UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to __________
Commission File: 0-26818
AHI HEALTHCARE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
95-4556968
(I.R.S. Employer
Identification No.)
12620 Erickson Avenue, Suite A, Downey, CA
Address of principal executive offices)
90241
(Zip Code)
(310) 803-5333
(Registrant's telephone number, including area code)
________________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report.)
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 the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
14,523,041 shares of Common Stock, $.01 par value,
as of April 30, 1996
CONTENTS
AHI HEALTHCARE SYSTEMS, INC.
Page #
PART I Financial Information
Item 1. Financial Statements
Consolidated balance sheets as of March 31, 1996
(Unaudited)and December 31, 1995. 3
Consolidated statements of operations for the three
months ended March 31, 1996 and 1995 (Unaudited). 4
Consolidated statements of cash flows for the three
months ended March 31, 1996 and 1995 (Unaudited). 5
Notes to consolidated financial statements
(Unaudited)--March 31, 1996. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
PART II Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
AHI HEALTHCARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
March 31 December 31
1996 1995
(Unaudited)
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $27,842,000 $31,608,000
Accounts receivable, net of allowances 14,427,000 12,639,000
Due from related parties 177,000 177,000
Prepaid expenses 1,371,000 880,000
Recoverable and deferred income taxes 2,226,000 1,908,000
Total current assets 46,043,000 47,212,000
Equipment and property improvements, at cost 7,504,000 6,906,000
Less: accumulated depreciation and
amortization (3,669,000) (3,412,000)
3,835,000 3,494,000
Deposits and other assets 298,000 422,000
Goodwill and other intangible assets, net 26,416,000 25,128,000
Total assets $76,592,000 $76,256,000
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued medical claims $16,092,000 $15,442,000
Accounts payable and accrued expenses 12,407,000 11,526,000
Notes payable, current portion 3,445,000 3,364,000
Unsecured notes payable to stockholders - 333,000
Total current liabilities 31,944,000 30,665,000
Notes payable, less current portion 1,167,000 1,203,000
Contingencies
Stockholders' equity:
8% cumulative convertible voting preferred
stock, $.01 par value, 25,000,000 shares
authorized, none issued - -
Common stock, $.01 par value, 75,000,000
shares authorized, 14,523,000 shares
issued and outstanding at March 31, 1996
and December 31, 1995 145,000 145,000
Additional paid-in capital 47,753,000 47,753,000
Accumulated deficit (3,923,000) (2,999,000)
Unamortized deferred compensation expense (57,000) (61,000)
Due from stockholder (437,000) (450,000)
43,481,000 44,388,000
Total liabilities and stockholders' equity $76,592,000 $76,256,000
See accompanying notes.
<CAPTION>
AHI HEALTHCARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
March 31
1996 1995
<S> <C> <C>
Total operating revenue $30,791,000 $24,947,000
Cost of medical services 23,176,000 19,103,000
Gross margin 7,615,000 5,844,000
Operating expenses:
Medical network operating expenses 2,153,000 1,375,000
General and administrative 4,827,000 2,396,000
Depreciation and amortization 650,000 441,000
Network development 1,740,000 2,056,000
9,370,000 6,268,000
Operating loss (1,755,000) (424,000)
Interest income 377,000 27,000
Interest expense (43,000) (103,000)
Net interest income (expense) 334,000 (76,000)
Loss before income taxes (1,421,000) (500,000)
Income tax benefit 497,000 173,000
Net loss $ (924,000) $ (327,000)
Loss per common and common equivalent
share $ (0.06) $ (0.03)
Weighted average shares outstanding 14,523,000 10,891,000
See accompanying notes
<CAPTION>
AHI HEALTHCARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31
1996 1995
<S> <C> <C>
Operating activities
Net loss $(924,000) $(327,000)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 650,000 441,000
Amortization of deferred compensation
expense and other (7,000) -
Changes in operating assets and
liabilities:
Accounts receivable (1,688,000) (908,000)
Due from related parties - 18,000
Prepaid expenses (491,000) (192,000)
Recoverable and deferred income
taxes (318,000) (549,000)
Deposits and other assets 124,000 (25,000)
Accrued medical claims 182,000 (1,079,000)
Accounts payable and accrued
expenses (94,000) 4,216,000
Income taxes payable - (172,000)
Net cash provided by (used in)
operating activities (2,566,000) 1,423,000
Investing activities
Purchase of equipment and property
improvements (598,000) (706,000)
Acquisitions of affiliates, net of
cash acquired - (1,271,000)
Net cash used in investing activities (598,000) (1,977,000)
Financing activities
Receipts on note receivable from
stockholder 13,000 -
Principal payments of notes payable (615,000) (101,000)
Net cash used in financing activities (602,000) (101,000)
Decrease in cash and cash equivalents (3,766,000) (655,000)
Cash and cash equivalents at beginning
of period 31,608,000 655,000
Cash and cash equivalents at end of
period $27,842,000 $ -
<CAPTION>
AHI HEALTHCARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)
Three Months Ended
March 31
1996 1995
<S> <C> <C>
Supplemental schedule of noncash investing
and financing activities:
Details of businesses acquired in purchase
transactions:
Fair value of assets acquired $1,670,000 $13,456,000
Less:
Issuance of promissory notes 327,000 1,173,000
Other liabilities assumed 1,343,000 10,063,000
Cash paid for acquisitions - (2,220,000)
Cash of acquired businesses - 949,000
Net cash paid $ - $(1,271,000)
Supplemental disclosure of cash flow
information:
Interest paid $ 44,000 $ 80,000
Income taxes paid 97,000 650,000
See accompanying notes.
</TABLE>
AHI HEALTHCARE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
AHI Healthcare Systems, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. All significant
intercompany balances and transactions have been eliminated. Operating
results for the quarter ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
2. ACQUISITION
Private Physicians Group at Stanford ("PPGS")
Effective March 1, 1996, the Company, through an Affiliate,
purchased PPGS for consideration totaling $327,000, and assumed other
liabilities totaling $1,343,000. The purchase price in excess of assets
acquired was $1,670,000. PPGS is an independent practice association
("IPA") located in Northern California, and provides services to
approximately 2,900 prepaid covered lives through 275 affiliated
physicians.
3. INCOME TAXES
The Company and all of its affiliated physician networks
("Affiliates") (except Camino Real Medical Group, Inc., which is a C-
corporation) operated as Subchapter S corporations through December 31,
1993. Effective January 1, 1994, the Company elected to operate as a C-
corporation, while its Affiliates continued to elect S-corporation
status through December 31, 1994. Effective January 1, 1995, all except
two of the Affiliates, and effective January 1, 1996, all except one of
the Affiliates, elected C-corporation status.
