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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
For the fiscal year ended: December 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 number: 0-21428
OCCUPATIONAL HEALTH + REHABILITATION INC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3464527
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
175 DERBY STREET, SUITE 36
HINGHAM, MASSACHUSETTS 02043
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(617) 741-5175
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
None Not Applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.001 par value
------------------------
(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 voting stock held by non-affiliates of the
registrant on March 4, 1997 was $4,341,725 based on the closing price of $6.25
per share. The number of shares outstanding of the registrant's Common Stock
as of March 4, 1997 was 1,571,979.
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OCCUPATIONAL HEALTH + REHABILITATION INC
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business................................................... 3
Item 2. Properties................................................. 13
Item 3. Legal Proceedings.......................................... 13
Item 4. Submission of Matters to a Vote of Security Holders........ 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 14
Item 6. Selected Financial Data.................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Item 8. Financial Statements and Supplementary Data................ 20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 20
PART III
Item 10. Directors and Executive Officers of the Registrant......... 21
Item 11. Executive Compensation..................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 26
Item 13. Certain Relationships and Related Transactions............. 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 29
Index to Consolidated Financial Statements and Financial Statement
Schedules.............................................................. F-1
Signatures.............................................................. S-1
2
PART I
ITEM 1. BUSINESS
GENERAL
Occupational Health + Rehabilitation Inc (the "Company") is a leading
physician practice management company specializing in occupational health care
in the Northeast. The Company develops and operates multidisciplinary,
outpatient healthcare centers and provides on-site services to employers for
the prevention, treatment and management of work-related injuries and
illnesses. The Company currently operates twelve occupational healthcare
centers in four states serving over 2,500 employers and also provides on-site
services in over 100 employer locations throughout the Northeast. The
Company's centers provide high quality patient care and a high level of
service, which combined reduce workers' compensation costs for employers. The
Company believes it is the dominant provider of occupational health services
in its established markets as a result of these commitments to quality care
and service.
The Company has developed a system of clinical and operating protocols as
well as proprietary information systems to track the resulting patient
outcomes (the "OH+R System"), all focused on reducing the cost of work-related
injuries. The most effective way to reduce cost is to prevent injuries from
occurring. The OH+R System includes a full array of services designed to
reduce the frequency and severity of work-related injuries and to assure
regulatory compliance. Many of these services may also be delivered on-site.
Prevention and compliance services include pre-placement examinations, medical
surveillance, drug and alcohol testing and work-site safety programs.
The Company's treatment approach is based on documented, proprietary
clinical protocols and integrates state-of-the-art medical, rehabilitation,
psychological and case management services in a "one-stop shop" focused on
solving the problems of both employers and employees. Employers' costs are
reduced, and their workers are back on the job more quickly compared to
national averages. Employees receive better care, maintain a positive attitude
and have a greatly reduced probability of developing chronic problems.
Utilizing the OH+R System which continues to evolve, the Company's
occupational medicine physicians and other clinical staff have consistently
generated substantial, documented savings as compared to national averages in
both the lost work days and the medical costs associated with work-related
injuries and illnesses.
The Company's strategic plan is to expand its network of centers throughout
the Northeast, principally through joint ventures with hospitals, acquisition
of occupational medicine practices, and to continue expanding its on-site
programs. The Company currently has five hospital affiliations in place.
The Company was incorporated in Delaware in 1988. On June 6, 1996,
Occupational Health + Rehabilitation Inc ("OH+R") merged with and into (the
"Merger") Telor Ophthalmic Pharmaceuticals, Inc. ("Telor"). Telor initially
operated as an ophthalmic pharmaceutical company. Following the failure of its
lead product candidate, Telor curtailed its research and development programs
and sought a merger candidate. Pursuant to the terms of the Merger, Telor was
the surviving corporation. Simultaneously with the Merger, however, Telor's
name was changed to Occupational Health + Rehabilitation Inc, and the business
of the surviving corporation was changed to the business of OH+R. The Merger
was accounted for as a "reverse acquisition" whereby OH+R was deemed to have
acquired Telor for financial reporting purposes. The Company maintains its
principal executive offices at 175 Derby Street, Suite 36, Hingham,
Massachusetts 02043, telephone number (617) 741-5175.
INDUSTRY OVERVIEW
Work-related injuries and illnesses are a large and rapidly increasing
source of lost productivity and rising costs for businesses in the United
States. In 1994, workers' compensation costs in the U.S. totaled approximately
$70 billion--more than double the 1985 total of $30 billion. These costs are
projected to double again by the year 2000. Medical costs represent
approximately 40 percent of these direct costs with the remainder being
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principally wage replacement (indemnity) costs. Not accounted for in these
figures are the indirect costs, such as lost productivity, hiring and
training, which are estimated to be three to four times the amount of direct
costs. Workers' compensation costs in the Northeast were approximately $8.2
billion in 1994. Medical expenses represented approximately $3.2 billion of
these costs.
The reasons for the escalation of workers' compensation costs are complex
and multifaceted:
. Lack of proper injury prevention and employee education programs
. Inappropriate management of injured employees
. Lack of proper medical and rehabilitation systems to treat injured workers
. Lack of physicians properly trained and specializing in work-related
injuries and illnesses
. Disincentives for quality medical providers to treat workers' compensation
patients
. Lack of coordination among the employer, employee and care providers
. No co-payment or deductibles to encourage moderate use of medical care
. Shifting of medical costs from group health plans to the workers'
compensation system
The rapid increase of workers' compensation costs has resulted in employers
taking a more active role in preventing and managing workplace injuries. This
employer involvement typically includes the establishment of safety
committees, emphasis on ergonomics in the workplace, and drug testing to
reduce the number of injuries; establishment of preferred provider
relationships to insure prompt and appropriate treatment of work-related
injuries; and, for larger employers, becoming self-insured to capture savings
from their efforts to reduce and better manage injuries.
The occupational healthcare market is highly fragmented, consisting
primarily of individual or small-group practices and hospital-based programs.
Greater capital requirements, the need for more sophisticated management and
marketing, and changes in the competitive environment, including the formation
of larger integrated networks such as the Company's, have created increased
interest in affiliating with larger, professionally managed organizations. As
a result of these factors, the Company believes that there is an opportunity
to consolidate private practices and hospital programs in the Northeast.
STRATEGY
The Company's objective is to develop a comprehensive regional network of
occupational healthcare centers and to expand its on-site services dedicated
to reducing the cost of work-related injuries and illnesses through high-
quality care and outstanding service.
The Company intends to build its network of centers through:
. Joint ventures with and acquisitions of existing hospital occupational
health departments.
. Acquisitions of existing occupational medicine and physical therapy
practices.
. Start-up of Company centers in strategic locations.
. Strategic alliances with workers' compensation insurers and managed care
companies, provider groups such as integrated delivery systems, and
group health insurers and health maintenance organizations.
Subsequent to an acquisition or joint venture, new centers are converted to
the Company's practice model through implementation of the OH+R System. New
services are added as required to provide the Company's full-service offering.
On-site services are often delivered to employers within the service area of a
center and are a natural extension of center operations. The Company's direct
sales efforts and word-of-mouth recommendations from satisfied clients are the
source of on-site service opportunities not proximate to a center.
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The Company's operating strategy is based upon:
. Integration of Services--Prevention and compliance services provide
important baseline information to clinicians as well as knowledge of the
work site, which make the treatment of subsequent injuries more
effective. Close management and coordination of all aspects of an
injured worker's care are essential to ensuring the earliest possible
return to work. Management and coordination are difficult, if not
impossible, when clinicians are not working within an integrated system.
A "one-stop shop" significantly reduces the number of communications
required for a given case and eases the coordination effort, while
enhancing patient convenience.
. Quality Care and Outstanding Service--For a number of reasons, injured
workers often receive second-class care. A lack of quality care is
costly to the worker because of longer recovery time and the employer
since it leads to lost work days. The Company is committed to providing
outstanding service--to patients, to employers and to third parties.
From van pick-ups for injured workers to custom services addressing an
employer's specific needs, the Company attempts to deliver the level of
service that is expected from companies noted for extraordinary service
but typically not provided by healthcare providers.
. Outcome Tracking and Reporting--The OH+R System is focused on achieving
successful outcomes--cost-effectively returning injured workers back to
the job as quickly as possible while minimizing the risk of re-injury.
Since the inception of its first center, the Company has tracked outcome
statistics. The Company believes these extensive outcome statistics
demonstrate its ability to return injured workers back to the job faster
and for costs substantially lower than the national averages.
. Low Cost Provider--The Company believes that future success in virtually
any segment of healthcare services will require delivery of quality care
at the lowest possible price. The Company believes it is a low cost
provider, and it continuously is working to further reduce the cost of
providing care by increasing the productivity of clinicians and
administrative personnel. The Company routinely refines and revises the
OH+R System to increase efficiency and effectiveness.
. ""At Risk" Reimbursement--The Company believes that case rates,
capitation and eventually outcome-based reimbursement will become more
prevalent in workers' compensation. The Company offers case rates,
capped fee-for-service programs and other innovative pricing programs,
which differentiate the Company from its competitors. The Company
believes its outcome data and management information systems enable it
to properly price and manage "at risk" reimbursement programs, enhancing
the Company's profitability while providing increased accountability for
results to client employers.
SERVICES
The Company's centers provide a "one-stop shop" for the prevention,
treatment and management of work-related injuries and illnesses. Centers are
staffed with multidisciplinary teams, including physicians, physician
assistants, psychologists, physical and occupational therapists, exercise
physiologists and athletic trainers, as well as a manager, a client relations
director and support personnel. Each center also establishes relationships
with local specialty physicians for the provision of needed services.
Clinicians at the Company's centers specialize in work-related injuries and
illnesses and are trained to implement the OH+R System which is derived from a
sports medicine philosophy and consists of an integrated set of proprietary
protocols covering injury prevention and every aspect of injury treatment and
management from the initial visit through return to work. Over the last five
years of its evolution, the OH+R System has been proven effective in reducing
lost work days. The principal tenets of the OH+R System are:
. Prevention--The least costly work-related injuries are those that never
happen. The Company offers a full range of prevention programs from on-
site job analysis to back schools and vaccination programs.
