 1994
Curaflex Health Services, Inc.
3281 Guasti Road, Suite 800
Ontario, California 91761
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 8.2(b)
of the Agreement and Plan of Merger (the "Merger Agreement") dated as of the
February 6, 1994, by and among Curaflex Health Services, Inc., a Delaware
corporation ("Curaflex"), HealthInfusion Inc., a Florida corporation
("HealthInfusion"), Medisys, Inc., a Delaware corporation ("Medisys"), T(2)
Medical, Inc., a Delaware corporation ("T(2)"), Coram Healthcare Corporation
(formerly CHM Holding Corporation), a Delaware corporation ("Coram"), and four
wholly owned subsidiaries of Coram -- CHS Acquisition Company, a Delaware
corporation ("CHS"), HII Acquisition Company, a Florida corporation ("HII"), MI
Acquisition Company, a Delaware corporation ("MI"), and T(2) Acquisition
Company, a Delaware corporation ("T(2) Sub"). Pursuant to the Merger
Agreement, CHS will merge with and into Curaflex (hereinafter referred to as
the "Curaflex Merger"), HII will merge with and into HealthInfusion, MI will
merge with and into Medisys, and T(2) Sub will merge with and into T(2)
(collectively, the "Mergers") in a series of transactions in which each of the
surviving companies (i.e., Curaflex, HealthInfusion, Medisys and T(2)) will
become a wholly owned subsidiary of Coram and the former stockholders of each
surviving company will receive shares of Coram's common stock ("Coram Common
Stock"), all on the terms set forth in the Merger Agreement.
Capitalized terms not defined herein have the meanings set forth in
the Merger Agreement or in a certificate executed by the officers of Coram,
Curaflex and CHS and delivered to us by Coram, Curaflex and CHS containing
certain
(57-A)
<PAGE> 2
Curaflex Health Services, Inc.
_______, 1994
Page Two
representations of Coram, Curaflex and CHS and attached hereto as Exhibit "A"
(the "Certificate of Representations"). All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
We have acted as legal counsel solely to Curaflex in connection
with the Mergers, and as such, we have considered the federal income tax
consequences only of the Curaflex Merger in this opinion. For the purpose of
rendering this opinion, we have examined original, certified copies or copies
otherwise identified to our satisfaction as being true copies of the original
of the following documents, including all exhibits and schedules attached
thereto: (i) the Merger Agreement; (ii) the Certificate of Representations;
(iii) The Joint Proxy Statement/Prospectus and the Registration Statement; and
(iv) such other instruments and documents related to the formation,
organization and operation of Coram, Curaflex and CHS and related to the
consummation of the Curaflex Merger and the transactions contemplated in the
Merger Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have relied upon the
truth and accuracy of each representation set forth in the Certificate of
Representations delivered to us by Coram, Curaflex and CHS, attached hereto as
Exhibit "A" and incorporated herein by this reference. In addition, we have
assumed the following, without making any independent investigation or review
thereof:
(a) original documents (including signatures) are authentic,
documents submitted to us as copies conform to the original
documents, and that there is due execution and delivery of
all documents where due execution and delivery are a
prerequisite to effectiveness thereof;
(b) the truth and accuracy, at all relevant times, of all
representations, warranties, and statements made by Coram,
Curaflex and CHS, their management and stockholders in
connection with the Curaflex Merger, including but not
limited to those set forth in the Merger Agreement
(including the exhibits);
(57-B)
<PAGE> 3
Curaflex Health Services, Inc.
_______, 1994
Page Three
(c) the existence of any facts which have been represented to
the best knowledge of any person;
(d) prior to the effectiveness of the Curaflex Merger, Coram
will be in "control" of CHS within the meaning of Section
368(c) of the Code; Coram formed CHS solely for the purposes
of effectuating the Curaflex Merger and at any time prior to
the Curaflex Merger, CHS has not and will not conduct any
business or investment activities;
(e) Coram has no plan or intention to: (i) reacquire any of its
stock issued in the Curaflex Merger; (ii) liquidate
Curaflex; (iii) merge Curaflex with and into another
corporation; (iv) sell or otherwise dispose of the stock of
Curaflex, except for transfers of Curaflex Common Stock to
corporations controlled (within the meaning of Section
368(c) of the Code) by Coram; or (v) cause Curaflex to sell
or otherwise dispose of any of the assets of CHS acquired in
the Curaflex Merger, except for dispositions in the ordinary
course of business or transfers of assets to a corporation
controlled (within the meaning of Section 368(c) of the
Code) by Curaflex;
(f) there is no intercorporate indebtedness existing between
Coram and Curaflex or between CHS and Curaflex that was
issued, acquired or will be settled at a discount;
(g) the Curaflex Merger will qualify as a statutory merger under
applicable Delaware law;
(h) the payment of cash to shareholders of Curaflex common stock
("Curaflex Common Stock") in lieu of the issuance of
fractional shares of Coram Common Stock in the Curaflex
Merger is solely for the purpose of avoiding the expense and
inconvenience to Coram of
(57-C)
<PAGE> 4
Curaflex Health Services, Inc.
_______, 1994
Page Four
issuing fractional shares and does not represent separately
bargained for consideration. The total amount of
cash that any holder of Curaflex Common Stock will
receive in lieu of a fractional share interest will
not exceed the fair market value (as determined in
accordance with the Merger Agreement) of one share of
Coram Common Stock at the time of the Curaflex
Merger. The consideration for fractional shares will
by paid by Coram. Other than payments for fractional
shares, no other cash payments will be made to
shareholders of Curaflex Common Stock with respect to
such Common Stock pursuant to the Curaflex Merger;
(i) following the effectiveness of the Curaflex Merger,
Curaflex: (i) will not issue additional shares of stock
that would result in Coram losing "control" of Curaflex
within the meaning of Section 368(c) of the Code, and (ii)
will continue the historic business of Curaflex or use a
significant portion of Curaflex's historic business assets
in a business within the meaning of Treasury Regulation
Section 1.368-1(d);
(j) the fair market value of the Coram Common Stock and other
consideration, if any, received by each Curaflex shareholder
will be approximately equal to the fair market value of the
Curaflex Common Stock surrendered in the exchange;
(k) there is no plan or intention by the shareholders of
Curaflex to sell, exchange or otherwise dispose of a number
of shares of Coram Common Stock received in the Curaflex
Merger that would reduce Curaflex shareholders' ownership of
Coram Common Stock to a number of shares having a value as
of the date of the Curaflex Merger of less than fifty
percent of the value of all of the shares of Curaflex Common
Stock issued and outstanding immediately prior to the
Curaflex
(57-D)
<PAGE> 5
Curaflex Health Services, Inc.
_______, 1994
Page Five
Merger. For purposes of this assumption, shares of Curaflex
Common Stock exchanged for cash or other property in lieu of
fractional shares of Coram Common Stock will be treated as
outstanding Curaflex Common Stock immediately prior to the
Curaflex Merger;
(l) following the effectiveness of the Curaflex Merger, Curaflex
will hold at least: (i) ninety percent of the fair market
value of its net assets; (ii) seventy percent of the fair
market value of its gross assets, (iii) ninety percent of
the fair market value of CHS's net assets; and (iv) seventy
percent of the fair market value of CHS's gross assets held
immediately prior to the Curaflex Merger, excluding from
CHS's assets in this calculation any Coram Common Stock held
by CHS. For purposes of this assumption, the following
items will be treated as assets held by Curaflex or CHS,
respectively, immediately prior to the Curaflex Merger for
the purpose of determining the percentage of Curaflex's and
CHS's net and gross assets held by Curaflex following the
Curaflex Merger: amounts paid by Curaflex or CHS to
shareholders who receive cash or other property, amounts
used by Curaflex or CHS to pay reorganization expenses; all
redemptions and distributions (except for regular, normal
dividends) made by Curaflex; and assets disposed of by
Curaflex or CHS (other than assets transferred from CHS to
Curaflex in the Curaflex Merger) prior to or subsequent to
the Curaflex Merger and in contemplation thereof or pursuant
to the Merger Agreement (including any asset disposed of by
Curaflex, other than in the ordinary course of business,
pursuant to a plan or intent existing after the time
negotiations of the Curaflex Merger commenced).
(m) the liabilities of CHS assumed by Curaflex, if any, and the
liabilities to which the transferred assets of CHS are
subject, if any, were incurred by CHS in the ordinary course
of its business;
(57-E)
<PAGE> 6
Curaflex Health Services, Inc.
_______, 1994
Page Six
(n) each of the parties to the Curaflex Merger and the
shareholders of Curaflex Common Stock will pay their
respective expenses, if any, incurred in connection with the
Curaflex Merger;
(o) no two parties to the Curaflex Merger are investment
companies as defined in Section 368(a)(2)(F)(iii) and (iv)
of the Code;
(p) Curaflex is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section
368(a)(3)(A) of the Code;
(q) at the time of the Curaflex Merger, the fair market value of
the assets of Curaflex will exceed the sum of its
liabilities, plus the amount of liabilities, if any, to
which those assets are subject;
(r) no compensation received or to be received by any
shareholder-employee of Curaflex will be separate
consideration for, or allocable to, any of their shares of
Curaflex Common Stock; none of the shares of Coram Common
Stock received by any shareholder-employee of Curaflex will
be separate consideration for, or allocable to, any
employment agreement or convenant not to compete; and any
compensation paid to any shareholder-employee of Curaflex
subsequent to the Curaflex Merger will be for services
actually rendered and will be commensurate with amounts paid
to third parties bargaining at arm's-length for similar
services;
(s) at the time of the Curaflex Merger, Curaflex will not have
outstanding any warrants, options, convertible securities or
any other type of right pursuant to which any person could
acquire stock in Curaflex that, if exercised or converted,
would affect Coram's acquisition or retention of control of
Curaflex as defined in Section 368(c) of the Code;
(57-F)
<PAGE> 7
Curaflex Health Services, Inc.
_______, 1994
Page Seven
(t) pursuant to the Curaflex Merger, shares of Curaflex Common
Stock representing control of Curaflex as defined in Section
368(c) of the Code will be exchanged solely for voting stock
of Coram. For purposes of this assumption, Curaflex Common
Stock exchanged for cash or other property originating from
Coram will be treated as outstanding Curaflex Common Stock
on the date of the Curaflex Merger;
(u) Coram and its subsidiaries do not own, nor have they owned
during the five years preceding the effectiveness of the
Curaflex Merger, any shares of Curaflex Common Stock;
(v) no shares of CHS have been or will be used as consideration
or issued to the stockholders of Curaflex in the Curaflex
Merger; and
(w) the Coram Common Stock to be issued pursuant to the Curaflex
Merger will not be subject to any restriction whatsoever
(other than any restrictions imposed under any applicable
securities laws), including any escrow, repurchase
restriction, or risk of forfeiture.
Based on our examinations of the foregoing items and subject to (a)
the completion of the proceedings being taken or contemplated to be taken
pursuant to the Merger Agreement, and (b) the limitations, qualification,
assumptions and caveats set forth herein, WE ARE OF THE OPINION THAT:
1. The Curaflex Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section
368(a) of the Code, and Coram, Curaflex and CHS will each be
a party to that reorganization within the meaning of Section
368(b) of the Code.
(57-G)
<PAGE> 8
Curaflex Health Services, Inc.
_______, 1994
Page Eight
2. Except as provided in paragraph (3) below (relating to cash
received in lieu of fractional shares), no gain or loss will
be recognized by any Curaflex shareholder with respect to
the exchange of their Curaflex Common Stock solely for Coram
Common Stock pursuant to the Curaflex Merger.
3. The payment of cash to a shareholder of Curaflex Common
Stock in lieu of a fractional share interest in Coram Common
Stock will be treated as if the fractional share interest
was distributed as part of the Curaflex Merger and then
redeemed by Coram. Accordingly, the tax consequences of
such a cash payment will be determined in accordance with
Section 302 of the Code. Such a redemption is generally
treated as a sale or exchange of the fractional share
interest under Section 302 of the Code and generally gain or
loss (which will constitute capital gain or loss if related
Curaflex Common Stock was held as a capital asset) will be
recognized by the shareholder measured by the difference
between the cash or other property received in lieu of the
fractional share and the portion of the shareholder's tax
basis that is allocated to such fractional share.
4. The aggregate tax basis of the Coram Common Stock received
by a Curaflex shareholder in the Curaflex Merger (including
the tax basis allocable to fractional shares deemed issued
and then redeemed) will be the same as the aggregate tax
basis of the Curaflex Common Stock exchanged for the Coram
Common Stock.
5. The holding period of Coram Common Stock (including any
fractional shares deemed issued and then redeemed) received
by a Curaflex shareholder in exchange for the Curaflex
Common Stock pursuant to
(57-H)
<PAGE> 9
Curaflex Health Services, Inc.
_______, 1994
Page Nine
the Curaflex Merger will include the holding period of the
Curaflex Common Stock that was converted into the Coram
Common Stock, provided that such Curaflex Common Stock was
held as a capital asset at the time of the Curaflex Merger.
This opinion only addresses certain federal income tax consequences
of the Curaflex Merger; it does not address any state, local or foreign tax
consequences that may result from the Curaflex Merger. In addition, no opinion
is expressed as to any federal income tax consequence of the Curaflex Merger
except as specifically set forth herein and this opinion may not be relied upon
except with respect to the consequence specifically discussed herein. This
opinion does not address or purport to address any of the tax consequences to
any person or entity other than Curaflex and the shareholders of Curaflex,
including, but not limited to, the shareholders of Medisys, HII, and T(2).
No opinion is expressed as to any transaction other than the
Curaflex Merger as described in the Merger Agreement or to any transaction
whatsoever including the Curaflex Merger if all the transactions described in
the Merger Agreement are not consummated in accordance with the terms of such
Merger Agreement and without waiver of any material provision thereof or if all
of the representations, warranties, statements and assumptions upon which we
have relied are not true and accurate at all relevant times. If any such
representation, warranty, statement or assumption is not true, correct and
complete in all material respects, our opinion could be adversely affected and
should not be relied upon.
This opinion only represents our best judgment as to the probable
federal income tax consequences of the Curaflex Merger and is not binding on
the Internal Revenue Service or the courts. The conclusions are based on the
Code, existing judicial decisions, administrative regulations and published
rulings. No assurance can be given that future legislative, judicial or
administrative changes would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, in rendering this opinion, we
undertake no responsibility to advise you of any new developments in the
application or interpretation of the federal income tax laws.
(57-I)
<PAGE> 10
Curaflex Health Services, Inc.
_______, 1994
Page Ten
This opinion has been delivered to you for the purposes set forth
in the Merger Agreement and is intended solely for your benefit and the benefit
of your stockholders, and it may not be relied upon for any other purpose or by
any other person or entity, and may not be made available to any other person
or entity without our prior written consent.
Very truly yours,
(57-J)
<PAGE> 1
EXHIBIT 8.3 TO
REGISTRATION STATEMENT
ON FORM S-4
[Letterhead of Oppenheimer Wolff & Donnelly]
, 1994
Medisys, Inc.
4550 West 77th Street
Edina, Minnesota 55435
Ladies and Gentlemen:
You have requested our opinion with respect to the federal income tax
consequences of a proposed merger (the "Merger") of MI Acquisition Company ("MI
Sub"), a Delaware corporation and a wholly owned subsidiary of Coram Healthcare
Corporation, a Delaware corporation ("Coram"), with and into Medisys, Inc., a
Delaware corporation ("Medisys"), with Medisys to be the surviving corporation
and a wholly owned subsidiary of Coram. As a result of the Merger, all of the
outstanding shares of Medisys Common Stock will be converted into shares of
Coram Common Stock, except for cash paid in lieu of fractional shares to Medisys
shareholders.
For purposes of rendering this opinion, we have reviewed and relied upon
the Agreement and Plan of Merger, dated as of February 6, 1994, as amended on
May 25, 1994 (as amended, the "Merger Agreement"), by and among Coram, Medisys,
MI Sub, Curaflex Health Services, Inc., a Delaware corporation ("CHS"), CHS
Acquisition Company, a Delaware corporation and a wholly owned subsidiary of
Coram ("CHS Sub"), HealthInfusion, Inc., a Florida corporation ("HII"), HII
Acquisition Company, a Florida corporation and a wholly owned subsidiary of
Coram ("HII Sub"), T2 Medical, Inc., a Delaware corporation ("T2"), and T2
Acquisition Company, a Delaware corporation and a wholly owned subsidiary of
Coram ("T2 Sub"). Pursuant to the terms of the Merger Agreement, each of CHS,
HII and T2 will also engage in mergers with CHS Sub, HII Sub and T2 Sub,
respectively, and become wholly owned subsidiaries of Coram simultaneously with
the Merger of MI Sub with and into Medisys as described above. Our opinion is
directed only to the Merger of MI Sub with and into Medisys and may be relied
upon only by Medisys and Medisys shareholders. Our opinion does not address or
purport to address any of the tax consequences to any other person or entity,
including but not limited to the shareholders of CHS, HII and T2.
For purposes of rendering this opinion, we have also relied upon (i) the
Joint Proxy Statement/Prospectus furnished to shareholders of Medisys, CHS, HII
and T2 in connection with special meetings of such shareholders to be called to
consider and act upon a proposal to approve the Merger Agreement; (ii) certain
representations, warranties and covenants made to us by the management of
Medisys (which we have relied upon as true in this opinion without our having
performed any independent verification as to the accuracy of the
representations); and (iii) the following assumptions:
(a) Prior to the effectiveness of the Merger, Coram will be in
"control" of MI Sub within the meaning of Section 368(c) of the Internal
Revenue Code of 1986, as amended to date (the "Code").
(b) Coram has no plan or intention to: (i) reacquire any of its stock
issued in the Merger; (ii) liquidate Medisys; (iii) merge Medisys with and
into another corporation; (iv) sell or otherwise dispose of the stock of
Medisys; or (v) cause Medisys to sell or otherwise dispose of any of the
assets of MI Sub acquired in the Merger, except for dispositions in the
ordinary course of business.
(c) There is no intercorporate indebtedness existing between Coram and
Medisys or between MI Sub and Medisys that was issued, acquired or will be
settled at a discount.
(d) The Merger will qualify as a statutory merger under applicable
Delaware law.
(58)
<PAGE> 2
(e) The payment of cash to shareholders of Medisys Common Stock in
lieu of the issuance of fractional shares of Coram Common Stock in the
Merger is solely for the purpose of avoiding the expense and inconvenience
to Coram of issuing fractional shares and does not represent separately
bargained for consideration. Other than payments for fractional shares, no
other cash payments will be made to shareholders of Medisys Common Stock
with respect to such Common Stock pursuant to the Merger.
(f) Following the effectiveness of the Merger, Medisys: (i) will not
issue additional shares of stock that would result in Coram losing
"control" of Medisys within the meaning of Section 368(c) of the Code; and
(ii) will continue the historic business of Medisys or use a significant
portion of Medisys' historic business assets in a business within the
meaning of Treasury Regulation Section 1.368-1(d).
(g) The fair market value of the Coram Common Stock and other
consideration, if any, received by each Medisys shareholder will be
approximately equal to the fair market value of the Medisys Common Stock
surrendered in the exchange.
(h) There is no plan or intention by the shareholders of Medisys to
sell, exchange or otherwise dispose of a number of shares of Coram Common
Stock received in the Merger that would reduce Medisys shareholders'
ownership of Coram Common Stock to a number of shares having a value as of
the date of the Merger of less than fifty percent of the value of all of
the shares of Medisys Common Stock issued and outstanding immediately prior
to the Merger. For purposes of this assumption, shares of Medisys Common
Stock exchanged for cash or other property in lieu of fractional shares of
Coram Common Stock will be treated as outstanding Medisys Common Stock
immediately prior to the Merger.
(i) Following the effectiveness of the Merger, Medisys will hold at
least: (i) ninety percent of the fair market value of its net assets; (ii)
seventy percent of the fair market value of its gross assets; (iii) ninety
percent of the fair market value of MI Sub's net assets; and (iv) seventy
percent of the fair market value of MI Sub's gross assets held immediately
prior to the Merger, excluding from MI Sub's assets in this calculation any
Coram Common Stock held by MI Sub. For purposes of this assumption, amounts
paid by Medisys or MI Sub in lieu of fractional shares; amounts received or
to be received from asset dispositions not in the ordinary course of
business and paid out to reduce or retire long-or short-term debt or for
other purposes, except for regular and normal disbursements, including
disbursements to operate, maintain or expand the businesses of Medisys; and
all redemptions and distributions (except for regular, normal dividends)
made by Medisys or MI Sub will be included as assets of Medisys or MI Sub,
respectively, immediately prior to the Merger.
(j) The liabilities of MI Sub assumed by Medisys, if any, and the
liabilities to which the transferred assets of MI Sub are subject, if any,
were incurred by MI Sub in the ordinary course of its business.
(k) Except as may be specifically provided for in the Merger
Agreement, each of the parties to the Merger and the shareholders of
Medisys Common Stock will pay their respective expenses, if any, incurred
in connection with the Merger.
(l) No two parties to the Merger are investment companies as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(m) Medisys is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(n) At the time of the Merger, the fair market value of the assets of
Medisys will equal or exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which those assets are subject.
(o) No compensation received or to be received by any
shareholder-employee of Medisys will be separate consideration for, or
allocable to, any of their shares of Medisys Common Stock; none of the
shares of Coram Common Stock received by any shareholder-employee of
Medisys will be separate consideration for, or allocable to, any employment
agreement; and any compensation paid to any shareholder-employee of Medisys
subsequent to the Merger will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length
for similar services.
(59)
<PAGE> 3
(p) At the time of the Merger, Medisys will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire stock in Medisys that, if
exercised or converted, would affect Coram's acquisition or retention of
control of Medisys as defined in Section 368(c) of the Code.
(q) Pursuant to the Merger, shares of Medisys Common Stock
representing control of Medisys as defined in Section 368(c) of the Code
will be exchanged solely for voting stock of Coram. For purposes of this
assumption, Medisys Common Stock exchanged for cash or other property
originating from Coram will be treated as outstanding Medisys Common Stock
on the date of the Merger.
(r) Coram and its subsidiaries do not own, nor have they owned during
the five years preceding the effectiveness of the Merger, any shares of
Medisys Common Stock.
(s) Following the effectiveness of the Merger, Coram, Medisys and MI
Sub will comply with all federal income tax reporting requirements mandated
by the Code and, to the best knowledge of the management of Medisys, there
is no plan or intention on the part of shareholders of Medisys Common Stock
not to comply with such reporting requirements.
Based on the representations and qualifications contained herein, and
assuming further that the Merger is carried out in the manner set forth in the
Merger Agreement and the Joint Proxy Statement/Prospectus, we are of the opinion
that the following would be the material Federal income tax consequences
resulting from the consummation of the Merger:
1. The Merger will constitute a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code and Medisys will be a
party to a reorganization within the meaning of Section 368(b) of the Code.
2. Except as provided in paragraph (3) below (relating to cash
received in lieu of fractional shares), no gain or loss will be recognized
by any Medisys shareholder with respect to the exchange of their Medisys
Common Stock solely for Coram Common Stock pursuant to the Merger.
3. The payment of cash to a shareholder of Medisys Common Stock in
lieu of a fractional share interest in Coram Common Stock will be treated
as if the fractional share interest was distributed as part of the Merger
and then redeemed by Coram. Accordingly, the tax consequences of such a
cash payment will be determined in accordance with Section 302 of the Code.
Such a redemption is generally treated as a sale or exchange of the
fractional share interest under Section 302 of the Code and generally gain
or loss (which will constitute capital gain or loss if related Medisys
Common Stock was held as a capital asset) will be recognized by the
shareholder measured by the difference between the cash or other property
received in lieu of the fractional share and the portion of the
shareholder's tax basis that is allocated to such fractional share.
4. The aggregate tax basis of the Coram Common Stock received by a
Medisys shareholder in the Merger (including the tax basis allocable to
fractional shares deemed issued and then redeemed) will be the same as the
aggregate tax basis of the Medisys Common Stock exchanged for the Coram
Common Stock.
5. The holding period of Coram Common Stock (including any fractional
shares deemed issued and then redeemed) received by a Medisys shareholder
in exchange for the Medisys Common Stock pursuant to the Merger will
include the holding period of the Medisys Common Stock that was converted
into the Coram Common Stock, provided that such Medisys Common Stock was
held as a capital asset at the time of the Merger.
Our opinion has been requested by Medisys on its own behalf and on behalf
of its shareholders, and is being rendered to Medisys pursuant to Section 8.2(b)
of the Merger Agreement exclusively for that purpose. No other individual or
entity, whether or not party to the Merger Agreement, may rely upon this opinion
(60)
<PAGE> 4
without the express, prior written consent of both Medisys and the undersigned.
Our opinion is limited to the matters discussed herein, it does not cover other
federal income tax consequences of the Merger. The opinion does not deal with
the specific circumstances of any particular Medisys shareholder, nor does it
cover the application of state, local, foreign or other tax laws. Further, our
opinion is based upon existing laws, regulations, administrative authorities and
judicial decisions, all of which could change with retroactive effect.
Capitalized terms used without definition herein have the meaning specified in
the Merger Agreement.
Very truly yours,
(61)
<PAGE> 1
EXHIBIT 8.4 TO
REGISTRATION STATEMENT
ON FORM S-4
[Letterhead of Arthur Andersen & Co.]
, 1994
HealthInfusion, Inc. & Subsidiaries
5200 Blue Lagoon Drive
Suite 200
Miami, Florida 33126
Re: Agreement and Plan or Merger in which
HealthInfusion, Inc., a Florida corporation,
will merge into and with HII Acquisition
Company, a Florida corporation
Ladies and Gentlemen:
On December 1, 1993, HealthInfusion, Inc. (Company) agreed to a merger
transaction that would result in it becoming a subsidiary of a newly formed
holding company that would also own Curaflex Health Services, Inc. (Curaflex)
and Medisys, Inc. (Medisys) (the Three-Way Merger). On February 6, 1994, the
three companies agreed to amend their original merger agreement to include T2
Medical, Inc. (T2) as a fourth party to the proposed merger (the Four-Way
Merger). The new parent corporation of the group will be named Coram Healthcare
Corporation (Coram).
You have requested our opinion, solely with respect to Company and its
shareholders as to certain Federal income tax consequences of a proposed merger,
pursuant to an Agreement and Plan of Reorganization dated February 6, 1994, as
amended on May 25, 1994 (as amended, Agreement). Pursuant to the Agreement, the
following steps have or will have occurred, solely with respect to Company.
1. Coram Healthcare Corporation (Coram) has formed a new wholly-owned
subsidiary, HII Acquisition Company (Acquisition), a Florida
Corporation.
2. Acquisition will be merged (Merger) into and with (Company), a Florida
corporation. Based on representations (see Exhibit I) provided to us,
the transaction will be a merger under the laws of the state of
Florida.
The opinion given is based on the scope of our arrangement, the Agreement
and representations (see Exhibit I) provided to us in a letter dated
and it has been represented that we have been provided all the
facts necessary to form our opinion.
Any alteration of the facts or underlying assumptions may adversely affect
our opinion.
PREMISE OF OPINION
Our opinion is expressed only with respect to the federal income tax
treatment of the Merger under the conditions described herein. We have reviewed
the Internal Revenue Code of 1986 as amended (the Code) and the regulations
thereunder as they relate to the proposed transaction, and we have also
considered the current position of the Internal Revenue Service (the IRS) in
such matters as reflected in published and
(62)
<PAGE> 2
private rulings and cases. However, federal income tax laws and their
interpretations are subject to change, which could adversely affect this
opinion. The opinion does not address any nontax issues or any state, local or
foreign income tax issues, if any.
Our opinion reflects what we regard to be the tax effects of the proposed
Merger as described herein; nevertheless, it is an opinion only and should not
be taken as an assurance of the ultimate tax treatment. The IRS, of course, is
not bound by this opinion; however, should the IRS challenge the tax treatment
of the transaction, we believe it is more likely than not that Company would
prevail.
If there is a change in applicable local law, the Code, the regulations and
published rulings thereunder, the current administrative rulings, or in the
prevailing judicial interpretation of the foregoing, the opinion expressed
herein would necessarily have to be reevaluated in light of any such changes. We
have no responsibility to update this opinion for events, transactions or
circumstances occurring after this date.
PROPOSED TRANSACTION
Pursuant to the Agreement described above, the business purpose and Merger
terms in summary are as follows:
Company's board of directors believes that the Merger is advisable and in
the best interests of Company and its shareholders and, by a unanimous vote of
the directors, approved the Merger agreement and the transactions contemplated
thereby and has recommended that Company's shareholders vote in favor of the
proposal to adopt the merger agreement. The Board believes that the Merger will
provide for Company's shareholders to have continued equity participation in a
larger, more diversified enterprise with enhanced geographic presence and a
generally more active trading market. The Board also considered the views of
Company's management concerning Company's competitive position, prospects,
alternatives to the Merger, in light of an infusion therapy industry driven by
the need for size in order to survive on-going pricing pressures imposed by
third party payors.
Upon the Merger of Acquisition into and with Company, shares representing
at least 80% of the outstanding common shares of Company, will be automatically
converted solely into common shares of Coram voting stock. Company has no other
outstanding shares of stock other than the common share to be exchanged pursuant
to the Merger. All shares of Company stock, other than shareholders who elect to
exercise dissenter's rights, will be exchanged on an "as converted" basis of one
share of Company for approximately .447 shares of Coram. Company will be the
surviving corporation after the Merger.
Each of Curaflex, Medisys and T2's shareholder's shall receive an opinion
from its outside counsel regarding the federal income tax effects of their
proposed merger as described in the Agreement.
The foregoing represents a summary of the proposed transaction which is
more fully described in the Agreement.
FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED MERGER
Our opinion expressed below is addressed only to those federal income tax
aspects relating to the Merger which in our judgment are material to Company and
its shareholders. Based on the representations made (see Exhibit I), including
but not limited that the Merger will constitute a merger under the governing
statutes of the state of Florida, it is our opinion that:
1. The Merger of Acquisition into and with Company will constitute a
reorganization pursuant to Sections 368(a)(1)(A) and Section
368(a)(2)(E) of the Code.
2. Company will be a party to the reorganization within the meaning of
Section 368(b) of the Code.
3. No gain or loss will be recognized by Company in the proposed
transaction pursuant in Section 1932(a) of the Code.
(63)
<PAGE> 3
4. The tax basis of the assets of Acquisition acquired by Company will be
the same as the tax basis of the assets held immediately before the
exchange by Acquisition, pursuant to Section 362(b) of the Code.
5. The holding period of the assets of Acquisition acquired by the Company
will include the period during which such assets were held by
Acquisition pursuant to Section 1223(2) of the Code.
6. No gain or loss will be recognized by Company shareholders upon the
receipt of Coram voting stock solely in exchange for their common stock
(except for fractional shares exchanged for cash) in the proposed
transactions pursuant to Section 354(a)(1) of the Code.
7. Gain, if any, will be realized to the extent proceeds exceed the stock
basis by Company shareholders who receive both Coram stock and cash for
fractional shares, Coram stock and cash for shareholders who elect to
exercise dissenter's rights, or solely cash for shareholders who elect
to exercise dissenter's rights in exchange for their Company common
stock. Such gain will be recognized, but not in excess of the amount of
cash or other property received. Generally, shareholders who receive
cash for fractional shares will recognize capital gain, provided such
shares are held as capital assets at the Effective Time and the exchange
is not essentially equivalent to a dividend pursuant to Section 302 of
the Code. Shareholders who elect to exercise dissenter's rights and
receive both Coram stock and cash will recognize capital gain provided
such shares are held as capital assets at the Effective Time and the
exchange does not have the effect of the distribution as a dividend
pursuant to Section 356(a)(2) of the Code. Shareholders who elect to
exercise dissenter's rights and receive solely cash will recognize
capital gain pursuant to Section 302 of the Code provided such shares
are held as capital assets at the effective time and the shareholder is
not deemed to constructively own Coram shares through attribution from
related parties pursuant to Section 318(a) of the Code or complies with
the provisions of Section 302(c)(2) of the Code. Essentially,
stockholders who own shares of Coram subsequent to the exchange, or who
are considered for federal income tax purposes constructively to own
shares of Coram actually owned by other persons, may under certain
circumstances, recognize dividend income equal to the full amount of the
cash or other property they receive. The preceding discussion
constitutes only a general description of certain income tax
consequences that will apply to Company shareholders. Each shareholder
should consult his or her own tax and financial advisor as to the
character of such gain, if any, for federal income, estate, gift, state,
local or foreign tax purposes.
8. The basis of Coram stock received by Company shareholders will be the
same as the basis of such Company stock surrendered in the exchange
pursuant to Section 358(a)(1) of the Code.
9. The holding period of Coram common stock received by Company
shareholders will include the period during which Company common stock
surrendered in exchange therefore was held, provided that Company common
stock is held as a capital asset in the hands of Company shareholders on
the date of the exchange pursuant to Section 1223(1) of the Code.
(64)
<PAGE> 4
No opinion is expressed about the tax treatment of the Merger under other
provisions of the Code and regulations or about the tax treatment of any
conditions existing at the time of, or effects resulting from, the Merger that
are not specifically covered by the above opinion. No opinion is expressed as to
the federal income taxation that may be relevant to a particular investor in
light of personal circumstances or to certain types of investors subject to
special treatment under the federal income tax laws (for example, life insurance
companies, tax-exempt organizations, foreign investors, dealers in securities
and taxpayers subject to the alternative minimum tax). Further, the opinion may
not be applicable to a stockholder who acquired shares of the Company's common
stock pursuant to the exercise of employee stock options or otherwise as
compensation. No opinion is expressed on any other transaction other than the
Merger of Company as described above.
Very truly yours,
DBM
(65)
<PAGE> 5
EXHIBIT I
May 24, 1994
Mr. Richard Berkowitz
Arthur Andersen & Company
One Biscayne Tower Suite 2100
Miami, Florida 33131
Dear Mr. Berkowitz:
In connection with your tax opinion as to the federal income tax
consequences of the proposed merger (Merger) of HealthInfusion, Inc., (Company)
with HII Acquisition Company (Acquisition) as set forth in the Agreement and
Plan of Reorganization dated February 6, 1994 (Agreement), as amended, the
Company and Coram Healthcare Corporation (Coram) make the following
representations:
1. Company's board of directors believes that the Merger is advisable and
in the best interest of Company and its shareholders and, by a
unanimous vote of the directors, approved the Merger agreement and the
transactions contemplated thereby and has recommended that company
shareholders vote in favor of the proposal to adopt the Merger
agreement. The Board believes that the Merger will provide for
HealthInfusion's shareholders to have continued equity participation in
a larger, more diversified enterprise with enhanced geographic presence
and a generally more active trading market. The board also considered
the views of Company's management concerning Company competitive
positions, prospects, alternatives to the Merger, in light of an
infusion therapy industry driven by the need for size in order to
survive on-going pricing pressures imposed by third party payors.
2. Company has no other outstanding share of stock other than the common
shares to be exchanged pursuant to the Merger.
3. To the best knowledge of Company there is no plan or intention by the
shareholders of Company who own more than 5% or more of the Company
stock, and to the best knowledge of management of the Company there is
no plan or intention on the part of the remaining shareholders of the
Company to sell, exchange or otherwise dispose of a number of Coram
Healthcare Corporation (Coram) common shares received in the Merger
that would reduce the shareholder's ownership, as a group of Coram
common shares to a number of shares having a value, as of the date of
the Merger, of less than 50% of the value of all of the formerly
outstanding Company common shares as of the same date. For this
purpose, Company common stock exchanged in the merger for cash or other
property, surrendered by dissenters or exchanged for cash in lieu of
fractional Coram common shares shall be treated as outstanding Company
common shares on the date of the Merger.
4. Company and its shareholders will pay their respective expenses, if
any, incurred in connection with the Merger.
5. Prior to the Agreement, Coram will be in control of Acquisition within
the meaning of Section 368(c) of the Internal Revenue Code of 1986, as
amended (the Code).
6. There is no intercorporate indebtedness existing between Coram and
Company or between Acquisition and Company that was issued, acquired or
will be settled at a discount.
7. At the time of the Merger, Company will not have outstanding any
warrants, option, convertible securities or any other type of right
pursuant to which any person could acquire stock in Company that, if
exercised or converted, would affect Coram's acquisition or retention
of control of Company as defined in Section 368(c) of the Code.
(66)
<PAGE> 6
8. The excess of the aggregate fair market value of the shares of Coram
common stock subject to each Company option outstanding immediately
after its assumption by Coram over the aggregate option price of such
shares will not be more than the excess of the aggregate fair market
value of the shares of the Company common stock subject to each option
immediately before the assumption over the aggregate option price of
such shares.
9. On a share by share comparison, the ratio of the option price to the
fair market value of the Coram common stock subject to such options
immediately after the assumption will be no more favorable to the
optionee than the ratio of the option price to the fair market value
of the Company common stock subject to such options immediately before
the assumption, as provided under Section 424(a) of the Code.
10. Company is not an Investment Company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
11. On the date of the Merger, the fair market value of the assets of
Company will exceed the sum of its liabilities plus the amount of
liabilities, if any, to which the assets are subject.
12. Acquisition has no liabilities that will be assumed by Company.
Acquisition will not transfer any assets subject to liabilities in the
transaction.
13. Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
14. The fair market value of the Coram voting common stock to be received
by each shareholder of Company with respect to their Company stock
will, in each instance, be approximately equal to the fair market
value of the Company common stock surrendered in exchange therefor.
15. In the proposed Merger, Coram will acquire stock of Company possessing
at least 80% of the combined voting power of all classes of Company
voting stock and 80% of the shares of each other class of outstanding
stock solely in exchange for voting common stock of Coram. Company has
one million authorized shares of preferred stock for issuance of which
none are or have ever been issued and outstanding. Except for cash
payments exchanged for fractional shares and cash payments to
shareholders who elect dissenter's rights, no consideration other than
Coram voting common stock will be given to exchange for all of the
outstanding stock of Company.
16. The payment of cash in lieu of fractional shares of Coram stock is
solely for the purpose of avoiding the expense and inconvenience to
Coram of issuing fractional shares and does not represent separately
bargained for consideration. The total cash consideration that will be
paid in the Merger to the Company shareholders instead of issuing
fractional shares of Coram stock and to shareholders electing
dissenting rights will not exceed ten percent of the total
consideration that will be issued in the transaction to the Company
shareholders in exchange for their shares of Company stock. The
fractional share interests of each Company shareholder will be
aggregated, and no Company shareholder will receive cash in lieu of
fractional shares in an amount equal to or greater than the value of
one full share of Coram stock.
17. Following the proposed Merger, Company will hold at least 90% of the
fair market value of its net assets and at least 70% of the fair
market value of its gross assets and Company will hold at least 90%
of the fair market value of Acquisition's net assets and at least
70% of the fair market value of Acquisition's gross assets held
immediately prior to the Merger. For purposes of this representation,
amounts used by Company or Acquisition to pay reorganization expenses
of Company or Acquisition immediately preceding the transaction will
be included as assets of Company or Acquisition, respectively,
immediately prior to Merger.
18. Coram has no plan or intention to redeem or otherwise reacquire the
Coram stock to be issued in the Merger.
(67)
<PAGE> 7
19. Coram has no plan or intention to liquidate Company, to merge Company
into another corporation, to sell or otherwise dispose of Company stock
or to cause Company to sell or otherwise dispose of any of its assets,
except in the ordinary course of business.
20. Company liabilities and any liabilities to which Company assets are
subject were incurred in the ordinary course of Company business.
21. Shareholders of Company will not own more than 50 percent of the fair
market value of the stock of Coram immediately after the Merger.
22. Following the proposed merger, Company will continue its historic
business and the business of its subsidiaries in a substantially
unchanged manner, except for changes in the ordinary course of
business.
23. During the five years preceding the effective date of the Merger, Coram
did not own any shares of Company's stock.
24. None of the Coram stock to be issued to Company shareholders will
represent consideration for past or future services. None of the
consideration to be received by an employee of Company who is also a
shareholder of Company is separate consideration for or allocated to,
such shareholder/employee's share of Company stock surrendered in the
exchange, and the compensation to be paid to such shareholder/employee
will be commensurate with amounts paid to third parties bargaining at
arm's length for such services.
25. The "Agreement and Plan of Reorganization" dated February 6, 1994, as
amended, represents the full and complete agreement between Coram,
Acquisition and Company and no other agreements either written or oral
exists.
26. Each of the parties to the Agreement expects the Merger to qualify as a
reorganization under Section 368(a)(1)(A) and 368(a)(2)(E) of the Code.
27. The Merger will be a merger under the laws of the state of Florida and
Company will be acquiring and surviving corporation in the Merger.
28. The plan or reorganization will be adopted by Company and shall be
shown by acts of its duly constituted responsible officers and appear
on its official records. Company shall comply with Regulation 1.368-3
regarding records to be kept and information to be filed with the
return.
29. Arthur Andersen & Co. has been provided all of the facts as requested
necessary to form its opinion.
Sincerely,
[SIG]
Miles E. Gilman
President/CEO of HealthInfusion, Inc.
Executive Vice President of
Coram Healthcare Corporation
(68)
<PAGE> 1
EXHIBIT 10.1 TO
REGISTRATION STATEMENT
ON FORM S-4
EMPLOYMENT AGREEMENT
(Charles A. Laverty)
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the day of
, 1994 by and between Coram Healthcare Corporation, a corporation
organized and existing under the laws of the State of Delaware (hereinafter
"Company"), and Charles A. Laverty (hereinafter "Employee").
RECITALS
WHEREAS, Employee is the President, Chairman of the Board, and Chief
Executive Officer of CURAFLEX Health Services, Inc. ("CURAFLEX"), a corporation
organized and existing under the laws of the State of Delaware; and
WHEREAS, as a result of a merger and corporate restructuring by and among
CURAFLEX, HealthInfusion, Inc., T2 Medical, Inc., and Medisys, Inc. (the
"Merger"), CURAFLEX will become, as of the Effective Date, as defined herein, a
wholly owned subsidiary of the Company; and
WHEREAS, Company desires to provide for the employment of Employee in the
capacity of Senior Executive Vice President; and
WHEREAS, Employee desires to be assured of a secure minimum compensation
and to be protected in the event of a change of control or ownership of the
Company.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
contained herein, and of the other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Employment. During the Term (as defined below), Company does hereby
employ Employee, and Employee does hereby accept employment, as the Senior
Executive Vice President of the Company. Employee shall report only to James
Sweeney as Chairman of the Board of the Company or any successor Chairman of the
Board. Employee shall have only such duties and responsibilities as are mutually
agreed to by Employee and the Company from time to time.
During the Term, the Company shall use its best efforts to cause Employee
to be elected as a voting member of the Company's Board.
2. Effective Date -- Term. The term of this Agreement shall commence as
of the Effective Date and shall continue for a period of one (1) year (the
"Term"). The term "Effective Date" shall mean the Effective Time, as defined in
the Agreement and Plan of Merger (the "Merger Agreement"), dated February 6,
1994, by and among the Company, CURAFLEX, CHS Acquisition Company,
HealthInfusion, Inc., HII Acquisition Company, Medisys, Inc., MI Acquisition
Company, T2 Medical, Inc. and T2 Acquisition Company. In the event that the
Merger Agreement is terminated pursuant to the terms of the Merger Agreement
prior to the Effective Date, then this Agreement shall be deemed null and void,
ab initio.
3. Compensation and Benefits. In consideration for the services Employee
shall render under this Agreement, Employee shall be entitled to receive the
following compensation and benefits at Company's sole expense:
(a) Salary. Employee's annual salary ("Base Salary") for the one (1)
year period after the Effective Date shall be four hundred fifty thousand
dollars ($450,000), payable bi-weekly in accordance with Company's regular
paydays.
(b) Incentive Compensation. In addition to the Base Salary, Employee
shall also be eligible to receive annual incentive compensation ("Incentive
Compensation") in an amount up to a maximum of one hundred percent (100%)
of Employee's Base Salary, such Incentive Compensation to be calculated
(69)
<PAGE> 2
based upon certain performance criteria to mutually agreed upon by Employee
and the Company prior to the Effective Date. Such Incentive compensation
shall be payable in cash.
(c) Relocation Expenses. In the event that Company requires Employee to
relocate his primary residence to a new location, Employee shall be reimbursed
in full for all fees, costs, and expenses incurred in connection with such
relocation. Such fees, costs, and expenses shall include, but are not limited
to, all costs associated with Employee's sale of his current primary residence,
costs associated with the purchase of a new primary residence (such as broker's
commissions and other similar costs), costs associated with temporary
residences, and transportation and moving expenses. With respect to the sale of
Employee's permanent residence, it is specifically agreed that Company will pay
all costs and expenses, including mortgage payments, taxes, and other expenses,
after the effective date of relocation until Employee closes a sale of the
primary residence he is selling so long as Employee actively attempts to sell
such residence through a qualified broker at a fair market offering price. In
addition, in the event the primary residence being sold, pursuant to a good
faith arms-length transaction, is sold for an amount less than the original
purchase price of such residence paid by Employee, in addition to any
improvements made by Employee, such that Employee suffers a financial loss on
such sale, Company shall reimburse Employee the full amount of such loss.
(d) Benefits.
(1) Vacation. Employee shall be entitled to twenty-five (25) days
per year of paid vacation. Such vacation time shall not be cumulative,
so that vacation time not taken in one year may not be carried forward
and used in any subsequent year.
(2) Health Benefits. During the Term, Employee shall be entitled
to health insurance, including immediate coverage for himself and his
eligible dependents, as provided by Company for its executive personnel
in accordance with its group health insurance plan coverage, and life
insurance as generally provided by Company for its executive personnel.
In addition, Company shall reimburse Employee for medical and dental
expenses for himself and his eligible dependents which are not covered
by Company's group health insurance programs or will reimburse Employee
the cost of procuring supplemental medical and dental insurance
coverage, in an aggregate amount not to exceed
dollars ($ ) per year.
(3) Disability Benefits. During the Term, Company shall provide
Employee with long-term disability insurance providing coverage equal to
Employee's Base Salary at the time of any event of disability as defined
in such policy.
(4) Life Insurance. During the Term, Company shall pay or
reimburse, as the case may be, Employee such amount as is necessary for
Employee to maintain a life insurance policy with coverage in the amount
of two million five hundred thousand dollars ($2,500,000). Employee
shall be responsible for obtaining such insurance and determining the
type of policy and amounts of coverage. In the event that Employee's
employment by Company is terminated prior to the time the policy is
fully paid, Company shall have no further obligation to reimburse
Employee for premium payments, except as may be provided for elsewhere
herein. Employee shall designate the beneficiary(ies) of such policy,
and title to such policy shall be held by Employee during the term of
this Agreement and following termination or expiration of this
Agreement.
(e) Stock Ownership and Stock Options. All stock options of the
Employee granted by CURAFLEX prior to the Effective Date shall be treated
as set forth in Section 7.8 of the Merger Agreement.
In addition, as of the Effective Date, Employee is granted an option
to purchase one hundred thousand (100,000) shares of the Company's common
stock. The exercise price for such shares shall be the average of the
closing prices of the Company's common stock for the five (5) consecutive
trading days immediately following the Effective Date (the "Exercise
Price"). Such option shall be fully vested as of the Effective Date and may
be exercised at any time before the expiration of ten (10) years from the
Effective Date. The Exercise Price to be paid at the time of exercise may
be paid in cash or in shares of the Company's common stock having a fair
market value on the date of exercise equal to such Exercise
(70)
<PAGE> 3
Price, or in a combination of cash and such shares, and may be effected in
whole or in part with monies received from Company at the time of exercise
as a compensatory payment.
The provisions of this Paragraph shall be effective only in the event
that shares of the Company's common stock are not publicly traded on a
national securities exchange or NASDAQ at the time Employee's estate
exercises its repurchase option hereunder. In the event of Employee's death
while he is employed by the Company or within twelve (12) months following
termination of his employment, Employee's estate shall have the right, but
not the obligation, to sell to the Company, and the Company shall have the
obligation to purchase, Employee's options for up to one hundred thousand
(100,000) shares or the shares underlying the options granted hereunder (in
the event said options have been exercised). Employee's estate shall have
the right to cause such repurchase by the Company at any time during the
twelve (12) month period subsequent to Employee's death. The price to be
paid by the Company shall be market price of the Company's common stock on
the date the Employee's estate requests in writing that the Company
repurchase such shares or options (the "Repurchase Price"). In the case of
shares represented by unexercised options, the Exercise Price shall be
deducted from the Repurchase Price paid to the employee's estate. Company
shall purchase and maintain during the period of Employee's employment with
the Company, and for twelve (12) months following termination of his
employment with the Company, term life insurance covering Employee in an
amount not less than the amount necessary to fund the above-described
purchase by the Company from employee's estate, and the proceeds of which
shall in fact be used as necessary to fund the above-described purchase by
the Company from Employee's estate.
The exercise price of Employee's options shall be subject to
adjustment (so as not to impair employee's rights hereunder) in the event
Company shall split its capital stock, pay dividends in the form of stock,
if there shall be a recapitalization of the Company's capital stock, or
upon the occurrence of any other event that requires on equitable
principles the adjustment of the option price so as not to impair
Employee's rights under this Agreement. In the event of any change in the
outstanding shares of the capital stock of the Company occurs by reason of
any stock dividend, split, recapitalization, merger, consolidation,
combination, exchange of shares, or other corporate change, then the
aggregate number of stock option or stock purchase rights shall be adjusted
immediately, or additional shares of the Company's capital stock shall be
issued to Employee, to the extent necessary to preserve Employee's rights
and benefits under this Agreement such that each option shall thereafter be
exercisable for such securities, cash, and/or other property as would have
been received in respect of the shares subject to such option had such
option been exercised in full immediately prior to such change, and such an
adjustment shall be made successively each time any such change shall
occur.
Employee's options shall be evidenced by one or more option agreements
entered into pursuant to the Company's Stock Option Plan. Said option
agreements shall be consistent in all respects with the terms of this
Agreement. To the extent there is a conflict between the terms of this
Agreement and any stock option agreement or stock option plan, the terms of
this Agreement shall prevail.
(f) Forgiveness of Debt. The Company shall forgive, or shall cause its
subsidiary, CURAFLEX, to forgive any and all payments, including principal
and interest, otherwise due from Employee to the Company or its subsidiary,
CURAFLEX, pursuant that certain loan in the principal amount of four
hundred thousand dollars ($400,000) and the Company shall cancel, or cause
its subsidiary, CURAFLEX, to cancel any note or other evidence of such debt
from Employee to the Company or its subsidiary, CURAFLEX.
4. Expenses. Company shall reimburse Employee for proper and necessary
expenses incurred by him in the performance of his duties under this Agreement.
Employee shall be provided a monthly car allowance of one thousand one hundred
twenty-six dollars ($1,126) per month.
5. Counsel Fees and Indemnification.
(a) Company shall pay, or reimburse Employee, all reasonable costs incurred
by Employee in any dispute arising out of this Agreement in which Employee
prevails.
(71)
<PAGE> 4
(b) Employee shall pay, or reimburse Company, all reasonable costs incurred
by Company in any dispute arising out of this Agreement in which Employee
prevails.
(c) Company and employee shall enter into a mutually acceptable
Indemnification Agreement.
(d) Company further agrees:
(i) that the Company will use best efforts to obtain directors' and
officer's liability insurance; provided, that the premiums and coverage are
reasonable in the sole discretion of the Board;
(ii) that Employee shall be covered and insured up to the maximum
individual limits provided by such insurance throughout the term of this
Agreement; and
(iii) that Company will exert its best efforts to maintain such
insurance in effect throughout the term of this Agreement; provided that
the Board may reevaluate the continuation or amount of coverage in the
event of any material premium increases or any material changes in the
scope of coverage of such policy.
(e) Company hereby warrants and represents that the undertakings of
payment, indemnification, and maintenance of insurance covering Employee set out
in subparagraphs (a), (c), and (d) above are not in conflict with the
Certificate of Incorporation or bylaws of Company or with any validly existing
agreement or other proper corporation action of Company.
6. Termination and Severance
(a) Company may terminate this Agreement only for Cause. "Cause" shall mean
(i) final conviction of any felony involving moral turpitude and fraud; (ii) any
material breach by Employee of the provisions of Section 8 or 9 thereof; or
(iii) wilful misconduct. Any termination for Cause must be preceded by written
notice to Employee as to the conduct giving rise to the termination, and
Employee shall be given no less than thirty (30) days to cure the
circumstance(s) giving rise to the proposed termination for Cause if the reason
for termination is capable of cure. Further, there shall be no termination of
this Agreement for the reason set forth in clause (iii) unless such proposed
termination is first reviewed with, and then approved by, either of the CURAFLEX
alternate designees to the Company's Board of directors (C. Sage Givens or John
S. Chamberlain).
(b) Employee shall have the right to voluntarily terminate this Agreement
without cause at any time upon fifteen (15) days prior written notice.
(c) Company's obligation to provide and pay for Employee's health benefits
and life insurance benefits hereunder, as specified in Sections 3(d)(2) and
3(d)(4), and the car allowance, as specified in Section 4, shall continue for a
period of one (1) year following the effective date of termination of this
Agreement for any reason. Company's obligation to provide and pay for Employee's
vacation and disability benefits hereunder, as specified in Sections 3(d)(1) and
3(d)(3) shall cease upon the effective date of termination or expiration of this
Agreement, provided that if on such date Employee has qualified for disability
benefits under the policy mentioned in Section 3(d)(3), Employee shall be
entitled to continued disability benefits pursuant to the terms of such policy
following expiration or termination of this Agreement. Nothing herein shall
affect the Company's obligation to provide benefits as required by COBRA or any
other applicable federal or state law.
(d) In the event Employee terminates this Agreement within six (6) months
from the Effective Date, he shall not be entitled to any further Base Salary nor
shall he be eligible to receive any Incentive Compensation. In the event
Employee terminates this Agreement anytime after six (6) months from the
Effective Date, in addition to any other compensation to which Employee may be
entitled hereunder, Employee shall be entitled to his Base Salary for the
remainder of the Term, as if the Agreement had not been terminated, and to the
prorated portion of the Incentive Compensation if such Incentive Compensation
becomes payable.
(e) Upon the termination of this Agreement for any reason, except for
termination by the Company for cause, including expiration of the term of this
Agreement, then the Company shall pay to Employee the sum of two million five
hundred thousand dollars ($2,500,000), payable in thirty-six (36) equal monthly
installments commencing the first day of the calendar month after termination.
Such payment is made in
(72)
<PAGE> 5
consideration of the non-compete and non-solicitation provisions of Section 9.
In the event of any breach by Employee of the provisions of Section 9,
regardless of the enforceability thereof, the obligations of the Company to make
further payments under this Section 6(c) shall immediately terminate.
(f) For purposes of this Section 6, termination shall become effective upon
delivery of written notice thereof to Employee or Company, whichever is
applicable, pursuant to Section 11, or as otherwise is set forth in such notice.
(g) Company agrees that the position, duties, and responsibilities of
Employee are unique and, as a result, agrees that Employee shall have no duty to
mitigate damages upon termination or expiration of his employment hereunder for
any reason.
7. Certain Limitations on Timing of Payments.
(a) Notwithstanding any other provision of this Agreement, if the company,
pursuant to the opinion of its tax counsel, determines that payment of any
amount required to be paid to Employee pursuant to Sections 1 through 6 of this
Agreement would (if payment were made at the time specified in said Sections 1
through 6) result in disallowance of such amount as a deduction pursuant to
either Section 162(m) or Section 280(g) of the Internal Revenue code, as amended
(the "Code"), then, payment of such amount shall be postponed and payment
thereof shall be made in accordance with this Section 7; provided, however, that
nothing herein shall relieve the Company of its obligations to pay any amounts
due hereunder.
(b) Any amount which, as a result of the limitation in the preceding
sentence, is not payable at the time at which it would otherwise be required to
be paid (a "Postponed Payment"), shall be payable at the earliest time at which
(determined in accordance with the applicable provisions of the Code and the
regulations thereunder) payment will not result in the disallowance of such
amount as a deduction pursuant to either Section 162(m) or Section 280(G) of the
Code. Each Postponed Payment shall be placed in a trust substantially in the
form attached as Exhibit A to this Agreement.
(c) Company shall develop procedures to administer the provisions of this
Section 7. In any dispute relating to the payment of any Postponed Payment, the
prevailing party shall be entitled to receive attorneys' fees and related costs.
8. Confidentiality and Non-Disclosure of Information.
(a) Employee shall not, except as set forth in Section 8(c), during the
term of this Agreement or at any time thereafter, without Company's prior
written consent, use, divulge, furnish, release, or make accessible to anyone,
any knowledge or information with respect to any confidential or secret aspect
of the business, including but not limited to: Company's costs; supplier's
names, pricing, and terms; patient names and addresses and telephone numbers;
billing procedures and pricing of purchases; Company's business techniques,
computer programs and printouts; identity of prospective patients; confidential
information disclosed by Company's patients to Company; Company's banking
relationships, including the extent and terms of lines of credit and borrowing
costs; or other confidential information concerning the Company's business or
its employees.
(b) Employee recognizes that all records, patient lists, supplier lists,
material cost data, files, correspondence with patients and suppliers of
material and services, insurance companies, computer printouts, contracts,
reports, notes, business plans, compilations of other recorded matter, and
copies or reproductions thereof, relating to Company's operations and activities
and other information relating to Company's patients and suppliers, made or
received by employee in the course of his employment are the exclusive property
of Company and Employee holds and uses same as trustee for Company and subject
to Company's sole control and will deliver same to Company at the termination of
his employment, or earlier if so requested by Company. All of such information
which is lost or used by Employee outside the scope of his employment could
cause irreparable and continuing injury to Company's business for which there
may not be an adequate remedy at law.
(73)
<PAGE> 6
(c) Company and Employee agree that Employee shall have the right to
disclose confidential information during the term of this Agreement so long as
such use or disclosure is made in connection with Employee's duties hereunder,
for the benefit of the Company, and in furtherance of the Company's business.
For purposes of this Section 8, the term "Company" shall mean the Company
and its subsidiaries.
9. Non-Compete and Non-Solicitation.
(a) As an inducement to cause Company to enter into this Agreement,
Employee covenants and agrees that during his employment and, for a period of
three (3) years after he ceases to be employed by company, regardless of the
manner or cause of termination, except as limited in Section 9(f) below, he will
not be an employee, agent, director, stockholder, or owner (except of not more
than one percent (1%) of the securities of any publicly traded entity), partner,
consultant, financial backer, creditor, or be otherwise directly or indirectly
connected with or participate in the management, operation or control of any
business, firm, proprietorship, corporation, partnership, association, entity,
or venture engaged in the provision of a Restricted business, as defined below,
which has any place of business in any area of the United States which is within
a one hundred (100) mile radius of any location in which the Company or any of
its subsidiaries has a place of business. "Restricted Business" shall be defined
as follows:
(i) In the event this Agreement is terminated prior to the expiration
of six (6) months from the Effective Date, Restricted business shall be
mean any business in which CURAFLEX is engaged, directly or indirectly, at
the time of the Effective Date.
(ii) In the event this Agreement is terminated on or after the
expiration of six (6) months from the Effective Date or otherwise expires
by its terms, Restricted Business shall be mean any business in which the
Company or any of its subsidiaries is engaged, directly or indirectly, at
the time of such termination or expiration.
(b) As a further inducement to cause company to enter into this Agreement,
Employee covenants and agrees that all times during his employment and for three
(3) years subsequent to termination for any reason whatsoever, except as limited
in Section 9(f) below, Employee will not directly or indirectly, as principal,
agent, owner, partner, stockholder, officer, director, employee, independent
contractor, or consultant, or in any individual or representative capacity for
himself or on behalf of any business, firm, corporation, partnership,
association, or proprietorship, enter into any agreements with or solicit, or
directly or indirectly cause others to solicit, the employment of any officer of
key employee of the Company for the purpose of causing said officer or key
employee of Company to terminate employment with the Company; provided, however,
that nothing herein shall be construed to prohibit Employee from contracting
with, employing, or otherwise associating with any person who was not employed
by the Company within the six (6) months immediately prior thereto, so long as
no violation of this Section has occurred with respect to such person. For
purposes of this Section 9(b), the term "Company" shall also include the
Company's subsidiaries.
(c) It is understood by and between the parties that the foregoing
covenants set forth in Section 8 and Section 9 are essential elements of this
Agreement, and that, but for the agreement of Employee to comply with such
covenants, Company would not have entered into this Agreement. Such covenants by
Employee shall be construed as agreements independent of any other provision of
this Agreement and the existence of any claim or cause of action Employee may
have against Company whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by Company of these covenants.
(d) If Company fails to make any severance payments within twenty (20) days
after notice from Employee that such payment was due and not paid, unless such
nonpayment was due to any default by Employee, Company shall not be entitled to
enforce the provisions of this Section 9.
(e) The restrictions contained in this Section 9 shall not be applicable to
Employee in the event that this Agreement is terminated due to a material breach
by the Company of its obligations hereunder, or in the event the Company does
not make the payments required by Section 6(e) unless such nonpayment was due to
a default by Employee under this Section 9.
(74)
<PAGE> 7
(f) Employee acknowledges and agrees that Employer's remedies at law for a
breach or threatened breach of any of the provisions of this Section 9 would be
inadequate and, in recognition of this fact, Employee agrees that in the event
of such a breach of threatened breach, in addition to any remedies at law, the
Employer, without posting any bond, shall be entitled to obtain equitable relief
in the form of specific performance, temporary restraining order, temporary or
permanent injunction or any other equitable remedy which may then be available.
10. Severability. If any one or more of the provisions of this Agreement
should be ruled wholly or partly invalid or unenforceable by a court or other
government body of competent jurisdiction, then: (a) the validity and
enforceability of all provisions of this Agreement not ruled to be invalid or
unenforceable shall be unaffected; (b) the effect of the ruling shall be limited
to the jurisdiction of the court or other government body making the rule; (c)
the provision(s) held wholly or partly invalid or unenforceable shall be deemed
amended, and the court or other government body is authorized to reform the
provision(s), to the minimum extent necessary to render them valid and
enforceable in conformity with the parties' intent as manifested herein and a
provision having a similar economic effect shall be substituted; and (d) if the
ruling and/or the controlling principle of law or equity leading to the ruling,
is subsequently overruled, modified, or amended by legislative, judicial, or
administrative actin, then the provision(s) in question as originally set forth
in this Agreement shall be deemed valid and enforceable to the maximum extent
permitted by the new controlling principle of law or equity.
11. Notices. All notices, requests, demands, and other communications
provided for hereunder shall be in writing and shall be deemed to been duly
given if (i) delivered in person; (ii) given by prepaid telex or telegram, or by
facsimile or other instantaneous electronic transmission device; (iii) sent by
Federal Express or other nationally recognized overnight delivery service,
charges paid by the sender, or (iv) deposited in the United States mail, first
class, registered or certified, return receipt requested, with proper postage
prepaid, as follows:
11.1 If to Employee:
-----------------------
-----------------------
-----------------------
11.2 If to the Company:
-----------------------
-----------------------
-----------------------
Notices given pursuant to Section 11(i), (ii), and (iii) shall be
deemed received and effective upon receipt by the addressee thereof.
Notices given pursuant to Section 11(iv) shall be deemed received and effective
three (3) days after the date deposited in the mail.
12. Assignment of Agreement. This Agreement shall inure to the benefit of
Employee and Company and their respective successors and heirs. Neither party
may assign any rights or obligations hereunder to any person, firm or
corporation without the prior written consent of the other party. This Agreement
shall be personal to employee for all purposes. Any attempted assignment in
contravention of this Section shall be null and void and of no effect.
13. Entire Agreement. This Agreement contains the entire understanding
between the parties, and there are no agreements or understandings among the
parties with respect to Employee's employment by the Company and his obligations
except as set forth herein. Employee acknowledges that he is not relying upon
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<PAGE> 8
any representations or warranties concerning his employment by Company except as
expressly set forth herein. No alteration or modification hereof shall be valid
except by a subsequent written instrument executed by the parties hereto. No
waiver by either party of any breach by the other party of any provision or
condition of this Agreement in one circumstance shall be deemed a waiver of said
provision or condition in any other circumstance or be deemed a waiver of any
other provision or condition.
14. Applicable Law. This Agreement shall be construed in accordance with
the laws of the State of Delaware, without reference to Delaware or any other
state's choice of laws, statutes or decisions.
15. Valid Obligation. This Agreement has been duly authorized, executed,
and delivered by Company and is a legal, valid, and binding obligation of
Company. This Agreement is a legal, valid and binding obligation of Employee.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original.
INTENDING TO BE LEGALLY BOUND, the parties have executed this Agreement on
the date and year first above written.
<TABLE>
<CAPTION>
CORAM HEALTHCARE CORPORATION CHARLES A. LAVERTY
<S> <C>
- -------------------------------------------- --------------------------------------------
Signature Signature
- --------------------------------------------
Print Name
- --------------------------------------------
Title or Office
</TABLE>
(76)
<PAGE> 1
EXHIBIT 10.2 TO
REGISTRATION STATEMENT
ON FORM S-4
SEVERANCE/NON-COMPETE AGREEMENT
THIS SEVERANCE/NON-COMPETE AGREEMENT (the "Agreement") is made and entered
into this day of , 1994, by and between Miles E. Gilman
("Individual"), and Coram Healthcare Corporation, a Delaware corporation (the
"Company"); and
WHEREAS, the Company is a party to that certain Agreement and Plan of
Merger dated as of February 6, 1994 (as amended, the Merger Agreement"), by and
among the Company, T2 Medical, Inc., a Delaware corporation ("T2"), Curaflex
Health Services, Inc., a Delaware corporation ("CHS"), HealthInfusion, Inc., a
Florida corporation ("HII"), Medisys, Inc., a Delaware corporation ("MI"), T2
Acquisition Company, a Delaware corporation and wholly owned subsidiary of the
Company ("T2 Sub"), CHS Acquisition Company, a Delaware corporation and wholly
owned subsidiary of the Company ("CHS Sub"), HII Acquisition Company, a Florida
corporation and wholly owned subsidiary of the Company ("HII Sub"), and MI
Acquisition Company, a Delaware corporation and wholly owned subsidiary of the
Company ("MI Sub"), pursuant to which, among other things, T2 Sub, CHS Sub, HII
Sub and MI Sub will merge with and into T2, CHS, HII and MI, respectively, and
T2, CHS, HII and MI will thereby become wholly owned subsidiaries of the Company
(the "Merger"); and
WHEREAS, the Individual is presently employed by HII as its Chief Executive
Officer and President and, upon consummation of the Merger, will thereafter be
employed by the Company as an Executive Vice President of the Company, on an "at
will" basis.
NOW THEREFORE, in consideration of the foregoing premises, the sums set
forth herein, the mutual covenants and agreements set forth herein, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each of the parties hereto, and the Company and the Individual
intending to be legally bound hereby agree as follows:
1. Nature of Employment with the Company.
(a) The Company hereby agrees to employ the Individual as an Executive Vice
President of the Company, and the Individual accepts such employment and agrees
to devote all of his efforts and skills faithfully and diligently and on a
full-time basis in performing his duties hereunder for the benefit of the
Company. Individual's main office shall be located in the State of Florida.
(b) Individual's employment by the Company pursuant hereto shall be on an
"at will" basis, subject to the provisions with respect to termination set forth
herein and the other terms and provisions hereof.
(c) Individual agrees to perform on a full-time basis such duties as shall
be assigned to him from time by the Board of Directors of the Company.
(d) Individual will hold in strictest confidence and shall not disclose to
any person or entity without the express prior authorization of the Company and
HII any non-public proprietary information, which may include but is not limited
to non-public: financial information, financial statements of the Company or any
subsidiary of the Company, marketing data, technique, process formula,
developmental or experimental work, work in progress, business methods, trade
secrets (including, without limitation, any customer list or lists or customer
sources), marketing information relating to the products, services, customers,
sales or business affairs of the Company or any subsidiary of the Company,
including, without limitation, any information relating to any business
opportunity made by or to the Company or any such subsidiary relating to any
line of business in which HII or any subsidiary of HII is currently engaged.
Individual agrees that he will not make use of any of the above at any time
after termination of employment. Upon termination of employment, Individual
shall deliver to the Company all documents, records, notebooks, work papers and
all similar repositories of the Individual containing any such information
concerning the Company or any subsidiary of the Company.
(77)
<PAGE> 2
(e) As compensation for all services to be rendered by Individual under his
"at will" employment, the Company shall pay to the Individual a base annual
salary of Three Hundred Fifty Thousand and 00/100 Dollars ($350,000.00) (the
"Base Salary"), which shall be paid on a regular basis in accordance with the
Company's normal payroll procedures and policies. The amount of the Base Salary
shall be reviewed annually by the Board of Directors of the Company, and the
Board of Directors shall determine, in its sole discretion, whether such Base
Salary shall be increased based upon standards generally applicable to employees
of the Company of this type. However, subject to the other terms and conditions
set forth herein, in no event shall Individual's Base Salary be decreased during
the term of Individual's employment with the Company pursuant to this Agreement
without his prior written consent.
(f) The Individual shall also be entitled to participate in all individual
benefit plans and programs (including but not limited to vacation time, sick
leave, holidays, automobile allowance, and insurance plans) of the Company to
the extent that his position, title, salary, age, health and other
qualifications make him eligible to participate. The Individual shall also be
entitled to participate in any additional benefits or considerations which are
generally made available to employees of this type as may be established by the
Board of Directors from time to time. The Individual's participation in any such
plan or program shall be subject to the provisions, rules and regulation
applicable thereto, including provisions empowering the Board of Directors of
the Company to modify and/or terminate any such plan or programs.
(g) In accordance with the Company's policies established from time to
time, the Company will pay or reimburse the Individual for all reasonable and
necessary out-of-pocket expenses incurred by him in the performance of his
duties under this Agreement, subject to the prior authorization thereof or
subsequent presentment of appropriate receipts and vouchers therefore.
2. Termination.
(a) Individual's employment hereunder may be terminated by Individual or
the Company with or without cause upon at least 30 days written notice to the
other party; provided, however, that any such termination shall be effective on
a day other than the last day of the Company's fiscal year.
(b) Additionally, at any time the Company shall have the right to terminate
Individual's employment hereunder by written notice to the Individual upon any
of the following occurrences:
(i) Individual's disability for a continuous period of one hundred
twenty (120) days, if, in the reasonable judgment of the Company's Board of
Directors, such disability prevents him from performing his duties under
this Agreement;
(ii) Individual's conviction of a felony or other serious crime
involving moral turpitude;
(iii) Individual's gross negligence or willful misconduct with respect
to the Company;
(iv) Individual's conduct bringing Company into public disgrace or
disrepute;
(v) A material breach of any of the terms or conditions of this
Agreement that is not cured or, in the opinion of the Company, curable, to
the reasonable satisfaction of the Company within thirty (30) days after
notice thereof to Individual;
provided, however, that any such termination shall be effective on a day
other than the last day of the Company's fiscal year.
(c) In the event that Individual's employment with the Company terminates,
the Company shall, within ten (10) days after such termination, pay to the
Individual a lump sum payment in the amount of Two Million Dollars
($2,000,000.00); provided, however, that such payment shall not be made on the
last day of employer's fiscal year, but shall be made within the ten (10) day
time requirement set forth herein. Said payment shall be by a Form 1099 and is
comprised in part of severance calculated based on reasonable compensation for
services by Individual prior to the change of control from HII to the Company,
which severance payment is in the sum of $700,000.00, as well as comprised in
part of consideration for the post-termination restrictive covenant imposed upon
Individual in this Agreement, which post-termination restrictive covenant
payment is in the sum of $1,300,000.00. The timing of the payment of any such
amounts shall be
(78)
<PAGE> 3
subject to postponement to the extent that payment of any such amount in the
taxable year in which it was originally scheduled to be paid results in a
disallowance of a deduction for any such amount pursuant to either Section
162(m) or Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") as determined by the Internal Revenue Service. Any amount which is not
paid in the taxable year in which it was originally scheduled to be paid as a
result of the postponement thereof pursuant hereto shall be payable in the next
succeeding taxable year in which such payment will not result in the
disallowance of a deduction pursuant to either Section 162(m) or 280G of the
Code; provided, however, that (i) if a dispute arises as to the payment of the
postponed payments to the Individual, the prevailing party shall be entitled to
receive attorneys' fees and related costs, and (ii) all postponed payments shall
be placed in a Rabbi trust or similar vehicle for the benefit of the Individual
in such a way that the amounts so transferred are not taxable to such person or
deductible by the Company or Coram until payment from such vehicle to such
person is made. In the event a payment has been made to the Individual, but then
disallowed as a reduction by the Internal Revenue Service and return of the
payment is required into the trust, said payment to the Individual shall be
treated as a loan and said payment to the trust shall be treated as repayment of
said loan.
3. Termination of Other Agreements. Upon the execution of this Agreement,
all other employment, severance, non-compete and other similar agreements
between the Individual and the Company and/or any subsidiary or parent company
of the Company shall immediately terminate and be of no further force and effect
and no payments or other provisions regarding benefits or payment of any other
amounts shall be made thereunder, notwithstanding any provision to the contrary
set forth therein other than those already accrued but yet unpaid as of the date
of this Agreement.
4. Restrictive Covenant. Individual agrees that he will not while employed
with the Company, either directly or indirectly, for himself or for or on behalf
of any other person, firm, corporation, partnership, association or other entity
(whether as an individual, officer, director, partner, agent, security holder,
creditor, or consultant) engage in any line of business in which the Company or
any subsidiary of the Company (including, but not limited to, HII) is currently
engaged and for a 24 month period following the date of his termination of
employment with the Company, either directly or indirectly, for himself or for
or on behalf of any other person, firm, corporation, partnership, association or
other entity (whether as an individual, officer, director, partner, agent,
security holder, creditor, or consultant):
(a) (1) in the event that Individual's employment with the Company
terminates within the six month period commencing on the closing date of
the Merger, engage in any line of business in which HII or any subsidiary
of HII is currently engaged which lines of business as of the date hereof
are the following: the sale and delivery of infusion chemotherapy,
intravenous antibiotic therapy, infusion analgesia therapy, infusion
hydration therapy, other infusion therapeutic and infusion nutritional care
to patients in homes and other non-hospital environments, acute dialysis
and clinical drug research networks, or (2) in the event that Individual's
employment with the Company terminates after such six month period, engage
in any line of business in which the Company or any subsidiary of the
Company (including, but not limited to, HII) is engaged at the time of such
termination; provided, however, that (i) Individual may hold and continue
to hold company securities or, solely as an investment, shares of capital
stock or other equity securities of any company which are traded on any
securities exchange or are regularly quoted in the over-the-counter market,
so long as Individual does not control, acquire a controlling interest in
or become a member of a group which exercises direct or indirect control
of, more than five percent (5%) of any class of capital stock of such
company which is within the scope of this restriction and (ii) Individual
may engage in any managed care services business other than any managed
care services business relating to intravenous therapy.
(b) Employ, attempt to employ or enter into any contractual
arrangement (a "Solicitation Act") with any employee of the Company or
employee of any subsidiary or parent company of the Company, or any person
who was an employee of the Company or any such subsidiary or parent
company, unless such person was involuntarily terminated by the Company or
such subsidiary or parent company (other than for performance reasons or
"for cause") or, in any event, had no employment relationship with the
Company, its parent or subsidiaries at any time within the six months
immediately prior to such Solicitation Act.
(79)
<PAGE> 4
(c) All restrictions under this Section 4 of this Agreement are
subject to the payment by the Company and the receipt of the full
restrictive covenant payments by the Individual in the sums set forth in
Section 2 above and of any already accrued but yet unpaid amounts referred
to in Section 3 above.
5. Injunctive Relief. The parties hereto hereby acknowledge and agree that
a breach by Individual of any of the covenants contained in Section 1(d) or
Sections 4(a) or (b) of this Agreement may cause irreparable damage and harm to
the Company, and that monetary damages may not be an adequate remedy for any
such breach or may be virtually impossible to ascertain. Therefore, the parties
hereto agree that the Company shall be entitled to an injunction from any court
of competent jurisdiction enjoining and restraining any violation of any or all
of the covenants contained in said Sections of this Agreement by the Individual
or any of his or her affiliates, associates, partners, or agents, either
directly or indirectly, and that such right to injunction shall be cumulative
and in addition to any other remedies available to the Company.
6. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand, when sent by facsimile transmission with acknowledgement of
good transmission received, or when deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
Coram Healthcare Corporation
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
Attn: Chief Executive Officer
If to the Individual:
Miles E. Gilman
12900 S.W. 61st Avenue
Miami, Florida 33156
or to such other addresses as either party hereto may from time to time give
notice of to the other party in the aforesaid manner.
7. Miscellaneous.
(a) This Agreement shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party, except that the
Company, without the consent of Individual, may assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity (i) with or into which the Company may merge or consolidate, (ii) to
which the Company may sell or transfer all or substantially all of its assets or
of which 50% or more of the equity and of the voting control is owned, directly
or indirectly, by or is under common ownership with, the Company, or (iii) that
is the parent company of the Company.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida.
(c) This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes all prior agreements and understanding
with respect to such subject matter, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein or which have not been terminated
hereby.
(d) The Company may withhold from any salary and benefits payable under
this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
(80)
<PAGE> 5
(e) No amendment or modification of this Agreement shall be deemed
effective unless made in writing signed by the parties hereto.