4. CONTINGENCIES
The Company and its Affiliates are subject to certain legal
actions arising in the ordinary course of business, generally related to
professional liability, employment-related issues and other business-
related claims. In the opinion of management, such actions are either
adequately insured or will not have a material adverse effect on the
Company's financial position, operating results or working capital.
The Company is a defendant in a class action securities lawsuit,
which asserts that the Company, among other things, artificially
inflated the price of its common stock by misleading securities analysts
and by failing to disclose in its initial public offering prospectus
alleged difficulties it was having with the acquisition of Lakewood
Health Plan, Inc. and with two of the Company's contracts with FHP, Inc.
The Company intends to vigorously defend this lawsuit. The Company
believes that it is adequately insured and does not expect that the
outcome of this lawsuit will have a material adverse effect on the
financial condition or results of operations of the Company.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Overview
The Company's physician networks contract directly with managed
care payors to deliver covered medical benefits and to coordinate all
inpatient and outpatient care for enrollees. Generally, each physician
network receives a prepaid monthly fee ("capitation payment") from the
payor for each enrollee who selects a primary care physician contracting
with the physician network as the enrollee's primary care provider. In
addition, such contracts typically provide for incentive payments to be
paid by the payor to the physician network to encourage the effective
utilization of hospital and other medical services ("shared risk
pools"). All such medical revenue is in turn assigned to the Company
pursuant to an administrative, nonmedical management agreement between
the physician network and the Company, but excludes amounts that may not
be assigned under applicable law.
For the quarter ended March 31, 1996, approximately 97% of the
Company's total operating revenue related to contracts under which the
Company's physician networks received a capitation payment for each
covered life in exchange for the responsibility for the provision of
specific medical services to assigned enrollees and bonuses under shared
risk pools. Payors are increasingly overseeing the provision of and the
prices charged for medical services with the goal of reducing costs and
lowering reimbursement. The Company's success therefore depends in
large part on the effective management of health care costs, including
controlling utilization of specialty care physicians and other ancillary
providers and purchasing services from third-party providers at
competitive prices. Any adjustment downward in capitation payments or
shared risk pools caused by the increasing efforts by payors to reduce
costs could have a material adverse effect on the Company's operating
results.
The physician networks contract with health care providers to
deliver medical services. The cost of medical services provided by the
physician networks consists of payments to affiliated primary care,
specialty care and ancillary providers. Compensation to such health
care providers varies, typically according to the type of provider.
Primary care physicians are generally compensated on a capitated basis,
receiving a fixed monthly fee for each enrollee selecting such
physician, or on a discounted fee-for-service basis when enrollment is
low. Specialist and ancillary providers are typically compensated on a
discounted fee-for-service basis. Two of the Company's affiliated
networks include medical groups owned by the Company. The associated
medical and non-medical costs of operating these owned medical groups
are also included in cost of medical services.
Medical network operating expenses consist primarily of salary-
related expenses for the provision of medical management services to the
physician networks. The majority of costs associated with medical
management services fluctuate commensurate with enrollment and the
number of contracted providers. These costs consist primarily of claims
administration, eligibility management, quality and utilization
management, physician credentialing and other costs associated with the
Company's National Service Center.
Network development expenses include all direct and indirect costs
associated with the strategic planning, corporate organization, provider
and payor contracting and relationship building activities that are
required to develop and market a locally integrated managed health care
system. Direct costs include incremental costs of Company personnel
physically located in new markets prior to commencement of operations
and certain incremental administrative costs such as legal, travel and
facility expenses. Indirect costs consist of an allocation of expenses
associated with existing executive and corporate development staff
engaged early in the network development process to conduct market
research and assess the operational and strategic opportunities
available in the market. The Company defines a network as being "in
development" once direct, incremental network development costs have
been incurred. Networks are considered operational once network
physicians begin accepting enrollees into the network.
The Company has entered into new markets by acquiring existing
physician networks. In such acquisitions, the Company has principally
purchased the physician and payor contracts that the network holds; it
generally does not purchase the assets or the practices of the
independent physicians who contract with the network. These contracts
represent significantly all of the assets of the physician network and,
accordingly, result in the recording of goodwill on the Company's
balance sheet. In addition to the consideration paid in the
acquisition, all direct costs associated with these acquisitions are
capitalized. In February 1995, the Company acquired The Healthcare
Partnership ("THP") in Houston, Texas (which had approximately 40,600
prepaid covered lives at the date of acquisition). The Company has also
consummated a number of smaller acquisitions, including the March 1996
acquisition of Private Physician Group at Stanford ("PPGS") in Northern
California (which had approximately 2,900 prepaid covered lives at the
date of acquisition).
In addition to network acquisitions, the Company may also enter
into management agreements in connection with fee-based network
development projects. Although the Company continues to pursue
acquisitions and other opportunities, there can be no assurance that the
Company will be able to capitalize successfully on such opportunities or
that such opportunities will be available to the Company in the future.
The Company's acquisition and development strategy has had, and
will continue to have, significant revenue and cost implications. This
is due to a number of factors, including market conditions outside of the
Company's base Southern California market requiring more administrative
costs, costs of building infrastructure and the inherently delayed timing
of revenue increases and cost decreases after building networks or
acquiring struggling networks.
The Company's operating results are subject to quarter-to-quarter
fluctuations. Quarterly results may be affected by the timing and amount
of costs associated with the Company's development and acquisition of
physician networks (as discussed above), by adverse trends in the cost of
medical services, and by other operational or external factors. The
Company has made acquisitions of underperforming companies with
significantly higher costs of medical services as a percentage of
revenue, and there can be no assurance that the Company's acquisitions
will not adversely affect the Company's results of operations or cause
significant quarterly fluctuations and/or adjustments. Quarterly results
may also be affected by significant differences between actual and
estimated amounts receivable or payable related to payor shared risk pool
arrangements and provider "incurred but not reported" claims ("IBNR"),
which are adjusted periodically as settlements are made in the case of
shared risk pools or as actual claims are paid in the case of IBNR. In
addition, movements of enrollees, particularly during periods of open
enrollment for HMOs, could impact quarterly results. Quarterly results
have in the past been subject to fluctuations and, as a result, the
operating results for any quarter are not necessarily indicative of
results for any future period. As a result of the various costs
associated with the Company's expansion strategies, the Company expects
to report a net loss through at least the second quarter of 1996.