. Early, Appropriate Care--An injured worker should be evaluated as soon
as possible after an injury and receive appropriate treatment. Early
intervention by a qualified provider is critical for "damage control"
and to get the injured worker on track for the earliest possible return
to work.
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. Objective Testing--In addition to identifying the minority of injured
workers who are malingerers, objective testing is important for
determining starting points, measuring progress and focusing treatment
on physical findings and functionality rather than complaints of pain.
. Active, Time-Limited Rehabilitation--Early mobilization, active exercise
and goal-oriented rehabilitation are most effective in restoring
function. Physical and/or functional therapy provides diminishing
returns after a certain amount of time, at which point, it must be
curtailed to control costs.
. On-Site Services--The actual job site often can be the most effective
and expedient location to render prevention services or to treat an
injured worker when circumstances permit such services to be delivered
cost-effectively.
Specific services provided by the Company include:
Prevention
The Company offers a full array of services to employers, either at Company
centers or on-site at employer locations, which are designed to prevent
injuries before they happen and for regulatory compliance. Specifically, the
Company offers:
. Pre-placement exams . On-site job analysis
. Drug and alcohol testing . Wellness and evaluation programs
. Annual physicals . Medical review officers
. Medical monitoring programs . Occupational health consulting
. Americans with Disabilities Act . Travel medicine
compliance services
Treatment
Urgent Medical Care provides immediate access to specialized medical care
for work-related injuries and illnesses. The occupational medicine physicians
at the Company's centers provide timely, quality care to injured employees
that is cost-effective and act as gatekeepers for other medical services.
Rehabilitation Programs are utilized when appropriate and necessary to
assist in the return-to-work effort. Physical therapy, hand therapy and job
simulation activities are provided, at Company centers or on-site at employer
locations, to injured employees through defined programs that are goal-
oriented and time-limited. The Company employs a "sports medicine" approach to
rehabilitation. As with other athletes, "industrial athletes" require early
intervention, active exercise and the proper motivational atmosphere to get
them "back in the game" as quickly and safely as possible.
Management
Proper management of work-related injuries is an essential part of
successfully returning injured employees to productivity. The Company's case
management system consists of two distinct components:
Case Management provides critical communications to all "key" players
involved in the return-to-work effort, including the employee, employer and
insurance representative.
Care Management encompasses control and coordination of all aspects of the
injured employee's care. The Company's medical and rehabilitation team members
are located in the same facility and work within an integrated system of
formal, defined protocols. This approach allows superior, ongoing
communication among clinician team members regarding the most appropriate
treatment plan and eliminates "system delays" (i.e., time lost as patients
deal with several, unrelated providers).
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Other Services
For those injured employees who are not Company patients, the Company can
assist employers in determining the proper course of action to follow by
providing: Independent Medical Exams, Functional Capacity Evaluations, and
Fitness for Duty Exams.
FUTURE SERVICE OFFERINGS
The Company's internal development strategy is to build on its existing
relationships with client employers by continuing to add other healthcare
services that assist them in controlling healthcare costs.
The Company is currently developing service offerings that assist employers
in reducing non-work-related disability costs. These services leverage the
Company's injury evaluation and treatment expertise and its experience in
early return to work. The addition of these services fits with the current
trend of employers coordinating both work-related and non-work-related
disability management.
Disease management--preventative care and enhanced treatment regimens for
high cost chronic diseases--is becoming a major focus of employers and their
health insurers as the next step in reducing group healthcare costs. By
providing prevention and monitoring services for chronic diseases at the work
site, compliance increases thereby increasing effectiveness. The Company's on-
site medical and rehabilitation clinicians are well suited to provide many of
these services in addition to occupational health services currently provided.
The Company is also developing programs in other markets in which its core
clinical competencies are relevant. For example, many states are implementing
legislation providing premium discounts on auto insurance for consumers
agreeing to use specified preferred provider networks if they are injured in
an accident. The Company's expertise in treating and managing work-related
musculoskeletal injuries within the medicolegal environment of workers'
compensation positions it well to address the high costs of auto injuries.
AGREEMENTS WITH MEDICAL PROVIDERS
Medical and other professional services at the Company's centers are
provided through independently organized professional corporations or licensed
satellite clinics (collectively, the "Medical Providers") that enter into
management agreements with the Company or its affiliated joint ventures, which
subcontract with the Company. The Company provides a wide array of business
services under these management and submanagement agreements, such as
providing personnel, practice and facilities management, real estate services,
billing and collection, accounting, tax and financial management, human
resource management, risk management, insurance, marketing and information-
based services such as process management and outcome analysis. The Company
provides services under these management agreements as an independent
contractor, and the medical personnel at the centers under the direction of
the Medical Providers provide all medical services and retain sole
responsibility for all medical decisions. The management agreements grant the
Medical Providers a non-exclusive license to use the Company's service mark "
Occupational Health + Rehabilitation." The management agreements have
automatically renewing terms and specific termination rights.
MARKETING
The Company markets through a direct sales force primarily to employers, but
also to insurers and third-party administrators. These parties strongly
influence (and in many instances direct) an injured worker's choice of
provider. In addition, employers select providers for prevention services. The
direct sales effort is supported by direct mail programs, selective
advertising and by a strong public relations effort focused on reinforcing the
Company's position as a leader in the field.
The client relations director, or CRD, of each center directs the marketing
effort. The CRD also handles client service problems, client training and the
development of customized services to address unique client needs. CRDs often
have experience in health care, preferably as salespersons of managed care
services.
7
EXPANSION PLAN
The Company's objective is to build a comprehensive regional network of
centers through joint venturing and affiliations, acquiring practices,
entering into strategic alliances and establishing start-up centers. The
Company's management team is comprised of healthcare executives who are
experienced in corporate development as well as the integration and operation
of the resulting acquisitions, ventures and alliances. In addition, the OH+R
System with its documented protocols covering all aspects of center and on-
site operations facilitates smooth assimilation. The Company believes that
occupational health services, like all other segments of the healthcare
industry, will begin to feel the pressure of managed care and other cost
containment efforts from employers. These pressures and the expected
continuance of regulatory complexities in the workers' compensation system
will cause a need, in the Company's opinion, for physicians and hospitals with
occupational health programs to seek affiliations with larger, professionally
managed organizations such as the Company so that they may provide convenient,
cost-effective quality care. Because of the many factors involved in building
such a network, there can be no assurance that the Company will be successful
in meeting its expansion goals.
EVALUATION CRITERIA
The key criteria for evaluating expansion opportunities are:
. Quality of care
. Market share and reputation in local markets
. Sources of patient flow
. Willingness to implement the OH+R System
. Range of services provided
. Ease of conversion/addition of services
HOSPITAL JOINT VENTURES AND AFFILIATIONS
One of the Company's intended principal methods of expansion is entering
into joint ventures or affiliations with hospitals to operate the hospitals'
occupational health programs, which are then converted to full-service Company
centers. There are approximately 1500 hospital-based occupational health
programs in the United States, 300 of which are in the New England and Middle
Atlantic states.
Most hospital occupational health programs have developed by default.
Employers and injured employees have naturally looked to the local hospital
for treatment of work-related injuries. In addition, as OSHA and other safety
and health regulations came into existence, hospitals again were the logical,
and often only, place for employers to turn for service. The majority of the
occupational health services offered by hospitals are delivered by functional
departments where occupational health is a small percentage of the services
rendered. Management of care, employer communications and, ultimately,
successful outcomes are extremely difficult to accomplish. Therefore, many
hospitals are looking to acknowledged experts in the field such as the Company
for effective outsourcing of their occupational health programs.
By affiliating with the Company, hospitals benefit from:
. The OH+R System--a proven clinical and operating system
. Access to the Company's regional network of multi-location clients
. The Company's expertise in delivering high quality care and outstanding
service that enhances a hospital's reputation with employers
. The Company's entrepreneurial work environment that provides incentives
for performance
. Off-campus facilities providing outposts in geographic market segments
that can generate inpatient referrals
. Minimizing capital requirements
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Hospital affiliations allow the Company to leverage the name and position of
the institution within a community to ease market entry and expedite building
market share. In addition, as healthcare reform proceeds, either with or
without government intervention, integrated healthcare delivery systems are
expected to develop around networks of hospitals. Employers will contract with
these systems to provide for all the healthcare needs of their employees,
including the prevention and treatment of work-related injuries and illnesses.
It is strategically important for the Company to have links to these systems
to be well-positioned to become the occupational health provider for a system.
The Company's first joint venture was established in April, 1995 as a
partnership with an affiliate of New England Baptist Hospital ("NEBH"), a
leading hospital in the Boston area for the treatment of musculoskeletal
injuries. This partnership operates two occupational healthcare centers
located in the Greater Boston area. During 1996, the Company continued the
implementation of its strategy through consummation of a joint venture with a
subsidiary of Central Maine Medical Center ("CMMC"), a 132-bed general medical
and surgical hospital in Lewiston, Maine. The venture was formed in August
1996 to operate CMMC's occupational health program.
The Company's joint venture/affiliation strategy has continued to gain
momentum in the first quarter of 1997 with the addition of strategic
relationships with Eastern Maine Health Care ("EMH"), Maine Medical Center and
Kent County Memorial Hospital ("Kent"). EMH is the parent of Eastern Maine
Medical Center, a 348-bed general medical and surgical hospital in Bangor,
Maine, which provides tertiary care throughout Northern Maine. Through an
exclusive affiliation with EMH and related parties, the Company provides
comprehensive occupational health services to employers and their employees in
Northern and Eastern Maine. Maine Medical Center is the largest tertiary care
hospital in Maine with 598-beds and over 500 active physicians on its medical
staff. By way of a joint venture, the Company and Maine Medical Center
combined their respective occupational health operations located in Portland,
Maine to become the dominant occupational healthcare provider in the Portland
area. Kent is a 359-bed general medical and surgical hospital located in
Warwick, Rhode Island and is a teaching facility affiliated with Brown
University Medical School. Kent combined its existing occupational health
operations with the Company's Warwick, Rhode Island center by way of a joint
venture. This combined entity commenced operations in mid-March 1997.