(f) No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
a specific term or condition for the future or as to any act other than that
specifically waived.
(g) To the extent any provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision and of this Agreement shall be unaffected and shall continue in full
force and effect. In furtherance and not in limitation of the foregoing, should
the duration or geographical extent of, or business activities covered by any
provision of this Agreement be in excess of that which is valid and enforceable
under applicable law, then such provision shall be construed to cover only that
duration, extent or activities which may validly and enforceably covered. The
Individual acknowledges the uncertainty of the law in this respect and expressly
stipulates that this Agreement shall be given construction which renders its
provisions valid and enforceable to the maximum extent (not exceeding its
express terms) possible under applicable law.
(h) This Agreement may be executed by facsimile and in counterparts, each
of which shall be deemed an original and all of which when taken together shall
constitute but one and the same instrument.
(i) Sections 1(d) and 4 of this Agreement shall survive and continue in
full force and effect and in accordance with their respective terms
notwithstanding any termination of this Agreement or Individual's employment
with the Company pursuant hereto.
(j) Caption and section headings used herein are for convenience of
reference only and are not a part of this Agreement and shall not be used in
construing the terms of this Agreement.
(81)
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
CORAM HEALTHCARE CORPORATION
By:
---------------------------------
Name:
Title:
INDIVIDUAL:
------------------------------------
Miles E. Gilman
ACKNOWLEDGED AND AGREED TO:
HEALTHINFUSION, INC.
By:
------------------------------------
Miles E. Gilman, Chief Executive
Officer and President
(82)
<PAGE> 1
EXHIBIT 10.3 TO
REGISTRATION STATEMENT
ON FORM S-4
SEVERANCE/NON-COMPETE AGREEMENT
(William J. Brummond)
THIS SEVERANCE/NON-COMPETE AGREEMENT (this "Agreement") is made and entered
into this day of , 1994, by and between William J.
Brummond ("Individual") and Coram Healthcare Corporation, a Delaware corporation
(the "Company").
WHEREAS, the Company is a party to that certain Agreement and Plan of
Merger dated as of February 6, 1994 (as amended, the Merger Agreement"), by and
among the Company, Curaflex Health Services, Inc., a Delaware corporation
("CHS"), HealthInfusion, Inc., a Florida corporation ("HII"), Medisys, Inc., a
Delaware corporation ("MI"), T2 Medical, Inc., a Delaware corporation ("T2"),
CHS Acquisition Company, a Delaware corporation and wholly owned subsidiary of
the Company ("CHS Sub"), HII Acquisition Company, a Florida corporation and
wholly owned subsidiary of the Company ("HII Sub"), MI Acquisition Company, a
Delaware corporation and wholly owned subsidiary of the Company ("MI Sub"), and
T2 Acquisition Company, a Delaware corporation and wholly owned subsidiary of
the Company ("T2 Sub"), pursuant to which, among other things, T2 Sub, CHS Sub,
HII Sub and MI Sub will merge with and into T2, CHS, HII and MI, respectively,
and T2, CHS, HII and MI will thereby become wholly owned subsidiaries of the
Company (the "Merger"); and
WHEREAS, the Individual is presently employed by MI as its Chief Executive
Officer and President and, upon consummation of the Merger, will thereafter be
employed by the Company as a Vice President of the Company, on an "at will"
basis.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
each of the parties hereto, the Company and the Individual, intending to be
legally bound, hereby agree as follows:
1. Nature of Employment with the Company.
(a) Individual's employment by the Company is, as of the date hereof, and
shall hereafter be on an "at will" basis, subject to the provisions with respect
to termination set forth herein and the other terms and provisions hereof.
(b) Individual agrees to faithfully and diligently perform on a full-time
basis such duties as shall be assigned to Individual by the Board of Directors
of the Company, such duties to be commensurate with the Individual's position as
a Vice President of the Company.
(c) In consideration for the performance by Individual of the duties
described in Section 1(b) above, Individual shall receive a salary equal to
$275,000 per annum (the "Base Salary"), and such Base Salary shall continue to
be paid on a regular basis in accordance with the Company's normal payroll
procedures and policies and shall not, subject to the provisions of Section 4
hereof, be reduced during the term of Individual's employment with the Company
pursuant to this Agreement without his prior written consent. The amount of the
Base Salary shall be reviewed in accordance with the review practices and
policies of MI applicable to Individual as existed immediately prior to the date
hereof. Individual shall also be entitled to receive, in addition to the Base
Salary, an annual bonus compensation amount equal to up to 100% of the Base
Salary based upon earnings per share or other performance objectives set by the
Compensation Committee of the Company. In addition, the Individual shall be
entitled to participate, subject to the provisions, rules and regulations
applicable thereto, including provisions empowering the Board of Directors of
the Company to modify and/or terminate any such plan or programs, in all
employee stock option and other employee benefit plans or programs (including
vacation time, sick leave and holidays) of the Company (including all such plans
and programs of the Company adopted in addition to or in replacement of any of
MI's or the Company's plans
(83)
<PAGE> 2
or programs), on the same basis and to the same extent as he or she was entitled
to participate immediately prior to the date hereof and on the same basis and to
the same extent as other employees of equal rank of MI or of the Company are
entitled to participate in the future. In furtherance of and without limiting
the foregoing, Individual shall be entitled to receive all employee benefits and
perquisites, including, without limitation, vehicle allowance and club dues and
continuing rights to such items following termination, on the same basis and to
the same extent as Individual received from MI prior to the date hereof, which
employee benefits and perquisites shall not, subject to the provisions of
Section 4 hereof, be diminished during the term of Individual's employment with
the Company pursuant to this Agreement without his prior written consent. In
accordance with the Company's policies established from time to time, the
Company will also continue to pay or reimburse the Individual for all reasonable
and necessary out-of-pocket expenses incurred by him in the performance of his
duties under this Agreement, subject to the prior authorization thereof or
subsequent presentment of appropriate receipts and vouchers therefor.
2. Non-Competition; Non-Solicitation. Individual agrees that he will not
while employed with the Company, either directly or indirectly, for himself or
for or on behalf of any other person, firm, corporation, partnership,
association or other entity (whether as an individual, officer, director,
partner, agent, security holder, creditor, or consultant) engage in any line of
business in which the Company or any subsidiary of the Company (including, but
not limited to, MI) is currently engaged and for a 36 month period following the
date of his termination of employment with the Company, and provided that the
Company is in compliance with all of the terms of Section 4(c) hereof, either
directly or indirectly, for himself or for or on behalf of any other person,
firm, corporation, partnership, association or other entity (whether as an
individual, officer, director, partner, agent, security holder, creditor, or
consultant):
(a) (1) in the event that Individual's employment with the Company
terminates within the six month period commencing on the closing date of
the Merger, engage in any line of business in which MI or any subsidiary of
MI is currently engaged or (2) in the event that Individual's employment
with the Company terminates after such six month period, engage in any line
of business in which the Company or any subsidiary of the Company
(including, but not limited to, MI) is currently engaged; provided,
however, that (i) Individual may hold and continue to hold company
securities or, solely as an investment, shares of capital stock or other
equity securities of any company which are traded on any securities
exchange or are regularly quoted in the over-the-counter market, so long as
Individual does not control, acquire a controlling interest in or become a
member of a group which exercises direct or indirect control of, more than
five percent (5%) of any class of capital stock of such company which is
within the scope of this restriction.
(b) (1) attempt to employ or enter into any contractual arrangement
with any employee or former employee of the Company or any subsidiary or
parent company of the Company in connection with any line of business in
which MI or any subsidiary of MI is currently engaged, unless such employee
or former employee has not been employed by the Company or such subsidiary
or parent company for a period in excess of six (6) months; and/or (2) call
on or solicit any of the actual or targeted prospective
physician/consultants (which shall include all physicians who provide or
who are reasonably likely to provide marketing, management or advisory or
other services to the Company or such subsidiary of parent company for a
fee) or customers of the Company or of such subsidiary or parent company in
connection with any line of business that is competitive with any line of
business in which MI or any subsidiary of MI is currently engaged, nor
shall Individual make known the names or addresses of such
physician/consultants or customers or any information relating in any
manner to the Company's business relationships with such
physician/consultants or customers.
3. Confidential Information. Individual will hold in strictest confidence
and shall not disclose to any person or entity without the express prior
authorization of the Company, any information, including, without limitation,
any financial information (including, without limitation, financial statements
of the Company), marketing data, technique, process, formula, developmental or
experimental work, work in progress, business methods, trade secrets (including,
without limitation, any customer list or lists of customer sources), marketing
techniques or plans, or any other secret or confidential information relating to
the products, services, customers, sales or business affairs of the Company or
any subsidiary or parent company of the
(84)
<PAGE> 3
Company, including, without limitation, any information relating to any business
opportunity made by or to the Company or any such subsidiary or parent company,
but excluding any knowledge or expertise possessed by Individual prior to
Individual's commencement of employment with MI and any information in the
public domain. Individual agrees that he will not make use of any of the above
at any time for up to five (5) years after termination of his employment. Upon
termination of employment, Individual shall deliver to the Company all
documents, records, notebooks, work papers and all similar repositories
containing any information concerning the Company or any subsidiaries or parent
company of the Company, whether prepared by Individual, the Company or anyone
else.
4. Termination.
(a) Individual's employment hereunder may be terminated by Individual or
the Company without cause upon at least 30 days' written notice to the other
party.
(b) At any time the Company shall have the right to terminate Individual's
employment hereunder by written notice to Individual upon any of the following
occurrences:
(i) At any time after the first anniversary of the date hereof,
Individual's disability for a continuous period of one hundred twenty (120)
days, if such disability prevents him from performing his duties with the
Company (as described in Section 1(b) above). The existence of such a
period of continuous disability shall be determined by the Board of
Directors in the exercise of its reasonable judgment;
(ii) Individual's conviction of a felony or other serious crime
involving moral turpitude;
(iii) Individual's gross negligence or willful misconduct with respect
to the Company (which shall include, but not be limited to, conduct
bringing the Company into public disgrace or disrepute (other than such
conduct that is performed at the direction of or with the consent or
approval of the Board of Directors or a superior officer of the Company))
to an extent that would likely prohibit Individual from obtaining
unemployment compensation benefits under Minnesota law (taking into
consideration the body of case law in Minnesota interpreting the level and
extent of conduct constituting gross negligence or willful misconduct
sufficient to preclude the receipt of such benefits);
(iv) A material breach by Individual of any of the terms or conditions
of Sections 2 or 3 of this Agreement that is not cured to the reasonable
satisfaction of the Company within thirty (30) days after notice thereof to
Individual; provided, that the Company shall not be permitted to terminate
Individual's employment pursuant to this subsection (iv) without at least
thirty (30) days' prior written notice specifying the breach and permitting
the Individual an opportunity to cure such breach.
(c) In the event that Individual's employment with the Company is
terminated by the Company, the Company shall pay to the Individual an amount
equal to 2.99 times Individual's Base Salary, which amount shall be paid in
thirty-six (36) equal monthly installments, commencing on the first day of the
month immediately subsequent to the date of such termination and on the first
day of each of the next thirty-five months thereafter; provided, that, with
respect to the foregoing payment, Individual is not at that time in material
breach of any of the terms of Sections 2 or 3 hereof. In addition, (i) upon the
first anniversary of the closing date of the Merger, if Individual is still
employed by the Company through such date, or (ii) in the event that
Individual's employment with the Company is terminated by the Company during the
first twelve (12) months after the closing date of the Merger, or (iii) in the
event that Individual's employment with the Company is terminated by the
Individual due to (x) the assignment to the Individual of duties inconsistent in
any respect to the Individual's position or the diminution of authority, duties
or responsibilities, (y) the required relocation of the Individual from his
current primary work location, or (z) any breach by the Company of any provision
of this Agreement, the Company shall within ten (10) days after such first
anniversary date or termination date, as the case may be, pay to the Individual
an additional lump sum payment in the amount of Four Hundred Thousand Dollars
($400,000) (the "Additional Payment"). The timing of any amounts of the
foregoing payments shall be subject to postponement to the extent that payment
of any such amount in the taxable year in which it was originally scheduled to
be paid would result in a disallowance of a deduction for any such amount
pursuant to either Section 162(m) or Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code"). Any amount which is not paid in the taxable
year
(85)
<PAGE> 4
in which it was originally scheduled to be paid as a result of the postponement
thereof pursuant hereto shall be payable in the next succeeding taxable year in
which such payment will not result in the disallowance of a deduction pursuant
to either Section 162(m) or 280G of the Code; provided, however, that (i) in any
contract relating to the payment of the postponed payments, the prevailing party
shall be entitled to receive attorneys' fees and related costs, and (ii) all
postponed payments shall be placed in a Rabbi Trust or similar vehicle for the
benefit of the person to whom it is owed in such a way that the amounts so
transferred are not taxable to such person or deductible by the Company until
payment from such vehicle to such person is made.
(d) In the event of Individual's death, if Individual is still employed by
the Company at the time of Individual's death, the Company shall pay to the
Individual's estate an amount equal to 2.99 times Individual's Base Salary in
the manner and subject to the terms and conditions set forth in Section 4(c)
above.
5. Termination of Other Agreements. Upon the execution of this Agreement,
all other employment, severance, non-compete and other similar agreements
between the Individual and the Company and/or any subsidiary (including, but not
limited to, MI) or parent company of the Company shall immediately terminate and
be of no further force and effect and, except as set forth in Section 1(c)
above, no payments or other provisions regarding benefits or payment of any
other amounts shall be made thereunder, notwithstanding any provision to the
contrary set forth therein.
6. Injunctive Relief. The parties hereto hereby acknowledge and agree that
a breach by Individual of any of the covenants contained in Sections 2 or 3 of
this Agreement may cause irreparable damage and harm to the Company, and that
monetary damages may not be an adequate remedy for any such breach or may be
virtually impossible to ascertain. Therefore, the parties hereto agree that the
Company shall be entitled to an injunction from any court of competent
jurisdiction enjoining and restraining any violation of any or all of the
covenants contained in Sections 2 or 3 of this Agreement by the Individual or
any of his affiliates, associates, partners or agents, either directly or
indirectly, and that such right to injunction shall be cumulative and in
addition to any other remedies available to the Company.
7. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand, when sent by facsimile transmission with acknowledgement of
good transmission received, or when deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
Coram Healthcare Corporation
-----------------------------
-----------------------------
-----------------------------
-----------------------------
Attn: Chief Executive Officer
(86)
<PAGE> 5
If to the Individual:
William J. Brummond
-------------------
-------------------
or to such other addresses as either party hereto may from time to time give
notice of to the other party in the aforesaid manner.
8. Miscellaneous.
(a) This Agreement shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party, except that the
Company, without the consent of Individual, may assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity (i) with or into which the Company may merge or consolidate, (ii) to
which the Company may sell or transfer all or substantially all of its assets or
of which 50% or more of the equity and of the voting control is owned, directly
or indirectly, by, or is under common ownership with, the Company, or (iii) that
is the parent company of the Company; provided, that any such assignment shall
not release the Company from its obligations hereunder, for which the Company
will remain primarily responsible.
(b) This Agreement is made under and shall be governed by and construed in
accordance with the laws of the State of Minnesota. Each of the parties hereto
hereby consents to the jurisdiction of the United States District Court and any
state court of competent jurisdiction located within Hennepin County, Minnesota
and hereby agrees that such courts will be proper forums in which to adjudicate
any case or controversy arising under or relating to this Agreement.
(c) This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes all prior agreements and understanding
with respect to such subject matter, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein or which have not been terminated
hereby.
(d) The Company may withhold from any salary and benefits payable under
this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
(e) No amendment or modification of this Agreement shall be deemed
effective unless made in writing signed by the parties hereto.
(f) No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
a specific term or condition waived and shall not constitute a waiver of such
term or condition for the future or as to any act other than that specifically
waived.
(g) To the extent any provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision and of this Agreement shall be unaffected and shall continue in full
force and effect. In furtherance and not in limitation of the foregoing, should
the duration or geographical extent of, or business activities covered by any
provision of this Agreement be in excess of that which is valid and enforceable
under applicable law, then such provision shall be construed to cover only that
duration, extent or activities which may validly and enforceably be covered. The
Individual acknowledges the uncertainty of the law in this respect and expressly
stipulates that this Agreement shall be given construction which renders its
provisions valid and enforceable to the maximum extent (not exceeding its
express terms) possible under applicable law.
(87)
<PAGE> 6
(h) This Agreement may be executed by facsimile and in counterparts, each
of which shall be deemed an original and all of which when taken together shall
constitute but one and the same instrument.
(i) Sections 2 and 3 of this Agreement shall survive and continue in full
force and effect and in accordance with their respective terms notwithstanding
any termination of this Agreement or Individual's employment with the Company
pursuant hereto.
(j) Caption and section headings used herein are for convenience of
reference only and are not a part of this Agreement and shall not be used in
construing the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"COMPANY"
CORAM HEALTHCARE CORPORATION
By:
-------------------------------
James M. Sweeney, Chairman
"INDIVIDUAL"
-----------------------------------
William J. Brummond
ACKNOWLEDGED AND AGREED TO:
MEDISYS, INC.
By:
---------------------------------
William J. Brummond, Chief
Executive Officer and President
(88)
<PAGE> 1
EXHIBIT 10.4 TO
REGISTRATION STATEMENT
ON FORM S-4
SEVERANCE/NON-COMPETE AGREEMENT
(Tommy H. Carter)
THIS SEVERANCE/NON-COMPETE AGREEMENT (this "Agreement") is made and entered
into this day of , 1994, by and between Tommy H.
Carter ("Individual"), and Coram Healthcare Corporation, a Delaware corporation
(the "Company").
WHEREAS, the Company is a party to that certain Agreement and Plan of
Merger dated as of February 6, 1994 (as amended, the Merger Agreement"), by and
among the Company, Curaflex Health Services, Inc., a Delaware corporation
("CHS"), HealthInfusion, Inc., a Florida corporation ("HII"), Medisys, Inc., a
Delaware corporation ("MI"), T2 Medical, Inc., a Delaware corporation ("T2"),
CHS Acquisition Company, a Delaware corporation and wholly owned subsidiary of
the Company ("CHS Sub"), HII Acquisition Company, a Florida corporation and
wholly owned subsidiary of the Company ("HII Sub"), MI Acquisition Company, a
Delaware corporation and wholly owned subsidiary of the Company ("MI Sub"), and
T2Acquisition Company, a Delaware corporation and wholly owned subsidiary of the
Company ("T2 Sub"), pursuant to which, among other things, T2 Sub, CHS Sub, HII
Sub and MI Sub will merge with and into T2, CHS, HII and MI, respectively, and
T2, CHS, HII and MI will thereby become wholly owned subsidiaries of the Company
(the "Merger"); and
WHEREAS, the Individual is presently employed by T2 as its Chief Executive
Officer and President and, upon consummation of the Merger, will thereafter be
employed by the Company as the Vice Chairman of the Company, on an "at will"
basis.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
each of the parties hereto, the Company and the Individual, intending to be
legally bound, hereby agree as follows:
1. Nature of Employment with the Company.
(a) Individual's employment by the Company is, as of the date hereof, and
shall hereafter be on an "at will" basis, subject to the provisions with respect
to termination set forth herein and the other terms and provisions hereof.
(b) Individual agrees to faithfully and diligently perform on a full-time
basis such duties as shall be assigned to Individual by the Board of Directors
of the Company.
(c) In consideration for the performance by individual of the duties
described in Section 1(b) above, Individual shall receive a salary equal to
$450,000 per annum (the "Base Salary"), and such Base Salary shall continue to
be paid on a regular basis in accordance with the Company's normal payroll
procedures and policies and shall not, subject to the provisions of Section 4
hereof, be reduced during the term of Individual's employment with the Company
pursuant to this Agreement without his prior written consent. The amount of the
Base Salary shall be reviewed in accordance with the review practices and
policies applicable to Individual as existed immediately prior to the date
hereof. Individual shall also be entitled to receive, in addition to the Base
Salary, an annual bonus compensation amount equal to up to 100% of the Base
Salary based upon earnings per share or other performance objectives set by the
Compensation Committee of the Company. In addition, the Individual shall be
entitled to participate, subject to the provisions, rules and regulations
applicable thereto, including provisions empowering the Board of Directors of
the Company, to modify and/or terminate any such plan or programs, in all
employee benefit plans or programs (including vacation time, sick leave and
holidays) of the Company to the same extent as he or she was entitled to
participate immediately prior to the date hereof. In accordance with the
Company's policies established from time to time, the Company will also continue
to pay or reimburse the Individual for all reasonable and necessary
out-of-pocket
(89)
<PAGE> 2
expenses incurred by him in the performance of his duties under this Agreement,
subject to the prior authorization thereof or subsequent presentment of
appropriate receipts and vouchers therefor.
2. Non-Competition; Non-Solicitation.
(a) While employed by the Company and for a period of twelve (12) months
thereafter, Individual shall not, directly or indirectly, engage within a
50-mile radius of any office of the Company or any subsidiary or parent company
of the Company as particularly specified by an addendum hereto (the "Geographic
Area") or have any interest in any sole proprietorship, partnership, corporation
or business or any other person or entity (whether as an employee, officer,
director, partner, agent, security holder, creditor, consultant or otherwise)
that, directly or indirectly, engages within the Geographic Area in any line of
business in which the Company or any subsidiary (including, but not limited to,
CHS, MI, HII or T2) or parent company of the Company is engaged at the time of
termination which lines of business as of the date hereof are the following: the
sale and delivery of infusion chemotherapy, intravenous antibiotic therapy,
infusion hydration therapy, other infusion therapeutic and infusion nutritional
care to patients in homes and other non-hospital environments, acute dialysis
therapy, outpatient lithotripsy services, ambulatory surgical center services,
outpatient pediatric infusion therapy and respiratory therapy services and
physician practice management services (each such line of business, a "Line of
Business" and, collectively, the "Lines of Business"); provided, however, that
Individual may hold and continue to hold Company securities or, solely as an
investment, shares of capital stock or other equity securities of any company
which are traded on any national securities exchange or are regularly quoted in
the over-the-counter market, so long as Individual does not control, acquire a
controlling interest in or become a member of a group which exercises direct or
indirect control of, more than five percent (5%) of any class of capital stock
of such company. Individual hereby confirms that he is under no contractual
commitments inconsistent with his obligations set forth in this Agreement, and
that during the term of this Agreement, he will not render or perform services,
or enter into any agreement to do so, for any other corporation, firm, entity or
person which are inconsistent with the provisions of this Agreement.
(b) While employed by the Company and for a period of twelve (12) months
thereafter, Individual shall not, directly or indirectly, for himself or for or
on behalf of any other person, firm, corporation, partnership, association or
other entity, (i) attempt to employ or enter into any contractual arrangement
with any employee or former employee of the Company or any subsidiary or parent
company of the Company, unless such employee or former employee has not been
employed by the Company or such subsidiary or parent company for a period in
excess of six (6) months; and/or (ii) call on or solicit any physicians (which
shall include all physicians who provide or who are reasonably likely to provide
marketing, management or advisory or other services to the Company or such
subsidiary or parent company for a fee) or customers of the Company or of such
subsidiary or parent company with whom the Individual had contact pursuant to
his employment with the Company or such subsidiary or parent company in
connection with any line of business that is competitive with any Line of
Business, nor shall Individual make known the names or addresses of such
physicians or customers or any information relating in any manner to the
Company's business relationships with such physicians or customers.
3. Confidential Information. Individual will hold in strictest confidence
and shall not disclose to any person or entity without the express prior
authorization of the Company and Coram, any information, including, without
limitation, any financial information (including, without limitation, financial
statements of the Company), marketing data, technique, process, formula,
developmental or experimental work, work in progress, business methods, trade
secrets (including, without limitation, any customer list or lists of customer
sources), marketing techniques or plans, or any other secret or confidential
information relating to the products, services, customers, sales or business
affairs of the Company or any subsidiary or parent company of the Company,
including, without limitation, any information relating to any business
opportunity made by or to the Company or any such subsidiary or parent company.
Individual agrees that he will not make use of any of the above at any time
after termination of his employment. Upon termination of employment, Individual
shall deliver to the Company all documents, records, notebooks, work papers and
all similar repositories containing any information concerning the Company or
any subsidiaries or parent company of the Individual, whether prepared by
Individual, the Company or anyone else.
(90)
<PAGE> 3
4. Termination.
(a) Individual's employment hereunder may be terminated by Individual or
the Company without cause upon at least 30 days' written notice to the other
party.
(b) At any time the Company shall have the right to terminate Individual's
employment hereunder by written notice to Individual upon any of the following
occurrences:
(i) Individual's disability for a continuous period of one hundred
twenty (120) days, if such disability prevents him from performing his
duties with the Company (as described in Section 1(b) above). The existence
of such a period of continuous disability shall be determined by the Board
of Directors in the exercise of its reasonable judgment;
(ii) Individual's conviction of a felony or other serious crime
involving moral turpitude;
(iii) Individual's gross negligence or willful misconduct with respect
to the Company;
(iv) Individual's conduct bringing Company into public disgrace or
disrepute; or
(v) A material breach by Individual of any of the terms or conditions
of Sections 2 or 3 of this Agreement that is not cured to the reasonable
satisfaction of the Company within thirty (30) days after notice thereof to
Individual; provided, that the Company shall not be permitted to terminate
Individual's employment pursuant to this subsection (v) without at least
thirty (30) days' prior written notice specifying the breach and permitting
the individual an opportunity to cure such breach.
(c) In the event that Individual's employment with the Company is
terminated by the Company without cause pursuant to Section 4(a) above, or by
the Individual due to (i) the assignment to the Individual of duties
inconsistent in any respect to the Individual's position or the diminution of
authority, duties or responsibilities, (ii) the required relocation of the
Individual from his current primary work location, or (iii) any breach by the
Company of any provision of this Agreement, the Company shall pay to the
Individual a lump sum payment equal to 2.99 times Individual's Base Salary;
provided, that, Individual is not at that time in material breach of any of the
terms of Sections 2 or 3 hereof. The timing of any amounts of the foregoing
payments shall be subject to postponement to the extent that payment of any such
amount in the taxable year in which it was originally scheduled to be paid would
result in a disallowance of a deduction for any such amount pursuant to either
Section 162(m) or Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"). Any amount which is not paid in the taxable year in which it was
originally scheduled to be paid as a result of the postponement thereof pursuant
hereto shall be payable in the next succeeding taxable year in which such
payment will not result in the disallowance of a deduction pursuant to either
Section 162(m) or 280G of the Code; provided, however, that (1) in any contract
relating to the payment of the postponed payments, the prevailing party shall be
entitled to receive attorneys' fees and related costs, and (ii) all postponed
payments shall be placed in a Rabbi trust or similar vehicle for the benefit of
the person to whom it is owed in such a way that the amounts so transferred are
not taxable to such person or deductible by the Company or MI until payment from
such vehicle to such person is made.
(d) In the event of Individual's death, if Individual is still employed by
the Company at the time of Individual's death, the Company shall pay to the
Individual's estate an amount equal to 2.99 times Individual's Base Salary in
the manner and subject to the terms and conditions set forth in Section 4(c)
above.
5. Termination of Other Agreements. Upon the execution of this Agreement,
all other employment, severance, non-compete and other similar agreements
between the Individual and the Company and/or any subsidiary or parent company
of the Company shall immediately terminate and be of no further force and effect
and no payments or other provisions regarding benefits or payment of any other
amounts shall be made thereunder, notwithstanding any provision to the contrary
set forth therein.
6. Injunctive Relief. The parties hereto hereby acknowledge and agree that
a breach by Individual of any of the covenants contained in Sections 2 or 3 of
this Agreement may cause irreparable damage and harm to the Company, and that
monetary damages may not be an adequate remedy for any such breach or may be
(91)
<PAGE> 4
virtually impossible to ascertain. Therefore, the parties hereto agree that the
Company shall be entitled to an injunction from any court of competent
jurisdiction enjoining and restraining any violation of any or all of the
covenants contained in Sections 2 or 3 of this Agreement by the Individual or
any of his affiliates, associates, partners or agents, either directly or
indirectly, and that such right to injunction shall be cumulative and in
addition to any other remedies available to the Company.
7. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand, when sent by facsimile transmission with acknowledgement of
good transmission received, or when deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
Coram Healthcare Corporation
One Lakeshore Center
3281 Guasti Road
Suite 700
Ontario, California 91761
Attn: Chief Executive Officer
If to the Individual:
Tommy H. Carter
--------------------------------------------
--------------------------------------------
or to such other addresses as either party hereto may from time to time give
notice of to the other party in the aforesaid manner.
8. Miscellaneous.
(a) This Agreement shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party, except that the
Company, without the consent of Individual, may assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity (i) with or into which the Company may merge or consolidate, (ii) to
which the Company may sell or transfer all or substantially all of its assets or
of which 50% or more of the equity and of the voting control is owned, directly
or indirectly, by, or is under common ownership with, the Company, or (iii) that
is the parent company of the Company, including Coram.
(b) This Agreement is made under and shall be governed by and construed in
accordance with the laws of the State of Georgia.
(c) This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes all prior agreements and understanding
with respect to such subject matter, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein or which have not been terminated
hereby.
(d) The Company may withhold from any salary and benefits payable under
this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
(e) No amendment or modification of this Agreement shall be deemed
effective unless made in writing signed by the parties hereto.
(f) No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. Any written waiver shall not be
deemed a
(92)
<PAGE> 5
continuing waiver unless specifically stated, shall operate only as to a
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future or as to any act other than that specifically
waived.
(g) To the extent any provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision and of this Agreement shall be unaffected and shall continue in full
force and effect. In furtherance and not in limitation of the foregoing, should
the duration or geographical extent of, or business activities covered by any
provision of this Agreement be in excess of that which is valid and enforceable
under applicable law, then such provision shall be construed to cover only that
duration, extent or activities which may validly and enforceably be covered. The
Individual acknowledges the uncertainty of the law in this respect and expressly
stipulates that this Agreement shall be given construction which renders its
provisions valid and enforceable to the maximum extent (not exceeding its
express terms) possible under applicable law.
(h) This Agreement may be executed by facsimile and in counterparts, each
of which shall be deemed an original and all of which when taken together shall
constitute but one and the same instrument.
(i) Sections 2 and 3 of this Agreement shall survive and continue in full
force and effect and in accordance with their respective terms notwithstanding
any termination of this Agreement or Individual's employment with the Company
pursuant hereto.
(j) Caption and section headings used herein are for convenience of
reference only and are not a part of this Agreement and shall not be used in
construing the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"COMPANY"
CORAM HEALTHCARE CORPORATION
By:
-------------------------------
James M. Sweeney, Chairman
"INDIVIDUAL"
----------------------------------
Tommy H. Carter
ACKNOWLEDGED AND AGREED TO:
T2 MEDICAL, INC.
By:
----------------------------------
Tommy H. Carter, President and
Chief Executive Officer
(93)
<PAGE> 1
EXHIBIT 10.5 TO
REGISTRATION STATEMENT
ON FORM S-4
SEVERANCE/NON-COMPETE AGREEMENT
THIS SEVERANCE/NON-COMPETE AGREEMENT (the "Agreement") is made and entered
into this day of , 1994, by and between W. Barry
Tanner ("Individual"), and HealthInfusion, Inc., a Florida corporation (the
"Company"); and
WHEREAS, the Company is a party to that certain Agreement and Plan of
Merger dated as of February 6, 1994 (as amended, the Merger Agreement"), by and
among Coram Healthcare Corporation, a Delaware corporation (formerly "CHM
Holding Corporation")("Coram"), T2 Medical, Inc., a Delaware corporation ("T2"),
Curaflex Health Services, Inc., a Delaware corporation ("CHS"), the Company,
Medisys, Inc., a Delaware corporation ("MI"), T2 Acquisition Company, a Delaware
corporation and wholly owned subsidiary of Coram ("T2 Sub"), CHS Acquisition
Company, a Delaware corporation and wholly owned subsidiary of Coram ("CHS
Sub"), HII Acquisition Company, a Florida corporation and wholly owned
subsidiary of Coram ("HII Sub"), and MI Acquisition Company, a Delaware
corporation and wholly owned subsidiary of Coram ("MI Sub"), pursuant to which,
among other things, T2 Sub, CHS Sub, HII Sub and MI Sub will merge with and into
T2, CHS, the Company and MI, respectively, and T2, CHS, the Company and MI will
thereby become wholly owned subsidiaries of Coram (the "Merger"); and
WHEREAS, the Individual is presently employed by the Company and upon
consummation of the Merger will continue to be employed by the Company, subject
to the terms and conditions set forth herein, on an "at will" basis; and
NOW THEREFORE, in consideration of the foregoing premises, the sums set
forth herein, the mutual covenants and agreements set forth herein, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each of the parties hereto, and the Company and the Individual
intending to be legally bound hereby agree as follows:
1. Nature of Continuing Employment with the Company.
(a) Individual's employment by the Company is, as of the date hereof, and
shall hereafter be, on an "at will" basis, subject to the provisions with
respect to termination set forth herein and the other terms and provisions
hereof.
(b) Individual agrees to continue to devote all of his efforts and skills
faithfully and diligently and on a full-time basis in performing his duties for
the benefit of the Company. Individual's main office shall be located in the
State of Florida.
(c) Individual agrees to perform on a full-time basis such duties as shall
be assigned to him from time by the Board of Directors of the Company, such
duties to be commensurate with the Individual's position as Chief Operating
Officer of the Company.
(d) Individual will hold in strictest confidence and shall not disclose to
any person or entity without the express prior authorization of the Company and
Coram any non-public proprietary information, which may include but is not
limited to non-public: financial information, financial statements of the
Company or any subsidiary or parent company of the Company, marketing data,
technique, process formula, developmental or experimental work, work in
progress, business methods, trade secrets (including, without limitation, any
customer list or lists or customer sources), marketing information relating to
the products, services, customers, sales or business affairs of the Company or
any subsidiary or parent company of the Company, including, without limitation,
any information relating to any business opportunity made by or to the Company
or any such subsidiary or parent company relating to protected services or any
other line of business in which the Company or any subsidiary of the Company is
currently engaged. Individual agrees that he will not make use of any of the
above at any time after termination of employment. Upon termination of
employment, Individual shall deliver to the Company all documents, records,
notebooks, work papers and all similar repositories of the
(94)
<PAGE> 2
Individual containing any such information concerning the Company or any
subsidiaries or parent company of the Company.
(e) As compensation for all services to be rendered by Individual under his
"at will" employment, the Company shall pay to the Individual a base annual
salary of Two Hundred Twenty-Five Thousand and 00/100 Dollars ($225,000.00) (the
"Base Salary"), which shall be paid on a regular basis in accordance with the
Company's normal payroll procedures and policies. The amount of the Base Salary
shall be reviewed annually by the Board of Directors of the Company, and the
Board of Directors shall determine, in its sole discretion, whether such Base
Salary shall be increased based upon standards generally applicable to employees
of the Company of this type. However, subject to the other terms and conditions
set forth herein, in no event shall Individual's Base Salary be decreased during
the term of Individual's employment with the Company pursuant to this Agreement
without his prior written consent.
(f) The Individual shall also be entitled to participate in all individual
benefit plans and programs (including but not limited to vacation time, sick
leave, holidays, automobile allowance, and insurance plans) of the Company to
the extent that his position, title, salary, age, health and other
qualifications make him eligible to participate. The Individual shall also be
entitled to participate in any additional benefits or considerations which are
generally made available to employees of this type as may be established by the
Board of Directors from time to time. The Individual's participation in any such
plan or program shall be subject to the provisions, rules and regulation
applicable thereto, including provisions empowering the Board of Directors of
the Company to modify and/or terminate any such plan or programs.
(g) In accordance with the Company's policies established from time to
time, the Company will pay or reimburse the Individual for all reasonable and
necessary out-of-pocket expenses incurred by him in the performance of his
duties under this Agreement, subject to the prior authorization thereof or
subsequent presentment of appropriate receipts and vouchers therefore.
2. Termination.
(a) Individual's employment hereunder may be terminated by Individual or
the Company with or without cause upon at least 30 days written notice to the
other party; provided, however, that any such termination shall be effective on
a day other than the last day of the Company's fiscal year.
(b) Additionally, at any time the Company shall have the right to terminate
Individual's employment hereunder by written notice to the Individual upon any
of the following occurrences:
(i) Individual's disability for a continuous period of one hundred
twenty (120) days, if, in the reasonable judgment of the Company's Board of
Directors, such disability prevents him from performing his duties under
this Agreement;
(ii) Individual's conviction of a felony or other serious crime
involving moral turpitude;
(iii) Individual's gross negligence or willful misconduct with respect
to the Company;
(iv) Individual's conduct bringing Company into public disgrace or
disrepute;
(v) A material breach of any of the terms or conditions of this
Agreement that is not cured or, in the opinion of the Company, curable, to
the reasonable satisfaction of the Company within thirty (30) days after
notice thereof to Individual;
provided, however, that any such termination shall be effective on a day other
than the last day of the Company's fiscal year.
(c) In the event that Individual's employment with the Company terminates,
the Company shall, within ten (10) days after such termination, pay to the
Individual a lump sum payment in the amount of Six Hundred Seventy-Five Thousand
Dollars ($675,000.00); provided, however, that such payment shall not be made on
the last day of employer's fiscal year, but shall be made within the ten (10)
day time requirement set forth herein. Said payment shall be by a Form 1099 and
is comprised in part of severance calculated based on reasonable compensation
for services by Individual prior to the change of control from the Company to
(95)
<PAGE> 3
Coram, which severance payment is in the sum of $150,000, as well as comprised
in part of consideration for the post-termination restrictive covenant imposed
upon Individual in this Agreement, which post-termination restrictive covenant
payment is in the sum of $525,000. The timing of the payment of any such amounts
shall be subject to postponement to the extent that payment of any such amount
in the taxable year in which it was originally scheduled to be paid results in a
disallowance of a deduction for any such amount pursuant to either Section
162(m) or Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") as determined by the Internal Revenue Service. Any amount which is not
paid in the taxable year in which it was originally scheduled to be paid as a
result of the postponement thereof pursuant hereto shall be payable in the next
succeeding taxable year in which such payment will not result in the
disallowance of a deduction pursuant to either Section 162(m) or 280G of the
Code; provided, however, that (i) if a dispute arises as to the payment of the
postponed payments to the Individual, the prevailing party shall be entitled to
receive attorneys' fees and related costs, and (ii) all postponed payments shall
be placed in a Rabbi trust or similar vehicle for the benefit of the Individual
in such a way that the amounts so transferred are not taxable to such person or
deductible by the Company or Coram until payment from such vehicle to such
person is made. In the event a payment has been made to the Individual, but then
disallowed as a reduction by the Internal Revenue Service and return of the
payment is required into the trust, said payment to the Individual shall be
treated as a loan and said payment to the trust shall be treated as repayment of
said loan.
3. Termination of Other Agreements. Upon the execution of this Agreement,
all other employment, severance, non-compete and other similar agreements
between the Individual and the Company and/or any subsidiary or parent company
of the Company shall immediately terminate and be of no further force and effect
and no payments or other provisions regarding benefits or payment of any other
amounts shall be made thereunder, notwithstanding any provision to the contrary
set forth therein other than those already accrued but yet unpaid as of the date
of this Agreement.
4. Restrictive Covenant. Individual agrees that he will not, while employed
with the Company and for a 24 month period following the date of his termination
of employment with the Company, either directly or indirectly, for himself or
for or on behalf of any other person, firm, corporation, partnership,
association or other entity (whether as an individual, officer, director,
partner, agent, security holder, creditor, or consultant):
(a) Engage in any line of business in which the Company or any
subsidiary of the Company is currently engaged which lines of business as
of the date hereof are the following: the sale and delivery of infusion
chemotherapy, intravenous antibiotic therapy, infusion analgesia therapy,
infusion hydration therapy, other infusion therapeutic and infusion
nutritional care to patients in homes and other non-hospital environments,
acute dialysis and clinical drug research networks; provided, however, that
(i) Individual may hold and continue to hold company securities or, solely
as an investment, shares of capital stock or other equity securities of any
company which are traded on any securities exchange or are regularly quoted
in the over-the-counter market, so long as Individual does not control,
acquire a controlling interest in or become a member of a group which
exercises direct or indirect control of, more than five percent (5%) of any
class of capital stock of such company which is within the scope of this
restriction and (ii) Individual may engage in any managed care services
business other than any managed care services business relating to
intravenous therapy.
(b) Employ, attempt to employ or enter into any contractual
arrangement (a "Solicitation Act") with any employee of the Company or
employee of any subsidiary or parent company of the Company, or any person
who was an employee of the Company or any such subsidiary or parent
company, unless such person was involuntarily terminated by the Company or
such subsidiary or parent company (other than for performance reasons or
"for cause") or, in any event, had no employment relationship with the
Company, its parent or subsidiaries at any time within the six months
immediately prior to such Solicitation Act.
(c) All restrictions under this Section 4 of this Agreement are
subject to the payment by the Company and the receipt of the full
restrictive covenant payments by the Individual in the sums set forth in
Section 2 above and of any already accrued but yet unpaid amounts referred
to in Section 3 above.
(96)
<PAGE> 4
5. Injunctive Relief. The parties hereto hereby acknowledge and agree that
a breach by Individual of any of the covenants contained in Section 1(d) or
Sections 4 (a) or (b) of this Agreement may cause irreparable damage and harm to
the Company, and that monetary damages may not be an adequate remedy for any
such breach or may be virtually impossible to ascertain. Therefore, the parties
hereto agree that the Company shall be entitled to an injunction from any court
of competent jurisdiction enjoining and restraining any violation of any or all
of the covenants contained in said Sections of this Agreement by the Individual
or any of his or her affiliates, associates, partners, or agents, either
directly or indirectly, and that such right to injunction shall be cumulative
and in addition to any other remedies available to the Company.
6. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand, when sent by facsimile transmission with acknowledgement of
good transmission received, or when deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
HealthInfusion, Inc.
5200 Blue Lagoon Drive
Suite 200
Miami, Florida 33126
Attn: President
If to the Individual:
W. Barry Tanner
---------------------------------------------
---------------------------------------------
or to such other addresses as either party hereto may from time to time give
notice of to the other party in the aforesaid manner.
7. Miscellaneous.
(a) This Agreement shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party, except that the
Company, without the consent of Individual, may assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity (i) with or into which the Company may merge or consolidate, (ii) to
which the Company may sell or transfer all or substantially all of its assets or
of which 50% or more of the equity and of the voting control is owned, directly
or indirectly, by or is under common ownership with, the Company, or (iii) that
is the parent company of the Company.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida.
(c) This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes all prior agreements and understanding
with respect to such subject matter, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein or which have not been terminated
hereby.
(d) The Company may withhold from any salary and benefits payable under
this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
(e) No amendment or modification of this Agreement shall be deemed
effective unless made in writing signed by the parties hereto.
(97)
<PAGE> 5
(f) No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
a specific term or condition for the future or as to any act other than that
specifically waived.
(g) To the extent any provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision and of this Agreement shall be unaffected and shall continue in full
force and effect. In furtherance and not in limitation of the foregoing, should
the duration or geographical extent of, or business activities covered by any
provision of this Agreement be in excess of that which is valid and enforceable
under applicable law, then such provision shall be construed to cover only that
duration, extent or activities which may validly and enforceably covered. The
Individual acknowledges the uncertainty of the law in this respect and expressly
stipulates that this Agreement shall be given construction which renders its
provisions valid and enforceable to the maximum extent (not exceeding its
express terms) possible under applicable law.
(h) This Agreement may be executed by facsimile and in counterparts, each
of which shall be deemed an original and all of which when taken together shall
constitute but one and the same instrument.
(i) Sections 1(d) and 4 of this Agreement shall survive and continue in
full force and effect and in accordance with their respective terms
notwithstanding any termination of this Agreement or Individual's employment
with the Company pursuant hereto.
(j) Caption and section headings used herein are for convenience of
reference only and are not a part of this Agreement and shall not be used in
construing the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
HEALTHINFUSION, INC.
By:
---------------------------------
Miles E. Gilman, Chief Executive
Officer and President
INDIVIDUAL:
-----------------------------------
W. Barry Tanner
(98)
<PAGE> 6
GUARANTY OF PERFORMANCE
CORAM HEALTHCARE CORPORATION, a Delaware corporation, as the parent
corporation of the Company, hereby acknowledges and agrees to all of the terms
and conditions of the foregoing Severance/Non-Compete Agreement and does hereby
guaranty the full and prompt performance by the Company of its obligations under
the foregoing Severance/Non-Compete Agreement.
CORAM HEALTHCARE CORPORATION
By:
--------------------------------
James M. Sweeney, Chairman
and Chief Executive Officer
(99)
<PAGE> 1
EXHIBIT 10.6 TO
REGISTRATION STATEMENT
ON FORM S-4
SEVERANCE/NON-COMPETE AGREEMENT
THIS SEVERANCE/NON-COMPETE AGREEMENT (the "Agreement") is made and entered
into this day of , 1994, by and between Jack T.
Thompson ("Individual"), and HealthInfusion, Inc., a Florida corporation (the
"Company"); and
WHEREAS, the Company is a party to that certain Agreement and Plan of
Merger dated as of February 6, 1994 (as amended, the Merger Agreement"), by and
among Coram Healthcare Corporation, a Delaware corporation (formerly "CHM
Holding Corporation")("Coram"), T2 Medical, Inc., a Delaware corporation ("T2"),
Curaflex Health Services, Inc., a Delaware corporation ("CHS"), the Company,
Medisys, Inc., a Delaware corporation ("MI"), T2 Acquisition Company, a Delaware
corporation and wholly owned subsidiary of Coram ("T2 Sub"), CHS Acquisition
Company, a Delaware corporation and wholly owned subsidiary of Coram ("CHS
Sub"), HII Acquisition Company, a Florida corporation and wholly owned
subsidiary of Coram ("HII Sub"), and MI Acquisition Company, a Delaware
corporation and wholly owned subsidiary of Coram ("MI Sub"), pursuant to which,
among other things, T2 Sub, CHS Sub, HII Sub and MI Sub will merge with and into
T2, CHS, the Company and MI, respectively, and T2, CHS, the Company and MI will
thereby become wholly owned subsidiaries of Coram (the "Merger"); and
WHEREAS, the Individual is presently employed by the Company and upon
consummation of the Merger will continue to be employed by the Company, subject
to the terms and conditions set forth herein, on an "at will" basis; and
NOW THEREFORE, in consideration of the foregoing premises, the sums set
forth herein, the mutual covenants and agreements set forth herein, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each of the parties hereto, and the Company and the Individual
intending to be legally bound hereby agree as follows:
1. Nature of Continuing Employment with the Company.
(a) Individual's employment by the Company is, as of the date hereof, and
shall hereafter be, on an "at will" basis, subject to the provisions with
respect to termination set forth herein and the other terms and provisions
hereof.
(b) Individual agrees to continue to devote all of his efforts and skills
faithfully and diligently and on a full-time basis in performing his duties for
the benefit of the Company. Individual's main office shall be located in the
State of Florida.
(c) Individual agrees to perform on a full-time basis such duties as shall
be assigned to him from time by the Board of Directors of the Company, such
duties to be commensurate with the Individual's position as Vice
President -- Finance, Chief Financial Officer and Treasurer of the Company.
(d) Individual will hold in strictest confidence and shall not disclose to
any person or entity without the express prior authorization of the Company and
Coram any non-public proprietary information, which may include but is not
limited to non-public: financial information, financial statements of the
Company or any subsidiary or parent company of the Company, marketing data,
technique, process formula, developmental or experimental work, work in
progress, business methods, trade secrets (including, without limitation, any
customer list or lists or customer sources), marketing information relating to
the products, services, customers, sales or business affairs of the Company or
any subsidiary or parent company of the Company, including, without limitation,
any information relating to any business opportunity made by or to the Company
or any such subsidiary or parent company relating to protected services or any
other line of business in which the Company or any subsidiary of the Company is
currently engaged. Individual agrees that he will not make use of any of the
above at any time after termination of employment. Upon termination of
employment, Individual shall deliver to the Company all documents, records,
notebooks, work papers and all similar repositories of the
(100)
<PAGE> 2
Individual containing any such information concerning the Company or any
subsidiaries or parent company of the Company.
(e) As compensation for all services to be rendered by Individual under his
"at will" employment, the Company shall pay to the Individual a base annual
salary of One Hundred Seventy-Five Thousand and 00/100 Dollars ($175,000.00)
(the "Base Salary"), which shall be paid on a regular basis in accordance with
the Company's normal payroll procedures and policies. The amount of the Base
Salary shall be reviewed annually by the Board of Directors of the Company, and
the Board of Directors shall determine, in its sole discretion, whether such
Base Salary shall be increased based upon standards generally applicable to
employees of the Company of this type. However, subject to the other terms and
conditions set forth herein, in no event shall Individual's Base Salary be
decreased during the term of Individual's employment with the Company pursuant
to this Agreement without his prior written consent.
(f) The Individual shall also be entitled to participate in all individual
benefit plans and programs (including but not limited to vacation time, sick
leave, holidays, automobile allowance, and insurance plans) of the Company to
the extent that his position, title, salary, age, health and other
qualifications make him eligible to participate. The Individual shall also be
entitled to participate in any additional benefits or considerations which are
generally made available to employees of this type as may be established by the
Board of Directors from time to time. The Individual's participation in any such
plan or program shall be subject to the provisions, rules and regulation
applicable thereto, including provisions empowering the Board of Directors of
the Company to modify and/or terminate any such plan or programs.
(g) In accordance with the Company's policies established from time to
time, the Company will pay or reimburse the Individual for all reasonable and
necessary out-of-pocket expenses incurred by him in the performance of his
duties under this Agreement, subject to the prior authorization thereof or
subsequent presentment of appropriate receipts and vouchers therefore.
2. Termination.
(a) Individual's employment hereunder may be terminated by Individual or
the Company with or without cause upon at least 30 days written notice to the
other party; provided, however, that any such termination shall be effective on
a day other than the last day of the Company's fiscal year.
(b) Additionally, at any time the Company shall have the right to terminate
Individual's employment hereunder by written notice to the Individual upon any
of the following occurrences:
(i) Individual's disability for a continuous period of one hundred
twenty (120) days, if, in the reasonable judgment of the Company's Board of
Directors, such disability prevents him from performing his duties under
this Agreement;
(ii) Individual's conviction of a felony or other serious crime
involving moral turpitude;
(iii) Individual's gross negligence or willful misconduct with respect
to the Company;
(iv) Individual's conduct bringing Company into public disgrace or
disrepute;
(v) A material breach of any of the terms or conditions of this
Agreement that is not cured or, in the opinion of the Company, curable, to
the reasonable satisfaction of the Company within thirty (30) days after
notice thereof to Individual;
provided, however, that any such termination shall be effective on a day other
than the last day of the Company's fiscal year.
(c) In the event that Individual's employment with the Company terminates,
the Company shall, within ten (10) days after such termination, pay to the
Individual a lump sum payment in the amount of Eight Hundred Twenty Thousand
Dollars ($820,000.00); provided, however, that such payment shall not be made on
the last day of employer's fiscal year, but shall be made within the ten (10)
day time requirement set forth herein. Said payment shall be by a Form 1099 and
is comprised in part of severance calculated based on reasonable compensation
for services by Individual prior to the change of control from the Company to
(101)
<PAGE> 3
Coram, which severance payment is in the sum of $245,000, as well as comprised
in part of consideration for the post-termination restrictive covenant imposed
upon Individual in this Agreement, which post-termination restrictive covenant
payment is in the sum of $575,000. The timing of the payment of any such amounts
shall be subject to postponement to the extent that payment of any such amount
in the taxable year in which it was originally scheduled to be paid results in a
disallowance of a deduction for any such amount pursuant to either Section
162(m) or Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") as determined by the Internal Revenue Service. Any amount which is not
paid in the taxable year in which it was originally scheduled to be paid as a
result of the postponement thereof pursuant hereto shall be payable in the next
succeeding taxable year in which such payment will not result in the
disallowance of a deduction pursuant to either Section 162(m) or 280G of the
Code; provided, however, that (i) if a dispute arises as to the payment of the
postponed payments to the Individual, the prevailing party shall be entitled to
receive attorneys' fees and related costs, and (ii) all postponed payments shall
be placed in a Rabbi trust or similar vehicle for the benefit of the Individual
in such a way that the amounts so transferred are not taxable to such person or
deductible by the Company or Coram until payment from such vehicle to such
person is made. In the event a payment has been made to the Individual, but then
disallowed as a reduction by the Internal Revenue Service and return of the
payment is required into the trust, said payment to the Individual shall be
treated as a loan and said payment to the trust shall be treated as repayment of
said loan.
3. Termination of Other Agreements. Upon the execution of this Agreement,
all other employment, severance, non-compete and other similar agreements
between the Individual and the Company and/or any subsidiary or parent company
of the Company shall immediately terminate and be of no further force and effect
and no payments or other provisions regarding benefits or payment of any other
amounts shall be made thereunder, notwithstanding any provision to the contrary
set forth therein other than those already accrued but yet unpaid as of the date
of this Agreement.
4. Restrictive Covenant. Individual agrees that he will not, while employed
with the Company and for a 24 month period following the date of his termination
of employment with the Company, either directly or indirectly, for himself or
for or on behalf of any other person, firm, corporation, partnership,
association or other entity (whether as an individual, officer, director,
partner, agent, security holder, creditor, or consultant):
(a) Engage in any line of business in which the Company or any subsidiary
of the Company is currently engaged which lines of business as of the date
hereof are the following: the sale and delivery of infusion chemotherapy,
intravenous antibiotic therapy, infusion analgesia therapy, infusion hydration
therapy, other infusion therapeutic and infusion nutritional care to patients in
homes and other non-hospital environments, acute dialysis and clinical drug
research networks; provided, however, that (i) Individual may hold and continue
to hold company securities or, solely as an investment, shares of capital stock
or other equity securities of any company which are traded on any securities
exchange or are regularly quoted in the over-the-counter market, so long as
Individual does not control, acquire a controlling interest in or become a
member of a group which exercises direct or indirect control of, more than five
percent (5%) of any class of capital stock of such company which is within the
scope of this restriction and (ii) Individual may engage in any managed care
services business other than any managed care services business relating to
intravenous therapy.
(b) Employ, attempt to employ or enter into any contractual arrangement (a
"Solicitation Act") with any employee of the Company or employee of any
subsidiary or parent company of the Company, or any person who was an employee
of the Company or any such subsidiary or parent company, unless such person was
involuntarily terminated by the Company or such subsidiary or parent company
(other than for performance reasons or "for cause") or, in any event, had no
employment relationship with the Company, its parent or subsidiaries at any time
within the six months immediately prior to such Solicitation Act.
(c) All restrictions under this Section 4 of this Agreement are subject to
the payment by the Company and the receipt of the full restrictive covenant
payments by the Individual in the sums set forth in Section 2 above and of any
already accrued but yet unpaid amounts referred to in Section 3 above.
5. Injunctive Relief. The parties hereto hereby acknowledge and agree that
a breach by Individual of any of the covenants contained in Section 1(d), or
Sections 4 (a) or (b) of this Agreement may cause irreparable damage and harm to
the Company, and that monetary damages may not be an adequate remedy
(102)
<PAGE> 4
for any such breach or may be virtually impossible to ascertain. Therefore, the
parties hereto agree that the Company shall be entitled to an injunction from
any court of competent jurisdiction enjoining and restraining any violation of
any or all of the covenants contained in said Sections of this Agreement by the
Individual or any of his or her affiliates, associates, partners, or agents,
either directly or indirectly, and that such right to injunction shall be
cumulative and in addition to any other remedies available to the Company.
6. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand, when sent by facsimile transmission with acknowledgement of
good transmission received, or when deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
HealthInfusion, Inc.
5200 Blue Lagoon Drive
Suite 200
Miami, Florida 33126
Attn: President
If to the Individual:
Jack T. Thompson
---------------------------------------
---------------------------------------
or to such other addresses as either party hereto may from time to time give
notice of to the other party in the aforesaid manner.
7. Miscellaneous.
(a) This Agreement shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party, except that the
Company, without the consent of Individual, may assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity (i) with or into which the Company may merge or consolidate, (ii) to
which the Company may sell or transfer all or substantially all of its assets or
of which 50% or more of the equity and of the voting control is owned, directly
or indirectly, by or is under common ownership with, the Company, or (iii) that
is the parent company of the Company.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida.
(c) This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes all prior agreements and understanding
with respect to such subject matter, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein or which have not been terminated
hereby.
(d) The Company may withhold from any salary and benefits payable under
this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
(e) No amendment or modification of this Agreement shall be deemed
effective unless made in writing signed by the parties hereto.
(f) No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
a specific term or condition for the future or as to any act other than that
specifically waived.
(g) To the extent any provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision and of this Agreement shall be unaffected
(103)
<PAGE> 5
and shall continue in full force and effect. In furtherance and not in
limitation of the foregoing, should the duration or geographical extent of, or
business activities covered by any provision of this Agreement be in excess of
that which is valid and enforceable under applicable law, then such provision
shall be construed to cover only that duration, extent or activities which may
validly and enforceably covered. The Individual acknowledges the uncertainty of
the law in this respect and expressly stipulates that this Agreement shall be
given construction which renders its provisions valid and enforceable to the
maximum extent (not exceeding its express terms) possible under applicable law.
(h) This Agreement may be executed by facsimile and in counterparts, each
of which shall be deemed an original and all of which when taken together shall
constitute but one and the same instrument.
(i) Sections 1(d) and 4 of this Agreement shall survive and continue in
full force and effect and in accordance with their respective terms
notwithstanding any termination of this Agreement or Individual's employment
with the Company pursuant hereto.
(j) Caption and section headings used herein are for convenience of
reference only and are not a part of this Agreement and shall not be used in
construing the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
HEALTHINFUSION, INC.
By:
----------------------------------
Miles E. Gilman, Chief Executive
Officer and President
INDIVIDUAL:
------------------------------------------
Jack T. Thompson
(104)
<PAGE> 6
GUARANTY OF PERFORMANCE
CORAM HEALTHCARE CORPORATION, a Delaware corporation, as the parent
corporation of the Company, hereby acknowledges and agrees to all of the terms
and conditions of the foregoing Severance/Non-Compete Agreement and does hereby
guaranty the full and prompt performance by the Company of its obligations under
the foregoing Severance/Non-Compete Agreement.
CORAM HEALTHCARE CORPORATION
By:
------------------------------
James M. Sweeney, Chairman
and Chief Executive Officer
(105)
<PAGE> 1
EXHIBIT 10.7 TO
REGISTRATION STATEMENT
ON FORM S-4
SEVERANCE/NON-COMPETE AGREEMENT
THIS SEVERANCE/NON-COMPETE AGREEMENT (the "Agreement") is made and entered
into this day of , 1994, by and between David C.
McCormick ("Individual"), and HealthInfusion, Inc., a Florida corporation (the
"Company"); and
WHEREAS, the Company is a party to that certain Agreement and Plan of
Merger dated as of February 6, 1994 (as amended, the "Merger Agreement"), by and
among Coram Healthcare Corporation, a Delaware corporation (formerly "CHM
Holding Corporation")("Coram"), T2 Medical, Inc., a Delaware corporation ("T2"),
Curaflex Health Services, Inc., a Delaware corporation ("CHS"), the Company,
Medisys, Inc., a Delaware corporation ("MI"), T2 Acquisition Company, a Delaware
corporation and wholly owned subsidiary of Coram ("T2 Sub"), CHS Acquisition
Company, a Delaware corporation and wholly owned subsidiary of Coram ("CHS
Sub"), HII Acquisition Company, a Florida corporation and wholly owned
subsidiary of Coram ("HII Sub"), and MI Acquisition Company, a Delaware
corporation and wholly owned subsidiary of Coram ("MI Sub"), pursuant to which,
among other things, T2 Sub, CHS Sub, HII Sub and MI Sub will merge with and into
T2, CHS, the Company and MI, respectively, and T2, CHS, the Company and MI will
thereby become wholly owned subsidiaries of Coram (the "Merger"); and
WHEREAS, the Individual is presently employed by the Company and upon
consummation of the Merger will continue to be employed by the Company, subject
to the terms and conditions set forth herein, on an "at will" basis; and
NOW THEREFORE, in consideration of the foregoing premises, the sums set
forth herein, the mutual covenants and agreements set forth herein, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each of the parties hereto, and the Company and the Individual
intending to be legally bound hereby agree as follows:
1. Nature of Continuing Employment with the Company.
(a) Individual's employment by the Company is, as of the date hereof, and
shall hereafter be, on an "at will" basis, subject to the provisions with
respect to termination set forth herein and the other terms and provisions
hereof.
(b) Individual agrees to continue to devote all of his efforts and skills
faithfully and diligently and on a full-time basis in performing his duties for
the benefit of the Company. Individual's main office shall be located in the
State of Florida.
(c) Individual agrees to perform on a full-time basis such duties as shall
be assigned to him from time by the Board of Directors of the Company, such
duties to be commensurate with the Individual's position as Vice
President -- Operations of the Company.
(d) Individual will hold in strictest confidence and shall not disclose to
any person or entity without the express prior authorization of the Company and
Coram any non-public proprietary information, which may include but is not
limited to non-public: financial information, financial statements of the
Company or any subsidiary or parent company of the Company, marketing data,
technique, process formula, developmental or experimental work, work in
progress, business methods, trade secrets (including, without limitation, any
customer list or lists or customer sources), marketing information relating to
the products, services, customers, sales or business affairs of the Company or
any subsidiary or parent company of the Company, including, without limitation,
any information relating to any business opportunity made by or to the Company
or any such subsidiary or parent company relating to protected services or any
other line of business in which the Company or any subsidiary of the Company is
currently engaged. Individual agrees that he will not make use of any of the
above at any time after termination of employment. Upon termination of
employment, Individual shall deliver to the Company all documents, records,
notebooks, work papers and all similar repositories of the
(106)
<PAGE> 2
Individual containing any such information concerning the Company or any
subsidiaries or parent company of the Company.
(e) As compensation for all services to be rendered by Individual under his
"at will" employment, the Company shall pay to the Individual a base annual
salary of One Hundred Seventy-Five Thousand and 00/100 Dollars ($175,000.00)
(the "Base Salary"), which shall be paid on a regular basis in accordance with
the Company's normal payroll procedures and policies. The amount of the Base
Salary shall be reviewed annually by the Board of Directors of the Company, and
the Board of Directors shall determine, in its sole discretion, whether such
Base Salary shall be increased based upon standards generally applicable to
employees of the Company of this type. However, subject to the other terms and
conditions set forth herein, in no event shall Individual's Base Salary be
decreased during the term of Individual's employment with the Company pursuant
to this Agreement without his prior written consent.
(f) The Individual shall also be entitled to participate in all individual
benefit plans and programs (including but not limited to vacation time, sick
leave, holidays, automobile allowance, and insurance plans) of the Company to
the extent that his position, title, salary, age, health and other
qualifications make him eligible to participate. The Individual shall also be
entitled to participate in any additional benefits or considerations which are
generally made available to employees of this type as may be established by the
Board of Directors from time to time. The Individual's participation in any such
plan or program shall be subject to the provisions, rules and regulation
applicable thereto, including provisions empowering the Board of Directors of
the Company to modify and/or terminate any such plan or programs.
(g) In accordance with the Company's policies established from time to
time, the Company will pay or reimburse the Individual for all reasonable and
necessary out-of-pocket expenses incurred by him in the performance of his
duties under this Agreement, subject to the prior authorization thereof or
subsequent presentment of appropriate receipts and vouchers therefore.
2. Termination.
(a) Individual's employment hereunder may be terminated by Individual or
the Company with or without cause upon at least 30 days written notice to the
other party; provided, however, that any such termination shall be effective on
a day other than the last day of the Company's fiscal year.
(b) Additionally, at any time the Company shall have the right to terminate
Individual's employment hereunder by written notice to the Individual upon any
of the following occurrences:
(i) Individual's disability for a continuous period of one hundred
twenty (120) days, if, in the reasonable judgment of the Company's Board of
Directors, such disability prevents him from performing his duties under
this Agreement;
(ii) Individual's conviction of a felony or other serious crime
involving moral turpitude;
(iii) Individual's gross negligence or willful misconduct with respect
to the Company;
(iv) Individual's conduct bringing Company into public disgrace or
disrepute;
(v) A material breach of any of the terms or conditions of this
Agreement that is not cured or, in the opinion of the Company, curable, to
the reasonable satisfaction of the Company within thirty (30) days after
notice thereof to Individual;
provided, however, that any such termination shall be effective on a day other
than the last day of the Company's fiscal year.
(c) In the event that Individual's employment with the Company terminates,
the Company shall, within ten (10) days after such termination, pay to the
Individual a lump sum payment in the amount of Six Hundred Seventy-Five Thousand
Dollars ($675,000.00); provided, however, that such payment shall not be made on
the last day of employer's fiscal year, but shall be made within the ten (10)
day time requirement set forth herein. Said payment shall be by a Form 1099 and
is comprised in part of severance calculated based on reasonable compensation
for services by Individual prior to the change of control from the Company to
(107)
<PAGE> 3
Coram, which severance payment is in the sum of $200,000, as well as comprised
in part of consideration for the post-termination restrictive covenant imposed
upon Individual in this Agreement, which post-termination restrictive covenant
payment is in the sum of $475,000. The timing of the payment of any such amounts
shall be subject to postponement to the extent that payment of any such amount
in the taxable year in which it was originally scheduled to be paid results in a
disallowance of a deduction for any such amount pursuant to either Section
162(m) or Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") as determined by the Internal Revenue Service. Any amount which is not
paid in the taxable year in which it was originally scheduled to be paid as a
result of the postponement thereof pursuant hereto shall be payable in the next
succeeding taxable year in which such payment will not result in the
disallowance of a deduction pursuant to either Section 162(m) or 280G of the
Code; provided, however, that (i) if a dispute arises as to the payment of the
postponed payments to the Individual, the prevailing party shall be entitled to
receive attorneys' fees and related costs, and (ii) all postponed payments shall
be placed in a Rabbi trust or similar vehicle for the benefit of the Individual
in such a way that the amounts so transferred are not taxable to such person or
deductible by the Company or Coram until payment from such vehicle to such
person is made. In the event a payment has been made to the Individual, but then
disallowed as a reduction by the Internal Revenue Service and return of the
payment is required into the trust, said payment to the Individual shall be
treated as a loan and said payment to the trust shall be treated as repayment of
said loan.
3. Termination of Other Agreements. Upon the execution of this Agreement,
all other employment, severance, non-compete and other similar agreements
between the Individual and the Company and/or any subsidiary or parent company
of the Company shall immediately terminate and be of no further force and effect
and no payments or other provisions regarding benefits or payment of any other
amounts shall be made thereunder, notwithstanding any provision to the contrary
set forth therein other than those already accrued but yet unpaid as of the date
of this Agreement.
4. Restrictive Covenant. Individual agrees that he will not, while employed
with the Company and for a 24 month period following the date of his termination
of employment with the Company, either directly or indirectly, for himself or
for or on behalf of any other person, firm, corporation, partnership,
association or other entity (whether as an individual, officer, director,
partner, agent, security holder, creditor, or consultant):
(a) Engage in any line of business in which the Company or any
subsidiary of the Company is currently engaged which lines of business as
of the date hereof are the following: the sale and delivery of infusion
chemotherapy, intravenous antibiotic therapy, infusion analgesia therapy,
infusion hydration therapy, other infusion therapeutic and infusion
nutritional care to patients in homes and other non-hospital environments,
acute dialysis and clinical drug research networks; provided, however, that
(i) Individual may hold and continue to hold company securities or, solely
as an investment, shares of capital stock or other equity securities of any
company which are traded on any securities exchange or are regularly quoted
in the over-the-counter market, so long as Individual does not control,
acquire a controlling interest in or become a member of a group which
exercises direct or indirect control of, more than five percent (5%) of any
class of capital stock of such company which is within the scope of this
restriction and (ii) Individual may engage in any managed care services
business other than any managed care services business relating to
intravenous therapy.
(b) Employ, attempt to employ or enter into any contractual
arrangement (a "Solicitation Act") with any employee of the Company or
employee of any subsidiary or parent company of the Company, or any person
who was an employee of the Company or any such subsidiary or parent
company, unless such person was involuntarily terminated by the Company or
such subsidiary or parent company (other than for performance reasons or
"for cause") or, in any event, had no employment relationship with the
Company, its parent or subsidiaries at any time within the six months
immediately prior to such Solicitation Act.
(c) All restrictions under this Section 4 of this Agreement are
subject to the payment by the Company and the receipt of the full
restrictive covenant payments by the Individual in the sums set forth in
Section 2 above and of any already accrued but yet unpaid amounts referred
to in Section 3 above.
(108)
<PAGE> 4
5. Injunctive Relief. The parties hereto hereby acknowledge and agree that
a breach by Individual of any of the covenants contained in Section 1(d) or
Sections 4(a) or (b) of this Agreement may cause irreparable damage and harm to
the Company, and that monetary damages may not be an adequate remedy for any
such breach or may be virtually impossible to ascertain. Therefore, the parties
hereto agree that the Company shall be entitled to an injunction from any court
of competent jurisdiction enjoining and restraining any violation of any or all
of the covenants contained in said Sections of this Agreement by the Individual
or any of his or her affiliates, associates, partners, or agents, either
directly or indirectly, and that such right to injunction shall be cumulative
and in addition to any other remedies available to the Company.
6. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand, when sent by facsimile transmission with acknowledgement of
good transmission received, or when deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
HealthInfusion, Inc.
5200 Blue Lagoon Drive
Suite 200
Miami, Florida 33126
Attn: President
If to the Individual:
David C. McCormick
-------------------------
-------------------------
or to such other addresses as either party hereto may from time to time give
notice of to the other party in the aforesaid manner.
7. Miscellaneous.
(a) This Agreement shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party, except that the
Company, without the consent of Individual, may assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity (i) with or into which the Company may merge or consolidate, (ii) to
which the Company may sell or transfer all or substantially all of its assets or
of which 50% or more of the equity and of the voting control is owned, directly
or indirectly, by or is under common ownership with, the Company, or (iii) that
is the parent company of the Company.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida.
(c) This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes all prior agreements and understanding
with respect to such subject matter, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein or which have not been terminated
hereby.
(d) The Company may withhold from any salary and benefits payable under
this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
(e) No amendment or modification of this Agreement shall be deemed
effective unless made in writing signed by the parties hereto.
(f) No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
a specific term or condition for the future or as to any act other than that
specifically waived.
(109)
<PAGE> 5
(g) To the extent any provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision and of this Agreement shall be unaffected and shall continue in full
force and effect. In furtherance and not in limitation of the foregoing, should
the duration or geographical extent of, or business activities covered by any
provision of this Agreement be in excess of that which is valid and enforceable
under applicable law, then such provision shall be construed to cover only that
duration, extent or activities which may validly and enforceably covered. The
Individual acknowledges the uncertainty of the law in this respect and expressly
stipulates that this Agreement shall be given construction which renders its
provisions valid and enforceable to the maximum extent (not exceeding its
express terms) possible under applicable law.
(h) This Agreement may be executed by facsimile and in counterparts, each
of which shall be deemed an original and all of which when taken together shall
constitute but one and the same instrument.
(i) Sections 1(d) and 4 of this Agreement shall survive and continue in
full force and effect and in accordance with their respective terms
notwithstanding any termination of this Agreement or Individual's employment
with the Company pursuant hereto.
(j) Caption and section headings used herein are for convenience of
reference only and are not a part of this Agreement and shall not be used in
construing the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
HEALTHINFUSION, INC.
By:
--------------------------------
Miles E. Gilman, Chief Executive
Officer and President
INDIVIDUAL:
------------------------------------
David C. McCormick
(110)
<PAGE> 6
GUARANTY OF PERFORMANCE
CORAM HEALTHCARE CORPORATION, a Delaware corporation, as the parent
corporation of the Company, hereby acknowledges and agrees to all of the terms
and conditions of the foregoing Severance/Non-Compete Agreement and does hereby
guaranty the full and prompt performance by the Company of its obligations under
the foregoing Severance/Non-Compete Agreement.
CORAM HEALTHCARE CORPORATION
By:
-----------------------------
James M. Sweeney, Chairman
and Chief Executive Officer
(111)
<PAGE> 1
EXHIBIT 10.8 TO
REGISTRATION STATEMENT
ON FORM S-4
SEVERANCE/NON-COMPETE AGREEMENT
THIS SEVERANCE/NON-COMPETE AGREEMENT (the "Agreement") is made and entered
into this day of , 1994, by and between KMF Associates,
Inc.("KMF"), and its shareholders Jeffrey M. Fine, Melvin E. Levinson and Stuart
R. Kaufman (each, a "Shareholder" and, collectively, the "Shareholders"), and
HealthInfusion, Inc., a Florida corporation (the "Company"); and
WHEREAS, the Company is a party to that certain Agreement and Plan of
Merger dated as of February 6, 1994 (as amended, the Merger Agreement"), by and
among Coram Healthcare Corporation, a Delaware corporation (formerly "CHM
Holding Corporation")("Coram"), T2 Medical, Inc., a Delaware corporation ("T2"),
Curaflex Health Services, Inc., a Delaware corporation ("CHS"), the Company,
Medisys, Inc., a Delaware corporation ("MI"), T2 Acquisition Company, a Delaware
corporation and wholly owned subsidiary of Coram ("T2 Sub"), CHS Acquisition
Company, a Delaware corporation and wholly owned subsidiary of Coram ("CHS
Sub"), HII Acquisition Company, a Florida corporation and wholly owned
subsidiary of Coram ("HII Sub"), and MI Acquisition Company, a Delaware
corporation and wholly owned subsidiary of Coram ("MI Sub"), pursuant to which,
among other things, T2 Sub, CHS Sub, HII Sub and MI Sub will merge with and into
T2, CHS, the Company and MI, respectively, and T2, CHS, the Company and MI will
thereby become wholly owned subsidiaries of Coram (the "Merger"); and
WHEREAS, the Shareholders are founders and directors of the Company and KMF
is a consultant to the Company pursuant to a consulting agreement between KMF
and the Company (the "Consulting Agreement"); and
WHEREAS, pursuant to the terms of the Merger Agreement, the Company has
agreed to cause KMF and the Shareholders to amend the Consulting Agreement so
that it will terminate upon consummation of the Merger and payment to KMF of the
severance and non-compete payments set forth herein and to cause each of the
Shareholders to resign as a director of the Company upon consummation of the
Merger.
NOW THEREFORE, in consideration of the foregoing premises, the sums set
forth herein, the mutual covenants and agreements set forth herein, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each of the parties hereto, and each of the Company, KMF and the
Shareholders intending to be legally bound hereby agree as follows:
1. Non-Disclosure. KMF and each of the Shareholders will hold in strictest
confidence and shall not disclose to any person or entity without the express
prior authorization of the Company and Coram any non-public proprietary
information, which may include but is not limited to non-public: financial
information, financial statements of the Company or any subsidiary or parent
company of the Company, marketing data, technique, process formula,
developmental or experimental work, work in progress, business methods, trade
secrets (including, without limitation, any customer list or lists or customer
sources), marketing information relating to the products, services, customers,
sales or business affairs of the Company or any subsidiary or parent company of
the Company, including, without limitation, any information relating to any
business opportunity made by or to the Company or any such subsidiary or parent
company relating to protected services or any other line of business in which
the Company or any subsidiary of the Company is currently engaged. Each of KMF
and each Shareholder agrees that it or he will not make use of any of the above
at any time after termination of employment. Upon termination of employment, KMF
and each Shareholder shall deliver to the Company all documents, records,
notebooks, work papers and all similar repositories of KMF or such Shareholder
containing any such information concerning the Company or any subsidiaries or
parent company of the Company.
2. Severance Non-Compete Payments. The Company shall pay or shall cause
Coram to pay to KMF within ten (10) days after consummation of the Merger a lump
sum payment in the amount of One Million Nine Hundred Eighty Thousand Dollars
($1,980,000); provided, however, that such payment shall not be
(112)
<PAGE> 2
made on the last day of employer's fiscal year, but shall be made within the ten
(10) day time requirement set forth herein. Said payment shall be by a Form 1099
and is comprised in part of severance calculated based on reasonable
compensation for services by KMF prior to the change of control from the Company
to Coram, which severance payment is in the sum of $1,000,000, as well as
comprised in part of consideration for the post-termination restrictive covenant
imposed upon KMF and the Shareholders in this Agreement, which post-termination
restrictive covenant payment is in the sum of $980,000. The timing of the
payment of any such amounts shall be subject to postponement to the extent that
payment of any such amount in the taxable year in which it was originally
scheduled to be paid results in a disallowance of a deduction for any such
amount pursuant to either Section 162(m) or Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") as determined by the Internal Revenue
Service. Any amount which is not paid in the taxable year in which it was
originally scheduled to be paid as a result of the postponement thereof pursuant
hereto shall be payable in the next succeeding taxable year in which such
payment will not result in the disallowance of a deduction pursuant to either
Section 162(m) or 280G of the Code; provided, however, that (i) if a dispute
arises as to the payment of the postponed payments to KMF, the prevailing party
shall be entitled to receive attorneys' fees and related costs, and (ii) all
postponed payments shall be placed in a Rabbi trust or similar vehicle for the
benefit of KMF in such a way that the amounts so transferred are not taxable to
such person or deductible by the Company or Coram until payment from such
vehicle to such person is made. In the event a payment has been made to KMF, but
then disallowed as a reduction by the Internal Revenue Service and return of the
payment is required into the trust, said payment to KMF shall be treated as a
loan and said payment to the trust shall be treated as repayment of said loan.