The Department of Corporations ("DOC"), the regulatory body for all
managed care plans in the State of California, and the Company have
recently discussed whether, under the DOC's current regulatory
interpretation, the Company's operations in California, as currently
conducted, meet the definition of a health service plan. As a result of
such discussions, the Company voluntarily determined to commence the
process of preparing, through a wholly-owned subsidiary, an application
for restricted licensure as a Knox-Keene health care service plan for its
California operations. The restricted license, if granted, would allow
for the direct receipt of capitation payments for hospital and medical
professional services, but would not allow the marketing of a health care
service plan to employers and subscribers. The Company may be required
to restructure its California business operations (which, if such license
is not granted, could result in a reduction of revenue) and/or incur
additional administrative costs in the future to meet applicable
regulatory requirements, including the tangible net equity requirements
pursuant to DOC regulations, which could restrict the Company's ability
to transfer funds and pay dividends. Although the Company expects the
licensure process to have no material impact on its operations, there can
be no assurance that the DOC will not impose requirements adverse to the
Company's business.
Other Operating Data
The following table sets forth certain operating data as of March
31, 1996 and 1995.
<TABLE>
March 31
1996 1995
<S> <C> <C>
Affiliated physicians:
Primary care 2,062 1,364
Specialists 4,884 3,432
Total 6,946 4,796
Number of physician networks:
Operational 41 14
In development 52 62
Total 93 76
Number of payor contracts 223 174
Prepaid covered lives by product type:
Commercial 155,757 140,261
Senior 23,145 24,485
Medicaid 7,076 4,641
Total 185,978 169,387
Prepaid covered lives by market:
California 130,268 126,669
Texas 54,669 42,718
Southeast 1,041 -
Total 185,978 169,387
</TABLE>
Results of Operations
The following table sets forth consolidated statements of
operations data expressed as a percentage of total operating revenue for
the three months ended March 31, 1996 and 1995.
<TABLE>
Three Months Ended
March 31
1996 1995
(% of total operating
revenue)
<S> <C> <C>
Total operating revenue 100.0 100.0
Cost of medical services 75.3 76.6
Gross margin 24.7 23.4
Operating expenses:
Medical network operating expenses 7.0 5.5
General and administrative 15.7 9.6
Depreciation and amortization 2.1 1.8
Network development 5.6 8.2
30.4 25.1
Operating loss (5.7) (1.7)
Interest income 1.2 0.1
Interest expense (0.1) (0.4)
Net interest income (expense) 1.1 (0.3)
Loss before income taxes (4.6) (2.0)
Income tax benefit 1.6 0.7
Net loss (3.0) (1.3)
</TABLE>
First Quarter Ended March 31, 1996 Compared to First Quarter Ended March
31, 1995
Total operating revenue increased 23.4% to $30.8 million for the
first quarter of 1996 from $24.9 million for the first quarter of 1995.
The Company operated and managed 27 additional physician networks and
contracted with 2,150 additional physicians at March 31, 1996 compared
with March 31, 1995. Total operating revenue increased primarily due to
a 28.0% increase in the average number of covered lives. Average
covered lives increased 39,660 to 181,083 for the first quarter of 1996
from 141,423 for the first quarter of 1995. Of this increase, 25,147
average covered lives, or 17.8%, were a result of increased enrollment
in existing networks and acquired networks since acquisition, and 14,513
average covered lives, or 10.2%, were in acquired networks at the date
of acquisition. Covered lives at March 31, 1996 increased 9.8% to
185,978 from 169,387 at March 31, 1995. During the first quarter of
1996, the Company experienced a product mix change in favor of
commercial covered lives as a percentage of total covered lives. At
March 31, 1996, commercial covered lives as a percentage of total
covered lives increased 1.0% to 83.8% from 82.8% at March 31, 1995. The
Company earns less revenue per covered life under commercial plans
compared with senior plans.
Cost of medical services increased 21.3% to $23.2 million for the
first quarter of 1996 from $19.1 million for the first quarter of 1995.
As a percentage of total operating revenue, cost of medical services
decreased 1.3% to 75.3% for the first quarter of 1996 from 76.6% for the
first quarter of 1995. This decrease resulted primarily from a
significant decrease in the cost of medical services as a percentage of
total operating revenue in the THP physician network, where utilization
and cost management systems have been implemented since THP's
acquisition by the Company in 1995.
Medical network operating expenses increased 56.6% to $2.2 million
for the first quarter of 1996 from $1.4 million for the first quarter of
1995. As a percentage of total operating revenue, medical network
operating expenses increased 1.5% to 7.0% in the first quarter of 1996
from 5.5% in the first quarter of 1995. The Company is experiencing
higher claims administration and medical management costs as it expands
outside of its base Southern California market. This is primarily
related to different billing patterns of physicians in other regions of
the country due to fewer primary care and specialty physicians being
reimbursed on a capitated basis prior to achieving critical mass.
Affiliated primary care and specialty physicians totaled 6,946 and 4,796
at March 31, 1996 and 1995, respectively.
General and administrative expenses increased 101% to $4.8 million
for the first quarter of 1996 from $2.4 million in the first quarter of
1995. As a percentage of total operating revenue, general and
administrative expenses increased 6.1% to 15.7% for the first quarter of
1996 from 9.6% for the first quarter of 1995. The increase in these
expenses as a percentage of total operating revenue was primarily
related to additional investment in infrastructure to support the
Company's current and future growth, as well as the conversion of
networks in development to operational networks. Operational networks
totaled 41 at March 31, 1996 compared with 14 at March 31, 1995. Until
critical mass is achieved in these newly operational markets, such
increases will result in an increase in overall general and
administrative expenses as a percentage of revenue. In addition, the
increase in general and administrative expenses reflects increased costs
associated with being a public company.
Depreciation and amortization increased 47.4% to $650,000 for the
first quarter of 1996 from $441,000 for the first quarter of 1995. The
increase of these expenses was primarily due to additional amortization
of goodwill associated with the Company's acquisitions completed in
1995. These expenses also increased due to additional depreciation
related to recent equipment purchases.
Network development expenses decreased 15.4% to $1.7 million for
the quarter ended March 31, 1996 from $2.1 million for the first quarter
of 1995. These expenses decreased primarily due to the conversion of
developmental networks into operational networks during the period.
Physician networks in development decreased to 52 at March 31, 1996
compared with 62 at March 31, 1995.
Net interest income was $334,000 for the first quarter of 1996
compared with net interest expense of $76,000 for the first quarter of
1995. The Company realized net interest income in the first quarter of
1996 primarily due to interest earned on the net proceeds from the
initial public offering.