The Company's typical joint venture model consists of the Company's
retaining an ownership interest of at least 51% of the venture. The Company
provides all necessary personnel and assumes management responsibility for the
day-to-day operation of the venture. In return for such services, the Company
will receive a fee customarily including a component based upon the net
revenue attained by the venture and a reimbursement of all of the Company's
personnel costs and other expenses incurred with regard to such management
services. Further, in an attempt to assure the venture's success, it is not
unusual that the joint ventures participants mutually agree not to separately
provide competing services within a defined geographic radius.
The Company is continuously discussing and exploring the establishment of
similar arrangements with other hospitals located throughout the Northeast.
ACQUISITIONS, STRATEGIC ALLIANCES AND START-UPS
By acquiring private practices - either occupational medicine or physical
therapy practices - the Company can enter a new geographical area or
consolidate its position within an existing market. Therapy practices receive
referrals of injured workers from local specialty physicians which can
complement the Company's direct marketing to employers. Alternatively,
occupational medicine practices have established relationships with employers
to whom the Company's more comprehensive services may be provided.
In September 1996, the Company expanded its platform of services to include
an innovative program of on-site occupational and physical therapy and related
assessments, evaluations and injury prevention programs. This expansion was
accomplished by the Company's acquisition of certain assets of ArgosyHealth
("Argosy"), an occupational health services company headquartered in Horsham,
Pennsylvania, which were subsequently
9
contributed to a joint venture between the Company and Argosy. The goal of the
joint venture is to provide these convenient on-site services for employers
located throughout the Northeast and several Mid-Atlantic states. The joint
venture has provided services at over 100 employer sites situated in Maine,
Vermont, Massachusetts, Rhode Island, New Jersey, Delaware, Pennsylvania,
Maryland, Virginia and the District of Columbia.
In the first quarter of 1997, the Company has continued to implement its
acquisition strategy through its purchases of Immediate Care Health Center
("ICHC") and Business Health Management ("BHM"). ICHC is a leading provider of
occupational medicine and urgent care services in the Burlington, Vermont
area. BHM provides medical consulting services regarding occupational and
environmental health issues, on-site contract medical services, medical
surveillance programs, and drug testing programs. BHM's client list includes
various Fortune 500 employers.
The Company will also consider establishing start-up centers. This approach
is most suitable for geographic areas proximate to existing Company centers
where a large source of patients can be assured through arrangements with
large employers and third party administrators or where competition is
limited.
COMPETITION
Most organizations providing care for work-related injuries and illnesses in
the Northeast are local providers or hospitals. The fundamental difference
between the Company and these providers is the Company's focus on combining
multiple disciplines to address the needs of a single market segment--work-
related injuries and illnesses. Other providers are generally organized to
provide services, such as physical therapy, to a wide variety of market
segments with differing needs regardless of the source of the injury or type
of patient or injury.
The vast majority of the Company's competitors are local operations and
typically provide only some of the services required to successfully resolve
work-related injuries and illnesses. Hospitals typically provide most of the
required services but not as part of a tightly integrated, formal care system.
Injured workers tend to be a small segment of the patients seen by the
individual hospital departments involved, and department personnel tend not to
have any particular training or expertise in work-related injuries and
illnesses.
OccuSystems, Inc. states that it is the nation's largest physician practice
management company focusing on occupational healthcare. The Company further
understands that other large and diversified national healthcare companies
including HEALTHSOUTH Corporation and NovaCare, Inc. have stated their
intention to become occupational health providers and have begun
implementation of such services. Although the Company has not yet seen a
significant occupational healthcare presence from these companies in the
markets in which the Company currently operates and many of the other markets
it is exploring in the Northeast, there can be no assurance that these
competitors will not establish such services in these markets. These companies
are larger than the Company and have greater financial resources.
LAWS AND REGULATIONS
General
As a participant in the healthcare industry, the Company's operations and
relationships are subject to extensive and increasing regulation by a number
of governmental entities at the federal, state and local levels. The Company
is also subject to laws and regulations relating to business corporations in
general. The Company believes that its operations are in material compliance
with applicable laws. Nevertheless, because of the special nature of the
Company's relationship with the Medical Providers, many aspects of the
Company's business operations have not been the subject of state or federal
regulatory interpretation, and there can be no assurance that a review of the
Company's or the Medical Providers' business by courts or regulatory
authorities will not result in a determination that could adversely affect the
operations of the Company or the Medical Providers or that the healthcare
regulatory environment will not change so as to restrict the Company's or the
Medical Providers' existing operations or their expansion.
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Workers' Compensation Legislation
The federal government and each state in which the Company does business
administer workers' compensation programs, which require employers to cover
medical expenses, lost wages and other costs resulting from work-related
injuries, illnesses and disabilities. Medical costs are paid to healthcare
providers through the employers' purchase of insurance from private workers'
compensation carriers, participation in a state fund or by self-insurance.
Changes in workers' compensation laws or regulations may create a greater or
lesser demand for some or all of the Company's services, require the Company
to develop new or modified service or ways of doing business to meet the needs
of the marketplace and compete effectively or modify the fees that the Company
may charge for its services.
Many states are considering or have enacted legislation reforming their
workers' compensation laws. These reforms generally give employers greater
control over who will provide medical care to their employees and where those
services will be provided, and attempt to contain medical costs associated
with workers' compensation claims. Some states have implemented diagnosis-
specific fee schedules that set maximum reimbursement levels for healthcare
services. The federal government and certain states provide for a
"reasonableness" review of medical costs paid or reimbursed by workers'
compensation.
When not governed by a fee schedule, the Company adjusts its charges to the
usual and customary levels authorized by the payor.
Corporate Practice of Medicine and Other Laws
Most states limit the practice of medicine to licensed individuals or
professional organizations comprised of licensed individuals. Many states also
limit the scope of business relationships between business entities such as
the Company and licensed professionals and professional corporations,
particularly with respect to the sharing of fees between a physician and
another person or entity and non-physicians exercising control over physicians
engaged in the practice of medicine.
Laws and regulations relating to the practice of medicine, the sharing of
fees and similar issues vary widely from state to state, are often vague and
are seldom interpreted by courts or regulatory agencies in a manner that
provides guidance with respect to business operations such as those of the
Company. Although the Company attempts to structure all of its operations so
that they comply with the relevant state statutes and believes that its
operations and planned activities do not violate any applicable medical
practice, the sharing of fees or similar laws, there can be no assurance that
(i) courts or governmental officials with the power to interpret or enforce
these laws and regulations will not assert that the Company or certain
transactions in which it is involved are in violation of such laws and
regulations and (ii) future interpretations of such laws and regulations will
not require structural and organizational modifications of the Company's
business. In addition, the laws and regulations of some states could restrict
expansion of the Company's operations into those states.
Fraud and Abuse Laws
A federal law (the "Anti-Kickback Statute") prohibits any offer, payment,
solicitation or receipt of any form of remuneration to induce or in return for
the referral of Medicare or state health program patients or patient care
opportunities, or in return for the purchase, lease or order of, or arranging
for, items or services that are covered by Medicare or state health programs.
Violations of the statute can result in the imposition of substantial civil
and criminal penalties. In addition, as of January 1, 1995, certain anti-
referral provisions (the "Stark Amendments") prohibit a physician with a
"financial interest" in an entity from referring a patient to that entity for
the provision of certain "designated medical services"; some of which are
provided by the Medical Providers that engage the Company's management
services.
Most states have statutes, regulations or professional codes that restrict a
physician from accepting various kinds of remuneration in exchange for making
referrals. Several states are considering legislation that would prohibit
referrals by a physician to an entity in which the physician has a specified
financial interest.
11
All of the foregoing laws are subject to modification and interpretation,
have not often been interpreted by appropriate authorities in a manner
directly relevant to the Company's business and are enforced by authorities
vested with broad discretion. The Company has attempted to structure all of
its operations so that they comply with all applicable federal and state anti-
referral prohibitions. The Company also continually monitors developments in
this area. If these laws are interpreted in a manner contrary to the Company's
interpretation, reinterpreted or amended, or if new legislation is enacted
with respect to healthcare fraud and abuse or similar issues, the Company will
seek to restructure any affected operations so as to maintain compliance with
applicable law. No assurance can be given that such restructuring will be
possible, or, if possible, will not adversely affect the Company's business.
Uncertainties Related to Changing Healthcare Environment
Over the last several years, the healthcare industry has experienced change.
Although managed care has yet to become a major factor in occupational
healthcare, the Company anticipates that managed care programs, including
capitation plans, may play an increasing role in the delivery of occupational
healthcare services. Further, competition in the occupational healthcare
industry may shift from individual practitioners to specialized provider
groups such as those managed by the Company, insurance companies, health
maintenance organizations and other significant providers of managed care
products. To facilitate the Company's managed care strategy, the Company is
offering risk-sharing products for the workers' compensation industry that
will be marketed to employers, insurers and managed care organizations. No
assurance can be given that the Company will prosper in the changing
healthcare environment or that the Company's strategy to develop managed care
programs will succeed in meeting employers' and workers' occupational
healthcare needs.
Environmental
The Company and the Medical Providers are subject to various federal, state
and local statutes and ordinances regulating the disposal of infectious waste.
If any environmental regulatory agency finds the Company's facilities to be in
violation of waste laws, penalties and fines may be imposed for each day of
violation, and the affected facility could be forced to cease operations. The
Company believes that its waste handling and discharge practices are in
material compliance with applicable law.
SEASONALITY
The Company is subject to the natural seasonal swing that impacts the
various employers and employees it services. Although the Company hopes that
as it continues its growth and development efforts it may be able to
anticipate the effect of these swings and provide services aimed to ameliorate
this impact, there can be no assurance that it can completely alleviate the
effects of seasonality. Historically, the Company has noticed these impacts in
portions of the first and fourth quarters. Traditionally, net revenues are
lower during these periods since patient visits decrease due to the occurrence
of plant closings, vacations, holidays, a reduction in new employee hirings
and the impact of severe weather conditions in the Northeast. These activities
also cause a decrease in drug and alcohol testings, medical monitoring
services and pre-hire examinations. The Company has also noticed similar
impacts during the summer months, but typically to a lesser degree than during
the first and fourth quarters.