3. Termination of Other Agreements. Upon the execution of this Agreement
and payment of the severance and non-compete payments set forth in Section II
above, all other consulting, employment, severance, non-compete and other
similar agreements between KMF and the Company and/or any subsidiary or parent
company of the Company and between KMF and the Company, including, without
limitation, the Consulting Agreement, and between any Shareholder and the
Company and/or any subsidiary or parent company of the Company shall immediately
terminate and be of no further force and effect and no payments or other
provisions regarding benefits or payment of any other amounts shall be made
thereunder, notwithstanding any provision to the contrary set forth therein
other than those already accrued but yet unpaid as of the date of this
Agreement.
4. Satisfaction of Applicable Provisions of Merger Agreement. Each of the
Company, KMF and the Shareholders hereby represents, acknowledges and agrees
that termination of such agreements, payment of the severance and
non-competition payments set forth in Section II above and any already accrued
but yet unpaid amounts referred to in Section III above and the resignation of
each of the Shareholders as a director of the Company pursuant to Section V
below, together with the corresponding actions of the other two principals of
KMF, shall constitute satisfaction of the terms and conditions set forth in the
subsection entitled "CONSULTANT" under Section I of Exhibit 2.7 to the Merger
Agreement.
5. Resignation as a Director of the Company. Each Shareholder hereby
represents, acknowledges and agrees that, effective upon consummation of the
Merger and payment of the severance and non-compete payments set forth in
Section II and of any accrued but yet unpaid amounts referred to in Section III
above, such Shareholder shall resign as a director of the Company. Each
Shareholder agrees to prepare and execute such further documentation as the
Company may reasonably request to further evidence such resignation or as may be
required pursuant to the terms and provisions of the Company's Articles of
Incorporation or Bylaws.
6. Restrictive Covenant. Each of KMF and each Shareholder agrees that it
or he will not for a 24 month period following the date of the consummation of
the Merger, either directly or indirectly, for itself or himself or for or on
behalf of any other person, firm, corporation, partnership, association or other
entity (whether as an individual, officer, director, partner, agent, security
holder, creditor, or consultant):
(a) Engage in any line of business in which the Company or any
subsidiary of the Company is currently engaged which lines of business as
of the date hereof are the following: the sale and delivery of infusion
chemotherapy, intravenous antibiotic therapy, infusion analgesia therapy,
infusion hydration therapy, other infusion therapeutic and infusion
nutritional care to patients in homes and other non-
(113)
<PAGE> 3
hospital environments, acute dialysis and clinical drug research networks;
provided, however, that (i) any Shareholder may hold and continue to hold
company securities or, solely as an investment, shares of capital stock or
other equity securities of any company which are traded on any securities
exchange or are regularly quoted in the over-the-counter market, so long as
such Shareholder does not control, acquire a controlling interest in or
become a member of a group which exercises direct or indirect control of,
more than five percent (5%) of any class of capital stock of such company
which is within the scope of this restriction and (ii) any Shareholder may
engage in any managed care services business other than any managed care
services business relating to intravenous therapy.
(b) All restrictions under this Section VI of this Agreement are
subject to the payment by the Company and the receipt of the full
restrictive covenant and severance payments by the Individual in the sums
set forth in Section II above and of any already accrued but yet unpaid
amounts referred to in Section III above.
7. Injunctive Relief. The parties hereto hereby acknowledge and agree that
a breach by KMF or any Shareholder of any of the covenants contained in Section
I or Section VI of this Agreement may cause irreparable damage and harm to the
Company, and that monetary damages may not be an adequate remedy for any such
breach or may be virtually impossible to ascertain. Therefore, the parties
hereto agree that the Company shall be entitled to an injunction from any court
of competent jurisdiction enjoining and restraining any violation of any or all
of the covenants contained in said Sections of this Agreement by KMF or any
Shareholders or any of its or his affiliates, associates, partners, or agents,
either directly or indirectly, and that such right to injunction shall be
cumulative and in addition to any other remedies available to the Company.
8. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand, when sent by facsimile transmission with acknowledgement of
good transmission received, or when deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
HealthInfusion, Inc.
5200 Blue Lagoon Drive
Suite 200
Miami, Florida 33126
Attn: President
If to KMF:
KMF Associates, Inc.
5200 Blue Lagoon Drive
Suite 250
Miami, Florida 33126
If to the Shareholders:
Jeffrey M. Fine
5200 Blue Lagoon Drive
Suite 250
Miami, Florida 33126
(114)
<PAGE> 4
Melvin E. Levinson, M.D.
5200 Blue Lagoon Drive
Suite 250
Miami, Florida 33126
Stuart R. Kaufman
5200 Blue Lagoon Drive
Suite 250
Miami, Florida 33126
or to such other addresses as either party hereto may from time to time give
notice of to the other party in the aforesaid manner.
9. Miscellaneous.
(a) This Agreement shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party, except that the
Company, without the consent of KMF or the Shareholders, may assign its rights
and obligations under this Agreement to any corporation, firm or other business
entity (i) with or into which the Company may merge or consolidate, (ii) to
which the Company may sell or transfer all or substantially all of its assets or
of which 50% or more of the equity and of the voting control is owned, directly
or indirectly, by or is under common ownership with, the Company, or (iii) that
is the parent company of the Company.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida.
(c) This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes all prior agreements and understanding
with respect to such subject matter, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein or which have not been terminated
hereby.
(d) The Company may withhold from any payment payable under this Agreement
all federal, state, city or other taxes as shall be required pursuant to any law
or governmental regulation or ruling.
(e) No amendment or modification of this Agreement shall be deemed
effective unless made in writing signed by the parties hereto.
(f) No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
a specific term or condition for the future or as to any act other than that
specifically waived.
(g) To the extent any provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision and of this Agreement shall be unaffected and shall continue in full
force and effect. In furtherance and not in limitation of the foregoing, should
the duration or geographical extent of, or business activities covered by any
provision of this Agreement be in excess of that which is valid and enforceable
under applicable law, then such provision shall be construed to cover only that
duration, extent or activities which may validly and enforceably covered. Each
of the Company, KMF and the Shareholders acknowledge the uncertainty of the law
in this respect and expressly stipulate that this Agreement shall be given
construction which renders its provisions valid and enforceable to the maximum
extent (not exceeding its express terms) possible under applicable law.
(h) This Agreement may be executed by facsimile and in counterparts, each
of which shall be deemed an original and all of which when taken together shall
constitute but one and the same instrument.
(115)
<PAGE> 5
(i) Caption and section headings used herein are for convenience of
reference only and are not a part of this Agreement and shall not be used in
construing the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMPANY:
HEALTHINFUSION, INC.
By:
--------------------------------
Miles E. Gilman, President and
Chief Executive Officer
KMF:
KMF ASSOCIATES, INC.
By:
--------------------------------
Name:
Title:
SHAREHOLDERS:
--------------------------------
Jeffrey M. Fine
--------------------------------
Melvin E. Levinson, M.D.
--------------------------------
Stuart R. Kaufman
(116)
<PAGE> 6
GUARANTY OF PERFORMANCE
CORAM HEALTHCARE CORPORATION, a Delaware corporation, as the parent
corporation of the Company, hereby acknowledges and agrees to all of the terms
and conditions of the foregoing Severance/Non-Compete Agreement and does hereby
guaranty the full and prompt performance by the Company of its obligations under
the foregoing Severance/Non-Compete Agreement.
CORAM HEALTHCARE CORPORATION
By:
--------------------------------
James M. Sweeney, Chairman and
Chief Executive Officer
(117)
<PAGE> 1
EXHIBIT 10.9 TO
REGISTRATION STATEMENT
ON FORM S-4
SEVERANCE/NON-COMPETE AGREEMENT
(Khalid Mahmud, M.D.)
THIS SEVERANCE/NON-COMPETE AGREEMENT (this "Agreement") is made and entered
into this day of , 1994, by and between Khalid Mahmud, M.D.
("Individual"), and Medisys, Inc., a Delaware corporation (the "Company").
WHEREAS, the Company is a party to that certain Agreement and Plan of
Merger dated as of February 6, 1994 (as amended, the "Merger Agreement"), by and
among Coram Healthcare Corporation, a Delaware corporation (formerly "CHM
Holding Corporation")("Coram"), Curaflex Health Services, Inc., a Delaware
corporation ("CHS"), HealthInfusion, Inc., a Florida corporation ("HII"), the
Company, T2 Medical, Inc., a Delaware corporation ("T2"), CHS Acquisition
Company, a Delaware corporation and wholly owned subsidiary of Coram ("CHS
Sub"), HII Acquisition Company, a Florida corporation and wholly owned
subsidiary of Coram ("HII Sub"), MI Acquisition Company, a Delaware corporation
and wholly owned subsidiary of Coram ("MI Sub"), and T2 Acquisition Company, a
Delaware corporation and wholly owned subsidiary of Coram ("T2 Sub"), pursuant
to which, among other things, T2 Sub, CHS Sub, HII Sub and MI Sub will merge
with and into T2, CHS, HII and the Company, respectively, and T2, CHS, HII and
the Company will thereby become wholly owned subsidiaries of Coram (the
"Merger"); and
WHEREAS, the Individual is presently employed by the Company and, upon
consummation of the Merger, will thereafter continue to be employed by the
Company, subject to the terms and conditions set forth herein, on an "at will"
basis.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
each of the parties hereto, the Company and the Individual, intending to be
legally bound, hereby agree as follows:
1. Nature of Continuing Employment with the Company.
(a) Individual's employment by the Company is, as of the date hereof, and
shall hereafter be on an "at will" basis, subject to the provisions with respect
to termination set forth herein and the other terms and provisions hereof.
(b) Individual agrees to faithfully and diligently continue to perform on a
basis substantially as Individual has performed in the past for the Company such
duties as have been assigned to Individual prior to the date hereof and as shall
be assigned to him from time to time by the Board of Directors of the Company,
such duties to be commensurate with the Individual's position as the Chief
Medical Officer of the Company.
(c) The Individual shall continue to receive a salary equal to $70,000 per
annum (the "Base Salary"), and such Base Salary shall continue to be paid on a
regular basis in accordance with the Company's normal payroll procedures and
policies and shall not, subject to the provisions of Section 4 hereof, be
reduced during the term of Individual's employment with the Company pursuant to
this Agreement without his prior written consent. The amount of the Base Salary
shall be reviewed in accordance with the review practices and policies
applicable to Individual as existed immediately prior to the date hereof. In
addition, the Individual shall be entitled to participate, subject to the
provisions, rules and regulations applicable thereto, including provisions
empowering the Board of Directors of the Company and of Coram to modify and/or
terminate any such plan or programs, in all employee benefit plans or programs
(including vacation time, sick leave and holidays) of the Company (including all
such plans and programs of the Company adopted in addition to or in replacement
of any of the Company's plans or programs) on the same basis and to the same
extent as he was entitled to participate immediately prior to the date hereof
and on the same basis and to the same extent as other employees of equal rank of
the Company are entitled to participate in the future. In furtherance of and
without
(118)
<PAGE> 2
limiting the foregoing, Individual shall be entitled to receive all employee
benefits and perquisites, including, without limitation, a vehicle allowance,
and continuing rights thereto following termination, on the same basis and to
the same extent as Individual received from the Company prior to the date
hereof, which employee benefits and perquisites shall not, subject to the
provisions of Section 4 hereof, be diminished during the term of Individual's
employment with the Company pursuant to this Agreement without his prior written
consent. In accordance with the Company's policies established from time to
time, the Company will also continue to pay or reimburse the Individual for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to the prior
authorization thereof or subsequent presentment of appropriate receipts and
vouchers therefor.
2. Non-Competition; Non-Solicitation.
(a) While employed by the Company and for a period of twelve (12) months
thereafter, and provided that the Company is in compliance with all of the terms
of Section 4(c) hereof, Individual shall not, directly or indirectly, engage
within any state or territory of the United States or have any interest in any
sole proprietorship, partnership, corporation or business or any other person or
entity (whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that, directly or indirectly, engages
within any state or territory of the United States in any line of business in
which the Company or any subsidiary of the Company is currently engaged;
provided, however, that Individual may (i) hold and continue to hold Company
securities or, solely as an investment, shares of capital stock or other equity
securities of any company which are traded on any national securities exchange
or are regularly quoted in the over-the-counter market, so long as Individual
does not control, acquire a controlling interest in or become a member of a
group which exercises direct or indirect control of, more than five percent (5%)
of any class of capital stock of such company and (ii) remain involved with
American Telecare, Inc. with respect to its telemedicine products and services
business, but only to the extent that such involvement does not adversely affect
the performance of Individual's obligations in accordance with Section 1(b)
above. Individual hereby confirms that he is under no contractual commitments
inconsistent with his obligations set forth in this Agreement, and that during
the term of this Agreement, he will not render or perform services, or enter
into any agreement to do so, for any other corporation, firm, entity or person
which are inconsistent with the provisions of this Agreement.
(b) While employed by the Company and for a period of twelve (12) months
thereafter, and provided that the Company is in compliance with all of the terms
of Section 4 hereof, Individual shall not, directly or indirectly, for himself
or for or on behalf of any other person, firm, corporation, partnership,
association or other entity, (i) attempt to employ or enter into any contractual
arrangement with any employee or former employee of the Company or any
subsidiary or parent company of the Company in connection with any line of
business in which the Company or any subsidiary of the Company is currently
engaged, unless such employee or former employee has not been employed by the
Company or such subsidiary or parent company for a period in excess of six (6)
months; and/or (ii) call on or solicit any of the actual or targeted prospective
physician/consultants (which shall include all physicians who provide or who are
reasonably likely to provide marketing, management or advisory or other services
to the Company or such subsidiary of parent company for a fee) or customers of
the Company or of such subsidiary or parent company in connection with any line
of business that is competitive with any line of business in which the Company
or any subsidiary of the Company is currently engaged, nor shall Individual make
known the names or addresses of such physician/consultants or customers or any
information relating in any manner to the Company's business relationships with
such physician/consultants or customers.
3. Confidential Information. Individual will hold in strictest confidence
and shall not disclose to any person or entity without the express prior
authorization of the Company and Coram, any information, including, without
limitation, any financial information (including, without limitation, financial
statements of the Company), marketing data, technique, process, formula,
developmental or experimental work, work in progress, business methods, trade
secrets (including, without limitation, any customer list or lists of customer
sources), marketing techniques or plans, or any other secret or confidential
information relating to the products, services, customers, sales or business
affairs of the Company or any subsidiary or parent company of the Company,
including, without limitation, any information relating to any business
opportunity made by or to the Company or any such subsidiary or parent company,
but excluding any knowledge or expertise
(119)
<PAGE> 3
possessed by Individual prior to Individual's commencement of employment with
the Company and any information in the public domain. Individual agrees that he
will not make use of any of the above at any time for up to five (5) years after
termination of his employment. Upon termination of employment, Individual shall
deliver to the Company all documents, records, notebooks, work papers and all
similar repositories containing any information concerning the Company or any
subsidiaries or parent company of the Company, whether prepared by Individual,
the Company or anyone else.
4. Termination.
(a) Individual's employment hereunder may be terminated by Individual or
the Company without cause upon at least 30 days' written notice to the other
party.
(b) At any time the Company shall have the right to terminate Individual's
employment hereunder by written notice to Individual upon any of the following
occurrences:
(i) At any time after the first anniversary of the date hereof,
Individual's disability for a continuous period of one hundred twenty (120)
days, if such disability prevents him from performing his duties with the
Company (as described in Section 1(b) above). The existence of such a
period of continuous disability shall be determined by the Board of
Directors in the exercise of its reasonable judgment;
(ii) Individual's conviction of a felony or other serious crime
involving moral turpitude;
(iii) Individual's gross negligence or willful misconduct with respect
to the Company (which shall include, but not be limited to, conduct
bringing the Company into public disgrace or disrepute (other than conduct
that is performed at the direction of or with the consent or approval of
the Board of Directors or a superior officer of the Company)) to an extent
that would likely prohibit individual from obtaining unemployment
compensation benefits under Minnesota law (taking into consideration the
body of case law in Minnesota interpreting the level and extent of conduct
constituting gross negligence or willful misconduct sufficient to preclude
the receipt of such benefits); or
(iv) A material breach by Individual of any of the terms or conditions
of Sections 2 or 3 of this Agreement that is not cured to the reasonable
satisfaction of the Company within thirty (30) days after notice thereof to
Individual; provided, that the Company shall not be permitted to terminate
Individual's employment pursuant to this subsection (iv) without at least
thirty (30) days' prior written notice specifying the breach and permitting
the Individual an opportunity to cure such breach.
Upon the termination of Individual's employment pursuant to this Section
4(b), Individual shall be entitled only to any portion of Base Salary and bonus
compensation, if any, accrued and unpaid to the date of termination and shall
not be entitled to any other payment (except as may otherwise be required
pursuant to applicable federal, state or local law, rule or regulation).
(c) Upon the first anniversary of the closing date of the Merger, if
Individual is still employed by the Company through such date, or in the event
that Individual's employment with the Company is terminated by the Company
without cause pursuant to Section 4(a) above during the first twelve (12) months
after the closing date of the Merger, or by the Individual due to (i) the
assignment to the Individual of duties inconsistent in any respect to the
Individual's position or the diminution of authority, duties or
responsibilities, (ii) the required relocation of the Individual from his
current primary work location, or (iii) any breach by the Company of any
provision of this Agreement, the Company shall within ten (10) days after such
anniversary or termination, pay to the Individual a lump sum payment in the
amount of One Hundred Forty Thousand Dollars ($140,000); provided, that
Individual is not at that time in material breach of any of the terms of
Sections 2 or 3 hereof.
(d) In the event that Individual dies prior to the first anniversary of the
closing date of the Merger, if the Individual is still employed by the Company
at the time of Individual's death, the Company shall pay to the Individual's
estate a lump sum payment in the amount of One Hundred Forty Thousand Dollars
($140,000) in the manner and subject to the terms and conditions set forth in
Section 4(c) above.
(120)
<PAGE> 4
5. Termination of Other Agreements. Upon the execution of this Agreement,
all other employment, severance, non-compete and other similar agreements
between the Individual and the Company and/or any subsidiary or parent company
of the Company shall immediately terminate and be of no further force and effect
and, except as set forth in Section 1(c) above, no payments or other provisions
regarding benefits or payment of any other amounts shall be made thereunder,
notwithstanding any provision to the contrary set forth therein.
6. Injunctive Relief. The parties hereto hereby acknowledge and agree that
a breach by Individual of any of the covenants contained in Sections 2 or 3 of
this Agreement may cause irreparable damage and harm to the Company, and that
monetary damages may not be an adequate remedy for any such breach or may be
virtually impossible to ascertain. Therefore, the parties hereto agree that the
Company shall be entitled to an injunction from any court of competent
jurisdiction enjoining and restraining any violation of any or all of the
covenants contained in Sections 2 or 3 of this Agreement by the Individual or
any of his affiliates, associates, partners or agents, either directly or
indirectly, and that such right to injunction shall be cumulative and in
addition to any other remedies available to the Company.
7. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand, when sent by facsimile transmission with acknowledgement of
good transmission received, or when deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
Medisys, Inc.
4550 West 77th Street
Edina, Minnesota 55435
Attn: President
If to the Individual:
Khalid Mahmud, M.D.
---------------------------------------
---------------------------------------
or to such other addresses as either party hereto may from time to time give
notice of to the other party in the aforesaid manner.
8. Miscellaneous.
(a) This Agreement shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party, except that the
Company, without the consent of Individual, may assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity (i) with or into which the Company may merge or consolidate, (ii) to
which the Company may sell or transfer all or substantially all of its assets or
of which 50% or more of the equity and of the voting control is owned, directly
or indirectly, by, or is under common ownership with, the Company, or (iii) that
is the parent company of the Company, including Coram.
(b) This Agreement is made under and shall be governed by and construed in
accordance with the laws of the State of Minnesota. Each of the parties hereto
hereby consents to the jurisdiction of the United States District Court and any
state court of competent jurisdiction located within Hennepin County, Minnesota
and hereby agrees that such courts will be proper forums in which to adjudicate
any case or controversy arising under or relating to this Agreement.
(c) This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes all prior agreements and understanding
with respect to such subject matter, and the parties
(121)
<PAGE> 5
hereto have made no agreements, representations or warranties relating to the
subject matter of this Agreement which are not set forth herein or which have
not been terminated hereby.
(d) The Company may withhold from any salary and benefits payable under
this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
(e) No amendment or modification of this Agreement shall be deemed
effective unless made in writing signed by the parties hereto.
(f) No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
a specific term or condition waived and shall not constitute a waiver of such
term or condition for the future or as to any act other than that specifically
waived.
(g) To the extent any provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision and of this Agreement shall be unaffected and shall continue in full
force and effect. In furtherance and not in limitation of the foregoing, should
the duration or geographical extent of, or business activities covered by any
provision of this Agreement be in excess of that which is valid and enforceable
under applicable law, then such provision shall be construed to cover only that
duration, extent or activities which may validly and enforceably be covered. The
Individual acknowledges the uncertainty of the law in this respect and expressly
stipulates that this Agreement shall be given construction which renders its
provisions valid and enforceable to the maximum extent (not exceeding its
express terms) possible under applicable law.
(h) This Agreement may be executed by facsimile and in counterparts, each
of which shall be deemed an original and all of which when taken together shall
constitute but one and the same instrument.
(i) Sections 2 and 3 of this Agreement shall survive and continue in full
force and effect and in accordance with their respective terms notwithstanding
any termination of this Agreement or Individual's employment with the Company
pursuant hereto.
(j) Caption and section headings used herein are for convenience of
reference only and are not a part of this Agreement and shall not be used in
construing the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"COMPANY"
MEDISYS, INC.
By:
----------------------------------
William J. Brummond, President and
Chief Executive Officer
"INDIVIDUAL"
-------------------------------------
Khalid Mahmud, M.D.
(122)
<PAGE> 6
GUARANTY OF PERFORMANCE
CORAM HEALTHCARE CORPORATION, a Delaware corporation, as the parent
corporation of the Company, hereby acknowledges and agrees to all of the terms
and conditions of the foregoing Severance/Non-Compete Agreement and does hereby
guaranty the full and prompt performance by the Company of its obligations under
the foregoing Severance/Non-Compete Agreement.
CORAM HEALTHCARE CORPORATION
By:
--------------------------------
James M. Sweeney, Chairman
and Chief Executive Officer
(123)
<PAGE> 1
EXHIBIT 10.10 TO
REGISTRATION STATEMENT
ON FORM S-4
SEVERANCE/NON-COMPETE AGREEMENT
(Mary B. Bennett)
THIS SEVERANCE/NON-COMPETE AGREEMENT (this "Agreement") is made and entered
into this day of , 1994, by and between Mary B.
Bennett ("Individual"), and Medisys, Inc., a Delaware corporation (the
"Company").
WHEREAS, the Company is a party to that certain Agreement and Plan of
Merger dated as of February 6, 1994 (as amended, the "Merger Agreement"), by and
among Coram Healthcare Corporation, a Delaware corporation (formerly "CHM
Holding Corporation")("Coram"), Curaflex Health Services, Inc., a Delaware
corporation ("CHS"), HealthInfusion, Inc., a Florida corporation ("HII"), the
Company, T2 Medical, Inc., a Delaware corporation ("T2"), CHS Acquisition
Company, a Delaware corporation and wholly owned subsidiary of Coram ("CHS
Sub"), HII Acquisition Company, a Florida corporation and wholly owned
subsidiary of Coram ("HII Sub"), MI Acquisition Company, a Delaware corporation
and wholly owned subsidiary of Coram ("MI Sub"), and T2 Acquisition Company, a
Delaware corporation and wholly owned subsidiary of Coram ("T2 Sub"), pursuant
to which, among other things, T2 Sub, CHS Sub, HII sub and MI Sub will merge
with and into T2, CHS, HII and the Company, respectively, and T2, CHS, HII and
the Company will thereby become wholly owned subsidiaries of Coram (the
"Merger"); and
WHEREAS, the Individual is presently employed by the Company and, upon
consummation of the Merger, will thereafter continue to be employed by the
Company, subject to the terms and conditions set forth herein, on an "at will"
basis.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
each of the parties hereto, the Company and the Individual, intending to be
legally bound, hereby agree as follows:
1. Nature of Continuing Employment with the Company.
(a) Individual's employment by the Company is, as of the date hereof, and
shall hereafter be on an "at will" basis, subject to the provisions with respect
to termination set forth herein and the other terms and provisions hereof.
(b) Individual agrees to faithfully and diligently continue to perform on a
full-time basis such duties as have been assigned to Individual prior to the
date hereof and as shall be assigned to her from time to time by the Board of
Directors of the Company, such duties to be commensurate with the Individual's
position as the Vice President of Operations and Secretary of the Company.
(c) The Individual shall continue to receive a salary equal to $110,000 per
annum (the "Base Salary"), and such Base Salary shall continue to be paid on a
regular basis in accordance with the Company's normal payroll procedures and
policies and shall not, subject to the provisions of Section 4 hereof, be
reduced during the term of Individual's employment with the Company pursuant to
this Agreement without her prior written consent. The amount of the Base Salary
shall be reviewed in accordance with the review practices and policies
applicable to Individual as existed immediately prior to the date hereof. In
addition, the Individual shall be entitled to participate, subject to the
provisions, rules and regulations applicable thereto, including provisions
empowering the Board of Directors of the Company and of Coram to modify and/or
terminate any such plan or programs, in all employee benefit plans or programs
(including vacation time, sick leave and holidays) of the Company (including all
such plans and programs of the Company adopted in addition to or in replacement
of any of the Company's plans or programs) on the same basis and to the same
extent as she was entitled to participate immediately prior to the date hereof
and on the same basis and to the same extent as other employees of equal rank of
the Company are entitled to participate in the future. In furtherance of and
without
(124)
<PAGE> 2
limiting the foregoing, Individual shall be entitled to receive all employee
benefits and perquisites, including, without limitation, a vehicle allowance,
and continuing rights thereto following termination, on the same basis and to
the same extent as Individual received from the Company prior to the date
hereof, which employee benefits and perquisites shall not, subject to the
provisions of Section 4 hereof, be diminished during the term of Individual's
employment with the Company pursuant to this Agreement without her prior written
consent. In accordance with the Company's policies established from time to
time, the Company will also continue to pay or reimburse the Individual for all
reasonable and necessary out-of-pocket expenses incurred by her in the
performance of her duties under this Agreement, subject to the prior
authorization thereof or subsequent presentment of appropriate receipts and
vouchers therefor.
2. Non-Competition; Non-Solicitation.
(a) While employed by the Company and for a period of twelve (12) months
thereafter, and provided that the Company is in compliance with all of the terms
of Section 4(c) hereof, Individual shall not, directly or indirectly, engage
within any state or territory of the United States or have any interest in any
sole proprietorship, partnership, corporation or business or any other person or
entity (whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that, directly or indirectly, engages
within any state or territory of the United States in any line of business in
which the Company or any subsidiary of the Company is currently engaged;
provided, however, that Individual may hold and continue to hold Company
securities or, solely as an investment, shares of capital stock or other equity
securities of any company which are traded on any national securities exchange
or are regularly quoted in the over-the-counter market, so long as Individual
does not control, acquire a controlling interest in or become a member of a
group which exercises direct or indirect control of, more than five percent (5%)
of any class of capital stock of such company. Individual hereby confirms that
she is under no contractual commitments inconsistent with her obligations set
forth in this Agreement, and that during the term of this Agreement, she will
not render or perform services, or enter into any agreement to do so, for any
other corporation, firm, entity or person which are inconsistent with the
provisions of this Agreement.
(b) While employed by the Company and for a period of twelve (12) months
thereafter, and provided that the Company is in compliance with all of the terms
of Section 4 hereof, Individual shall not, directly or indirectly, for herself
or for or on behalf of any other person, firm, corporation, partnership,
association or other entity, (i) attempt to employ or enter into any contractual
arrangement with any employee or former employee of the Company or any
subsidiary or parent company of the Company in connection with any line of
business in which the Company or any subsidiary of the Company is currently
engaged, unless such employee or former employee has not been employed by the
Company or such subsidiary or parent company for a period in excess of six (6)
months; and/or (ii) call on or solicit any of the actual or targeted prospective
physician/consultants (which shall include all physicians who provide or who are
reasonably likely to provide marketing, management or advisory or other services
to the Company or such subsidiary of parent company for a fee) or customers of
the Company or of such subsidiary or parent company in connection with any line
of business that is competitive with any line of business in which the Company
or any subsidiary of the Company is currently engaged, nor shall Individual make
known the names or addresses of such physician/consultants or customers or any
information relating in any manner to the Company's business relationships with
such physician/consultants or customers.
3. Confidential Information. Individual will hold in strictest confidence
and shall not disclose to any person or entity without the express prior
authorization of the Company and Coram, any information, including, without
limitation, any financial information (including, without limitation, financial
statements of the Company), marketing data, technique, process, formula,
developmental or experimental work, work in progress, business methods, trade
secrets (including, without limitation, any customer list or lists of customer
sources), marketing techniques or plans, or any other secret or confidential
information relating to the products, services, customers, sales or business
affairs of the Company or any subsidiary or parent company of the Company,
including, without limitation, any information relating to any business
opportunity made by or to the Company or any such subsidiary or parent company,
but excluding any knowledge or expertise possessed by Individual prior to
Individual's commencement of employment with the Company and any information in
the public domain. Individual agrees that she will not make use of any of the
above at any time
(125)
<PAGE> 3
for up to five (5) years after termination of her employment. Upon termination
of employment, Individual shall deliver to the Company all documents, records,
notebooks, work papers and all similar repositories containing any information
concerning the Company or any subsidiaries or parent company of the Company,
whether prepared by Individual, the Company or anyone else.
4. Termination.
(a) Individual's employment hereunder may be terminated by Individual or
the Company without cause upon at least 30 days' written notice to the other
party.
(b) At any time the Company shall have the right to terminate Individual's
employment hereunder by written notice to Individual upon any of the following
occurrences:
(i) At any time after the first anniversary of the date hereof,
Individual's disability for a continuous period of one hundred twenty (120)
days, if such disability prevents her from performing her duties with the
Company (as described in Section 1(b) above). The existence of such a
period of continuous disability shall be determined by the Board of
Directors in the exercise of its reasonable judgment;
(ii) Individual's conviction of a felony or other serious crime
involving moral turpitude;
(iii) Individual's gross negligence or willful misconduct with respect
to the Company (which shall include, but not be limited to, conduct
bringing the Company into public disgrace or disrepute (other than conduct
that is performed at the direction of or with the consent or approval of
the Board of Directors or a superior officer of the Company)) to an extent
that would likely prohibit individual from obtaining unemployment
compensation benefits under Minnesota law (taking into consideration the
body of case law in Minnesota interpreting the level and extent of conduct
constituting gross negligence or willful misconduct sufficient to preclude
the receipt of such benefits); or
(iv) A material breach by Individual of any of the terms or conditions
of Sections 2 or 3 of this Agreement that is not cured to the reasonable
satisfaction of the Company within thirty (30) days after notice thereof to
Individual; provided, that the Company shall not be permitted to terminate
Individual's employment pursuant to this subsection (iv) without at least
thirty (30) days' prior written notice specifying the breach and permitting
the Individual an opportunity to cure such breach.
Upon the termination of Individual's employment pursuant to this Section
4(b), Individual shall be entitled only to any portion of Base Salary and bonus
compensation, if any, accrued and unpaid to the date of termination and shall
not be entitled to any other payment (except as may otherwise be required
pursuant to applicable federal, state or local law, rule or regulation).
(c) Upon the first anniversary of the closing date of the Merger, if
Individual is still employed by the Company through such date, or in the event
that Individual's employment with the Company is terminated by the Company
without cause pursuant to Section 4(a) above during the first twelve (12) months
after the closing date of the Merger, or by the Individual due to (i) the
assignment to the Individual of duties inconsistent in any respect to the
Individual's position or the diminution of authority, duties or
responsibilities, (ii) the required relocation of the Individual from her
current primary work location, or (iii) any breach by the Company of any
provision of this Agreement, the Company shall within ten (10) days after such
anniversary or termination, pay to the Individual a lump sum payment in the
amount of Two Hundred Twenty Thousand Dollars ($220,000); provided, that
Individual is not at that time in material breach of any of the terms of
Sections 2 or 3 hereof.
(d) In the event that Individual dies prior to the first anniversary of the
closing date of the Merger, if the Individual is still employed by the Company
at the time of Individual's death, the Company shall pay to the Individual's
estate a lump sum payment in the amount of Two Hundred Twenty Thousand Dollars
($220,000) in the manner and subject to the terms and conditions set forth in
Section 4(c) above.
5. Termination of Other Agreements. Upon the execution of this Agreement,
all other employment, severance, non-compete and other similar agreements
between the Individual and the Company and/or any subsidiary or parent company
of the Company shall immediately terminate and be of no further force and
(126)
<PAGE> 4
effect and, except as set forth in Section 1(c) above, no payments or other
provisions regarding benefits or payment of any other amounts shall be made
thereunder, notwithstanding any provision to the contrary set forth therein.
6. Injunctive Relief. The parties hereto hereby acknowledge and agree that
a breach by Individual of any of the covenants contained in Sections 2 or 3 of
this Agreement may cause irreparable damage and harm to the Company, and that
monetary damages may not be an adequate remedy for any such breach or may be
virtually impossible to ascertain. Therefore, the parties hereto agree that the
Company shall be entitled to an injunction from any court of competent
jurisdiction enjoining and restraining any violation of any or all of the
covenants contained in Sections 2 or 3 of this Agreement by the Individual or
any of her affiliates, associates, partners or agents, either directly or
indirectly, and that such right to injunction shall be cumulative and in
addition to any other remedies available to the Company.
7. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand, when sent by facsimile transmission with acknowledgement of
good transmission received, or when deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
Medisys, Inc.
4550 West 77th Street
Edina, Minnesota 55435
Attn: President
If to the Individual:
Mary B. Bennett
---------------------------------------
---------------------------------------
or to such other addresses as either party hereto may from time to time give
notice of to the other party in the aforesaid manner.
8. Miscellaneous.
(a) This Agreement shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party, except that the
Company, without the consent of Individual, may assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity (i) with or into which the Company may merge or consolidate, (ii) to
which the Company may sell or transfer all or substantially all of its assets or
of which 50% or more of the equity and of the voting control is owned, directly
or indirectly, by, or is under common ownership with, the Company, or (iii) that
is the parent company of the Company, including Coram.
(b) This Agreement is made under and shall be governed by and construed in
accordance with the laws of the State of Minnesota. Each of the parties hereto
hereby consents to the jurisdiction of the United States District Court and any
state court of competent jurisdiction located within Hennepin County, Minnesota
and hereby agrees that such courts will be proper forums in which to adjudicate
any case or controversy arising under or relating to this Agreement.
(c) This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes all prior agreements and understanding
with respect to such subject matter, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein or which have not been terminated
hereby.
(d) The Company may withhold from any salary and benefits payable under
this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
(127)
<PAGE> 5
(e) No amendment or modification of this Agreement shall be deemed
effective unless made in writing signed by the parties hereto.
(f) No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
a specific term or condition waived and shall not constitute a waiver of such
term or condition for the future or as to any act other than that specifically
waived.
(g) To the extent any provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision and of this Agreement shall be unaffected and shall continue in full
force and effect. In furtherance and not in limitation of the foregoing, should
the duration or geographical extent of, or business activities covered by any
provision of this Agreement be in excess of that which is valid and enforceable
under applicable law, then such provision shall be construed to cover only that
duration, extent or activities which may validly and enforceably be covered. The
Individual acknowledges the uncertainty of the law in this respect and expressly
stipulates that this Agreement shall be given construction which renders its
provisions valid and enforceable to the maximum extent (not exceeding its
express terms) possible under applicable law.
(h) This Agreement may be executed by facsimile and in counterparts, each
of which shall be deemed an original and all of which when taken together shall
constitute but one and the same instrument.
(i) Sections 2 and 3 of this Agreement shall survive and continue in full
force and effect and in accordance with their respective terms notwithstanding
any termination of this Agreement or Individual's employment with the Company
pursuant hereto.
(j) Caption and section headings used herein are for convenience of
reference only and are not a part of this Agreement and shall not be used in
construing the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"COMPANY"
MEDISYS, INC.
By:
----------------------------------
William J. Brummond, President
and Chief Executive Officer
"INDIVIDUAL"
-------------------------------------
Mary B. Bennett
(128)
<PAGE> 6
GUARANTY OF PERFORMANCE
CORAM HEALTHCARE CORPORATION, a Delaware corporation, as the parent
corporation of the Company, hereby acknowledges and agrees to all of the terms
and conditions of the foregoing Severance/ Non-Compete Agreement and does hereby
guaranty the full and prompt performance by the Company of its obligations under
the foregoing Severance/Non-Compete Agreement.
CORAM HEALTHCARE CORPORATION
By:
--------------------------------
James M. Sweeney, Chairman
and Chief Executive Officer
(129)
<PAGE> 1
EXHIBIT 10.11 TO
REGISTRATION STATEMENT
ON FORM S-4
SEVERANCE/NON-COMPETE AGREEMENT
(Sandra A. Smilanich)
THIS SEVERANCE/NON-COMPETE AGREEMENT (this "Agreement") is made and entered
into this day of , 1994, by and between Sandra A. Smilanich
("Individual"), and Medisys, Inc., a Delaware corporation (the "Company").
WHEREAS, the Company is a party to that certain Agreement and Plan of
Merger dated as of February 6, 1994 (as amended, the "Merger Agreement"), by and
among Coram Healthcare Corporation, a Delaware corporation (formerly "CHM
Holding Corporation")("Coram"), Curaflex Health Services, Inc., a Delaware
corporation ("CHS"), HealthInfusion, Inc., a Florida corporation ("HII"), the
Company, T(2) Medical, Inc., a Delaware corporation ("T(2)"), CHS Acquisition
Company, a Delaware corporation and wholly owned subsidiary of Coram ("CHS
Sub"), HII Acquisition Company, a Florida corporation and wholly owned
subsidiary of Coram ("HII Sub"), MI Acquisition Company, a Delaware corporation
and wholly owned subsidiary of Coram ("MI Sub"), and T(2) Acquisition Company, a
Delaware corporation and wholly owned subsidiary of Coram ("T(2) Sub"), pursuant
to which, among other things, T(2) Sub, CHS Sub, HII Sub and MI Sub will merge
with and into T(2), CHS, HII and the Company, respectively, and T(2), CHS, HII
and the Company will thereby become wholly owned subsidiaries of Coram (the
"Merger"); and
WHEREAS, the Individual is presently employed by the Company and, upon
consummation of the Merger, will thereafter continue to be employed by the
Company, subject to the terms and conditions set forth herein, on an "at will"
basis.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
each of the parties hereto, the Company and the Individual, intending to be
legally bound, hereby agree as follows:
1. Nature of Continuing Employment with the Company.
(a) Individual's employment by the Company is, as of the date hereof, and
shall hereafter be on an "at will" basis, subject to the provisions with respect
to termination set forth herein and the other terms and provisions hereof.
(b) Individual agrees to faithfully and diligently continue to perform on a
full-time basis such duties as have been assigned to Individual prior to the
date hereof and as shall be assigned to her from time to time by the Board of
Directors of the Company, such duties to be commensurate with the Individual's
position as the Vice President of Program Development of the Company.
(c) The Individual shall continue to receive a salary equal to $110,000 per
annum (the "Base Salary"), and such Base Salary shall continue to be paid on a
regular basis in accordance with the Company's normal payroll procedures and
policies and shall not, subject to the provisions of Section 4 hereof, be
reduced during the term of Individual's employment with the Company pursuant to
this Agreement without her prior written consent. The amount of the Base Salary
shall be reviewed in accordance with the review practices and policies
applicable to Individual as existed immediately prior to the date hereof. In
addition, the Individual shall be entitled to participate, subject to the
provisions, rules and regulations applicable thereto, including provisions
empowering the Board of Directors of the Company and of Coram to modify and/or
terminate any such plan or programs, in all employee benefit plans or programs
(including vacation time, sick leave and holidays) of the Company (including all
such plans and programs of the Company adopted in addition to or in replacement
of any of the Company's plans or programs) on the same basis and to the same
extent as she was entitled to participate immediately prior to the date hereof
and on the same basis and to the same extent as other employees of equal rank of
the Company are entitled to participate in the future. In furtherance of and
without
(130)
<PAGE> 2
limiting the foregoing, Individual shall be entitled to receive all employee
benefits and perquisites, including, without limitation, a vehicle allowance,
and continuing rights thereto following termination, on the same basis and to
the same extent as Individual received from the Company prior to the date
hereof, which employee benefits and perquisites shall not, subject to the
provisions of Section 4 hereof, be diminished during the term of Individual's
employment with the Company pursuant to this Agreement without her prior written
consent. In accordance with the Company's policies established from time to
time, the Company will also continue to pay or reimburse the Individual for all
reasonable and necessary out-of-pocket expenses incurred by her in the
performance of her duties under this Agreement, subject to the prior
authorization thereof or subsequent presentment of appropriate receipts and
vouchers therefor.
2. Non-Competition; Non-Solicitation.
(a) While employed by the Company and for a period of twelve (12) months
thereafter, and provided that the Company is in compliance with all of the terms
of Section 4(c) hereof, Individual shall not, directly or indirectly, engage in
a line of business within any geographical area of the United States in which
the Company or any subsidiary of the Company is currently engaged in the same
line of business, or have any interest in any sole proprietorship, partnership,
corporation or business or any other person or entity (whether as an employee,
officer, director, partner, agent, security holder, creditor, consultant or
otherwise) that, directly or indirectly, engages in a line of business within
any geographical area of the United States in which the Company or any
subsidiary of the Company is currently engaged in the same line of business;
provided, however, that Individual may hold and continue to hold Company
securities or, solely as an investment, shares of capital stock or other equity
securities of any company which are traded on any national securities exchange
or are regularly quoted in the over-the-counter market, so long as Individual
does not control, acquire a controlling interest in or become a member of a
group which exercises direct or indirect control of, more than five percent (5%)
of any class of capital stock of such company. Individual hereby confirms that
she is under no contractual commitments inconsistent with her obligations set
forth in this Agreement, and that during the term of this Agreement, she will
not render or perform services, or enter into any agreement to do so, for any
other corporation, firm, entity or person which are inconsistent with the
provisions of this Agreement.
(b) While employed by the Company and for a period of twelve (12) months
thereafter, and provided that the Company is in compliance with all of the terms
of Section 4 hereof, Individual shall not, directly or indirectly, for herself
or for or on behalf of any other person, firm, corporation, partnership,
association or other entity, (i) attempt to employ or enter into any contractual
arrangement with any employee or former employee of the Company or any
subsidiary or parent company of the Company in connection with any line of
business in which the Company or any subsidiary of the Company is currently
engaged, unless such employee or former employee has not been employed by the
Company or such subsidiary or parent company for a period in excess of six (6)
months; and/or (ii) call on or solicit any of the actual or targeted prospective
physician/consultants (which shall include all physicians who provide or who are
reasonably likely to provide marketing, management or advisory or other services
to the Company or such subsidiary of parent company for a fee) or customers of
the Company or of such subsidiary or parent company in connection with any line
of business that is competitive with any line of business in which the Company
or any subsidiary of the Company is currently engaged, nor shall Individual make
known the names or addresses of such physician/consultants or customers or any
information relating in any manner to the Company's business relationships with
such physician/consultants or customers.
3. Confidential Information. Individual will hold in strictest confidence
and shall not disclose to any person or entity without the express prior
authorization of the Company and Coram, any information, including, without
limitation, any financial information (including, without limitation, financial
statements of the Company), marketing data, technique, process, formula,
developmental or experimental work, work in progress, business methods, trade
secrets (including, without limitation, any customer list or lists of customer
sources), marketing techniques or plans, or any other secret or confidential
information relating to the products, services, customers, sales or business
affairs of the Company or any subsidiary or parent company of the Company,
including, without limitation, any information relating to any business
opportunity made by or to the Company or any such subsidiary or parent company,
but excluding any knowledge or expertise possessed by Individual prior to
Individual's commencement of employment with the Company and any
(131)
<PAGE> 3
information in the public domain. Individual agrees that she will not make use
of any of the above at any time up to five (5) years after termination of her
employment. Upon termination of employment, Individual shall deliver to the
Company all documents, records, notebooks, work papers and all similar
repositories containing any information concerning the Company or any
subsidiaries or parent company of the Company, whether prepared by Individual,
the Company or anyone else.
4. Termination.
(a) Individual's employment hereunder may be terminated by Individual or
the Company without cause upon at least 30 days' written notice to the other
party.
(b) At any time the Company shall have the right to terminate Individual's
employment hereunder by written notice to Individual upon any of the following
occurrences:
(i) At any time after the first anniversary of the date hereof,
Individual's disability for a continuous period of one hundred twenty (120)
days, if such disability prevents her from performing her duties with the
Company (as described in Section 1(b) above). The existence of such a
period of continuous disability shall be determined by the Board of
Directors in the exercise of its reasonable judgment;
(ii) Individual's conviction of a felony or other serious crime
involving moral turpitude;
(iii) Individual's gross negligence or willful misconduct with respect
to the Company (which shall include, but not be limited to, conduct
bringing the Company into public disgrace or disrepute (other than conduct
that is performed at the direction of or with the consent or approval of
the Board of Directors or a superior officer of the Company)) to an extent
that would likely prohibit individual from obtaining unemployment
compensation benefits under Minnesota law (taking into consideration the
body of case law in Minnesota interpreting the level and extent of conduct
constituting gross negligence or willful misconduct sufficient to preclude
the receipt of such benefits); or
(iv) A material breach by Individual of any of the terms or conditions
of Sections 2 or 3 of this Agreement that is not cured to the reasonable
satisfaction of the Company within thirty (30) days after notice thereof to
Individual; provided, that the Company shall not be permitted to terminate
Individual's employment pursuant to this subsection (iv) without at least
thirty (30) days' prior written notice specifying the breach and permitting
the Individual an opportunity to cure such breach.
Upon the termination of Individual's employment pursuant to this Section
4(b), Individual shall be entitled only to any portion of Base Salary and bonus
compensation, if any, accrued and unpaid to the date of termination and shall
not be entitled to any other payment (except as may otherwise be required
pursuant to applicable federal, state or local law, rule or regulation).
(c) Upon the first anniversary of the closing date of the Merger, if
Individual is still employed by the Company through such date, or in the event
that Individual's employment with the Company is terminated by the Company
without cause pursuant to Section 4(a) above during the first twelve (12) months
after the closing date of the Merger, or by the Individual due to (i) the
assignment to the Individual of duties inconsistent in any respect to the
Individual's position or the diminution of authority, duties or
responsibilities, (ii) the required relocation of the Individual from her
current primary work location, or (iii) any breach by the Company of any
provision of this Agreement, the Company shall within ten (10) days after such
anniversary or termination, pay to the Individual a lump sum payment in the
amount of Two Hundred Twenty Thousand Dollars ($220,000); provided, that
Individual is not at that time in material breach of any of the terms of
Sections 2 or 3 hereof.
(d) In the event that Individual dies prior to the first anniversary of the
closing date of the Merger, if the Individual is still employed by the Company
at the time of Individual's death, the Company shall pay to Individual's estate
a lump sum payment in the amount of Two Hundred Twenty Thousand Dollars
($220,000) in the manner and subject to the terms and conditions set forth in
Section 4(c) above.
5. Termination of Other Agreements. Upon the execution of this Agreement,
all other employment, severance, non-compete and other similar agreements
between the Individual and the Company and/or any
(132)
<PAGE> 4
subsidiary or parent company of the Company shall immediately terminate and be
of no further force and effect and, except as set forth in Section 1(c) above,
no payments or other provisions regarding benefits or payment of any other
amounts shall be made thereunder, notwithstanding any provision to the contrary
set forth therein.
6. Injunctive Relief. The parties hereto hereby acknowledge and agree that
a breach by Individual of any of the covenants contained in Sections 2 or 3 of
this Agreement may cause irreparable damage and harm to the Company, and that
monetary damages may not be an adequate remedy for any such breach or may be
virtually impossible to ascertain. Therefore, the parties hereto agree that the
Company shall be entitled to an injunction from any court of competent
jurisdiction enjoining and restraining any violation of any or all of the
covenants contained in Sections 2 or 3 of this Agreement by the Individual or
any of her affiliates, associates, partners or agents, either directly or
indirectly, and that such right to injunction shall be cumulative and in
addition to any other remedies available to the Company.
7. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand, when sent by facsimile transmission with acknowledgement of
good transmission received, or when deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
Medisys, Inc.
4550 West 77th Street
Edina, Minnesota 55435
Attn: President
If to the Individual:
Sandra A. Smilanich
-----------------------------
-----------------------------
or to such other addresses as either party hereto may from time to time give
notice of to the other party in the aforesaid manner.
8. Miscellaneous.
(a) This Agreement shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party, except that the
Company, without the consent of Individual, may assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity (i) with or into which the Company may merge or consolidate, (ii) to
which the Company may sell or transfer all or substantially all of its assets or
of which 50% or more of the equity and of the voting control is owned, directly
or indirectly, by, or is under common ownership with, the Company, or (iii) that
is the parent company of the Company, including Coram.
(b) This Agreement is made under and shall be governed by and construed in
accordance with the laws of the State of Minnesota. Each of the parties hereto
hereby consents to the jurisdiction of the United States District Court and any
state court of competent jurisdiction located within Hennepin County, Minnesota
and hereby agrees that such courts will be proper forums in which to adjudicate
any case or controversy arising under or relating to this Agreement.
(c) This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes all prior agreements and understanding
with respect to such subject matter, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein or which have not been terminated
hereby.
(133)
<PAGE> 5
(d) The Company may withhold from any salary and benefits payable under
this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
(e) No amendment or modification of this Agreement shall be deemed
effective unless made in writing signed by the parties hereto.
(f) No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
a specific term or condition waived and shall not constitute a waiver of such
term or condition for the future or as to any act other than that specifically
waived.
(g) To the extent any provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision and of this Agreement shall be unaffected and shall continue in full
force and effect. In furtherance and not in limitation of the foregoing, should
the duration or geographical extent of, or business activities covered by any
provision of this Agreement be in excess of that which is valid and enforceable
under applicable law, then such provision shall be construed to cover only that
duration, extent or activities which may validly and enforceably be covered. The
Individual acknowledges the uncertainty of the law in this respect and expressly
stipulates that this Agreement shall be given construction which renders its
provisions valid and enforceable to the maximum extent (not exceeding its
express terms) possible under applicable law.
(h) This Agreement may be executed by facsimile and in counterparts, each
of which shall be deemed an original and all of which when taken together shall
constitute but one and the same instrument.
(i) Sections 2 and 3 of this Agreement shall survive and continue in full
force and effect and in accordance with their respective terms notwithstanding
any termination of this Agreement or Individual's employment with the Company
pursuant hereto.
(j) Caption and section headings used herein are for convenience of
reference only and are not a part of this Agreement and shall not be used in
construing the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"COMPANY"
MEDISYS, INC.
By:
----------------------------------
William J. Brummond, President
and Chief Executive Officer
"INDIVIDUAL"
-------------------------------------
Sandra A. Smilanich
(134)
<PAGE> 6
GUARANTY OF PERFORMANCE
CORAM HEALTHCARE CORPORATION, a Delaware corporation, as the parent
corporation of the Company, hereby acknowledges and agrees to all of the terms
and conditions of the foregoing Severance/Non-Compete Agreement and does hereby
guaranty the full and prompt performance by the Company of its obligations under
the foregoing Severance/Non-Compete Agreement.
CORAM HEALTHCARE CORPORATION
By:
--------------------------------
James M. Sweeney, Chairman
and Chief Executive Officer
(135)
<PAGE> 1
EXHIBIT 10.12 TO
REGISTRATION STATEMENT
ON FORM S-4
SEVERANCE/NON-COMPETE AGREEMENT
(David J. Byrd)
THIS SEVERANCE/NON-COMPETE AGREEMENT (this "Agreement") is made and entered
into this day of , 1994, by and between David J. Byrd
("Individual"), and Medisys, Inc., a Delaware corporation (the "Company").
WHEREAS, the Company is a party to that certain Agreement and Plan of
Merger dated as of February 6, 1994 (as amended, the "Merger Agreement"), by and
among Coram Healthcare Corporation, a Delaware corporation (formerly "CHM
Holding Corporation")("Coram"), Curaflex Health Services, Inc., a Delaware
corporation ("CHS"), HealthInfusion, Inc., a Florida corporation ("HII"), the
Company, T2 Medical, Inc., a Delaware corporation ("T2"), CHS Acquisition
Company, a Delaware corporation and wholly owned subsidiary of Coram ("CHS
Sub"), HII Acquisition Company, a Florida corporation and wholly owned
subsidiary of Coram ("HII Sub"), MI Acquisition Company, a Delaware corporation
and wholly owned subsidiary of Coram ("MI Sub"), and T2 Acquisition Company, a
Delaware corporation and wholly owned subsidiary of Coram ("T2 Sub"), pursuant
to which, among other things, T2 Sub, CHS Sub, HII Sub and MI Sub will merge
with and into T2, CHS, HII and the Company, respectively, and T2, CHS, HII and
the Company will thereby become wholly owned subsidiaries of Coram (the
"Merger"); and
WHEREAS, the Individual is presently employed by the Company and, upon
consummation of the Merger, will thereafter continue to be employed by the
Company, subject to the terms and conditions set forth herein, on an "at will"
basis.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
each of the parties hereto, the Company and the Individual, intending to be
legally bound, hereby agree as follows:
1. Nature of Continuing Employment with the Company.
(a) Individual's employment by the Company is, as of the date hereof, and
shall hereafter be on an "at will" basis, subject to the provisions with respect
to termination set forth herein and the other terms and provisions hereof.
(b) Individual agrees to faithfully and diligently continue to perform on a
full-time basis such duties as have been assigned to Individual prior to the
date hereof and as shall be assigned to him from time to time by the Board of
Directors of the Company, such duties to be commensurate with the Individual's
position as the Chief Financial Officer and Treasurer of the Company.
(c) The Individual shall continue to receive a salary equal to $125,000 per
annum (the "Base Salary"), and such Base Salary shall continue to be paid on a
regular basis in accordance with the Company's normal payroll procedures and
policies and shall not, subject to the provisions of Section 4 hereof, be
reduced during the term of Individual's employment with the Company pursuant to
this Agreement without her prior written consent. The amount of the Base Salary
shall be reviewed in accordance with the review practices and policies
applicable to Individual as existed immediately prior to the date hereof. In
addition, the Individual shall be entitled to participate, subject to the
provisions, rules and regulations applicable thereto, including provisions
empowering the Board of Directors of the Company and of Coram to modify and/or
terminate any such plan or programs, in all employee benefit plans or programs
(including vacation time, sick leave and holidays) of the Company (including all
such plans and programs of the Company adopted in addition to or in replacement
of any of the Company's plans or programs) on the same basis and to the same
extent as he was entitled to participate immediately prior to the date hereof
and on the same basis and to the same extent as other employees of equal rank of
the Company are entitled to participate in the future. In furtherance of and
without
(136)
<PAGE> 2
limiting the foregoing, Individual shall be entitled to receive all employee
benefits and perquisites, including, without limitation, a vehicle allowance,
and continuing rights thereto following termination, on the same basis and to
the same extent as Individual received from the Company prior to the date
hereof, which employee benefits and perquisites shall not, subject to the
provisions of Section 4 hereof, be diminished during the term of Individual's
employment with the Company pursuant to this Agreement without his prior written
consent. In accordance with the Company's policies established from time to
time, the Company will also continue to pay or reimburse the Individual for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to the prior
authorization thereof or subsequent presentment of appropriate receipts and
vouchers therefor.
2. Non-Competition; Non-Solicitation.
(a) While employed by the Company and for a period of twelve (12) months
thereafter, and provided that the Company is in compliance with all of the terms
of Section 4(c) hereof, Individual shall not, directly or indirectly, engage
within any state or territory of the United States or have any interest in any
sole proprietorship, partnership, corporation or business or any other person or
entity (whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that, directly or indirectly, engages
within any state or territory of the United States in any line of business in
which the Company or any subsidiary of the Company is currently engaged;
provided, however, that Individual may hold and continue to hold Company
securities or, solely as an investment, shares of capital stock or other equity
securities of any company which are traded on any national securities exchange
or are regularly quoted in the over-the-counter market, so long as Individual
does not control, acquire a controlling interest in or become a member of a
group which exercises direct or indirect control of, more than five percent (5%)
of any class of capital stock of such company. Individual hereby confirms that
he is under no contractual commitments inconsistent with his obligations set
forth in this Agreement, and that during the term of this Agreement, he will not
render or perform services, or enter into any agreement to do so, for any other
corporation, firm, entity or person which are inconsistent with the provisions
of this Agreement.
(b) While employed by the Company and for a period of twelve (12) months
thereafter, and provided that the Company is in compliance with all of the terms
of Section 4 hereof, Individual shall not, directly or indirectly, for himself
or for or on behalf of any other person, firm, corporation, partnership,
association or other entity, (i) attempt to employ or enter into any contractual
arrangement with any employee or former employee of the Company or any
subsidiary or parent company of the Company in connection with any line of
business in which the Company or any subsidiary of the Company is currently
engaged, unless such employee or former employee has not been employed by the
Company or such subsidiary or parent company for a period in excess of six (6)
months; and/or (ii) call on or solicit any of the actual or targeted prospective
physician/consultants (which shall include all physicians who provide or who are
reasonably likely to provide marketing, management or advisory or other services
to the Company or such subsidiary of parent company for a fee) or customers of
the Company or of such subsidiary or parent company in connection with any line
of business that is competitive with any line of business in which the Company
or any subsidiary of the Company is currently engaged, nor shall Individual make
known the names or addresses of such physician/consultants or customers or any
information relating in any manner to the Company's business relationships with
such physician/consultants or customers.
3. Confidential Information. Individual will hold in strictest confidence
and shall not disclose to any person or entity without the express prior
authorization of the Company and Coram, any information, including, without
limitation, any financial information (including, without limitation, financial
statements of the Company), marketing data, technique, process, formula,
developmental or experimental work, work in progress, business methods, trade
secrets (including, without limitation, any customer list or lists of customer
sources), marketing techniques or plans, or any other secret or confidential
information relating to the products, services, customers, sales or business
affairs of the Company or any subsidiary or parent company of the Company,
including, without limitation, any information relating to any business
opportunity made by or to the Company or any such subsidiary or parent company,
but excluding any knowledge or expertise possessed by Individual prior to
Individual's commencement of employment with the Company and any information in
the public domain. Individual agrees that she will not make use of any of the
above at any time
(137)
<PAGE> 3
for up to five (5) years after termination of his employment. Upon termination
of employment, Individual shall deliver to the Company all documents, records,
notebooks, work papers and all similar repositories containing any information
concerning the Company or any subsidiaries or parent company of the Individual,
whether prepared by Individual, the Company or anyone else.
4. Termination.
(a) Individual's employment hereunder may be terminated by Individual or
the Company without cause upon at least 30 days' written notice to the other
party.
(b) At any time the Company shall have the right to terminate Individual's
employment hereunder by written notice to Individual upon any of the following
occurrences:
(i) At any time after the first anniversary of the date hereof,
Individual's disability for a continuous period of one hundred twenty (120)
days, if such disability prevents him from performing his duties with the
Company (as described in Section 1(b) above). The existence of such a
period of continuous disability shall be determined by the Board of
Directors in the exercise of its reasonable judgment;
(ii) Individual's conviction of a felony or other serious crime
involving moral turpitude;
(iii) Individual's gross negligence or willful misconduct with respect
to the Company (which shall include, but not be limited to, conduct
bringing the Company into public disgrace or disrepute (other than conduct
that is performed at the direction of or with the consent or approval of
the Board of Directors or a superior officer of the Company)) to an extent
that would likely prohibit Individual from obtaining unemployment
compensation benefits under Minnesota law (taking into consideration the
body of case law in Minnesota interpreting the level and extent of conduct
constituting gross negligence or willful misconduct sufficient to preclude
the receipt of such benefits); or
(iv) A material breach by Individual of any of the terms or conditions
of Sections 2 or 3 of this Agreement that is not cured to the reasonable
satisfaction of the Company within thirty (30) days after notice thereof to
Individual; provided, that the Company shall not be permitted to terminate
Individual's employment pursuant to this subsection (iv) without at least
thirty (30) days' prior written notice specifying the breach and permitting
the Individual an opportunity to cure such breach.
Upon the termination of Individual's employment pursuant to this Section
4(b), Individual shall be entitled only to any portion of Base Salary and bonus
compensation, if any, accrued and unpaid to the date of termination and shall
not be entitled to any other payment (except as may otherwise be required
pursuant to applicable federal, state or local law, rule or regulation).
(c) Upon the first anniversary of the closing date of the Merger, if
Individual is still employed by the Company through such date, or in the event
that Individual's employment with the Company is terminated by the Company
without cause pursuant to Section 4(a) above during the first twelve (12) months
after the closing date of the Merger, or by the Individual due to (i) the
assignment to the Individual of duties inconsistent in any respect to the
Individual's position or the diminution of authority, duties or
responsibilities, (ii) the required relocation of the Individual from his
current primary work location, or (iii) any breach by the Company of any
provision of this Agreement, the Company shall within ten (10) days after such
anniversary or termination, pay to the Individual a lump sum payment in the
amount of Two Hundred Fifty Thousand Dollars ($250,000); provided, that
Individual is not at that time in material breach of any of the terms of
Sections 2 or 3 hereof.
(d) In the event that Individual dies prior to the first anniversary of the
closing date of the Merger, if the Individual is still employed by the Company
at the time of Individual's death, the Company shall pay to Individual's estate
a lump sum payment in the amount of Two Hundred Fifty Thousand Dollars
($250,000) in the manner and subject to the terms and conditions set forth in
Section 4(c) above.
5. Termination of Other Agreements. Upon the execution of this Agreement,
all other employment, severance, non-compete and other similar agreements
between the Individual and the Company and/or any subsidiary or parent company
of the Company shall immediately terminate and be of no further force and
(138)
<PAGE> 4
effect and, except as set forth in Section 1(c) above, no payments or other
provisions regarding benefits or payment of any other amounts shall be made
thereunder, notwithstanding any provision to the contrary set forth therein.
6. Injunctive Relief. The parties hereto hereby acknowledge and agree that
a breach by Individual of any of the covenants contained in Sections 2 or 3 of
this Agreement may cause irreparable damage and harm to the Company, and that
monetary damages may not be an adequate remedy for any such breach or may be
virtually impossible to ascertain. Therefore, the parties hereto agree that the
Company shall be entitled to an injunction from any court of competent
jurisdiction enjoining and restraining any violation of any or all of the
covenants contained in Sections 2 or 3 of this Agreement by the Individual or
any of his affiliates, associates, partners or agents, either directly or
indirectly, and that such right to injunction shall be cumulative and in
addition to any other remedies available to the Company.
7. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand, when sent by facsimile transmission with acknowledgement of
good transmission received, or when deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
Medisys, Inc.
4550 West 77th Street
Edina, Minnesota 55435
Attn: President
If to the Individual:
David J. Byrd
-----------------------------
-----------------------------
or to such other addresses as either party hereto may from time to time give
notice of to the other party in the aforesaid manner.
8. Miscellaneous.
(a) This Agreement shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party, except that the
Company, without the consent of Individual, may assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity (i) with or into which the Company may merge or consolidate, (ii) to
which the Company may sell or transfer all or substantially all of its assets or
of which 50% or more of the equity and of the voting control is owned, directly
or indirectly, by, or is under common ownership with, the Company, or (iii) that
is the parent company of the Company, including Coram.
(b) This Agreement is made under and shall be governed by and construed in
accordance with the laws of the State of Minnesota. Each of the parties hereto
hereby consents to the jurisdiction of the United States District Court and any
state court of competent jurisdiction located within Hennepin County, Minnesota
and hereby agrees that such courts will be proper forums in which to adjudicate
any case or controversy arising under or relating to this Agreement.
(c) This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes all prior agreements and understanding
with respect to such subject matter, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein or which have not been terminated
hereby.
(d) The Company may withhold from any salary and benefits payable under
this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
(139)
<PAGE> 5
(e) No amendment or modification of this Agreement shall be deemed
effective unless made in writing signed by the parties hereto.
(f) No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
a specific term or condition waived and shall not constitute a waiver of such
term or condition for the future or as to any act other than that specifically
waived.
(g) To the extent any provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision and of this Agreement shall be unaffected and shall continue in full
force and effect. In furtherance and not in limitation of the foregoing, should
the duration or geographical extent of, or business activities covered by any
provision of this Agreement be in excess of that which is valid and enforceable
under applicable law, then such provision shall be construed to cover only that
duration, extent or activities which may validly and enforceably be covered. The
Individual acknowledges the uncertainty of the law in this respect and expressly
stipulates that this Agreement shall be given construction which renders its
provisions valid and enforceable to the maximum extent (not exceeding its
express terms) possible under applicable law.
(h) This Agreement may be executed by facsimile and in counterparts, each
of which shall be deemed an original and all of which when taken together shall
constitute but one and the same instrument.
(i) Sections 2 and 3 of this Agreement shall survive and continue in full
force and effect and in accordance with their respective terms notwithstanding
any termination of this Agreement or Individual's employment with the Company
pursuant hereto.
(j) Caption and section headings used herein are for convenience of
reference only and are not a part of this Agreement and shall not be used in
construing the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"COMPANY"
MEDISYS, INC.
By:
----------------------------------
William J. Brummond, President
and Chief Executive Officer
"INDIVIDUAL"
--------------------------------------
David J. Byrd
(140)
<PAGE> 6
GUARANTY OF PERFORMANCE
CORAM HEALTHCARE CORPORATION, a Delaware corporation, as the parent
corporation of the Company, hereby acknowledges and agrees to all of the terms
and conditions of the foregoing Severance/Non-Compete Agreement and does hereby
guaranty the full and prompt performance by the Company of its obligations under
the foregoing Severance/Non-Compete Agreement.
CORAM HEALTHCARE CORPORATION
By:
--------------------------------
James M. Sweeney, Chairman
and Chief Executive Officer
(141)
<PAGE> 1
EXHIBIT 10.13 TO
REGISTRATION STATEMENT
ON FORM S-4
SEVERANCE/NON-COMPETE AGREEMENT
(David G. Swendsen)
THIS SEVERANCE/NON-COMPETE AGREEMENT (this "Agreement") is made and entered
into this day of , 1994, by and between David G. Swendsen
("Individual"), and Medisys, Inc., a Delaware corporation (the "Company").
WHEREAS, the Company is a party to that certain Agreement and Plan of
Merger dated as of February 6, 1994 (as amended, the "Merger Agreement"), by and
among Coram Healthcare Corporation, a Delaware corporation (formerly "CHM
Holding Corporation")("Coram"), Curaflex Health Services, Inc., a Delaware
corporation ("CHS"), HealthInfusion, Inc., a Florida corporation ("HII"), the
Company, T2 Medical, Inc., a Delaware corporation ("T2"), CHS Acquisition
Company, a Delaware corporation and wholly owned subsidiary of Coram ("CHS
Sub"), HII Acquisition Company, a Florida corporation and wholly owned
subsidiary of Coram ("HII Sub"), MI Acquisition Company, a Delaware corporation
and wholly owned subsidiary of Coram ("MI Sub"), and T2 Acquisition Company, a
Delaware corporation and wholly owned subsidiary of Coram ("T2 Sub"), pursuant
to which, among other things, T2 Sub, CHS Sub, HII Sub and MI Sub will merge
with and into T2, CHS, HII and the Company, respectively, and T2, CHS, HII and
the Company will thereby become wholly owned subsidiaries of Coram (the
"Merger"); and
WHEREAS, the Individual is presently employed by the Company and, upon
consummation of the Merger, will thereafter continue to be employed by the
Company, subject to the terms and conditions set forth herein, on an "at will"
basis.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
each of the parties hereto, the Company and the Individual, intending to be
legally bound, hereby agree as follows:
1. Nature of Continuing Employment with the Company.
(a) Individual's employment by the Company is, as of the date hereof, and
shall hereafter be on an "at will" basis, subject to the provisions with respect
to termination set forth herein and the other terms and provisions hereof.
(b) Individual agrees to faithfully and diligently continue to perform on a
full-time basis such duties as have been assigned to Individual prior to the
date hereof and as shall be assigned to him from time to time by the Board of
Directors of the Company, such duties to be commensurate with the Individual's
position as the Vice President of Business Development of the Company.
(c) The Individual shall continue to receive a salary equal to $100,000 per
annum (the "Base Salary"), and such Base Salary shall continue to be paid on a
regular basis in accordance with the Company's normal payroll procedures and
policies and shall not, subject to the provisions of Section 4 hereof, be
reduced during the term of Individual's employment with the Company pursuant to
this Agreement without her prior written consent. The amount of the Base Salary
shall be reviewed in accordance with the review practices and policies
applicable to Individual as existed immediately prior to the date hereof. In
addition, the Individual shall be entitled to participate, subject to the
provisions, rules and regulations applicable thereto, including provisions
empowering the Board of Directors of the Company and of Coram to modify and/or
terminate any such plan or programs, in all employee benefit plans or programs
(including vacation time, sick leave and holidays) of the Company (including all
such plans and programs of the Company adopted in addition to or in replacement
of any of the Company's plans or programs) on the same basis and to the same
extent as he was entitled to participate immediately prior to the date hereof
and on the same basis and to the same extent as other employees of equal rank of
the Company are entitled to participate in the future. In furtherance of and
without
(142)
<PAGE> 2
limiting the foregoing, Individual shall be entitled to receive all employee
benefits and perquisites, including, without limitation, a vehicle allowance,
and continuing rights thereto following termination, on the same basis and to
the same extent as Individual received from the Company prior to the date
hereof, which employee benefits and perquisites shall not, subject to the
provisions of Section 4 hereof, be diminished during the term of Individual's
employment with the Company pursuant to this Agreement without her prior written
consent. In accordance with the Company's policies established from time to
time, the Company will also continue to pay or reimburse the Individual for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, subject to the prior
authorization thereof or subsequent presentment of appropriate receipts and
vouchers therefor.
2. Non-Competition; Non-Solicitation.
(a) While employed by the Company and for a period of twelve (12) months
thereafter, and provided that the Company is in compliance with all of the terms
of Section 4(c) hereof, Individual shall not, directly or indirectly, engage
within any state or territory of the United States or have any interest in any
sole proprietorship, partnership, corporation or business or any other person or
entity (whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that, directly or indirectly, engages
within any state or territory of the United States in any line of business in
which the Company or any subsidiary of the Company is currently engaged;
provided, however, that Individual may hold and continue to hold Company
securities or, solely as an investment, shares of capital stock or other equity
securities of any company which are traded on any national securities exchange
or are regularly quoted in the over-the-counter market, so long as Individual
does not control, acquire a controlling interest in or become a member of a
group which exercises direct or indirect control of, more than five percent (5%)
of any class of capital stock of such company. Individual hereby confirms that
he is under no contractual commitments inconsistent with his obligations set
forth in this Agreement, and that during the term of this Agreement, he will not
render or perform services, or enter into any agreement to do so, for any other
corporation, firm, entity or person which are inconsistent with the provisions
of this Agreement.
(b) While employed by the Company and for a period of twelve (12) months
thereafter, and provided that the Company is in compliance with all of the terms
of Section 4 hereof, Individual shall not, directly or indirectly, for himself
or for or on behalf of any other person, firm, corporation, partnership,
association or other entity, (i) attempt to employ or enter into any contractual
arrangement with any employee or former employee of the Company or any
subsidiary or parent company of the Company in connection with any line of
business in which the Company or any subsidiary of the Company is currently
engaged, unless such employee or former employee has not been employed by the
Company or such subsidiary or parent company for a period in excess of six (6)
months; and/or (ii) call on or solicit any of the actual or targeted prospective
physician/consultants (which shall include all physicians who provide or who are
reasonably likely to provide marketing, management or advisory or other services
to the Company or such subsidiary of parent company for a fee) or customers of
the Company or of such subsidiary or parent company in connection with any line
of business that is competitive with any line of business in which the Company
or any subsidiary of the Company is currently engaged, nor shall Individual make
known the names or addresses of such physician/consultants or customers or any
information relating in any manner to the Company's business relationships with
such physician/consultants or customers.
3. Confidential Information. Individual will hold in strictest confidence
and shall not disclose to any person or entity without the express prior
authorization of the Company and Coram, any information, including, without
limitation, any financial information (including, without limitation, financial
statements of the Company), marketing data, technique, process, formula,
developmental or experimental work, work in progress, business methods, trade
secrets (including, without limitation, any customer list or lists of customer
sources), marketing techniques or plans, or any other secret or confidential
information relating to the products, services, customers, sales or business
affairs of the Company or any subsidiary or parent company of the Company,
including, without limitation, any information relating to any business
opportunity made by or to the Company or any such subsidiary or parent company,
but excluding any knowledge or expertise possessed by Individual prior to
Individual's commencement of employment with the Company and any information in
the public domain. Individual agrees that she will not make use of any of the
above at any time
(143)
<PAGE> 3
for up to five (5) years after termination of his employment. Upon termination
of employment, Individual shall deliver to the Company all documents, records,
notebooks, work papers and all similar repositories containing any information
concerning the Company or any subsidiaries or parent company of the Individual,
whether prepared by Individual, the Company or anyone else.
4. Termination.
(a) Individual's employment hereunder may be terminated by Individual or
the Company without cause upon at least 30 days' written notice to the other
party.
(b) At any time the Company shall have the right to terminate Individual's
employment hereunder by written notice to Individual upon any of the following
occurrences:
(i) At any time after the first anniversary of the date hereof,
Individual's disability for a continuous period of one hundred twenty (120)
days, if such disability prevents him from performing his duties with the
Company (as described in Section 1(b) above). The existence of such a
period of continuous disability shall be determined by the Board of
Directors in the exercise of its reasonable judgment;
(ii) Individual's conviction of a felony or other serious crime
involving moral turpitude;
(iii) Individual's gross negligence or willful misconduct with respect
to the Company (which shall include, but not be limited to, conduct
bringing the Company into public disgrace or disrepute (other than conduct
that is performed at the direction of or with the consent or approval of
the Board of Directors or a superior officer of the Company)) to an extent
that would likely prohibit Individual from obtaining unemployment
compensation benefits under Minnesota law (taking into consideration the
body of case law in Minnesota interpreting the level and extent of conduct
constituting gross negligence or willful misconduct sufficient to preclude
the receipt of such benefits); or
(iv) A material breach by Individual of any of the terms or conditions
of Sections 2 or 3 of this Agreement that is not cured to the reasonable
satisfaction of the Company within thirty (30) days after notice thereof to
Individual; provided, that the Company shall not be permitted to terminate
Individual's employment pursuant to this subsection (iv) without at least
thirty (30) days' prior written notice specifying the breach and permitting
the Individual an opportunity to cure such breach.
Upon the termination of Individual's employment pursuant to this Section
4(b), Individual shall be entitled only to any portion of Base Salary and bonus
compensation, if any, accrued and unpaid to the date of termination and shall
not be entitled to any other payment (except as may otherwise be required
pursuant to applicable federal, state or local law, rule or regulation).
(c) Upon the first anniversary of the closing date of the Merger, if
Individual is still employed by the Company through such date, or in the event
that Individual's employment with the Company is terminated by the Company
without cause pursuant to Section 4(a) above during the first twelve (12) months
after the closing date of the Merger, or by the Individual due to (i) the
assignment to the Individual of duties inconsistent in any respect to the
Individual's position or the diminution of authority, duties or
responsibilities, (ii) the required relocation of the Individual from her
current primary work location, or (iii) any breach by the Company of any
provision of this Agreement, the Company shall within ten (10) days after such
anniversary or termination, pay to the Individual a lump sum payment in the
amount of Two Hundred Thousand Dollars ($200,000); provided, that Individual is
not at that time in material breach of any of the terms of Sections 2 or 3
hereof.
(d) In the event that Individual dies prior to the first anniversary of the
closing date of the Merger, if the Individual is still employed by the Company
at the time of Individual's death, the Company shall pay to Individual's estate
a lump sum payment in the amount of Two Hundred Thousand Dollars ($200,000) in
the manner and subject to the terms and conditions set forth in Section 4(c)
above.
5. Termination of Other Agreements. Upon the execution of this Agreement,
all other employment, severance, non-compete and other similar agreements
between the Individual and the Company and/or any subsidiary or parent company
of the Company shall immediately terminate and be of no further force and
(144)
<PAGE> 4
effect and, except as set forth in Section 1(c) above, no payments or other
provisions regarding benefits or payment of any other amounts shall be made
thereunder, notwithstanding any provision to the contrary set forth therein.