Liquidity and Capital Resources
The Company requires capital primarily to develop and acquire
physician networks and to fund working capital. Capitation arrangements
positively impact the Company's cash flow because the physician networks
receive capitation revenue prior to incurring costs associated with
services provided under payor agreements. Partially offsetting this, the
Company's shared risk pool arrangements negatively impact cash flow due
to the fact that settlements in connection with these arrangements are
typically not collected until 150 days following the end of the period in
which they were accrued. Since inception through the date the Company
entered into the Bank Facility (as defined), the Company financed its
operations primarily through internally generated funds.
For the quarter ended March 31, 1996, the Company used $2.6 million
in its operating activities. The use of cash in operating activities
resulted primarily from (i) a net loss of $924,000 (including $1.7
million spent on network development activities), offset by $650,000 of
depreciation and amortization, (ii) a $1.7 million increase in accounts
receivable primarily from the Company's shared-risk and stop-loss
arrangements, (iii) a $318,000 increase in income tax balances, (iv) a
$491,000 increase in prepaid expenses and (v) a $94,000 decrease in
accounts payable and accrued expenses, offset by (vi) a $182,000 increase
in accrued medical claims and (vii) a $124,000 decrease in deposits and
other assets. For the quarter ended March 31, 1996, the Company's
investing activities included $598,000 of cash used for equipment
purchases and its financing activities used $615,000 of cash for
principal payments of notes payable.
In May 1995, the Company obtained a two-year revolving line of
credit bank facility (the "Bank Facility"), with a maximum borrowing
limit of $11.5 million which was increased in August 1995 to
$15.0 million. As of March 31, 1996, the Company had $12.1 million
available under the Bank Facility (represented by the total Bank Facility
less a $2.9 million letter of credit securing a promissory note issued in
connection with an acquisition). Interest is payable on borrowings under
the Bank Facility at the bank's prime rate plus .25% per annum or, at the
Company's option, LIBOR plus 2.50%. Borrowings under the Bank Facility
are secured by the Company's accounts receivable and certain equipment.
The Bank Facility contains certain financial covenants and restrictions
on the Company's ability to engage in certain actions. At June 30, 1995
and from October 31, 1995 through December 31, 1995, the Company was in
default on its cash flow coverage ratio and obtained waivers from the
Bank Facility lenders on August 21, 1995 and February 20, 1996,
respectively, extending to all periods through March 30, 1996.
Effective March 31, 1996, the Bank Facility was amended to revise the
definitions of cash flow and debt in the computation of the cash flow
coverage and debt coverage ratios. With this amendment, the Company is
currently in full compliance with all covenants under the Bank Facility.
On September 29, 1995, the Company sold 3,600,000 shares of common
stock for net proceeds of approximately $44.5 million. As of March 31,
1996, the Company has $27.8 million of cash and cash equivalents and
$12.1 million available under the Bank Facility. The Company believes
that existing cash balances and amounts available under the Bank Facility
will be sufficient to finance its operations through at least the end of
1997.
Information Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements which, to
the extent that they are not recitations of historical fact, constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The forward-looking statements in
this document are intended to be subject to the safe harbor protection
provided by Sections 27A and 21E. All forward-looking statements
involve risks and uncertainties. Although the Company believes that
its expectations are based upon reasonable assumptions within the bounds
of its knowledge of its business and operations, there can be no
assurance that actual results will not materially differ from its
expectations. Factors which could cause actual results to differ from
expectations include, among other things, the difficulty in increasing
and managing growth in covered lives, controlling and estimating health
care costs, estimating revenue from shared-risk arrangements, as well as
the possible negative effects of the health care regulatory environment
and the effects of competition. For other risk factors which may cause
actual results to materially differ from expectations and underlying
assumptions, refer to the Registration Statement on Form S-1 and
periodic reports, including the Annual Report on Form 10-K for the year
ended December 31, 1995, filed by the Company with the Securities and
Exchange Commission.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its Affiliates are subject to certain legal
actions arising in the ordinary course of business, generally related to
professional liability, employment-related issues and other business-
related claims. In the opinion of management, such actions are either
adequately insured or will not have a material adverse effect on the
Company's financial position, operating results or working capital.
The Company is a defendant in a class action securities lawsuit
entitled In re AHI Healthcare Systems, Inc. Securities Litigation filed
in the United States District Court for the Central District of
California, Western Division. The plaintiffs initially filed three
separate suits against the Company, certain of its officers and
directors and its securities underwriters on December 20, 1995.
Pursuant to an order of the Court, the plaintiffs filed a Consolidated
Amended Class Action Complaint on February 26, 1996. The suit asserts
that the Company, among other things, artificially inflated the price of
its common stock by misleading securities analysts and by failing to
disclose in its initial public offering prospectus (the "Prospectus")
alleged difficulties with the acquisition of Lakewood Health Plan, Inc.
and with two of the Company's payor contracts with FHP, Inc. The
plaintiffs seek unspecified damages on behalf of the stockholders who
purchased the Company's common stock between September 28, 1995 and
December 19, 1995.
On March 8, 1996, the plaintiffs moved for class certification.
The Court certified the class on April 29, 1996. In addition, on April
11, 1996, the Company filed a Motion for Partial Summary Judgment
seeking dismissal of all of the plaintiffs' claims based on alleged
material misrepresentations or omissions in the Prospectus. This motion
will not be heard until at least July 1997.
The Company intends to vigorously defend this lawsuit. The
Company believes that it is adequately insured and does not expect that
the outcome of this lawsuit will have a material adverse effect on the
financial condition or results of operations of the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
10.1 Employment Agreement dated as of December 27,
1995 between the Company and Luis M. Artime.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AHI HEALTHCARE SYSTEMS, INC.
Date: May 14, 1996 /s/ LEONARDO A. BEREZOVSKY, M.D.
Chairman of the Board and Chief
Executive Officer (Principal
Executive Officer)
Date: May 14, 1996 /s/ H.R. BRERETON BARLOW
Chief Financial Officer and
Senior Vice President (Principal
Financial Officer and Principal
Accounting Officer)
EXHIBIT INDEX
Exhibit
Number Description
10.1 Employment Agreement dated as of December 27, 1995
between the Company and Luis Artime
27 Financial Data Schedule
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of
December 27, 1995 by and between AHI HEALTHCARE SYSTEMS, INC., a California
corporation (the "Company"), and LUIS M. ARTIME (the "Employee") with
reference to the following facts:
A. The Company desires to encourage the continuity of its management
and secure for its benefit the skills of individuals who provide unique value
to its operations;
B. The Company recognizes that Employee possesses certain skills and
expertise which give him peculiar value to the Company, the loss of which
cannot be reasonably or adequately replaced;
C. The Company desires to retain these skills for the benefit of the
Company and to provide Employee with compensation commensurate with such
skills; and
D. Employee and the Company desire to enter into an employment
agreement on the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE I
BASIC EMPLOYMENT
1.1 Employment. The Company agrees to employ Employee, and Employee
hereby agrees to be employed by the Company, to perform the duties described
below for the compensation and duration specified in this Agreement, as it may
be amended from time to time, subject to and upon all the terms and conditions
set forth herein. This Agreement supersedes the Employment Agreement between,
and previously executed by, the Company and Employee.