EMPLOYEES
As of February 21, 1997, the Company employed 215 individuals on a full and
part-time basis. None of the Company's employees are covered by collective
bargaining agreements. The Company has not experienced any work stoppages and
considers its relations with its employees to be good.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in this Annual Report on Form 10-K, including in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contain forward-looking statements within the
12
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, which statements are intended to be subject to the "safe-harbor"
provisions of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements are based on management's current expectations and
are subject to many risks and uncertainties, which could cause actual results
to differ materially from such statements. Such statements include statements
regarding the Company's objective to develop a comprehensive regional network
of occupational healthcare centers providing integrated services through
multi-disciplinary teams. Among the risks and uncertainties that will affect
the Company's actual results in achieving this objective are locating and
identifying suitable acquisition candidates, the ability to consummate
acquisitions on favorable terms, the success of such acquisitions, if
completed, the costs and delays inherent in managing growth, the ability to
attract and retain qualified professionals and other employees to expand and
complement the Company's services, the availability of sufficient financing
and the attractiveness of the Company's capital stock to finance acquisitions,
strategies pursued by competitors, the restrictions imposed by government
regulation, changes in the industry resulting from changes in workers'
compensation laws and regulations and in the healthcare environment generally
and other risks described in this Annual Report on Form 10-K.
ITEM 2. PROPERTIES
The Company rents approximately 5,250 square feet of office space for its
corporate offices in Hingham, Massachusetts. The Company's centers range in
sizes from approximately 725 square feet to 15,239 square feet and have lease
terms of three years to six years with varying renewal or extension rights.
A typical center ranges in size from approximately 4,000 to 10,000 square
feet and has four to eight rooms used for examination and trauma, a
laboratory, an x-ray room and ancillary areas for reception, drug testing
collection, rehabilitation, client education and administration. The centers
generally are open from nine to twelve hours per day at least five days per
week.
The Company believes that its facilities are adequate for its reasonably
foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings and is not
aware of any threatened litigation that could have a material adverse effect
upon its business, operating results or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1996.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to the Merger on June 6, 1996, Telor's common stock was traded on the
Nasdaq National Market under the symbol TELR. Since that date, the Company's
Common Stock has been traded on the Nasdaq SmallCap Market under the symbol
OHRI. The following table sets forth the high and low bid quotations for the
Company's Common Stock (which have been retroactively adjusted for the one-
for-ten reverse stock split effective November 15, 1995) as reported by Nasdaq
during the periods shown below.
HIGH LOW
---- ----
Quarter ended March 31, 1995............................. $17 1/2 $ 7 1/2
Quarter ended June 30, 1995.............................. 23 1/8 12 1/2
Quarter ended September 30, 1995......................... 20 5/8 5
Quarter ended December 31, 1995.......................... 8 1/2 2 1/2
Quarter ended March 31, 1996............................. 6 5/8 3 1/2
Quarter ended June 30, 1996.............................. 5 1/2 3 1/8
Quarter ended September 30, 1996......................... 5 1/2 3 1/8
Quarter ended December 31, 1996.......................... 6 7/8 4
The foregoing represent inter-dealer prices, without retail mark-up, mark-
down or commission and may not necessarily represent actual transactions. As
of February 28, 1997, there were approximately 60 holders of record of the
Company's Common Stock.
The Company has never paid any cash dividends on its Common Stock. The
Company currently intends to retain earnings, if any, for use in its business
and does not anticipate paying any cash dividends in the foreseeable future.
The payment of future dividends will be at the discretion of the Board of
Directors of the Company and will depend, among other things, upon the
Company's earnings, capital requirements and financial condition. In addition,
the consent of holders of the members of the Board of Directors nominated
solely by the holders of Series A Convertible Preferred Stock is required
before any dividends (other than dividends payable in Common Stock) may be
declared and paid upon or set aside for the Common Stock of the Company in any
year.
The transfer agent and registrar for the Company's Common Stock is Boston
EquiServe, L.P.
During the fiscal year ended December 31, 1996, the Company sold the
following securities without registration under the Securities Act of 1933, as
amended (the "Securities Act"):
(i) On June 6, 1996, the Company issued 681,415 shares of its Common
Stock to stockholders of OH+R in connection with the Merger in reliance
upon the exemption from the registration requirements of the Securities Act
by Section 3(b) of the Securities Act and Rule 505 of Regulation D
promulgated thereunder.
(ii) On January 6, 1997, the Company issued 100,502 shares of its Common
Stock, valued at a price of $4.975 per share, to Argosy Health, L.P. in
connection with the purchase by the Company of certain assets of Argosy
Health, L.P. on September 11, 1996 and in reliance upon the exemption from
registration requirements of the Securities Act by Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated thereunder.
(iii) On November 6, 1996, the Company issued 1,416,667 shares of its
Series A Convertible Preferred Stock, for a purchase price of $6.00 per
share, to certain venture capital funds in reliance upon the exemption from
the registration requirements of the Securities Act by Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated thereunder.
14
In claiming the exemptions under Sections 3(b) and 4(2), the Company relied
in part on the following facts: (1) each of the purchasers represented that
such purchaser (a) had the requisite knowledge and experience in financial and
business matters to evaluate the merits and risk of an investment in the
Company; (b) was able to bear the economic risk of an investment in the
Company; (c) had access to or was furnished with the kinds of information that
registration under the Securities Act would have provided; (d) acquired the
shares for the purchaser's own account in a transaction not involving any
general solicitation or general advertising, and not with a view to the
distribution thereof; and (2) a restrictive legend was placed on each
certificate or other instrument evidencing the shares.
15
ITEM 6. SELECTED FINANCIAL DATA
The consolidated statement of operations data set forth below with respect
to the years ended December 31, 1996, 1995, and 1994 and the consolidated
balance sheet data as of December 31, 1996 and 1995 are derived from, and are
qualified by reference to, the audited Consolidated Financial Statements
included elsewhere in this report and should be read in conjunction with those
financial statements and notes thereto. The consolidated financial statement
of operations data for the year ended December 31, 1993 and the six months
ended December 31, 1992 and the consolidated financial balance sheet data at
December 31, 1994, 1993 and 1992 are derived from financial statements not
included herein. Due to the "reverse acquisition" accounting treatment of the
Merger, the data for periods prior to the Merger represent the financial
results of OH+R rather than Telor. Historical results should not be taken as
necessarily indicative of the results that may be expected for any future
period.
SIX MONTH
ENDED
YEAR ENDED DECEMBER 31 DECEMBER 31,
--------------------------------------------------- ------------
1996 1995 1994 1993 1992
------------ ----------- ----------- ----------- ------------
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net patient service rev-
enue................... $ 9,041,199 $ 5,798,037 $ 2,570,636 $ 1,618,242 $ 805,522
Management fee income... 187,339 189,323 108,580 88,655 0
Other income............ 0 36,587 13,146 30,942 11,322
------------ ----------- ----------- ----------- ----------
Total revenue........... 9,228,538 6,023,947 2,692,362 1,737,839 816,844
Operating and
administrative
expenses............... (10,820,308) (7,697,903) (3,865,263) (3,043,429) (824,375)
Depreciation and amorti-
zation................. (449,170) (365,486) (222,274) (219,616) (97,826)
Interest expense........ (252,054) (96,746) (53,408) (55,822) (23,139)
Interest income......... 135,192 37,566 38,154 43,109 19,895
Minority interest in net
loss of subsidiary..... 308,215 322,211 0 0 0
------------ ----------- ----------- ----------- ----------
Loss before income tax-
es..................... (1,849,587) (1,776,411) (1,410,429) (1,537,919) (108,601)
Deferred income tax ben-
efit................... 32,860 43,440
------------ ----------- ----------- ----------- ----------
Net loss available to
common stock........... $ (1,849,587) $(1,776,411) $(1,410,429) $(1,505,059) $ (65,161)
============ =========== =========== =========== ==========
Net loss per share...... $ (1.64) $ (2.69) $ (2.68) $ (3.73) $ (.20)
============ =========== =========== =========== ==========
Weighted-average common
shares and common share
equivalents
outstanding............ 1,129,611 661,306 526,685 403,164 318,853
DECEMBER 31
-----------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ----------- ----------- ----------- ------------
CONSOLIDATED BALANCE
SHEET DATA:
Working capital......... $ 8,845,989 $ (340,046) $ 1,216,852 $ 1,574,668 $1,320,664
Total assets............ 15,476,137 4,249,262 3,504,957 3,576,257 2,821,373
Long-term debt less,
current portion........ 745,328 1,160,553 670,313 721,105 626,242
Redeemable Convertible
Preferred Stock........ 8,423,003 7,179,221 6,018,545 4,391,668 2,100,000
Stockholders' equity
(deficit).............. 3,415,343 (6,187,405) (3,850,989) (2,020,447) (181,244)
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is the surviving corporation of the Merger of OH+R into Telor.
Pursuant to the Merger, the ophthalmic pharmaceutical business of Telor
ceased, and the business of the surviving corporation was changed to the
business of OH+R.
The Company is a physician practice management company specializing in
occupational health care. The Company develops and operates multidisciplinary
outpatient healthcare centers and provides on-site services to employers for
the prevention, treatment and management of work-related injuries and
illnesses. The Company operates the centers under management and submanagement
agreements with Medical Providers that practice exclusively through such
centers.
The Company's operations have been funded primarily through venture capital
investments and the Merger. The Company's growth has resulted predominantly
from the formation of joint ventures, acquisitions and development of
businesses principally engaged in occupational health care.
The following table sets forth, for the periods indicated, the relative
percentages which certain items in the Company's consolidated statements of
operations bear to total revenue. The following information should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this report. Historical results and percentage
relationships are not necessarily indicative of the results that may be
expected for any future period.
YEAR ENDED DECEMBER 31
---------------------------
1996 1995 1994
------- ------- -------
Total revenue.............................. 100.0 % 100.0 % 100.0 %
Operating and administrative expenses...... (117.2) (127.8) (143.6)
Depreciation and amortization.............. (4.9) (6.0) (8.2)
Interest expense........................... (2.7) (1.6) (2.0)
Interest income............................ 1.5 0.6 1.4
Minority interest in net loss of subsidi-
ary....................................... 3.3 5.3 --
Loss before income taxes................... (20.0) (29.5) (52.4)
Income taxes............................... 0.0 0.0 0.0
Net loss................................... (20.0)% (29.5)% (52.4)%
======= ======= =======
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994.