6. Injunctive Relief. The parties hereto hereby acknowledge and agree that
a breach by Individual of any of the covenants contained in Sections 2 or 3 of
this Agreement may cause irreparable damage and harm to the Company, and that
monetary damages may not be an adequate remedy for any such breach or may be
virtually impossible to ascertain. Therefore, the parties hereto agree that the
Company shall be entitled to an injunction from any court of competent
jurisdiction enjoining and restraining any violation of any or all of the
covenants contained in Sections 2 or 3 of this Agreement by the Individual or
any of his affiliates, associates, partners or agents, either directly or
indirectly, and that such right to injunction shall be cumulative and in
addition to any other remedies available to the Company.
7. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand, when sent by facsimile transmission with acknowledgement of
good transmission received, or when deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
Medisys, Inc.
4550 West 77th Street
Edina, Minnesota 55435
Attn: President
If to the Individual:
David G. Swendsen
-----------------------------------------
-----------------------------------------
or to such other addresses as either party hereto may from time to time give
notice of to the other party in the aforesaid manner.
8. Miscellaneous.
(a) This Agreement shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party, except that the
Company, without the consent of Individual, may assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity (i) with or into which the Company may merge or consolidate, (ii) to
which the Company may sell or transfer all or substantially all of its assets or
of which 50% or more of the equity and of the voting control is owned, directly
or indirectly, by, or is under common ownership with, the Company, or (iii) that
is the parent company of the Company, including Coram.
(b) This Agreement is made under and shall be governed by and construed in
accordance with the laws of the State of Minnesota. Each of the parties hereto
hereby consents to the jurisdiction of the United States District Court and any
state court of competent jurisdiction located within Hennepin County, Minnesota
and hereby agrees that such courts will be proper forums in which to adjudicate
any case or controversy arising under or relating to this Agreement.
(c) This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes all prior agreements and understanding
with respect to such subject matter, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein or which have not been terminated
hereby.
(d) The Company may withhold from any salary and benefits payable under
this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
(145)
<PAGE> 5
(e) No amendment or modification of this Agreement shall be deemed
effective unless made in writing signed by the parties hereto.
(f) No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
a specific term or condition waived and shall not constitute a waiver of such
term or condition for the future or as to any act other than that specifically
waived.
(g) To the extent any provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision and of this Agreement shall be unaffected and shall continue in full
force and effect. In furtherance and not in limitation of the foregoing, should
the duration or geographical extent of, or business activities covered by any
provision of this Agreement be in excess of that which is valid and enforceable
under applicable law, then such provision shall be construed to cover only that
duration, extent or activities which may validly and enforceably be covered. The
Individual acknowledges the uncertainty of the law in this respect and expressly
stipulates that this Agreement shall be given construction which renders its
provisions valid and enforceable to the maximum extent (not exceeding its
express terms) possible under applicable law.
(h) This Agreement may be executed by facsimile and in counterparts, each
of which shall be deemed an original and all of which when taken together shall
constitute but one and the same instrument.
(i) Sections 2 and 3 of this Agreement shall survive and continue in full
force and effect and in accordance with their respective terms notwithstanding
any termination of this Agreement or Individual's employment with the Company
pursuant hereto.
(j) Caption and section headings used herein are for convenience of
reference only and are not a part of this Agreement and shall not be used in
construing the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"COMPANY"
MEDISYS, INC.
By:
------------------------------
William J. Brummond, President
and Chief Executive Officer
"INDIVIDUAL"
David G. Swendsen
----------------------------------
(146)
<PAGE> 6
GUARANTY OF PERFORMANCE
CORAM HEALTHCARE CORPORATION, a Delaware corporation, as the parent
corporation of the Company, hereby acknowledges and agrees to all of the terms
and conditions of the foregoing Severance/Non-Compete Agreement and does hereby
guaranty the full and prompt performance by the Company of its obligations under
the foregoing Severance/Non-Compete Agreement.
CORAM HEALTHCARE CORPORATION
By:
---------------------------
James M. Sweeney, Chairman
and Chief Executive Officer
(147)
<PAGE> 1
EXHIBIT 10.14 TO
REGISTRATION STATEMENT
ON FORM S-4
SEVERANCE/NON-COMPETE AGREEMENT
(Thomas E. Haire)
THIS SEVERANCE/NON-COMPETE AGREEMENT (this "Agreement") is made and entered
into this day of , 1994, by and between Thomas E. Haire
("Individual"), and T2 Medical, Inc., a Delaware corporation (the "Company").
WHEREAS, the Company is a party to that certain Agreement and Plan of
Merger dated as of February 6, 1994 (as amended, the "Merger Agreement"), by and
among Coram Healthcare Corporation, a Delaware corporation (formerly "CHM
Holding Corporation") ("Coram"), Curaflex Health Services, Inc., a Delaware
corporation ("CHS"), HealthInfusion, Inc., a Florida corporation ("HII"),
Medisys, Inc., a Delaware corporation ("MI"), the Company, CHS Acquisition
Company, a Delaware corporation and wholly owned subsidiary of Coram ("CHS
Sub"), HII Acquisition Company, a Florida corporation and wholly owned
subsidiary of Coram ("HII Sub"), MI Acquisition Company, a Delaware corporation
and wholly owned subsidiary of Coram ("MI Sub"), and T2 Acquisition Company, a
Delaware corporation and wholly owned subsidiary of Coram ("T2 Sub"), pursuant
to which, among other things, T2 Sub, CHS Sub, HII Sub and MI Sub will merge
with and into the Company, CHS, HII and MI, respectively, and the Company, CHS,
HII and MI will thereby become wholly owned subsidiaries of Coram (the
"Merger"); and
WHEREAS, the Individual is presently employed by the Company and, upon
consummation of the Merger, will thereafter continue to be employed by the
Company, subject to the terms and conditions set forth herein, on an "at will"
basis.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
each of the parties hereto, the Company and the Individual, intending to be
legally bound, hereby agree as follows:
1. Nature of Continuing Employment with the Company.
(a) Individual's employment by the Company is, as of the date hereof, and
shall hereafter be on an "at will" basis, subject to the provisions with respect
to termination set forth herein and the other terms and provisions hereof.
(b) Individual agrees to faithfully and diligently continue to perform on a
full-time basis such duties as have been assigned to Individual prior to the
date hereof and as shall be assigned to him from time to time by the Board of
Directors of the Company.
(c) The Individual shall continue to receive a salary equal to $150,000 per
annum (the "Base Salary"), and such Base Salary shall continue to be paid on a
regular basis in accordance with the Company's normal payroll procedures and
policies and shall not, subject to the provisions of Section 4 hereof, be
reduced during the term of the Individual's employment with the Company pursuant
to this Agreement without his prior written consent. The amount of the Base
Salary shall be reviewed in accordance with the review practices and policies
applicable to Individual as existed immediately prior to the date hereof. In
addition, the Individual shall be entitled to participate, subject to the
provisions, rules and regulations applicable thereto, including provisions
empowering the Board of Directors of the Company to modify and/or terminate any
such plan or programs, in all employee benefit plans or programs (including
vacation time, sick leave and holidays) of the Company to the same extent as he
was entitled to participate immediately prior to the date hereof. In accordance
with the Company's policies established from time to time, the Company will also
continue to pay or reimburse the Individual for all reasonable and necessary
out-of-pocket expenses incurred by him in the performance of his duties under
this Agreement, subject to the prior authorization thereof or subsequent
presentment of appropriate receipts and vouchers therefor.
(148)
<PAGE> 2
2. Non-Competition; Non-Solicitation.
(a) While employed by the Company and for a period of twelve (12) months
thereafter, he shall not, directly or indirectly, engage within a 50-mile radius
of any office of the Company or any subsidiary or parent company of the Company
as particularly specified by an addendum hereto (the "Geographic Area") or have
any interest in any sole proprietorship, partnership, corporation or business or
any other person or entity (whether as an employee, officer, director, partner,
agent, security holder, creditor, consultant or otherwise) that, directly or
indirectly, engages in any line of business in which the Company or any
subsidiary or parent company of the Company is currently engaged which lines of
business as of the date hereof are the following: the sale and delivery of
infusion chemotherapy, intravenous antibiotic therapy, infusion hydration
therapy, other infusion therapeutic and infusion nutritional care to patients in
homes and other non-hospital environments, acute dialysis therapy, outpatient
lithotripsy services, ambulatory surgical center services, outpatient pediatric
infusion therapy and respiratory therapy services and physician practice
management services (each such line of business, a "Line of Business" and,
collectively, the "Lines of Business"); provided, however, that Individual may
hold and continue to hold Company securities or, solely as an investment, shares
of capital stock or other equity securities of any company which are traded on
any national securities exchange or are regularly quoted in the over-the-counter
market, so long as Individual does not control, acquire a controlling interest
in or become a member of a group which exercises direct or indirect control of,
more than five percent (5%) of any class of capital stock of such company.
Individual hereby confirms that he is under no contractual commitments
inconsistent with his obligations set forth in this Agreement, and that during
the term of this Agreement, he will not render or perform services, or enter
into any agreement to do so, for any other corporation, firm, entity or person
which are inconsistent with the provisions of this Agreement.
(b) While employed by the Company and for a period of twelve (12) months
thereafter, Individual shall not, directly or indirectly, for himself or for or
on behalf of any other person, firm, corporation, partnership, association or
other entity, (i) attempt to employ or enter into any contractual arrangement
with any employee or former employee of the Company or any subsidiary or parent
company of the Company, unless such employee or former employee has not been
employed by the Company or such subsidiary or parent company for a period in
excess of six (6) months; and/or (ii) call on or solicit any physicians (which
shall include all physicians who provide or who are reasonably likely to provide
marketing, management or advisory or other services to the Company or such
subsidiary or parent company for a fee) or customers of the Company or of such
subsidiary or parent company with whom the Individual had contact pursuant to
his employment with the Company or such subsidiary or parent company in
connection with any line of business that is competitive with any Line of
Business, nor shall Individual make known the names or addresses of such
physicians or customers or any information relating in any manner to the
Company's business relationships with such physicians or customers.
3. Confidential Information. Individual will hold in strictest confidence
and shall not disclose to any person or entity without the express prior
authorization of the Company and Coram, any information, including, without
limitation, any financial information (including, without limitation, financial
statements of the Company), marketing data, technique, process, formula,
developmental or experimental work, work in progress, business methods, trade
secrets (including, without limitation, any customer list or lists of customer
sources), marketing techniques or plans, or any other secret or confidential
information relating to the products, services, customers, sales or business
affairs of the Company or any subsidiary or parent company of the Company,
including, without limitation, any information relating to any business
opportunity made by or to the Company or any such subsidiary or parent company.
Individual agrees that he will not make use of any of the above at any time
after termination of his employment. Upon termination of employment, Individual
shall deliver to the Company all documents, records, notebooks, work papers and
all similar repositories containing any information concerning the Company or
any subsidiaries or parent company of the Individual, whether prepared by
Individual, the Company or anyone else.
(149)
<PAGE> 3
4. Termination.
(a) Individual's employment hereunder may be terminated by Individual or
the Company without cause upon at least 30 days' written notice to the other
party.
(b) At any time the Company shall have the right to terminate Individual's
employment hereunder by written notice to Individual upon any of the following
occurrences:
(i) Individual's disability for a continuous period of one hundred
twenty (120) days, if such disability prevents him from performing his
duties with the Company (as described in Section 1(b) above). The existence
of such a period of continuous disability shall be determined by the Board
of Directors in the exercise of its reasonable judgment;
(ii) Individual's conviction of a felony or other serious crime
involving moral turpitude;
(iii) Individual's gross negligence or willful misconduct with respect
to the Company;
(iv) Individual's conduct bringing Company into public disgrace or
disrepute; or
(v) A material breach by Individual of any of the terms or conditions
of Sections 2 or 3 of this Agreement that is not cured to the reasonable
satisfaction of the Company within thirty (30) days after notice thereof to
Individual; provided, that the Company shall not be permitted to terminate
Individual's employment pursuant to this subsection (v) without at least
thirty (30) days' prior written notice specifying the breach and permitting
the Individual an opportunity to cure such breach.
(c) In the event that Individual's employment with the Company is
terminated by the Company without cause pursuant to Section 4(a) above, or by
the Individual due to (i) the assignment to the Individual of duties
inconsistent in any respect to the Individual's position or the diminution of
authority, duties or responsibilities, (ii) the required relocation of the
Individual from his current primary work location, or (iii) any breach by the
Company of any provision of this Agreement, the Company shall pay to the
Individual a lump sum payment equal to 2.99 times Individual's Base Salary;
provided, that Individual is not at that time in material breach of any of the
terms of Sections 2 or 3 hereof. The timing of the payment of such amount shall
be subject to postponement to the extent that payment of such amount in the
taxable year in which it was originally scheduled to be paid would result in a
disallowance of a deduction for such amount or any portion thereof pursuant to
either Section 162(m) or Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"). Any amount which is not paid in the taxable year in which
it was originally scheduled to be paid as a result of the postponement thereof
pursuant hereto shall be payable in the next succeeding taxable year in which
such payment will not result in the disallowance of a deduction pursuant to
either Section 162(m) or 280G of the Code; provided, however, that (1) in any
contract relating to the payment of the postponed payments, the prevailing party
shall be entitled to receive attorneys' fees and related costs, and (ii) all
postponed payments shall be placed in a Rabbi trust or similar vehicle for the
benefit of the person to whom it is owed in such a way that the amounts so
transferred are not taxable to such person or deductible by Coram or the Company
until payment from such vehicle to such person is made.
(d) In the event of Individual's death, if Individual is still employed by
the Company at the time of Individual's death, the Company shall pay to the
Individual's estate an amount equal to 2.99 times Individual's Base Salary in
the manner and subject to the terms and conditions set forth in Section 4(c)
above.
5. Termination of Other Agreements. Upon the execution of this Agreement,
all other employment, severance, non-compete and other similar agreements
between the Individual and the Company and/or any subsidiary or parent company
of the Company shall immediately terminate and be of no further force and effect
and no payments or other provisions regarding benefits or payment of any other
amounts shall be made thereunder, notwithstanding any provision to the contrary
set forth therein.
6. Injunctive Relief. The parties hereto hereby acknowledge and agree that
a breach by Individual of any of the covenants contained in Sections 2 or 3 of
this Agreement may cause irreparable damage and harm to the Company, and that
monetary damages may not be an adequate remedy for any such breach or may be
(150)
<PAGE> 4
virtually impossible to ascertain. Therefore, the parties hereto agree that the
Company shall be entitled to an injunction from any court of competent
jurisdiction enjoining and restraining any violation of any or all of the
covenants contained in Sections 2 or 3 of this Agreement by the Individual or
any of his affiliates, associates, partners or agents, either directly or
indirectly, and that such right to injunction shall be cumulative and in
addition to any other remedies available to the Company.
7. Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand, when sent by facsimile transmission with acknowledgement of
good transmission received, or when deposited in the United States mail, by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
T2 Medical, Inc.
1121 Alderman Drive
Alpharetta, Georgia 30202
Attn: President
If to the Individual:
Thomas E. Haire
----------------------------------------
----------------------------------------
or to such other addresses as either party hereto may from time to time give
notice of to the other party in the aforesaid manner.
8. Miscellaneous.
(a) This Agreement shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party, except that the
Company, without the consent of Individual, may assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity (i) with or into which the Company may merge or consolidate, (ii) to
which the Company may sell or transfer all or substantially all of its assets or
of which 50% or more of the equity and of the voting control is owned, directly
or indirectly, by, or is under common ownership with, the Company, or (iii) that
is the parent company of the Company, including Coram.
(b) This Agreement is made under and shall be governed by and construed in
accordance with the laws of the State of Georgia.
(c) This Agreement contains the entire agreement of the parties relating to
the subject matter hereof and supersedes all prior agreements and understanding
with respect to such subject matter, and the parties hereto have made no
agreements, representations or warranties relating to the subject matter of this
Agreement which are not set forth herein or which have not been terminated
hereby.
(d) The Company may withhold from any salary and benefits payable under
this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
(e) No amendment or modification of this Agreement shall be deemed
effective unless made in writing signed by the parties hereto.
(f) No term or condition of this Agreement shall be deemed to have been
waived nor shall there be any estoppel to enforce any provisions of this
Agreement, except by a statement in writing signed by the party against whom
enforcement of the waiver or estoppel is sought. Any written waiver shall not be
deemed a continuing waiver unless specifically stated, shall operate only as to
a specific term or condition waived and shall not constitute a waiver of such
term or condition for the future or as to any act other than that specifically
waived.
(151)
<PAGE> 5
(g) To the extent any provision of this Agreement shall be invalid or
unenforceable, it shall be considered deleted herefrom and the remainder of such
provision and of this Agreement shall be unaffected and shall continue in full
force and effect. In furtherance and not in limitation of the foregoing, should
the duration or geographical extent of, or business activities covered by any
provision of this Agreement be in excess of that which is valid and enforceable
under applicable law, then such provision shall be construed to cover only that
duration, extent or activities which may validly and enforceably be covered. The
Individual acknowledges the uncertainty of the law in this respect and expressly
stipulates that this Agreement shall be given construction which renders its
provisions valid and enforceable to the maximum extent (not exceeding its
express terms) possible under applicable law.
(h) This Agreement may be executed by facsimile and in counterparts, each
of which shall be deemed an original and all of which when taken together shall
constitute but one and the same instrument.
(i) Sections 2 and 3 of this Agreement shall survive and continue in full
force and effect and in accordance with their respective terms notwithstanding
any termination of this Agreement or Individual's employment with the Company
pursuant hereto.
(j) Caption and section headings used herein are for convenience of
reference only and are not a part of this Agreement and shall not be used in
construing the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"COMPANY"
T2 MEDICAL, INC.
By:
--------------------------------
Tommy H. Carter, Chief Executive
Officer and President
"INDIVIDUAL"
--------------------------------
Thomas E. Haire
(152)
<PAGE> 6
GUARANTY OF PERFORMANCE
CORAM HEALTHCARE CORPORATION, a Delaware corporation, as the parent
corporation of the Company, hereby acknowledges and agrees to all of the terms
and conditions of the foregoing Severance/Non-Compete Agreement and does hereby
guaranty the full and prompt performance by the Company of its obligations under
the foregoing Severance/Non-Compete Agreement.
CORAM HEALTHCARE CORPORATION
By:
-------------------------------
James M. Sweeney, Chairman
and Chief Executive Officer
(153)
<PAGE> 1
EXHIBIT 10.15 TO
REGISTRATION STATEMENT
ON FORM S-4
CORAM HEALTHCARE CORPORATION
1994 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL
I. PURPOSE OF THE PLAN
A. This 1994 Stock Option/Stock Issuance Plan (the "Plan") is intended to
promote the interests of Coram Healthcare Corporation, a Delaware corporation
(the "Corporation"), by providing (i) key employees (including officers) of the
Corporation (or its parent or subsidiary corporations) who are responsible for
the management, growth and financial success of the Corporation (or its parent
or subsidiary corporations), (ii) the non-employee members of the Corporation's
Board of Directors or the board of directors of any parent or subsidiary
corporation and (iii) those consultants and other independent contractors who
provide valuable services to the Corporation (or its parent or subsidiary
corporations) with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation (or its parent or
subsidiary corporations).
B. The Plan shall be implemented in connection with the reorganization of
the Constituent Corporations to be effected pursuant to the Agreement and Plan
of Merger dated as of February 6, 1994. Pursuant to such reorganization, each of
the Constituent Corporations shall merge with a wholly-owned subsidiary of the
Corporation and thereby become a separate operating subsidiary of the
Corporation, and all of the outstanding shares of the common stock of each such
Constituent Corporation shall be converted into shares of the Corporation's
common stock. The Plan shall become effective immediately with the consummation
of the mergers contemplated by such reorganization, and the effective date of
those mergers shall serve as the Effective Date of the Plan.
II. DEFINITIONS
A. For purposes of the Plan, the following definitions shall be in effect:
BOARD: the Corporation's Board of Directors.
CHANGE IN CONTROL: a change in ownership or control of the Corporation
effected through either of the following transactions:
- the direct or indirect acquisition by any person or related group of
persons (other than the Corporation or a person that directly or indirectly
controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, or
- a change in the composition of the Board over a period of thirty-six
(36) months or less such that a majority of the Board members (rounded up
to the next whole number) ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who either
(a) have been Board members continuously since the beginning of such period
or (b) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in clause
(a) who were still in office at the time such election or nomination was
approved by the Board.
CODE: the Internal Revenue Code of 1986, as amended.
COMMON STOCK: shares of the Corporation's common stock, par value $0.001
per share.
(154)
<PAGE> 2
CONSTITUENT CORPORATIONS: Curaflex Health Services, Inc., a Delaware
corporation; HealthInfusion, Inc., a Florida corporation; Medisys, Inc., a
Delaware corporation, and T2 Medical, Inc., a Delaware corporation. Each of the
Constituent Corporations shall become a separate wholly-owned operating
subsidiary of the Corporation pursuant to the Agreement and Plan of Merger to be
submitted to stockholder approval at a special stockholders meeting to be held
separately by each Constituent Corporation on June , 1994.
CORPORATE TRANSACTION: any of the following stockholder-approved
transactions to which the Corporation is a party:
- a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which
is to change the state in which the Corporation is incorporated,
- the sale, transfer or other disposition of all or substantially all
of the assets of the Corporation (including the capital stock of the
Corporation's subsidiary corporations) in complete liquidation or
dissolution of the Corporation, or
- any reverse merger in which the Corporation is the surviving entity
but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons holding those
securities immediately prior to such merger.
EFFECTIVE DATE: the date on which each of the Constituent Corporations will
merge into a wholly-owned subsidiary of the Corporation in accordance with the
Agreement and Plan of Merger dated as of February 6, 1994, is consummated.
EMPLOYEE: an individual who performs services while in the employ of the
Corporation or one or more parent or subsidiary corporations, subject to the
control and direction of the employer entity not only as to the work to be
performed but also as to the manner and method of performance.
EXERCISE DATE: the date on which the Corporation shall have received
written notice of the option exercise.
FAIR MARKET VALUE: the fair market value per share of Common Stock
determined in accordance with the following provisions:
- The Fair Market Value per share of Common Stock on any relevant date
under the Plan other than the Effective Date shall be the closing selling
price per share on the date in question on the New York Stock Exchange, as
such price is reported on the composite tape of transactions on such
exchange. If there is no reported closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.
- The Fair Market Value per share of Common Stock subject to any stock
option grants made under the Plan on the Effective Date shall be deemed to
be equal to the average closing selling price per share of the Common Stock
on the New York Stock Exchange for the five (5) consecutive trading day
period commencing with the Effective Date.
HOSTILE TAKE-OVER: a change in ownership of the Corporation effected
through the following transaction:
- the direct or indirect acquisition by any person or related group of
persons (other than the Corporation or a person that directly or indirectly
controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, and
- more than fifty percent (50%) of the acquired securities are
accepted from holders other than the officers and directors of the
Corporation subject to the short-swing profit restrictions of Section 16 of
the 1934 Act.
INCENTIVE OPTION: a stock option which satisfies the requirements of Code
Section 422.
(155)
<PAGE> 3
INVOLUNTARY TERMINATION: the termination of the Service of any Optionee or
Participant which occurs by reason of:
- such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
- such individual's voluntary resignation following (i) a change in
his or her position with the Corporation which materially reduces his or
her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and any
non-discretionary and objective-standard incentive payment or bonus award)
by more than five percent (5%) or (C) a relocation of such individual's
place of employment by more than fifty (50) miles, provided and only if
such change, reduction or relocation is effected by the Corporation without
the individual's consent.
MISCONDUCT: the commission of any act of fraud, embezzlement or dishonesty
by the Optionee or Participant, any unauthorized use or disclosure by such
individual of confidential information or trade secrets of the Corporation or
its parent or subsidiary corporations, or any other intentional misconduct by
such individual adversely affecting the business or affairs of the Corporation
in a material manner. The foregoing definition shall not be deemed to be
inclusive of all the acts or omissions which the Corporation or any parent or
subsidiary may consider as grounds for the dismissal or discharge of any
Optionee, Participant or other individual in the Service of the Corporation.
NEWLY ISSUED SHARES: shares of Common Stock drawn from the Corporation's
authorized but unissued shares of Common Stock.
1934 ACT: the Securities and Exchange Act of 1934, as amended.
STATUTORY OPTION: a stock option not intended to meet the requirements of
Code Section 422.
OPTIONEE: any person to whom an option is granted under the Discretionary
Option Grant or Automatic Option Grant Program in effect under the Plan.
PARTICIPANT: any person who receives a direct issuance of Common Stock
under the Stock Issuance Program in effect under the Plan.
PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the Optionee
or Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of twelve (12) months or more.
PLAN ADMINISTRATOR: the particular entity, whether the Primary Committee,
any secondary committee or the Board, which is authorized (either pursuant to
the express provisions of the Plan or by resolution of the Board) to exercise
administrative discretion under the Discretionary Option Grant and Stock
Issuance Programs with respect to one or more classes of eligible individuals,
to the extent such entity is acting within the scope of its administrative
authority under such programs with respect to those individuals over which it
has jurisdiction.
PRIMARY COMMITTEE: a committee of two (2) or more non-employee Board
members appointed by the Board.
SERVICE: the provision of services on a periodic basis to the Corporation
(or any parent or subsidiary corporation) in the capacity of an Employee, a
non-employee member of the board of directors or an independent consultant or
advisor, except to the extent otherwise specifically provided in the applicable
stock option or stock issuance agreement.
TAKE-OVER PRICE: the greater of (i) the Fair Market Value per share of
Common Stock on the date the option is surrendered to the Corporation in
connection with a Hostile Take-Over or (ii) the highest reported price per share
of Common Stock paid by the tender offeror in effecting such Hostile Take-Over.
However, if the surrendered option is an Incentive Option, the Take-Over Price
shall not exceed the clause (i) price per share.
TREASURY SHARES: shares of Common Stock reacquired by the Corporation and
held as treasury shares.
(156)
<PAGE> 4
B. The following provisions shall be applicable in determining the parent
and subsidiary corporations of the Corporation:
Any corporation (other than the Corporation) in an unbroken chain of
corporations ending with the Corporation shall be considered to be a PARENT
of the Corporation, provided each such corporation in the unbroken chain
(other than the Corporation) owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in any other corporation in such chain.
Each corporation (other than the Corporation) in an unbroken chain of
corporations beginning with the Corporation shall be considered to be a
SUBSIDIARY of the Corporation, provided each such corporation (other than
the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in any other corporation in
such chain.
III. STRUCTURE OF THE PLAN
A. Stock Programs. The Plan shall be divided into four separate components:
- The Discretionary Option Grant Program, under which eligible
individuals may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock in accordance with the
provisions of Article Two.
- The Automatic Option Grant Program, under which non-employee Board
members shall automatically receive special option grants at periodic
intervals to purchase shares of Common Stock in accordance with the
provisions of Article Three.
- The Stock Issuance Program, under which eligible individuals may be
issued shares of Common Stock directly, either through the immediate
purchase of such shares at a price not less than eighty-five percent (85%)
of their Fair Market Value at the time of issuance or as a bonus tied to
the performance of services or the Corporation's attainment of financial
objectives.
B. General Provisions. Unless the context clearly indicates otherwise, the
provisions of Articles One and Six shall apply to the Discretionary Option
Grant, Automatic Option Grant and Stock Issuance Programs and shall accordingly
govern the interests of all individuals under the Plan.
IV. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered in accordance with the following
provisions:
- The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to those individuals subject to the short-swing profit restrictions
of the Federal securities laws. No Board member shall be eligible to serve
on the Primary Committee if such individual has, within the twelve
(12)-month period immediately preceding the date such individual is to be
appointed to the Primary Committee, received an option grant or stock
issuance under this Plan or any other stock option, stock appreciation,
stock bonus or other stock plan of the Corporation (or any parent or
subsidiary corporation), other than pursuant to the Automatic Option Grant
Program specified in Article Three or any similar automatic option grant
programs in effect for the non-employee directors of the Constituent
Corporations prior to the Effective Date.
- Administration of the Discretionary Option Grant and Stock Issuance
Programs with respect to all other individuals eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a secondary committee of two (2) or more Board members
appointed by the Board, or the Board may retain the power to administer
those programs with respect to all individuals who are not subject to the
short-swing profit restrictions of the Federal securities laws. The
membership of any secondary committee may include Board members who are
Employees eligible to receive option grants or stock issuances under this
Plan or any other stock option, stock appreciation, stock bonus or other
stock plan of the Corporation (or any parent or subsidiary corporation).
(157)
<PAGE> 5
- Members of the Primary Committee or any secondary committee shall
serve for such period as the Board may determine and shall be subject to
removal by the Board at any time. The Board may also at any time reassume
all administrative powers and authority delegated under the Plan to any
secondary committee appointed by the Board.
B. The Plan Administrator shall, within the scope of its administrative
authority under the Plan, have full power and discretion (subject to the express
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for the proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of each such program and any outstanding
option grants or stock issuances thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator within the scope of its
administrative authority under the Plan, shall be final and binding on all
parties who have an interest in the Discretionary Option Grant or Stock Issuance
Program or any outstanding option or stock issuance thereunder.
C. Service on the Primary Committee or the secondary committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of either committee shall
be liable for any act or omission made in good faith with respect to the Plan or
any option granted or shares issued under the Plan.
D. Administration of the Automatic Option Grant shall be self-executing in
accordance with the express terms and conditions of Article Three, respectively,
and no Plan Administrator shall exercise any discretionary functions with
respect to the option grants made pursuant to such programs.
V. OPTION GRANTS AND STOCK ISSUANCES
A. The persons eligible to participate in the Discretionary Option Grant
Program under Article Two and the Stock Issuance Program under Article Five are
as follows:
- officers and other key employees of the Corporation (or its parent
or subsidiary corporations) who render services which contribute to the
management, growth and financial success of the Corporation (or its parent
or subsidiary corporations);
- non-employee members of the board of directors of any parent or
subsidiary corporations, provided such individuals do not concurrently
serve as members of the Board; and
- those consultants or other independent contractors who provide
valuable services to the Corporation (or its parent or subsidiary
corporations).
B. Non-employee Board members shall not be eligible to participate in the
Discretionary Option Grant or Stock Issuance Program or in any other stock
option, stock purchase, stock bonus or other stock plan of the Corporation (or
its parent or subsidiary corporations). Such non-employee Board members shall be
eligible to receive automatic option grants under Article Three; however, Mr.
Carter shall on the Effective Date receive the option grant which the Board has
authorized for him under Article Four in lieu of the initial automatic option
grant provided under Article Three.
C. The Plan Administrator shall have full authority to determine, (i) with
respect to the option grants made under the Discretionary Option Grant Program,
which eligible individuals are to receive option grants, the number of shares to
be covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at which each
granted option is to become exercisable and the maximum term for which the
option may remain outstanding and (ii), with respect to stock issuances under
the Stock Issuance Program, which eligible individuals are to be selected for
participation, the number of shares to be issued to each selected individual,
the vesting schedule (if any) to be applicable to the issued shares and the
consideration to be paid for such shares.
(158)
<PAGE> 6
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the Plan
and shall be drawn from either the Corporation's authorized but unissued shares
of Common Stock or from reacquired shares of Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of shares
of Common Stock which may be issued over the term of the Plan shall not exceed
7,600,000 shares, subject to adjustment from time to time in accordance with the
provisions of this Section VI.
B. In no event may the aggregate number of shares of Common Stock for
which any one individual participating in the Plan may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
exceed 5,000,000 shares over the term of the Plan.
C. Should one or more outstanding options under the Plan expire or
terminate for any reason prior to exercise in full (including any option
cancelled in accordance with the cancellation-regrant provisions of Section IV
of Article Two), then the shares subject to the portion of each option not so
exercised shall be available for subsequent issuance under the Plan. Shares
subject to any option or portion thereof surrendered in accordance with the
stock appreciation right provisions of the Plan and all share issuances under
the Plan, whether or not the shares are subsequently repurchased by the
Corporation pursuant to its repurchase rights under the Plan, shall reduce on a
share-for-share basis the number of shares of Common Stock available for
subsequent issuance under the Plan. In addition, should the exercise price of an
outstanding option under the Plan be paid with shares of Common Stock or should
shares of Common Stock otherwise issuable under the Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection with
the exercise of an outstanding option under the Plan or the vesting of a share
issuance under the Plan, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced by the gross number of shares for which
the option is exercised or which vest under the share issuance, and not by the
net number of shares of Common Stock actually issued to the holder of such
option or share issuance.
D. Should any change be made to the Common Stock issuable under the Plan
by reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one individual participating in the Plan may be granted
stock options, separately exercisable stock appreciation rights and direct stock
issuances in the aggregate over the term of the Plan, (iii) the number and/or
class of securities for which automatic option grants are to be subsequently
made per newly elected or continuing non-employee Board member under the
Automatic Option Grant Program and (iv) the number and/or class of securities
and price per share in effect under each option outstanding under the Plan. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant Program shall be
authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Options or Non-Statutory
Options. Individuals who are not Employees may only be granted Non-Statutory
Options. Each granted option shall be evidenced by one or more instruments in
the form approved by the Plan Administrator; provided, however, that each such
instrument shall comply with the terms and conditions specified below. Each
instrument evidencing an Incentive Option shall, in addition, be subject to the
applicable provisions of Section II of this Article Two.
(159)
<PAGE> 7
A. Exercise Price.
1. The exercise price per share under this Article Two shall be fixed by
the Plan Administrator in accordance with the following provisions:
The exercise price per share of Common Stock subject to an Incentive
Option shall in no event be less than one hundred percent (100%) of the
Fair Market Value of such Common Stock on the grant date.
The exercise price per share of Common Stock subject to a
Non-Statutory Option shall in no event be less than eighty-five percent
(85%) of the Fair Market Value of such Common Stock on the grant date.
2. The exercise price shall become immediately due upon exercise of the
option and, subject to the provisions of Section I of Article Six and the
instrument evidencing the grant, shall be payable in one of the alternative
forms specified below:
(i) full payment in cash or check made payable to the Corporation's
order,
(ii) full payment in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date,
(iii) full payment in a combination of shares of Common Stock held for
the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market Value
on the Exercise Date and cash or check made payable to the Corporation's
order, or
(iv) to the extent the option is exercised for vested shares, full
payment through a broker-dealer sale and remittance procedure pursuant to
which the Optionee shall provide concurrent irrevocable written
instructions (I) to a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of
the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares plus
all applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation in connection with such purchase
and (II) to the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale
transaction.
B. Term and Exercise of Options. Each option granted under this Article
Two shall be exercisable at such time or times, during such period and for such
number of shares as shall be determined by the Plan Administrator and set forth
in the instrument evidencing such option. No granted option shall, however, have
a maximum term in excess of ten (10) years. During the lifetime of the Optionee,
the option, together with any stock appreciation rights pertaining to such
option, shall be exercisable only by the Optionee and shall not be assignable or
transferable other than by transfer of the option effected by will or by the
laws of descent and distribution following the Optionee's death.
C. Termination of Service.
1. Should an Optionee cease Service for any reason (including death or
Permanent Disability) while holding one or more outstanding options under this
Article Two, then none of those options shall (except to the extent otherwise
provided pursuant to subparagraph 7 below) remain exercisable for more than a
thirty-six (36)-month period (or such shorter period determined by the Plan
Administrator and set forth in the instrument evidencing the grant) measured
from the date of such cessation of Service.
2. Any option held by the Optionee under this Article Two and exercisable
in whole or in part on the date of his or her death may be subsequently
exercised by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution. However, the
right to exercise such option shall lapse upon the earlier of (i) the third
anniversary of the date of the Optionee's death (or such shorter period
determined by the Plan Administrator and set forth in the instrument evidencing
the grant) or (ii) the specified expiration
(160)
<PAGE> 8
date of the option term. Accordingly, upon the occurrence of the earlier event,
the option shall terminate and cease to remain outstanding.
3. Under no circumstances shall any such option be exercisable after the
specified expiration date of the option term.
4. During the applicable post-Service exercise period, the option may not
be exercised in the aggregate for more than the number of shares (if any) in
which the Optionee is vested at the time of his or her cessation of Service.
Upon the expiration of the limited post-Service exercise period or (if earlier)
upon the specified expiration date of the option term, each such option shall
terminate and cease to remain outstanding with respect to any vested shares for
which the option has not otherwise been exercised. However, each outstanding
option shall immediately terminate and cease to remain outstanding, at the time
of the Optionee's cessation of Service, with respect to any shares for which the
option is not otherwise at that time exercisable or in which the Optionee is not
otherwise vested.
5. Should the Optionee's Service be terminated for Misconduct, all
outstanding options held by the Optionee under this Article Two shall terminate
immediately and cease to remain outstanding.
6. The Plan Administrator shall have complete discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to permit one or more options held by the Optionee under this
Article Two to be exercised, during the limited post-Service exercise period
applicable under this Section I.C, not only with respect to the number of vested
shares of Common Stock for which each such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
subsequent installments of vested shares for which the option would otherwise
have become exercisable had such cessation of Service not occurred.
7. The Plan Administrator shall have full power and authority, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service or death from the
limited period in effect under subparagraphs 1 and 2 above to such greater
period of time as the Plan Administrator shall deem appropriate. In no event,
however, shall such option be exercisable after the specified expiration date of
the option term.
D. Stockholder Rights. An Optionee shall have none of the rights of a
stockholder with respect to any option shares until such individual shall have
exercised the option and paid the exercise price for the purchased shares.
E. Repurchase Rights. The shares of Common Stock acquired under this
Article Two may be subject to repurchase by the Corporation in accordance with
the following provisions:
1. The Plan Administrator shall have the discretion to grant options
for unvested shares of Common Stock under this Article Two. Should the
Optionee cease Service while holding any unvested shares purchased under
such options, then the Corporation shall have the right to repurchase any
or all of those unvested shares at the exercise price paid per share. The
terms and conditions upon which such repurchase right shall be exercisable
(including the period and procedure for exercise and the appropriate
vesting schedule for the purchased shares) shall be established by the Plan
Administrator and set forth in the instrument evidencing such repurchase
right.
2. All of the Corporation's outstanding repurchase rights under this
Article Two shall automatically terminate, and all shares subject to such
terminated rights shall immediately vest in full, upon the occurrence of a
Corporate Transaction, except to the extent: (i) any such repurchase right
is expressly assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction or (ii) such accelerated vesting
is precluded by other limitations imposed by the Plan Administrator at the
time the repurchase right is issued. However, to the extent any of the
Corporation's repurchase rights with respect to the unvested shares held by
an Optionee are assigned in the Corporate Transaction pursuant to clause
(i) above, those repurchase rights shall subsequently terminate, and all
the shares subject to the terminated rights shall immediately vest in full,
upon the Involuntary Termination of the
(161)
<PAGE> 9
Optionee's Service (other than for Misconduct) within eighteen (18) months
after the effective date of the Corporate Transaction.
3. The Plan Administrator shall have the discretionary authority,
exercisable either before or after the Optionee's cessation of Service, to
cancel the Corporation's outstanding repurchase rights with respect to one
or more shares purchased or purchasable by the Optionee under this Article
Two and thereby accelerate the vesting of such shares in whole or in part
at any time.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees. Options which are specifically
designated as Non-Statutory Options when issued under the Plan shall not be
subject to such terms and conditions.
A. Dollar Limitation. The aggregate Fair Market Value (determined as of
the respective date or dates of grant) of the Common Stock for which one or more
options granted to any Employee under this Plan (or any other option plan of the
Corporation or its parent or subsidiary corporations) may for the first time
become exercisable as incentive stock options under the Federal tax laws during
any one calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as incentive stock options
under the Federal tax laws shall be applied on the basis of the order in which
such options are granted. Should the number of shares of Common Stock for which
any Incentive Option first becomes exercisable in any calendar year exceed the
applicable One Hundred Thousand Dollar ($100,000) limitation, then the option
may nevertheless be exercised in that calendar year for the excess number of
shares as a non-statutory option under the Federal tax laws.
B. 10% Stockholder. If any individual to whom an Incentive Option is
granted is the owner of stock (as determined under Section 424(d) of the Code)
possessing ten percent (10%) or more of the total combined voting power of all
classes of stock of the Corporation or any one of its parent or subsidiary
corporations, then the exercise price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value per share of Common Stock on
the grant date and the option term shall not exceed five (5) years measured from
the grant date.
Except as modified by the preceding provisions of this Section II, the
provisions of Articles One, Two and Six shall apply to all Incentive Options
granted hereunder.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each option which is at the
time outstanding under this Article Two shall automatically accelerate so that
each such option shall, immediately prior to the specified effective date for
such Corporate Transaction, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for all or any portion of such shares. However, an outstanding option
under this Article Two shall not so accelerate if and to the extent: (i) such
option is, in connection with the Corporate Transaction, either to be assumed by
the successor corporation or parent thereof or to be replaced with a comparable
option to purchase shares of the capital stock of the successor corporation or
parent thereof, (ii) such option is to be replaced with a cash incentive program
of the successor corporation which preserves the option spread existing at the
time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such option or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant. However, upon an Optionee's
cessation of Service by reason of an Involuntary Termination (other than for
Misconduct) within eighteen (18) months after a Corporate Transaction in which
his or her outstanding options are assumed or replaced pursuant to clause (i)
above, each such option shall automatically accelerate and become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares. The option as so accelerated shall remain exercisable until the earlier
of (i) the expiration of the
(162)
<PAGE> 10
option term or (ii) the expiration of the one (1)-year period measured from the
date of such Involuntary Termination. The determination of option comparability
under clause (i) above shall be made by the Plan Administrator, and its
determination shall be final, binding and conclusive.
B. Immediately following the consummation of the Corporate Transaction,
all outstanding options under this Article Two shall terminate and cease to
remain outstanding, except to the extent assumed by the successor corporation or
its parent company.
C. Each outstanding option under this Article Two that is assumed in
connection with the Corporate Transaction or is otherwise to continue in effect
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply and pertain to the number and class of securities which would have been
issued to the option holder, in consummation of such Corporate Transaction, had
such person exercised the option immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the exercise price
payable per share, provided the aggregate exercise price payable for such
securities shall remain the same. In addition, the class and number of
securities available for issuance under the Plan on both an aggregate and
participant basis following the consummation of the Corporate Transaction shall
be appropriately adjusted.
D. The Plan Administrator shall have the discretionary authority,
exercisable either in advance of any actually anticipated Change in Control or
at the time of an actual Change in Control, to provide for the automatic
acceleration of one or more outstanding options under this Article Two (and the
termination of one or more of the Corporation's outstanding repurchase rights
under this Article Two) upon the occurrence of the Change in Control. The Plan
Administrator shall also have full power and authority to condition any such
option acceleration (and the termination of any outstanding repurchase rights)
upon the subsequent termination of the Optionee's Service within a specified
period following the Change in Control.
E. Any options accelerated in connection with the Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term or the surrender of such option in accordance with Section V of this
Article Two.
F. The grant of options under this Article Two shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
G. The portion of any Incentive Option accelerated under this Section III
in connection with a Corporate Transaction or Change in Control shall remain
exercisable as an incentive stock option under the Federal tax laws only to the
extent the dollar limitation of Section II of this Article Two is not exceeded.
To the extent such dollar limitation is exceeded, the accelerated portion of
such option shall be exercisable as a non-statutory option under the Federal tax
laws.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Primary Committee shall have the sole and exclusive authority to
effect, at any time and from time to time, with the consent of the affected
Optionees, the cancellation of any or all outstanding options under this Article
Two and to grant in substitution new options under the Plan covering the same or
different numbers of shares of Common Stock but with an exercise price per share
based upon the Fair Market Value of the Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. One or more Optionees may be granted the right, exercisable upon such
terms and conditions as the Plan Administrator may establish, to surrender all
or part of an unexercised option under this Article Two in exchange for a
distribution from the Corporation in an amount equal to the excess of (i) the
Fair Market Value (on the option surrender date) of the number of shares in
which the Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (ii) the aggregate exercise price payable for
such vested shares.
(163)
<PAGE> 11
B. No such option surrender shall be effective unless it is approved by
the Plan Administrator. If the surrender is so approved, then the distribution
to which the Optionee shall accordingly become entitled under this Section V may
be made in shares of Common Stock valued at Fair Market Value on the option
surrender date, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Plan Administrator,
then the Optionee shall retain whatever rights the Optionee had under the
surrendered option (or surrendered portion thereof) on the option surrender date
and may exercise such rights at any time prior to the later of (i) five (5)
business days after the receipt of the rejection notice or (ii) the last day on
which the option is otherwise exercisable in accordance with the terms of the
instrument evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the date of the option grant.
D. One or more officers of the Corporation subject to the short-swing
profit restrictions of the Federal securities laws may, in the Primary
Committee's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Article Two. Upon the
occurrence of a Hostile Take-Over, each such officer holding one or more options
with such a limited stock appreciation right in effect for at least six (6)
months shall have the unconditional right (exercisable for a thirty (30)-day
period following such Hostile Take-Over) to surrender each such option to the
Corporation, to the extent the option is at the time exercisable for fully
vested shares of Common Stock. The officer shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Take-Over Price of the vested shares of Common Stock at the time subject to each
surrendered option (or surrendered portion of such option) over (ii) the
aggregate exercise price payable for such vested shares. Such cash distribution
shall be made within five (5) days following the option surrender date. Neither
the approval of the Plan Administrator nor the consent of the Board shall be
required in connection with such option surrender and cash distribution. Any
unsurrendered portion of the option shall continue to remain outstanding and
become exercisable in accordance with the terms of the instrument evidencing
such grant.
E. The shares of Common Stock subject to any option surrendered for an
appreciation distribution pursuant to this Section V shall NOT be available for
subsequent issuance under the Plan.
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
A. Eligible Optionees. The individuals eligible to receive automatic
option grants pursuant to the provisions of this Article Three shall be limited
to (i) those individuals who are serving as non-employee Board members on the
Effective Date, (ii) those individuals who are first elected or appointed as
non-employee Board members after the Effective Date, whether through appointment
by the Board or election by the Corporation's stockholders, and (iii) those
individuals who continue to serve as non-employee Board members at one or more
Annual Stockholder Meetings held after the Effective Date. Any non-employee
Board member eligible to participate in the Automatic Option Grant Program
pursuant to the foregoing criteria shall be designated an Eligible Director for
purposes of this Article Three.
B. Limitation. Except for the option grants to be made pursuant to the
provisions of this Automatic Option Grant Program and the special option grant
to be made to Mr. Carter under Article Four, non-employee Board members shall
not be eligible to receive any additional option grants or stock issuances under
this Plan or any other stock plan of the Corporation (or its parent or
subsidiaries).
(164)
<PAGE> 12
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Option grants shall be made under this Article Three on
the dates specified below:
1. Each individual serving as an Eligible Director on the Effective
Date (other than Tommy H. Carter) shall automatically be granted on such
date a Non-Statutory Option to purchase 75,000 shares of Common Stock upon
the terms and conditions of this Article Three.
2. Each individual who first becomes an Eligible Director after the
Effective Date, whether through election by the Corporation's stockholders
or appointment by the Board, shall automatically be granted, at the time of
such initial election or appointment, a Non-Statutory Option to purchase
75,000 shares of Common Stock upon the terms and conditions of this Article
Three.
3. On the date of each Annual Stockholders Meeting held after the
Effective Date, each individual who is thereafter to continue to serve as
an Eligible Director, whether or not such individual is standing for
re-election as a Board member at that particular meeting, shall
automatically be granted a Non-Statutory Option to purchase an additional
2,500 shares of Common Stock upon the terms and conditions of this Article
Three, provided such individual has served as a Board member for at least
six (6) months.
B. No Limitation. There shall be no limit on the number of such
2,500-share annual option grants any one Eligible Director may receive over his
or her period of Board service. The number of shares for which the automatic
option grants are to be made to newly elected or continuing Eligible Directors
shall be subject to periodic adjustment pursuant to the applicable provisions of
Section VI.E. of Article One.
C. Exercise Price. The exercise price per share of Common Stock of each
automatic option grant made under this Article Three shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
automatic grant date.
D. Payment. The exercise price shall be payable in one of the alternative
forms specified in Section I.A.2 of Article Two. To the extent the option is
exercised for any unvested shares, the Optionee must execute and deliver to the
Corporation a stock purchase agreement for those unvested shares which provides
the Corporation with the right to repurchase, at the exercise price paid per
share, any unvested shares held by the Optionee at the time of cessation of
Board service and which precludes the sale, transfer or other disposition of any
shares purchased under the option, to the extent those shares are subject to the
Corporation's repurchase right.
E. Option Term. Each automatic grant under this Article Three shall have a
maximum term of ten (10) years measured from the automatic grant date.
F. Exercisability/Vesting. Each automatic grant shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares in accordance with the applicable schedule
below:
- Each initial 75,000-share automatic grant shall vest, and the
Corporation's repurchase right shall lapse, with respect to (i) twenty-five
percent (25%) of the option shares upon the Optionee's completion of one
(1) year of Board service measured from the automatic grant date and (ii)
the balance of the option shares in equal successive monthly installments
over the next thirty-six (36) months of continued Board service thereafter.
- Each additional 2,500-share automatic grant shall vest, and the
Corporation's repurchase right shall lapse, in a series of twelve (12)
equal and successive monthly installments over the Optionee's period of
continued service as a Board member, with the first such installment to
vest upon the Optionee's completion of one (1) month of Board service
measured from the automatic grant date.
Vesting of the option shares shall be subject to acceleration as provided
in Section II.H.3 and Section III of this Article Three. In no event shall any
additional option shares vest after the Optionee's cessation of Board service,
except as otherwise provided pursuant to Section II.H.3 of this Article Three.
(165)
<PAGE> 13
G. Non-Transferability. During the lifetime of the Optionee, the automatic
option grant, together with the limited stock appreciation right pertaining to
such option, shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by transfer of the option effected by will
or by the laws of descent and distribution following the Optionee's death.
H. Termination of Board Service.
1. Should the Optionee cease to serve as a Board member for any reason
(other than death or Permanent Disability) while holding one or more automatic
option grants under this Article Three, then such individual shall have a six
(6)-month period following the date of such cessation of Board service in which
to exercise each such option for any or all of the option shares in which the
Optionee is vested at the time of such cessation of Board service. However, each
such option shall immediately terminate and cease to remain outstanding, at the
time of such cessation of Board service, with respect to any option shares in
which the Optionee is not otherwise at that time vested under such option.
2. Should the Optionee die within six (6) months after cessation of Board
service, then any automatic option grant held by the Optionee at the time of
death may subsequently be exercised, for any or all of the option shares in
which the Optionee is vested at the time of his or her cessation of Board
service (less any option shares subsequently purchased by the Optionee prior to
death), by the personal representative of the Optionee's estate or by the person
or persons to whom the option is transferred pursuant to the Optionee's will or
in accordance with the laws of descent and distribution. The right to exercise
each such option shall lapse upon the expiration of the twelve (12)-month period
measured from the date of the Optionee's death.
3. Should the Optionee die or become Permanently Disabled while serving as
a Board member, then the shares of Common Stock at the time subject to each
automatic option grant held by the Optionee shall immediately vest in full (and
the Corporation's repurchase right with respect to such shares shall terminate),
and the Optionee (or the representative of the Optionee's estate or the person
or persons to whom the option is transferred upon the Optionee's death) shall
have a twelve (12)-month period following the date of the Optionee's cessation
of Board service in which to exercise such option for any or all of those vested
shares of Common Stock.
4. In no event shall any automatic grant under this Article Three remain
exercisable after the expiration date of the ten (10)-year option term. Upon the
expiration of the applicable post-service exercise period under subparagraphs 1
through 3 above or (if earlier) upon the expiration of the ten (10)-year option
term, the automatic grant shall terminate and cease to be outstanding for any
option shares in which the Optionee was vested at the time of his or her
cessation of Board service but for which such option was not otherwise
exercised.
I. Stockholder Rights. The holder of an automatic option grant under this
Article Three shall have none of the rights of a stockholder with respect to any
shares subject to that option until such individual shall have exercised the
option and paid the exercise price for the purchased shares.
J. Remaining Terms. The remaining terms and conditions of each automatic
option grant shall be as set forth in the form Automatic Stock Option Agreement
attached as Exhibit A to the Plan.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common Stock
at the time subject to each outstanding option under this Article Three but not
otherwise vested shall automatically vest in full and the Corporation's
repurchase right with respect to those shares shall terminate, so that each such
option shall, immediately prior to the specified effective date for the
Corporate Transaction, become fully exercisable for all of the shares of Common
Stock at the time subject to that option and may be exercised for all or any
portion of such shares as fully vested shares of Common Stock. Each such
outstanding option shall be assumed by the successor corporation and remain
fully exercisable until the expiration or sooner termination of the option term,
whether or not the Optionee continues in Board service.
(166)
<PAGE> 14
B. In connection with any Change in Control of the Corporation, the shares
of Common Stock at the time subject to each outstanding option under this
Article Three but not otherwise vested shall automatically vest in full and the
Corporation's repurchase right with respect to those shares shall terminate, so
that each such option shall, immediately prior to the specified effective date
for the Change in Control, become fully exercisable for all of the shares of
Common Stock at the time subject to that option and may be exercised for all or
any portion of such shares as fully vested shares of Common Stock. Each option
shall remain so exercisable until the expiration or sooner termination of the
option term, whether or not the Optionee continues in Board service.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each option held
by him or her under this Article Three for a period of at least six (6) months.
The Optionee shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock at the time subject to the surrendered option (whether or
not the Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. Neither the approval of the Plan Administrator nor the consent of
the Board shall be required in connection with such option surrender and cash
distribution. The shares of Common Stock subject to each option surrendered in
connection with the Hostile Take-Over shall NOT be available for subsequent
issuance under the Plan.
D. The automatic option grants outstanding under this Article Three shall
in no way affect the right of the Corporation to adjust, reclassify, reorganize
or otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
The provisions of this Automatic Option Grant Program, together with the
automatic option grants outstanding under this Article Three, may not be amended
at intervals more frequently than once every six (6) months, other than to the
extent necessary to comply with applicable Federal income tax laws and
regulations.
ARTICLE FOUR
INITIAL OPTION GRANTS
I. INITIAL OPTION GRANTS
The Board hereby authorizes the grant of a Non-Statutory Option to each of
the following individuals to purchase the number of shares of Common Stock
specified below for him upon the terms and conditions of this Article Four. Each
grant hereby authorized shall be made pursuant to the provisions of the
Discretionary Option Grant Program and shall become effective on the Effective
Date.
<TABLE>
<CAPTION>
INDIVIDUAL NUMBER OF OPTION SHARES
- ------------------ -----------------------
<S> <C>
Tommy H. Carter 94,500 shares
Charles A. Laverty 100,000 shares
James M. Sweeney 3,000,000 shares
</TABLE>
II. TERMS AND CONDITIONS OF INITIAL OPTION GRANTS
A. Exercise Price. The exercise price per share of Common Stock subject to
each option grant made pursuant to this Article Four shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
Effective Date.
B. Option Term. Each such option grant shall have a maximum term of ten
(10) years measured from the Effective Date.
(167)
<PAGE> 15
C. Exercisability. The option grant to Tommy Carter shall become
exercisable for the shares of Common Stock subject to that grant in a series of
successive equal annual installments upon Mr. Carter's completion of each year
of Service over the three (3)-year period measured from the Effective Date. The
option grant to Charles A. Laverty M. Sweeney shall be immediately exercisable
for any or all of the option shares as fully-vested shares of Common Stock. The
option grant to James M. Sweeney shall be immediately exercisable for any or all
of the option shares. However, any shares purchased under such option shall be
subject to repurchase by the Corporation, at the exercise price paid per share,
upon Mr. Sweeney's cessation of Board service prior to vesting in those shares.
The option shall vest with respect to (i) twenty-five percent (25%) of the
option shares upon Mr. Sweeney's completion of one (1) year of Board service
measured from the Effective Date and (ii) the balance of the option shares in
equal successive monthly installments over the next thirty-six (36) months of
continued Board service thereafter.
D. Remaining Terms. The remaining terms and conditions of the option
grants to Messrs. Carter. Laverty and Sweeney shall be substantially the same as
those in effect for all other option grants to be made under the Discretionary
Option Grant Program and shall be as set forth in the Special Stock Option
Agreements attached to the Plan as Exhibit B (for Mr. Carter), Exhibit C (for
Mr. Laverty) and Exhibit D (for Mr. Sweeney). In the event the Plan is not
approved by the stockholders of each of the Constituent Corporations prior to
the Effective Date, the option grants authorized under this Article Four shall
not become effective.
ARTICLE FIVE
STOCK ISSUANCE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate purchases without any intervening stock option
grants. The issued shares shall be evidenced by a Stock Issuance Agreement
("Issuance Agreement") that complies with the terms and conditions of this
Article Five.
A. Consideration
1. Newly Issued Shares shall be issued under the Stock Issuance Program
for one or more of the following items of consideration that the Plan
Administrator may deem appropriate in each individual instance:
(i) full payment in cash or check made payable to the Corporation's
order,
(ii) a promissory note payable to the Corporation's order in one or
more installments, which may be subject to cancellation in whole or in part
upon terms and conditions established by the Plan Administrator, or
(iii) past services rendered to the Corporation or any parent or
subsidiary corporation.
2. Newly Issued Shares may, in the absolute discretion of the Plan
Administrator, be issued for consideration with a value less than one hundred
percent (100%) of the Fair Market Value of such shares at the time of issuance,
but in no event less than eighty-five percent (85%) of such Fair Market Value.
3. Treasury Shares may be issued under the Stock Issuance Program for such
consideration (including one or more of the items of consideration specified in
subparagraph 1 above) as the Plan Administrator may deem appropriate, whether
such consideration is in an amount less than, equal to or greater than the Fair
Market Value of the Treasury Shares at the time of issuance. Treasury Shares
may, in lieu of any cash consideration, be issued subject to such vesting
requirements tied to the Participant's period of future Service or the
Corporation's attainment of specified performance objectives as the Plan
Administrator may establish at the time of issuance.
(168)
<PAGE> 16
B. Vesting Provisions
1. The shares of Common Stock issued under the Stock Issuance Program
(other than shares issued in lieu of salary) may, in the absolute discretion of
the Plan Administrator, be fully and immediately vested upon issuance or may
vest in installments over the Participant's period of Service. The elements of
the vesting schedule applicable to any unvested shares of Common Stock issued
under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant or the
performance objectives to be achieved by the Corporation,
(ii) the number of installments in which the shares are to vest,
(iii) the interval or intervals (if any) which are to lapse between
installments, and
(iv) the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the
Issuance Agreement executed by the Corporation and the Participant at the
time such unvested shares are issued.
2. The Participant shall have full stockholder rights with respect to any
shares of Common Stock issued to him or her under the Stock Issuance Program,
whether or not his or her interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive any regular
cash dividends paid on such shares. Any new, additional or different shares of
stock or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
his or her unvested shares by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued, subject to (i) the same vesting
requirements applicable to the Participant's unvested shares and (ii) such
escrow arrangements as the Plan Administrator shall deem appropriate.
3. Should the Participant cease to remain in Service while holding one or
more unvested shares of Common Stock under the Stock Issuance Program, then
those shares shall be immediately surrendered to the Corporation for
cancellation, and the Participant shall have no further stockholder rights with
respect to those shares. To the extent the surrendered shares were previously
issued to the Participant for consideration paid in cash or cash equivalent
(including the Participant's purchase-money promissory note), the Corporation
shall repay to the Participant the cash consideration paid for the surrendered
shares and shall cancel the unpaid principal balance of any outstanding
purchase-money note of the Participant attributable to such surrendered shares.
The surrendered shares may, at the Plan Administrator's discretion, be retained
by the Corporation as Treasury Shares or may be retired to authorized but
unissued share status.
4. The Plan Administrator may in its discretion elect to waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to such shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. Upon the occurrence of any Corporate Transaction, all unvested shares
of Common Stock at the time outstanding under this Stock Issuance Program shall
immediately vest in full and the Corporation's repurchase rights shall
terminate, except to the extent: (i) any such repurchase right is expressly
assigned to the successor corporation (or parent thereof) in connection with the
Corporate Transaction or (ii) such termination is precluded by other limitations
imposed in the Issuance Agreement. However, to the extent any of the
Corporation's repurchase rights with respect to the unvested shares held by a
Participant are assigned in the Corporate Transaction pursuant to clause (i)
above, those repurchase rights shall subsequently terminate,
(169)
<PAGE> 17
and all the shares subject to the terminated rights shall immediately vest in
full, upon the Involuntary Termination of the Participant's Service (other than
for Misconduct) within eighteen (18) months after the effective date of the
Corporate Transaction.
B. The Plan Administrator shall have the discretionary authority,
exercisable either in advance of any actually anticipated Change in Control or
at the time of an actual Change in Control, to provide for the immediate and
automatic vesting of one or more unvested shares outstanding under the Stock
Issuance Program, and the termination of the Corporation's repurchase rights
with respect to those shares, at the time of such Change in Control. The Plan
Administrator shall also have full power and authority to condition any such
accelerated vesting upon the subsequent termination of the Participant's Service
within a specified period following the Change in Control.
III. TRANSFER RESTRICTIONS/SHARE ESCROW
A. Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing such unvested shares. To the extent an escrow
arrangement is utilized, the unvested shares and any securities or other assets
issued with respect to such shares (other than regular cash dividends) shall be
delivered in escrow to the Corporation to be held until the Participant's
interest in such shares (or other securities or assets) vests. Alternatively, if
the unvested shares are issued directly to the Participant, the restrictive
legend on the certificates for such shares shall read substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND ARE SUBJECT TO
(I) CERTAIN TRANSFER RESTRICTIONS AND (II) CANCELLATION OR REPURCHASE IN THE
EVENT THE REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) CEASES TO
REMAIN IN THE CORPORATION'S SERVICE. SUCH TRANSFER RESTRICTIONS AND THE TERMS
AND CONDITIONS OF SUCH CANCELLATION OR REPURCHASE ARE SET FORTH IN A STOCK
ISSUANCE AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER (OR HIS/HER
PREDECESSOR IN INTEREST) DATED , 199 , A COPY OF WHICH IS ON FILE
AT THE PRINCIPAL OFFICE OF THE CORPORATION."
B. The Participant shall have no right to transfer any unvested shares of
Common Stock issued to him or her under the Stock Issuance Program. For purposes
of this restriction, the term "transfer" shall include (without limitation) any
sale, pledge, assignment, encumbrance, gift, or other disposition of such
shares, whether voluntary or involuntary. Upon any such attempted transfer, the
unvested shares shall immediately be cancelled in accordance with substantially
the same procedures in effect under Section I.B.3 of this Article Five, and
neither the Participant nor the proposed transferee shall have any rights with
respect to such cancelled shares. However, the Participant shall have the right
to make a gift of unvested shares acquired under the Stock Issuance Program to
the Participant's spouse or issue, including adopted children, or to a trust
established for such spouse or issue, provided the donee of such shares delivers
to the Corporation a written agreement to be bound by all the provisions of the
Stock Issuance Program and the Issuance Agreement.
ARTICLE SIX
MISCELLANEOUS
I. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any Optionee or
Participant, to the extent such Optionee or Participant is an Employee
(including an Optionee or Participant who is an officer of the Corporation), in
the exercise of one or more options granted to such Optionee under the
Discretionary Option Grant Program or the purchase of one or more shares issued
to such Participant under the Stock Issuance Program, including the satisfaction
of any Federal, state and local income and employment tax obligations arising
therefrom, by (i) authorizing the extension of a loan from the Corporation to
such Optionee or
(170)
<PAGE> 18
Participant or (ii) permitting the Optionee or Participant to pay the exercise
price or purchase price for the purchased shares in installments over a period
of years. The terms of any loan or installment method of payment (including the
interest rate and terms of repayment) shall be upon such terms as the Plan
Administrator specifies in the applicable option or issuance agreement or
otherwise deems appropriate under the circumstances. Loans or installment
payments may be authorized with or without security or collateral. However, the
maximum credit available to the Optionee or Participant may not exceed the
exercise or purchase price of the acquired shares (less the par value of such
shares) plus any Federal, state and local income and employment tax liability
incurred by the Optionee or Participant in connection with the acquisition of
such shares.
B. The Plan Administrator may, in its absolute discretion, determine that
one or more loans extended under this financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator may deem appropriate.
II. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to amend or
modify the Plan (or any component thereof) in any or all respects whatsoever.
However, (i) no such amendment or modification shall adversely affect rights and
obligations with respect to stock options or unvested stock issuances at the
time outstanding under the Plan, unless the Optionee or Participant consents to
such amendment, and (ii) any amendment made to the Automatic Option Grant
Program (or any options outstanding thereunder) shall be in compliance with the
applicable limitations of Section IV of Article Three or Section III of Article
Four. In addition, the Board may not, without the approval of the Corporation's
stockholders, amend the Plan to (i) materially increase the maximum number of
shares issuable under the Plan, the number of shares for which options may be
granted to newly elected or continuing non-employee Board members under Article
Three or the maximum number of shares for which any one individual participating
in the Plan may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances in the aggregate over the term of
the Plan, except for permissible adjustments under Section VI.E. of Article One,
(ii) materially modify the eligibility requirements for plan participation or
(iii) materially increase the benefits accruing to Optionees or Participants.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program, which are in excess of the number of shares
then available for issuance under the Plan, provided any excess shares actually
issued under the Discretionary Option Grant or Stock Issuance Program are held
in escrow until stockholder approval is obtained for a sufficient increase in
the number of shares available for issuance under the Plan. If such stockholder
approval is not obtained within twelve (12) months after the date the first such
excess option grants or excess share issuances are made, then (i) any
unexercised excess options shall terminate and cease to be exercisable and (ii)
the Corporation shall promptly refund the purchase price paid for any excess
shares actually issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon the
exercise of stock options or the direct issuance or vesting of such shares under
the Plan shall be subject to the satisfaction of all applicable Federal, state
and local income tax and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion and in accordance with
the provisions of this Section III and such supplemental rules as the Plan
Administrator may from time to time adopt (including the applicable safe-harbor
provisions of Securities and Exchange Commission Rule 16b-3), provide any or all
holders of Non-Statutory Options (other than the options granted pursuant to
Article Three or Article Four) or unvested shares under the Plan with the right
to use shares of Common Stock in satisfaction of all or part of the Federal,
state and local income and employment tax liabilities (the "Taxes") incurred by
such holders in
(171)
<PAGE> 19
connection with the exercise of their options or the vesting of their shares.
Such right may be provided to any such holder in either or both of the following
formats:
- Stock Withholding: The holder of the Non-Statutory Option or unvested
shares may be provided with the election to have the Corporation withhold, from
the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Taxes (up to
one hundred percent (100%)) specified by such holder.
- Stock Delivery: The holder of the Non-Statutory Option or the unvested
shares may be provided with the election to deliver to the Corporation, at the
time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock already held by such individual (other than in connection
with the option exercise or share vesting triggering the Taxes) with an
aggregate Fair Market Value equal to the percentage of the Taxes (up to one
hundred percent (100%)) specified by such holder.
IV. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan was adopted by the board of directors of each Constituent
Corporation prior to the Effective Date, subject to the approval of the
stockholders of each Constituent Corporation at the special stockholders meeting
separately held by each such corporation on June , 1994. The initial automatic
option grants under Article Four and the special option grants under Article
Five are to be made on the Effective Date, and the initial discretionary option
grants under Article Two and share issuances under Article Five may also be made
on the Effective Date.
B. The Plan shall terminate upon the earlier of (i) December 31, 2003 or
(ii) the date on which all shares available for issuance under the Plan shall
have been issued or cancelled pursuant to the exercise of options or stock
appreciation rights granted under the Plan or the issuance of shares (whether
vested or unvested) under the Stock Issuance Program. If the date of termination
is determined under clause (i) above, then all option grants and unvested stock
issuances outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the instruments evidencing such
grants or issuances.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants or stock issuances under the Plan shall be used for
general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or stock
appreciation right under the Plan, the issuance of any shares under the Stock
Issuance Program, and the issuance of Common Stock upon the exercise or
surrender of the option grants made hereunder shall be subject to the
Corporation's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the options granted under it and
the Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any securities exchange on which the Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor any
action taken by the Plan Administrator hereunder, nor any provision of the Plan
shall be construed so as to grant any individual the right to remain in the
Service of the Corporation (or any parent or subsidiary corporation) for any
period of specific duration, and the Corporation (or any parent or subsidiary
corporation retaining the services of such individual) may terminate such
individual's Service at any time and for any reason, with or without cause.
(172)
<PAGE> 20
EXHIBIT A
AUTOMATIC STOCK OPTION AGREEMENT
CORAM HEALTHCARE CORPORATION
AUTOMATIC STOCK OPTION AGREEMENT
RECITALS
A. The Corporation has approved an automatic option grant program under
the 1994 Stock Option/ Stock Issuance Plan (the "Plan"), pursuant to which
special option grants are to be made to eligible members of the Corporation's
Board of Directors (the "Board") at periodic intervals over their period of
Board service in order to encourage such individuals to remain in the
Corporation's service.
B. Optionee is an eligible Board member and this Agreement is executed
pursuant to, and is intended to carry out the purposes of, the Plan in
connection with the automatic grant of a stock option to purchase shares of the
Corporation's common stock ("Common Stock").
C. The granted option is intended to be a non-statutory option which does
not meet the requirements of Section 422 of the Internal Revenue Code and is
designed to provide Optionee with a meaningful incentive to continue to serve as
a member of the Board.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, the Corporation hereby grants to Optionee, as of
the date of grant (the "Grant Date") specified in the accompanying Notice
of Grant of Non-Employee Director Automatic Stock Option (the "Grant
Notice"), a stock option to purchase up to that number of shares of Common
Stock (the "Option Shares") as is specified in the Grant Notice. The Option
Shares shall be purchasable from time to time during the option term at the
price per share (the "Exercise Price") specified in the Grant Notice.
2. OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall expire at the close of
business on the Expiration Date specified in the Grant Notice, unless
sooner terminated under Paragraph 5, 7 or 8.
3. LIMITED TRANSFERABILITY. This option, together with the special
stock appreciation right provided under Paragraph 8.b, shall be neither
transferable nor assignable by Optionee, other than a transfer of this
option effected by will or by the laws of descent and distribution
following Optionee's death, and may be exercised, during Optionee's
lifetime, only by Optionee.
4. EXERCISABILITY. This option shall be immediately exercisable for
any or all of the Option Shares, whether or not the Option Shares are
vested in accordance with the Vesting Schedule set forth in the Grant
Notice, and shall remain so exercisable until the expiration or sooner
termination of the option term. In no event, however, shall any additional
Option Shares vest following Optionee's cessation of service as a Board
member.
5. CESSATION OF BOARD SERVICE. Should Optionee's service as a Board
member cease while this option remains outstanding, then the option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date in accordance with the following
provisions:
a. Upon Optionee's cessation of Board service for any reason other
than death or permanent disability, this option shall immediately
terminate and cease to be outstanding with respect to any and all Option
Shares in which Optionee is not otherwise at that time vested in
accordance with the normal Vesting Schedule set forth in the Grant
Notice or the special vesting acceleration provisions of Paragraph 7 or
8.
b. Should Optionee cease to serve as a Board member for any reason
(other than death or permanent disability) while holding this option,
then the period for exercising this option shall be
(173)
<PAGE> 21
reduced to a six (6)-month period commencing with the date of such
cessation of Board service, but in no event shall this option be
exercisable at any time after the Expiration Date. During such limited
period of exercisability, this option may not be exercised for more than
the number of Option Shares (if any) in which Optionee is vested on the
date Optionee ceases service as a Board member. Upon the earlier of (i)
the expiration of such six (6)-month period or (ii) the specified
Expiration Date, the option shall terminate and cease to be exercisable
with respect to any vested Option Shares for which the option has not
been exercised.
c. Should Optionee die during the six (6)-month period following
his or her cessation of Board service, then the personal representative
of Optionee's estate or the person or persons to whom the option is
transferred pursuant to Optionee's will or in accordance with the laws
of descent and distribution shall have the right to exercise this option
for any or all of the Option Shares in which Optionee is vested at the
time of Optionee's cessation of Board service (less any Option Shares
purchased by Optionee after such cessation of Board service but prior to
death). Such right of exercise shall terminate, and this option shall
accordingly cease to be exercisable for such vested Option Shares, upon
the earlier of (i) the expiration of the twelve (12)-month period
measured from the date of Optionee's death or (ii) the specified
Expiration Date.
d. Should Optionee die or become permanently disabled while serving
as a Board member, then all the Option Shares subject to this option at
the time of such cessation of Board service shall immediately vest, and
Optionee (or the personal representative of Optionee's estate or the
person or persons to whom the option is transferred pursuant to
Optionee's will or in accordance with the laws of descent and
distribution) shall have the right to exercise this option for any or
all of those vested Option Shares. Such right of exercise shall
terminate, and this option shall accordingly cease to be outstanding
with respect to the Option Shares, upon the earlier of (i) the
expiration of the twelve (12)-month period measured from the date on
which Optionee dies or becomes permanently disabled or (ii) the
specified Expiration Date.
e. Optionee shall be deemed to be PERMANENTLY DISABLED if Optionee
is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result
in death or to be of continuous duration of twelve (12) months or more.
f. In the event of a Corporate Transaction (as defined in Paragraph
7) or Change in Control (as defined in Paragraph 8), the provisions of
Paragraph 7 and 8.a shall govern the period for which this option shall
remain exercisable following Optionee's cessation of Board service and
shall supersede any provisions to the contrary in this Paragraph 5.
6. ADJUSTMENT IN OPTION SHARES.
a. Should any change be made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Common Stock as a class without the Corporation's receipt of consideration,
then the number and class of securities purchasable under this option and
the Exercise Price payable per share shall be appropriately adjusted to
prevent the dilution or enlargement of Optionee's rights hereunder;
provided, however, the aggregate Exercise Price shall remain the same.
b. Upon the assumption of this option in connection with any Corporate
Transaction under Paragraph 7, this option shall be appropriately adjusted
to apply and pertain to the number and class of securities which would have
been issued to Optionee in the consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the Exercise
Price payable per share, provided the aggregate Exercise Price payable
hereunder shall remain the same.
(174)
<PAGE> 22
7. CORPORATE TRANSACTION. In the event of any of the following
stockholder-approved transactions to which the Corporation is a party (a
"Corporate Transaction"):
(i) a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Corporation is incorporated,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation (including the
capital stock of the Corporation's subsidiary corporations) in complete
liquidation or dissolution of the Corporation, or
(iii) any reverse merger in which the Corporation is the surviving
entity but in which securities possessing more than fifty percent (50%)
of the total combined voting power of the Corporation's outstanding
securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such merger,
all Option Shares at the time subject to this option but not otherwise
vested shall automatically vest and the Corporation's repurchase right
shall terminate so that this option shall, immediately prior to the
specified effective date for the Corporate Transaction, become fully
exercisable for all of the Option Shares at the time subject to this option
and may be exercised for all or any portion of such shares as fully vested
shares of Common Stock. The option as so accelerated shall be assumed by
the successor corporation in the Corporate Transaction and shall remain
exercisable for such fully vested Option Shares, whether or not Optionee
continues in Board service, until the earlier of (i) the specified
Expiration Date or (ii) the surrender of this option under Paragraph 8.b.
8. CHANGE IN CONTROL/HOSTILE TAKEOVER.
a. All Option Shares subject to this option at the time of a Change in
Control (as defined below) but not otherwise vested shall automatically
vest and the Corporation's repurchase right shall terminate so that this
option shall, immediately prior to the effective date of such Change in
Control, become fully exercisable for all of the Option Shares at the time
subject to this option and may be exercised for all or any portion of such
shares as fully vested shares of Common Stock. This option shall remain
exercisable for such fully vested Option Shares, whether or not Optionee
continues in Board service, until the earlier to occur of (i) the specified
Expiration Date or (ii) the surrender of this option under Paragraph 8.b.
b. Provided this option has been outstanding for at least six (6)
months prior to the occurrence of a Hostile Take-Over (as defined below),
Optionee shall have an unconditional right (exercisable during the thirty
(30)-day period immediately following the consummation of such Hostile
Take-Over) to surrender this option to the Corporation in exchange for a
cash distribution from the Corporation in an amount equal to the excess of
(i) the Take-Over Price (as defined below) of the Option Shares at the time
subject to the surrendered option (whether or not those Option Shares are
at the time vested) over (ii) the aggregate Exercise Price payable for such
shares.
To exercise this limited stock appreciation right, Optionee must,
during the applicable thirty (30)-day exercise period, provide the
Corporation with written notice of the option surrender in which there is
specified the number of Option Shares as to which the Option is being
surrendered. Such notice must be accompanied by the return of Optionee's
copy of this Agreement, together with any written amendments to such
Agreement. The cash distribution shall be paid to Optionee within five (5)
days following such delivery date, and neither the approval of the Plan
Administrator nor the consent of the Board shall be required in connection
with such option surrender and cash distribution. Upon receipt of such cash
distribution, this option shall be cancelled with respect to the shares
subject to the surrendered option (or the surrendered portion), and
Optionee shall cease to have any further right to acquire those Option
Shares under this Agreement. In the event this option is surrendered for
only a portion of the Option Shares at the time subject thereto, the
Corporation shall issue a new stock option agreement (substantially in the
form of this Agreement) for the balance of the Option Shares for which this
option is not surrendered.