1.2 Term. The term of this Agreement shall commence as of the date of
this Agreement (the "Effective Date"), and continue in full force and effect
for three years and five days (i.e, until December 31, 1998) (such period of
three years and five days is referred to herein as the "Initial Term" and the
Initial Term combined with any extensions hereof is referred to as the
"Term"), unless otherwise terminated or extended as provided herein. Each
twelve (12) calendar month period during the Term shall be referred to herein
as a "Contract Year." During the first five (5) months of the third Contract
Year of the Initial Term, Employee shall give written notice to the Company as
to whether or not Employee desires to renew and extend this Agreement and, if
so, specifying a proposed term for such renewal or extension and any other
matters in this Agreement which Employee would propose to alter. After
receipt of such written notice from Employee and prior to the date that is six
(6) months before the expiration of the Initial Term, the Company shall notify
Employee in writing of either (i) the Company's acceptance of such renewal or
extension upon such proposed terms (whereupon the Company and Employee shall
prepare and enter into an amendment to this Agreement), (ii) the Company's
determination not to renew or extend this Agreement, or (iii) the Company's
proposed terms for an extension or renewal. If the Company selects the last
alternative, the Company and Employee shall negotiate in good faith until such
time as the parties agree to renew or extend this Agreement (the term of which
renewal or extension is referred to as the "Renewal Term") or one of the
parties determines to terminate such negotiations.
1.3 Duties. Employee shall hold the office of "Senior Vice President
and General Counsel" and/or such other office(s) of the Company and/or its
subsidiaries to which he may be elected or appointed. Employee shall perform
the duties customarily incident to such office(s) including, but not limited
to, preparation of and responsibility for the Company's budget for legal
affairs subject to direction from the Board of Directors of the Company (the
"Board"), or the Chairman of the Board or other designee of the Board. During
the first Contract Year, in addition to duties as General Counsel, Employee
shall continue to perform the development duties for which he was responsible
as of the commencement of this Agreement. During the first Contract Year and
thereafter, Employee shall assist in the transition of such responsibilities
to such person or persons who are designated by the Company. During the
remaining years of the Term, Employee shall serve as General Counsel and
perform the duties customarily incident to such position.
Employee shall report to the Chief Executive Officer. Employee hereby
agrees to use best efforts and to devote full professional time, energy and
ability in order to assure the proper and efficient performance of his work
for the Company. At all times during Employee's employment hereunder,
Employee shall not render services of a business, professional or commercial
nature to any other person or firm, whether for compensation or otherwise;
provided, however that Employee may engage in non-profit charitable activities
outside of his normal working hours. Prior approval of the Board is required
in the event Employee desires to hold a position on the board of directors of
any other company. During the Initial Term, Employee shall perform his duties
in Miami, Florida, except for such travel required of Employee to perform his
duties.
1.4 Compensation. The Company hereby agrees to pay Employee a base
salary (the "Base Salary") at the annual rate set forth in Exhibit A, attached
hereto and incorporated herein by this reference, payable in arrears in equal
payments at such frequency as is the custom and practice of the Company and on
at least a monthly basis. Employee's performance shall be reviewed each
Contract Year by the Board or a committee or other designee of the Board.
Employee's Base Salary for each Contract Year shall be subject to adjustment
upwards or downwards in the determination of the Board or a committee or
designee of the Board, based on the results of such performance review;
provided, however that Employee's Base Salary in any Contract Year shall not
be adjusted below the initial Base Salary for the Initial Contract Year as set
forth in Exhibit A. Notwithstanding the foregoing, Employee's Base Salary may
be adjusted in any Contract Year below the initial Base Salary for the Initial
Contract Year if such decrease is made by the Company's Board on a fixed
percentage basis with respect to the relevant level of management employees
generally (e.g., all senior management suffers a five percent (5%) decrease in
Base Salary) to help ameliorate adverse economic conditions for the Company.
1.5 Bonus. In addition to Base Salary, at the end of each fiscal year
Employee will be considered for a bonus in the form of cash, stock options, or
stock grants ("Bonus Compensation") to be based upon Employee's and Company's
performance during such fiscal year, or applicable portion thereof. The amount
of and criteria for eligibility for said Bonus Compensation, if any, shall be
determined in the sole and absolute discretion of the Board or a committee or
other designee of the Board; provided, however, that during the Initial Term
Employee shall be considered as being eligible to receive an annual cash bonus
of up to twenty percent (20%) of Base Salary.
1.6 Change of Control. In the event Employee's employment hereunder
is terminated, either by the Company without cause or by the Employee with
cause, within one (1) year after, or within six months prior to, the effective
date of a Change of Control, as defined below, Employee shall receive upon the
effective date of such termination a lump sum payment equal to one (1) times
the sum of: (i) the Base Salary in effect in the first full Contract Year
immediately preceding the effective date of the Change of Control (the
"Reference Year"); (ii) the total Bonus Compensation as well as any incentive
awards and other forms of current cash compensation which have been received
by Employee with respect to his services during the Reference Year; and (iii)
the cash value of any benefits received by Employee during the Reference Year,
including, but not limited to, health, life and disability insurance benefits.
The term "Change of Control" shall be defined as the (i) sale or transfer of
more than fifty percent (50%) of the common stock of the Company in one or a
series of transactions to a single buyer or group of persons acting in
concert, or (ii) sale of all or substantially all of the assets of the
Company. Notwithstanding the foregoing, the term "Change of Control" shall
not include any secondary public offering of the common stock of the Company
or any transaction with a subsidiary or affiliate of the Company.
Notwithstanding the above, in no event shall the amount payable under this
Section 1.6 include any amount that reasonably could be characterized as an
"excess parachute payment," as defined in Section 280G of the Internal Revenue
Code (or such successor provisions thereto as may be applicable), if such
would not be allowed as a deduction to the Company by reason of Section 280G
or the regulations promulgated thereunder.