Revenue
During 1996, the Company devoted significant time and resources to the
Merger and to raising capital. Notwithstanding these efforts, total revenue
increased 53.2% to approximately $9,229,000 in 1996 from $6,024,000 in 1995.
Total revenue increased 123.8% from 2,692,000 in 1994. Net patient service
revenue, which represents the most significant component of total revenue,
increased 55.9% to approximately $9,041,000 in 1996 from $5,798,000 in 1995.
Net patient service revenue increased 125.5% from $2,571,000 in 1994. Of the
increase in net patient service revenue from 1995 to 1996, $1,191,000 resulted
from practices acquired and developed in 1996; $710,000 (21.9%) resulted in
increased business in the Company's already existing markets and $1,342,000
resulted from three practices acquired/developed in 1995. Of the increase in
net patient service revenue in 1995, $1,775,000 resulted from practices
acquired during 1995, $293,000 (9.1%) resulted in increased business in the
Company's already existing markets and $1,159,000 resulted from two practices
acquired/developed in 1994.
17
Operating and Administrative Expenses
Operating expenses increased 40.6% to $10,820,000 from $7,698,000 in 1995.
Operating expenses in 1995 increased 99.2% from $3,865,000 in 1994. These
increases were principally due to the acquisition and development of
additional practices. As a percentage of total net revenues, these costs were
117.1%, 127.8% and 143.6% in 1996, 1995, and 1994, respectively. The Company
believes that as additional acquisitions are completed further leveraging of
existing management will occur and, as a result, operating and administrative
expenses will further decline as a percentage of total revenue.
Depreciation and Amortization
Depreciation and amortization expense increased 23.0% to $449,000 in 1996
from $365,000 in 1995 and 64.4% from $222,000 in 1994. These increases are as
a result of the Company's growth through center acquisitions and development.
As a percentage of revenue, depreciation and amortization decreased to 4.9% in
1996 from 6.0% in 1995 and from 8.2% in 1994.
Interest Expense
Interest expense increased 159.8% to $252,000 in 1996 from $97,000 in 1995
and 83.0% from $53,000 in 1994. These increases were due to the incurrence of
certain debt as consideration for several acquisitions. Additionally, in June
1995, the Company sold certain accounts receivable to provide operating cash
and to pay down certain term loans and notes payable. As a percentage of total
revenues, interest expense was 2.7% in 1996, 1.6% in 1995, and 2.0% in 1994.
Interest Income
Interest income is generated primarily from cash invested in highly liquid
funds with a maturity of three months or less. Interest income increased
255.3% to approximately $135,000 in 1996 from $38,000 in 1995. Interest income
remained unchanged in 1995 from $38,000 in 1994. The increase in 1996 was
related to additional funds received by the Company as a result of the Merger
and the sale of preferred stock through a private placement.
Minority Interest
Minority interest represents the share of profits and losses of certain
investors in certain joint ventures with the Company. For the year ended
December 31, 1996, the minority interest in net profits/losses of subsidiaries
decreased by 4.3% to approximately $308,000 from approximately $322,000 in
1995. The Company had no ownership interest in any joint ventures during 1994.
SEASONALITY
The Company is subject to the natural seasonal swing that impacts the
various employers and employees it services. Although the Company hopes that
as it continues its growth and development efforts it may be able to
anticipate the effect of these swings and provide services aimed to ameliorate
this impact, there can be no assurance that it can completely alleviate the
effects of seasonality. Historically, the Company has noticed these impacts in
portions of the first and fourth quarters. Traditionally, net revenues are
lower during these periods since patient visits decrease due to the occurrence
of plant closings, vacations, holidays, a reduction in new employee hirings
and the impact of severe weather conditions in the Northeast. These activities
also cause a decrease in drug and alcohol testings, medical monitoring
services and pre-hire examinations. The Company has also noticed similar
impacts during the summer months, but typically to a lesser degree than during
the first and fourth quarters.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, OH+R's funding requirements have been met through a
combination of issuances of capital stock, long-term debt and other
commitments, the utilization of capital leases and loans to finance equipment
18
purchases, the sale of certain accounts receivable and the sale of a minority
interest in NEB Occupational Health. Net proceeds from the sale of capital
stock have totalled approximately $14 million, including the Company's private
placement of its Series A Convertible Preferred Stock on November 6, 1996. The
proceeds from the sale of this preferred stock provided the Company with cash
proceeds of approximately $8.4 million, net of expenses. The Company intends
to use the funds in its expansion effort and for working capital. During 1996
and 1995, the Company received approximately $3.8 million and $1.8 million,
respectively, from the sale of certain accounts receivable. At December 31,
1996, the Company had $8.8 million in working capital, an increase of $9.2
million from December 31, 1995. The Company's principal sources of liquidity
as of December 31, 1996 consisted of (i) cash and cash equivalents aggregating
$8.6 million and (ii) accounts receivable of $1.5 million.
Net cash used in operating activities by the Company during 1996 was
approximately $2,700,000 as compared to approximately $795,000 for 1995 and
$1,232,000 in 1994. The principal use of cash was to fund the Company's
operations for centers in early stages of development, to provide working
capital to centers acquired and, in 1996, to fund certain expenses related to
the Merger. These operating losses were offset by non-cash expenses, such as
depreciation and amortization and by fluctuations in working capital during
those periods. Working capital fluctuations have been primarily from increases
in accounts receivable and other current assets offset by increases in
accounts payable and accrued expenses.
The Company's investing activities for 1996 included the Merger, pursuant to
which the Company received approximately $4.5 million of cash. During 1996,
the Company also invested approximately $892,000 in cash for the acquisition
of an ambulatory care facility and a rehabilitation business. In the previous
year, the Company also invested approximately $336,000 in cash for the
acquisition of several occupational medicine businesses. In 1994, the Company
invested approximately $41,000 for the purchase of an outpatient medical
center. The Company spent approximately $131,000 for the purchase of equipment
during 1996 as compared to approximately $162,000 in 1995 and $73,000 in 1994.
For the year ended December 31, 1996, cash of $ 8.0 million, net, was
provided by financing activities primarily as a result of sale of preferred
stock through a private placement. Advances of $300,000 under a bank line of
credit and $200,000 in other short-term loans were offset by payments of
existing loans payable, noncompete agreements and capital lease obligations
aggregating approximately $746,000. In 1995, the Company generated
approximately $600,000 from the sale of preferred stock and received $196,000
through a partnership contribution. The net uses of cash in 1995 were
primarily the pay down of certain bank loans and capital lease obligations
totaling approximately $342,000. In 1994, cash of $911,000 was provided by
financing activities primarily as a result of the sale of preferred stock and
proceeds from a line of credit. In 1994, payments of long-term debt and
capital lease obligations aggregated $164,000.
The Company expects that its principal use of funds in the near future will
be in connection with acquisitions, working capital requirements, debt
repayments and purchases of property and equipment. The Company expects that
the cash received as the result of the Merger, proceeds received upon the sale
of 1,416,667 shares of its Series A Convertible Preferred Stock, and cash
generated from operations, will be adequate to provide working capital
requirements and debt obligations and to finance any necessary capital
expenditures through December 31, 1997. However, the Company believes that the
level of financial resources available to it is an important competitive
factor and may seek additional financing prior to the end of that period. The
Company will consider raising additional capital on an on-going basis as
market factors and its needs suggest, which additional capital may be
necessary to fund acquisitions by the Company. The Company is currently
pursuing obtaining a working capital line of credit. Subject to the
satisfaction of various conditions, prior to May 6, 1997, the Company may sell
additional shares of its Series A Convertible Preferred Stock to the original
purchasers thereof for gross proceeds to the Company of $1,500,000.
19
INFLATION
The Company does not believe that inflation had a significant impact on its
results of operations during the last three years. Further, inflation is not
expected to adversely affect the Company in the future unless it increases
substantially, and the Company is unable to pass through the increases in its
billings and collections.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The auditors' reports, consolidated financial statements and financial
statement schedules that are listed in the Index to Consolidated Financial
Statements and Financial Statement Schedules on page F-1 hereof are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by this Item has been previously reported by the
Company in Form 8-K dated September 24, 1996.
20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company are as follows:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
John C. Garbarino....... 44 President, Chief Executive Officer and Director
Richard P. Quinlan...... 38 Chief Financial Officer, Treasurer, Secretary and General Counsel
James R. Salandi........ 50 Senior Vice President, Corporate Development
Joseph J. Travia, Jr.... 44 Senior Vice President, Operations
Lynne M. Rosen.......... 35 Vice President and Assistant Secretary
H. Nicholas Kirby....... 48 Vice President, Corporate Development
David R. McLarnon....... 42 Vice President, Operations
Kathryn G. Converse..... 46 Corporate Controller and Assistant Secretary
Edward L. Cahill........ 44 Director
Kevin J. Dougherty...... 50 Director
Angus M. Duthie......... 57 Director
John C. Garbarino, a founder of OH+R, was its President and Chief Executive
Officer since its formation in July 1992 and has been President and Chief
Executive Officer of the Company since the Merger. From February 1991 through
June 1992, Mr. Garbarino served as President and Chief Executive Officer of
Occupational Orthopaedic Systems, Inc., a management company that operated
Occupational Orthopaedic Center, Inc., a company which was the initial
acquisition of OH+R. From 1985 to January 1991, Mr. Garbarino was associated
in various capacities with Foster Management Company ("Foster"), a private
investment company specializing in developing businesses to consolidate
fragmented industries. In his association with Foster, Mr. Garbarino was a
general partner and consultant and held various senior executive positions
(including Chief Executive Officer, Chief Operating Officer and Chief
Financial Officer) in Chartwell Group Ltd., a Foster portfolio company
organized to consolidate through acquisitions the highly fragmented premium
priced segment of the interior furnishings industry. Previously, Mr. Garbarino
participated in the venture capital industry as a founder and general partner
of Fairfield Venture Partners, L.P. and as vice president and treasurer of
Business Development Services, Inc., a venture capital subsidiary of General
Electric Company. Mr. Garbarino is a C.P.A. and previously worked at Ernst &
Whinney (a predecessor to Ernst & Young LLP).