(175)
<PAGE> 23
This limited stock appreciation right shall in all events terminate
upon the expiration or sooner termination of the option term and may not be
assigned or transferred by Optionee.
c. Definitions: For purposes of this Agreement, the following
definitions shall be in effect:
A CHANGE IN CONTROL shall be deemed to occur in the event of a
change in ownership or control of the Corporation effected through
either of the following transactions:
(i) the direct or indirect acquisition by any person or related
group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control
with, the Corporation) of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities Exchange Act of 1934 (the "1934 Act")) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more
contested elections for Board membership, to be comprised of individuals
who either (A) have been Board members continuously since the beginning
of such period or (B) have been elected or nominated for election as
Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time
such election or nomination was approved by the Board.
A HOSTILE TAKE-OVER shall be deemed to occur in the event of a
change in ownership of the Corporation effected through the following
transaction:
(i) the direct or indirect acquisition by any person or related
group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control
with, the Corporation) of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept, and
(ii) more than fifty percent (50%) of the acquired securities are
accepted from holders other than the officers and directors of the
Corporation subject to the short-swing profit restrictions of Section 16
of the 1934 Act.
The TAKE-OVER PRICE per share shall be deemed to be equal to the
greater of (i) the Fair Market Value per share of Common Stock on the
date the option is surrendered to the Corporation in connection with a
Hostile Take-Over, as determined in accordance with the valuation
provisions of Paragraph 9.b, or (ii) the highest reported price per
share of Common Stock paid by the tender offeror in effecting the
Hostile Take-Over.
9. MANNER OF EXERCISING OPTION.
a. In order to exercise this option for all or any part of the Option
Shares for which the option is at the time exercisable, Optionee (or in the
case of exercise after Optionee's death, Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions:
(i) To the extent the option is exercised for vested Option Shares,
the Secretary of the Corporation shall be provided with written notice
of the option exercise (the "Exercise Notice"), in substantially the
form of Exhibit I attached hereto, in which there is specified the
number of vested Option Shares which are to be purchased under the
exercised option. To the extent the option is exercised for one or more
unvested Option Shares, Optionee (or other person exercising the option)
shall deliver to the Secretary of the Corporation a stock issuance
agreement (in form and substance satisfactory to the Corporation) which
grants the Corporation the right to repurchase, at the
(176)
<PAGE> 24
Exercise Price, any and all unvested Option Shares held by Optionee at
the time of his or her cessation of Board service and which precludes
the sale, transfer or other disposition of any purchased Option Shares
subject to such repurchase right (the "Issuance Agreement").
(ii) The aggregate Exercise Price for the purchased shares shall be
paid in one of the following alternative forms:
(A) full payment in cash or check made payable to the
Corporation's order;
(B) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date (as such terms are defined below);
(C) full payment in a combination of shares of Common Stock held
for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at
Fair Market Value on the Exercise Date and cash or check made payable
to the Corporation's order; or
(D) to the extent the option is exercised for vested Option
Shares, full payment effected through a broker-dealer sale and
remittance procedure pursuant to which Optionee shall provide
concurrent irrevocable written instructions to (1) a
Corporation-designated brokerage firm to effect the immediate sale of
the vested shares purchased under the option and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate Exercise Price payable
for those shares and (2) the Corporation to deliver the certificates
for the purchased shares directly to such brokerage firm in order to
complete the sale.
(iii) Appropriate documentation evidencing the right to exercise
this option shall be furnished the Corporation if the person or persons
exercising the option is other than Optionee.
b. For purposes of Paragraph 9.a and for all other valuation purposes
under this Agreement, the Fair Market Value per share of Common Stock on
any relevant date shall be the closing selling price per share on the date
in question on the New York Stock Exchange, as such price is reported on
the composite tape of transactions on such exchange. If there is no
reported closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
c. The Exercise Date shall be the date on which the Exercise Notice is
delivered to the Secretary of the Corporation, together with the
appropriate Issuance Agreement for any unvested shares acquired under the
option. Except to the extent the sale and remittance procedure specified
above is utilized in connection with the exercise of the option for vested
shares, payment of the Exercise Price for the purchased shares must
accompany such notice.
d. As soon as practical after the Exercise Date, the Corporation shall
issue to or on behalf of Optionee (or other person or persons exercising
this option) a certificate or certificates representing the purchased
Option Shares. To the extent any such Option Shares are unvested, the
certificates for those Option Shares shall be endorsed with an appropriate
legend evidencing the Corporation's repurchase rights and may be held in
escrow with the Corporation until such shares vest.
e. In no event may this option be exercised for any fractional shares.
10. STOCKHOLDER RIGHTS. The holder of this option shall not have any
of the rights of a stockholder with respect to the Option Shares until such
individual shall have exercised this option and paid the Exercise Price for
the purchased shares.
11. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. Nor shall this Agreement in any way be construed or
interpreted so as to affect adversely or otherwise impair
(177)
<PAGE> 25
the right of the Corporation or the stockholders to remove Optionee from
the Board at any time in accordance with the provisions of applicable law.
12. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this option
and the issuance of the Option Shares upon such exercise shall be subject
to compliance by the Corporation and Optionee with all applicable
requirements of law relating thereto and with all applicable regulations of
any stock exchange on which shares of the Common Stock may be listed at the
time of such exercise and issuance.
13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 3, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the Corporation's successors
and assigns.
14. DISCHARGE OF LIABILITY. The inability of the Corporation to obtain
approval from any regulatory body having authority deemed by the
Corporation to be necessary to the lawful issuance and sale of any Common
Stock pursuant to this option shall relieve the Corporation of any
liability with respect to the non-issuance or sale of the Common Stock as
to which such approval shall not have been obtained. However, the
Corporation shall use its best efforts to obtain all such applicable
approvals.
15. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation in care of the Corporate Secretary at the
Corporate Offices at One Lakeshore Centre, 3281 Guasti Road, Suite 700,
Ontario, California 91761. Any notice required to be given or delivered to
Optionee shall be in writing and addressed to Optionee at the address
indicated below Optionee's signature line on the Grant Notice. All notices
shall be deemed to have been given or delivered upon personal delivery or
upon deposit in the U.S. mail, by registered or certified mail, postage
prepaid and properly addressed to the party to be notified.
16. CONSTRUCTION/GOVERNING LAW. This Agreement and the option
evidenced hereby are made and granted pursuant to the Plan and are in all
respects limited by and subject to the express terms and provisions of the
Plan, including the automatic option grant provisions of Article Three of
the Plan. The interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of California without resort to
that State's conflict-of-laws rules.
(178)
<PAGE> 26
EXHIBIT I
NOTICE OF EXERCISE OF
AUTOMATIC STOCK OPTION
I hereby notify Coram Healthcare Corporation (the "Corporation") that I
elect to purchase shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $ per share (the
"Exercise Price") pursuant to that certain option (the "Option") granted to me
under the Corporation's 1994 Stock Option/Stock Issuance Plan on ,
1994 to purchase up to shares of the Corporation's Common Stock.
Concurrently with the delivery of this Exercise Notice to the Secretary of
the Corporation, I shall hereby pay to the Corporation the Exercise Price for
the Purchased Shares in accordance with the provisions of my agreement with the
Corporation evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker/dealer sale and remittance
procedure specified in my agreement to effect payment of the Exercise Price for
any Purchased Shares in which I am vested at the time of exercise.
Date , 199
---------------------- --
--------------------------------
Optionee
Address:
----------------------
--------------------------------
Print name in exact manner
it is to appear on the
stock certificate:
--------------------------------
Address to which certificate
is to be sent, if different
from address above:
--------------------------------
--------------------------------
Social Security Number:
--------------------------------
Employee Number:
--------------------------------
(179)
<PAGE> 27
EXHIBIT B
STOCK OPTION AGREEMENT
FOR TOMMY H. CARTER
CORAM HEALTHCARE CORPORATION
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made this day of , 1994 by and
between Coram HealthCare Corporation, a Delaware corporation (the
"Corporation"), and Tommy H. Carter (the "Optionee").
WITNESSETH:
RECITALS
A. The Corporation's Board of Directors (the "Board") has adopted the
Corporation's 1994 Stock Option/Stock Issuance Plan (the "Plan") for the purpose
of attracting and retaining the services of key employees (including officers
and directors), non-employee Board members and consultants and other independent
advisors.
B. Optionee is an individual who is to render valuable services to the
Corporation or one or more parent or subsidiary corporations, and this Agreement
is executed pursuant to, and is intended to carry out the purposes of, the Plan
in connection with the Corporation's grant of a stock option to purchase shares
of the Corporation's common stock ("Common Stock").
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, the Corporation hereby grants to Optionee, as of
, 1994 (the "Grant Date"), a Non-Statutory Stock Option to
purchase up to 94,500 shares of Common Stock (the "Option Shares"). Such
Option Shares shall be purchasable from time to time during the option term
at $ per share (the "Exercise Price").
2. OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall expire at the close of
business on , 2004 (the "Expiration Date"), unless sooner
terminated in accordance with Paragraph 5.
3. LIMITED TRANSFERABILITY. This option shall be neither transferable
nor assignable by Optionee other than a transfer effected by will or by the
laws of descent and distribution following Optionee's death, and may be
exercised, during Optionee's lifetime, only by Optionee.
4. DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in a series of three (3) equal and successive annual
installments upon Optionee's completion of each year of service as a Board
member over the three (3)-year period measured from the Grant Date. As the
option becomes exercisable for one or more installments, those installments
shall accumulate, and the option shall remain exercisable for the
accumulated installments until the Expiration Date or sooner termination of
the option term under Paragraph 5. In no event shall this option become
exercisable for any additional Option Shares following Optionee's cessation
of Board service.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to
the Expiration Date in accordance with the following provisions:
a. Upon Optionee's cessation of Board service for any reason, this
option shall immediately terminate and cease to remain outstanding for
any Option Shares for which it is not otherwise at that time
exercisable.
(180)
<PAGE> 28
b. Should Optionee cease Board service for any reason other than
death or permanent disability while this option remains outstanding,
then Optionee shall have a six (6)-month period measured from the date
of such cessation of Board service in which to exercise this option for
any or all of the Option Shares for which this option is exercisable at
the time of such cessation of Board service. In no event, however, may
this option be exercised at any time after the specified Expiration
Date. Upon the expiration of such six (6)-month period or (if earlier)
upon the specified Expiration Date, this option shall terminate and
cease to remain outstanding for any exercisable Option Shares for which
this option has not otherwise been exercised.
c. Should Optionee die while in Board service or within the six
(6)-month period following his cessation of Board service, then the
personal representative of Optionee's estate or the person or persons to
whom this option is transferred pursuant to Optionee's will or in
accordance with the laws of descent and distribution shall have the
right to exercise the option for any or all of the Option Shares for
which this option is exercisable at the time of Optionee's cessation of
Board service, less any Option Shares subsequently purchased by Optionee
prior to death. Such right shall lapse, and this option shall terminate
and cease to remain outstanding, upon the earlier of (i) the first
anniversary of the date of Optionee's death or (ii) the Expiration Date.
d. Should Optionee become permanently disabled and cease by reason
thereof to remain in Board service at any time during the option term,
then Optionee shall have a twelve (12)-month period commencing with the
date of such cessation of Board service in which to exercise this option
for any or all of the Option Shares for which this option is exercisable
at the time of such cessation of Board service. In no event, however,
may this option be exercised at any time after the specified Expiration
Date. Upon the expiration of such limited period of exercisability or
(if earlier) upon the Expiration Date, this option shall terminate and
cease to remain outstanding.
e. During the limited period of post-service exercisability
applicable pursuant to Paragraphs 5.b through 5.d, this option may not
be exercised in the aggregate for more than the number of Option Shares
(if any) for which this option is, at the time of Optionee's cessation
of Board service, exercisable in accordance with either the normal
exercise provisions specified in Paragraph 4 or the special acceleration
provisions of Paragraph 6 or 7.
f. Optionee shall be deemed to be PERMANENTLY DISABLED if Optionee
is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result
in death or to be of continuous duration of twelve (12) months or more.
g. In the event of a Corporate Transaction (as defined in Paragraph
6) or Change in Control (as defined in Paragraph 7), the provisions of
Paragraphs 6 and 7.a shall govern the period for which this option shall
remain exercisable following Optionee's cessation of Board service and
shall supersede any provisions to the contrary in this Paragraph 5.
6. CORPORATE TRANSACTION.
a. In the event of any of the following stockholder-approved
transactions to which the Corporation is a party (a "Corporate
Transaction"):
(i) a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Corporation is incorporated,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation (including the
capital stock of the Corporation's subsidiary corporations) in complete
liquidation or dissolution of the Corporation, or
(iii) any reverse merger in which the Corporation is the surviving
entity but in which securities possessing more than fifty percent (50%)
of the total combined voting power of the Corporation's outstanding
securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such merger,
(181)
<PAGE> 29
this option shall, immediately prior to the specified effective
date for the Corporate Transaction, become fully exercisable for all of
the Option Shares at the time subject to this option and may be
exercised for all or any portion of such shares as fully vested shares.
The option as accelerated shall be assumed by the successor corporation
in the Corporate Transaction and shall remain exercisable for such fully
vested Option Shares, whether or not Optionee continues in Board
service, until the earlier of (i) the specified Expiration Date or (ii)
the surrender of this option under Paragraph 19.
b. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in
its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
7. CHANGE IN CONTROL.
a. This option shall, immediately prior to the effective date of a
Change in Control, become fully exercisable for all of the Option Shares at
the time subject to this option and may be exercised for all or any portion
of such shares as fully vested shares. This option shall remain exercisable
for such fully vested Option Shares, whether or not Optionee continues in
Board service, until the earlier of (i) the specified Expiration Date or
(ii) the surrender of this option under Paragraph 19.
b. A CHANGE IN CONTROL shall be deemed to occur for purposes of this
Paragraph 7 in the event of a change in ownership or control of the
Corporation effected through either of the following transactions:
- the direct or indirect acquisition by any person or related group
of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with,
the Corporation) of beneficial ownership (within the meaning of Rule
13d-3 of the Securities Exchange Act of 1934 (the "1934 Act")) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept, or
- a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more
contested elections for Board membership, to be comprised of individuals
who either (A) have been Board members continuously since the beginning
of such period or (B) have been elected or nominated for election as
Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time
such election or nomination was approved by the Board.
8. ADJUSTMENT IN OPTION SHARES.
a. In the event any change is made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class effected without the Corporation's
receipt of consideration, the Plan Administrator shall make appropriate
adjustments to (i) the number and/or class of securities subject to this
option and (ii) the Exercise Price payable per share in order to prevent
any dilution or enlargement of benefits hereunder. Such adjustments shall
be final, binding and conclusive.
b. Upon the assumption of this option in connection with any Corporate
Transaction under Paragraph 6, this option shall be appropriately adjusted
to apply and pertain to the number and class of securities which would have
been issued to Optionee in the consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the Exercise
Price payable per share, provided the aggregate Exercise Price payable
hereunder shall remain the same.
9. Privilege of Stock Ownership. The holder of this option shall not
have any of the rights of a stockholder with respect to the Option Shares
until such individual shall have exercised the option and paid the Exercise
Price for the purchased Option Shares.
(182)
<PAGE> 30
10. MANNER OF EXERCISING OPTION.
a. In order to exercise this option with respect to all or any part
of the Option Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must take the
following actions:
(i) Deliver to the Secretary of the Corporation an executed notice
of exercise in substantially the form of Exhibit I to this Agreement
(the "Exercise Notice") in which there is specified the number of Option
Shares which are to be purchased under the exercised option.
(ii) Pay the aggregate Exercise Price for the purchased shares
through one or more of the following alternatives:
(A) full payment in cash or by check made payable to the
Corporation's order;
(B) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date (as such terms are defined below);
(C) full payment in a combination of shares of Common Stock held
for the requisite period necessary to avoid a charge to the
Corporation's reported earnings and valued at Fair Market Value on
the Exercise Date and cash or check payable to the Corporation's
order; or
(D) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which Optionee shall concurrently
provide irrevocable written instructions to (1) a
Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover
the aggregate Exercise Price payable for the purchased shares plus
all applicable Federal, state and local income and employment taxes
required to be withheld in connection with such purchase and (2) the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale
transaction.
(iii) Furnish to the Corporation appropriate documentation that the
person or persons exercising the option (if other than Optionee) have
the right to exercise this option.
b. For purposes of Paragraph 10.a and for all other valuation
purposes under this Agreement, the Fair Market Value per share of Common
Stock on any relevant date shall be the closing selling price per share on
the date in question on the New York Stock Exchange, as such price is
reported on the composite tape of transactions on such exchange. If there
is no reported closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
c. The Exercise Date shall be the date on which the executed Exercise
Notice is delivered to the Secretary of the Corporation. Except to the
extent the sale and remittance procedure specified above is utilized in
connection with the option exercise, payment of the Exercise Price for the
purchased shares must accompany such notice.
d. As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate or certificates representing the
purchased Option Shares.
e. In no event may this option be exercised for any fractional
shares.
11. GOVERNING LAW. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
12. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this option
and the issuance of Option Shares upon such exercise shall be subject to
compliance by the Corporation and Optionee with all applicable requirements
of law relating thereto and with all applicable regulations of any stock
(183)
<PAGE> 31
exchange on which shares of Common Stock may be listed for trading at the
time of such exercise and issuance.
13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraph 3, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs and legal
representatives of Optionee and the successors and assigns of the
Corporation.
14. LIABILITY OF CORPORATION.
a. If the Option Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares which may without stockholder approval be
issued under the Plan, then this option shall be void with respect to such
excess shares unless stockholder approval of an amendment sufficiently
increasing the number of shares issuable under the Plan is obtained in
accordance with the provisions of Section II of Article Six of the Plan.
b. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary
to the lawful issuance and sale of any Common Stock pursuant to this option
shall relieve the Corporation of any liability with respect to the
non-issuance or sale of the Common Stock as to which such approval shall
not have been obtained. The Corporation however, shall use its best efforts
to obtain all such approvals.
15. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way be
construed or interpreted so as to affect adversely or otherwise impair the
right of the Corporation or the stockholders to remove Optionee from the
Board at any time in accordance with the provisions of applicable law.
16. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation in care of the Corporate Secretary at the
Corporation's principal offices at One Lakeshore Centre, 3281 Guasti Road,
Suite 700, Ontario, California 91761. Any notice required to be given or
delivered to Optionee shall be in writing and addressed to Optionee at the
address indicated below Optionee's signature line on this Agreement. All
notices shall be deemed to have been given or delivered upon personal
delivery or upon deposit in the U.S. mail, by registered or certified mail,
postage prepaid and properly addressed to the party to be notified.
17. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by
and subject to the express terms and provisions of the Plan. All decisions
of the Plan Administrator with respect to any question or issue arising
under the Plan or this Agreement shall be conclusive and binding on all
persons having an interest in this option.
18. WITHHOLDING. Optionee shall make appropriate arrangements with
the Corporation or any parent or subsidiary employing Optionee for the
satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the exercise of this option.
19. LIMITED STOCK APPRECIATION RIGHT.
a. Provided this option has been outstanding for at least six (6)
months prior to the occurrence of a Hostile Take-Over, Optionee shall have
an unconditional right (exercisable during the thirty (30)-day period
immediately following the consummation of such Hostile Take-Over) to
surrender this option to the Corporation in exchange for a cash
distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the Option Shares at the time subject to this option
(whether or not the option is otherwise exercisable for those Option
Shares) over (ii) the aggregate Exercise Price payable for such shares.
b. To exercise such limited stock appreciation right, Optionee must,
during the applicable thirty (30)-day exercise period, provide the
Corporation with written notice of the option surrender in which there is
specified the number of Option Shares as to which the option is being
surrendered. Such notice must be accompanied by the return of Optionee's
copy of this Agreement, together with any written
(184)
<PAGE> 32
amendments to such Agreement. The cash distribution shall be paid to
Optionee within five (5) days following such delivery date, and neither the
approval of the Plan Administrator nor the consent of the Board shall be
required in connection with such option surrender and cash distribution.
Upon receipt of such cash distribution, this option shall be cancelled with
respect to the shares subject to the surrendered option (or the surrendered
portion thereof), and Optionee shall cease to have any further right to
acquire those Option Shares. In the event this option is surrendered for
only a portion of the Option Shares, the Corporation shall issue a new
stock option agreement (substantially in the form of this Agreement) for
the balance of the Option Shares.
c. Such limited stock appreciation right shall in all events terminate
upon the expiration or sooner termination of the option term and may not be
assigned or transferred by Optionee.
d. For purposes of this Paragraph 19, the following definitions shall
be in effect:
A HOSTILE TAKE-OVER shall be deemed to occur in the event of a
change in ownership of the Corporation effected through the following
transaction:
(i) the direct or indirect acquisition by any person or related
group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board
does not recommend such stockholders to accept, and
(ii) more than fifty percent (50%) of the acquired securities
are accepted from holders other than the officers and directors of
the Corporation subject to the short-swing profit restrictions of
Section 16 of the 1934 Act.
The TAKE-OVER PRICE per share shall be deemed to be equal to the
greater of (i) the Fair Market Value per share of Common Stock on the
date the option is surrendered to the Corporation in connection with a
Hostile Take-Over, as determined in accordance with the valuation
provisions of Paragraph 10.b, or (ii) the highest reported price per
share of Common Stock paid by the tender offeror in effecting the
Hostile Take-Over.
20. PLAN SUMMARY AND PROSPECTUS. Optionee hereby acknowledges receipt
of a copy of the official Plan Summary and Prospectus attached hereto as
Exhibit II. A copy of the Plan is also available upon request made to the
Corporate Secretary at the Corporation's principal offices at One Lakeshore
Centre, 3281 Guasti Road, Suite 700, Ontario, California 91761.
(185)
<PAGE> 33
IN WITNESS WHEREOF, CORAM HEALTHCARE CORPORATION has caused this Stock
Option Agreement to be executed on its behalf by its duly-authorized officer,
and Tommy H. Carter has executed this Stock Option Agreement on his behalf, all
as of the date first written above.
CORAM HEALTHCARE CORPORATION
By:
---------------------------------
Title:
------------------------------
-------------------------------------
TOMMY H. CARTER
Address:
----------------------------
-------------------------------------
ATTACHMENTS:
EXHIBIT I: NOTICE OF EXERCISE
EXHIBIT II: PLAN SUMMARY AND PROSPECTUS
(186)
<PAGE> 34
EXHIBIT I
NOTICE OF EXERCISE OF STOCK OPTION
I hereby notify Coram Healthcare Corporation (the "Corporation") that I
elect to purchase shares of the Corporation's Common Stock (the "Purchased
Shares") at the option exercise price of $ per share (the "Exercise
Price") pursuant to that certain option (the "Option") granted to me under the
Corporation's 1994 Stock Option/Stock Issuance Plan on , 1994.
Concurrently with the delivery of this Exercise Notice to the Secretary of
the Corporation, I shall hereby pay to the Corporation the Exercise Price for
the Purchased Shares in accordance with the provisions of my agreement with the
Corporation evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker-dealer sale and remittance
procedure specified in my agreement to effect the payment of the Exercise Price
for the Purchased Shares.
Date , 199
---------------------- --
--------------------------------
Optionee
Address:
----------------------
--------------------------------
Print name in exact manner
it is to appear on the
stock certificate:
--------------------------------
Address to which certificate
is to be sent, if different
from address above:
--------------------------------
--------------------------------
Social Security Number:
--------------------------------
Employee Number:
--------------------------------
(187)
<PAGE> 35
EXHIBIT II
PLAN SUMMARY AND PROSPECTUS
(188)
<PAGE> 36
EXHIBIT C
STOCK OPTION AGREEMENT
FOR CHARLES A. LAVERTY
CORAM HEALTHCARE CORPORATION
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made this day of 1994 by and
between Coram HealthCare Corporation, a Delaware corporation (the
"Corporation"), and Charles A. Laverty ("Optionee").
WITNESSETH:
RECITALS
A. The Corporation's Board of Directors (the "Board") has adopted the
Corporation's 1994 Stock Option/Stock Issuance Plan (the "Plan") for the purpose
of attracting and retaining the services of key employees (including officers
and directors), non-employee Board members and consultants and other independent
advisors.
B. Optionee is an individual who is to render valuable services to the
Corporation or one or more parent or subsidiary corporations, and this Agreement
is executed pursuant to, and is intended to carry out the purposes of, the Plan
in connection with the Corporation's grant of a stock option to purchase shares
of the Corporation's common stock ("Common Stock").
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, the Corporation hereby grants to Optionee, as of
, 1994 (the "Grant Date"), a Non-Statutory Stock Option to
purchase up to 100,000 shares of Common Stock (the "Option Shares"). Such
Option Shares shall be purchasable from time to time during the option term
at $ per share (the "Exercise Price").
2. OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall expire at the close of
business on , 2004 (the "Expiration Date"), unless sooner
terminated in accordance with Paragraph 5.
3. LIMITED TRANSFERABILITY. This option shall be neither transferable
nor assignable by Optionee other than a transfer effected by will or by the
laws of descent and distribution following Optionee's death, and may be
exercised, during Optionee's lifetime, only by Optionee.
4. DATES OF EXERCISE. This option shall be immediately exercisable
for all the Option Shares and may be exercised for any or all of the Option
Shares at any time prior to the specified Expiration Date or the sooner
termination of the option term under Paragraph 5.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to
the Expiration Date in accordance with the following provisions:
a. Should Optionee cease Service for any reason other than death or
permanent disability while this option remains outstanding, then
Optionee shall have a six (6)-month period measured from the date of
such cessation of Service in which to exercise this option for any or
all of the Option Shares at the time subject to this option. Upon the
expiration of such six (6)-month period or (if earlier) upon the
specified Expiration Date, this option shall terminate and cease to
remain outstanding for any Option Shares for which this option has not
otherwise been exercised.
b. Should Optionee die while in Service or within the six (6)-month
period following his cessation of Service, then the personal
representative of Optionee's estate or the person or persons to whom
this option is transferred pursuant to Optionee's will or in accordance
with the laws of descent
(189)
<PAGE> 37
and distribution shall have the right to exercise the option for any or
all of the Option Shares at the time subject to this option, less any
Option Shares purchased by Optionee prior to death. Such right shall
lapse, and this option shall terminate and cease to remain outstanding,
upon the earlier of (i) the first anniversary of the date of Optionee's
death or (ii) the Expiration Date.
c. Should Optionee become permanently disabled and cease by reason
thereof to remain in Service at any time during the option term, then
Optionee shall have a twelve (12)-month period commencing with the date
of such cessation of Service in which to exercise this option for any or
all of the Option Shares at the time subject to this option.
d. In the event of a Corporate Transaction (as defined in Paragraph
6), the provisions of Paragraph 6 shall govern the period for which this
option is exercisable following Optionee's cessation of Service and
shall supersede any provisions to the contrary in this Paragraph 5.
e. For purposes of this Agreement, the following definitions shall
be in effect:
(i) Optionee shall be deemed to remain in SERVICE for so long as
such individual performs services on a periodic basis to the
Corporation (or any parent or subsidiary corporation) in the capacity
of an Employee, a non-employee member of the board of directors or an
independent consultant or advisor.
(ii) Optionee shall be considered to be an EMPLOYEE for so long
as such individual performs services while in the employ of the
Corporation or one or more parent or subsidiary corporations, subject
to the control and direction of the employer entity not only as to
the work to be performed but also as to the manner and method of
performance.
(iii) Optionee shall be deemed to be PERMANENTLY DISABLED and to
have incurred a PERMANENT DISABILITY if Optionee is unable to engage
in any substantial gainful activity by reason of any medically
determinable physical or mental impairment expected to result in
death or to be of continuous duration of twelve (12) months or more.
(iv) A corporation shall be considered to be a SUBSIDIARY of the
Corporation if it is a member of an unbroken chain of corporations
which begins with the Corporation, provided each such corporation in
the unbroken chain (other than the last corporation) owns, at the
time of determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
(v) A corporation shall be considered to be a PARENT of the
Corporation if it is a member of an unbroken chain of corporations
ending with the Corporation, provided each such corporation in the
unbroken chain (other than the Corporation) owns, at the time of
determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the
other corporations in such chain.
6. CORPORATE TRANSACTION.
a. In the event of any of the following stockholder-approved
transactions to which the Corporation is a party (a "Corporate
Transaction"):
(i) a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Corporation is incorporated,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation (including the
capital stock of the Corporation's subsidiary corporations) in complete
liquidation or dissolution of the Corporation, or
(iii) any reverse merger in which the Corporation is the surviving
entity but in which securities possessing more than fifty percent (50%)
of the total combined voting power of the Corporation's
(190)
<PAGE> 38
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
merger,
this option may, immediately prior to the specified effective date for the
Corporate Transaction, be exercised for all or any portion of the Option
Shares at the time subject to this option. To the extent not so exercised,
this option shall be assumed by the successor corporation in the Corporate
Transaction and shall remain exercisable for such Option Shares, whether or
not Optionee continues in Service, until the earlier of (i) the specified
Expiration Date or (ii) the surrender of this option under Paragraph 19.
b. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in
its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES.
a. In the event any change is made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class effected without the Corporation's
receipt of consideration, the Plan Administrator shall make appropriate
adjustments to (i) the number and/or class of securities subject to this
option and (ii) the Exercise Price payable per share in order to prevent
any dilution or enlargement of benefits hereunder. Such adjustments shall
be final, binding and conclusive.
b. Upon the assumption of this option in connection with any Corporate
Transaction under Paragraph 6, this option shall be appropriately adjusted
to apply and pertain to the number and class of securities which would have
been issued to Optionee in the consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the Exercise
Price payable per share, provided the aggregate Exercise Price payable
hereunder shall remain the same.
8. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall not
have any of the rights of a stockholder with respect to the Option Shares
until such individual shall have exercised the option and paid the Exercise
Price for the purchased Option Shares.
9. MANNER OF EXERCISING OPTION.
a. In order to exercise this option with respect to all or any part of
the Option Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must take the
following actions:
(i) Deliver to the Secretary of the Corporation an executed notice
of exercise in substantially the form of Exhibit I to this Agreement
(the "Exercise Notice") in which there is specified the number of Option
Shares which are to be purchased under the exercised option.
(ii) Pay the aggregate Exercise Price for the purchased shares
through one or more of the following alternatives:
(A) full payment in cash or by check made payable to the
Corporation's order;
(B) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date (as such terms are defined below);
(C) full payment in a combination of shares of Common Stock held
for the requisite period necessary to avoid a charge to the
Corporation's reported earnings and valued at Fair Market Value on
the Exercise Date and cash or check payable to the Corporation's
order; or
(D) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which Optionee shall concurrently
provide irrevocable written instructions to (1) a
Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and
(191)
<PAGE> 39
remit to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate Exercise
Price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld
in connection with such purchase and (2) the Corporation to deliver
the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction.
(iii) Furnish to the Corporation appropriate documentation that the
person or persons exercising the option (if other than Optionee) have
the right to exercise this option.
b. For purposes of Paragraph 9.a and for all other valuation purposes
under this Agreement, the Fair Market Value per share of Common Stock on
any relevant date shall be the closing selling price per share on the date
in question on the New York Stock Exchange, as such price is reported on
the composite tape of transactions on such exchange. If there is no
reported closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
c. The Exercise Date shall be the date on which the executed Exercise
Notice is delivered to the Secretary of the Corporation. Except to the
extent the sale and remittance procedure specified above is utilized in
connection with the option exercise, payment of the Exercise Price for the
purchased shares must accompany such notice.
d. As soon as practical after the Exercise Date, the Corporation shall
issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate or certificates representing the
purchased Option Shares.
e. In no event may this option be exercised for any fractional shares.
10. GOVERNING LAW. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
11. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this option
and the issuance of Option Shares upon such exercise shall be subject to
compliance by the Corporation and Optionee with all applicable requirements
of law relating thereto and with all applicable regulations of any stock
exchange on which shares of Common Stock may be listed for trading at the
time of such exercise and issuance.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 3, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs and legal
representatives of Optionee and the successors and assigns of the
Corporation.
13. LIABILITY OF CORPORATION.
a. If the Option Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares which may without stockholder approval be
issued under the Plan, then this option shall be void with respect to such
excess shares unless stockholder approval of an amendment sufficiently
increasing the number of shares issuable under the Plan is obtained in
accordance with the provisions of Section II of Article Six of the Plan.
b. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary
to the lawful issuance and sale of any Common Stock pursuant to this option
shall relieve the Corporation of any liability with respect to the
non-issuance or sale of the Common Stock as to which such approval shall
not have been obtained. The Corporation however, shall use its best efforts
to obtain all such approvals.
14. NO EMPLOYMENT/SERVICE CONTRACT.
a. Nothing in this Agreement or in the Plan shall confer upon Optionee
any right to continue in the Service of the Corporation (or any parent or
subsidiary employing or retaining Optionee) for any period
(192)
<PAGE> 40
of specific duration or interfere with or otherwise restrict in any way the
rights of the Corporation (or any such parent or subsidiary) or Optionee,
which rights are hereby expressly reserved by each party, to terminate
Optionee's Service at any time for any reason whatsoever, with or without
cause.
b. This Agreement shall not in any way be construed or interpreted so
as to affect adversely or otherwise impair the right of the Corporation or
the stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.
15. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation in care of the Corporate Secretary at the
Corporation's principal offices at One Lakeshore Centre, 3281 Guasti Road,
Suite 700, Ontario, California 91761. Any notice required to be given or
delivered to Optionee shall be in writing and addressed to Optionee at the
address indicated below Optionee's signature line on this Agreement. All
notices shall be deemed to have been given or delivered upon personal
delivery or upon deposit in the U.S. mail, by registered or certified mail,
postage prepaid and properly addressed to the party to be notified.
16. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by
and subject to the express terms and provisions of the Plan. All decisions
of the Plan Administrator with respect to any question or issue arising
under the Plan or this Agreement shall be conclusive and binding on all
persons having an interest in this option.
17. WITHHOLDING. Optionee shall make appropriate arrangements with the
Corporation or any parent or subsidiary employing Optionee for the
satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the exercise of this option.
18. LIMITED STOCK APPRECIATION RIGHT.
a. Provided this option has been outstanding for at least six (6)
months prior to the occurrence of a Hostile Take-Over, Optionee shall have
an unconditional right (exercisable during the thirty (30)-day period
immediately following the consummation of such Hostile Take-Over) to
surrender this option to the Corporation in exchange for a cash
distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the Option Shares at the time subject to this option
over (ii) the aggregate Exercise Price payable for such shares.
b. To exercise such limited stock appreciation right, Optionee must,
during the applicable thirty (30)-day exercise period, provide the
Corporation with written notice of the option surrender in which there is
specified the number of Option Shares as to which the option is being
surrendered. Such notice must be accompanied by the return of Optionee's
copy of this Agreement, together with any written amendments to such
Agreement. The cash distribution shall be paid to Optionee within five (5)
days following such delivery date, and neither the approval of the Plan
Administrator nor the consent of the Board shall be required in connection
with such option surrender and cash distribution. Upon receipt of such cash
distribution, this option shall be cancelled with respect to the shares
subject to the surrendered option (or the surrendered portion thereof), and
Optionee shall cease to have any further right to acquire those Option
Shares. In the event this option is surrendered for only a portion of the
Option Shares, the Corporation shall issue a new stock option agreement
(substantially in the form of this Agreement) for the balance of the Option
Shares.
c. Such limited stock appreciation right shall in all events terminate
upon the expiration or sooner termination of the option term and may not be
assigned or transferred by Optionee.
d. For purposes of this Paragraph 19, the following definitions shall
be in effect:
A HOSTILE TAKE-OVER shall be deemed to occur in the event of a
change in ownership of the Corporation effected through the following
transaction:
(i) the direct or indirect acquisition by any person or related
group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common
(193)
<PAGE> 41
control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934 (the "1934
Act")) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept, and
(ii) more than fifty percent (50%) of the acquired securities are
accepted from holders other than the officers and directors of the
Corporation subject to the short-swing profit restrictions of Section 16
of the 1934 Act.
The TAKE-OVER PRICE per share shall be deemed to be equal to the
greater of (i) the Fair Market Value per share of Common Stock on the
date the option is surrendered to the Corporation in connection with a
Hostile Take-Over, as determined in accordance with the valuation
provisions of Paragraph 10.b, or (ii) the highest reported price per
share of Common Stock paid by the tender offeror in effecting the
Hostile Take-Over.
19. PLAN SUMMARY AND PROSPECTUS. Optionee hereby acknowledges receipt
of a copy of the official Plan Summary and Prospectus attached hereto as
Exhibit II. A copy of the Plan is also available upon request made to the
Corporate Secretary at the Corporation's principal offices at One Lakeshore
Centre, 3281 Guasti Road, Suite 700, Ontario, California 91761.
IN WITNESS WHEREOF, CORAM HEALTHCARE CORPORATION has caused this Stock
Option Agreement to be executed on its behalf by its duly-authorized officer,
and Charles A. Laverty has executed this Stock Option Agreement on his behalf,
all as of the date first written above.
CORAM HEALTHCARE CORPORATION
By:
---------------------------------
Title:
------------------------------
-------------------------------------
CHARLES A. LAVERTY
Address:
----------------------------
-------------------------------------
Attachments:
EXHIBIT I: NOTICE OF EXERCISE
EXHIBIT II: PLAN SUMMARY AND PROSPECTUS
(194)
<PAGE> 42
EXHIBIT I
NOTICE OF EXERCISE OF STOCK OPTION
I hereby notify Coram Healthcare Corporation (the "Corporation") that I
elect to purchase shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $ per share (the
"Exercise Price") pursuant to that certain option (the "Option") granted to me
under the Corporation's 1994 Stock Option/Stock Issuance Plan on
, 199 .
Concurrently with the delivery of this Exercise Notice to the Secretary of
the Corporation, I shall hereby pay to the Corporation the Exercise Price for
the Purchased Shares in accordance with the provisions of my agreement with the
Corporation evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker-dealer sale and remittance
procedure specified in my agreement to effect the payment of the Exercise Price
for the Purchased Shares.
Date , 199
---------------------- --
--------------------------------
Optionee
Address:
----------------------
--------------------------------
Print name in exact manner
it is to appear on the
stock certificate:
--------------------------------
Address to which certificate
is to be sent, if different
from address above:
--------------------------------
--------------------------------
Social Security Number:
--------------------------------
Employee Number:
--------------------------------
(195)
<PAGE> 43
EXHIBIT II
PLAN SUMMARY AND PROSPECTUS
(196)
<PAGE> 44
EXHIBIT D
STOCK OPTION AGREEMENT
FOR JAMES M. SWEENEY
CORAM HEALTHCARE CORPORATION
STOCK OPTION AGREEMENT
FOR JAMES M. SWEENEY
STOCK OPTION AGREEMENT made this day of , 1994
by and between Coram HealthCare Corporation, a Delaware corporation (the
"Corporation"), and James M. Sweeney ("Optionee").
WITNESSETH:
RECITALS
A. The Corporation's Board of Directors (the "Board") has adopted the
Corporation's 1994 Stock Option/Stock Issuance Plan (the "Plan") for the purpose
of attracting and retaining the services of key employees (including officers
and directors), non-employee Board members and consultants and other independent
advisors.
B. Optionee is an individual who is to render valuable services to the
Corporation or one or more parent or subsidiary corporations, and this Agreement
is executed pursuant to, and is intended to carry out the purposes of, the Plan
in connection with the Corporation's grant of a stock option to purchase shares
of the Corporation's common stock ("Common Stock").
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, the Corporation hereby grants to Optionee, as of
, 1994 (the "Grant Date"), a Non-Statutory Stock Option to
purchase up to 3,000,000 shares of Common Stock (the "Option Shares"). Such
Option Shares shall be purchasable from time to time during the option term
at $ per share (the "Exercise Price").
2. OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall expire at the close of
business on , 2004 (the "Expiration Date"), unless sooner
terminated under Paragraph 5 or 8.
3. LIMITED TRANSFERABILITY. This option, together with the special
stock appreciation right provided under Paragraph 8.b, shall be neither
transferable nor assignable by Optionee, other than a transfer of this
option effected by will or by the laws of descent and distribution
following Optionee's death, and may be exercised, during Optionee's
lifetime, only by Optionee.
4. EXERCISABILITY/VESTING SCHEDULE. The Option shall be immediately
exercisable for all the Option Shares. However, the Option Shares shall be
unvested and subject to repurchase by the Corporation, at the Exercise
Price paid per share, upon Optionee's cessation of Service prior to vesting
in the Option Shares. Optionee shall acquire a vested interest in, and the
Corporation's repurchase right shall lapse with respect to, (i) twenty-five
percent (25%) of the Option Shares upon Optionee's completion of one (1)
year of Service measured from the Grant Date and (ii) the balance of the
Option Shares in equal successive monthly installments upon Optionee's
completion of each of the next thirty-six (36) months of Service measured
from and after the first anniversary of the Grant Date. In no event shall
any additional Option Shares vest following Optionee's cessation of
Service.
(197)
<PAGE> 45
5. CESSATION OF SERVICE. Should Optionee's Service cease while this
option remains outstanding, then the option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to
the Expiration Date in accordance with the following provisions:
a. Upon Optionee's cessation of Service for any reason other than
death or permanent disability, this option shall immediately terminate
and cease to be outstanding with respect to any and all Option Shares in
which Optionee is not otherwise at that time vested in accordance with
the normal vesting provisions set forth in Paragraph 4 or the special
vesting acceleration provisions of Paragraph 7 or 8.
b. Should Optionee cease Service for any reason (other than death
or permanent disability) while holding this option, then the period for
exercising this option shall be reduced to a six (6)-month period
commencing with the date of such cessation of Service, but in no event
shall this option be exercisable at any time after the Expiration Date.
During such limited period of exercisability, this option may not be
exercised for more than the number of Option Shares (if any) in which
Optionee is vested at the time of such cessation of Service. Upon the
earlier of (i) the expiration of such six (6)-month period or (ii) the
specified Expiration Date, the option shall terminate and cease to be
exercisable with respect to any vested Option Shares for which the
option has not been exercised.
c. Should Optionee die during the six (6)-month period following
his cessation of Service, then the personal representative of Optionee's
estate or the person or persons to whom the option is transferred
pursuant to Optionee's will or in accordance with the laws of descent
and distribution shall have the right to exercise this option for any or
all of the Option Shares in which Optionee is vested at the time of
Optionee's cessation of Service (less any Option Shares purchased by
Optionee after such cessation of Service but prior to death). Such right
of exercise shall terminate, and this option shall accordingly cease to
be exercisable for such vested Option Shares, upon the earlier of (i)
the expiration of the twelve (12)-month period measured from the date of
Optionee's death or (ii) the specified Expiration Date.
d. Should Optionee die or become permanently disabled while in
Service, then all the Option Shares subject to this option at the time
of such cessation of Service shall immediately vest, and Optionee or the
personal representative of Optionee's estate or the person or persons to
whom the option is transferred pursuant to Optionee's will or in
accordance with the laws of descent and distribution shall have the
right to exercise this option for any or all of those vested Option
Shares. Such right of exercise shall terminate, and this option shall
accordingly cease to be outstanding with respect to the Option Shares,
upon the earlier of (i) the expiration of the twelve (12)-month period
measured from the date on which Optionee dies or becomes permanently
disabled or (ii) the specified Expiration Date.
e. In the event of a Corporate Transaction (as defined in Paragraph
7) or Change in Control (as defined in Paragraph 8), the provisions of
Paragraph 7 and 8.a shall govern the period for which this option shall
remain exercisable following Optionee's subsequent cessation of Service
and shall supersede any provisions to the contrary in this Paragraph 5.
f. For purposes of this Agreement, the following definitions shall
be in effect:
- Optionee shall be deemed to remain in SERVICE for so long as
such individual performs services on a periodic basis to the
Corporation (or any parent or subsidiary corporation) in the capacity
of an Employee, a non-employee member of the board of directors or an
independent consultant or advisor.
- Optionee shall be considered to be an EMPLOYEE for so long as
such individual performs services while in the employ of the
Corporation or one or more parent or subsidiary corporations, subject
to the control and direction of the employer entity not only as to
the work to be performed but also as to the manner and method of
performance.
(198)
<PAGE> 46
- Optionee shall be deemed to be PERMANENTLY DISABLED and to
have incurred a PERMANENT DISABILITY if Optionee is unable to engage
in any substantial gainful activity by reason of any medically
determinable physical or mental impairment expected to result in
death or to be of continuous duration of twelve (12) months or more.
- A corporation shall be considered to be a SUBSIDIARY of the
Corporation if it is a member of an unbroken chain of corporations
which begins with the Corporation, provided each such corporation in
the unbroken chain (other than the last corporation) owns, at the
time of determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
- A corporation shall be considered to be a PARENT of the
Corporation if it is a member of an unbroken chain of corporations
ending with the Corporation, provided each such corporation in the
unbroken chain (other than the Corporation) owns, at the time of
determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the
other corporations in such chain.
6. ADJUSTMENT IN OPTION SHARES.
a. Should any change be made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Common Stock as a class without the Corporation's receipt of consideration,
then the number and class of securities purchasable under this option and
the Exercise Price payable per share shall be appropriately adjusted to
prevent the dilution or enlargement of Optionee's rights hereunder;
provided, however, the aggregate Exercise Price shall remain the same.
b. Upon the assumption of this option in connection with any Corporate
Transaction under Paragraph 7, this option shall be appropriately adjusted
to apply and pertain to the number and class of securities which would have
been issued to Optionee in the consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the Exercise
Price payable per share, provided the aggregate Exercise Price payable
hereunder shall remain the same.
7. CORPORATE TRANSACTION. In the event of any of the following
stockholder-approved transactions to which the Corporation is a party (a
"Corporate Transaction"):
(i) a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Corporation is incorporated,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation (including the
capital stock of the Corporation's subsidiary corporations) in complete
liquidation or dissolution of the Corporation, or
(iii) any reverse merger in which the Corporation is the surviving
entity but in which securities possessing more than fifty percent (50%)
of the total combined voting power of the Corporation's outstanding
securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such merger,
all Option Shares at the time subject to this option but not otherwise
vested shall automatically vest and the Corporation's repurchase right
shall terminate so that this option shall, immediately prior to the
specified effective date for the Corporate Transaction, become fully
exercisable for all of the Option Shares at the time subject to this option
and may be exercised for all or any portion of such shares as fully vested
shares of Common Stock. The option as accelerated shall be assumed by the
successor corporation in the Corporate Transaction and shall remain
exercisable for such fully vested Option Shares, whether or not Optionee
continues in Service, until the earlier of (i) the specified Expiration
Date or (ii) the surrender of this option under Paragraph 8.b.
(199)
<PAGE> 47
8. CHANGE IN CONTROL/HOSTILE TAKEOVER.
a. All Option Shares subject to this option at the time of a Change in
Control (as defined below) but not otherwise vested shall automatically
vest and the Corporation's repurchase right shall terminate so that this
option shall, immediately prior to the effective date of such Change in
Control, become fully exercisable for all of the Option Shares at the time
subject to this option and may be exercised for all or any portion of such
shares as fully vested shares of Common Stock. This option shall remain
exercisable for such fully vested Option Shares, whether or not Optionee
continues in Service, until the earlier of (i) the specified Expiration
Date or (ii) the surrender of this option under Paragraph 8.b.
b. Provided this option has been outstanding for at least six (6)
months prior to the occurrence of a Hostile Take-Over (as defined below),
Optionee shall have an unconditional right (exercisable during the thirty
(30)-day period immediately following the consummation of such Hostile
Take-Over) to surrender this option to the Corporation in exchange for a
cash distribution from the Corporation in an amount equal to the excess of
(i) the Take-Over Price (as defined below) of the Option Shares at the time
subject to the surrendered option (whether or not those Option Shares are
at the time vested) over (ii) the aggregate Exercise Price payable for such
shares.
To exercise this limited stock appreciation right, Optionee must,
during the applicable thirty (30)-day exercise period, provide the
Corporation with written notice of the option surrender in which there is
specified the number of Option Shares as to which the Option is being
surrendered. Such notice must be accompanied by the return of Optionee's
copy of this Agreement, together with any written amendments to such
Agreement. The cash distribution shall be paid to Optionee within five (5)
days following such delivery date, and neither the approval of the Plan
Administrator nor the consent of the Board shall be required in connection
with such option surrender and cash distribution. Upon receipt of such cash
distribution, this option shall be cancelled with respect to the shares
subject to the surrendered option (or the surrendered portion), and
Optionee shall cease to have any further right to acquire those Option
Shares under this Agreement. In the event this option is surrendered for
only a portion of the Option Shares at the time subject thereto, the
Corporation shall issue a new stock option agreement (substantially in the
form of this Agreement) for the balance of the Option Shares for which this
option is not surrendered.
This limited stock appreciation right shall in all events terminate
upon the expiration or sooner termination of the option term and may not be
assigned or transferred by Optionee.
c. Definitions: For purposes of this Agreement, the following
definitions shall be in effect:
A CHANGE IN CONTROL shall be deemed to occur in the event of a
change in ownership or control of the Corporation effected through
either of the following transactions:
(i) the direct or indirect acquisition by any person or related
group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control
with, the Corporation) of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities Exchange Act of 1934 (the "1934 Act")) of
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more
contested elections for Board membership, to be comprised of individuals
who either (A) have been Board members continuously since the beginning
of such period or (B) have been elected or nominated for election as
Board members during such period by at least a majority of the Board
members described in clause (A) who were still in office at the time
such election or nomination was approved by the Board.
(200)
<PAGE> 48
A HOSTILE TAKE-OVER shall be deemed to occur in the event of a change
in ownership of the Corporation effected through the following transaction:
(i) the direct or indirect acquisition by any person or related
group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control
with, the Corporation) of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept, and
(ii) more than fifty percent (50%) of the acquired securities are
accepted from holders other than the officers and directors of the
Corporation subject to the short-swing profit restrictions of Section 16
of the 1934 Act.
THE TAKE-OVER PRICE per share shall be deemed to be equal to the
greater of (i) the Fair Market Value per share of Common Stock on the date
the option is surrendered to the Corporation in connection with a Hostile
Take-Over, as determined in accordance with the valuation provisions of
Paragraph 9.b, or (ii) the highest reported price per share of Common Stock
paid by the tender offeror in effecting the Hostile Take-Over.
9. MANNER OF EXERCISING OPTION.
a. In order to exercise this option for all or any part of the Option
Shares for which the option is at the time exercisable, Optionee (or in the
case of exercise after Optionee's death, Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions:
(i) To the extent the option is exercised for vested Option Shares,
the Secretary of the Corporation shall be provided with written notice
of the option exercise (the "Exercise Notice"), in substantially the
form of Exhibit I attached hereto, in which there is specified the
number of vested Option Shares which are to be purchased under the
exercised option. To the extent the option is exercised for one or more
unvested Option Shares, Optionee (or other person exercising the option)
shall deliver to the Secretary of the Corporation a stock issuance
agreement (in form and substance satisfactory to the Corporation) which
grants the Corporation the right to repurchase, at the Exercise Price,
any and all unvested Option Shares held by Optionee at the time of his
cessation of Service and which precludes the sale, transfer or other
disposition of any purchased Option Shares subject to such repurchase
right (the "Issuance Agreement").
(ii) The aggregate Exercise Price for the purchased shares shall be
paid in one of the following alternative forms:
(A) full payment in cash or check made payable to the
Corporation's order;
(B) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date (as such terms are defined below);
(C) full payment in a combination of shares of Common Stock held
for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at
Fair Market Value on the Exercise Date and cash or check made payable
to the Corporation's order; or
(D) to the extent the option is exercised for vested Option
Shares, full payment effected through a broker-dealer sale and
remittance procedure pursuant to which Optionee shall provide
concurrent irrevocable written instructions to (1) a
Corporation-designated brokerage firm to effect the immediate sale of
the vested shares purchased under the option and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate Exercise Price payable
for those shares and (2) the Corporation to deliver
(201)
<PAGE> 49
the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale.
(iii) Appropriate documentation evidencing the right to exercise
this option shall be furnished the Corporation if the person or persons
exercising the option is other than Optionee.
b. For purposes of Paragraph 9.a and for all other valuation purposes
under this Agreement, the Fair Market Value per share of Common Stock on
any relevant date shall be the closing selling price per share on the date
in question on the New York Stock Exchange, as such price is reported on
the composite tape of transactions on such exchange. If there is no
reported closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
c. The Exercise Date shall be the date on which the Exercise Notice is
delivered to the Secretary of the Corporation, together with the
appropriate Issuance Agreement for any unvested shares acquired under the
option. Except to the extent the sale and remittance procedure specified
above is utilized in connection with the exercise of the option for vested
shares, payment of the Exercise Price for the purchased shares must
accompany such notice.
d. As soon as practical after the Exercise Date, the Corporation shall
issue to or on behalf of Optionee (or other person or persons exercising
this option) a certificate or certificates representing the purchased
Option Shares. To the extent any such Option Shares are unvested, the
certificates for those Option Shares shall be endorsed with an appropriate
legend evidencing the Corporation's repurchase rights and may be held in
escrow with the Corporation until such shares vest.
e. In no event may this option be exercised for any fractional shares.
10. STOCKHOLDER RIGHTS. The holder of this option shall not have any
of the rights of a stockholder with respect to the Option Shares until such
individual shall have exercised this option and paid the Exercise Price for
the purchased shares.
11. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. Nor shall this Agreement in any way be construed or
interpreted so as to affect adversely or otherwise impair the right of the
Corporation or the stockholders to remove Optionee from the Board at any
time in accordance with the provisions of applicable law.
12. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this option
and the issuance of the Option Shares upon such exercise shall be subject
to compliance by the Corporation and Optionee with all applicable
requirements of law relating thereto and with all applicable regulations of
any stock exchange on which shares of the Common Stock may be listed at the
time of such exercise and issuance.
13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided in
Paragraph 3, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the Corporation's successors
and assigns.
14. DISCHARGE OF LIABILITY. The inability of the Corporation to obtain
approval from any regulatory body having authority deemed by the
Corporation to be necessary to the lawful issuance and sale of any Common
Stock pursuant to this option shall relieve the Corporation of any
liability with respect to the non-issuance or sale of the Common Stock as
to which such approval shall not have been obtained. However, the
Corporation shall use its best efforts to obtain all such applicable
approvals.
15. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation in care of the Corporate Secretary at the
Corporate Offices at One Lakeshore Centre, 3281 Guasti Road, Suite 700,
Ontario, California 91761. Any notice required to be given or delivered to
Optionee shall be in writing and addressed to Optionee at
(202)
<PAGE> 50
the address indicated below Optionee's signature line on this Agreement.
All notices shall be deemed to have been given or delivered upon personal
delivery or upon deposit in the U.S. mail, by registered or certified mail,
postage prepaid and properly addressed to the party to be notified.
16. CONSTRUCTION/GOVERNING LAW. This Agreement and the option
evidenced hereby are made and granted pursuant to the Plan and are in all
respects limited by and subject to the express terms and provisions of the
Plan. The interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of California without resort to
that State's conflict-of-laws rules.
17. NO EMPLOYMENT/SERVICE CONTRACT. Nothing in this Agreement or in
the Plan shall confer upon Optionee any right to continue in the Service of
the Corporation (or any parent or subsidiary employing or retaining
Optionee) for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any such
parent or subsidiary) or Optionee, which rights are hereby expressly
reserved by each party, to terminate Optionee's Service at any time for any
reason whatsoever, with or without cause.
18. PLAN SUMMARY AND PROSPECTUS. Optionee hereby acknowledges receipt
of a copy of the official Plan Summary and Prospectus attached hereto as
Exhibit II. A copy of the Plan is also available upon request made to the
Corporate Secretary at the Corporation's principal offices at One Lakeshore
Centre, 3281 Guasti Road, Suite 700, Ontario, California 91761.
IN WITNESS WHEREOF, CORAM HEALTHCARE CORPORATION has caused this Stock
Option Agreement to be executed on its behalf by its duly-authorized officer,
and James M. Sweeney has executed this Stock Option Agreement, all as of the
date first written above.
CORAM HEALTHCARE CORPORATION
By:
------------------------------
Title:
---------------------------
----------------------------------
JAMES M. SWEENEY
Address:
-------------------------
----------------------------------
ATTACHMENTS:
EXHIBIT I: NOTICE OF EXERCISE
EXHIBIT II: PLAN SUMMARY AND PROSPECTUS
(203)
<PAGE> 51
EXHIBIT I
NOTICE OF EXERCISE OF STOCK OPTION
I hereby notify Coram Healthcare Corporation (the "Corporation") that I
elect to purchase shares of the Corporation's Common Stock (the "Purchased
Shares") at the option exercise price of $ per share (the "Exercise
Price") pursuant to that certain option (the "Option") granted to me under the
Corporation's 1994 Stock Option/Stock Issuance Plan on , 1994 to
purchase up to shares of the Corporation's Common Stock.
Concurrently with the delivery of this Exercise Notice to the Secretary of
the Corporation, I shall hereby pay to the Corporation the Exercise Price for
the Purchased Shares in accordance with the provisions of my agreement with the
Corporation evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker/dealer sale and remittance
procedure specified in my agreement to effect payment of the Exercise Price for
any Purchased Shares in which I am vested at the time of exercise.
Date , 199
----------------------- --
--------------------------------
Optionee
Address:
----------------------
--------------------------------
Print name in exact manner
it is to appear on the
stock certificate:
--------------------------------
Address to which certificate
is to be sent, if different
from address above:
--------------------------------
--------------------------------
Social Security Number:
--------------------------------
Employee Number:
--------------------------------
(204)
<PAGE> 52
EXHIBIT II
PLAN SUMMARY AND PROSPECTUS
(205)
<PAGE> 53
INITIAL GRANT
CORAM HEALTHCARE CORPORATION
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
AUTOMATIC STOCK OPTION
Notice is hereby given of the following stock option (the "Option") to
purchase shares of the common stock of Coram Healthcare Corporation (the
"Corporation") which has been granted pursuant to the automatic option grant
program in effect under the Corporation's 1994 Stock Option/Stock Issuance Plan
(the "Plan"):
OPTIONEE:
--------------------------------
GRANT DATE:
------------------------------
TYPE OF OPTION: Non-Statutory Stock Option
EXERCISE PRICE: $ per share
---------
NUMBER OF OPTION SHARES: 75,000 shares
EXPIRATION DATE:
-------------------------
EXERCISE SCHEDULE: The Option is immediately exercisable for all the
Option Shares.
VESTING SCHEDULE: The Option Shares shall be unvested and subject to
repurchase by the Corporation, at the Exercise Price paid per share,
upon Optionee's cessation of service as a member of the Corporation's
Board of Directors (the "Board"). Optionee shall acquire a vested
interest in, and the Corporation's repurchase right shall lapse, with
respect to (i) twenty-five percent (25%) of the Option Shares upon
Optionee's completion of one (1) year of Board service measured from the
Grant Date and (ii) the balance of the Option Shares in equal successive
monthly installments upon Optionee's completion of each of the next
thirty-six (36) months of Board service measured from and after the
first anniversary of the Grant Date. In no event shall any additional
Option Shares vest following Optionee's cessation of Board service.
Optionee understands and agrees that the Option is granted subject to and
in accordance with the express terms and conditions of the Plan governing
automatic option grants to Board members. Optionee further agrees to be bound by
the terms and conditions of the Plan and the terms and conditions of the Option
as set forth in the Automatic Stock Option Agreement attached hereto as Exhibit
A.
Optionee hereby acknowledges receipt of a copy of the official Plan Summary
and Prospectus attached hereto as Exhibit B. A copy of the Plan is also
available upon request made to the Corporate Secretary at the Corporation's
principal offices at One Lakeshore Centre, 3281 Guasti Road, Suite 700, Ontario,
California 91761.
REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE TRANSFERABLE AND SHALL BE
SUBJECT TO REPURCHASE BY THE CORPORATION AND ITS ASSIGNS, AT THE EXERCISE PRICE
PAID PER SHARE, UPON OPTIONEE'S TERMINATION OF SERVICE WITH THE CORPORATION. THE
TERMS AND CONDITIONS OF SUCH REPURCHASE RIGHT SHALL BE SET FORTH IN A STOCK
ISSUANCE AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION,
EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION EXERCISE.
(206)
<PAGE> 54
No provision of this Notice of Grant or the attached Automatic Stock Option
Agreement shall in any way be construed or interpreted so as to affect adversely
or otherwise impair the right of the Corporation or the stockholders to remove
Optionee from the Board at any time in accordance with the provisions of
applicable law.
DATED: , 199
------------------------ --
CORAM HEALTHCARE CORPORATION
By:
-------------------------------
Title:
----------------------------
----------------------------------
OPTIONEE
Address:
--------------------------
----------------------------------
ATTACHMENTS:
EXHIBIT A: AUTOMATIC STOCK OPTION AGREEMENT
EXHIBIT B: PLAN SUMMARY AND PROSPECTUS FOR NON-EMPLOYEE DIRECTORS
(207)
<PAGE> 55
ANNUAL GRANT
CORAM HEALTHCARE CORPORATION
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
AUTOMATIC STOCK OPTION
Notice is hereby given of the following stock option (the "Option") to
purchase shares of the common stock of Coram Healthcare Corporation (the
"Corporation") which has been granted pursuant to the automatic option grant
program in effect under the Corporation's 1994 Stock Option/Stock Issuance Plan
(the "Plan"):
OPTIONEE:
GRANT DATE:
TYPE OF OPTION: Non-Statutory Stock Option
EXERCISE PRICE: $ per share
NUMBER OF OPTION SHARES: 2,500 shares
EXPIRATION DATE:
EXERCISE SCHEDULE: The Option is immediately exercisable for all the
Option Shares.
VESTING SCHEDULE: The Option Shares shall be unvested and subject to
repurchase by the Corporation, at the Exercise Price paid per share,
upon Optionee's cessation of service as a member of the Corporation's
Board of Directors (the "Board"). Optionee shall acquire a vested
interest in, and the Corporation's repurchase right shall lapse with
respect to, the Option Shares in a series of twelve (12) equal and
successive monthly installments over Optionee's period of continued
service as a Board member, with the first such installment to vest upon
Optionee's completion of one (1) month of Board service measured from
the Grant Date. In no event shall any additional Option Shares vest
following Optionee's cessation of Board service.
Optionee understands and agrees that the Option is granted subject to and
in accordance with the express terms and conditions of the Plan governing
automatic option grants to Board members. Optionee further agrees to be bound by
the terms and conditions of the Plan and the terms and conditions of the Option
as set forth in the Automatic Stock Option Agreement attached hereto as Exhibit
A.
Optionee hereby acknowledges receipt of a copy of the official Plan Summary
and Prospectus attached hereto as Exhibit B. A copy of the Plan is also
available upon request made to the Corporate Secretary at the Corporation's
principal offices at One Lakeshore Centre, 3281 Guasti Road, Suite 700, Ontario,
California 91761.
REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL UNVESTED OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL NOT BE TRANSFERABLE AND SHALL BE
SUBJECT TO REPURCHASE BY THE CORPORATION AND ITS ASSIGNS, AT THE EXERCISE PRICE
PAID PER SHARE, UPON OPTIONEE'S TERMINATION OF SERVICE WITH THE CORPORATION. THE
TERMS AND CONDITIONS OF SUCH REPURCHASE RIGHT SHALL BE SET FORTH IN A STOCK
ISSUANCE AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION,
EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION EXERCISE.
(208)
<PAGE> 56
No provision of this Notice of Grant or the attached Automatic Stock Option
Agreement shall in any way be construed or interpreted so as to affect adversely
or otherwise impair the right of the Corporation or the stockholders to remove
Optionee from the Board at any time in accordance with the provisions of
applicable law.
DATED: , 199
----------------- --
CORAM HEALTHCARE CORPORATION
By:
--------------------------------
Title:
-----------------------------
-----------------------------------
OPTIONEE
Address:
---------------------------
-----------------------------------
ATTACHMENTS:
EXHIBIT A: AUTOMATIC STOCK OPTION AGREEMENT
EXHIBIT B: PLAN SUMMARY AND PROSPECTUS FOR NON-EMPLOYEE DIRECTORS
(209)
<PAGE> 1
EXHIBIT 10.16 TO
REGISTRATION STATEMENT
ON FORM S-4
CORAM HEALTHCARE CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE
The Coram Healthcare Corporation Employee Stock Purchase Plan (the "Plan")
is intended to provide eligible employees of the Corporation and one or more of
its Corporate Affiliates with the opportunity to acquire a proprietary interest
in the Corporation through participation in a plan designed to qualify as an
employee stock purchase plan under Section 423 of the Code.
II. DEFINITIONS
For purposes of administration of the Plan, the following terms shall have
the meanings indicated:
BASE SALARY means the regular base salary paid to a Participant by one or
more Participating Companies during such individual's period of participation in
the Plan, plus any pre-tax contributions made by the Participant to any Code
Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. The following items of compensation shall NOT be included in Base
Salary: (i) all overtime payments, bonuses, commissions (other than those
functioning as base salary equivalents), profit-sharing distributions and other
incentive-type payments and (ii) any and all contributions (other than Code
Section 401(k) or Code Section 125 contributions) made on the Participant's
behalf by the Corporation or one or more Corporate Affiliates under any employee
benefit or welfare plan now or hereafter established.
BOARD means the Board of Directors of the Corporation.
CODE means the Internal Revenue Code of 1986, as amended from time to time.
COMMON STOCK means shares of the Corporation's common stock, par value
$0.001 per share.
CORPORATION means Coram Healthcare Corporation, a Delaware corporation, and
any corporate successor to all or substantially all of the assets or voting
stock of Coram Healthcare Corporation which shall by appropriate action adopt
the Plan.
CORPORATE AFFILIATE means any parent or subsidiary corporation of the
Corporation (as determined in accordance with Code Section 424), including any
parent or subsidiary corporation which becomes such after the Effective Date.
EFFECTIVE DATE means the first day of the initial offering period under the
Plan, which is scheduled to commence on 1, 1994. However, for any
Corporate Affiliate which becomes a Participating Corporation in the Plan after
the first day of the initial offering period, a subsequent Effective Date shall
be designated with respect to participation by its Eligible Employees.
ELIGIBLE EMPLOYEE means any person who is regularly scheduled to work more
than twenty (20) hours per week for more than five (5) months per calendar year
in the employ of the Corporation or any other Participating Corporation for
earnings considered wages under Code Section 3401(a). However, no officers of
the Corporation or any Corporate Affiliate shall be eligible to participate in
the Plan.
ENTRY DATE means the date an Eligible Employee first joins the offering
period in effect under the Plan. The earliest Entry Date under the Plan shall be
the Effective Date.
FAIR MARKET VALUE means the fair market value per share of Common Stock on
any date in question under the Plan and shall be equal to the closing selling
price per share of Common Stock on such date, as officially quoted on the
principal securities exchange on which the Common Stock is at the time listed
for
(210)
<PAGE> 2
trading. If there are no sales of Common Stock on the date in question, then the
closing selling price for the Common Stock on the next preceding day for which
such closing selling price is quoted shall be determinative of Fair Market
Value.
PARTICIPANT means any Eligible Employee who is actively participating in
the Plan.
PARTICIPATING CORPORATION means the Corporation and such Corporate
Affiliate or Affiliates as may be designated from time to time by the Board to
extend the benefits of the Plan to their Eligible Employees. The Participating
Corporations, as of the Effective Date, are listed in attached Schedule A.
PLAN ADMINISTRATOR shall have the meaning given such term in Article III.
QUARTERLY ENTRY DATE means the first business day of each calendar quarter
within an offering period in effect under the Plan. The earliest Quarterly Entry
Date under the Plan shall be July 1, 1994.
QUARTERLY PURCHASE DATE means the last business day of each calendar
quarter on which shares of Common Stock are to be automatically purchased for
Participants under the Plan. The earliest Quarterly Purchase Date under the Plan
shall be June 30, 1994.
III. ADMINISTRATION
The Plan shall be administered by a committee (the "Plan Administrator")
comprised of two (2) or more non-employee Board members appointed from time to
time by the Board. The Plan Administrator shall have full authority to
administer the Plan, including authority to interpret and construe any provision
of the Plan and to adopt such rules and regulations for administering the Plan
as it may deem necessary in order to comply with the requirements of Code
Section 423. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be made available for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated in
accordance with the provisions of Subsection I of Article VII, Subsection B of
Article IX or Subsection B of Article X.
B. Each offering period shall have a maximum duration of twenty-four (24)
months. The duration of each offering period shall be designated by the Plan
Administrator prior to the start date. However, the initial offering period
shall run from 1, 1994 to the last business day in December 1995.
The next offering period shall commence on the first business day in January
1996, and subsequent offering periods shall commence as designated by the Plan
Administrator.
C. The Participant shall be granted a separate purchase right for each
offering period in which he/she participates. The purchase right shall be
granted on the Entry Date on which such individual first joins the offering
period in effect under the Plan and shall be automatically exercised at
quarterly intervals on each Quarterly Purchase Date while that purchase right
remains outstanding.
D. The Participant's acquisition of Common Stock under the Plan on any
Quarterly Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Quarterly Purchase Date, whether
within the same or a different offering period.
V. ELIGIBILITY AND PARTICIPATION
A. Each Eligible Employee shall be eligible to participate in the Plan in
accordance with the following provisions:
An individual who is an Eligible Employee on the start date of any offering
period under the Plan shall be eligible to commence participation in that
offering period on such start date. That start date shall become such
individual's Entry Date for the offering period, and on that date such
individual shall be granted his/her
(211)
<PAGE> 3
purchase right for the offering period. Should any such Eligible Employee not
enter the offering period on the start date, then he/she may not subsequently
join that particular offering period on any later date.
An individual who first becomes an Eligible Employee after the start date
of any offering period under the Plan may enter that offering period on the
first Quarterly Entry Date on which he/she is an Eligible Employee. Such
Quarterly Entry Date shall become such individual's Entry Date for the offering
period, and on that date such individual shall be granted his/her purchase right
for the offering period. Should such an Eligible Employee not enter the offering
period on the first Quarterly Entry Date on which he/she is eligible to join the
offering period, then he/she may not subsequently join that particular offering
period on any later date.
B. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his/her scheduled Entry Date.
C. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Base Salary paid to the Participant during each calendar
quarter within the offering period, up to a maximum of ten percent (10%). The
deduction rate so authorized shall continue in effect for the remainder of the
offering period and for subsequent offering periods, except to the extent such
rate is changed in accordance with the following guidelines:
The Participant may, at any time during a calendar quarter, reduce his/her
rate of payroll deduction. Such reduction shall become effective as soon as
possible after filing of the requisite reduction form with the Plan
Administrator (or its designate), but the Participant may not effect more than
one such reduction during a calendar quarter.
The Participant may, prior to the commencement of any calendar quarter
within the offering period, increase the rate of his/her payroll deduction by
filing the appropriate form with the Plan Administrator (or its designate). The
new rate (which may not exceed the ten percent (10%) maximum) shall become
effective as of the first day of the first calendar quarter following the filing
of such form.
Payroll deductions will automatically cease upon the termination of the
Participant's purchase right in accordance with the applicable provisions of
Article VII below.
VI. STOCK SUBJECT TO PLAN
A. The Common Stock purchasable under the Plan shall, solely in the
discretion of the Plan Administrator, be made available from either authorized
but unissued shares of Common Stock or from shares of Common Stock reacquired by
the Corporation, including shares of Common Stock purchased on the open market.
The total number of shares which may be issued over the term of the Plan shall
not exceed 300,000 shares (subject to adjustment under Section VI.B below).
B. In the event any change is made to the outstanding Common Stock by
reason of any stock dividend, stock split, combination of shares or other change
affecting such outstanding Common Stock as a class without the Corporation's
receipt of consideration, appropriate adjustments shall be made by the Plan
Administrator to (i) the class and maximum number of securities issuable over
the term of the Plan, (ii) the class and maximum number of securities
purchasable per Participant on any Quarterly Purchase Date and (iii) the class
and number of securities and the price per share in effect under each purchase
right at the time outstanding under the Plan. Such adjustments shall be designed
to preclude the dilution or enlargement of the rights and benefits of
Participants under the Plan.
VII. PURCHASE RIGHTS
An Eligible Employee who participates in the Plan for a particular offering
period shall have the right to purchase shares of Common Stock, at successive
quarterly intervals during such offering period, upon the
(212)
<PAGE> 4
terms and conditions set forth below and shall execute a purchase agreement
embodying such terms and conditions and such other provisions (not inconsistent
with the Plan) as the Plan Administrator may deem advisable.
A. PURCHASE PRICE. Common Stock shall be issuable on each Quarterly
Purchase Date within the offering period at a purchase price per share equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share on
the Participant's Entry Date or (ii) the Fair Market Value per share on the
Quarterly Purchase Date. However, for each Participant whose Entry Date is other
than the start date of the offering period, the clause (i) amount shall in no
event be less than the Fair Market Value per share on the start date of that
offering period.
B. NUMBER OF PURCHASABLE SHARES. The number of shares purchasable per
Participant on each Quarterly Purchase Date during the offering period shall be
the number of whole shares obtained by dividing the amount collected from the
Participant through payroll deductions during the calendar quarter ending with
such Quarterly Purchase Date by the purchase price in effect for that Quarterly
Purchase Date. However, the maximum number of shares of Common Stock purchasable
per Participant on any Quarterly Purchase Date shall not exceed One Hundred
(100) shares, subject to periodic adjustment under Section VI.B.
Under no circumstances shall purchase rights be granted under the Plan to
any Eligible Employee if such individual would, immediately after the grant, own
(within the meaning of Code Section 424(d)) or hold outstanding options or other
rights to purchase, stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Corporation or any
of its Corporate Affiliates.
C. PAYMENT. Payment for the Common Stock purchased under the Plan shall be
effected by means of the Participant's authorized payroll deductions. Such
deductions shall begin on the first pay day following the Participant's Entry
Date into the offering period and shall (unless sooner terminated by the
Participant) continue through the pay day ending with or immediately prior to
the last day of the offering period. The amounts so collected shall be credited
to the Participant's individual account upon the Corporation's books, but no
interest shall be paid on the outstanding balance credited to such book account.
The amounts collected from a Participant will not be held in any segregated
account or trust fund and may be commingled with the general assets of the
Corporation and used for general corporate purposes.
D. TERMINATION OF PURCHASE RIGHT. The following provisions shall govern
the termination of outstanding purchase rights:
- A Participant may, at any time prior to the next Quarterly Purchase
Date, terminate his/her outstanding purchase right under the Plan by filing
the prescribed notification form with the Plan Administrator (or its
designate). No further payroll deductions shall be collected from the
Participant with respect to the terminated purchase right, and any payroll
deductions collected for the calendar quarter in which such termination
occurs shall, at the Participant's election, be immediately refunded or
held for the purchase of shares on the Quarterly Purchase Date immediately
following such termination. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected with
respect to the terminated right shall be refunded as soon as possible.
- The termination of such purchase right shall be irrevocable, and the
Participant may not subsequently rejoin the offering period for which the
terminated purchase right was granted. In order to resume participation in
any subsequent offering period, such individual must re-enroll in the Plan
(by making a timely filing of a new purchase agreement and payroll
deduction authorization) on or before the date he/she is first eligible to
join the new offering period.
- If the Participant ceases to remain an Eligible Employee for any
reason (including death, disability or change in status) while his/her
purchase right remains outstanding, then that purchase right shall
immediately terminate, and the payroll deductions made to date by that
Participant in the calendar quarter during which such cessation of Eligible
Employee status occurs shall be refunded as soon as possible.
(213)
<PAGE> 5
E. STOCK PURCHASE. Shares of Common Stock shall automatically be purchased
on behalf of each Participant (other than Participants whose payroll deductions
have previously been refunded in accordance with the Termination of Purchase
Right provisions above) on each Quarterly Purchase Date. The purchase shall be
effected by applying each Participant's payroll deductions for the calendar
quarter ending on such Quarterly Purchase Date (together with any carryover
deductions from the preceding calendar quarter) to the purchase of whole shares
of Common Stock (subject to the limitation on the maximum number of purchasable
shares set forth above) at the purchase price in effect for that Quarterly
Purchase Date. Any payroll deductions not applied to such purchase because they
are not sufficient to purchase a whole share shall be held for the purchase of
Common Stock on the next Quarterly Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Quarterly Purchase Date shall be promptly refunded to the Participant.
F. PRORATION OF PURCHASE RIGHTS. Should the total number of shares of
Common Stock which are to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded to such Participant.
G. RIGHTS AS STOCKHOLDER. A Participant shall have no stockholder rights
with respect to the shares subject to his/her outstanding purchase right until
the shares are actually purchased on the Participant's behalf in accordance with
the applicable provisions of the Plan. No adjustments shall be made for
dividends, distributions or other rights for which the record date is prior to
the date of such purchase.
A Participant shall be entitled to receive, as soon as practicable after
each Quarterly Purchase Date, a stock certificate for the number of shares
purchased on the Participant's behalf. Such certificate may, upon the
Participant's request, be issued in the names of the Participant and his/her
spouse as community property or as joint tenants with right of survivorship.
Alternatively, the Participant may request the issuance of such certificate in
"street name" for immediate deposit in a designated brokerage account.
H. ASSIGNABILITY. No purchase right granted under the Plan shall be
assignable or transferable by the Participant other than by will or by the laws
of descent and distribution following the Participant's death, and during the
Participant's lifetime the purchase right shall be exercisable only by the
Participant.