1.7 Working Conditions/ Benefits
1.7.1 Vacation and Illness. Employee shall be entitled to paid
vacation per Contract Year in the amount set forth on Exhibit A attached
hereto. Any unused vacation days shall accrue from year to year. Employee
shall further be entitled to leaves of absence and sick leave with pay in
accordance with the Company's policies and procedures established from time to
time, or, if there is no policy or procedure in place at any applicable time,
then on the same basis as other comparable management of the Company.
1.7.2 Benefits. Employee shall be eligible to participate in and,
if eligible, to receive employee group medical, dental, life insurance and
such other benefits made available by the Company in accordance with the
Company's policies and procedures established from time to time, or, if there
is no policy or procedure in place at any applicable time, then on the same
basis as other senior management of the Company. Employee shall be
reimbursed for the reasonable cost of legal malpractice "tail" insurance
premiums during the Initial Term with respect to periods prior to the
Effective Date of this Agreement in an amount not to exceed $10,000.00.
Employee also shall be reimbursed during the Initial Term for state bar dues
(for the States of New York and Florida, and the District of Columbia) and the
costs of meeting mandatory continuing legal education requirements, if
applicable. Employee also shall be reimbursed for the cost of attending
seminars which relate to health care law and developments, if such attendance
is preapproved by the Company provided, however, that the Company will not
unreasonably withhold such approval if the seminar is needed by Employee to
meet minimum required standards commensurate with his position.
1.7.3 Expenses. Employee shall be entitled to reimbursement for
all approved reasonable travel and other business expenses incurred by
Employee in connection with his services to the Company pursuant to the terms
of this Agreement. All business expenses for which Employee seeks
reimbursement from the Company shall be adequately documented by Employee in
accordance with the Company's procedures covering expense reimbursement and in
compliance with the regulations of the Internal Revenue Service.
1.7.4 Facilities. The Company shall provide Employee with a
private office, office furniture, personal computer, secretarial support,
telephone, facsimile, cellular telephone, reprographic and other support
services and facilities commensurate with Employee's position and applicable
industry standards.
ARTICLE II
PROPRIETARY INFORMATION
2.1 Non-Disclosure. Employee acknowledges that, during the course and
scope of his employment with the Company, Employee may gain knowledge of, have
access to or have otherwise disclosed to him confidential information and
materials which are of value to the Company. Employee recognizes and
acknowledges that any and all confidential information and materials are made
available to him only for the limited purpose of the performance of his duties
as an employee. Employee agrees that, during and after the Term, Employee
will regard and preserve such information and materials as strictly
confidential, and, without the express prior written consent of the Company,
will not directly or indirectly disclose to any third person or use for the
benefit of anyone other than the Company, any and all confidential information
obtained or originated by the Employee by reason of his employment.
2.2 Confidential Information. For purposes of this Agreement,
confidential information and materials shall include, but shall not be limited
to, information, in all forms and in whatever media embodied, relating to the
business of the Company, contract terms, contracting policies, sales data,
sales programs, budgets, business plans, financial information, financial
data, personnel or payroll information, internal business procedures,
processes, techniques, methods, ideas, discoveries, developments, computer
programs, access codes, information flow systems and design, information
processing technologies and protocols, records, product designs, product
planning, research and development data and programs, trade secrets, customer
lists and related customer information, all of which is deemed confidential
and/or proprietary, which Employee has encountered, become aware of, or
originated in the course of or arising out of his employment with the Company
(hereinafter referred to as "Confidential Information"). Confidential
Information shall not include (i) information independently developed by
Employee without the use of Confidential Information, and (ii) information
which is or becomes publicly known through no breach of the terms of this
Article.
2.3. Books and Records. All business records of the Company and any
and all additional correspondence, notes, files, records (including computer
hardware, software, discs and printouts), books or papers relating in any
manner whatsoever to the Company, or relating to or arising out of
Confidential Information whether prepared by Employee or otherwise, in
whatever media embodied ("Confidential Books and Records") shall be the
exclusive property of the Company. Employee shall not make or retain any
copies of such Confidential Books and Records without the approval of the
Company. All such Confidential Books and Records, including any photographic
or electronic copy or original of such records, shall be immediately returned
to the Company by Employee upon termination of his employment or upon the
request of the Company.
2.4. Inventions. All inventions, discoveries and improvements relating
in any way to the business of the Company (including but not limited to
research and development, products, protocols, methods, computer programs or
procedures) which are conceived, suggested or devised by Employee solely or
jointly with others during the period of Employee's employment with the
Company, shall be disclosed to the Company and all such inventions,
discoveries and improvements shall become and remain the sole property of the
Company. Employee agrees to cooperate with the Company in the execution of
appropriate instruments assigning and evidencing such ownership rights.
2.5. Solicitation. Employee agrees that he will not directly or
indirectly solicit the employment of any person from the Company, whether such
person is an employee or independent contractor, either during the Term or for
two (2) years thereafter.
2.6. Remedies. Employee acknowledges and agrees that the disclosure of
Confidential Information and the breach of the provisions of this Article may
give rise to irreparable injury to the Company which cannot be adequately
compensated with monetary damages, and Employee further agrees that the
Company may seek and obtain injunctive relief against the breach or threatened
breach of any of the provisions of this Article and/or specific enforcement of
such provisions in addition to any other legal or equitable remedies which may
be available.
ARTICLE III
TERMINATION
3.1 Termination by Company Without Cause. The Company may terminate
Employee's employment at any time without cause by giving Employee at least
ninety (90) days' prior written notice of the effective date of termination.
In the event of such termination, Employee shall be entitled to the following
and the Company shall have no further liability to Employee:
(i) If the Company elects to enforce the Covenant Not to Compete
set forth in Article IV of this Agreement, for such term as the Company may
elect up to the maximum of two (2) years, Employee shall be entitled to
payment for such period of time. Company shall have the choice of paying
either a lump sum payment equal to the present value of his Base Salary for
such period of time that the Company has elected to enforce the Covenant Not
to Compete or the full value of the Base Salary to be paid on a monthly basis
(in accordance with the Company's payroll procedures) for such period of time
that the Company has elected to enforce the Covenant Not to Compete. If
Company chooses the lump sum method of payment, the Base Salary shall be
calculated as if Employee were still employed hereunder for such period, with
the present value to be computed using as a discount rate the applicable
federal rate under Section 1274(d) of the Internal Revenue Code. Under either
payment method and for such time as the Covenant Not to Compete shall be in
effect, Employee shall also be entitled to continue to be covered by all
medical, health and accident insurance at the same coverage level maintained
for Employee's benefit immediately prior to the effective date of Employee's
termination and shall continue to receive credit for years of service under
all retirement plans of the Company where permitted by law. In the event
Employee is ineligible to continue to be so covered, the Company shall, in its
discretion, provide Employee with substantially equivalent coverage through
other sources or will provide Employee with a lump sum payment equal to the
value of such health or other insurance coverage; or
(ii) If the Company elects not to enforce the Covenant Not to
Compete and if Employee has been employed for one (1) year or more, Employee
shall be entitled to a lump sum payment equal to one (1) month of Employee's
then current Base Salary for every year of service hereunder, up to a maximum
amount of one (1) year's Base Salary. The minimum amount payable hereunder to
Employee shall be six (6) months of Employee's then current Base Salary, even
if Employee would not otherwise be entitled to such amount under the formula
set forth in the preceding sentence.