Richard P. Quinlan joined the Company as Chief Financial Officer, Treasurer,
Secretary and General Counsel in November 1996. From December 1991 to October
1996, Mr. Quinlan was Senior Vice President and General Counsel of
AdvantageHEALTH Corporation, a provider of physical rehabilitation services,
subacute services, home health services, and senior living/assisted living
services in the Northeast United States, and now a wholly-owned subsidiary of
HEALTHSOUTH Corporation, a provider of outpatient and rehabilitative
healthcare services. From June 1985 to November 1991, he practiced law with
Nutter, McClennen & Fish in Boston, Massachusetts and served as a partner
during his final two years there.
James R. Salandi joined the Company as Senior Vice President, Corporate
Development in December 1996. From April 1992 to November 1996, Mr. Salandi
was Executive Vice President of Corporate Development at AdvantageHEALTH
Corporation, now a wholly-owned subsidiary of HEALTHSOUTH Corporation. During
that time, AdvantageHEALTH grew from approximately 30 locations in 5 states to
over 150 locations in 10 states. Over the previous 13 years, Mr. Salandi held
similar senior positions with American Medical International and National
Medical Enterprises, Inc., two multi-hospital companies. Mr. Salandi has over
20 years experience in healthcare sales, marketing and corporate development.
21
Joseph J. Travia, Jr. joined OH+R as Senior Vice President, Operations in
March 1996 and has continued in that position since the Merger. From April
1991 to January 1996, Mr. Travia was Senior Vice President, Operations of
Apogee, Inc., a national behavioral health care company. He also served as a
director of Apogee, Inc. from December 1991 to December 1994. From May 1990 to
March 1991, he acted as a consultant to third party administrators, insurance
carriers, and marketers involved in the health care industry. From 1978 to
1990, Mr. Travia was with the Arthur D. Little, Inc. family of companies. He
was President and Chief Executive Officer of Arthur D. Little's national third
party administrator subsidiary from 1984 through 1990, and from 1981 to 1984
was Vice President and Chief Financial Officer of an Arthur D. Little company
which provided services to the health care industry through consulting and the
design, development and implementation of health care systems. Mr. Travia is a
past President and former director of the Insurance Institute and is also a
member of the American Institute of Certified Public Accountants.
Lynne M. Rosen, a founder of OH+R, was its Vice President since its
formation in July 1992 and has been Vice President and Assistant Secretary of
the Company since the Merger. From April 1988 through June 1992, Ms. Rosen
held various positions with the Occupational Orthopaedic Center, Inc.,
including general manager. Ms. Rosen was an athletic trainer at the University
of Pennsylvania Sports Medicine Center from 1986 to March 1988 and at the
University of Rhode Island from 1985 to 1986. She has published several papers
and made a number of presentations in the area of orthopedic rehabilitation.
H. Nicholas Kirby, has served as Vice President, Corporate Development of
the Company since June 1996. From August 1994 to June 1996, he was OH+R's
Director of Operations in Maine. Mr. Kirby was a founder and President of LINK
Performance and Recovery Systems, Inc. ("LINK") from January 1986 until the
sale of the company to OH+R in August 1994. LINK was an occupational health
company headquartered in Portland, Maine, which focused on testing and
evaluation of injured and ill workers as well as providing ergonomic and
workers' compensation cost control consulting services.
David R. McLarnon joined the Company as Vice President, Operations in
December 1996. From January 1994 to November 1996, Mr. McLarnon was Corporate
Vice President, Ambulatory Division of AdvantageHEALTH Corporation and was
responsible for outpatient rehabilitation operations in a seven-state region.
Prior to his position with AdvantageHEALTH Corporation, Mr. McLarnon held
positions with The Mediplex Group, pursuant to which he served as an
administrator of outpatient rehabilitation services for the company's
operations in Denver, Colorado as well as provided development and
administrative services for certain of the company's comprehensive outpatient
rehabilitation facilities in Florida. Previously, Mr. McLarnon co-founded and
operated a five center physical therapy practice in the Denver, Colorado area.
Mr. McLarnon has twenty years of orthopedic, sports and industrial
rehabilitation experience.
Kathryn G. Converse joined OH+R as Corporate Controller in July 1992 and has
been Corporate Controller of the Company since the Merger. From 1989 to July
1992, Ms. Converse was Regional Manager of Finance for Medical West Community
Health Center, Inc. ("Medical West"), a health maintenance organization
wholly-owned by Blue Cross and Blue Shield of Massachusetts, Inc. She was a
Site Financial Manager for a Medical West staff model health center from 1986
to 1989. From 1979 to 1986, Ms. Converse was in public accounting.
Edward L. Cahill has served as a director of the Company since November
1996. Mr. Cahill is a founding partner of Cahill, Warnock & Company, LLC
("Cahill, Warnock"), an asset management firm established to invest in small
public companies. Prior to founding Cahill, Warnock in July 1995, Mr. Cahill
had been a Managing Director at Alex Brown & Sons where, from 1986 through
1995, he headed the firm's Health Care Investment Banking Group. Mr. Cahill is
also a director of GENEMEDICINE, INC., Prism Health Group, Inc. and The
Maryland Bioprocessing Center and a trustee of St. John's Preparatory School.
Kevin J. Dougherty served as a director of OH+R since July 1993 and has been
a director of the Company since the Merger. Mr. Dougherty is currently a
General Partner of The Venture Capital Fund of New England, a venture capital
firm he joined in April 1986. Previously, he participated in the venture
capital industry as Vice President of 3i Capital Corporation from 1985 to
1986, and as Vice President of Massachusetts Capital Resource
22
Company from 1981 to 1985. Prior to that, Mr. Dougherty served as a commercial
banker at Bankers Trust Company and the First National Bank of Boston. He
currently serves on the board of directors of two private companies, Sierra
Research & Technology, Inc. and High Road, Inc.
Angus M. Duthie served as a director of OH+R since June 1992 and has been a
director of the Company since the Merger. Mr. Duthie is currently a General
Partner of Prince Ventures, L.P., a venture capital firm he co-founded in
1978. Mr. Duthie has over 28 years of experience involving portfolio
management. He currently serves on the board of directors of KENETECH, Inc.
All directors are elected to a three year term or until their successors
have been duly elected and qualified. The terms of Angus M. Duthie and John C.
Garbarino expired in 1996, but both persons continue to serve as directors
until their successors are duly elected and qualified. The term of Edward L.
Cahill expires at the 1997 Annual Meeting of Stockholders and the term of
Kevin J. Dougherty expires at 1998 Annual Meeting of Stockholders.
Pursuant to the terms of the Series A Convertible Preferred Stock contained
in the Company's Restated Certificate of Incorporation, as amended, the
holders of the Series A Convertible Preferred Stock, voting as a single class,
are entitled to elect two directors of the Company. Mr. Cahill currently
serves as one of those two directors, with the other directorship vacant.
Pursuant to the terms of a Stockholders' Agreement (the "Stockholders'
Agreement") dated as of November 6, 1996 by and among the Company and certain
of the Company's stockholders, such stockholders have agreed to vote all of
their shares of Preferred Stock and Common Stock to elect certain nominees to
the Company's Board of Directors. The Stockholders' Agreement provides that
such nominees are to be determined as follows: (a) the Chief Executive Officer
of the Company (presently, John C. Garbarino); (b) a person designated by the
Telor Principal Stockholders, as defined in the Stockholders' Agreement
(presently, Angus M. Duthie); (c) a person designated by the OH+R Principal
Stockholders, as defined in the Stockholders' Agreement (presently, Kevin J.
Dougherty); (d) two persons designated by Cahill, Warnock Strategic Partners
Fund, L.P. (presently, Edward L. Cahill); and (e) two persons unaffiliated
with the management of the Company and mutually agreeable to all of the other
directors.
Executive officers serve at the discretion of the Company's Board of
Directors. There are no family relationships among the executive officers and
directors nor are there any arrangements or understandings between any
executive officer and any other person pursuant to which the executive officer
was selected.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors and persons who beneficially
own more than ten percent of the Company's Common Stock to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission. Based solely on reports and other information submitted by the
executive officers, directors and such beneficial owners, the Company believes
that during the fiscal year ended December 31, 1996, all such reports were
timely filed except (a) a Form 5 was filed late with respect to grants by the
Company of stock options in October 1996 or in connection with a person's date
of hire or appointment to the Board of Directors of the Company pursuant to
the Company's 1993 and 1996 Stock Plans for those executive officers listed in
Item 10 and Angus Duthie and Edward Cahill, and (b) a Form 3, Form 4 or Form 5
was filed late with respect to the purchase of shares of the Company's Series
A Convertible Preferred Stock in a private placement in November 1996 for
BancBoston Ventures, Inc., Asset Management Associates 1989, L.P., The Venture
Capital Fund of New England III, L.P., the Venrock Entities, the Partech
International Entities and Kevin Dougherty (who disclaimed beneficial
ownership of such shares).
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth certain information regarding the
compensation paid by the Company to John C. Garbarino, the Company's Chief
Executive Officer, for services rendered in all capacities to the Company
23
and its subsidiaries for the fiscal year ended December 31, 1996. No other
executive officer of the Company received cash compensation in fiscal 1996
that exceeded $100,000.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION
- --------------------------- ---- ---------- --------- ------------ ------------
John C. Garbarino.......... 1996 $174,088 $25,000 128,319 $3,670(1)
President, Chief Executive
Officer and Director 1995 $152,191 -- -- $3,305
1994 $152,191 -- -- $3,245
- --------
(1) Includes $312 for premiums paid for a life insurance policy of which the
Company is not the beneficiary and $3,358 for the Company's contribution
under the Company's 401(k) plan.