I. CORPORATE TRANSACTION. Should any of the following transactions (a
"Corporate Transaction") occur during the offering period:
- a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which
is to change the state in which the Corporation is incorporated,
- the sale, transfer or other disposition of all or substantially all
of the assets of the Corporation (including the capital stock of the
Corporation's subsidiary corporations) in complete liquidation or
dissolution of the Corporation, or
- any reverse merger in which the Corporation is the surviving entity
but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from those who held such
securities immediately prior to such merger.
then all outstanding purchase rights under the Plan shall automatically be
exercised immediately prior to the consummation of such Change in Ownership by
applying the payroll deductions of each Participant for the calendar quarter in
which such Change in Ownership occurs to the purchase of whole shares of Common
Stock at eighty-five percent (85%) of the lower of (i) the Fair Market Value per
share on the Participant's Entry Date into the offering period in which such
Change in Ownership occurs or (ii) the Fair Market Value per share immediately
prior to the consummation of such Change in Ownership. However, the applicable
share limitations of Articles VII and VIII shall continue to apply to any such
purchase, and the clause
(214)
<PAGE> 6
(i) amount above shall not, for any Participant whose Entry Date for the
offering period is other than the start date of that offering period, be less
than the Fair Market Value per share of Common Stock on such start date. The
Corporation shall use its best efforts to provide at least ten (10)-days advance
written notice of the occurrence of any such Change in Ownership, and the
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights in accordance with the applicable
provisions of this Article VII.
A similar automatic exercise of outstanding purchase rights will occur
should the Corporation dispose of its equity holdings in one or more of its
operating subsidiaries by a merger or consolidation involving that subsidiary, a
sale of substantially all of the assets of that subsidiary or the Corporation's
sale of substantially all of the outstanding capital stock of such subsidiary,
but only the purchase rights of the Participants in the employ of the subsidiary
involved in such disposition shall be so exercised.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (I) rights to purchase Common Stock
accrued under any other purchase right outstanding under this Plan and (II)
similar rights accrued under other employee stock purchase plans (within the
meaning of Code Section 423) of the Corporation or its Corporate Affiliates,
would otherwise permit such Participant to purchase more than $25,000 worth of
stock of the Corporation or any Corporate Affiliate (determined on the basis of
the fair market value of such stock on the grant date or dates of such purchase
rights) for each calendar year such rights are at any time outstanding.
B. For purposes of applying such accrual limitations, the right to acquire
Common Stock pursuant to each purchase right outstanding under the Plan shall
accrue as follows:
(i) The right to acquire Common Stock under such purchase right shall
accrue in a series of successive quarterly installments as and when the
purchase right first becomes exercisable for each such installment on the
last business day of each calendar quarter for which that purchase right
remains outstanding.
(ii) No right to acquire Common Stock under any outstanding purchase
right shall accrue to the extent the Participant has already accrued in the
same calendar year the right to acquire Common Stock under one or more
other purchase rights at a rate equal to $25,000 worth of Common Stock
(determined on the basis of the Fair Market Value of the Common Stock on
the date or dates of grant) for each calendar year during which one or more
of those purchase rights were at any time outstanding.
(iii) If by reason of such limitations, any purchase right does not
accrue for a particular calendar quarter, then the payroll deductions which
the Participant made during that calendar quarter with respect to such
purchase right shall be promptly refunded.
C. In the event there is any conflict between the provisions of this
Article VIII and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article VIII shall be controlling.
IX. AMENDMENT AND TERMINATION
A. The Board may alter, amend, suspend or discontinue the Plan for one or
more groups of Participants following any Quarterly Purchase Date. However, the
Board may not, without the approval of the Corporation's stockholders:
- materially increase the number of shares issuable under the Plan or
the maximum number of shares purchasable per Participant on any one
Quarterly Purchase Date, except that the Plan Administrator shall have the
authority, exercisable without such stockholder approval, to effect
adjustments to the extent necessary to reflect changes in the Corporation's
capital structure pursuant to Subsection B of Article VI;
(215)
<PAGE> 7
- alter the purchase price formula so as to reduce the purchase price
payable for the shares issuable under the Plan; or
- materially increase the benefits accruing to Participants under the
Plan or materially modify the requirements for eligibility to participate
in the Plan.
B. The Corporation shall have the right, exercisable in the sole
discretion of the Plan Administrator, to terminate all outstanding purchase
rights under the Plan immediately following any Quarterly Purchase Date. Should
the Corporation elect to exercise such right, then the Plan shall terminate in
its entirety. No further purchase rights shall thereafter be granted or
exercised, and no further payroll deductions shall thereafter be collected,
under the Plan.
X. GENERAL PROVISIONS
A. The Plan shall become effective on the designated Effective Date,
provided that no offering period shall commence, and no shares of Common Stock
shall be issued hereunder, until (i) the Plan shall have been approved by the
stockholders of Curaflex Health Services, Inc., a Delaware corporation,
HealthInfusion, Inc., a Florida corporation, Medisys, Inc., a Delaware
corporation, and T2 Medical, Inc., a Delaware corporation, at the special
stockholders meeting to be separately held by each such corporation on April ,
1994 and (ii) the Corporation shall have complied with all applicable
requirements of the Securities Act of 1933, as amended, all applicable listing
requirements of any securities exchange on which shares of the Common Stock are
listed and all other applicable legal and regulatory requirements. In the event
such stockholder approval is not obtained or such compliance of the Corporation
is not effected within twelve (12) months after the Effective Date, then the
Plan shall not be implemented.
B. The Plan shall terminate upon the earlier of (i) the last business day
in December 2003 or (ii) the date on which all shares available for issuance
under the Plan shall have been sold pursuant to purchase rights exercised under
the Plan.
C. All costs and expenses incurred in the administration of the Plan shall
be paid by the Corporation.
D. Neither the action of the Corporation in establishing the Plan, nor any
action taken under the Plan by the Board or the Plan Administrator, nor any
provision of the Plan itself shall be construed so as to grant any person the
right to remain in the employ of the Corporation or any of its Corporate
Affiliates for any period of specific duration, and such person's employment may
be terminated at any time, with or without cause.
(216)
<PAGE> 8
SCHEDULE A
COMPANIES PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE DATE
Coram Healthcare Corporation
Curaflex Health Services, Inc.
HealthInfusion, Inc.
Medisys, Inc.
T2 Medical, Inc.
(217)
<PAGE> 1
EXHIBIT 11.1 TO
REGISTRATION STATEMENT
ON FORM S-4
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
CURAFLEX HEALTH SERVICES, INC. AND SUBSIDIARIES
Income (loss) per common share is computed based upon the weighted average
number of common shares and common equivalent shares outstanding during each
year except in loss years.
Pursuant to Securities and Exchange Commission Staff Bulletin No. 83,
common shares issued for consideration below an assumed initial public offering
price (the "IPO Price") and common stock equivalents granted or issued with
exercise prices below the IPO Price during the 12-month period preceding the
date of the initial filing of the Company's registration statement for the
initial public offering of its common stock have been included in the
calculation of weighted average common and common share equivalents, using the
treasury stock method, as if they were outstanding for all periods presented.
The effects of common stock equivalents on the calculation of loss per
common share for the years ended December 31, 1992 and 1993 are antidilutive in
nature and, other than as discussed above, have been excluded from the
calculation of weighted average common and common equivalent shares outstanding
for those years.
The computations of the weighted average common shares and common
equivalents outstanding follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1991 1992 1993
------ ------- -------
<S> <C> <C> <C>
Weighted average number of common shares
outstanding during the year..................... 4,336 10,769 14,258
Incremental shares assumed to be outstanding
pursuant to SEC Staff Accounting Bulletin No.
83:
Assumed conversion of Series C preferred
stock...................................... 371 -- --
Assumed exercise of stock options and
warrants................................... 237 30 --
Dilutive effect of assumed conversion of Series A
and B preferred stock and exercise of options
and warrants.................................... 4,066 -- --
------ ------- -------
Weighted average number of common and common
equivalent shares............................... 9,010 10,799 14,258
===== ====== ======
</TABLE>
(218)
<PAGE> 2
EXHIBIT 11
MEDISYS, INC. AND SUBSIDIARIES
DETAIL COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
<S> <C> <C>
PER SHARE DATA
Net income per common and common equivalent share, primary......... $0.05 $0.15
Net income per common and common equivalent share, fully diluted... 0.05 0.15
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
Primary:
Weighted average common shares outstanding....................... 11,313,000 10,015,000
Common equivalents:
Dilutive stock options and warrants, treasury stock method.... 302,000 405,000
Debt payable in common stock.................................. 788,000 86,000
------------ ------------
12,403,000 10,506,000
========== ==========
Fully diluted:
Weighted average common shares outstanding....................... 11,313,000 10,015,000
Common equivalents:
Dilutive stock options and warrants, treasury stock method.... 270,000 445,000
Debt payable in common stock.................................. 788,000 86,000
Contingently issuable shares under acquisition agreements........ 758,000 29,000
------------ ------------
13,129,000 10,575,000
========== ==========
</TABLE>
(219)
<PAGE> 1
EXHIBIT 13.1 TO
REGISTRATION STATEMENT
ON FORM S-4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9868
T2 MEDICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 59-2405366
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1121 ALDERMAN DRIVE 30202
ALPHARETTA, GEORGIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
Registrant's telephone number, including area code: (404) 442-2160
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ----------------------------------------------------------------------------------
Common Stock, $.01 Par Value New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock, $.01 Par
Value, held by non-affiliates of the registrant as of November 30, 1993
(computed by reference to the closing price of such stock on the New York Stock
Exchange, Inc.) was $282,439,416.
The number of shares outstanding of the registrant's Common Stock, $.01 Par
Value, as of November 30, 1993 was 40,496,387 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 1994 Annual Meeting of
Stockholders are incorporated by reference into Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(220)
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
T2 Medical, Inc. ("T2" or the "Company") is a leading national provider of
alternate site health care treatment services. Infusion therapy, the Company's
primary business, involves the intravenous administration to patients of a broad
range of pharmaceutical treatments at a patient's home or at one of the
Company's IntraCare ambulatory infusion therapy facilities. The Company also
provides infusion therapy and related services in connection with its joint
ventures that provide maternity risk management services and specialized
pediatric services. Other services offered by the Company include lithotripsy
services, ambulatory surgical center services and physician practice management
services.
As of September 30, 1993, T2 had sites of service located in more than 100
cities and 38 states. Included are 89 owned home infusion therapy companies, 48
owned IntraCare facilities, 28 maternity risk management companies operated
jointly with Tokos Medical Corporation, and 12 pediatric service centers
operated through Pediatric Partners, Inc., doing business as Kids Medical Club.
In addition, as of September 30, 1993, T2 or its subsidiaries provided
management services to 103 physician-owned infusion therapy companies.
As of September 30, 1993, the Company owned portions of 13 lithotripsy
ventures that operate an aggregate of 15 mobile and ten stationary lithotripsy
machines serving patients in 124 locations in 15 states. Recently, T2 entered
into a financing arrangement with Surgex Inc. which owns majority interests in
and manages four ambulatory surgery centers.
T2 was founded on the principle that active physician involvement in the
delivery of alternate site health care services is essential to providing the
highest quality of care to patients. Historically, T2 developed and established
new infusion therapy companies through its relationships with physicians who had
ownership interests either in T2 or in the infusion therapy companies managed by
T2. However, the changing nature of health care regulation, financing and
delivery has necessitated a reassessment of T2's relationship with these
physicians. While T2 will continue to work closely with physicians to maintain
the quality of care provided, T2 does not intend to develop additional home
infusion therapy companies owned by physicians and managed by T2. T2 is
currently reviewing all of its relationships with the infusion therapy companies
it manages and may acquire such companies or restructure the management
agreements it has with such companies in order to ensure continuing compliance
with applicable laws and respond to public sentiment against physician ownership
in the infusion therapy industry. Furthermore, T2 has begun modifying its
marketing efforts to focus on developing contractual relationships with
hospitals and managed care entities, including preferred provider organizations,
health maintenance organizations, self-insured companies and other third party
payors. T2 also is pursuing relationships with or interests in managed service
organizations and other networks of health care service providers that can offer
a broad range of services to third party payors. Management believes that such
managed care networks and third party payors will play an increasing role in
deciding how health care services are provided and financed.
T2 intends to continue pursuing other appropriate health care opportunities
involving alternate site health care services, leading edge treatments and
services and savings to the health system. New business will be selected based
on a variety of factors, including potential patient population, proximity to
existing T2-owned and managed companies, and the level of potential competition.
The Company began its operations in April 1984, and was reincorporated in
Delaware in January 1988. As used herein, unless the context otherwise requires,
the term "Company" refers to T2 Medical, Inc., a Delaware corporation, its
immediate predecessor and its subsidiaries.
INFUSION THERAPY
INDUSTRY OVERVIEW. The alternate site infusion therapy industry has grown
dramatically in recent years as a result of (i) changes in health care financing
encouraging health care delivery at home or in ambulatory facilities away from
hospitals, (ii) advances in medical technology allowing treatment of more
disease states
(221)
<PAGE> 3
through infusion therapy and (iii) quality-of-life advantages to the patient of
alternate site care versus hospital care. The industry's growth can also be
attributed to improving delivery technology and growing awareness and acceptance
among physicians and managed care organizations of home and ambulatory infusion
therapy as an alternative to in-hospital treatment.
The IntraCare outpatient infusion therapy companies have proven to be
synergistic with T2's core home infusion therapy business. Physicians use
IntraCare to treat their patients when the patient does not require
hospitalization, but is not an ideal candidate for home care because of severity
of illness, complexity of therapy or environmental concerns. Patients report to
the facility for administration of the required therapy and return home that
day. Therapies commonly administered at IntraCare facilities include first dose
antibiotics, complex or lengthy chemotherapy regimens and transfusion of both
red blood cells and platelets. Other procedures may include the insertion of
long line venous catheters, aerosol therapies for prophylaxis and instruction
related to such therapies.
Company management believes that two of the markets with the greatest
growth potential in infusion therapy are the antibiotic/anti-infection drug
market segment and the chemotherapy market segment. This expected growth is
based on the increasing percentage of patients being treated in places other
than the hospital generally and the increase in the disease states treatable
with infusion therapy, particularly cancer and the acquired immune deficiency
syndrome ("AIDS"). Improved technologies that allow more patients to be
discharged from the hospital and treated at alternate sites also are expected to
contribute to the industry's growth.
Alternate site care is generally less costly to third party payors than
hospital based care, and, therefore, the alternate site treatment industry has
historically benefitted from cost containment initiatives aimed at reducing the
costs of hospitalization. However, increased competition among alternate site
service providers and increased efforts by third party payors to contain or
reduce health care costs by lowering reimbursement rates, increasing utilization
review of services and negotiating reduced rates have decreased the amounts
received for each patient treated. Accordingly, alternate site service
providers, including the Company, have reported decreased operating margins as a
result of such cost containment efforts.
Historically, the vast majority of the Company's revenues have been derived
from third party payors without formal agreements with the Company. However,
Company management has recognized that third party payors, including preferred
provider organizations, health maintenance organizations, self-insured companies
and indemnity insurance carriers, have been more active in monitoring, managing
and reviewing the care programs, and in many cases, have become the care
provider serving its beneficiaries. Accordingly, agreements between health care
providers and third party payors have become more important in treating the
patients referred to the provider for treatments. Failure to secure such
agreements or arrangements in advance of treating a patient may preclude
providers from furnishing services to or receiving reimbursement for services
rendered to any person who receives benefits from that third party payor.
In response, the Company has modified its sales and development focus and
is aggressively pursuing agreements with third party payors and to participate
in managed service organizations and provider networks that will provide high
quality, cost effective care. The Company has recruited a staff of former payor
executives to enhance the Company's efforts to market and sell its services to
third party payors. The Company has also re-deployed its senior development
personnel to market the Company's services directly to hospitals, third party
payors, health maintenance organizations, preferred provider organizations,
self-insured employers and their case managers. In addition, the Company has
been building a small traditional sales force to enhance these efforts on a
local level.
Infusion Therapies Provided by T2. T2 provides a variety of infusion
therapies, principally anti-infective therapy, parenteral nutrition,
chemotherapy and pain management therapy. The initiation and duration of these
therapies is determined by a physician based upon a patient's condition and
treatment. Certain therapies, such as anti-infective therapy, are generally used
in the treatment of temporary conditions such as infections, while others, such
as parenteral nutrition, may be required on a long-term or permanent basis.
(222)
<PAGE> 4
The following table sets forth the aggregate percentages of patient
revenues derived by T2's owned companies from the designated types of infusion
therapies during the year ended September 30, 1993:
<TABLE>
<S> <C>
Anti-Infective................................................. 45%
Parenteral Nutrition........................................... 24%
Chemotherapy................................................... 16%
Pain Management................................................ 5%
Other Therapies................................................ 10%
---
Total................................................ 100%
===
</TABLE>
Anti-Infective Therapy. Anti-infective therapy is the infusion of
antibacterial, anti-viral or anti-fungal medications into the patient's
bloodstream for the treatment of a variety of infectious diseases, such as
osteomyelitis (bone infections), bacterial endocarditis (infection of the heart
valves), wound infections, infections associated with AIDS and infections of the
kidneys and urinary tract. Generally, intravenous anti-infective drugs are
delivered through a peripheral catheter inserted in a vein in the patient's arm
and are generally more effective when infused directly into the bloodstream than
when taken orally.
Parenteral Nutrition. Parenteral nutrition involves the intravenous feeding
of life-sustaining nutrients to patients with impaired or altered digestive
tracts due to a gastrointestinal illness or condition, such as an intestinal
obstruction or inflammatory bowel disease. The therapy is administered through a
central catheter, surgically implanted into a major blood vessel to introduce
the nutrient solution into the bloodstream. The nutrient solutions may contain
amino acids, dextrose, fatty acids, electrolytes, trace minerals and vitamins.
In many cases, the underlying illness or condition from which parenteral
nutrition patients suffer is recurrent in nature, requiring periodic
re-hospitalization for treatment followed by resumption of parenteral nutrition
at home. Some patients must continue this type of therapy for life.
Chemotherapy. Chemotherapy is the administration of drugs to patients
suffering from various types of cancer. Company management believes breast,
lung, colon, prostate and ovarian cancer, among others, are most conducive to
outpatient chemotherapy treatment. Chemotherapy generally is administered
periodically for several weeks or months. A majority of the nurses employed by
T2's owned and managed companies are certified to administer chemotherapy.
Pain Management Therapy. Pain management therapy is the administration of
analgesic drugs to patients suffering from acute or chronic pain. It is often
administered in conjunction with intravenous chemotherapy or intravenous therapy
given to patients with AIDS. This type of therapy is generally administered in a
way that permits the patient to regulate the infusion of analgesic drugs in
proportion to the severity of the pain the patient experiences.
Other Therapies. Other therapies provided by the Company include:
Biotherapy. Biotherapy is the administration of agents that augment or
modulate a patient's immune system; these agents may have anti-tumor
activity or can stimulate the production of certain blood cells, including
red and white cells. Biotherapy is a relatively new modality of therapy
used in the care of cancer patients and people with AIDS and is now moving
from the hospital setting to alternate site settings. Currently,
interferon, GM-CSF, G-CSF, erthyropoietin, and interleukin-2 are given both
in the home and IntraCare settings. The agents are given either
intravenously or by the subcutaneous route. Company management believes
that these agents represent an area of growth and will be followed by many
more biotherapeutic agents.
Blood Product Therapy. Blood product therapy is the administration of
red blood cells or platelets for patients with anemia or thrombocytopenia
related to a chronic blood disorder, chemotherapy, HIV infection or as a
consequence of the other administered medications.
Hydration Therapy. Hydration therapy involves the intravenous
administration of fluids to increase the patient's fluid volume; it is
often administered in conjunction with intravenous chemotherapy.
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<PAGE> 5
MATERNITY RISK MANAGEMENT SERVICES. In June 1991, T2 entered into a joint
venture relationship with Tokos Medical Corporation ("Tokos") to develop a
business to manage physician-owned companies that provide specialized health
care services which support pregnant women and their physicians in the
detection, treatment and management of pre-term labor. The joint venture, which
is operated under the name Women's Homecare, utilizes (i) the expertise and
services of Tokos in the area of maternity risk management and (ii) the
experience of T2 in the development, organization and management of alternate
site treatment companies. Women's Homecare services are designed to achieve
improved medical outcomes at significant cost savings through the reduction of
hospital costs associated with problematic pregnancies and premature births. As
of September 30, 1993, Women's Homecare had established 28 physician owned
companies in 13 states. As the manager of such companies, Women's Homecare
provides various services to the local companies and utilizes the resources of
Tokos and T2 to provide pharmaceutical and nursing services as well as billing
and collection services, as available and appropriate. The Women's Homecare
joint venture is no longer actively pursuing the development or establishment of
additional physician-owned companies and T2 is evaluating alternatives
concerning the future direction of this service in light of its reassessment of
physician ownership in the infusion therapy industry.
SPECIALIZED PEDIATRIC SERVICES. The Company recently entered the market for
alternate site treatment services for children through its acquisition of a
majority interest in Pediatric Partners, Inc., doing business as Kids Medical
Club ("Kids Medical Club"). Kids Medical Club operates out of 12 sites of
service in 12 cities, and its services include home infusion therapy,
respiratory therapy and home nursing. The Company expects this entrance into the
alternate site pediatric therapy market to strengthen its overall position in
the alternate site treatment industry. The Company holds an option to acquire
the remaining interest in Kid's Medical Club.
HOME THERAPEUTICS SUPPLY, INC. The Company, through one of its wholly-owned
subsidiaries, Home Therapeutics Supply, Inc. ("HTS"), negotiates national
purchase agreements with pharmaceutical manufacturers and others, and purchases
certain pharmaceuticals, supplies and equipment for the Company's owned
treatment facilities and for lease or resale to the 30 managed infusion therapy
facilities. HTS purchases the pharmaceuticals, supplies and equipment in bulk
quantities at substantial discounts from the prices that would otherwise be paid
by the managed companies individually and passes part of these discounts on to
such companies, thereby enhancing cost containment of supplies for such
companies. As a result, the Company believes its sales or leases to the managed
facilities are on terms no less favorable to those companies than could be
obtained by any individual company from unaffiliated third parties. T2 has not
experienced and does not anticipate that it will experience material difficulty
in obtaining equipment, supplies and materials that it may require in connection
with its business.
HTS also maintains a biomedical department that tracks, maintains, repairs
and monitors the performance of the infusion therapy pumps used throughout the
Company's operations. As a result, HTS (i) controls the number of pumps used
throughout the Company, (ii) facilitates loans of equipment among the Company's
facilities and (iii) provides management with useful data as to pump performance
and durability. Management believes that its in-house biomedical department will
play an increasingly important role in controlling the Company's costs while
enhancing patient service.
ACQUISITIONS AND DISPOSITIONS. Since November 1988, T2 has acquired 95
infusion therapy companies that were previously owned primarily by local
physicians and, in most instances, managed by T2. During its fiscal year ended
September 30, 1993, T2 acquired 14 infusion therapy companies it had managed
previously, one infusion therapy company it had not previously managed and
acquired the remaining interest in another infusion therapy company in which it
had previously owned a majority interest. The Company has agreed in principle to
acquire one other infusion company that it currently manages and anticipates
that this transaction will be consummated on or about December 31, 1993.
During the Company's 1993 fiscal year, the Company also sold substantially
all of its assets and equipment that were previously used in connection with the
delivery of respiratory therapy services; that sale was consummated on April 15,
1993, and resulted in a gain of $6,441,556.
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<PAGE> 6
LITHOTRIPSY
OVERVIEW. Lithotripsy is a non-invasive technique that uses shock waves to
break up kidney stones. Depending on the particular lithotripter used, the
patient is sedated using either a general or an intravenous anesthetic while
seated in a bath or lying on a treatment table. The operator of the lithotripter
machine locates the stone using a fluoroscopy or ultrasound machine and directs
the shock waves toward the stone either through the water in the bath or across
a membrane placed next to the patient's body. The shock waves then fragment the
stone thereby enabling the patient to pass the fragments through his or her
urinary tract. Because lithotripsy is non-invasive and is provided on an
outpatient basis, lithotripsy is an attractive alternative to other more
invasive techniques otherwise used in treating urinary tract stones.
As of September 30, 1993, T2 owned majority interests in 12 lithotripsy
ventures and a minority interest in one other venture. The Company's lithotripsy
ventures currently operate an aggregate of 25 lithotripsy machines that provide
services in 124 locations in 15 states. The other owners of the ventures are
primarily physicians, many of which utilize the venture's equipment to treat
their patients. Ten of the 25 lithotripsy machines are stationary and located at
hospitals or ambulatory surgery centers, while the other 13 machines are mobile,
allowing them to be moved in order to meet patient needs and market demands. The
Company's lithotripsy ventures typically lease the machine to the hospital,
ambulatory surgery center or other facility providing care to the patient for a
fee. In some cases, the lithotripsy venture bills the patient directly for the
use of the venture's machine.
Management believes that the regulatory and other problems associated with
physician ownership in the Company's infusion therapy business are not currently
present in the Company's lithotripsy business. There can be no assurance,
however, that there will not be regulatory changes or public pressure that will
require changes to the current structure of the Company's lithotripsy ventures.
Many of the Company's agreements with its lithotripsy joint venture partners
contemplate that the Company will acquire the remaining interest in such joint
venture in the event that legislation is passed or regulations are adopted that
would prevent the partner from owning an interest in the venture and using the
venture's lithotripsy equipment for the treatment of his or her patients. See
"Government Regulation."
Company management believes that its lithotripsy investments will
contribute increasing amounts to the Company's operations in the future.
However, there can be no assurance that lithotripsy reimbursement rates will
remain at their current levels and that the amounts the ventures currently
receive for their machines will not be subject to pricing pressures similar to
the pricing pressures that have been exerted on the Company's infusion therapy
business. Recently, the Health Care Financing Administration ("HCFA") released a
proposed rule setting the rate at which ambulatory surgery centers and certain
hospitals would be reimbursed for the technical component of a lithotripsy
procedure. The Company cannot predict what the final rate for such reimbursement
will be or what effect, if any, the adoption of this proposed rule would have on
lithotripsy revenues and whether this decreased reimbursement rate will be
applied to lithotripsy procedures performed at hospitals where a majority of the
Company's lithotripsy machines are currently utilized.
SERVICETRENDS, INC. On March 31, 1993, the Company acquired Servicetrends,
Inc. ("Servicetrends"), a Marietta, Georgia based independent service
organization that specializes in servicing lithotripters and other
high-technology medical equipment. Servicetrends provides maintenance and repair
services to approximately 43 lithotripsy companies, including nine companies in
which the Company owns an interest.
ACQUISITIONS. During its fiscal year ended September 30, 1993, T2 was
involved in nine transactions, including two transactions in which it increased
its ownership interests in lithotripsy ventures with which it was previously
affiliated, six transactions in which it acquired a majority interest in a
venture with which it had no prior affiliation and one transactions in which it
acquired a minority interest in a venture.
The Company has also agreed in principle to acquire majority interests in
two other lithotripsy companies with which it has had no prior affiliation. The
Company anticipates that each transaction will be consummated on or about
December 31, 1993.
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<PAGE> 7
PHYSICIAN PRACTICE MANAGEMENT SERVICES
The Company has developed a physician practice management business that
provides a variety of services to small and medium sized physician groups.
Company management estimates that over 80% of the physicians in this country
practice either alone or in a small group practice. With the ever increasing
complexity of private practice, physicians have a growing need for external
management services. The Company is providing consulting services in the
following areas: development and management; office systems, including
computerization, financial management, billing and collecting; practice
marketing and development; other in-office services such as infusion therapy;
mergers, acquisitions, affiliations and ventures; and managed care and third
party payor contract opportunities. Initially, the practice management division
will focus on providing services to the Company's physician network and their
medical specialties. In addition, the Company intends to offer consulting and
management services to service organizations and other health care providers
that will offer a package of health care services to third party payors.
AMBULATORY SURGERY CENTERS
Pursuant to a Debenture Purchase Agreement (the "Surgex Agreement"), dated
January 1, 1993, the Company agreed to lend up to $10,000,000 to Surgex, Inc.
("Surgex") to assist Surgex in the operation, development and acquisition of
additional ambulatory surgical centers. The interest rate applicable to loans to
Surgex is 7% from January 1, 1993 to December 31, 1993, and the prime rate of
interest announced by Trust Company Bank, Atlanta, Georgia, plus one percent
(1%) from January 1, 1994 to December 31, 1997, the stated maturity date. The
debentures representing the first $5,000,000 of loans are convertible at the
Company's option into 51% of the issued and outstanding common stock of Surgex
at the conversion date. The debentures representing the remaining $5,000,000
under the Surgex Agreement are convertible at the Company's option into an
additional 23.375% of the issued and outstanding shares of common stock of
Surgex on the date of conversion. In addition, the accrued interest on the
debentures may be convertible into the common stock of Surgex, at Surgex's
option. As of October 31, 1993, the Company had made loans to Surgex under the
Surgex Agreement totalling $9,809,000. In addition, pursuant to the Surgex
Agreement, the Company advanced an additional $828,000 to Surgex.
As of December 15, 1993, Surgex owned interests in and managed four
ambulatory surgical centers. The Centers are located in Miami, Florida; Atlanta,
Georgia; Las Vegas, Nevada; and San Bernadino, California.
OTHER HEALTH CARE BUSINESSES
In addition to operating infusion therapy companies and providing the other
services described above, the Company was also involved during 1993 in certain
other health care businesses, including, without limitation, home nursing and
diet centers. Such complementary businesses amounted to less than 1% of the
Company's net earnings for each of the fiscal years ended September 30, 1993 and
1992.
COMPANY OPERATIONS
GENERAL. The Company's infusion therapy business is operated under a system
that combines elements of a centralized management structure with features that
allow patient services to be controlled and administered on a local level. In
general, the infusion therapy companies are operated through T2's President who
has two executive vice presidents reporting to him. Each executive vice
president has operational responsibility for a series of "regions", each of
which is comprised of several "districts." Each regional vice president has
operational responsibility for a series of "districts", each of which is
comprised of two or more companies. Each of the companies operates under the
general direction of one of T2's general managers in accordance with policies,
procedures and objectives established by T2. The implementation of these
policies, procedures and objectives is carried out at the local level by the
general managers.
While T2 relies largely on its general managers to control costs, bill and
collect patient accounts and supervise the administration of patient care at the
local level, the Company has established systems to assist the general managers
in virtually all operational aspects of the individual companies. For example,
T2 has regional financial representatives who advise the companies on T2's
billing and collecting policies and
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<PAGE> 8
procedures and periodically audit the accounts and systems of the local
companies. In addition, these persons assist T2 in revising and refining its
billing and collecting practices and procedures to improve T2's communications
with third party payors and managed care providers.
Similarly, T2 has a Vice President of Clinical Services who has
responsibility for developing and monitoring the nursing and pharmacy services
of the Company's operations. Primary functions in this staff role include
education, clinical support and communication. The directors of nursing and
pharmacy report to the Vice President of Clinical Services and supervise a staff
of regional nurses and regional pharmacists who provide direction related to
nursing and pharmacy clinical practice to the Company's clinical personnel in
the field. The regional nurses and pharmacists travel among the owned and
managed companies to ensure that T2's clinical policies, procedures and
objectives are followed. These clinical "consultants" also have responsibility
for reviewing and updating T2's clinical procedures manuals and updating them as
new technologies and treatments become available. They also assist local
companies going through the accreditation process of the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO") in which JCAHO surveyors
conduct a thorough review of the local company to ensure that it meets the
clinical standards published by the JCAHO. The ultimate goals of T2's regional
nurses and pharmacists are establishing and maintaining the highest possible
level of quality in T2's patient care and service. See
"Business -- Accreditation."
T2 management believes that its team of internal billing, collecting and
clinical consultants will enable T2 to maintain its quality of patient care,
patient service and responsiveness.
PATIENT CARE. Before accepting a patient for alternate site infusion
treatment, the staff of the local company works closely with the patient's
physician or clinicians and hospital personnel in order to assess the patient's
suitability for alternate site care. This assessment process includes an
analysis of the patient's physical condition and of social factors such as the
stability of the patient's home life and the availability of family members or
others who can assist in the administration of the patient's therapy, if
necessary.
When a patient's suitability for alternate site care has been confirmed,
the patient and the patient's family (or others) receive training and education
concerning the therapy to be administered, including proper infusion technique
and care and use of intravenous devices and other equipment used in connection
with the therapy. Assessment and training are generally performed by the nurses
of the local company.
Prior to the patient receiving treatment services from T2-owned or
T2-managed companies, the treating physician devises the patient's plan of care
and transmits it to the local company's clinical support team, including its
nurses and pharmacists. This team will work with the treating physician to
administer the plan of care and monitor the patient's progress. Throughout the
patient's therapy, the local company's clinical support team will regularly
provide the treating physician with reports on the patient's condition, allowing
the treating physician to play an active role in the patient's treatment. The
treating physician always remains responsible for the patient's care, including
changing the patient's plan of care to meet the patient's needs and handling
patient emergencies.
Upon the patient's arrival home, a nurse from the local company typically
oversees the administration of the patient's first home infusion treatment.
Thereafter, the frequency of nursing visits depends upon the particular therapy
involved. Depending upon the therapy and other factors, the nurse may check and
adjust the patient's infusion site, intravenous lines and related equipment,
obtain blood samples, change the pump settings and/or drug administration after
consulting with the physician and assess the patient's condition and compliance
with the plan of care. The patient's nutrition supplies and prescription drugs
are typically delivered on a weekly basis, depending on the therapy.
The treating physician remains actively involved in monitoring his or her
patient's treatment by devising the patient's initial plan of treatment,
monitoring the plan's administration and revising the plan as necessary. In
addition, each T2-owned company has a medical advisory board comprised of local
physicians who review quality assurance and patient services issues and consult
with T2 on maintaining and improving its quality of care and patient service at
the local level.
NEW/OTHER CLINICAL RELATED PROGRAMS. In addition to basic education and
audit functions, the clinical services department is responsible for ensuring
that each center has a Quality Assurance/Improvement
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<PAGE> 9
program so that problems are identified and corrected and all centers have a
program to improve their services. Each center reports on a quarterly and annual
basis to the T2 Corporate QAQI Committee which, in turn, reports on an annual
basis to the T2 Board of Directors about clinical activities, changes and
improvements.
In January 1993, several IntraCare and home infusion centers began treating
certain patients with the newly approved cancer agent paclitaxol. Use of this
new agent presented challenges related to education of staff and actual
administration. Through September 30, 1993, a total of 379 doses of this new
agent were safely administered to 127 patients. These patients were able to
receive this new therapy in their homes or at an IntraCare facility thereby
bypassing the traditional hospital setting. The Company intends to continue to
develop theses new therapy programs and to monitor these patients in outcome
studies.
Furthermore, in response to a changing business environment, T2 has begun
organizing and establishing a case manager liaison program in its centers.
Company management has recognized that third party payors and their case
managers are requesting more and more clinical information about their
beneficiaries. Accordingly, the Company has begun designating persons with
clinical backgrounds to serve as case manager liaisons who will be responsible
for relaying specific treatment information to the patient's third party payor
and its case manager. Management believes that facilitating the flow of
treatment information to the third party payors through persons with clinical
backgrounds will assist the Company in better serving its patients and their
payor sources and will improve its relations with such payor sources.
SOURCES OF REVENUE. The Company's revenues from alternate site health care
services are paid primarily by "third-party payors" including private insurance
companies, self-insured employers, health maintenance organizations, preferred
provider organizations and governmental payors under the Medicare or Medicaid
programs. While the T2-owned companies accept and treat persons who receive
benefits under the Medicare and Medicaid programs, T2 does not encourage
Medicare or Medicaid referrals. Furthermore, T2-managed companies, pursuant to
the terms of their respective management agreements, are not permitted to accept
patients receiving benefits under the Medicare or Medicaid Programs. See
"Business -- Management Agreements" and "-- Government Regulation."
Prior to acceptance of a patient for therapy, the availability and amount
of the patient's health insurance coverage are determined. Thereafter, the
Company processes all payment requests on behalf of the patient. The Company
generally accepts an assignment of the patient's benefits, and such benefits are
paid directly by the patient's insurer or other third-party payor.
The following provides T2's estimate of the approximate relative
percentages of the portion of aggregate infusion therapy billings attributable
to third-party payors for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER
30,
-----------
1993 1992
--- ---
<S> <C> <C>
Private Third-Party Payors.............................. 96% 94%
Medicare Program........................................ 4% 6%
--- ---
Total................................................. 100% 100%
=== ===
</TABLE>
The Company's profitability, like the profitability of other health care
companies, depends in large part on reimbursements provided by third party
payors. Because alternate site care is generally less costly to third party
payors than hospital-based care, the alternate site treatment industry has
historically benefitted from cost containment initiatives aimed at reducing the
costs of hospitalization. However, increased competition among alternate site
service providers and increased efforts by third party payors to contain or
reduce health care costs by lowering reimbursement rates, increasing utilization
review of services and negotiating reduced rates have decreased the amounts
received for each patient treated. Accordingly, alternate site service
providers, including the Company, have reported decreased operating margins as a
result of such cost containment efforts. Continued cost reduction initiatives by
third party payors or significant reductions in coverage or payment rates of
third party payors or in the percentage of the Company's services delivered to
privately-insured patients could have a material adverse effect on the Company's
financial condition or results of operations.
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<PAGE> 10
Historically, the vast majority of the Company's revenues have been derived
from third party payors without formal agreements with the Company. The Company
is actively pursuing agreements with various self-insured companies, private
insurance companies, health maintenance organizations, preferred provider
organizations and managed care organizations for the provision of the Company's
services. Pursuant to such agreements, the Company would provide discounts to
the Company's usual and customary rates in exchange for commitments of
incremental business and various concessions such as accelerated reimbursements.
Many such agreements have already been reached at both a national level and at
various local levels. In addition, the Company is pursuing positions in managed
service organizations and other provider networks that would offer a broad range
of services to various third party payor networks or purchasing alliances.
SALES AND EXPANSION
T2 is concentrating its sales and expansion efforts on increasing the
number of patients served through its existing services facilities.
Historically, T2's physician relationships have enabled T2 to minimize sales and
marketing expenses, and T2's sales and marketing activities had been predicated
upon direct contact with local physicians. Due to the changing health care
environment, the Company has recruited a staff of former payor executives to
enhance the Company's efforts to market and sell its services to third party
payors. The Company has also redeployed its senior development personnel to
market the Company's services directly to third party payors, health maintenance
organizations, preferred provider organizations, self-insured employers and
their case managers. In addition, the Company has been building a small
traditional sales force to enhance these efforts on a local level.
T2's general managers are continuing to assist in the Company's overall
sales efforts by marketing the Company's services to physicians, hospitals,
health insurance companies and health maintenance organizations. When contacting
these referral sources, the general managers stress quality of service, the
experience and training of the registered nurses in infusion therapy, the
immediate availability of specially prepared drugs from the Company's pharmacy
and price.
MANAGEMENT AGREEMENTS
Historically, T2 has developed and managed physician-owned infusion therapy
companies as described below. T2 does not, however, intend to develop additional
physician-owned home infusion therapy companies in the future, and it is
currently reviewing all of its relationships with the infusion therapy companies
it manages and may acquire such companies or restructure the management
agreements it has with such companies in order to maintain the Company's
compliance with applicable laws and respond to public sentiment against
physician ownership in the infusion therapy industry. Any such acquisition of
its managed companies may be accomplished using shares of Company common stock,
cash or other Company securities or a combination thereof.
MANAGED CENTERS. Twenty-nine of the 103 managed companies operate out of
separate infusion therapy facilities or "centers". T2 enters into a management
agreement ("Management Agreement") with each such managed home infusion therapy
center under which T2 is responsible for (1) staffing and training the employees
of the center, (2) promoting the center's business, (3) obtaining insurance for
the center, (4) maintaining the center's equipment in good working order, (5)
maintaining the center's books and records, (6) maintaining the center's
compliance with applicable regulatory requirements, (7) paying, on behalf of the
center, its expenses, (8) billing and collecting the revenues generated by the
center and (9) supervising all other aspects of the day-to-day operations of the
center. The employees of the managed center, on the other hand, are responsible
for the nursing and pharmaceutical services provided by the center. There is no
substantial difference in the manner in which T2-owned and T2-managed centers
are operated, except, pursuant to the management agreement, managed centers are
not permitted to accept any funds paid pursuant to the Medicare or Medicaid
programs for the treatment of patients served by such centers.
Under each Management Agreement, T2 is paid a monthly management fee equal
to the greater of a fixed dollar amount or a specified percentage of the
center's annual pre-tax earnings (referred to in the
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<PAGE> 11
Management Agreements as "net profits"), determined before payment of the
management fee. The Management Agreement used by T2 provides that it continues
until it is terminated according to its terms.
Under the terms of the Management Agreements entered into with these
managed facilities, the center is prohibited from competing with T2 in the same
area during the term of the Management Agreement and for two years thereafter.
Under the standard terms of the Management Agreements, each center agrees to
indemnify T2 and certain of its affiliates for any and all liabilities arising
out of the operation of the center to the fullest extent permitted by applicable
law, unless such liability resulted from the negligence of T2 or the willful
misconduct of T2 in the management of the center. If it is determined that such
liability resulted from the negligence of T2 or the willful misconduct of T2 in
the management of the center, T2 will indemnify the center and certain
affiliates of the center against all liability arising from such misconduct.
MANAGED COMPANIES. Since August 1988, certain of T2's owned home infusion
therapy centers have entered into Management Agreements with separate companies
owned by local physicians pursuant to which the T2-owned center provides office
space, pharmaceutical supplies and nursing, billing and collection services to
the managed company for a fee stated as a percentage of collected revenues. On
September 30, 1993, the Company had 74 such arrangements in place. These
arrangements enable T2 to achieve economies of scale in the use of the
management resources of T2-owned centers. None of the managed companies is
permitted to accept any funds paid pursuant to the Medicare or Medicaid programs
for the treatment of patients served by such companies.
COMPETITION
The businesses in which the Company is involved are highly competitive. The
Company believes that the principal bases of competition in the market are: (i)
price; (ii) the quality, responsiveness and diversity of services offered; (iii)
the relationship with local physicians, hospitals, clinics and nursing agencies;
and (iv) the relationship with the third party payors and their case managers.
The Company believes that it competes effectively on all of these bases. The
Company also believes that its physician relationships are a competitive asset
as these relationships assist the Company in improving the quality of its
services and in identifying local physicians and third party payors in
communities where the Company has determined that a need exists for infusion
therapy or other services.
The Company's primary business is providing infusion therapy services.
While the Company believes that most companies and hospitals offering
competitive services operate in one locality or metropolitan area, several
companies offer these services nationwide and are larger and have significantly
greater resources than the Company. In addition, consolidation in the infusion
therapy industry and health care delivery system will likely produce larger
numbers of regional and national competitors for the Company. Furthermore, other
companies, hospitals and clinics, as well as health maintenance organizations,
preferred provider organizations and other health care organizations can be
expected to enter the infusion therapy market.
Competition within the alternate site health care delivery system has been
changed by the decision of third party payors and their case managers to become
more active in monitoring and directing the care delivered to their
beneficiaries. Accordingly, relationships with such payors and their case
managers and inclusion within preferred provider and other networks of approved
or accredited providers may become a prerequisite to the Company's ability to
serve many of the patients treated by it. Similarly, the ability of the Company
and its competitors to align themselves with other health care service providers
may increase in importance as managed care providers and provider networks seek
out providers who offer a broad range of services that may exceed the range of
services currently offered by the Company and its affiliates.
Finally, the future development of alternative means of treating infections
or administering nutrition, which do not involve infusion therapy, could
adversely affect the Company's business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements included elsewhere herein.
The lithotripsy industry is competitive, particularly in geographic regions
in which a high incidence of kidney stones exists. While T2 management believes
that most hospitals and organizations offering lithotripsy
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or other kidney stone treatments are operated in one locality, metropolitan area
or state, T2 is aware of several companies that offer lithotripsy services on a
regional or multi-regional basis. Furthermore, while the existence of statutes
in certain states that require a hospital, ambulatory surgery center or
lithotripsy company to obtain a certificate of need may inhibit competition, the
flexibility offered by mobile lithotripsy technology will increase competition.
EMPLOYEES
The Company strives to employ and retain employees who will provide the
best possible level of care for the Company's patients. For example, the
Company's infusion therapy nurses are typically registered nurses, and the
Company strongly encourages its nurses to obtain special training in intravenous
therapies such as chemotherapy.
As of September 30, 1993, T2 had 1,210 full-time employees and 599
part-time employees, distributed by profession, as follows:
<TABLE>
<S> <C>
Management and corporate administrative staff................ 136
Pharmacists.................................................. 363
Nurses....................................................... 743
Field administrative staff................................... 567
------
Total...................................................... 1,809
=====
</TABLE>
T2 considers its relationship with its employees to be good. None of T2's
employees is represented by a labor union.
INSURANCE
The Company has not experienced any material liability claims relating to
its services and is not aware of any basis for any material claims. Certain of
the Company's services entail an inherent risk of liability, however, and there
can be no assurance that such claims will not be asserted against the Company in
the future.
The Company maintains professional liability coverage for all of its owned
and managed companies. The professional liability policy provides limits of
$1,000,000 per claim and in the aggregate per year applicable to all owned and
managed companies. This policy provides coverage for damages due to any
negligent act, error or omission by the named insured or employees arising out
of professional services provided to others, subject to general policy
exclusions. Coverage for other third party claims (general liability and
automobile liability coverage) is also maintained by the Company up to
$1,000,000 per claim and in the aggregate on all owned and managed companies,
subject to certain exclusions. In addition to the above policies, the Company
maintains an excess insurance policy with a $15,000,000 aggregate policy limit
which covers the Company and its owned and managed companies against liabilities
in excess of the policy limits on the professional and general liability and
automobile liability policies described above, subject to certain exclusions. In
addition, the Company maintains a $10,000,000 excess umbrella insurance policy
that covers liabilities in excess of the Company's other liability policies
subject to certain exclusions.
PATENTS; TRADEMARKS; LICENSES
Except for the service marks "T2", "IntraCare" and "Extendacare", the
Company owns no patents or trademarks, and the Company does not believe that its
business is dependent upon the use of any patent, trademark, service mark,
license (other than regulatory licenses which the centers are required to obtain
(see "Business -- Governmental Regulation") or similar property.
(231)
<PAGE> 13
GOVERNMENTAL REGULATION
The federal government and all states in which the Company operates
regulate various aspects of the Company's business. The Company believes that it
is in substantial compliance with the federal and state laws and regulations
applicable to its operations.
Infusion therapy is subject to substantial regulation, as are many aspects
of the health care delivery business, at the state level and also under the
federal Medicare laws administered by the Health Care Financing Administration.
In particular, the Company's infusion therapy facilities are subject to state
laws governing pharmacy, home care, nursing services, health planning and
professional ethics, as well as state and federal laws regarding fraud and abuse
and physician ownership. Although the Company has not experienced any
significant difficulties in obtaining the licenses, certificates and approvals
necessary to establish and operate its facilities to date, the failure of a
facility to obtain, renew or maintain any required regulatory approvals,
licenses or certificates of need could prevent such facility from offering its
existing services to patients and could adversely affect continued operation and
expansion of T2.
PHYSICIAN "SELF-REFERRAL" LEGISLATION. In the past several years, numerous
legislative proposals have been offered at the state level that would expressly
prohibit physicians from having any financial interests in a health care
provider to which they refer patients. Within the past two years, 24 states have
enacted physician "self-referral" legislation that in some way regulates
ownership interests in or compensation arrangements between physicians and
health care service providers. These laws vary from measures that require
physicians to disclose their financial interests in the service providers to
which they refer their patients to outright prohibitions of all financial
relationships between physicians and the service providers to which they refer
their patients and, in most cases, without regard to whether payment for the
services is from a government or private program. The Company believes that most
of these laws are either inapplicable to the businesses in which the Company
operates or contain exemptions that appear to be applicable to the Company's
operations. In states where the recent legislation appears to be applicable to
the Company's operations, the Company has implemented methods for complying with
such laws or is reviewing various methods for maintaining compliance with
applicable laws.
The so-called "fraud and abuse" provisions of the Medicare statute prohibit
the knowing and intentional payment or receipt of any kickback or other form of
remuneration specifically in return for the referral of patients to a health
care provider for services reimbursable by Medicare. Violations can result in
criminal or civil penalties, as well as exclusion from the Medicare program,
under which the Company currently derives approximately 4% of its infusion
therapy revenues. The laws of several states similarly prohibit such payments or
receipt with respect to health care services in general. The Inspector General
of the United States Department of Health and Human Services ("HHS") has taken
the position that any benefit derived from a physician's financial interest in a
health care provider to which the physician refers patients may in some
circumstances constitute such prohibited payment and receipt. The Company does
not believe that any benefit resulting from referring physicians' ownership of
the Company's stock or other financial interest in the businesses owned or
managed by the Company constitutes payment or receipt of remuneration within the
meaning of these laws. With respect to the Medicare program, the Company
believes that any patient referrals provided by Company stockholders fall within
a "safe harbor" designated by HHS. See Item 5. "Market for Registrant's Common
Equity and Related Stockholder Matters -- Shares Eligible for Future Sale."
The Omnibus Budget Reconciliation Act of 1993 (the "Omnibus Act") was
enacted on August 10, 1993, and includes provisions that prohibit physicians,
beginning on January 1, 1995, from referring their patients who receive benefits
under the Medicare or Medicaid programs to entities in which they have financial
relationships for certain designated health services and prohibits the entity
from submitting a claim for payment with respect to such services. The Omnibus
Act is worded broadly and contains numerous exceptions and technical terms that
are not fully defined and empowers the Secretary of the Department of Health and
Human Services (the "Secretary") to adopt regulations interpreting and
implementing the Omnibus Act. The Company cannot predict what effect, if any,
the application of such regulations or the Omnibus Act may have on its future
business activities.
(232)
<PAGE> 14
Furthermore, additional bills were introduced during the last session of
Congress that, if enacted, would have extended application of the Omnibus Act
beyond services covered by Medicare or Medicaid. The Company cannot predict
whether any such bill will be introduced in subsequent Congressional sessions
and enacted into law or whether, if enacted, such law will apply to the
businesses in which the Company operates or will contain an exemption applicable
to the Company's operations. Enactment of such legislation (or similar state
legislation) applicable to the Company's operations could have a material
adverse effect on the Company.
In December 1992, the Council on Ethics of the American Medical Association
adopted guidelines concerning physician ownership of medical facilities. The
guidelines state that, in general, physicians should not refer patients to a
heath care facility in which they have an investment interest unless they
provide services at the facility and alternative financing is unavailable. The
Company does not believe the guidelines prevent physician stockholders from
referring patients to its owned or managed companies.
In June 1992, the Company received a request for documents from a grand
jury sitting in Atlanta, at the request of the HHS, the focus of which appears
to be the potential application of the Medicare Fraud and Abuse Law as it
relates to physician-ownership. The Company has complied with the request and
believes that the documents submitted will confirm that it has conducted its
business affairs in a proper and lawful manner consistent with all applicable
laws, regulations and professional codes of conduct. Management believes that
the ultimate resolution of the grand jury proceeding will not have a material
adverse effect on the Company's financial position and results of operations.
HEALTH CARE REFORM LEGISLATION. The Clinton Administration has made health
care reform a priority. When outlining his plan for health care reform in
September 1993, President Clinton articulated six basic principles upon which
the new system would be founded: security, simplicity, savings, choice, quality
and responsibility. President Clinton explained that his proposal would provide
insurance coverage to all Americans through government programs, employer
programs or health alliances. On November 22, 1993, a bill was introduced in
Congress that embodies the President's plan for health care reform. The current
bill, which is captioned the "Health Security Act," would provide health
insurance coverage for all Americans, primarily through regional health
alliances, corporate health alliances and government funded programs. The basic
insurance package would include coverage for certain outpatient services,
including home health services and ambulatory surgery center services, but the
antifraud provisions would place significant restrictions on the nature of the
relationships between health care providers and such alliances and programs and
is expected to place additional restrictions upon relationships between health
care service providers and persons in a position to make or influence referrals
of patients.
The Health Security Act would also create, beginning on January 1, 1996, a
new category of providers applicable to home infusion therapy providers. The
Health Security Act would include home infusion drug therapy services as part of
the acute care comprehensive benefit package and would provide coverage for
certain antibiotics and other drugs and therapies designated by the Secretary.
The bill would also cover certain nursing, pharmacy and other services related
to the administration of such covered drugs and would be paid at the lesser of
the actual charges or a per-diem fee established by regulation. In order to
qualify for payment under this new category, providers would be required to meet
a variety of quality assurance and service criteria established by the
Secretary.
In addition, several other health care reform proposals have been offered,
including a plan that provides for a single payor insurance plan administered by
the federal government and funded by taxes and plans that would provide for
medical savings accounts and health insurance acquired through purchasing
cooperatives. There can be no assurance that the Health Security Act or any
other health care reform proposal or other changes in the health care system
will be adopted or implemented. Further, there can be no assurance that if any
such reform proposal or changes are made, they will not have an adverse effect
on the Company.
ENVIRONMENTAL MATTERS
Company management believes that T2 and each T2-owned and managed company
are currently in compliance in all material aspects with applicable federal,
state and local statutes and ordinances regulating
(233)
<PAGE> 15
the discharge of materials into the environment. T2 management does not believe
it will be required to expend any material amounts in order to remain in
compliance with these laws and regulations or that compliance will materially
affect its capital expenditures, earnings or competitive position.
ACCREDITATION
In 1988, the JCAHO, a voluntary health care accrediting body, began
surveying home infusion organizations to determine compliance with approximately
four hundred standards developed by experts in the home care and infusion
therapy fields. These standards address both the clinical and administrative
components of providing home infusion therapy with emphasis on quality
improvement activities. JCAHO surveyors periodically revisit accredited
companies to verify ongoing compliance. In December 1989, T2 owned companies
began the survey process and as of October 1, 1993 all T2 owned companies that
have been surveyed were successfully accredited. As T2 acquires new companies,
they are placed on the schedule for JCAHO survey.
ITEM 2. PROPERTIES
The Company's executive offices are located in Alpharetta, Georgia and
occupy approximately 27,000 square feet of space in a building purchased by the
Company in fiscal year 1990. The Company's subsidiaries lease space for the
facilities needed to conduct their operations. The Company believes that its
facilities and the facilities leased by its subsidiaries are adequate for
present and foreseeable operations.
ITEM 3. LEGAL PROCEEDINGS
In June 1992, the Company and certain of its officers were named as
defendants in four civil suits filed on behalf of individuals claiming to have
purchased or sold Company common stock during the time period from December 2,
1991 through June 24, 1992. The suits were filed in the United States District
Court for the Northern District of Georgia and have been consolidated into one
suit captioned: In Re: T2 Medical, Inc. Stockholder Litigation, Matter File No.
1:92-CV-1564-RLV. The complaint sought certification of a plaintiff's class, and
on November 16, 1993, the proceeding was certified as a class action. The
complaint seeks damages in an unspecified amount and alleges, among other
things, that the Company and the named officers defrauded the market and
violated various provisions of the federal securities laws by failing to make
complete and accurate statements about, among other things, the Company's
business, results of operations, acquisitions, future prospects, revenues,
outstanding shares and compliance with Medicare laws regarding physician
referrals and the related grand jury document request and by failing to disclose
sales of "Restricted Shares" of T2 common stock prior to the expiration of the
applicable holding periods and by trading shares of common stock while in
possession of material, non-public information related to the failure to make
complete and accurate statements. In September 1993, the plaintiff's moved to
amend their complaint to include allegations that the Company and certain of its
officers made misleading statements or omissions about certain accounting issues
and the Company's prospects and alleges a class of purchasers for the period
December 2, 1991 to August 12, 1993.
In 1993, the Company conducted an inquiry which resulted in the restatement
of the Company's interim financial statements for the periods ended December 31,
1992 and March 31, 1993. Subsequently, the Company and certain of its officers
and directors and former officers and a former director were named as defendants
in sixteen civil suits filed in the United States District Court for the
Northern District of Georgia on behalf of individuals claiming to have purchased
or sold Company common stock during various time periods in 1991, 1992 and 1993.
One similar civil suit was filed in the United States District Court for the
Northern District of Illinois. The complaints, which were generally similar,
alleged in part that the Company made misleading public statements concerning
the Company's business, results of operations, future prospects, revenues and
reimbursements from its payor sources. In September 1993, many of the complaints
were dismissed and a new class action complaint was filed.
The consolidated complaint captioned Bender, et al v. T2 Medical, Inc.,
Joseph C. Allegra, David Hersh and Thomas E. Haire, Civil Action No.
93-CV-2201-RCF (the "Bender Action") and filed on September 28,
(234)
<PAGE> 16
1993, alleges, among other things, that the Company and the named officers
defrauded the market in violation of various provisions of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), by making false and
misleading statements or by failing to make complete and accurate statements
about the Company's business, results of operations, revenues, reimbursement
patterns of its payor sources and future prospects and a proposed management led
buy out of the Company and seeks certification of a plaintiff's class for
persons who bought Company common stock during the period from December 2, 1991
to August 12, 1993. Three other actions remain pending and the pending actions
are described in further detail below.
On August 16, 1993, a suit captioned Laura Lewis, M.D. v. T2 Medical, Inc.,
Joseph C. Allegra and David Hersh, Civil Action No. 93-CV-1852-RCF was filed
seeking relief substantially similar and making substantially similar
allegations as the plaintiff in the Bender Action, in addition to alleging
common law fraud. The Lewis Action, however, also seeks certification of a
subclass of plaintiffs who received shares of Company common stock in connection
with certain acquisitions made by the Company during the 1993 fiscal year and
includes allegations relating to violations of the Securities Act of 1933
related to the issuances of stock in connection with such acquisitions. The
putative class consists of purchasers of the Company's stock for the period
August 17, 1992 through August 12, 1993.
On August 19, 1993, a suit captioned Dr. Russell James v. T2 Medical, Inc.,
Joseph C. Allegra, David Hersh, J. Lee Ledbetter and Stanley S. Trotman, Civil
Action No. 93-CV-1886-RLV, was filed asserting substantially similar allegations
and seeking substantially similar relief as the Bender Action, in addition to
alleging common law fraud and common law negligent misrepresentation. The
putative class consists of purchasers of the Company's stock for the period
January 21, 1993 through August 11, 1993.
On November 2, 1993, a suit captioned Julius Levine v. T2 Medical, Inc.
Joseph C. Allegra, David Hersh, J. Lee Ledbetter and Stanley S. Trotman, Civil
Action No. 93-CV-2353-RLV was transferred to the Northern District of Georgia
from the Northern District of Illinois. The class and other allegations are
similar to the allegations in the James action.
The Company believes that it has meritorious defenses in these actions.
Nevertheless, the ultimate outcome of the litigation described in the preceeding
paragraphs cannot presently be determined. Accordingly, no provision for any
loss that may result upon resolution of the suits has been made in the
consolidated financial statements.
The Securities and Exchange Commission is conducting an inquiry into the
events that required the restatement of the Company's financial statements for
the periods ended December 31, 1992 and March 31, 1993, and certain other
matters. The Securities and Exchange Commission has requested certain documents
relating to such inquiry, and the Company is responding to the request.
Furthermore, the Company is a party in various legal actions arising out of
the normal course of its business. Management believes that the ultimate
resolution of such actions will not have a material adverse effect on the
Company's financial position and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
(235)
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock is currently listed and traded on the New York Stock
Exchange (the "NYSE") under the Symbol "TSQ." Prior to August 14, 1992, the
Common Stock was quoted on the National Association of Securities Dealers,
Inc.'s Automated Quotation System -- National Market System (the "NASDAQ/NMS").
The following table sets forth the quarterly high and low prices for the Common
Stock during the fiscal years 1992 and 1993. All prices for fiscal years 1993
and the fourth quarter of 1992 includes sales prices from the NYSE and the
prices from the first three quarters of 1992 represent bid prices per share as
reported on NASDAQ/NMS.
<TABLE>
<CAPTION>
LOW HIGH
---- ----
<S> <C> <C>
FISCAL YEAR 1992
First Quarter ended December 31, 1991.................................. 29 1/2 57 3/4
Second quarter ended March 31, 1992.................................... 40 3/4 67 1/4
Third quarter ended June 30, 1992...................................... 19 7/8 43 1/8
Fourth quarter ended September 30, 1992................................ 18 1/4 31 1/8
FISCAL YEAR 1993
First Quarter ended December 31, 1992.................................. 18 7/8 27 1/4
Second Quarter ended March 31, 1993.................................... 15 1/8 25 3/4
Third Quarter ended June 30, 1993...................................... 10 16 7/8
Fourth Quarter ended September 30, 1993................................ 5 1/2 16 3/4
</TABLE>
On November 30, 1993, there were approximately 2,965 holders of record of
the Common Stock.
DIVIDEND POLICY
Prior to September 1992, the Company did not pay dividends on a regular
basis. Since then, the Company has paid regular quarterly dividends of $.025 per
share and the Company intends to continue paying regular quarterly dividends.
The Company's continued payment of regular quarterly dividends will, however,
depend upon the earnings and financial condition of the Company and other
factors considered relevant by the Company's Board of Directors.
SHARES ELIGIBLE FOR FUTURE SALE
As of November 30, 1993, the Company had 40,496,387 shares of Common Stock
outstanding (excluding 2,978,282 shares outstanding held by wholly owned
subsidiaries of the Company and accounted for as retired shares). Of these
shares, 8,122,067 shares are not currently freely tradeable in the public market
as a result of limitations imposed by law or contract between the holders
thereof and the Company (collectively, "Restricted Shares"). The Restricted
Shares were generally issued by the Company in connection with various
acquisitions.
(236)
<PAGE> 18
The table which follows lists (i) the number of shares of Common Stock that
were outstanding as of November 30, 1993, but are subject to contractual or
securities laws restrictions on transferability and (ii) lists the dates on
which such shares will be eligible for resale pursuant to the terms of the
applicable contract or pursuant to the exemption from registration afforded by
Rule 144 under the Securities Act of 1933.
SHARES RESTRICTED BY CONTRACT
<TABLE>
<CAPTION>
NO. OF SHARES RELEASE DATE
- ------------- ------------
<S> <C>
2,866,628 1/05/95
</TABLE>
SHARES RESTRICTED BY SECURITIES LAWS
<TABLE>
<CAPTION>
NO. OF SHARES RELEASE DATE
- ------------- ------------
<S> <C>
104,250 1/01/94
396,527 2/01/94
3,178 2/07/94
44,161 5/01/94
798,918 6/01/94
1,122,147 9/04/94
2,464,856 3/31/95
127,868 4/01/95
193,534 6/01/95
</TABLE>
In connection with the Company's review of applicable laws and regulations
and in response to health care reform policies, the Company is reviewing the
relationships it has with physicians who hold Restricted Shares. Among the
alternatives currently being reviewed are: (i) a one time release or staggered
release of all Restricted Shares that are restricted by contract; (ii) a public
offering of some or all of the Restricted Shares whose transferability are
restricted by operation of the securities laws; or (iii) an underwritten public
offering of some or all of the Restricted Shares. Company management believes
that removing all restrictions on transferability of the Restricted Shares may
assist the Company in removing any negative perceptions associated with the
numbers of shares of Company common stock held by physicians, and better
position the Company within the "safe harbors" associated with the fraud and
abuse provisions of the Medicare statute. The Company cannot predict what
effect, if any, the removal of any such contractual or legal restrictions on the
Restricted Shares may have on the market price of Company common stock. See Item
1. "Business -- Government Regulation."
(237)
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following selected statement of operations and balance sheet data have
been derived from the Company's consolidated financial statements included
elsewhere herein. The financial data set forth below should be read in
conjunction with the Consolidated Financial Statements, related Notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------
1993 1992 1991 1990 1989
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1)
Revenues:
Home infusion therapy.............. $182,907,508 $200,350,400 $146,463,372 $85,665,017 $53,739,100
IntraCare.......................... 45,430,079 37,896,665 17,631,273 5,228,497 --
Lithotripsy........................ 35,429,827 6,208,463 900,150 -- --
Other.............................. 9,431,667 6,488,223 7,415,868 2,745,684 2,958,647
------------ ------------ ------------ ----------- -----------
Total revenues................ 273,199,081 250,943,751 172,410,663 93,639,198 56,697,747
Costs and expenses:
Costs of revenues.................... 147,550,081 120,722,394 85,400,369 50,143,506 29,352,135
Selling, general and
administrative..................... 29,896,015 19,905,682 15,380,367 9,092,800 6,350,574
Provision for doubtful accounts...... 23,273,759 12,139,284 9,742,377 4,732,131 2,696,808
Amortization of intangibles.......... 4,518,614 3,276,102 2,511,485 1,841,598 1,091,060
------------ ------------ ------------ ----------- -----------
Total costs and expenses...... 205,238,469 156,043,462 113,034,958 65,810,035 39,490,577
------------ ------------ ------------ ----------- -----------
Income from operations........ $ 67,960,612 $ 94,900,289 $ 59,375,705 $27,829,163 $17,207,170
Other income (expense) -- net.......... 8,683,918 4,718,193 1,600,439 555,139 (1,442,928)
------------ ------------ ------------ ----------- -----------
Income before provision for income
taxes and minority interest...... 76,644,530 99,618,482 60,976,144 28,384,802 15,764,242
Provision for income taxes............. 27,519,489 32,313,721 18,629,791 9,131,475 4,883,547
Minority interest in income of
subsidiaries......................... 7,657,477 2,346,040 595,371 -- --
------------ ------------ ------------ ----------- -----------
Net income.................... $ 41,467,564 $ 64,958,721 $ 41,750,982 $19,252,827 $10,880,695
============= ============= ============= ============ ============
Net income per common and common
equivalent share..................... $ 1.02 $ 1.60 $ 1.16 $ .66 $ .48
------------ ------------ ------------ ----------- -----------
Weighted average common and common
equivalent shares outstanding........ 40,675,003 40,659,803 36,109,915 29,016,979 22,584,358
============= ============= ============= ============ ============
Cash dividends per common share........ $ .10 $ .025 $ -- $ -- $ --
------------ ------------ ------------ ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------------------------
1993 1992 1991 1990 1989
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1)
Total assets......................... $328,947,054 $283,516,698 $212,327,977 $ 56,043,471 $79,204,619
Long-term debt, obligations under
capital leases and other long-term
liability............................ 4,530,416 5,731,581 7,418,005 11,383,962 23,308,972
Total stockholders' equity.... 281,460,876 246,292,099 168,911,639 131,830,511 44,845,791
</TABLE>
- ---------------
(1) Restated to reflect pooling of interests combinations.
(238)
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Historically, T2 had substantial growth in revenues and net income
primarily based on (i) the development and management of new infusion therapy
companies, (ii) the acquisition of managed companies, (iii) annual increases in
the number of patients treated, and (iv) expansion into new alternate site
treatment services. However, the Company's past growth and expansion may not be
indicative of its future performance. Because of the changing nature of health
care regulation, financing and delivery, T2 does not intend to develop
additional home infusion therapy companies owned by physicians and managed by
T2. In addition, T2 is reviewing all of its relationships with the infusion
therapy companies it manages, and may acquire such companies or restructure the
management agreements it has with such companies. The Company has modified its
strategy for expanding its patient base by focusing its marketing efforts on
developing contractual relationships with hospitals and managed care entities,
including preferred provider organizations, health maintenance organizations,
self-insured companies and other third party payors. Furthermore, T2 faces
significant competition in pursuing other alternate site health care
opportunities.
In addition, in fiscal 1993 the Company experienced significant pressures
from third party payors, which had a negative effect on revenue and income from
operations. Continued cost reduction initiatives by third party payors,
significant reductions in coverage and rates of third party payors, or
significant reductions in the percentage of the Company's services delivered to
privately-insured patients could also have a continuing negative effect on the
Company's revenues and income from operations. In an effort to mitigate these
pricing pressures, the Company is directing its sales and marketing efforts to
third party payors in order to treat larger numbers of patients and increase
economies of scale, and is continuing to expand its range of infusion therapy
services by adding more advanced therapies.
RESULTS OF OPERATIONS
The following table shows the percentage of certain items relative to
revenues:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Revenues:
Home infusion therapy...................................... 66.9% 79.8% 85.0%
IntraCare.................................................. 16.6 15.1 10.2
Lithotripsy................................................ 13.0 2.5 .5
Other...................................................... 3.5 2.6 4.3
------ ------ ------
Total revenues..................................... 100.0 100.0 100.0
Costs and expenses:
Costs of revenues.......................................... 54.0 48.1 49.5
Selling, general and administrative........................ 10.9 7.9 8.9
Provision for doubtful accounts............................ 8.5 4.8 5.7
Amortization of intangibles................................ 1.7 1.4 1.5
------ ------ ------
Total costs and expenses........................... 75.1 62.1 65.6
------ ------ ------
Income from operations............................. 24.9 37.8 34.4
Interest income.............................................. 1.2 1.3 1.7
Interest expense............................................. (0.6) (.6) (1.4)
Equity in earnings of unconsolidated subsidiaries............ .4 1.0 0.6
Gain (loss) on sale of assets................................ 1.9 (.1) --
Other........................................................ .3 .3 .1
------ ------ ------
Income before provision for income taxes and minority
interest................................................... 28.1 39.7 35.4
Provision for income taxes................................... 10.1 12.9 10.8
Minority interests in income of subsidiaries................. 2.8 .9 .4
------ ------ ------
Net income......................................... 15.2 25.9 24.2
====== ====== ======
</TABLE>
(239)
<PAGE> 21
Year Ended September 30, 1993 Compared to Year Ended September 30, 1992
Total revenues increased 9% to $273,199,081 in 1993 from $250,943,751 in
1992. However, home infusion therapy revenues, including management fees from
managed home infusion therapy companies (see Note 5 to the Consolidated
Financial Statements), decreased 9% to $182,907,508 in 1993 from $200,350,400 in
1992. Although the Company had an increase in infusion therapy patients served,
a significant reduction in per patient revenue resulting from changes in
reimbursement patterns has resulted in an overall decrease in infusion therapy
revenue. These changes include increased case management and larger discounts
demanded by third party payors. IntraCare revenues, including management fees
from managed IntraCare companies (see Note 5 to the Consolidated Financial
Statements), increased 20% in 1993 to $45,430,079 from $37,896,665 in 1992. This
increase resulted primarily from the acquisition of and increase in operations
of seven acquired IntraCare companies and the increase in management fees
resulting from the development of 41 IntraCare facilities since February 1990.
The increase was partially offset by lower reimbursement rates paid to the
Company by third party payors. Lithotripsy revenues increased 471% in 1993 to
$35,429,827 from $6,208,463 in 1992. This increase in lithotripsy revenues was
attributable to an increase in patients served and the acquisition since
September 30, 1992 of additional interests in two lithotripsy companies and
majority interests in six lithotripsy companies in which the Company had no
prior interest.
While pricing pressures have been primarily related to the Company's
infusion therapy operations, there can be no assurance that similar pricing
pressures will not be applied to the Company's lithotripsy operations. In fact,
HCFA has issued a proposed rule that would, if implemented, significantly reduce
the amount Medicare would reimburse its beneficiaries for the cost of the
lithotripsy procedures performed at an ambulatory surgery center or on an
outpatient basis at a hospital. The Company cannot predict whether this rule
will be adopted or what effect it may have on the Company. Further, a decrease
in the Medicare reimbursement rate for lithotripsy reimbursement rates may
trigger demands for similar reductions by other third party payors. See Item 1.
"Business -- Lithotripsy."
Costs of revenues increased 22% to $147,550,081 in 1993 from $120,722,394
in 1992. As a percentage of total revenues, the costs of revenues were 54% of
total revenues in 1993 and 48.1% of total revenues in 1992. This increase was
attributable to an increase in infusion therapy patients served, increased
depreciation and the acquisitions and development mentioned above. The
percentage of increase in costs of revenues of 22% was greater than the
percentage increase in total revenues of 9% because of the significant decrease
in reimbursement rates paid to the Company by third party payors.
Selling, general and administrative expenses increased 50% to $29,896,015
in 1993 from $19,905,682 in 1992. As a percentage of total revenues, these
expenses were 10.9% of total revenues in 1993 and 7.9% of total revenues in
1992. The increase in the percentage of selling, general and administrative
expenses to total revenues is primarily due to the fixed component of certain
selling, general and administrative expenses and the relative decrease in per
patient revenues. In addition, the selling, general and administrative expenses
incurred in 1993 include aggregate charges of approximately $2,200,000 for the
legal and accounting expenses associated with an inquiry conducted by the
Company's Audit Committee and charges associated with certain changes in the
Company's management.
The provision for doubtful accounts as a percentage of total revenues
increased to 8.5% in 1993 from 4.8% in 1992. The increase in the provision for
doubtful accounts is attributable to the significant changes in reimbursement
patterns in the infusion therapy industry. These changes include (1) the
retroactive effect of case management discounts (2) larger discounts demanded by
indemnity insurance carriers and (3) other price discounts. Management regularly
reviews the collectability of the Company's accounts receivable and makes
adjustments to the allowance for doubtful accounts as needed to reflect
prevailing conditions. The increase in amortization of intangibles of $1,242,512
in 1993 over 1992 was primarily attributable to the additional goodwill
associated with the Company's acquisition of interests in the lithotripsy
centers in 1993 that were accounted for as purchases.
The change in other income (expense) -- net in 1993 over 1992 resulted
primarily from the gain of $6,441,556 on the sale of certain equipment and other
assets used in the Company's respiratory therapy business.
(240)
<PAGE> 22
Income from operations as a percentage of total revenues decreased to 24.9%
in 1993 from 37.8% in 1992. The decrease in income from operations percentages
resulted primarily from an increase in the number and amount of discounts given
to third party payors, including case management adjustments, managed care
pricing and other price discounts, offset somewhat by an increase in income from
the lithotripsy operations.
The effective income tax rate increased to 40% in 1993 from 33% in 1992.
The effective income tax rate was calculated by dividing the provision for
income taxes by income before income taxes less minority interests in the income
of subsidiaries. Such increase was primarily attributable to the increase in the
amortization of intangibles resulting from acquisitions of entities since
September 30, 1992 which were accounted for as purchases. Additionally, income
for the year ended September 30, 1992 included more S Corporation income for
which no income tax provision was required. This income resulted from the
acquisitions of S Corporations which were accounted for as poolings of
interests.
Minority interest in income of subsidiaries for the year ended September
30, 1993 increased by 226% over 1992. This increase resulted from the Company's
acquisition of majority interests in six lithotripsy companies since September
30, 1992.
Year Ended September 30, 1992 Compared to Year Ended September 30, 1991
Total revenues increased 46% to $250,943,751 from $172,410,663 in 1991.
Home infusion therapy revenues, including management fees from managed home
infusion therapy companies (see Note 5 to the Consolidated Financial
Statements), increased 37% to $200,350,400 from $146,463,372 in 1991. This
increase in home infusion therapy revenues was attributable to an increase in
infusion therapy patients served and the acquisition of 88 infusion therapy
companies since November 1988, and an increase in management fees from managed
companies. The increase in management fees resulted primarily from the
development of new managed companies. IntraCare revenues, including management
fees from managed IntraCare companies (see Note 5 to the Consolidated Financial
Statements), increased 115% to $37,896,665 from $17,631,273 in 1991. This
increase resulted primarily from the acquisition of and increase in operations
of six acquired IntraCare facilities and management fees from the development of
39 IntraCare centers opened between February 1990 and September 30, 1992.
Lithotripsy revenues increased 590% in 1992 to $6,208,463. This increase in
lithotripsy revenues was attributable to the increase in patients served and the
acquisition of majority interests in five lithotripsy companies since June 1,
1991.
Cost of revenues increased 41% to $120,722,394 in 1992 from $85,400,369 in
1991. As a percentage of total revenues, the costs of revenues were 48.1% of
total revenues in 1992 and 49.5% of total revenues in 1991. This increase was
attributable to an increase in infusion therapy patients served and the
acquisitions and development mentioned above.
Selling, general and administrative expenses increased 29% to $19,905,682
in 1992 from $15,380,367 in 1991. As a percentage of total revenues, these
expenses were 7.9% of total revenues in 1992 and 8.9% of total revenues in 1991.
The decrease in the percentage is primarily due to the fixed component of
certain selling, general and administrative expenses which do not increase
proportionately with revenues. The provision for doubtful accounts as a
percentage of total revenues decreased to 4.8% in 1992 from 5.7% in 1991.
Management reviews the collectability of the Company's accounts receivable and
makes adjustments to the related allowance for doubtful accounts as needed to
reflect prevailing conditions. The increase in amortization of intangibles of
$764,257 in 1992 over 1991 is primarily attributable to the additional goodwill
associated with the acquisition of infusion therapy companies in 1992 which were
accounted for as purchases.
Income from operations as a percentage of total revenues increased to 37.8%
in 1992 from 34.4% in 1991 primarily due to the factors discussed above.
The change in other income (expense) -- net from 1991 to 1992 resulted
generally from an increase in equity in earnings of unconsolidated subsidiaries
in 1992 versus 1991 of $1,589,165, due primarily to the Company's investment in
Bay Area Partners, and a decrease in interest expense in 1992 of $1,499,862 as a
result of reporting certain debt during fiscal 1991.