(iii) The Company shall notify Employee, in writing, of its
intention to enforce the terms of the Covenant Not To Compete and its term
pursuant to subsection (i) above, (which will not exceed two (2) years in any
event) no later than thirty (30) days from the effective date of termination
pursuant to 3.1 hereunder. In the event the Company does not notify the
Employee of its election to enforce the Covenant Not To Compete as provided
hereunder, it shall be presumed that the Company has elected not to enforce
such Covenant Not To Compete and the terms of subparagraph (ii) above shall be
deemed to be in effect.
3.2 Termination by Company for Cause. The Company shall have the
right to terminate Employee's employment at any time for Cause by giving
Employee written notice of the effective date of termination. For purposes of
this Section, "Cause" shall be defined as:
(i) dishonesty, fraud, misappropriation, embezzlement or other
act of material misconduct against the Company;
(ii) substantial and willful failure to render services in
accordance with the terms of this Agreement, provided that a reasonable demand
for performance of services had been delivered to Employee by the Board or its
designee or representative at least thirty (30) days prior to termination
identifying the manner in which the Board believes that Employee has failed to
perform (as determined by the Board) and Employee has failed to remedy such
failure to perform within such thirty (30) day period;
(iii) willful and knowing violation of any laws, rules or
regulations of any governmental or regulatory body material to the business of
the Company; or
(iv) conviction of or a plea of nolo contendere to a felony or a
charge or indictment of a felony, the defense of which renders Employee
substantially unable to perform his services hereunder.
If the Company terminates Employee's employment for any of the reasons set
forth in this Section 3.2, the Company shall have no further obligation
hereunder from and after the effective date of such termination and shall have
all other rights and remedies available under this Agreement, at law or in
equity.
3.3 Termination on Account of Death or Permanent Disability. In the
event of Employee's death or Permanent Disability, as defined below, during
the Term, the Company shall pay to Employee or his Designated Beneficiary, as
defined below, a lump sum payment equal to one (1) time Employee's then
current Base Salary. For purposes of this Agreement, the term "Permanent
Disability" shall mean Employee's inability to perform his duties under this
Agreement for ninety (90) consecutive days or one hundred and eighty (180)
days during any twelve (12) month period due to illness, accident or other
incapacity (as determined in good faith by a physician mutually acceptable to
the Company and Employee) or if a physician so selected advises the Company
that it is likely that Employee will be unable to perform such duties for
ninety (90) consecutive days or one hundred and eighty (180) days during the
succeeding twelve (12) month period. Employee, his spouse and children shall
also be entitled to continue to be covered, if eligible, by all medical,
health and accident insurance at the same coverage level maintained for
Employee's benefit immediately prior to the date of Employee's termination
(subject to continuing payment of any premiums, deductibles and copayments by
the person who was the responsible party at the time of death or Permanent
Disability) for a period of eighteen (18) months from the date of Employee's
death or Permanent Disability. In the event of Permanent Disability, Employee
shall continue to receive credit for years of service under all retirement
plans of the Company where permitted by law.
3.4 Termination by Employee for Cause. Employee may terminate this
Agreement due to any uncured material breach by the Company of any provision
of this Agreement upon written notice to the Company; provided that a
reasonable demand for performance had been delivered to the Company by the
Employee at least thirty (30) days prior to termination identifying the manner
in which the Employee believes that the Company has failed to perform and
Company has failed to remedy such failure to perform within such thirty (30)
day period (or, in the case of breaches which are capable of cure but not
reasonably within such thirty (30) day period, if Company has not commenced
efforts to cure within such thirty (30) day period and has not thereafter
continued diligently in good faith its efforts to cure until such cure has
been effected). As full and complete liquidated damages in the event of such
termination by Employee for Cause, Company may elect, in its sole discretion,
to pay, and Employee hereby agrees to accept in full and complete satisfaction
of all of Company's obligations pursuant to or in connection with this
Agreement to Employee, the amounts specified under Section 3.1(i) above;
provided, however, that Company shall not be entitled to enforcement of the
Covenant Not to Compete under Article IV of this Agreement if there is a final
and binding determination by a court or dispute resolution panel of competent
jurisdiction that Company has materially breached this Agreement as alleged by
Employee in the notice provided hereunder.
ARTICLE IV
COVENANT NOT TO COMPETE
If the Employee's employment hereunder is terminated pursuant to the
terms of Article III and if the Company elects to enforce the provisions of
this Article by written notice to Employee, Employee hereby covenants and
agrees that, for a period which shall extend from the date hereof until two
(2) years after the effective date of such termination (or such lesser period
as the Company in its sole discretion may elect to continue such covenant and
agreement of Employee), he will not (i) carry on within any state, province or
territory of the United States of America and Canada, directly or indirectly,
whether or not for compensation (as proprietor, partner, stockholder, officer,
director, agent, employee, consultant, trustee, affiliate or otherwise) any
business or activities involving the development, establishment, management,
acquisition, financing or operation of managed care or prepaid integrated
healthcare delivery systems of the nature undertaken, owned, established or
operated by the Company, or through or for Company's subsidiaries and
affiliates which are included with Company on its consolidated tax returns, or
any other products marketed or developed by the Company (or by Company's
subsidiaries and affiliates which are included with Company on its
consolidated tax returns) during the course of Employee's employment
hereunder; (ii) induce or attempt to induce any person who is an employee,
agent or consultant of the Company to leave the employ of the Company or its
successor; or (iii) permit his name to be used by, or participate in, a
venture carrying on any business competitive in any respect with the Company.