OPTION GRANTS
The following table sets forth information with respect to stock options
granted to Mr. Garbarino during the fiscal year ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
------------------------------------------ ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (1)
OPTIONS EMPLOYEES PRICE EXPIRATION --------------------
NAME GRANTED (#) IN 1996 ($/SH) DATE 5% ($) 10% ($)
---- ----------- ---------- -------- ---------- --------- ----------
John C. Garbarino....... 28,319(2) 7.7% $3.53 01/23/06 $ 62,868 $ 159,286
100,000(3) 27.3% $6.00 11/06/06 $ 377,337 $ 956,246
- --------
(1) The dollar amounts under these columns are the result of calculations
assuming 5% and 10% growth rates as set by the Securities and Exchange
Commission and, therefore, are not intended to forecast future price
appreciation, if any, of the Company's Common Stock.
(2) 50% vested immediately prior to the consummation of the Merger, 25% vests
on the first anniversary date of the Merger and 25% vests on the second
anniversary date of the Merger.
(3) Options granted vest ratably over four (4) years on each of the first four
anniversary dates of the grant date.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information concerning option holdings as of
December 31, 1996 with respect to John C. Garbarino.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE MONEY OPTIONS
ACQUIRED OPTIONS AT FY-END (#) AT FY-END ($) (1)
ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
John C. Garbarino....... -- -- 33,826 120,714 $147,760 $168,325
- --------
(1) Based on the fair market value of the Company's Common Stock as of
December 31, 1996 ($6.875) minus the exercise price of the options.
24
EMPLOYMENT AGREEMENTS
John C. Garbarino has an employment agreement with the Company dated June 6,
1996. The term of the agreement is two years from such date and renews
automatically for successive one-year periods until terminated. The agreement
provides for an annual salary of $180,000, subject to increase on an annual
basis in the discretion of the Board of Directors, and bonus as may be
determined by the Compensation Committee of the Board of Directors. Mr.
Garbarino is subject to a covenant not to compete with the Company for six
months after the termination of his employment. If the Company terminates the
agreement without "cause" (as defined in the agreement), or if Mr. Garbarino
becomes incapacitated, or if Mr. Garbarino resigns from the Company for "just
cause" (as defined in the agreement), then the Company shall be obligated to
pay to Mr. Garbarino six months' base salary in consideration of his covenant
not to compete.
DIRECTOR COMPENSATION
The Company's directors do not receive any cash compensation for service on
the Board of Directors or any committee thereof, but are reimbursed for
expenses actually incurred in connection with attending meetings of the Board
of Directors and any committee thereof. Pursuant to the Company's 1993 Stock
Plan, each director who is not an employee of the Company is granted a non-
qualified stock option on the date of his or her election to purchase 1,200
shares of the Company's Common Stock. The exercise price for each such option
is the fair market value of the Company's Common Stock on the date of grant.
Such options vest ratably over three years on each of the first three
anniversary dates of the grant date and are exercisable for a period of ten
years.
25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 28, 1997 by (i) each
person known by the Company to own beneficially more than five percent of the
Common Stock of the Company, (ii) each director of the Company, (iii) the
Company's Chief Executive Officer and (iv) all directors and executive
officers of the Company as a group. Except as otherwise indicated, all shares
are owned directly. Except as indicated by footnote, and subject to community
property laws where applicable, the Company believes that the persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock indicated.
SHARES
BENEFICIALL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (14) PERCENT OF CLASS
- ------------------------------------ ----------- ----------------
Cahill, Warnock Strategic Partners Fund, L.P. (1)...... 679,042 30.2%
10 North Calvert Street, Suite 735
Baltimore, MD 21202
Prince Venture Partners III, L.P. (2).................. 400,045 25.4%
10 South Wacker Drive
Chicago, IL 60606
Partech International Entities (3)..................... 283,333 15.3%
50 California Street, Suite 3200
San Francisco, CA 94111
Venrock Entities (4)................................... 246,784 14.2%
30 Rockefeller Plaza, Room 5508
New York, NY 10112
BancBoston Ventures, Inc. (5).......................... 215,636 12.9%
100 Federal Street
Boston, MA 02110
The Venture Capital Fund of New England III, L.P. (6).. 182,303 11.1%
160 Federal Street, 23rd Floor
Boston, MA 02110
Asset Management Associates 1989, L.P. (7)............. 173,685 10.5%
2275 East Bayshore Road
Palo Alto, CA 94303
John C. Garbarino (8).................................. 92,562 5.8%
175 Derby Street, Suite 36
Hingham, MA 02043
Einar Paul Robsham (9)................................. 78,419 5.0%
P.O. Box 5151
Cochituate, MA 01778
Kevin J. Dougherty (10)................................ -- *
160 Federal Street, 23rd Floor
Boston, MA 02110
Angus M. Duthie (11)................................... -- *
10 South Wacker Drive
Chicago, IL 60606
Edward L. Cahill (12).................................. -- *
10 North Calvert Street, Suite 735
Baltimore, MD 21202
All directors and executive officers a group........... 125,796 8.0%
(11 persons) (13)
- --------
* Less than 1%
26
(1) Consists of 679,042 shares of Common Stock issuable upon conversion of
shares of the Company's Series A Convertible Preferred Stock (the
"Preferred Stock"). Edward L. Cahill, a director of the Company, is a
General Partner of Cahill, Warnock Strategic Partners, L.P., the General
Partner of Cahill, Warnock Strategic Partners Fund, L.P. David L. Warnock
is also a General Partner of Cahill, Warnock Strategic Partners, L.P. The
General Partners of Cahill, Warnock Strategic Partners, L.P. share voting
and investment power with respect to the shares held by Cahill, Warnock
Strategic Partners Fund, L.P. and may be deemed to be the beneficial
owners of such shares. Each of the General Partners of Cahill, Warnock
Strategic Partners, L.P. disclaims beneficial ownership of the shares
held by Cahill, Warnock Strategic Partners Fund, L.P.
(2) Angus M. Duthie, a director of the Company, is a General Partner of
Prince Ventures, L.P., the General Partner of Prince Venture Partners
III, L.P. James W. Fordyce, Mark J. Gabrielson and Gregory F. Zaic are
also General Partners of Prince Ventures, L.P. The General Partners of
Prince Ventures, L.P. share voting and investment power with respect to
the shares held by Prince Venture Partners III, L.P. and may be deemed to
be the beneficial owners of such shares. Each of the General Partners of
Prince Ventures, L.P. disclaims beneficial ownership of the shares held
by Prince Venture Partners III, L.P.
(3) Consists of 86,667 shares of Common Stock issuable upon conversion of
shares of Preferred Stock held by Axa U.S. Growth Fund, LLC, 173,334
shares of Common Stock issuable upon conversion of shares of Preferred
Stock held by U.S. Growth Fund Partners, C.V., 16,667 shares of Common
Stock issuable upon conversion of shares of Preferred Stock held by
Double Black Diamond II, LLC and 6,665 shares of Common Stock issuable
upon conversion of shares of Preferred Stock held by Almanori Limited.
(4) Consists of 55,316 shares of Common Stock and 66,667 shares of Common
Stock issuable upon conversion of shares of Preferred Stock held by
Venrock Associates and 24,801 shares of Common Stock and 100,000 shares
of Common Stock issuable upon conversion of shares of Preferred Stock
held by Venrock Associates II, L.P. Patrick F. Latterell, Peter O. Crisp,
Ted H. McCourtney, Anthony B. Evnin, David R. Hathaway, Anthony Sun,
Kimberley A. Rummelsberg and Raymond Rothrock are General Partners of
Venrock Associates and of Venrock Associates II, L.P. The General
Partners of Venrock Associates and of Venrock Associates II, L.P. share
voting and investment power with respect to the shares held by Venrock
Associates and by Venrock Associates II, L.P. and may be deemed to be the
beneficial owners of such shares. Each of the General Partners of Venrock
Associates and Venrock Associates II, L.P. disclaims beneficial ownership
of the shares held by Venrock Associates and Venrock Associates II, L.P.
(5) Includes 100,000 shares of Common Stock issuable upon conversion of
shares of Preferred Stock.
(6) Includes 66,667 shares of Common Stock issuable upon conversion of shares
of Preferred Stock. Kevin J. Dougherty, a director of the Company, is a
General Partner of FH&Co. III, L.P., the General Partner of The Venture
Capital Fund of New England III, L.P. Richard A. Farrell, Harry J.
Healer, Jr. and William C. Mills III are also General Partners of FH&Co.
III, L.P. The General Partners of FH&Co. III, L.P. share voting and
investment power with respect to the shares held by The Venture Capital
Fund of New England III, L.P. and may be deemed to be the beneficial
owners of such shares. Each of the General Partners of FH&Co. III, L.P.
disclaims beneficial ownership of the shares held by The Venture Capital
Fund of New England III, L.P.
(7) Includes 83,333 shares of Common Stock issuable upon conversion of shares
of Preferred Stock. Craig C. Taylor, Franklin P. Johnson Jr., John F.
Shoch and W. Ferrell Sanders are General Partners of AMC Partners 89,
L.P., the General Partner of Asset Management Associates 1989, L.P. The
General Partners of AMC Partners 89, L.P. share and investment voting
power with respect to the shares held by Asset Management Associates
1989, L.P. and may be deemed to be the beneficial owners of such shares.
Each of the General Partners of AMC Partners 89, L.P. disclaims
beneficial ownership of the shares held by Asset Management Associates
1989, L.P.
(8) Includes 33,826 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of February 28, 1997.
(9) The shares shown as beneficially owned by Mr. Robsham were those reported
as beneficially owned by him in a Schedule 13D filed with the SEC dated
January 11, 1996.
27
(10) Mr. Dougherty disclaims any beneficial ownership in the shares held by
The Venture Capital Fund of New England III, L.P. See Note 6.
(11) Mr. Duthie disclaims any beneficial ownership in the shares held by
Prince Venture Partners III, L.P. See Note 2.
(12) Does not include 679,042 shares of Common Stock issuable upon conversion
of shares of Preferred Stock held by Cahill, Warnock Strategic Partners
Fund, L.P. (see Note 1) and 37,625 shares of Common Stock issuable upon
conversion of shares of Preferred Stock held by Strategic Associates,
L.P. Mr. Cahill is a Member of Cahill Warnock & Company, LLC, the General
Partner of Strategic Associates, L.P. Mr. Cahill disclaims any beneficial
ownership of the shares held by Cahill, Warnock Strategies Partners Fund,
L.P. and Strategic Associates, L.P.