(241)
<PAGE> 23
Minority interest in income of subsidiaries for the year ended September
30, 1993 increased 294% over 1991. This increase resulted from the Company's
acquisition of majority interests in five lithotripsy companies since September
30, 1991.
Income before provision for income taxes and net income increased in 1991
over 1990 primarily due to the factors discussed above.
INFLATION
The Company has not experienced significant increases in either the cost of
supplies or operating expenses due to inflation. Nonetheless, although inflation
has not been a significant factor to date, there can be no assurance that it
will not be in the future.
LIQUIDITY, BUSINESS COMBINATIONS AND CAPITAL RESOURCES
Since its inception, the Company has financed its current operations
through internally generated funds and equity placements. The cash provided by
operating activities was $53,610,163 in 1993, $76,831,023 in 1992 and
$34,898,775 in 1991. As of September 30, 1993, the Company had cash and short
term investments net of short term investments pledged to short-term debt
totaling approximately $38,500,000.
For a description of the business combinations entered into by the Company
during fiscal 1993, 1992 and 1991, see "Business" and Note 14 to the
Consolidated Financial Statements.
The Company believes that its presently anticipated short term needs for
operating capital, debt repayments, capital expenditures and cash dividends will
be satisfied by its present funds, internally-generated funds and its line of
credit of $10,000,000. However, if the Company is required to acquire the
minority interests in its lithotripsy ventures, acquires a significant number of
infusion therapy companies, including companies it currently manages, or
resolves its material pending litigation, the Company may need to seek
additional sources of capital.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 (the
"Omnibus Act") was signed into law by the President. The Omnibus Act increased
the corporate tax rate of 34% to 35% as well as made certain other changes to
the corporate tax law, including the deductibility of the amortization of
certain intangible assets. The tax provisions of the Omnibus Act did not have a
significant effect on the financial statements of the Company.
In addition, the Omnibus Act included provisions that prohibit physicians,
beginning on January 1, 1995, from referring their patients, who receive
benefits under the Medicare or Medicaid programs, to entities in which they have
financial interests for certain designated health services. The Omnibus Act is
worded broadly and contains numerous exceptions and technical terms that are not
fully defined and empowers the Secretary of the Department of Health and Human
Services to adopt regulations interpreting and implementing the Omnibus Act. The
Company cannot predict what effect, if any, the application of such regulations
and the Omnibus Act may have on its future business activities. See Item 1.
"Business -- Government Regulation."
FUTURE HEALTH CARE PROPOSALS AND LEGISLATION
The current Presidential administration has formed a task force with the
stated goal of improving the national health care system. It has been reported
that steps will be taken to contain health care costs and that cutbacks may be
made in the Medicare and Medicaid programs. It is uncertain what specific
proposals will be made, whether any such proposals will be implemented or what
effect they would have on the Company. There can be no assurance that any such
proposals or other changes in the health care system will not have an adverse
effect on the Company.
(242)
<PAGE> 24
QUARTERLY FINANCIAL DATA
Interim quarterly results (unaudited) for T(2) for the years ended
September 30, 1993 and 1992 were:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1993:
Total revenues..................... $71,772,871 $67,670,436 $66,551,445 $67,204,329
Income from operations............. 22,981,670 17,015,745 13,192,510 14,770,687
Income before taxes and minority
interests....................... 24,097,272 17,402,631 19,948,659 15,195,968
Net income......................... 14,109,775 10,261,557 10,335,016 6,761,216
Net income per common and common
equivalent share................ .35 .25 .25 .17
1992:
Total revenues..................... $58,154,992 $59,696,976 $64,897,019 $68,194,764
Income from operations............. 21,599,885 21,858,699 24,903,374 26,538,331
Income before taxes and minority
interests....................... 21,826,749 23,159,557 26,542,926 28,089,250
Net income......................... 14,209,271 15,220,292 17,345,715 18,183,443
Net income per common and common
equivalent share................ .36 .37 .43 .45
</TABLE>
The quarterly financial data for each of the quarters of fiscal 1992 and
the first two quarters of fiscal 1993 as previously reported have been restated
to reflect the mergers during fiscal 1993 and 1992 of the companies accounted
for using the pooling of interests method of accounting. Net income per common
and common equivalent share before restatement for the poolings of interests as
previously reported in the Company's 1992 Annual Report on Securities and
Exchange Commission ("Commission") Form 10-K was $.35, $.36, $.41 and $.43 for
each of the four quarters ended September 30, 1992, respectively.
Net income per common and common equivalent share before restatement for
the poolings of interests as previously reported (after the restatements
described in the following paragraph) in the Company's Quarterly reports on Form
10-Q for each of the two quarters ended March 31, 1993 preceding was $.34 and
$.25, respectively.
The quarterly financial data for the first two quarters of fiscal 1993 as
previously reported were restated in the Company's Form 10-Q filed for the third
quarter of fiscal 1993. The Audit Committee of the Company's Board of Directors
discovered, during the course of an inquiry, that certain accounting
irregularities and errors had occurred during the nine-month period ended June
30, 1993. As a result, the Company restated its condensed consolidated financial
statements for each of the three-month periods ended December 31, 1992 and March
31, 1993. The restatements for each of the prior periods include (1) a reduction
in home infusion therapy and IntraCare revenue, (2) an increase in the provision
for doubtful accounts, (3) an increase in selling, general and administrative
expenses and (4) adjustments to the provision for income taxes. Additionally,
the condensed consolidated financial statements for the three-month period ended
March 31, 1993 were restated to eliminate the gain on the sale of certain
equipment and other assets used in its respiratory therapy business, which after
restatement was recorded in the Company's condensed consolidated financial
statements for the three-month period ended June 30, 1993.
The third quarter of fiscal 1993 includes a gain of $6,442,000 on the sale
of the assets owned by the Company used in its respiratory therapy business.
Certain of the assets sold were acquired from a 50% joint venture of the
Company. The joint venture realized a gain of $1,456,000 on its sale of assets
to the Company. The above transactions increased net income and net income per
common and common equivalent share for such quarter by approximately $4,300,000
and $.11, respectively (see Note 13 to the consolidated financial statements).
(243)
<PAGE> 25
The total of the quarterly earnings per share amounts for 1992 does not
agree with the annual earnings per share amount on the consolidated statements
of income because of issuances of Common Stock during the year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are listed in Item 14(a)(1)
and are submitted at the end of this Annual Report on Form 10-K. The
supplementary data required by this Item is included on page 23. The financial
statements and supplementary data are herein incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is included in the definitive proxy statement for
the 1994 Annual Meeting of Stockholders under the heading "Director, Director
Nominee and Executive Officer Information," and is herein incorporated by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is included in the definitive proxy statement for
the 1994 Annual Meeting of Stockholders under the heading "Executive
Compensation," and is herein incorporated by reference. In no event shall the
information in the Company's Proxy Statement under the heading "Compensation
Committee Report" or "Performance Graph" be incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF DIRECTORS, DIRECTOR NOMINEES, OFFICERS AND
PRINCIPAL STOCKHOLDERS
The response to this item is included in the definitive proxy statement for
the 1994 Annual Meeting of Stockholders under the heading "Security Ownership of
Directors, Director Nominees and Officers," and is herein incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is included in the definitive proxy statement for
the 1994 Annual Meeting of Stockholders under the heading "Certain Relationships
and Related Transactions," and is herein incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C> <C>
(a) (1) The following consolidated financial statements of T2 Medical, Inc. and subsidiaries
are filed as part of this Form 10-K:
Independent Auditors' Report
Consolidated balance sheets -- September 30, 1993 and 1992
Consolidated statements of income -- Years ended September 30, 1993, 1992 and 1991
Consolidated statements of stockholders' equity -- Years ended September 30, 1993,
1992 and 1991
</TABLE>
(244)
<PAGE> 26
<TABLE>
<S> <C> <C> <C>
Consolidated statements of cash flows -- Years ended September 30, 1993, 1992 and
1991
Notes to consolidated financial statements
(2) The following consolidated financial statement schedules of T2 Medical, Inc. and
subsidiaries are included in this Form 10-K:
Schedule I -- Marketable securities
Schedule II -- Amounts receivable from related parties and underwriters,
promoters, and employees other than related parties
Schedule VIII -- Valuation and qualifying accounts
Schedule IX -- Short-term borrowings
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal 1993.
The Company filed a Current Report on Form 8-K dated August 12, 1993. The
information contained in the Report discussed the press releases announcing that
the Company had become aware of certain accounting irregularities and errors
that occurred during the fiscal year 1993 and that the Company's former
President and Chief Executive Officer had resigned and that its Chief Financial
Officer was put on administrative leave. In addition, the Company filed a
Current Report on Form 8-K dated September 15, 1993. The information contained
in the Report discussed the Company's announcement that Tommy H. Carter had been
elected to serve as the Company's President and Chief Executive Officer and
would fill the position on the Company's Board of Directors vacated by the
previous President and Chief Executive Officer.
(c) EXHIBITS
(245)
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NO.
------------
<S> <C>
3(a) -- Amended Certificate of Incorporation of the Registrant as amended
through February 3, 1992.(1)
3(b) -- Bylaws of the Registrant.(2)
4(a) -- See Certificate of Incorporation of Registrant as amended through
February 3, 1992, at Exhibit 3(a) hereto, and the Bylaws of the Registrant
at Exhibit 3(b) hereto.
4(c) -- Specimen Common Stock Certificate.
10(a) -- Incentive Stock Option Plan of the Registrant dated June 1, 1986.(2)
10(b) -- 1988 Stock Option Plan of the Registrant, as amended and restated as of
July 31, 1990 and as further amended as of (i) August 20, 1991; (ii)
November 12, 1991; and (iii) July 6, 1992.(3)
10(c) -- Employee Stock Purchase Plan of the Registrant dated December 8,
1989.(4)
10(e)(i) -- Employment Agreement between the Registrant and Thomas E. Haire.(5)
10(e)(ii) -- Executive Agreement between the Registrant and Thomas E. Haire.(5)
10(e)(iii) -- Employment Agreement between the Registrant and Thomas E. Haire.(6)
10(e)(iv) -- Employment Agreement between the Registrant and Thomas E. Haire.
10(e)(v) -- Indemnification Agreement between the Registrant and Thomas E. Haire.
10(f)(i) -- Employment Agreement between the Registrant and David Hersh.(2)
10(f)(ii) -- Indemnification Agreement between the Registrant and David Hersh.
10(h) -- Life insurance policies on the life of Thomas E. Haire.(2)
10(i)(i) -- Employment Agreement between the Registrant and Joseph C. Allegra.(5)
10(i)(ii) -- Executive Agreement between the Registrant and Joseph C. Allegra.(5)
10(i)(iii) -- Employment Agreement between the Registrant and Joseph C. Allegra.(3)
10(i)(iv) -- Indemnification Agreement between the Registrant and Joseph C. Allegra.
10(k) -- Directors and Officers Liability Insurance Binder.(5)
10(r) -- 1987 Non-Qualified Stock Option Plan of the Registrant.(2)
10(s) -- 401(k) Plan of the Registrant dated December 8, 1989.(7)
10(t)(i) -- Employment Agreement between the Registrant and J. Lee Ledbetter.(6)
10(t)(ii) -- Indemnification Agreement between the Registrant and J. Lee Ledbetter.
10(u) -- Employment Agreement between the Registrant and Tommy H. Carter.
10(w) -- Employment Agreement between the Registrant and Gary P. Greenhood.
10(x) -- Indemnification Agreement between the Registrant and Stanley S. Trotman.
10(y) -- Employment Agreement between the Registrant and John T. Gallatin.
10(z) -- Secured Revolving Line of Credit Agreement between the Registrant and
Trust Company Bank, dated as of September 20, 1993.
10(aa) -- Prime Vendor Pharmaceutical Distribution Agreement, dated as of November
30, 1992, by and between the Registrant's wholly owned subsidiary, Home
Therapeutic Supply, Inc. and Whitmire Distribution Corporation(8).
10(bb) -- Debenture Purchase Agreement dated as of January 1, 1993, between the
Registrant and Surgex, Inc.(9).
21 -- Subsidiaries of the Registrant.
23 -- Consent of Independent Auditors. See page immediately preceding
signature page to this Form 10-K Report.
</TABLE>
(246)
<PAGE> 28
- ---------------
(1) Incorporated herein by reference to Exhibit 4(a) of the Registrant's
Registration Statement on Form S-3, Registration Number 33-47615.
(2) Incorporated herein by reference to exhibit of same number in the
Registrant's Registration Statement on Form S-1, Registration Number
33-20602.
(3) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-K for the fiscal year ended September
30, 1992.
(4) Incorporated herein by reference to Exhibit 28 of the Registrant's
Registration Statement on Form S-8, Registration Number 33-32535.
(5) Incorporated herein by reference to exhibit of same number in the
Registrant's Registration Statement on Form S-1, Registration Number
33-31106.
(6) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-K for the fiscal year ended September
30, 1991.
(7) Incorporated herein by reference to exhibit of same number in the
Registrant's Annual Report on Form 10-K for the fiscal year ended September
30, 1989.
(8) Incorporated herein by reference to Exhibit 10(b) in the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30, 1993.
(9) Incorporated herein by reference to Exhibit 10(c) in the Registrant's
Quarterly Report on Form 10-Q for the period ended June 30, 1993.
(247)
<PAGE> 29
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference (i) in Registration Statement
No. 33-47615 on Form S-3 and (ii) in the Registration Statements No. 33-65892,
No. 33-23704, No. 33-36923 and No. 33-32535 on Forms S-8 of our report dated
November 17, 1993 (December 23, 1993 as to Note 17) (which expresses an
unqualified opinion and includes an explanatory paragraph relating to material
uncertainties concerning certain pending claims against the Company) appearing
in this Annual Report on Form 10-K of T2 Medical, Inc. for the year ended
September 30, 1993, and to the reference to us under the heading "Experts" in
the Prospectus, which is part of Registration Statement No. 33-47615 on Form
S-3.
DELOITTE & TOUCHE
Atlanta, Georgia
December 27, 1993
(248)
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: December 27, 1993 T2 MEDICAL, INC.
By: /s/ TOMMY H. CARTER
-----------------------------
Tommy H. Carter
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ TOMMY H. CARTER President, Chief December 27, 1993
- ---------------------------------------------- Executive
Tommy H. Carter Officer and Director
(Principal Executive
Officer)
Director December , 1993
- ----------------------------------------------
Bruce D. Fielitz
/s/ THOMAS E. HAIRE Chairman of the Board December 27, 1993
- ---------------------------------------------- and Director
Thomas E. Haire
/s/ ANTHONY C. SMITH Director December 27, 1993
- ----------------------------------------------
Anthony C. Smith
/s/ STANLEY S. TROTMAN Director December 27, 1993
- ----------------------------------------------
Stanley S. Trotman
/s/ BRUCE A. KOLLEDA Principal Accounting December 27, 1993
- ---------------------------------------------- Officer
Bruce A. Kolleda
</TABLE>
(249)
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of T2 Medical, Inc.:
We have audited the accompanying consolidated balance sheets of T2 Medical,
Inc. and its subsidiaries (the "Company") as of September 30, 1993 and 1992, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of T2 Medical, Inc. and
subsidiaries at September 30, 1993 and 1992, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1993 in conformity with generally accepted accounting principles.
As discussed in Note 12, the Company is a defendant in civil suits filed on
behalf of individuals claiming to have purchased Company stock at various times
during the time period from December 2, 1991 through August 12, 1993. The
ultimate outcome of the litigation cannot presently be determined. Accordingly,
no provision for any loss that may result upon resolution of these suits has
been made in the accompanying consolidated financial statements.
DELOITTE & TOUCHE
Atlanta, Georgia
November 17, 1993
(December 23, 1993
as to Note 17)
(250)
<PAGE> 32
T2 MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------
1993 1992
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 6).......................... $ 16,258,297 $ 14,509,800
Short-term investments (Notes 2, 6 and 16).................. 47,647,163 55,414,987
Receivables:
Patient billings -- (less allowance for doubtful accounts
of $5,525,840 at September 30, 1993 and $8,823,297 at
September 30, 1992).................................... 26,979,099 39,246,349
Other receivables (Note 4):
Management fees........................................ 7,464,206 9,882,600
Lithotripsy............................................ 6,313,065 1,285,273
Other.................................................. 6,955,650 5,156,691
Inventories................................................. 4,561,234 4,435,719
Prepaid expenses............................................ 986,329 458,785
------------ ------------
Total current assets................................ 117,165,043 130,390,204
Property and equipment, net (Note 3).......................... 24,248,211 19,271,484
Goodwill and other intangible assets, net of accumulated
amortization of $13,104,727 at September 30, 1993 and
$8,774,100 at September 30, 1992............................ 175,114,254 128,604,633
Deferred income taxes (Note 8)................................ -- 119,576
Other assets (Note 15)........................................ 12,419,546 5,130,801
------------ ------------
Total assets........................................ $328,947,054 $283,516,698
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt (Note 6).................................... $ 23,000,000 $ 8,063,045
Current portion of long-term debt (Notes 7 and 16).......... 1,978,664 1,012,147
Current portion of obligations under capital leases (Note
7)....................................................... 1,148,207 843,362
Accounts payable and accrued expenses (Note 13)............. 8,365,224 6,735,019
Income taxes payable (Note 8)............................... 945,940 6,668,292
Deferred income taxes payable (Note 8)...................... 1,080,085 1,810,097
Other current liability (Note 14)........................... 273,000 5,273,000
------------ ------------
Total current liabilities........................... 36,791,120 30,404,962
Obligations under capital leases (Note 7)..................... 721,115 1,356,711
Long-term debt, exclusive of current maturities (Notes 7 and
16)......................................................... 2,376,049 2,668,618
Deferred income taxes payable (Note 8)........................ 328,266 --
Other long-term liability (Note 14)........................... 1,433,252 1,706,252
Minority interests in subsidiaries............................ 5,836,376 1,088,056
------------ ------------
Total liabilities................................... 47,486,178 37,224,599
------------ ------------
Commitments and contingencies (Notes 7 and 12)
Stockholders' equity (Notes 9, 10 and 14):
Common stock, $.01 par value, 100,000,000 shares authorized;
shares issued and outstanding: 40,486,387 at September
30, 1993 and 40,017,889 at September 30, 1992............ 404,864 400,179
Additional paid-in capital.................................. 154,702,147 151,224,568
Retained earnings........................................... 126,353,865 94,667,352
------------ ------------
Total stockholders' equity.......................... 281,460,876 246,292,099
------------ ------------
Total liabilities and stockholders' equity.......... $328,947,054 $283,516,698
=========== ===========
</TABLE>
See notes to consolidated financial statements.
(251)
<PAGE> 33
T2 MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Home infusion therapy (Notes 4 and 5)........ $182,907,508 $200,350,400 $146,463,372
IntraCare (Notes 4 and 5).................... 45,430,079 37,896,665 17,631,273
Lithotripsy.................................. 35,429,827 6,208,463 900,150
Other (Note 4)............................... 9,431,667 6,488,223 7,415,868
------------ ------------ ------------
Total revenues....................... 273,199,081 250,943,751 172,410,663
Costs and expenses:
Costs of revenues............................ 147,550,081 120,722,394 85,400,369
Selling, general and administrative.......... 29,896,015 19,905,682 15,380,367
Provision for doubtful accounts.............. 23,273,759 12,139,284 9,742,377
Amortization of intangibles.................. 4,518,614 3,276,102 2,511,845
------------ ------------ ------------
Total costs and expenses............. 205,238,469 156,043,462 113,034,958
------------ ------------ ------------
Income from operations............... 67,960,612 94,900,289 59,375,705
------------ ------------ ------------
Other income (expense):
Interest income.............................. 3,239,174 3,194,244 2,858,971
Interest expense............................. (1,738,313) (1,554,008) (2,396,116)
Equity in earnings of unconsolidated
subsidiaries.............................. 1,004,334 2,571,184 982,019
Gain (loss) on sale of assets (Note 13)...... 5,358,465 (253,723) (49,792)
Other........................................ 820,258 760,496 205,357
------------ ------------ ------------
Other income--net.............................. 8,683,918 4,718,193 1,600,439
------------ ------------ ------------
Income before provision for income
taxes and minority interest........ 76,644,530 99,618,482 60,976,144
Provision for income taxes (Note 8)............ 27,519,489 32,313,721 18,629,791
Minority interest in income of subsidiaries.... 7,657,477 2,346,040 595,371
------------ ------------ ------------
Net income........................... $ 41,467,564 $ 64,958,721 $ 41,750,982
=========== =========== ===========
Net income per common and common
equivalent share............................. $ 1.02 $ 1.60 $ 1.16
=========== =========== ===========
Weighted average common and common equivalent
shares outstanding........................... 40,675,003 40,659,803 36,109,975
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
(252)
<PAGE> 34
T2 MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
----------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1990..... 31,511,998 $315,120 $111,061,390 $ 20,454,001 $131,830,511
Net income...................... -- -- -- 41,750,982 41,750,982
Issuance of common stock........ 6,338,427 63,384 9,947,802 -- 10,011,186
Income tax benefit from stock
issued under stock option
plans......................... -- -- 503,888 -- 503,888
Distribution of S Corporation
earnings...................... -- -- -- (15,184,928) (15,184,928)
----------- -------- ------------ ------------ ------------
Balance, September 30, 1991..... 37,850,425 378,504 121,513,080 47,020,055 168,911,639
Net income...................... -- -- -- 64,958,721 64,958,721
Issuance of common stock........ 2,167,464 21,675 14,829,939 -- 14,851,614
Income tax benefit from stock
issued under stock option
plans......................... -- -- 14,881,549 -- 14,881,549
Distribution of S Corporation
earnings...................... -- -- -- (16,372,601) (16,372,601)
Cash dividends ($.025 per
share)........................ -- -- -- (938,823) (938,823)
----------- -------- ------------ ------------ ------------
Balance, September 30, 1992..... 40,017,889 400,179 151,224,568 94,667,352 246,292,099
Net income...................... -- -- -- 41,467,564 41,467,564
Issuance of common stock........ 468,498 4,685 2,967,528 -- 2,972,213
Income tax benefit from stock
issued under stock option
plans......................... -- -- 510,051 -- 510,051
Distribution of S Corporation
earnings...................... -- -- -- (5,849,200) (5,849,200)
Cash dividends ($.10 per
share)........................ -- -- -- (3,931,851) (3,931,851)
----------- -------- ------------ ------------ ------------
Balance, September 30, 1993..... 40,486,387 $404,864 $154,702,147 $126,353,865 $281,460,876
========= ======== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
(253)
<PAGE> 35
T2 MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income..................................... $ 41,467,564 $ 64,958,721 $ 41,750,982
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of discount on notes........... -- 323,835 1,499,862
Depreciation and amortization............... 10,959,501 7,378,348 4,813,763
Provision for doubtful accounts............. 23,273,759 12,139,284 9,742,377
Income tax benefit of exercise of stock
options................................... 510,051 14,881,549 503,888
Equity in earnings of unconsolidated
subsidiaries.............................. (1,004,334) (2,571,184) (982,019)
Distributions from unconsolidated
subsidiaries.............................. 1,535,588 1,361,384 890,539
Loss (gain) on sale of property and
equipment................................. (5,358,465) 253,723 49,792
Change in assets and liabilities net of
effects from acquisitions:
Receivables................................. (10,410,403) (20,700,976) (28,868,159)
Inventories................................. 109,008 (1,001,430) (1,367,889)
Prepaid expenses and other assets........... (515,386) (2,585,818) (197,902)
Income taxes payable........................ (5,720,752) 4,311,182 2,444,031
Accounts payable and accrued expenses....... (1,643,374) (3,004,408) 3,716,435
Deferred income taxes....................... (282,170) 197,063 704,769
Minority interests in subsidiaries.......... 689,576 889,750 198,306
------------ ------------ ------------
Cash provided by operating activities....... 53,610,163 76,831,023 34,898,775
------------ ------------ ------------
Cash flows related to investing activities:
Additions to property and equipment............ (5,901,488) (5,871,982) (5,840,228)
Proceeds from sale of property and equipment... 5,457,874 67,500 82,437
Payment for purchase of businesses acquired
less cash acquired.......................... (48,411,243) (19,517,505) (18,520,671)
Investment in unconsolidated subsidiaries...... (10,539,722) (7,506,500) --
Increase (decrease) in short-term
investments................................. 7,767,824 (55,414,987) --
------------ ------------ ------------
Cash used in investing activities........... (51,626,755) (88,243,474) (24,278,462)
------------ ------------ ------------
Cash flows related to financing activities:
Proceeds from issuance of common stock......... 1,816,047 11,864,931 8,274,267
Proceeds from issuance of short-term notes and
long-term debt.............................. 28,888,000 13,721,141 12,036,394
Repayment of short-term notes and long-term
debt........................................ (21,157,907) (31,854,500) (11,669,015)
Distributions of S Corporation earnings........ (5,849,200) (16,372,601) (15,184,928)
Cash dividends................................. (3,931,851) (938,823) --
------------ ------------ ------------
Cash used in financing activities........... (234,911) (23,579,852) (6,543,282)
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents............................... 1,748,497 (34,992,303) 4,077,031
Cash and cash equivalents at beginning of
period.................................... 14,509,800 49,502,103 45,425,072
------------ ------------ ------------
Cash and cash equivalents at end of
period.................................... $ 16,258,297 $ 14,509,800 $ 49,502,103
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
(254)
<PAGE> 36
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business
T2 Medical, Inc. and its subsidiaries (the "Company") are primarily engaged
in providing alternate site healthcare treatment services, including infusion
therapy and lithotripsy services and the development and management of infusion
therapy centers. As of September 30, 1993, the Company owns 137 infusion therapy
centers, one weight management center, five home nursing centers, one
pharmaceutical company, one medical supply company, and owns a portion of
thirteen lithotripsy centers. The Company manages 103 home infusion companies
owned by others as of September 30, 1993. The Company also sells medical
supplies and leases equipment to the managed companies.
Principles of Consolidation
The consolidated financial statements include the accounts of T2 Medical,
Inc., and its subsidiaries in which its ownership is 51% or greater. All
material intercompany transactions and balances have been eliminated in
consolidation. The Company uses the equity method of accounting to account for
investments in entities in which the ownership is from 20% to 50%.
Revenue Recognition
The Company generates revenue principally from the following sources:
Home infusion therapy revenues consist of patient revenues generated from
the Company's owned infusion therapy centers and management fees from the home
infusion therapy companies which are managed by the Company.
IntraCare revenues consist of patient revenues generated from the Company's
owned IntraCare centers and management fees from the IntraCare companies which
are managed by the Company.
Lithotripsy revenues represent billings to third-party payors, primarily
hospitals, arising from the Company's lithotripsy operations.
Other revenues include nursing services, weight loss services, pharmacy
sales to managed companies and development fees from managed companies.
Revenues are accounted for as follows:
- Patient revenues are recognized net of estimated contractual adjustments
related to third-party payors when services are rendered. The amount paid
by the third-party payors is dependent upon the benefits included in the
patient's policy.
- Management fees are collected from all companies managed by the Company.
Management fees from managed companies are either based on a percentage
of the companies' annual pretax earnings or a percentage of revenues.
- Other revenues are recognized as the services are rendered or when the
pharmacy sales are made.
Short-term Investments
Short-term investments consist of marketable fixed rate securities. Such
investments are carried at cost which approximates market value.
(255)
<PAGE> 37
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Provision For Doubtful Accounts
The Company records a provision for doubtful accounts for the portion of
recognized revenues which it estimates may not be ultimately collected. The
provision includes any contractual adjustments in excess of those estimated at
the time revenue is recognized and other differences between recorded revenues
and collections from third party payors and patients. The provision and related
allowance are adjusted periodically, based upon the Company's evaluation of
historical collection experience with specific payors for particular services,
anticipated reimbursement levels with specific payors for new services for which
the Company may not have had significant historical collection experience,
industry reimbursement trends, and other relevant factors.
Inventories
Inventories consist of drugs and related supplies used to provide infusion
therapy and are valued at the lower of cost, first-in first-out method, or
market.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed over the
estimated useful lives of the assets using the straight-line and accelerated
methods.
Income Taxes
Effective October 1, 1992, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109. The Company had previously
followed the provisions of SFAS No. 96. There was no significant effect on the
consolidated financial statements from the adoption of SFAS No. 109.
Deferred income taxes, which have been computed using the liability method,
result from temporary differences between financial statement and income tax
reporting.
Cash Equivalents
The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.
Goodwill
Goodwill represents the excess of the cost of businesses acquired over the
fair value of their net assets at the date of acquisition and is being amortized
on the straight-line method over 40 years. The Company periodically assesses the
recoverability of goodwill based on its judgments as to the future profitability
of its operations.
Per Share Data
Net income per common share is computed by dividing net income by the
weighted average number of common and common equivalent shares outstanding
during each year. Common equivalent shares represent dilutive stock options
outstanding.
(256)
<PAGE> 38
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Supplemental Disclosures of Cash Flow Information and Noncash Investing and
Financing Activities
Cash paid for:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Interest............................ $ 1,692,111 $ 1,270,300 $ 863,211
Income taxes........................ 34,195,165 12,674,914 15,184,321
</TABLE>
The Company's noncash investing acquisition activities for each of the
three years in the period ended September 30, 1993 are summarized as follows:
<TABLE>
<CAPTION>
CONSIDERATION
FAIR VALUE -----------------------------------------
OF ASSETS LIABILITIES CASH COMMON NOTES
ACQUIRED ASSUMED PAID STOCK PAYABLE
----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
1991
Southwest Homecare No. 1,
Ltd........................... $17,466,362 $ 133,167 $ 7,600,000 $ -- $ 9,733,195
IntraCare of Annandale II....... 4,059,446 -- 2,000,000 2,059,446 --
Cobb Regional Lithotripsy
Partners...................... 5,213,686 -- 1,750,000 3,463,686 --
Tenn-Ga. Stone Group Two,
L.P........................... 2,787,174 -- 1,475,320 1,311,854 --
----------- ----------- ----------- ------------- -----------
Total......................... $29,526,668 $ 133,167 $12,825,320 $ 6,834,986 $ 9,733,195
========== ========== ========== ========== ==========
1992
Bay Area Renal Stone Center
Ltd........................... $13,025,655 $ -- $ 7,306,500 $ 5,719,155 $ --
San Diego Home Therapy.......... 742,152 -- 562,500 179,652 --
South Georgia Lithotripsy
Partners, North Georgia
Lithotripsy Partners of
Atlanta and North Georgia
Lithotripsy Partners of
Augusta....................... 20,204,718 4,831,640 15,373,078 -- --
----------- ----------- ----------- ------------- -----------
Total.................... $33,972,525 $ 4,831,640 $23,242,078 $ 5,898,807 $ --
========== ========== ========== ========== ==========
1993
Pediatric Partners, Inc......... $ 2,691,702 $ 441,702 $ 2,250,000 $ -- $ --
IntraCare of Annandale II....... 3,754,555 -- 1,950,000 1,804,555 --
Lithotripsy Partners of
Cincinnati.................... 6,542,808 100,000 6,442,808 -- --
Mobile Lithotripters of Indiana
Partners...................... 5,170,716 663,563 4,507,153 -- --
Midwest Urologic Stone Unit
Limited Partnership........... 11,062,698 1,523,657 9,539,041 -- --
Gulf South Lithotripsy
Associates, L.P............... 9,187,732 817,386 8,370,346 -- --
Coastal Lithotripsy Associates,
L.P........................... 5,038,234 1,877,203 3,161,031 -- --
Bay Area Renal Stone Center
Ltd........................... 9,492,799 277,015 9,215,784 -- --
Shock Wave Therapy Limited
Partners...................... 1,300,000 100,000 1,200,000 -- --
----------- ----------- ----------- ------------- -----------
Total.................... $54,241,244 $ 5,800,526 $46,636,163 $ 1,804,555 $ --
========== ========== ========== ========== ==========
</TABLE>
(257)
<PAGE> 39
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SHORT-TERM INVESTMENTS:
The cost and market value of short-term investments are summarized as
follows.
<TABLE>
<CAPTION>
SEPTEMBER 23, 1993 SEPTEMBER 30, 1992
------------------------- -------------------------
MARKET MARKET
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government and its Agencies............ $15,327,920 $15,414,834 $25,391,836 $25,604,717
Municipal Obligation........................ 300,000 311,616 -- --
Corporate bonds and notes................... 32,019,243 32,140,583 30,023,151 30,253,555
----------- ----------- ----------- -----------
Total................................ $47,647,163 $47,867,033 $55,414,987 $55,858,272
========== ========== ========== ==========
</TABLE>
Corporate bonds and notes potentially subject the Company to concentration
of credit risk. The Company invests in corporate bonds and notes with a Standard
and Poor's credit rating of A or better. Corporate bonds and notes include
approximately $4,418,000 and $7,507,000 that are invested in individual issuers.
3. PROPERTY AND EQUIPMENT:
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL SEPTEMBER 30,
LIFE ----------------------------
(YEARS) 1993 1992
--------- ------------ -----------
<S> <C> <C> <C>
Land.......................................... -- $ 315,884 $ 315,884
Building and leasehold improvements........... 31.5 4,838,539 4,435,823
Machinery and equipment....................... 5-7 27,138,459 20,926,660
Automobiles................................... 5 3,345,315 3,182,040
------------ -----------
Total.................................. 35,638,197 28,860,407
Less accumulated depreciation and
amortization................................ (11,389,986) (9,588,923)
------------ -----------
Property and equipment, net................. $ 24,248,211 $19,271,484
=========== ==========
</TABLE>
4. RELATED PARTY TRANSACTIONS:
All companies managed by the Company are considered related parties. An
officer and a former officer of the Company hold minority ownership interests in
certain of such companies. All management fees are from managed companies (see
Note 5).
Other revenues included the following from managed companies:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
----------------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Pharmacy sales............................... $2,124,394 $2,478,901 $2,497,777
Supply sales................................. 926,918 1,327,535 1,852,864
Development fees............................. 494,500 655,500 2,500
Equipment rentals............................ 86,027 54,940 67,126
---------- ---------- ----------
Total.............................. $3,631,839 $4,516,876 $4,420,267
========= ========= =========
</TABLE>
Other receivables include management fees and advances receivable from
managed companies and employees of $11,617,735 and $325,810, respectively, at
September 30, 1993 and $13,484,620 and $192,287, respectively, at September 30,
1992.
(258)
<PAGE> 40
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On January 23, 1991, in connection with the merger of Greater New York Home
Therapeutics, Inc. ("Greater New York"), the Chairman received cash
consideration of $520,167, and the President received 44,036 shares of the
Company's common stock valued at $599,991.
On August 1, 1991, in connection with the mergers of Blue Ridge Home
Therapeutics, Inc., Central Florida Home Therapeutics, Inc., Columbus Home
Therapeutics, Inc., Hudson Valley Home Therapeutics, Inc., Long Island Home
Therapeutics, Inc., Milwaukee Home Therapeutics, Inc., Minnesota Home
Therapeutics, Inc., Northern New Jersey Home Therapeutics, Inc., Sarasota Home
Therapeutics, Inc., Southeast Home Therapeutics, Inc. and Southwest Florida Home
Therapeutics, Inc. (collectively, the "1991 Pooling Centers"), the Chairman and
former President received aggregate cash consideration of $3,552,319 and
$1,575,925, respectively, and the former President received 76,818 shares of the
Company's common stock valued at $1,976,527.
On June 1, 1992, in connection with the mergers of Alabama Home
Therapeutics II, Inc., Central New Jersey Home Therapeutics, Inc., Central
Virginia Home Therapeutics, Inc., Garden State Home Therapeutics, Inc.,
Manhattan Home Therapeutics, Inc., Penn Valley Home Therapeutics, Inc., Potomac
Home Therapeutics II, Inc., Queens Home Therapeutics, Inc. and Western New
Jersey Home Therapeutics, Inc. (collectively, the "June 1992 Pooling Centers"),
the Chairman and former President received cash consideration of $709,884 and
$694,093, respectively.
On September 4, 1992, in connection with the mergers of Cleveland Home
Therapeutics, Inc., Empire Home Therapeutics, Inc., Meadowlands Home
Therapeutics, Inc., Passaic Home Therapeutics, Inc., Puget Sound Home
Therapeutics, Inc., Southern California Home Therapeutics, Inc., Spartanburg
Home Therapeutics, Inc. and Utah Home Therapeutics, Inc. (collectively, the
"September 1992 Pooling Centers"), the Chairman and former President received
cash consideration of $1,537,356 and $629,182, respectively, and the former
President received 33,846 shares of the Company's common stock valued at
$908,174.
On March 31, 1993, in connection with the mergers of Asheville Home
Therapeutics II, Inc., Baltimore Home Therapeutics, Inc., Broadway Home
Therapeutics, Inc., Chicago Home Health Management II, Inc., Georgia Home
Therapeutics IV, Inc., Knoxville Home Therapeutics II, Inc., Middle Tennessee
Home Therapeutics II, Inc., Orlando Home Therapeutics, Inc., Servicetrends,
Inc., Southern New Jersey Home Therapeutics, Inc., Syracuse Home Therapeutics,
Inc., Suburban Home Therapeutics, Inc., Triborough Home Therapeutics, Inc., and
Western Kentucky Home Therapeutics II, Inc. (collectively, the "March 1993
Pooling Centers"), the Chairman, President and former President received
aggregate cash consideration of $218,638, $300,000 and $129,749, respectively.
5. REVENUES:
Home infusion therapy and IntraCare revenues include the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Home infusion therapy:
Patient revenues................... $160,442,943 $175,887,155 $131,821,820
Management fees................. 22,464,565 24,463,245 14,641,552
------------ ------------ ------------
Total...................... $182,907,508 $200,350,400 $146,463,372
=========== =========== ===========
IntraCare:
Patient revenues................ $ 15,554,491 $ 12,270,571 $ 6,895,948
Management fees................. 29,875,588 25,626,094 10,735,325
------------ ------------ ------------
Total...................... $ 45,430,079 $ 37,896,665 $ 17,631,273
=========== =========== ===========
</TABLE>
(259)
<PAGE> 41
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SHORT-TERM DEBT:
The Company has a $10,000,000 line of credit agreement with a commercial
bank. The agreement provides the Company with various interest rate options. At
September 30, 1993, $10,000,000 was outstanding under this agreement at an
interest rate of 4.2%. All borrowings are secured by certain short-term
investments and cash on deposit in such bank. Unless extended at the bank's
option, the agreement terminates on February 28, 1995. In addition, the Company
has entered into an agreement with an investment company in which it has
borrowed $13,000,000 on a 30-day basis at an interest rate of 3.6%. Short-term
investments costing $25,359,000 are pledged as collateral to the above
borrowings.
At September 30, 1992, the Company had a $10,000,000 unsecured revolving
credit agreement with a commercial bank. No borrowings were outstanding at
September 30, 1992. In addition, the Company had short-term notes payable to
banks totalling $8,063,045 at September 30, 1992 with interest rates ranging
from 6.0% to 8.0%.
7. LONG-TERM DEBT AND LEASE OBLIGATIONS:
Long-term debt and capital lease obligations are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1993 1992
--------- ---------
<S> <C> <C>
Various notes payable, interest rates of 11.5% with
maturities through 1997, certain tangible assets are
pledged as collateral..................................... $4,354,713 $3,680,765
Less amounts due within one year............................ 1,978,664 1,012,147
---------- ----------
Long-term debt.............................................. $2,376,049 $2,668,618
---------- ----------
Capital lease obligations................................... $1,869,322 $2,200,073
Less amounts due within one year............................ 1,148,207 843,362
---------- ----------
Noncurrent obligations under capital leases................. $ 721,115 $1,356,711
========== ==========
</TABLE>
Scheduled aggregate principal repayments of long-term debt are as follows:
<TABLE>
<CAPTION>
FOR THE
YEARS ENDING
SEPTEMBER 30,
-------------
<S> <C>
1994....................................... $1,978,664
1995....................................... 1,639,495
1996....................................... 696,054
1997....................................... 40,500
----------
$4,354,713
==========
</TABLE>
Future minimum lease payments under capital leases are as follows:
<TABLE>
<CAPTION>
FOR THE
YEARS ENDING
SEPTEMBER 30,
-------------
<S> <C>
1994....................................... $1,296,907
1995....................................... 634,662
1996....................................... 151,406
----------
Total............................ 2,082,975
Less amount representing interest.......... 213,653
----------
Total............................ $1,869,322
==========
</TABLE>
(260)
<PAGE> 42
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The cost and related accumulated depreciation of equipment under capital
leases at September 30, 1993 was $3,847,491 and $2,086,855 and $3,414,905 and
$1,441,885 at September 30, 1993 and 1992, respectively.
The Company leases office space and automobiles under three to six-year
noncancellable operating lease agreements. Future minimum annual lease
commitments under these leases are as follows:
<TABLE>
<CAPTION>
FOR THE
YEARS ENDING
SEPTEMBER 30,
-------------
<S> <C>
1994....................................... $3,728,285
1995....................................... 2,818,686
1996....................................... 2,089,431
1997....................................... 1,434,928
1998....................................... 376,544
-----------
Total............................ $10,447,874
===========
</TABLE>
Rental expense for the years ended September 30, 1993, 1992, and 1991 was
$7,502,201, $4,755,224 and $2,822,290, respectively.
8. INCOME TAXES:
The managed companies acquired had elected S Corporation status for income
tax purposes for various periods until acquisition date at which time the S
Corporation tax elections were terminated. As S Corporations, the income or loss
from these entities was includable by their shareholders in their individual
income tax returns. Therefore, for the companies acquired accounted for using
the pooling of interests method of accounting, no provision for income taxes has
been made in the consolidated financial statements for the respective periods
the entities were S Corporations. If the merged companies had been C
Corporations and income taxes had been recorded in the Company's financial
statements at an effective income tax rate of 39% in 1993 and 38% in 1992 and
1991, net income and net income per common share of the Company would have been
$40,046,852 and $.98 in 1993, $59,558,318 and $1.46 in 1992 and $36,409,211 and
$1.01 in 1991.
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Current
Federal................................... $25,152,928 $28,119,440 $15,910,402
State..................................... 3,108,789 3,997,218 2,014,620
----------- ----------- -----------
Total............................. 28,261,717 32,116,658 17,925,022
----------- ----------- -----------
Deferred
Federal................................... (660,583) 173,415 627,244
State..................................... (81,645) 23,648 77,525
----------- ----------- -----------
Total (benefit)................... (742,228) 197,063 704,769
----------- ----------- -----------
Total income tax provision........ $27,519,489 $32,313,721 $18,629,791
========== ========== ==========
</TABLE>
(261)
<PAGE> 43
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effective income tax rate varies from the statutory federal income tax
rate for the periods presented as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
----------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Statutory rate.............................................. 35% 34% 34%
Increases (decreases) in taxes resulting from:
S Corporation income...................................... (2) (5) (8)
State income taxes, net of federal income tax benefit..... 5 4 4
Amortization of goodwill nondeductible for tax purposes... 1 1 1
Other..................................................... 1 (1) --
Effective tax rate.......................................... 40% 33% 31%
</TABLE>
The tax effects of temporary differences at September 30, 1993 and 1992
were as follows:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Receivables............................................... $ 2,937,165 $ 4,133,090
Allowance for doubtful accounts........................... (2,173,238) (2,848,308)
Other..................................................... (1,844,012) 525,315
----------- -----------
Current deferred taxes payable.......................... $ 1,080,085 $ 1,810,097
========== ==========
Other assets.............................................. $ (125,626) $ (148,774)
Amortization of goodwill deductible for income tax
purposes................................................ 439,088 --
Other..................................................... 14,804 29,198
----------- -----------
Long-term deferred taxes payable (asset)................ $ 328,266 $ (119,576)
========== ==========
</TABLE>
9. COMMON STOCK:
On July 1, 1991, the Board of Directors declared a two-for-one split of the
Company's common stock, effected in the form of a 100% stock dividend to
shareholders of record on August 15, 1991. Retroactively, an amount equal to the
par value of the common shares issued was transferred from additional paid-in
capital to common stock. All references to number of shares and per share
information in the consolidated financial statements have been retroactively
adjusted to reflect the stock split.
10. STOCK OPTIONS:
Under the Company's stock option plan effective August 9, 1987 (the "1987
Plan"), certain employees of the Company were granted non-qualified stock
options to purchase 302,000 shares of common stock at an exercise price of $.50
per share. All options granted under the 1987 Plan have been exercised.
The Company's stock option plan effective January 13, 1988 (the "1988
Plan") permits the granting of incentive and non-qualified stock options to
purchase up to 6,500,000 shares, of common stock to officers, directors and
employees of the Company. The plan, as amended, limits the number of shares
allowed to be purchased by directors of the Company to 2,500,000 shares. Options
granted under the 1988 Plan are exercisable for ten years (five years if the
optionee owns more than 10% of the Company's outstanding common stock).
Non-qualified options to purchase 1,574,800, 1,403,500 and 2,602,666 shares of
common stock were granted under the 1988 Plan in 1993, 1992 and 1991,
respectively.
(262)
<PAGE> 44
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Option transactions related to the above plans for the periods presented
are as follows:
<TABLE>
<CAPTION>
OPTION PRICE
NUMBER OF -------------------------------
SHARES PER SHARE TOTAL
---------- -------------- ------------
<S> <C> <C> <C>
Options outstanding at September 30, 1990......... 1,485,814 $ .50-14.875 $ 11,707,362
Granted during 1991............................. 2,602,666 9.125-31.438 64,105,010
Exercised during 1991........................... (994,954) .50-15.875 (7,645,821)
Cancelled during 1991........................... (21,668) 15.875-20.063 (385,855)
---------- ------------
Options outstanding at September 30, 1991......... 3,071,858 .50-31.438 67,780,696
Granted during 1992............................. 1,403,500 18.125-58.125 53,302,750
Exercised during 1992........................... (680,051) .50-32.25 (11,477,149)
Cancelled during 1992........................... (357,500) 11.625-58.125 (17,875,313)
---------- ------------
Options outstanding at September 30, 1992......... 3,437,807 .50-58.125 91,730,984
Granted during 1993............................. 1,574,800 6.00-26.25 22,440,108
Exercised during 1993........................... (112,000) .50-19.00 (1,037,314)
Cancelled during 1993........................... (604,501) 10.25-32.25 (13,855,515)
---------- ------------
Options outstanding at September 30, 1993......... 4,296,106 $ 4.813-58.125 $ 99,278,263
======== ===========
</TABLE>
Of the options outstanding, 2,889,867 were exercisable at September 30,
1993. At September 30, 1993, 4,642,995 shares were reserved for issuance under
the 1988 Plan.
11. EMPLOYEE STOCK PURCHASE PLAN AND 401(K) PLAN:
The Company has the T2 Medical, Inc. Employee Stock Purchase Plan (the
"Stock Purchase Plan") under which eligible employees are granted options to
purchase shares of the Company's common stock at a purchase price of 85% of the
lower of the fair market value on January 1 or December 31 of each plan year.
Each participant may authorize up to 10% of their annual compensation to be
withheld for participation in the Plan. Options granted and outstanding at
September 30, 1993 were 203,593, and such options become exerciseable on
December 31, 1993. Options were exercised for shares of 33,877 in 1993, 30,932
in 1992 and 20,724 in 1991 at $19.34 per share in 1993, $12.20 per share in 1992
and $10.84 per share in 1991. At September 30, 1993, 314,467 shares were
reserved for issuance under the Stock Purchase Plan.
The Company has the T2 Medical, Inc. 401(k) Plan (the "401(k) Plan") in
which eligible employees may contribute up to a certain amount ($8,994 in 1993)
to the 401(k) Plan. The Company will match 100% of the contributions of each
participant up to 6% of the participant's gross salary. The Company's matching
contribution may be made in the form of the Company's common stock or cash.
During 1993, 1992 and 1991, the Company charged expense of $935,068, $602,852
and $318,279, respectively, related to the 401(k) Plan. 12. CONTINGENCIES:
The Company carries liability insurance covering general and medical
malpractice liability with annual limits of $25 million per occurrence and in
the aggregate with respect to each of its companies. Management believes such
coverage is adequate to cover claims that may result.
The Company is a party in various legal actions arising out of the normal
course of business. In addition, the Company in 1992 received a request for
documents from a grand jury sitting in Atlanta, Georgia at the request of the
U.S. Department of Health and Human Services, the focus of which appears to be
the potential application of the Medicare Fraud and Abuse Law as it relates to
physician ownership. The Company has complied with the request and believes that
the documents submitted will confirm that it has conducted its business affairs
in a proper and lawful manner, consistent with all applicable laws, regulations
and professional codes of conduct. Medicare billings related to home infusion
and Intracare infusion therapy represent less than
(263)
<PAGE> 45
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5% of the Company's fiscal 1993 revenues. Management believes that the ultimate
resolution of the above matters will not have a material adverse effect on the
Company's financial position and results of operations.
Further, the Company and certain of its officers and former officers are
defendants in civil suits filed in 1992 on behalf of individuals claiming to
have purchased Company stock during the time period from December 2, 1991
through June 24, 1992. The suits have been consolidated into one suit. The
complaint seeks certification of a plaintiff's class and damages in an
unspecified amount. The complaint alleges, among other things, that the Company
and the named individuals violated various provisions of the Securities and
Exchange Act of 1934 and violated certain other laws by failing to make complete
and accurate statements about the Company's business. On November 16, 1993, the
proceeding was certified as a class action.
In 1993, the Company conducted an inquiry which resulted in the restatement
of the Company's interim financial statements for the periods ended December 31,
1992 and March 31, 1993. Subsequently, the Company and certain of its officers
and directors and former officers and a former director were named as defendants
in civil suits filed on behalf of individuals claiming to have purchased or sold
Company stock during various time periods in 1991, 1992 and 1993. The
complaints, which were generally similar, alleged in part that the Company made
misleading public statements concerning the Company's business, results of
operations, future prospects, revenues, and reimbursements from its payor
sources. The complaints, which have been filed in or transferred to the U.S.
District Court for the Northern District of Georgia, seek certification of a
plaintiff's class and damages in an unspecified amount. In September 1993, an
amended consolidated complaint was filed making substantially the same
allegations and seeking substantially the same relief as the earlier complaints.
The consolidated complaint seeks certification of a plaintiff's class for
persons buying or selling Company stock during the period from December 2, 1991
to August 12, 1993. While most of the complaints filed in August 1993 were
voluntarily dismissed following the filing of the consolidated complaint, three
actions remain pending.
The Company believes that it has meritorious defense in these actions.
Nevertheless, the ultimate outcome of the litigation described in the preceding
two paragraphs cannot presently be determined. Accordingly, no provision for any
loss that may result upon resolution of the suits has been made in the
consolidated financial statements.
The Company has agreed to indemnify, in certain circumstances, the
directors, officers and former officers named as defendants in the civil suits
described above for certain legal fees and expenses incurred, and judgments,
fines and settlement amounts paid in connection with such suits.
The Securities and Exchange Commission is conducting an inquiry into the
events that required the restatement of the Company's financial statements for
the periods ended December 31, 1992 and March 31, 1993, and certain other
matters. The Securities and Exchange Commission has requested certain documents
relating to such inquiry, and the Company is responding to the request.
13. SALE OF RESPIRATORY THERAPY BUSINESS
On April 15, 1993, the Company consummated its sale of certain equipment
and other assets used in their respiratory therapy business for cash of
$5,380,000 and a note receivable of $2,000,000 of which $1,945,000 was paid in
October 1993. The related gain of $6,442,000 on the sale of the assets owned by
the Company is included in gain on sale of assets in the consolidated statement
of income. Certain of the assets sold were acquired from a 50% joint venture of
the Company. The joint venture realized a gain of $1,456,000 on its sale of
assets to the Company.
(264)
<PAGE> 46
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. BUSINESS COMBINATIONS:
Poolings of Interests
On January 23, 1991, the Company exchanged 660,540 shares of its common
stock for substantially all of the outstanding common stock of Greater New York.
In addition, certain shares of Greater New York were acquired for cash of
$520,167. On August 1, 1991, the Company exchanged 2,688,494 shares of its
common stock for substantially all of the outstanding common stock of the 1991
Pooling Centers. In addition, certain shares of the 1991 Pooling Centers were
acquired for cash totalling $5,128,244. On February 1, 1992, the Company issued
355,560 shares of its common stock for substantially all of the outstanding
common stock of Lifesource, Inc. ("Lifesource"). On February 1, 1992, the
Company issued 365,384 shares of its common stock for substantially all of the
outstanding common stock of TPN of Reno, Inc., TPN of Las Vegas, Inc. and Sierra
Nevada Pharmaceutical Consultants, Inc. (collectively, "TPN"). On June 1, 1992,
the Company issued 798,918 shares of its common stock for all of the outstanding
common stock of the June 1992 Pooling Centers. In addition, certain shares of
the June 1992 Pooling Centers were acquired for cash totalling $1,403,977. On
September 4, 1992, the Company exchanged 1,122,147 shares of its common stock
and cash of $2,166,538 for all of the outstanding common stock of the September
1992 Pooling Centers. On March 31, 1993, the Company issued 2,464,856 shares of
its common stock for substantially all of the outstanding common stock of the
March 1993 Pooling Centers. In addition, certain shares of the March 1993
Pooling Centers were acquired for cash of $648,387. Effective June 1, 1993, the
Company issued 193,534 shares of its common stock for all of the outstanding
common stock of Park Avenue Home Therapeutics Inc. ("Park Avenue"). The
combinations have been accounted for as poolings of interests and, accordingly,
the 1992 and 1991 consolidated financial statements have been restated, as
applicable, to include Greater New York, the 1991 Pooling Centers, Lifesource,
TPN, the June 1992 Pooling Centers, the September 1992 Pooling Centers, the
March 1993 Pooling Centers and Park Avenue.
The results of operations for the year ended September 30, 1993 include the
combined centers' results of operations prior to the combination dates as
follows:
<TABLE>
<CAPTION>
TOTAL NET
REVENUES INCOME
----------- ----------
<S> <C> <C>
T2 Medical, Inc.................................. $262,950,938 $37,824,712
March 1993 Pooling Centers....................... 9,456,546 3,425,494
Park Avenue...................................... 791,597 217,358
------------ -----------
Combined......................................... $273,199,081 $41,467,564
============ ===========
</TABLE>
The results of operations for the year ended September 30, 1992 include the
combined centers' results of operations prior to the combination dates as
follows:
<TABLE>
<CAPTION>
TOTAL NET
REVENUES INCOME
----------- ----------
<S> <C> <C>
T2 Medical, Inc.................................. $205,335,065 $51,756,478
Lifesource....................................... 3,919,993 107,400
TPN.............................................. 3,844,632 781,154
June 1992 Pooling Centers........................ 9,316,689 2,738,897
September 1992 Pooling Centers................... 10,184,772 3,628,188
March 1993 Pooling Centers....................... 17,020,854 5,481,699
Park Avenue...................................... 1,321,746 464,905
------------ -----------
Combined......................................... $250,943,751 $64,958,721
============ ===========
</TABLE>
(265)
<PAGE> 47
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The results of operations for the year ended September 30, 1991 include the
combined centers' results of operations prior to the combination dates as
follows:
<TABLE>
<CAPTION>
TOTAL NET
REVENUES INCOME
----------- ----------
<S> <C> <C>
T2 Medical, Inc.................................. $117,030,204 $26,747,450
Greater New York................................. 1,802,622 668,689
1991 Pooling Centers............................. 17,716,247 6,787,945
Lifesource....................................... 11,158,428 946,240
TPN.............................................. 8,884,965 1,191,429
June 1992 Pooling Centers........................ 6,002,358 1,854,144
September 1992 Pooling Centers................... 4,074,862 1,528,643
March 1993 Pooling Centers....................... 5,740,977 2,026,442
------------ -----------
Combined......................................... $172,410,663 $41,750,982
============ ===========
</TABLE>
A reconciliation of consolidated total revenues, net income and net income
per common share as previously reported in the Company's 1992 and 1991 Annual
Reports on Form 10-K with restated amounts for the years ended September 30,
1992 and 1991 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1992
-------------------------------------
NET
INCOME
PER
TOTAL NET COMMON
REVENUES INCOME SHARE
----------- ---------- ------
<S> <C> <C> <C>
T2 Medical, Inc., as previously reported..... $242,119,396 $59,348,153 $1.55
=====
March 1993 Pooling Centers................... 17,020,854 5,481,699
Park Avenue.................................. 1,321,746 464,905
Adjustments.................................. (9,518,245) (336,036)
------------ -----------
T2 Medical, Inc., as restated................ $250,943,751 $64,958,721 $1.60
============ =========== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1992
-------------------------------------
NET
INCOME
PER
TOTAL NET COMMON
REVENUES INCOME SHARE
----------- ---------- ------
<S> <C> <C> <C>
T2 Medical, Inc., as previously reported..... $147,572,387 $34,569,854 $1.02
=====
Lifesource................................... 11,158,428 946,240
TPN.......................................... 8,884,965 1,191,429
June 1992 Pooling Centers.................... 6,002,358 1,854,144
September 1992 Pooling Centers............... 4,074,862 1,528,643
March 1993 Pooling Centers................... 5,740,977 2,026,442
Adjustments.................................. (11,023,314) (365,770)
------------ -----------
T2 Medical, Inc., as restated................ $172,410,663 $41,750,982 $1.16
============ =========== =====
</TABLE>
The adjustments reflected above represent primarily the elimination of
intercompany revenues and expenses.
(266)
<PAGE> 48
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On May 1, 1992, the Company exchanged 58,881 shares of its common stock for
all of the outstanding common stock of Desert Oncology Medical Group, Inc.
("Desert"). The merger was accounted for as a pooling of interests. The
operations of Desert were insignificant to the financial statements of the
Company; accordingly, the operations of Desert have been included in the
financial statements of the Company since May 1, 1992.
Purchases
On November 30, 1990, the Company acquired the net assets of Southwest
Homecare No. 1, Ltd. ("Southwest") for a total purchase price of $9,876,192. The
purchase was funded by cash of $7,600,000 and promissory notes of $2,276,192,
bearing interest at 10%. The $8,194,107 excess of the purchase price over the
fair value of the net assets acquired is being amortized on a straight-line
basis over forty years. The acquisition was accounted for as a purchase and
included in the Company's operations after November 30, 1990.
The purchase price with respect to Southwest was subject to increase if
certain earnings levels were achieved. The earnings levels have been
substantially achieved. Accordingly, the Company has recorded the increased
consideration of $7,457,003 as additional cost of acquiring Southwest, which is
being amortized over forty years. The additional consideration is payable in
monthly installments of $22,750 through December 1999 plus $5,000,000 paid in
December 1992. At September 30, 1993 and 1992, $1,433,252 and $1,706,252,
respectively, was included as other long-term liability and $273,000 and
$5,273,000, respectively, was included in other current liability.
On February 28, 1991, the Company acquired 51% of the net assets of
IntraCare of Annandale II ("IntraCare II") for a total purchase price of
$4,059,446. On April 1, 1993, the Company increased its ownership in IntraCare
II by acquiring 49% of the net assets of IntraCare II for a total purchase price
of $3,754,555. The total purchase price of $7,814,001 was funded by the issuance
of 226,124 shares of common stock (valued at $3,864,001) and cash of $3,950,000.
The $8,107,569 excess of the purchase price over the fair value of the assets
acquired was allocated to goodwill which is being amortized on a straight-line
basis over forty years. The acquisition was accounted for as a purchase and
included in the Company's operations after February 28, 1991.
On October 1, 1990, the Company acquired 35% of the partnership interests
of Tenn-Ga. Stone Group Two, L.P. (the "Partnership") for a purchase price of
$1,635,292. On June 1, 1991, the Company increased its ownership in the
Partnership to 51% by acquiring an additional 16% of the Partnership for a
purchase price of $1,151,882. On January 1, 1993, the Company increased its
ownership in the Partnership to 75% by acquiring an additional 24% of the
Partnership for a purchase price of $1,800,000. The total purchase price was
funded by the issuance of 109,684 shares of common stock (valued at $1,311,854)
and cash of $3,275,320. Substantially all of the purchase price was allocated to
goodwill and is being amortized on a straight-line basis over forty years. The
acquisition was accounted for as a purchase and was consolidated in the
Company's operations after June 1, 1991.
On April 1, 1991, the Company acquired a 35% interest in Cobb Regional
Lithotripsy Partners ("Cobb") for a total purchase price of $4,000,616. On
November 1, 1991, the Company increased its ownership in Cobb to 51% by
acquiring an additional 16% of Cobb for a purchase price of $1,213,070. The
total purchase price of $5,213,686 was funded by the issuance of 122,890 shares
of common stock (valued at $3,463,686) and cash of $1,750,000. Substantially all
of the purchase price was allocated to goodwill and is being amortized on a
straight-line basis over forty years. The acquisition was accounted for as a
purchase and was consolidated in the Company's operations after November 1,
1991.
On January 1, 1992, the Company acquired a 35% interest in Bay Area Renal
Stone Center, Ltd. ("Bay Area") for a total purchase price of $13,025,655
consisting of 104,250 shares of common stock (valued at
(267)
<PAGE> 49
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$5,719,155) and cash of $7,306,500. Effective October 1, 1992, the Company
increased its ownership in Bay Area to 65% by acquiring an additional 30% of Bay
Area for a cash purchase price of $9,215,784.
On February 7, 1992, the Company acquired the net assets of San Diego Home
Therapy ("San Diego") for a total purchase price of $742,152. The purchase was
funded by the issuance of 3,178 shares of the Company's common stock (valued at
$179,652) and cash of $562,500.
On July 1, 1992, the Company acquired 69.03%, 51.00% and 54.43% of the
partnership interests of South Georgia Lithotripsy Partners ("South Georgia"),
North Georgia Lithotripsy Partners of Atlanta ("North Georgia -- Atlanta") and
North Georgia Lithotripsy Partners of Augusta ("North Georgia -- Augusta"),
respectively, for a total cash purchase price of $15,373,078. Substantially all
of the purchase price was allocated to goodwill and is being amortized on a
straightline basis over forty years. The acquisitions were accounted for as
purchases and included in the Company's operations after July 1, 1992.
Effective October 1, 1992, the Company acquired 51% of the outstanding
common stock of Pediatric Partners, Inc. ("Pediatric") for a total purchase
price of $2,250,000. The purchase was funded by the conversion of previously
purchased convertible debentures into common stock which represents a 51%
ownership interest in Pediatric. Substantially all of the purchase price was
allocated to goodwill and is being amortized on a straight-line basis over forty
years. The acquisition was accounted for as a purchase and was consolidated in
the Company's operations after October 1, 1992.
Effective January 1, 1993, the Company acquired 65% of the partnership
interests of Lithotripsy Partners of Cincinnati ("LPC") for a total cash
purchase price of $6,442,808. Substantially all of the purchase price was
allocated to goodwill and is being amortized on a straight-line basis over forty
years. The acquisition was accounted for as a purchase and included in the
Company's operations after January 1, 1993.
Effective February 1, 1993, the Company acquired 60% of the partnership
interests of Mobile Lithotripters of Indiana Partners ("Indiana") for a total
cash purchase price of $4,507,153. Substantially all of the purchase price was
allocated to goodwill and is being amortized on a straight-line basis over forty
years. The acquisition was accounted for as a purchase and included in the
Company's operations after February 1, 1993.
Effective April 1, 1993, the Company acquired 60% of the partnership
interests of Midwest Urologic Stone Unit Limited Partnership ("Midwest") for a
total cash purchase price of $9,539,041. Effective April 1, 1993, the Company
also acquired 65% of the partnership interests of Gulf South Lithotripsy
Associates, L.P. ("Gulf South"), for a total cash purchase price of $8,370,346.
Substantially all of the purchase price of these acquisitions was allocated to
goodwill and is being amortized on a straight-line basis over forty years. These
acquisitions were accounted for as purchases and were included in the Company's
operations after April 1, 1993.
On May 6, 1993, the Company acquired 51% of the partnership interests of
Coastal Lithotripsy Associates, L.P. ("Coastal") for a total cash purchase price
of $3,161,031. Substantially all of the purchase price was allocated to goodwill
and is being amortized on a straight-line basis over forty years. The
acquisition was accounted for as a purchase and was included in the Company's
operations after May 6, 1993.
On August 1, 1993, the Company acquired 60% of the Partnership interests of
Shock Wave Therapy Limited Partnership ("Shock Wave") for a total cash purchase
price of $1,200,000. Substantially all of the purchase price was allocated to
goodwill and is being amortized on a straight-line basis over forty years. The
acquisition was accounted for as a purchase and was included in the Company's
operations after August 1, 1993.
Many of the Company's agreements with its lithotripsy joint venture
partners contemplate that the Company will acquire the remaining interest in
such joint venture in the event that legislation is passed or
(268)
<PAGE> 50
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
regulations are adopted that would prevent the partner from owning an interest
in the venture and using the venture's lithotripsy equipment for the treatment
of his or her patients.
Because the operations of Southwest, IntraCare II, the Partnership, Cobb,
Bay Area, San Diego, South Georgia, North Georgia -- Atlanta, North
Georgia -- Augusta, Pediatric, LPC, Indiana, Midwest, Gulf South, Coastal and
Shock Wave were insignificant, no pro forma data is presented.
15. DEBENTURE PURCHASE AGREEMENT
Pursuant to a Debenture Purchase Agreement ("Agreement"), dated January 1,
1993, the Company has loaned $9,809,000 to Surgex, Inc. ("Surgex") at an
interest rate of 7% to December 31, 1993 and "Prime Rate" plus 1% from January
1, 1994 to the December 31, 1997 maturity date. The Company has agreed to loan
up to $10,000,000 under the Agreement. The debentures are convertible currently
at the Company's option into approximately 74% of the issued and outstanding
common stock of Surgex on the date of conversion. At Surgex's option, the
accrued interest on the debenture may be convertible into common stock of
Surgex. Also, pursuant to the Agreement, the Company has advanced an additional
$828,000 to Surgex.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Most of the Company's financial instruments are carried at their fair
value. The Company has estimated the fair value of its financial instruments
whose carrying value differed from fair value using available market information
and appropriate valuation methodologies. Considerable judgement is required in
developing the estimates of fair value presented herein, and therefore the
values are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
The carrying amount and the estimated fair value of such financial
instruments at September 30, 1993, consist of the following:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------- -----------
<S> <C> <C>
Short-term investments............................ $47,647,163 $47,867,033
Long-term debt, including current portion......... 4,354,713 4,604,739
</TABLE>
The estimated fair value of short-term investments is based on quoted
market prices and dealer quotes.
The estimated fair value of long-term debt was determined based on interest
rates that are currently available to the Company for issuance of debt with
similar terms and remaining maturities.
The Company has investments in nonconsolidated subsidiaries totaling
approximately $11,490,000, which includes the convertible debentures described
in Note 15. Since these subsidiaries are all closely held companies and there
are no quoted market prices, it is not practicable to estimate the fair value of
such investments.
The fair value estimates presented herein are based on information
available to management as of September 30, 1993. Management is not aware of any
subsequent factors that would significantly affect the estimated fair value
amounts.
17. SUBSEQUENT EVENTS
As of December 23, 1993, the Company has agreed in principle to acquire
majority interests in two lithotripsy companies and a managed IntraCare company
for cash of approximately $6.1 million. These acquisitions are expected to be
accounted for as purchases and to be consummated on or about December 31, 1993.
(269)
<PAGE> 51
SCHEDULE I
MARKETABLE SECURITIES
SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------- ---------- ----------- -------------
NO. OF SHARES MARKET AMOUNT AT
OF STOCK OR VALUE OF WHICH EACH
- --------------------------------------------------------- PRINCIPAL EACH ISSUE SECURITY IS
NAME OF ISSUER AND TITLE AMOUNT OF COST OF AT BALANCE CARRIED ON
OF EACH ISSUE BONDS EASH ISSUE SHEET DATE BALANCE SHEET
- --------------------------------------------------------- ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
United States Government and its Agencies:
United States Treasury Notes............................. 12,413,000 $12,510,720 $12,589,125 $12,510,720
United States Government Agency Certificates............. 2,777,605 2,817,200 2,825,709 2,817,200
---------- ----------- -------------
Total............................................ 15,327,920 15,414,834 15,327,920
---------- ----------- -------------
Municipal Obligation:
Nebraska Higher Education Learning Program Revenue
Bond................................................. 300,000 300,000 311,616 300,000
Corporate Bonds and Notes:
U. S. Auto Receivables Trust Asset Backed
Certificate.......................................... 1,656,214 1,705,383 1,696,576 1,705,383
Premier Auto Trust Asset Backed Note................... 1,621,000 1,635,011 1,672,010 1,635,011
Premier Auto Trust Asset Backed Note................... 1,500,000 1,499,853 1,499,853 1,499,853
Premier Auto Trust Asset Backed Certificate............ 1,133,544 1,133,283 1,133,283 1,133,283
Premier Auto Trust Asset Backed Certificate............ 150,000 149,922 149,922 149,922
World Omni Trust Asset Backed Certificate.............. 1,450,844 1,448,804 1,459,912 1,448,804
Prudential Home Mortgage Pass Through Certificate...... 49,641 50,540 50,501 50,540
Citicorp Mortgage Pass Through Certificate............. 202,363 205,872 203,944 205,872
Citicorp Mortgage Pass Through Certificate............. 2,260,432 2,283,389 2,288,688 2,283,389
Green Tree Financial Corp. Pass Through Certificate.... 2,595,159 2,590,555 2,604,060 2,590,055
Housing Securities Inc. Pass Through Certificate....... 445,512 460,270 460,270 460,270
SPNB Home Equity Asset Backed Certificate.............. 963,708 1,003,311 1,007,943 1,003,311
General Motors Acceptance Corporation Asset Backed
Certificate.......................................... 540,923 540,248 541,935 540,248
Western Financial Pass Through Certificate............. 1,307,998 1,324,511 1,334,158 1,324,511
Western Financial Pass Through Certificate............. 891,276 888,909 888,909 888,909
Nissan Auto Receivables Pass Through Certificate....... 2,043,387 2,041,015 2,048,801 2,041,015
UFSB Auto Receivables Pass Through Certificate......... 851,884 850,233 851,484 850,233
General Electric Capital Corp. Mortgage Pass Through
Certificate.......................................... 1,588,503 1,589,283 1,608,359 1,589,283
CIT Group Securitization Corp. Asset Backed
Certificate.......................................... 701,113 700,236 700,236 700,236
Resolution Trust Corp Mortgage Pass Through
Certificate.......................................... 3,984,779 3,984,779 3,984,942 3,984,779
Resolution Trust Corp Mortgage Pass Through
Certificate.......................................... 2,577,516 2,694,311 2,695,381 2,694,311
Resolution Trust Corp Mortgage Pass Through
Certificate.......................................... 627,452 627,452 627,452 627,452
Resolution Trust Corp. Mortgage Pass Through
Certificate.......................................... 200,000 199,922 199,815 199,922
Fleet Financial Inc. Remic Certificate................. 824,536 824,020 833,523 824,020
Mellon Financial Corp. Note............................ 250,000 253,843 253,633 253,843
Merrill Lynch & Co, Inc. Note.......................... 200,000 199,592 204,874 199,592
World Savings & Loan Note.............................. 100,000 100,991 102,277 100,991
CLF Financial Co. Note................................. 100,000 100,000 100,000 100,000
Nationsbank Corp. Note................................. 250,000 250,663 251,450 250,663
Guaranteed Trade Trust Certificate..................... 200,000 200,000 200,000 200,000
Central Gulf Lines, Inc. Note.......................... 130,000 132,438 132,438 132,438
Household Finance Corp. Asset Backed Certificate....... 270,963 270,370 270,370 270,370
Home Equity Loan Trust Asset Backed Certificate........ 81,051 80,234 83,584 80,234
---------- ----------- -------------
Total............................................ 32,019,243 32,140,583 32,019,243
---------- ----------- -------------
Total Marketable Securities...................... $47,647,163 $47,867,033 $47,647,163
========== ========== ============
</TABLE>
(270)
<PAGE> 52
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------- ----------- ---------- ------------------------- ---------------
DEDUCTIONS BALANCE AT END
BALANCE AT ------------------------- OF PERIOD
BEGINNING AMOUNTS AMOUNTS ---------------
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT
- ------------------------------- ----------- ---------- ---------- ------------ -------- ----
<S> <C> <C> <C> <C> <C> <C>
CURRENT
Year Ended September 30, 1993:
Dale R. Benzine(1)........... $ 159,000 $ 54,000 -- -- $213,000 --
H. Flynn Clyburn(1).......... -- 119,000 32,000 -- 87,000 --
J. Lee Ledbetter............. -- 152,435 -- 152,435 -- --
Year Ended September 30, 1992:
Dale R. Benzine.............. -- 159,000 -- -- 159,000 --
H. Flynn Clyburn............. -- 119,000 119,000 -- -- --
Thomas E. Haire.............. -- 225,875 225,875 -- -- --
J. Lee Ledbetter............. -- 241,100 241,100 -- -- --
Year Ended September 30, 1991:
Joseph C. Allegra............ 318,750 -- 318,750 -- -- --
</TABLE>
- ------------------
(1) The amount due from this individual is guaranteed by the former president of
the Company.
(271)
<PAGE> 53
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 1993, 1992 AND 1991
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------- ------------- -------------------------- --------------- ---------
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNT(1) DEDUCTIONS(2) END OF
- ------------------------------------- ------------- ----------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
PERIOD
Allowance for doubtful accounts:
Year ended September 30, 1993...... $ 8,823,297 $23,273,759 $ 14,066 $ (26,585,282) $5,525,840
=========== ========== =========== ============== =========
Year ended September 30, 1992...... 7,994,070 12,139,284 332,238 (11,642,295) 8,823,297
=========== ========== =========== ============== =========
Year ended September 30, 1991...... 3,586,948 9,742,377 597,120 (5,932,375) 7,994,070
=========== ========== =========== ============== =========
</TABLE>
- ---------------
(1) Represents the balance of the allowance of doubtful accounts of the centers
acquired and accounted for as purchases. See Note 13 to Consolidated
Financial Statements.
(2) Represents accounts written off net of recoveries.
(272)
<PAGE> 54
SCHEDULE IX
SHORT TERM BORROWINGS
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ----------------------------------------------- ----------- -------- ----------- ----------- --------
WEIGHTED
AVERAGE
AVERAGE INTEREST
MAXIMUM AMOUNT RATE
WEIGHTED AMOUNT OUTSTANDING DURING
BALANCE AVERAGE OUTSTANDING DURING THE THE
CATEGORY OF AGGREGATE AT END INTEREST DURING THE PERIOD PERIOD
SHORT TERM BORROWINGS OF PERIOD RATE PERIOD (NOTE 1) (NOTE 2)
- ----------------------------------------------- ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Year Ended September 30, 1993:
Short-term Debt.............................. $23,000,000 3.9% $32,552,000 $22,374,236 5.2%
========== ======= ========== ========== =======
Year Ended September 30, 1992:
Short-term Debt.............................. $ 8,063,045 6.7% $11,724,195 $ 8,799,916 6.1%
========== ======= ========== ========== =======
Year Ended September 30, 1991:
Short-term Debt.............................. $10,186,999 10.2% $14,264,039 $ 4,765,969 10.3%
========== ======= ========== ========== =======
</TABLE>
- ---------------
(1) The average outstanding during the period was computed by dividing the sum
of the monthly amounts outstanding by twelve.
(2) The weighted average interest rate during the period was computed by
dividing the interest expense incurred during the period by the average
short-term borrowings outstanding during the period.