Employee acknowledges that any remedy at law for the breach of the foregoing
covenants will be inadequate and that the Company shall be entitled to
injunctive relief as well as all other remedies which may be available at law
or in equity. The parties agree that nothing contained herein shall prevent
Employee from making personal passive investments in publicly traded
securities and obligations of other companies, including other companies which
are in the same industry as the Company; provided, however, that any personal
passive investments in publicly traded securities and obligations of direct
competitors of the Company shall be no more than de minimis in amount and must
be disclosed to the Company's Board at least semi-annually and otherwise upon
request. The terms of this Article shall not apply in the event of the
expiration of the Term hereof.
ARTICLE V
INDEMNIFICATION
The Company shall indemnify Employee and hold him harmless from and
against any acts or decisions made by Employee in good faith and while
exercising reasonable judgment in performing services for the Company. The
Company shall also obtain and maintain coverage for Employee under any
insurance policy now in force or hereafter obtained during the Term covering
other officers of the company against lawsuits. To the extent permitted by
applicable law, the Company shall pay all expenses, including reasonable
attorneys fees, actually and necessarily incurred by the Employee in
connection with the defense of such act, suit or proceeding, including the
cost of court settlements, provided that the Employee has not acted with gross
negligence or in bad faith.
ARTICLE VI
MISCELLANEOUS
6.1 Arbitration. Any controversy or claim between the parties hereto
arising out of or related to this Agreement or the breach thereof shall be
settled by arbitration in Los Angeles County, California. The arbitration
shall be conducted under the then current Commercial Rules of the American
Arbitration Association ("AAA Rules"). With respect to any arbitration
proceeding held hereunder, either party has the right to opt for expedited
arbitration under the "AAA Rules." In addition to the powers conferred by the
American Arbitration Association rules, the arbitrator shall have authority to
order such other discovery as he deems appropriate for a full and fair hearing
of the case. Notice of the demand for arbitration shall be served on the
other party to this Agreement within thirty (30) calendar days of the event
giving rise to the demand for arbitration. Any demand for arbitration
relating to the termination of this Agreement or the termination of the
Employee's employment must be served on the other party within thirty (30)
calendar days of the date upon which the termination was effective.
Within ten (10) days after the demand for arbitration is given, the
parties shall select a single neutral arbitrator to preside over the
arbitration proceeding. If the parties fail to select an arbitrator within
such ten (10) day period, such arbitrator shall be chosen by a district court
of competent jurisdiction. The arbitrator shall have no authority to award or
assess punitive or exemplary damages against either party. The arbitrator's
decision shall be final and binding and shall be made in accordance with the
internal laws of the State of Florida. The award so rendered may be filed in
any court having jurisdiction.
Notwithstanding the foregoing, the parties may seek equitable relief
from a court of competent jurisdiction for any breach of the confidentiality
and covenant not to compete provisions herein. The provisions of this Section
shall survive the expiration or earlier termination of this Agreement.
Should an arbitration be initiated, the Company will advance to
Employee, as incurred, reasonable airfare (coach class) and hotel room (not
to exceed $200 per night) costs for Employee to attend the arbitration hearing
in Los Angeles, California. Should the Company prevail in the arbitration,
the arbitration award shall include reimbursement to the Company of all such
amounts advanced by the Company. The Company, at its sole discretion, may
elect upon notice to Employee to change the location of the arbitration
hearing from Los Angeles, California, to Miami, Florida, in which event it
shall not have any obligation to advance any airfare or hotel costs to
Employee.
6.2 Notices. Whenever notice is to be served hereunder, service shall
be made personally, by facsimile transmission, by overnight courier or by
registered or certified mail, return receipt requested. All postage and other
delivery charges shall be prepaid by the party sending the notice. Notice
shall be effective only upon receipt by the party being served, except notice
shall be deemed received 72 hours after posting by the United States Post
Office, by method described above. Confirmation of receipt of any facsimile
sent must be received in order to presume that the transmission was received.
All notices shall be sent to the addresses described below unless changed by
written notice pursuant to the terms of this Section:
To the Company:
AHI HEALTHCARE SYSTEMS, INC.
12620 Erickson Avenue, Suite A
Downey, CA 90241
Attention: Chairman of the Board
Fax: 310-803-4373
To Employee:
Luis Artime, Esq.
6550 Southwest 100th Street
Miami, Florida 33156
Phone: 305-666-4959
6.3 Assignability. The Company may assign its interest in this
Agreement to any subsidiary or affiliate of the Company or in connection with
a merger or sale of all or substantially all of the assets of the Company and
the provisions of this Agreement shall inure to the benefit of the successors
and assigns of the Company. Employee may not assign or transfer this
Agreement, it being deemed personal to Employee only; provided, however, upon
Employee's death, Employee's heirs, executors and/or administrators may seek
collection of any sums that may have been due Employee as of Employee's death.
Subject to the above, this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
6.4 Severability. If any term or provision of this Agreement, or the
application thereof to any person or circumstance, shall to any extent be
found to be invalid, void, or unenforceable, the remaining provisions of this
Agreement and any application thereof shall, nevertheless, continue in full
force and effect without being impaired or invalidated in any way.
6.5 Waiver. No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or be construed as a further or continuing waiver of any
such term, provision or condition or as a waiver of any other term, provision
or condition of this Agreement.
6.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original instrument and all of
which together shall constitute the same instrument.
6.7 Entire Agreement. This Agreement, together with the Exhibits
hereto and any extensions or renewals hereof, constitutes the parties' entire
Agreement with respect to the subject matter hereof and supersedes all prior
statements or agreements, both written and oral. This Agreement may be
amended only by a writing signed by the parties.
6.8 Governing Law. The validity, interpretation and construction of
this Agreement, and all other matters related to the Agreement, shall be
interpreted and governed by the laws of the State of Florida.
6.9 Headings. The headings herein used are for convenience purposes
only and shall not be used to construe the meaning of this Agreement in any
respect.
6.10 Deductions. The Company shall deduct from any payment to Employee
hereunder such social security insurance, federal, state and other taxes,
state disability insurance and other withholdings as may be required by law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as
of the date first above written, by their duly authorized representatives.
WITNESSES: "COMPANY"
AHI HEALTHCARE SYSTEMS, INC.,
a California corporation
_____________________ By: ______________________
Leonardo Berezovsky, M.D.
Chairman of the Board and
_____________________ Chief Executive Officer
"EMPLOYEE"
_____________________ ___________________________
Luis M. Artime
_____________________
_______________________
_______________________
EXHIBIT "A"
COMPENSATION
BASE SALARY: $200,000
VACATION: AS SPECIFIED IN COMPANY PERSONNEL POLICIES.
L:\L96DOCS\A0001\502\ARTIMEEM.DOC( DATE February 5,1996 )
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0
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