(273)
<PAGE> 1
EXHIBIT 13.2 TO
REGISTRATION STATEMENT
ON FORM S-4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9868
T2 MEDICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 59-2405366
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1121 ALDERMAN DRIVE 30202
ALPHARETTA, GEORGIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
Registrant's Telephone Number, Including Area Code: (404) 442-2160
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares outstanding of the registrant's Common Stock, $.01 Par
Value, as of January 31, 1994 was 40,961,920 shares.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(274)
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
T2 MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1993 1993
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................. $ 17,236,548 $ 16,258,297
Short-term investments................................................. 33,031,687 47,647,163
Receivables:
Patient billings (less allowance for doubtful accounts of $5,074,360
at December 31, 1993 and $5,525,840 at September 30, 1993.......... 26,640,390 26,979,099
Other receivables:
Management fees................................................... 7,600,092 7,464,206
Lithotripsy....................................................... 6,551,610 6,313,065
Other............................................................. 4,965,812 6,955,650
Inventories............................................................ 5,063,770 4,561,234
Prepaid expenses....................................................... 902,721 986,329
------------ -------------
Total current assets........................................... 101,992,630 117,165,043
Property and equipment, net.............................................. 24,809,769 24,248,211
Goodwill and other intangible assets (net of accumulated amortization of
$14,298,696 at December 31, 1993 and $13,104,727 at September 30,
1993).................................................................. 178,176,969 175,114,254
Other assets............................................................. 13,494,133 12,419,546
------------ -------------
Total assets................................................... $318,473,501 $ 328,947,054
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................................ $ 5,993,000 $ 23,000,000
Current portion of long-term debt and obligations under capital
leases.............................................................. 2,564,114 3,126,871
Accounts payable and accrued expenses.................................. 5,100,599 8,365,224
Income taxes payable................................................... 4,627,951 945,940
Deferred income taxes payable.......................................... 1,552,908 1,080,085
Other current liability................................................ 273,000 273,000
------------ -------------
Total current liabilities...................................... 20,111,572 36,791,120
Long-term debt and obligations under capital leases, exclusive of current
maturities............................................................. 2,688,538 3,097,164
Deferred income taxes payable............................................ 137,020 328,266
Other long-term liability................................................ 1,365,002 1,433,252
Minority interests in subsidiaries....................................... 5,479,516 5,836,376
------------ -------------
Total liabilities and minority interests....................... 29,781,648 47,486,178
------------ -------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares authorized; shares
issued and outstanding; 40,506,387 at December 31, 1993 and 40,486,387
at September 30, 1993.................................................. 405,064 404,864
Additional paid-in capital............................................... 154,799,547 154,702,147
Retained earnings........................................................ 133,487,242 126,353,865
------------ -------------
Total stockholders' equity..................................... 288,691,853 281,460,876
------------ -------------
Total liabilities and stockholders' equity..................... $318,473,501 $ 328,947,054
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
(275)
<PAGE> 3
T2 MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
---------------------------
1993 1992
----------- -----------
<S> <C> <C>
Revenues:
Home infusion therapy.................................................... $38,929,154 $53,210,958
IntraCare................................................................ 11,195,299 10,685,982
Lithotripsy.............................................................. 11,544,756 5,296,496
Other.................................................................... 1,994,359 2,579,435
----------- -----------
Total revenues................................................... 63,663,568 71,772,871
----------- -----------
Costs and expenses:
Cost of revenues......................................................... 37,647,327 33,594,268
Selling, general and administrative...................................... 6,618,946 6,271,804
Provision for doubtful accounts.......................................... 2,181,255 7,932,750
Amortization of intangibles.............................................. 1,217,902 992,379
----------- -----------
Total costs and expenses......................................... 47,665,430 48,791,201
----------- -----------
Income from operations
Other income (expense):.................................................. 15,998,138 22,981,670
Interest expense......................................................... (145,467) (307,678)
Interest income.......................................................... 717,498 790,045
Equity in earnings of unconsolidated subsidiaries........................ 282,751 290,564
Other.................................................................... 68,120 342,671
----------- -----------
Income before income taxes and minority interest................. 16,921,040 24,097,272
Provision for income taxes................................................. 6,249,550 8,428,022
Minority interest in income of subsidiaries................................ 2,525,700 1,559,475
----------- -----------
Net income....................................................... $ 8,145,790 $14,109,775
========== ==========
Net income per common and common equivalent share.......................... $ .20 $ .35
========== ==========
Cash dividends paid per share of common stock.............................. $ .025 $ .025
========== ==========
Weighted average common and common equivalent shares outstanding........... 40,689,581 40,505,556
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
(276)
<PAGE> 4
T2 MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-----------------------------
1993 1992
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................. $ 8,145,790 $ 14,109,775
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of discount on notes................................... -- --
Depreciation and amortization....................................... 2,862,169 2,307,521
Provision for doubtful accounts..................................... 2,181,255 7,932,750
Tax benefit of stock options........................................ -- 582,235
Equity in earnings of unconsolidated subsidiaries................... (282,751) (290,564)
Distributions from unconsolidated subsidiaries...................... 127,379 125,000
Loss on sale of assets.............................................. 15,147 13,150
Change in assets and liabilities net of effects from purchased
businesses:
Receivables......................................................... 197,907 (6,691,381)
Inventories......................................................... (502,536) 326,439
Prepaid expenses and other assets................................... (230,608) (524,343)
Accounts payable and accrued expenses............................... (3,738,953) (3,558,253)
Income taxes payable................................................ 3,682,013 (1,644,158)
Deferred income taxes payable....................................... 281,577 922,225
Minority interests in subsidiaries.................................. (356,860) (439,738)
------------ ------------
Cash provided by operating activities.......................... 12,381,529 13,170,658
------------ ------------
Cash flows related to investing activities:
Payments for businesses acquired (less cash acquired).................. (4,255,408) (10,076,382)
Additions to property and equipment, net............................... (2,219,407) (1,488,087)
Proceeds from sale of property and equipment........................... 22,507 59,300
Investment in unconsolidated subsidiaries.............................. (605,000) --
Short-term investments................................................. 14,615,476 1,420,841
------------ ------------
Cash provided by (used in) investing activities................ 7,558,168 (10,084,328)
------------ ------------
Cash flows related to financing activities:
Proceeds from issuance of common stock................................. 97,600 879,463
Proceeds from issuance of short-term notes and long-term debt.......... -- --
Payment of short-term notes and long-term debt......................... (18,046,633) (5,827,425)
Distributions of S Corporation earnings................................ -- (1,576,040)
Cash dividends......................................................... (1,012,413) (941,358)
------------ ------------
Cash used in financing activities.............................. (18,961,446) (7,465,360)
------------ ------------
Increase (decrease) in cash and cash equivalents............... 978,251 (4,379,030)
Cash and cash equivalents at beginning of period............... 16,258,297 14,509,800
------------ ------------
Cash and cash equivalents at end of period..................... $ 17,236,548 $ 10,130,770
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
(277)
<PAGE> 5
Supplemental disclosures of cash flow information:
<TABLE>
<S> <C> <C>
Cash paid for interest.............................. $ 145,467 $ 307,678
Cash paid for income taxes.......................... 2,413,139 8,564,015
</TABLE>
On January 1, 1992, the Company acquired a 35% interest in Bay Area
Partners ("Bay Area"), a general partnership formed between the Company and Bay
Area Renal Stone Center, Ltd., for a purchase price of $13,025,655. Effective
October 1, 1992, the Company increased its ownership in Bay Area to 65% by
acquiring an additional 30% of Bay Area for a cash purchase price of $9,215,784.
The total purchase price of $22,241,439 was funded by the issuance of 104,250
shares of common stock (valued at $5,719,155) and cash of $16,522,284.
Liabilities assumed in connection with the acquisition were $177,015.
Substantially all of the purchase price was allocated to goodwill. The
acquisition was accounted for as a purchase and was consolidated in the
Company's operations after October 1, 1992.
Effective October 1, 1992, the Company acquired 51% of the outstanding
common stock of Pediatric Partners, Inc. ("Pediatric") for a total purchase
price of $2,250,000. The purchase was funded by the conversion of previously
purchased convertible debentures into common stock which represents a 51%
ownership interest in Pediatric. Liabilities assumed in connection with the
acquisition were $191,702. Substantially all of the purchase price was allocated
to goodwill. The acquisition was accounted for as a purchase and was
consolidated in the Company's operations after October 1, 1992.
On December 31, 1993, the Company invested cash of $2,082,800 which
resulted in the Company acquiring a 63.5% interest in Southwest Lithotripter
Joint Venture ("Southwest"). Liabilities assumed in connection with the
acquisition were immaterial. Substantially all of the purchase price was
allocated to goodwill and is being amortized on a straight-line basis over 40
years. The acquisition was accounted for as a purchase and will be included in
the Company's operations after December 31, 1993.
On December 31, 1993, the Company acquired 100% of the outstanding common
stock of Intracare of Atlanta, Inc. for a total cash purchase price of
$2,322,139. No liabilities were assumed in connection with the acquisition.
Substantially all of the purchase price was allocated to goodwill and is being
amortized on a straight-line basis over 40 years. The acquisition was accounted
for as a purchase and will be included in the Company's operations after
December 31, 1993.
(278)
<PAGE> 6
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements contained in this report
are unaudited, but reflect all adjustments, which, in the opinion of management,
are necessary for a fair presentation of the financial position and results of
operations of the interim periods. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to applicable rules
and regulations of the Securities and Exchange Commission. These financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended September 30, 1993. The results of operations for the interim periods
reported herein are not necessarily indicative of results to be expected for the
full year.
2. EARNINGS PER SHARE
Earnings per share for the three-month periods ended December 31, 1993 and
December 31, 1992 is based on the weighted average number of common and common
equivalent shares outstanding. Common share equivalents include dilutive stock
options using the treasury stock method (computed at the average market price
during the periods indicated). Fully diluted earnings per share do not differ
significantly from primary earnings per share.
The weighted average number of common and common equivalent shares used in
the computation of net income per share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-----------------------
1993 1992
--------- ---------
<S> <C> <C>
Weighted average number of shares outstanding....... 40,496,713 40,084,263
Incremental shares from use of treasury stock
method............................................ 192,868 421,293
--------- ---------
Weighted average common and common equivalent shares
outstanding....................................... 40,689,581 40,505,556
========= =========
</TABLE>
3. BUSINESS COMBINATIONS
On December 31, 1993, the Company invested cash of $2,082,800 which
resulted in the Company owning a 63.5% interest in Southwest Lithotripter Joint
Venture ("Southwest"). Substantially all of the purchase price was allocated to
goodwill and is being amortized on a straight-line basis over 40 years. The
acquisition was accounted for as a purchase and will be included in the
Company's operations after December 31, 1993.
On December 31, 1993, the Company acquired 100% of the outstanding common
stock of Intracare of Atlanta, Inc. for a total cash purchase price of
$2,322,139. Substantially all of the purchase price was allocated to goodwill
and is being amortized on a straight-line basis over 40 years. The acquisition
was accounted for as a purchase and will be included in the Company's operations
after December 31, 1993.
Due to the insignificant operations of Southwest and Intracare of Atlanta,
Inc., pro forma data has not been included.
4. CONTINGENCIES AND LEGAL MATTERS
The Company in 1992 received a request for documents from a grand jury
sitting in Atlanta, Georgia at the request of the U.S. Department of Health and
Human Services, the focus of which appears to be the
(279)
<PAGE> 7
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
potential application of the Medicare Fraud and Abuse Law as it relates to
physician ownership. The Company has complied with the request and believes that
the documents submitted will confirm that it has conducted its business affairs
in a proper and lawful manner, consistent with all applicable laws, regulations
and professional codes of conduct. Management believes that the ultimate
resolution of this matter will not have a material adverse effect on the
Company's financial position and results of operations.
The Company and certain of its officers and former officers are defendants
in civil suits filed in 1992 on behalf of individuals claiming to have purchased
Company stock during the time period from December 2, 1991 through June 24,
1992. The suits have been consolidated into one suit. The complaint seeks
certification of a plaintiff's class and damages in an unspecified amount. The
complaint alleges, among other things, that the Company and the named
individuals violated various provisions of the Securities and Exchange Act of
1934 and violated certain other laws by failing to make complete and accurate
statements about the Company's business. On November 16, 1993, the proceeding
was certified as a class action.
In 1993, the Company conducted an inquiry which resulted in the restatement
of the Company's interim financial statements for the periods ended December 31,
1992 and March 31, 1993. Subsequently, the Company and certain of its of
officers and directors and former officers and a former director were named as
defendants in civil suits filed on behalf of individuals claiming to have
purchased or sold Company stock during various time periods in 1991, 1992 and
1993. The complaints, which were generally similar, alleged in part that the
Company made misleading public statements concerning the Company's business,
results of operations, future prospects, revenues, and reimbursements from its
payor sources. The complaints, which have been filed in or transferred to the
U.S. District Court for the Northern District of Georgia, seek certification of
a plaintiff's class and damages in an unspecified amount. In September 1993, an
amended consolidated complaint was filed making substantially the same
allegations and seeking substantially the same relief as the earlier complaints.
The consolidated complaint seeks certification of a plaintiff's class for
persons buying or selling Company stock during the period from December 2, 1991
to August 12, 1993. While most of the complaints filed in August 1993 were
voluntarily dismissed following the filing of the consolidated complaint, three
actions remain pending.
The Company believes that it has meritorious defenses in these actions.
Nevertheless, the ultimate outcome of the litigation described in the preceding
two paragraphs cannot presently be determined. Accordingly, no provision for any
loss that may result upon resolution of the suits has been made in the
consolidated financial statements.
The Company has agreed to indemnify, in certain circumstances, the
directors, officers and former officers named as defendants in the civil suits
described above for certain legal fees and expenses incurred, and judgments,
fines and settlement amounts paid in connection with such suits.
The Securities and Exchange Commission is conducting an inquiry into the
events that required the restatement of the Company's financial statements for
the periods ended December 31, 1992 and March 31, 1993, and certain other
matters. The Securities and Exchange Commission has requested certain documents
relating to such inquiry, and the Company is responding to the request.
5. DEBENTURE PURCHASE AGREEMENT AND SUBSEQUENT EVENTS
In connection with the Company's Debenture Purchase Agreement with Surgex,
Inc., the Company has increased its loan to Surgex as of December 31, 1993 to
$10,359,000.
On February 7, 1994, the Company announced that it had entered into an
agreement and plan of merger dated February 6, 1994 providing for the merger of
the Company with three other companies. The operations of the three other
companies consist primarily of providing infusion therapy services. Under the
terms of the
(280)
<PAGE> 8
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
agreement, each outstanding common share of the Company prior to the merger is
expected to be exchanged for .63 shares of common stock of the newly-formed
company. The merger is expected to be accounted for as a pooling of interests
and to be consummated by June 30, 1994.
As of February 8, 1994, the Company has agreed in principle to acquire a
majority interest in one lithotripsy company for cash of approximately
$2,000,000. This acquisition is expected to be accounted for as a purchase and
to be consummated during the second quarter of fiscal 1994.
(281)
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Total revenues for the three-month period ended December 31, 1993 decreased
11.3% to $63,663,568, compared to the corresponding period in the prior year.
Home infusion therapy revenues, including management fees from managed home
infusion therapy companies, decreased 26.8% to $38,929,154 for the three month
period ended December 31, 1993, from $53,210,958 for the corresponding period in
1992. Although the Company had an increase in infusion therapy patients served,
a significant reduction in per patient revenue resulting from changes in
reimbursement patterns has resulted in an overall decrease in infusion therapy
revenue. These changes include increased case management and larger discounts
demanded by third party payors.
IntraCare revenues, including management fees from managed IntraCare
companies, increased 4.8% to $11,195,299 for the three month period ended
December 31, 1993, from $10,685,982 for the corresponding period in the prior
year. This increase resulted primarily from the acquisition of and increase in
operations of seven acquired Intracare companies and the increase in management
fees resulting from the growth in number of patients served by the 41 IntraCare
facilities developed since February 1990. The increase was partially offset by
lower reimbursement rates paid to the Company by third party payors.
Lithotripsy revenues for the three month period ended December 31, 1993
increased by 118% over the corresponding period in the prior year. This increase
in lithotripsy revenues was attributable to an increase in patients served and
the acquisition since December 31, 1992 of an additional interest in one
lithotripsy company and majority interests in seven lithotripsy companies in
which the Company had no prior interest.
Continued cost reduction initiatives by third party payors, significant
reductions in coverage and rates of third party payors, or significant
reductions in the percentage of the Company's services delivered to privately-
insured patients could have a continuing negative effect on the Company's home
infusion therapy and IntraCare revenues. During the fiscal year ended September
30, 1993, reimbursement patterns in the infusion therapy industry changed
dramatically, including (i) the retroactive implementation of case management
discounts, (ii) demands for larger discounts by indemnity insurance carriers,
and (iii) demands for other price discounts. In the first quarter of fiscal
1994, reimbursement patterns continued to change, and there can be no assurance
that reimbursement patterns will not continue to change. However, as larger
numbers of the Company's patients are treated in accordance with agreements that
establish reimbursement rates in advance, reimbursement patterns should become
more predictable.
While pricing pressures have been primarily related to the Company's
infusion therapy operations, there can be no assurance that similar pricing
pressures will not be applied to the Company's lithotripsy operations. The
Health Care Finance Administration ("HCFA") has issued a proposed rule that
would, if implemented, significantly reduce the amount Medicare would reimburse
its beneficiaries for the cost of lithotripsy procedures performed in an
ambulatory surgery center or on an outpatient basis at a hospital. Further, a
decrease in the Medicare reimbursement rate for lithotripsy may trigger demands
for similar reductions by other third party payors.
Costs of revenues for the three month period ended December 31, 1993
increased 12.1% to $37,647,327 versus the comparable period in the prior year.
This increase was attributable to an increase in infusion therapy patients
served, increased depreciation and the acquisitions and development mentioned
above.
Selling, general and administrative expenses as a percentage of total
revenues increased from 8.7% to 10.4% for the three month period ended December
31, 1993, versus the comparable period in the prior year. The increase in the
percentage of selling, general and administrative expenses to total revenues is
primarily due to the fixed components of certain selling, general and
administrative expenses and the relative decrease in per patient revenues.
The provision for doubtful accounts expressed as a percentage of total
revenues decreased to 3.4% from 11.1% for the three month period ended December
31, 1993, versus the corresponding period in the prior year. The decrease in the
provision for doubtful accounts is the result of management's assessment of the
allowance
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<PAGE> 10
needed to absorb the doubtful accounts included in accounts receivable. Net
write-offs of doubtful accounts during the three months ended December 31, 1993,
as compared to the corresponding period in the prior year decreased $5,751,495.
Management regularly reviews the collectability of the Company's accounts
receivable and makes adjustments to the allowance for doubtful accounts as
needed to reflect prevailing conditions. As case management discounts have
become more prevalent and larger numbers of the Company's patients are treated
in accordance with agreements that establish reimbursement rates in advance,
reimbursement patterns have become more predictable. Consequently, the Company
has reduced its allowance for doubtful accounts to 16% of accounts receivable at
December 31, 1993 from 17% at September 30, 1993.
The increase in amortization of intangibles for the three month period
ended December 31, 1993 versus the comparable period in the prior year is
primarily attributable to the additional goodwill associated with acquisitions
consummated since December 31, 1992 which were accounted for as purchases.
Income from operations as a percentage of total revenues decreased from
32.0% to 25.1% for the three month period ended December 31, 1993 versus the
comparable period in the prior year. The decrease in income from operations
percentages resulted primarily from an increase in the number and amount of
discounts given to third party payors, including case management adjustments,
managed care pricing and other price discounts. Because of the current pressures
on pricing in the health care industry generally, the Company expects that, in
the foreseeable future, there will continue to be pressures on income from
operations. In addition, continued cost reduction initiatives by third party
payors, significant reductions in coverage and rates of third party payors, or
significant reductions in the percentage of the Company's services delivered to
privately-insured patients could also have a negative effect on the Company's
income from operations.
The effective income tax rate increased from 37.4% to 43.4% for the three
month period ended December 31, 1993 versus the comparable period in the prior
year. The effective income tax rate was calculated by dividing the provision for
income taxes by income before income taxes less minority interests in the income
of partnerships. Such increases were primarily attributable to the increase in
the amortization of intangibles resulting from acquisitions of entities since
December 30, 1992 which were accounted for as purchases and income for the three
month period ended December 31, 1992 included S Corporation income for which no
income tax provision was required. This income resulted from the acquisitions of
S Corporations which were accounted for as poolings of interests.
Minority interest in income of subsidiaries for the three month period
ended December 31, 1993 increased by 62.0% over the corresponding period in the
prior year. This increase resulted primarily from the Company's acquisition of
majority interests in seven entities since December 31, 1992 in which minority
ownership interests exist.
Inflation
The Company has not experienced significant increases in either the cost of
supplies or operating expenses due to inflation. Nonetheless, although inflation
has not been a significant factor to date, there can be no assurance that it
will not be in the future.
Financial Condition as of December 31, 1993
Since its inception, the Company has financed its current operations
through internally generated funds and equity placements. The cash provided by
operating activities was $12,381,529 for the three month period ended December
31, 1993 and $13,170,658 for the three month period ended December 31, 1992. As
of December 31, 1993, the Company had cash and short term investments net of
short term investments pledged to short-term debt totaling approximately
$38,368,000.
The Company believes that its presently anticipated short term needs for
operating capital, debt repayments, capital expenditures and cash dividends will
be satisfied by its present funds, internally-generated funds and its line of
credit of $10,000,000. The Company is, however, currently reviewing all of its
relationships with the infusion therapy companies it manages and may acquire
such companies or restructure
(283)
<PAGE> 11
the management agreements it has with such companies. The Company anticipates
borrowing additional funds to finance the acquisitions of those of its managed
companies that it elects to acquire. In addition, if the Company is required to
acquire the minority interests in its lithotripsy ventures, or resolves its
material pending litigation, the Company may need to seek additional sources of
capital.
Omnibus Budget Reconciliation Act of 1993
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 (the
"Omnibus Act") was signed into law by the President. The Omnibus Act increased
the corporate tax rate of 34% to 35% as well as made certain other changes to
the corporate tax law, including the deductibility of the amortization of
certain intangible assets. The tax provisions of the Omnibus Act did not have a
significant effect on the financial statements of the Company.
In addition, the Omnibus Act included provisions that prohibit physicians,
beginning on January 1, 1995, from referring their patients, who receive
benefits under the Medicare or Medicaid programs, to entities in which they have
financial interests for certain designated health services. The Omnibus Act is
worded broadly and contains numerous exceptions and technical terms that are not
fully defined and empowers the Secretary of the Department of Health and Human
Services to adopt regulations interpreting and implementing the Omnibus Act. The
Company cannot predict what effect, if any, the application of such regulations
and the Omnibus Act may have on its future business activities.
Accounting Pronouncement
The Financial Accounting Standards Board has issued Statement No. 115
entitled "Accounting for Certain Investments in Debt and Equity Securities"
which is effective for fiscal years beginning after December 15, 1993. This
statement is not expected to have any significant effect on the financial
statements of the Company.
Future Health Care Proposals and Legislation
The current Presidential administration has the stated goal of improving
the national health care system. Its proposals include steps to contain health
care costs and cutback the Medicare and Medicaid programs. It is uncertain what
legislation, if any, will be approved, and whether any such proposals will be
implemented or what effect they would have on the Company. There can be no
assurance that any such proposals or other changes in the health care system
will not have an adverse effect on the Company.
Recent Developments
On February 7, 1994, the Company announced that it had signed a definitive
agreement providing for the merger of the Company with Curaflex Health Services,
Inc. ("Curaflex"), HealthInfusion, Inc. ("HealthInfusion") and Medisys, Inc.
("Medisys"). Curaflex, HealthInfusion and Medisys are companies that primarily
provide infusion therapy services. The proposed name for the resulting entity is
Coram Healthcare Corporation ("Coram") . The resulting entity could provide
certain advantages with respect to size, economies of scale, managed care
relationships and economic synergies that the Company, acting alone, may not be
able to develop. However, no assurance can be given that such advantages will
materialize. Consummation of the proposed merger is, however, subject to
customary conditions, including approval by the shareholders of each of the four
companies, receipt of opinions relating to the "pooling of interests" and tax-
free status of the merger, appropriate regulatory approvals, including clearance
under the Hart-Scott-Rodino Act and certain other conditions.
(284)
<PAGE> 12
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1992, the Company and certain of its officers were named as
defendants in four civil suits filed on behalf of individuals claiming to have
purchased or sold Company common stock during the time period from December 2,
1991 through June 24, 1992 The suits were filed in the United States District
Court for the Northern District of Georgia and have been consolidated into one
suit captioned: In Re: T2 Medical, Inc. Stockholder Litigation, Matter File No.
1:92-CV-1564-RLV. The complaint sought certification of a plaintiff's class, and
on November 16, 1993, the proceeding was certified as a class action. The
complaint seeks damages in an unspecified amount and alleges, among other
things, that the Company and the named officers defrauded the market and
violated various provisions of the federal securities laws by failing to make
complete and accurate statements about, among other things, the Company's
business, results of operations, acquisitions, future prospects, revenues,
outstanding shares and compliance with Medicare laws regarding physician
referrals and the related grand jury document request and by failing to disclose
sales of "Restricted Shares" of T2 common stock prior to the expiration of the
applicable holding periods and by trading shares of common stock while in
possession of material, non-public information related to the failure to make
complete and accurate statements. In September 1993, the plaintiffs moved to
amend their complaint, and on January 14, 1994, the court granted the plaintiffs
leave to amend their complaint, to include allegations that the Company and
certain of its officers made misleading statements or omissions about certain
accounting issues and the Company's prospects and to allege a class of
purchasers for the period December 2, 1991 to August 12, 1993.
In 1993, the Company conducted an inquiry which resulted in the restatement
of the Company's interim financial statements for the periods ended December 31,
1992 and March 31, 1993. Subsequently, the Company and certain of its officers
and directors and former officers and a former director were named as defendants
in sixteen civil suits filed in the United States District Court for the
Northern District of Georgia on behalf of individuals claiming to have purchased
or sold Company common stock during various time periods in 1991, 1992 and 1993.
One similar civil suit was filed in the United States District Court for the
Northern District of Illinois. The complaints, which were generally similar,
alleged in part that the Company made misleading public statements concerning
the Company's business, results of operations, future prospects, revenues and
reimbursements from its payor sources. In September 1993, many of the complaints
were dismissed and a new class action complaint was filed.
The consolidated complaint captioned Bender. et al v. T2 Medical, Inc.,
Joseph C. Allegra, David Hersh and Thomas E. Haire and Stanley S. Trotman, Civil
Action No. 93-CV-2201-RCF (the "Bender Action") and filed on September 28, 1993,
alleges, among other things, that the Company and the named officers defrauded
the market in violation of various provisions of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), by making false and misleading statements
or by failing to make complete and accurate statements about the Company's
business, results of operations, revenues, reimbursement patterns of its payor
sources and future prospects and a proposed management led buy out of the
Company and seeks certification of a plaintiff's class for persons who bought
Company common stock during the period from December 2, 1991 to August 12, 1993.
Three other actions remain pending and the pending actions are described in
further detail below.
On August 16, 1993, a suit captioned Laura Lewis, M.D. v. T2 Medical, Inc.,
Joseph C. Allegra and David Hersh, Civil Action No. 93-CV-1852-RCF was filed
seeking relief substantially similar and making substantially similar
allegations as the plaintiff in the Bender Action, in addition to alleging
common law fraud. The Lewis Action, however, also seeks certification of a
subclass of plaintiffs who received shares of Company common stock in connection
with certain acquisitions made by the Company during the 1993 fiscal year and
includes allegations relating to violations of the Securities Act of 1933
related to the issuances of stock in connection with such acquisitions. The
putative class consists of purchasers of the Company's stock for the period
August 17, 1992 through August 12, 1993.
On August 19, 1993, a suit captioned Dr. Russell James v. T2 Medical, Inc.,
Joseph C. Allegra, David Hersh, J. Lee Ledbetter and Stanley S. Trotman, Civil
Action No. 93-CV-1886-RLV, was filed asserting
(285)
<PAGE> 13
substantially similar allegations and seeking substantially similar relief as
the Bender Action, in addition to alleging common law fraud and common law
negligent misrepresentation. The putative class consists of purchasers of the
Company's stock for the period January 21, 1993 through August 11, 1993.
On November 2, 1993, a suit captioned Julius Levine v. T2 Medical, Inc.,
Joseph C. Allegra, David Hersh, J. Lee Ledbetter and Stanley S. Trotman, Civil
Action No. 93-CV-2353-RLV was transferred to the Northern District of Georgia
from the Northern District of Illinois. The class and other allegations are
similar to the allegations in the James action.
The Company believes that it has meritorious defenses in these actions.
Nevertheless, the ultimate outcome of the litigation described in the preceding
paragraphs cannot presently be determined. Accordingly, no provision for any
loss that may result upon resolution of the suits has been made in the
consolidated financial statements.
The Securities and Exchange Commission is conducting an inquiry into the
events that required the restatement of the Company's financial statements for
the periods ended December 31, 1992 and March 31, 1993, and certain other
matters. The Securities and Exchange Commission has requested certain documents
relating to such inquiry, and the Company is responding to the request.
Furthermore, the Company is a party in various legal actions arising out of
the normal course of its business. Management believes that the ultimate
resolution of such actions will not have a material adverse effect on the
Company's financial position and results of operations.
ITEM 5. OTHER INFORMATION
On February 7, 1994, the Company issued a press release announcing that it
had signed a definitive agreement providing for the merger of the Company with
Curaflex Health Services, Inc., HealthInfusion, Inc. and Medisys, Inc. A copy of
such press release is attached to this Quarterly Report as Exhibit 99(a) and is
incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
99(a) Press Release dated February 7, 1994.
(b) REPORTS ON FORM 8-K. There were no Current Reports on Securities and
Exchange Commission Form 8-K filed during the three-month period ended December
31, 1993.
(286)
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
T2 MEDICAL, INC.
By: /s/ Tommy H. Carter
Tommy H. Carter
President and Chief
Executive Officer
By: /s/ Bruce A. Kolleda
Bruce A. Kolleda
Principal Accounting Officer
Date: February 14, 1994
(287)
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------ ------------
<S> <C> <C>
99(a) Press release dated February 7, 1994....................................
</TABLE>
(288)
<PAGE> 16
EXHIBIT 99(A)
<TABLE>
<S> <C> <C>
CONTACT: Charles A. Laverty
Curaflex Health Services, Inc.
(909) 460-2400
Thomas E. Haire/Tommy H. Carter
T2 Medical, Inc.
(404) 442-2160
FOR IMMEDIATE RELEASE
Naomi E. Rosenfeld/Betsy Brod
(212) 850-5600
Media Contact: Miriam Adler
(415) 296-7383
Morgen-Walke Associates, Inc.
</TABLE>
T2 MEDICAL, INC. CURAFLEX HEALTH SERVICES, INC., HEALTHINFUSION, INC.
AND MEDISYS, INC. AGREE TO FORM CORAM HEALTHCARE CORPORATION,
CREATING $500 MILLION COMPANY
Alpharetta, GA, Ontario, Calif., Miami, FL, and Minneapolis, MN, February
7, 1994 --T2 Medical, Inc. (NYSE:TSQ), Curaflex Health Services, Inc.
(NASDAQ:CFLX), HealthInfusion, Inc. (NASDAQ: HINF) and Medisys, Inc.
(NASDAQ:MEDS) today announced the signing of a definitive agreement providing
for the merger of the four publicly-traded companies. The name of the new
company will be Coram Health Corporation. Coram Healthcare will be the
second-largest infusion therapy company in the United States.
The name Coram was chosen because its Latin meaning, "together,
face-to-face, publicly, openly," succinctly captures the characteristics that
the new company embodies. Coram Healthcare will have combined revenues of
approximately $500 million and, as of the close of business on February 3, 1994,
a combined market valuation of approximately $550 million.
Under the terms of the definitive agreement, all shares of common stock of
T2 Medical issued and outstanding prior to the merger will be exchanged for .63
shares of common stock of the newly-formed company that resulted from the
December 1, 1993 merger agreement among Curaflex, HealthInfusion, and Medisys.
The exchange ratios have been revised to reflect T2 Medical's inclusion in the
merger. Pro forma ownership of Coram Healthcare, calculated on a fully-diluted
basis, will be approximately 67% for T2 Medical shareholders, 13% for Curaflex
shareholders, 12% for HealthInfusion shareholders and 8% for Medisys
shareholders. The new company will apply for listing on the New York Stock
Exchange.
The merger will be accounted for as a "pooling-of-interests" for financial
reporting purposes and is intended to be treated as a tax-free reorganization
for federal income tax purposes. Prior period results of the previously separate
companies will be combined to reflect the merger.
Charles A. Laverty, Curaflex's Chairman, President and Chief Executive
Officer, will become President and Chief Executive Officer. Tommy Carter, T2's
President and CEO, will become Coram Healthcare's Vice Chairman of the Board and
will play an active role in Coram Healthcare's operations going forward. The
company anticipates naming a Chairman in the near future. Miles E. Gilman,
President and CEO of HealthInfusion, and William J. Brummond, CEO of Medisys,
will also retain active roles in the management of the new corporation. Coram
Healthcare intends to retain major regional operations in Ontario, California
and Alpharetta, Georgia and is exploring potential locations for a new corporate
headquarters.
The proposed merger is subject to customary conditions, including approval
by the shareholders of each of the four companies, receipt of opinions relating
to the "pooling-of-interests" and tax-free status of the
(289)
<PAGE> 17
merger, appropriate regulatory approvals, including clearance under
Hart-Scott-Rodino and certain other conditions, and is expected to be completed
by the end of the second quarter of 1994.
T2 Medical Inc. is a leading provider of alternate-site treatment services
in the United States with sites of service in over 100 cities and 38 states.
These services include home infusion therapy, ambulatory infusion "Intracare"
centers, outpatient lithotripsy, pediatric homecare, physician practice
management and ambulatory surgery centers.
Curaflex Health Services, Inc. is a national provider of comprehensive
infusion therapy and related services to patients in the home and alternate site
environments. Its home infusion therapy operations include 32 regional centers
and 4 satellite facilities strategically located in major U.S. markets. The
Company also provides infusion therapy as part of a broader program of clinical
care, at 7 disease-specific outpatient centers focusing on the treatment of
complex long-term diseases and operates a national prescription benefit drug
program.
HealthInfusion Inc. provides home infusion therapy services and supplies to
patients in their homes in 26 states from 34 regional facilities.
Medisys provides comprehensive home infusion therapy services and products,
which involve the intravenous or other administration of physician-prescribed
nutrients, antibiotics, chemotherapeutic agents or other medications to patients
in their homes. The company also provides comprehensive pharmacy services to
long-term care and retirement communities. These services include prescription
dispensing, pharmaceutical consulting, IV therapy, enteral therapy and medical
supplies. The company maintains operations in Minnesota, Wisconsin, Texas, Ohio,
Illinois, Arizona, Missouri, Kansas and California
(290)
<PAGE> 1
EXHIBIT 13.3 TO
REGISTRATION STATEMENT ON FORM S-4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9868
T2 MEDICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 59-2405366
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1121 ALDERMAN DRIVE 30202
ALPHARETTA, GEORGIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 442-2160
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares outstanding of the registrant's Common Stock, $.01 Par
Value, as of April 30, 1994 was 41,172,567 shares.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(291)
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
T2 MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1994 1993
------------ --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 21,752,725 $ 16,258,297
Short-term investments........................................ 28,075,944 47,647,163
Receivables:
Patient billings (less allowance for doubtful accounts of
$4,815,874 at March 31, 1994 and $5,525,840 at
September 30, 1993....................................... 25,283,339 26,979,099
Other receivables:
Management fees.......................................... 7,030,816 7,464,206
Lithotripsy.............................................. 7,294,014 6,313,065
Other.................................................... 4,784,523 6,955,650
Inventories................................................... 5,805,380 4,561,234
Refundable income taxes....................................... 4,275,130 --
Prepaid expenses.............................................. 2,230.391 986,329
------------ ------------
Total current assets.................................. 106,532,262 117,165,043
Property and equipment, net..................................... 23,527,595 24,248,211
Goodwill and other intangible assets (net of accumulated
amortization of $15,573,884 at March 31, 1994 and $13,104,727
at September 30, 1993)........................................ 179,140,878 175,114,254
Other assets.................................................... 13,934,636 12,419,546
------------ ------------
Total assets.......................................... $323,135,371 $328,947,054
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt............................................... $ 7,708,000 $ 23,000,000
Current portion of long-term debt and obligations under
capital leases............................................. 2,459,028 3,126,871
Accounts payable and accrued expenses......................... 6,409,030 8,365,224
Income taxes payable.......................................... -- 945,940
Deferred income taxes payable................................. 1,653,700 1,080,085
Other current liability....................................... 273,000 273,000
------------ ------------
Total current liabilities.................................. 18,502,758 36,791,120
Long-term debt and obligations under capital leases, exclusive
of current maturities......................................... 2,106,976 3,097,164
Deferred income taxes payable................................... 678,935 328,266
Other long-term liability....................................... 1,296,752 1,433,252
Minority interests in subsidiaries.............................. 6,348,907 5,836,376
------------ ------------
Total liabilities and minority interests.............. 28,934,328 47,486,178
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares authorized;
shares issued and outstanding; 41,147,567 at March 31, 1994
and 40,486,387 at September 30, 1993.......................... 411,476 404,864
Additional paid-in capital...................................... 158,073,143 154,702,147
Retained earnings............................................... 135,716,424 126,353,865
------------ ------------
Total stockholders, equity............................ 294,201,043 281,460,876
------------ ------------
Total liabilities and stockholders' equity............ $323,135,371 $328,947,054
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
(292)
<PAGE> 3
T2 MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Revenues:
Home infusion therapy........................................... $34,081,574 $47,070,196
IntraCare....................................................... 9,861,226 11,335,585
Lithotripsy..................................................... 12,219,773 6,987,282
Other........................................................... 2,046,729 2,277,372
---------- ----------
Total revenues.......................................... 58,209,302 67,670,435
---------- ----------
Costs and expenses:
Cost of revenues................................................ 37,499,145 35,245,559
Selling, general and administrative............................. 9,240,756 7,273,603
Provision for doubtful accounts................................. 2,580,934 7,066,797
Amortization of intangibles..................................... 1,279,922 1,068,731
---------- ----------
Total costs and expenses................................ 50,600,757 50,654,690
---------- ----------
Income from operations............................................ 7,608,545 17,015,745
Other income (expense):
Interest expense................................................ (155,620) (352,795)
Interest income................................................. 617,520 817,902
Equity in earnings of unconsolidated subsidiaries............... 169,565 212,417
Other........................................................... 106,395 (290,638)
---------- ----------
Income before income taxes and minority interest........ 8,346,405 17,402,631
Provision for income taxes........................................ 2,617,523 5,677,912
Minority interest in income of subsidiaries....................... 2,472,883 1,463,162
---------- ----------
Net income.............................................. 3,255,999 $10,261,557
========== ==========
Net income per common and common equivalent share................. $ .08 $ .25
========== ==========
Cash dividends paid per share of common stock..................... $ .025 $ .025
========== ==========
Weighted average common and common equivalent shares
outstanding..................................................... 41,187,280 40,664,544
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
(293)
<PAGE> 4
T2 MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
--------------------------
1994 1993
----------- ------------
<S> <C> <C>
Revenues:
Home infusion therapy.......................................... $73,010,728 $100,281,154
IntraCare...................................................... 21,056,525 22,021,567
Lithotripsy.................................................... 23,764,529 12,283,779
Other.......................................................... 4,041,087 4,856,806
----------- ------------
Total revenues......................................... 121,872,869 139,443,306
----------- ------------
Costs and expenses:
Cost of revenues............................................... 75,136,471 68,839,826
Selling, general and administrative............................ 15,869,702 13,545,407
Provision for doubtful accounts................................ 4,762,190 14,999,547
Amortization of intangibles.................................... 2,497,824 2,061,110
----------- ------------
Total costs and expenses............................... 98,266,187 99,445,890
----------- ------------
Income from operations........................................... 23,606,682 39,997,416
Other income (expense):
Interest expense............................................... (301,087) (660,474)
Interest income................................................ 1,335,018 1,607,948
Equity in earnings of unconsolidated subsidiaries.............. 452,316 502,980
Other.......................................................... 174,516 52,033
----------- ------------
Income before income taxes and minority interest....... 25,267,445 41,499,903
Provision for income taxes....................................... 8,867,073 14,105,935
Minority interest in income of subsidiaries...................... 4,998,584 3,022,638
----------- ------------
Net income............................................. $11,401,788 $ 24,371,330
=========== ============
Net income per common and common equivalent share................ $ .28 $ .60
=========== ============
Cash dividends paid per share of common stock.................... $ .050 $ .050
=========== ============
Weighted average common and common equivalent shares
outstanding.................................................... 40,955,308 40,582,233
=========== ============
</TABLE>
See notes to condensed consolidated financial statements.
(294)
<PAGE> 5
T2 MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................... $11,401,788 $24,371,330
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 5,930,883 4,747,464
Provision for doubtful accounts............................ 4,762,190 14,999,547
Tax benefit of stock options............................... -- 510,051
Equity in earnings of unconsolidated subsidiaries.......... (452,316) (502,980)
Distributions from unconsolidated subsidiaries............. 351,895 190,000
Loss on sale of assets..................................... 11,416 1,452,002
Change in assets and liabilities net of effects from
purchased businesses:
Receivables................................................ (966,752) (9,316,009)
Inventories................................................ (1,244,147) 301,786
Prepaid expenses and other assets.......................... (1,330,268) (2,587,316)
Accounts payable and accrued expenses...................... (2,430,521) (3,211,404)
Income taxes payable....................................... (5,221,069) (13,581,653)
Deferred income taxes payable.............................. 924,284 1,861,225
Minority interests in subsidiaries......................... 512,531 (943,146)
----------- -----------
Cash provided -- by operating activities.............. 12,249,914 18,290,897
----------- -----------
Cash flows related to investing activities:
Payments for businesses acquired (less cash acquired)......... (6,564,692) (23,094,058)
Additions to property and equipment, net...................... (3,104,556) (2,773,209)
Proceeds from sale of property and equipment.................. 414,939 89,274
Investment in unconsolidated subsidiaries..................... (1,325,000) --
Short-term investments........................................ 19,571,219 543,441
----------- -----------
Cash provided by (used in) investing activities....... 8,991,910 (25,234,552)
----------- -----------
Cash flows related to financing activities:
Proceeds from issuance of common stock........................ 3,378,364 849,754
Proceeds from issuance of short-term notes and long-term -- 23,785,000
debt.......................................................
Payment of short-term notes and long-term debt................ (17,086,530) (10,125,540)
Distributions of S Corporation earnings....................... -- (5,849,199)
Cash dividends................................................ (2,039,230) (1,898,094)
----------- -----------
Cash used in financing activities..................... (15,747,396) 6,761,921
----------- -----------
Increase (decrease) in cash and cash equivalents...... 5,494,428 (181,734)
Cash and cash equivalents at beginning of period...... 16,258,297 14,509,800
----------- -----------
Cash and cash equivalents at end of period............ $21,752,725 $14,328,066
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
(295)
<PAGE> 6
Supplemental disclosures of cash flow information:
<TABLE>
<S> <C> <C>
Cash paid for interest.......................... $ 301,087 $ 660,474
Cash paid for income taxes...................... 13,631,053 25,580,672
</TABLE>
On January 1, 1992, the Company acquired a 35% interest in Bay Area
Partners ("Bay Area"), a general partnership formed between the Company and Bay
Area Renal Stone Center, Ltd., for a purchase price of $13,025,655. Effective
October 1, 1992, the Company increased its ownership in Bay Area to 65% by
acquiring an additional 30% of Bay Area for a cash purchase price of $9,215,784.
The total purchase price of $22,241,439 was funded by the issuance of 104,250
shares of common stock (valued at $5,719,155) and cash of $16,522,284.
Liabilities assumed in connection with the acquisition were $177,015.
Substantially all of the purchase price was allocated to goodwill. The
acquisition was accounted for as a purchase and was consolidated in the
Company's operations after October 1, 1992.
Effective October 1, 1992, the Company acquired 51% of the outstanding
common stock of Pediatric Partners, Inc. ("Pediatric") for a total purchase
price of $2,250,000. The purchase was funded by the conversion of previously
purchased convertible debentures into common stock which represents a 51%
ownership interest in Pediatric. Liabilities assumed in connection with the
acquisition were $191,702. Substantially all of the purchase price was allocated
to goodwill. The acquisition was accounted for as a purchase and was
consolidated in the Company's operations after October 1, 1992.
On December 31, 1993, the Company invested cash of $2,082,800 which
resulted in the Company acquiring a 63.5% interest in Southwest Lithotripter
Joint Venture ("Southwest"). Liabilities assumed in connection with the
acquisition were immaterial. Substantially all of the purchase price was
allocated to goodwill and is being amortized on a straight-line basis over 40
years. The acquisition was accounted for as a purchase and was included in the
Company's operations after December 31, 1993.
On December 31, 1993, the Company acquired 100% of the outstanding common
stock of Intracare of Atlanta, Inc. ("Atlanta") for a total cash purchase price
of $2,322,139. No liabilities were assumed in connection with the acquisition.
Substantially all of the purchase price was allocated to goodwill and is being
amortized on a straight-line basis over 40 years. The acquisition was accounted
for as a purchase and was included in the Company's operations after December
31, 1993.
On February 1, 1994, the Company acquired 100% of the outstanding common
stock of Intracare of Atlanta III, Inc. ("Atlanta III") for a total cash
purchase price of $94,530. Liabilities assumed in connection with the
acquisition were immaterial. Substantially all of the purchase price was
allocated to goodwill and is being amortized on a straight-line basis over 40
years. The acquisition was accounted for as a purchase and was included in the
Company's operations after February 1, 1994.
On February 1, 1994, the Company acquired 100% of the outstanding common
stock of Intracare of Atlanta V, Inc. ("Atlanta V") for a total cash purchase
price of $208,005. Liabilities assumed in connection with the acquisition were
immaterial. Substantially all of the purchase price was allocated to goodwill
and is being amortized on a straight-line basis over 40 years. The acquisition
was accounted for as a purchase and was included in the Company's operations
after February 1, 1994.
On March 1, 1994, the Company acquired a 60% interest in Indiana Stone
Center, Inc. ("Indiana") for a cash purchase price of $2, 000, 000. Liabilities
assumed in connection with the acquisition were immaterial. Substantially all of
the purchase price was allocated to goodwill and is being amortized on a
straight-line basis over 40 years. The acquisition was accounted for as a
purchase and was included in the Company's operations after March 1, 1994.
(296)
<PAGE> 7
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements contained in this report
are unaudited, but reflect all adjustments, which, in the opinion of management,
are necessary for a fair presentation of the Company's financial position at the
end of and results of operations for the interim periods. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to applicable rules and regulations of the Securities and Exchange
Commission. These financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended September 30, 1993. The results of
operations for the interim periods reported herein are not necessarily
indicative of results to be expected for the full year.
2. EARNINGS PER SHARE
Earnings per share for the periods ended March 31, 1994 and 1993 is based
on the weighted average number of common and common equivalent shares
outstanding. Common share equivalents include dilutive stock options using the
treasury stock method (computed at the average market price during the periods
indicated). Fully diluted earnings per share do not differ significantly from
primary earnings per share.
The weighted average number of common and common equivalent shares used in
the computation of net income per share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------- --------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average number of shares
outstanding............................. 41,013,619 40,346,514 40,752,326 40,213,948
Incremental shares from use of treasury
stock method............................ 173,661 318,030 202,982 368,285
----------- ----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding........... 41,187,280 40,664,544 40,955,308 40,582,233
========== ========== ========== ==========
</TABLE>
3. BUSINESS COMBINATIONS
On December 31, 1993, the Company invested cash of $2,082,800 which
resulted in the Company owning a 63.5% interest in Southwest. Substantially all
of the purchase price was allocated to goodwill and is being amortized on a
straight-line basis over 40 years. The acquisition was accounted for as a
purchase and was included in the Company's operations after December 31, 1993.
On December 31, 1993, the Company acquired 100% of the outstanding common
stock of Atlanta for a total cash purchase price of $2,322,139. Substantially
all of the purchase price was allocated to goodwill and is being amortized on a
straight-line basis over 40 years. The acquisition was accounted for as a
purchase and was included in the Company's operations after December 31, 1993.
On February 1, 1994, the Company acquired 100% of the outstanding common
stock of Atlanta III for a total cash purchase price of $94,530. Substantially
all of the purchase price was allocated to goodwill and is being amortized on a
straight-line basis over 40 years. The acquisition was accounted for as a
purchase and included in the Company's operations after February 1, 1994.
On February 1, 1994, the Company acquired 100% of the outstanding common
stock of Atlanta V for a total cash purchase price of $208,005. Substantially
all of the purchase price was allocated to goodwill and is
(297)
<PAGE> 8
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
being amortized on a straight-line basis over 40 years. The acquisition was
accounted for as a purchase and included in the Company's operations after
February 1, 1994.
On March 1, 1994, the Company acquired a 60% interest in Indiana for a cash
purchase price of $2,000,000. Substantially all of the purchase price was
allocated to goodwill and is being amortized on a straight-line basis over 40
years. The acquisition was accounted for as a purchase and included in the
Company's operations after March 1, 1994.
Due to the insignificant operations of Southwest, Atlanta, Atlanta III,
Atlanta V and Indiana, pro forma data has not been included.
4. CONTINGENCIES AND LEGAL MATTERS
The Company in 1992 received a request for documents from a grand jury
sitting in Atlanta, Georgia at the request of the U.S. Department of Health and
Human Services, the focus of which appears to be the potential application of
the Medicare Fraud and Abuse Law as it relates to physician ownership. The
Company has complied with the request and believes that the documents submitted
will confirm that it has conducted its business affairs in a proper and lawful
manner, consistent with all applicable laws, regulations and professional codes
of conduct. Management believes that the ultimate resolution of this matter will
not have a material adverse effect on the Company's financial position and
results of operations.
Further, the Company and certain of its officers and former officers are
defendants in civil suits filed in 1992 on behalf of individuals claiming to
have purchased T2 Common Stock during the time period from December 2, 1991
through June 24, 1992. The suits were consolidated into one suit in the United
States District Court for the Northern District Court of Georgia. The complaint
seeks certification of a class of plaintiffs and damages in an unspecified
amount. The complaint alleges, among other things, that the Company and the
named individuals violated various provisions of the Securities Exchange Act of
1934 and violated certain other laws by failing to make complete and accurate
statements about the Company's business. On November 16, 1993, the proceeding
was certified as a class action ("In Re T2 Shareholder Litigation").
In 1993, the Company conducted an inquiry which resulted in the restatement
of the Company's interim financial statements for the periods ended December 31,
1992 and March 31, 1993. Subsequently, the Company and certain of its officers
and directors and former officers and a former director were named as defendants
in seventeen civil suits filed in the United States District Court for the
Northern District of Georgia on behalf of individuals claiming to have purchased
or sold T2 Common Stock during various time periods in 1991, 1992 and 1993. The
complaints, which were generally similar, alleged in part that the Company made
misleading public statements concerning the Company's business, results of
operations, future prospects, revenues and reimbursements from its payor
sources. In September 1993, many of the complaints were dismissed and a new
class action complaint was filed.
On January 14, 1994, the court in In Re T2 Shareholder Litigation granted
the plaintiffs' motion to amend their complaint to allege violations of the
Securities Exchange Act of 1934 on behalf of a putative class consisting of
purchasers of T2 Common Stock for the period December 2, 1991, through August
12, 1993. Although the amended complaint has been filed, the court has not yet
ruled on the plaintiffs' motion to expand the previously certified class. Five
other putative class action complaints are pending in the Northern District of
Georgia. In three of these cases, the plaintiffs have consented to a
consolidation of their actions with the In Re T2 Shareholder Litigation. The
fourth case was consolidated with the In Re T2 Shareholder Litigation by order
of the Court, and the fifth was filed in April 1994 and remains pending.
(298)
<PAGE> 9
T2 MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Company believes that it has meritorious defenses in these actions.
Nevertheless, the ultimate outcome of the litigation described in the preceding
three paragraphs cannot presently be determined and an estimate of any loss that
might result therefrom cannot be made. Accordingly, no provision for any loss
that may result upon resolution of the suits has been made in the consolidated
financial statements.
The Securities and Exchange Commission (the "Commission") is conducting an
inquiry into the events that led to the restatement of the Company's financial
statements for the periods ended December 31, 1992 and March 31, 1993, and
certain other matters. The Commission has requested certain information relating
to such inquiry, and the Company is cooperating. The Commission can seek certain
civil remedies against the Company by way of an enforcement action.
In connection with both the stockholder litigation and the Commission
inquiry discussed above, the Company has determined to pay the reasonable
attorneys' fees and expenses of certain present and former directors and
officers in advance of the final disposition of the litigation and such inquiry,
subject to each individual's agreement and undertaking to repay his or her share
of the attorneys' fees and expenses paid by the Company if it is ultimately
determined that such individual is not entitled to be indemnified by the Company
pursuant to applicable law.
5. DEBENTURE PURCHASE AGREEMENT
In connection with the Company's Debenture Purchase Agreement with Surgex,
Inc., the Company has increased its loan to Surgex as of April 30, 1994 to
$11,967,000.
6. AGREEMENT TO MERGE
On February 7, 1994, the Company announced that it had entered into a
definitive agreement providing for the merger of the Company with Curaflex
Health Services, Inc. ("Curaflex"), HealthInfusion, Inc. ("HealthInfusion"), and
Medisys, Inc. ("Medisys") and the formation of Coram Healthcare Corporation
("Coram") to serve as the holding company for the combined entities. The
operations of Curaflex, HealthInfusion and Medisys consist primarily of
providing infusion therapy services. Under the terms of the agreement, each
common share of the Company outstanding immediately prior to the effective date
of the merger is expected to be exchanged for .63 shares of common stock of
Coram. Consummation of the proposed transaction is subject to customary
conditions, including approval by the shareholders of each of the four
companies. The parties anticipate that the transaction will be accounted for as
a pooling of interests and that the transaction will be consummated by June 30,
1994.
7. SUBSEQUENT EVENT
As of May 12, 1994, the Company had agreed in principle to acquire all of
the capital stock of Intracare of Greenville, Inc., an infusion therapy company
currently managed by the Company, for cash of $1,175,000. This acquisition is
expected to be accounted for as a purchase and is expected to be consummated on
or before May 31, 1994.
(299)
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
Total revenues for the three and six-month periods ended March 31, 1994
decreased by 14% and 13%, respectively, compared to the corresponding periods in
the prior year. Home infusion therapy revenues, including management fees from
managed home infusion therapy companies, decreased by 28% and 27%, respectively,
for the three and six-month periods ended March 31, 1994 compared to the
corresponding periods in the prior year. Intracare revenues decreased by 13% and
4%, respectively, for the three and six-month periods ended March 31, 1994,
compared to the corresponding periods in the prior year. Continued cost
reduction initiatives by third party payors, including, but not limited to,
retroactive implementation of case management price discounts, demands for
larger price discounts by indemnity insurance carriers, and demands for other
price discounts, have had and are expected to continue to have a negative effect
on the infusion therapy industry, including the Company. Although the number of
infusion therapy patients served during the three and six month periods ended
March 31, 1994 remained stable compared to the corresponding periods in the
prior year, the Company experienced a significant reduction in per patient
revenue due to pricing and reimbursement pressures imposed by third party
payors, resulting in an overall decrease in infusion therapy revenue. Such
pricing and reimbursement pressures are expected to continue to have a negative
effect on the Company's home infusion therapy and IntraCare revenues for the
foreseeable future.
Lithotripsy revenues increased by 75% and 93%, respectively, for the three
and six-month periods ended March 31, 1994 over the' corresponding periods in
the prior year. This increase in lithotripsy revenues was attributable to an
increase in patients served and the acquisition since March 31, 1993 of a
minority interest in one and majority interests in six lithotripsy companies in
which the Company had no prior interest.
While pricing pressures have been primarily related to the Company's
infusion therapy operations, there can be no assurance that similar pricing
pressures will not be applied to the Company's lithotripsy operations. The
Health Care Finance Administration ("HCFA") has issued a proposed rule that
would, if implemented, significantly reduce the amount Medicare would reimburse
its beneficiaries for the cost of lithotripsy procedures performed in an
ambulatory surgery center or on an outpatient basis at a hospital. Further, a
decrease in the Medicare reimbursement rate for lithotripsy may trigger demands
for similar reductions by other third party payors.
Costs of revenues increased by 6% and 9%, respectively, for the three and
six-month periods ended March 31, 1994 compared to the periods in the prior
year. This increase was attributable to an increase in infusion therapy patients
served, increased depreciation and the acquisitions and development mentioned
above.
Selling, general and administrative expenses as a percentage of total
revenues increased from 10.7% to 15.9% and from 9.7% to 13.0%, respectively, for
the three and six-month periods ended March 31, 1994, versus the comparable
periods in the prior year. The increase in the percentage of selling, general
and administrative expenses to total revenues is primarily due to the fixed
components of certain selling, general and administrative expenses and the
relative decrease in per patient revenues. In addition, the, Company incurred
legal fees and expenses of $1,705,655 and $2,285,691, respectively, for the
three and six-month periods ended March 31, 1994 compared with $674,144 and
$1,377,049, respectively, for the three and six-month periods ended March 31,
1993. The large increase resulted primarily from fees incurred in connection
with, among other matters: (i) the proposed business combination involving
Coram, Curaflex, HealthInfusion and Medisys; (ii) the defense of the Company and
certain officers and directors and certain former officers and directors in the
previously mentioned stockholder litigation; (iii) the representation of the
Company in connection with the previously mentioned inquiries currently being
conducted by certain governmental authorities; and (iv) the advancement of legal
fees and expenses to certain current and former officers and directors.
The provision for doubtful accounts expressed as a percentage of total
revenues decreased to 4.4% from 10.4% and to 3.9% from 10.8%, respectively, for
the three and six-month periods ended December 31, 1993, versus the
corresponding periods in the prior year. Management regularly reviews the
collectability of the
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<PAGE> 11
Company's accounts receivable and makes adjustments to the allowance for
doubtful accounts as needed to reflect prevailing conditions. As case management
discounts have become more prevalent and larger numbers of the Company's
patients are treated in accordance with agreements that establish reimbursement
rates in advance, reimbursement patterns have become more predictable. As a
result, accounts receivable write-offs have decreased. The Company's allowance
for doubtful accounts, expressed as a percentage of accounts receivable was 16%
as of March 31, 1994 and as of December 31, 1993, and 17% as of September 30,
1993.
The increase in amortization of intangibles for the three and six-month
periods ended March 31, 1994 versus the comparable periods in the prior year is
primarily attributable to the additional goodwill associated with acquisitions
consummated since March 31, 1993 which were accounted for as purchases.
Income from operations as a percentage of total revenues decreased from
25.1% to 13.1% and from 28.7% to 19.4% respectively, for the three and six-month
periods ended March 31, 1994 versus the comparable period in the prior year. The
decrease resulted primarily from an increase in the number and amount of
discounts given to third party payors, including case management adjustments,
managed care pricing and other price discounts. Because of the current pressures
on pricing in the health care industry generally, the Company expects that, in
the foreseeable future, there will continue to be pressures on income from
operations. In addition, continued cost reduction initiatives by third party
payors, significant reductions in coverage and rates of third party payors, or
significant reductions in the percentage of the Company's services delivered to
privately-insured patients could also have a negative effect on the Company's
income from operations.
The effective income tax rate increased from 35.6% to 44.6% and from 36.7%
to 43.8%, respectively, for the three and six-month periods ended March 31, 1994
versus the comparable periods in the prior year. The effective income tax rate
was calculated by dividing the provision for income taxes by income before
income taxes less minority interests in the income of partnerships. Such
increases were primarily attributable to the increase in the amortization of
intangibles resulting from acquisitions of entities since March 31, 1993 which
were accounted for as purchases and income for the three month period ended
March 31, 1993 including S Corporation income for which no income tax provision
was required. This income resulted from the acquisitions of S Corporations which
were accounted for as poolings of interests.
Minority interest in income of subsidiaries for the three and six-month
periods ended March 31, 1994 increased by 69.0% and 65.0%, respectively,
compared to the corresponding periods in the prior year. This increase resulted
primarily from the Company's acquisition since March 31, 1993 of majority
interests in six lithotripsy companies in which the Company had no prior
interests.
Inflation
The Company has not experienced significant increases in either the cost of
supplies or operating expenses due to inflation. Nonetheless, although inflation
has not been a significant factor to date, there can be no assurance that it
will not be in the future.
Financial Condition as of March 31, 1994
Since its inception, the Company has financed its current operations
through internally generated funds and equity placements. The cash provided by
operating activities was $12,249,914 for the six-month period ended March 31,
1994, and $18,290,897 for the six-month period ended March 31, 1993. As of March
31, 1994, the Company had cash and short-term investments net of short term
investments pledged to short-term debt totaling approximately $42,121,000.
The Company believes that its presently anticipated short term needs for
operating capital, debt repayments, capital expenditures and cash dividends will
be satisfied by its present funds, internally-generated funds and its line of
credit of $10,000,000. The Company is, however, currently reviewing all of its
relationships with the infusion therapy companies it manages and may acquire
such companies or restructure the management agreements it has with such
companies. If the Company acquires such managed companies, the Company
anticipates borrowing additional funds to finance such acquisitions. In
addition, if the Company
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<PAGE> 12
is required to acquire the minority interests in its lithotripsy ventures, or
resolves its material pending litigation, the Company may need to seek
additional sources of capital.
Omnibus Budget Reconciliation Act of 1993
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 (the
"Omnibus Act") was signed into law by the President. The Omnibus Act increased
the corporate tax rate of 34% to 35% as well as made certain other changes to
the corporate tax law, including the deductibility of the amortization of
certain intangible assets. The tax provisions of the Omnibus Act did not have a
significant effect on the financial statements of the Company.
In addition, the Omnibus Act included provisions that prohibit physicians,
beginning on January 1, 1995, from referring their patients, who receive
benefits under the Medicare or Medicaid programs, to entities in which they have
financial interests for certain designated health services. The Omnibus Act is
worded broadly and contains numerous exceptions and technical terms that are not
fully defined and empowers the Secretary of the Department of Health and Human
Services to adopt regulations interpreting and implementing the Omnibus Act. The
Company cannot predict what effect, if any, the application of such regulations
and the Omnibus Act may have on its future business activities.
Accounting Pronouncement
The Financial Accounting Standards Board has issued Statement No. 115
entitled "Accounting for Certain Investments in Debt and Equity Securities"
which is effective for fiscal years beginning after December 15, 1993. This
statement is not expected to have any significant effect on the financial
statements of the Company.
Future Health Care Proposals and Legislation
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. The Clinton
Administration has proposed legislation, known as the Health Security Act of
1993, which has been introduced into Congress and is designed to reform the
United States health care system. The Health Security Act proposes a major
restructuring of the health care system, including (i) universal access to
health care and (ii) measures to control or reduce the rate of increase of
public and private spending on health care. Alternative federal health care
reform legislation is being considered by Congress, including a single-payor
approach, "managed competition" proposals, the creation of a "Medicare Part C"
for the uninsured and more incremental approaches to health care reform. In
addition, some of the states in which the Company operates have enacted and
others are considering various health care reform proposals. The Company
anticipates that Congress and state legislatures will continue to review and
assess alternative health care delivery systems and payment methodologies and
public debate of these issues will likely continue in the future. Due to
uncertainties regarding the ultimate features of reform initiatives and their
enactment and implementation, the Company cannot predict which, if any, of such
reform proposals will be adopted, when they may be adopted or what impact they
may have on the Company.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On April 25, 1994, a suit captioned Maurice Kirschenbaum v. T 2 Medical,
Inc., David Hersh, Joseph C. Allegra, James L. Ledbetter and Thomas E. Haire,
Civil Action No. 1:94-CV-1106-RLV' (the "Kirschenbaum Action") , was filed in
the United States District Court for the Northern District of Georgia. The
action was filed on behalf of a person claiming to be a stockholder of the
Company and seeks certification of a class of plaintiffs for persons who bought
the Company's common stock during the period from January 21, 1993 through
August 11, 1993. In addition to making claims of common law fraud and negligent
misrepresentation, the Kirschenbaum action makes substantially similar
allegations and seeks substantially similar relief as the stockholder litigation
previously filed against the Company and described in Note 4 to the Condensed
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<PAGE> 13
Consolidated Financial Statements included in this Quarterly Report. The Company
believes that it has meritorious defenses in the Kirschenbaum Action and the
other similar stockholder actions. Nevertheless, the ultimate outcome of such
litigation cannot presently be determined and an estimate of any loss that might
result therefrom cannot be made. Accordingly, no provision for any loss that may
result upon resolution of such suits has been made in the condensed consolidated
financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
(b) REPORTS ON FORM 8-K. There were no Current Reports on Securities and
Exchange Commission Form 8-K filed during the three-month period ended March 31,
1994.
(303)
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
T2 MEDICAL, INC.
By: /s/ Tommy H. Carter
----------------------------
Tommy H. Carter
President and Chief
Executive Officer
By: /s/ Bruce A. Kolleda
----------------------------
Bruce A. Kolleda
Principal Accounting Officer
Date: May 13, 1994
(304)
<PAGE> 1
EXHIBIT 23.5 TO
REGISTRATION STATEMENT
ON FORM S-4
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Coram Healthcare Corporation on Form S-4 of our report dated November 17, 1993,
(December 23, 1993 as to Note 17) (which expresses an unqualified opinion and
includes an explanatory paragraph relating to material uncertainties concerning
certain pending claims against the Company), appearing in the Annual Report on
Form 10-K of T2 Medical, Inc. for the year ended September 30, 1993 and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedules of T2 Medical, Inc., listed in
Item 14 of the Annual Report on Form 10-K of T2 Medical, Inc. for the year ended
September 30, 1993. These financial statement schedules are the responsibility
of T2 Medical, Inc.'s management. Our responsibility is to express an opinion
based on our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE
--------------------------------------
Deloitte & Touche
Atlanta, Georgia
June 1, 1994
(305)
<PAGE> 1
EXHIBIT 23.6 TO
REGISTRATION STATEMENT
ON FORM S-4
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus. Our report refers to a
change in accounting for income taxes in 1993.
Orange County, California
May 17, 1994
/s/ KPMG PEAT MARWICK
--------------------------------------
KPMG Peat Marwick
(306)
<PAGE> 1
EXHIBIT 23.7 TO
REGISTRATION STATEMENT
ON FORM S-4
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated November 20, 1993, with respect to the
financial statements of Excellence, Inc. included in the Joint Proxy Statement
of Curaflex Health Services, Inc., HealthInfusion, Inc., Medisys, Inc. and T2
Medical, Inc. collectively, Coram Healthcare Corporation, which is made a part
of the Registration Statement (Form S-4) and Prospectus of Coram Healthcare
Corporation.
/s/ ERNST & YOUNG
-------------------------------------
Ernst & Young
Tampa, Florida
May 25, 1994
(307)
<PAGE> 1
EXHIBIT 23.8 TO
REGISTRATION STATEMENT
ON FORM S-4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Coram Healthcare Corporation of our report
dated February 12, 1993, except for Note 13, which is as of December 21, 1993,
relating to the financial statements of ContinueCare Health Systems, Inc., which
appears in such Prospectus. We also consent to the references to us under the
heading "Unaudited Pro Forma Condensed Combined Financial Statements" in such
Prospectus. However, it should be noted that Price Waterhouse has not prepared
or certified such "Unaudited Pro Forma Condensed Combined Financial Statements".
/s/ PRICE WATERHOUSE
--------------------------------------
Price Waterhouse
Dallas, Texas
May 25, 1994
(308)
<PAGE> 1
EXHIBIT 23.9 TO
REGISTRATION STATEMENT
ON FORM S-4
INDEPENDENT AUDITOR'S CONSENT
We have issued our report dated November 30, 1993, accompanying the financial
statements of Home Solution, Inc., contained in the Registration Statement and
related Prospectus on Form S-4 of Coram Healthcare Corporation. We consent to
the use of the aforementioned report in the Registration Statement and
Prospectus.
/s/ GRANT THORNTON
-----------------------------------
Grant Thornton
Salt Lake City, Utah
May 25, 1994
(309)
<PAGE> 1
EXHIBIT 23.10 TO
REGISTRATION STATEMENT
ON FORM S-4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As Independent Certified Public Accountants, we hereby consent to the use of our
reports with respect to the consolidated financial statements and schedules of
HealthInfusion, Inc. and subsidiaries, included in or made a part of this Form
S-4 registration statement of Coram Healthcare Corporation.
/s/ ARTHUR ANDERSEN & CO.
--------------------------------------
Arthur Andersen & Co.
Miami, Florida,
May 16, 1994.
(310)
<PAGE> 1
EXHIBIT 23.11 TO
REGISTRATION STATEMENT
ON FORM S-4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 11, 1994, on our audits of the consolidated financial
statements of Medisys, Inc., our report dated December 23, 1992, on our audits
of the financial statements of Delta Pharmacy, Inc., our report dated December
22, 1992, on our audit of the financial statements of Pharmacy Ventures, Inc.,
and our report dated July 10, 1992, on our audit of the financial statements of
Pharmacy Consultants of Arizona, Inc. We also consent to the reference to our
firm under the caption "Experts."
/s/ COOPERS & LYBRAND
--------------------------------------
Coopers & Lybrand
Minneapolis, Minnesota
May 23, 1994
(311)
<PAGE> 1
EXHIBIT 23.12 TO
REGISTRATION STATEMENT
ON FORM S-4
CONSENT OF INDEPENDENT ACCOUNTANTS
We have issued our reports dated December 10, 1992 accompanying the
combined financial statements of American Home Therapies, Inc. and American Home
Therapies-Kansas City, Inc. contained in the Registration Statement and related
Prospectus on Form S-4 of Coram Healthcare Corporation. We consent to the use of
the aforementioned reports in the Registration Statement and Prospectus.
/s/ FLOM, LOPATA & COMPANY
----------------------------------------
Flom, Lopata & Company
St. Louis, Missouri
May 25, 1994
(312)
<PAGE> 1
EXHIBIT 23.13 TO
REGISTRATION STATEMENT
ON FORM S-4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our reports and to all references to our
Firm included in or made a part of the Registration Statement on Form S-4 of
Coram Healthcare Corporation pertaining to the shares of Common Stock of Coram
Healthcare Corporation to be registered pursuant thereto and in the related
Joint Proxy Statement/Prospectus with respect to the consolidated financial
statements and schedules of AllCare Health Services, Inc. and AllCare Home Care,
Inc.
/s/ KARLIN, KERSCHNER, SHARPE & COMPANY
-------------------------------------------
Karlin, Kerschner, Sharpe & Company
Northbrook, Illinois
May 16, 1994
(313)
<PAGE> 1
EXHIBIT 99.1 TO
REGISTRATION STATEMENT
ON FORM S-4
PROXY
T2 MEDICAL, INC.
1121 ALDERMAN DRIVE
ALPHARETTA, GEORGIA 30202
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints and constitutes THOMAS E. HAIRE and TOMMY
H. CARTER, and each of them, jointly and severally, as proxies, with full power
of substitution, to vote all of the shares of T2 Common Stock which the
undersigned is entitled to vote, at the Special Meeting of Shareholders of T2
Medical, Inc., to be held on July 8, 1994, at 10:00 a.m., local time, at The
Westin Hotel, 13340 Dallas Parkway, Dallas, Texas, and at any adjournment
thereof, in the transaction of any and all business which may come before said
meeting, as fully and with the same effect as the undersigned might or could do
if personally present for the matters set forth on the reverse side.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. Proposal to approve the Agreement and Plan of Merger dated / / / / / /
as of February 6, 1994, as amended, among T2 Medical,
Inc., Curaflex Health Services, Inc., HealthInfusion,
Inc., Medisys, Inc., Coram Healthcare Corporation
(formerly CHM Holding Corporation), T2 Acquisition
Company, CHS Acquisition Company, HII Acquisition Company
and MI Acquisition Company.
2. Proposal to approve the Coram Healthcare Corporation 1994 / / / / / /
Stock Option/Stock Issuance Plan.
3. Proposal to approve the Coram Healthcare Corporation / / / / / /
Employee Stock Purchase Plan.
4. In their discretion, the Proxies are authorized to vote / / / / / /
upon such other business as may properly come before the
meeting.
</TABLE>
(continued and to be signed on reverse side)
(continued from other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3.
/ / MARK HERE FOR ADDRESS CHANGE AND
NOTE AT LEFT
Please sign exactly as name appears
on stock certificate. When shares
are held by joint tenants, both
should sign. When signing as
attorney, as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by President or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
persons.
Signature: Date
Signature: Date
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED POSTAGE PREPAID ENVELOPE.
(314)
<PAGE> 1
EXHIBIT 99.2 TO
REGISTRATION STATEMENT
ON FORM S-4
PROXY
CURAFLEX HEALTH SERVICES, INC.
ONE LAKESHORE CENTRE
3281 GUASTI ROAD, SUITE 700
ONTARIO, CALIFORNIA 91761
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints and constitutes CHARLES A. LAVERTY and
KEVIN M. HIGGINS, and each of them, jointly and severally, as proxies, with full
power of substitution, to vote all of the shares of Curaflex Common Stock which
the undersigned is entitled to vote, at the Special Meeting of Shareholders of
Curaflex Health Services, Inc., to be held on July 8, 1994, at 9:00 a.m., local
time, at the address set forth above, and at any adjournment thereof, in the
transaction of any and all business which may come before said meeting, as fully
and with the same effect as the undersigned might or could do if personally
present for the matters set forth on the reverse side.
Continued and to be signed on reverse side
SEE REVERSE SIDE
PLEASE MARK
VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. Proposal to approve the Agreement and Plan of Merger dated / / / / / /
as February 6, 1994, as amended, among T2 Medical, Inc.,
Curaflex Health Services, Inc., HealthInfusion, Inc.,
Medisys, Inc., Coram Healthcare Corporation (formerly CHM
Holding Corporation), T2 Acquisition Company, CHS
Acquisition Company, HII Acquisition Company and MI
Acquisition Company.
2. Proposal to approve the Coram Healthcare Corporation 1994 / / / / / /
Stock Option/Stock Issuance Plan.
3. Proposal to approve the Coram Healthcare Corporation / / / / / /
Employee Stock Purchase Plan.
4. In their discretion, the Proxies are authorized to vote / / / / / /
upon such other business as may properly come before the
meeting.
MARK HERE FOR / /
ADDRESS CHANGE
AND NOTE AT LEFT
Please sign exactly as name appears on stock certificate. When
shares are held by joint tenants, both should sign. When signing
as attorney, as executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in
full corporate name by President or other authorized officer. If
a partnership, please sign in partnership name by authorized
persons.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY Signature: Date
CARD PROMPTLY USING THE ENCLOSED POSTAGE
PREPAID ENVELOPE
Signature: Date
</TABLE>
(315)
<PAGE> 1
EXHIBIT 99.3 TO
REGISTRATION STATEMENT
ON FORM S-4
PROXY
HEALTHINFUSION, INC.
5200 BLUE LAGOON DRIVE, SUITE 200
MIAMI, FLORIDA 33126
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints and constitutes MILES E. GILMAN and JACK T.
THOMPSON, and each of them, jointly and severally, as proxies, with full power
of substitution, to vote all of the shares of HealthInfusion Common Stock which
the undersigned is entitled to vote, at the Special Meeting of Shareholders of
HealthInfusion, Inc., to be held on July 8, 1994, at 10:00 a.m., local time, at
the Miami Hilton Airport Hotel and Marina, 5101 Blue Lagoon Drive, Miami,
Florida, and at any adjournment thereof, in the transaction of any and all
business which may come before said meeting, as fully and with the same effect
as the undersigned might or could do if personally present for the matters set
forth on the reverse side.
Continued and to be signed on reverse side
SEE REVERSE SIDE
PLEASE MARK
VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. Proposal to approve the Agreement and Plan of Merger dated as of February 6, / / n n
1994, as amended, among T2 Medical, Inc., Curaflex Health Services, Inc.,
HealthInfusion, Inc., Medisys, Inc., Coram Healthcare Corporation (formerly
CHM Holding Corporation), T2 Acquisition Company, CHS Acquisition Company,
HII Acquisition Company and MI Acquisition Company.
2. Proposal to approve the Coram Healthcare Corporation 1994 Stock Option/Stock / / n n
Issuance Plan.
3. Proposal to approve the Coram Healthcare Corporation Employee Stock Purchase / / n n
Plan.
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
MARK HERE FOR / /
ADDRESS CHANGE
AND NOTE AT LEFT
</TABLE>
Please sign exactly as name appears on
stock certificate. When shares are held
by joint tenants, both should sign. When
signing as attorney, as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized persons.
PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY CARD PROMPTLY USING THE
ENCLOSED POSTAGE PREPAID ENVELOPE
<TABLE>
<C> <S>
Signature: Date
Signature: Date
</TABLE>
(316)
<PAGE> 1
EXHIBIT 99.4 TO
REGISTRATION STATEMENT
ON FORM S-4
PROXY
MEDISYS, INC.
4550 WEST 77TH STREET
EDINA, MINNESOTA 55435
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints and constitutes WILLIAM J. BRUMMOND and
DAVID J. BYRD, and each of them, jointly and severally, as proxies, with full
power of substitution, to vote all of the shares of HealthInfusion Common Stock
which the undersigned is entitled to vote, at the Special Meeting of
Shareholders of HealthInfusion, Inc., to be held on July 8, 1994, at 10:00 a.m.,
local time, at the Miami Hilton Airport Hotel and Marina, 5101 Blue Lagoon
Drive, Miami, Florida, and at any adjournment thereof, in the transaction of any
and all business which may come before said meeting, as fully and with the same
effect as the undersigned might or could do if personally present for the
matters set forth on the reverse side.
Continued and to be signed on reverse side
SEE REVERSE SIDE
PLEASE MARK
VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. Proposal to approve the Agreement and Plan of Merger dated as of February 6, / / n n
1994, as amended, among T2 Medical, Inc., Curaflex Health Services, Inc.,
HealthInfusion, Inc., Medisys, Inc., Coram Healthcare Corporation (formerly
CHM Holding Corporation), T2 Acquisition Company, CHS Acquisition Company,
HII Acquisition Company and MI Acquisition Company.
2. Proposal to approve the Coram Healthcare Corporation 1994 Stock Option/Stock / / n n
Issuance Plan.
3. Proposal to approve the Coram Healthcare Corporation Employee Stock Purchase / / n n
Plan.
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
MARK HERE FOR / /
ADDRESS CHANGE
AND NOTE AT LEFT
</TABLE>
Please sign exactly as name appears on
stock certificate. When shares are held
by joint tenants, both should sign. When
signing as attorney, as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized persons.
PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY CARD PROMPTLY USING THE
ENCLOSED POSTAGE PREPAID ENVELOPE
<TABLE>
<C> <S>
Signature: Date
Signature: Date
</TABLE>
(317)