(13) Includes an aggregate of 50,279 shares of Common Stock issuable upon the
exercise of options that are exercisable within 60 days of February 28,
1997. Does not include an aggregate of 466,712 shares of Common Stock and
an aggregate of 794,678 shares of Common Stock issuable upon conversion
of shares of Preferred Stock with respect to which certain directors
disclaim beneficial ownership. See Notes 1, 2, 6, 10, 11 and 12.
(14) Each of the stockholders who is a party to the Stockholders' Agreement
described in Item 10 may be deemed to share voting power with respect to,
and may be deemed to beneficially own, all of the shares of the Company's
Preferred Stock and Common Stock subject to the Stockholders' Agreement.
ITEM L3. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To provide working capital to OH+R prior to the Merger, Prince Ventures III,
Limited Partnership ("Prince III") extended a line of credit to OH+R in the
amount of $350,000. Angus M. Duthie, a director of the Company, is a general
partner of Prince Ventures, L.P., the general partner of Prince III. OH+R
borrowed $200,000 under the line of credit, which the Company repaid promptly
after the Merger.
28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements and Schedules
The auditors' report, consolidated financial statements and financial
statement schedules listed in the Index to Consolidated Financial Statements
and Financial Statement Schedules on page F-1 hereof are filed as part of this
report, commencing on page F-2 hereof.
(a)(3) Exhibits
2.01(a) Agreement and Plan of Merger by and between the Company and
Occupational Health + Rehabilitation Inc dated as of February 22,
1996 (Filed as Exhibit 10.50 to Form 10-K for the year ended December
31, 1995, File No. 0-21428, and incorporated by reference herein).
(b) Amendment No. 1 to the Agreement and Plan of Merger, dated as of
April 30, 1996 (Filed as Exhibit 2.1(b) to Form 8-K/A dated June 6,
1996, File No. 0-21428, and incorporated by reference herein).
(c) Amendment No. 2 to the Agreement and Plan of Merger, dated as of May
10, 1996 (Filed as Exhibit 2.1(c) to Form 8-K/A dated June 6, 1996,
File No. 0-21428, and incorporated by reference herein).
2.02 Asset Purchase Agreement by and between Argosy Health, L.P. and the
Company dated as of September 11, 1996 (Filed as Exhibit 2.01 to Form
8-K dated as of September 11, 1996, File No. 0-21428, and
incorporated by reference herein).
3.01(a) Restated Certificate of Incorporation (Filed as Exhibit 4.1 to Form
8-K/A dated June 6, 1996, File No. 0-21428, and incorporated by
reference herein).
(b) Certificate of Designations (Filed as Exhibit 4.1 to Form 8-K dated
November 6, 1996, File No. 0-21428, and incorporated by reference
herein).
3.02 Restated Bylaws, as amended.*
4.01 Form of Common Stock Certificate (Filed as Exhibit 4.01 to Form 10-Q
dated June 30, 1996, File No. 0-21428, and incorporated by reference
herein).
4.02 Form of Series A Convertible Preferred Stock Certificate (Filed as
Exhibit 4.2 to Form 8-K dated November 6, 1996, File No. 0-21428, and
incorporated by reference herein).
10.01 Form of Common Stock Purchase Warrant to purchase 4,195 shares of the
Company's Common Stock, held by each of Stephan Deutsch, Mark DeNino,
Mehrdad Motamed, Ira Singer and Steven Blazar.*
10.02 Termination Agreement among the Company and certain securityholders
dated as of June 1, 1996.*
10.03 Employment Agreement by and between the Company and John C. Garbarino
dated as of June 6, 1996 (Filed as Exhibit 10.02 to Form 10-Q dated
June 30, 1996, File No. 0-21428, and incorporated by reference
herein).
10.04(a) Registration Rights Agreement among the Company and certain
securityholders dated as of June 6, 1996 (Filed as Exhibit 10.01 to
Form 10-Q dated June 30, 1996, File No. 0-21428, and incorporated by
reference herein).
(b) Amendment No. 1 to Registration Rights Agreement among the Company
and certain securityholders dated as of November 6, 1996.*
29
10.05(a) Registration Rights Agreement between the Company and Argosy Health,
L.P. dated as of September 11, 1996.*
(b) Amendment No. 1 to Registration Rights Agreement between the Company
and Argosy Health, L.P. dated as of November 6, 1996.*
10.06(a) Series A Convertible Preferred Stock Purchase Agreement among the
Company and certain securityholders dated as of November 6, 1996.*
(b) Stockholders' Agreement among the Company and securityholders of
Series A Convertible Preferred Stock dated as of November 6, 1996.*
(c) Registration Rights Agreement between the Company and securityholders
of Series A Convertible Preferred Stock dated as of November 6,
1996.*
11.01 Statement re Computation of Per Share Earnings.*
21.01 Subsidiaries of the Company.*
23.01 Consent of Ernst & Young LLP.*
27.01 Financial Data Schedule.*
- --------
*Filed herewith.
The Company agrees to furnish to the Commission a copy of any instrument
evidencing long-term debt, which is not otherwise required to be filed.
(b) Reports on Form 8-K
On November 20, 1996, the Company filed a Current Report on Form 8-K dated
November 6, 1996, reporting in Item 5 thereof the sale of 1,416,667 shares of
Series A Convertible Preferred Stock in a private placement at a purchase
price of $6.00 per share.
30
OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
CONTENTS
Report of Independent Auditors............................................ F-2
Consolidated Financial Statements.........................................
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) and Redeemable
Stock.................................................................... F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
F-1
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Occupational Health + Rehabilitation Inc
We have audited the accompanying consolidated balance sheets of Occupational
Health + Rehabilitation Inc and subsidiaries (the Company) as of December 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity (deficit) and redeemable stock, and cash flows for each
of the three years in the period ended December 31, 1996. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Occupational Health + Rehabilitation Inc and subsidiaries at December 31,
1996 and 1995, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
March 26, 1997
Boston, Massachusetts
F-2
OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
------------------------
1996 1995
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents:
Unrestricted..................................... $ 8,615,731 $ 368,959
Restricted....................................... 345,320
Accounts receivable, less allowance for doubtful
accounts of $78,136 and $75,155 in 1996 and 1995,
respectively...................................... 1,702,415 352,931
Prepaid expenses................................... 398,567 103,406
Due from related party............................. 226,328 680,445
Other assets....................................... 12,401 50,000
----------- -----------
Total current assets........................... 11,300,762 1,555,741
Property and equipment, net.......................... 1,119,338 1,058,311
Excess cost of net assets acquired, net.............. 2,849,158 1,226,186
Noncompetition agreements, net....................... 71,880 198,310
Organization costs, net.............................. 63,052 140,683
Deposits............................................. 69,947 40,864
Other assets......................................... 2,000 29,167
----------- -----------
Total assets....................................... $15,476,137 $ 4,249,262
=========== ===========
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses.............. $ 1,315,394 $ 1,001,768
Current portion of obligations under capital
leases............................................ 107,431 99,490
Current maturities of long-term debt............... 425,166 91,667
Current portion of obligations under noncompetition
agreements........................................ 316,938 325,000
Due to related party............................... 289,844 377,862
----------- -----------
Total current liabilities........................ 2,454,773 1,895,787
Long-term debt, less current maturities.............. 686,613 744,779
Obligations under capital leases..................... 58,715 122,621
Obligations under noncompetition agreements.......... 293,153
Obligation to issue common stock..................... 500,000
Other long-term liabilities.......................... 25,320
----------- -----------
Total liabilities.................................... 3,725,421 3,056,340
Minority interest.................................... (87,630) 201,106
Redeemable stock:
Redeemable convertible preferred stock, Series 1,
$.01 par value--1,600,000 shares authorized,
issued and outstanding............................ 2,700,000
Redeemable convertible preferred stock, Series 2,
$.01 par value--3,000,000 shares authorized,
2,537,843 shares issued and outstanding........... 4,479,221
Redeemable convertible preferred stock, Series A,
$.001 par value, $8,500,002 liquidation value,
5,000,000 shares authorized, 1,416,667 shares
issued and outstanding............................ 8,423,003
----------- -----------
Total redeemable stock........................... 8,423,003 7,179,221
Stockholders equity (deficit):
Common stock, $.001 par value--10,000,000 shares
authorized, issued and outstanding 1,471,477
shares in 1996 and 671,855 shares in 1995......... 1,471 6,719
Additional paid-in capital......................... 10,096,149 11,022
Accumulated deficit................................ (6,682,277) (6,205,146)
----------- -----------
Total stockholders equity (deficit).............. 3,415,343 (6,187,405)
----------- -----------
Total liabilities, redeemable stock and
stockholders' equity (deficit).................. $15,476,137 $ 4,249,262
=========== ===========
See accompanying notes.
F-3
OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
--------------------------------------
1996 1995 1994
------------ ----------- -----------
Net patient service revenue........... $ 9,041,199 $ 5,798,037 $ 2,570,636
Management fee income................. 187,339 189,323 108,580
Other income.......................... 36,587 13,146
------------ ----------- -----------
Total revenue......................... 9,228,538 6,023,947 2,692,362
Operating and administrative
expenses............................. (10,820,308) (7,697,903) (3,865,263)
Depreciation and amortization......... (449,170) (365,486) (222,274)
Interest expense...................... (252,054) (96,746) (53,408)
Interest income....................... 135,192 37,566 38,154
Minority interest in net loss of
subsidiary........................... 308,215 322,211
------------ ----------- -----------
Total expenses........................ (11,078,125) (7,800,358) (4,102,791)
------------ ----------- -----------
Net loss.............................. $ (1,849,587) $(1,776,411) $(1,410,429)
============ =========== ===========
Net loss per share.................... $ (1.64) $ (2.69) $ (2.68)
============ =========== ===========
Weighted-average common shares
outstanding.......................... 1,129,611 661,306 526,685
============ =========== ===========
See accompanying notes.
F-4
OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND
REDEEMABLE STOCK
REDEEMABLE REDEEMABLE REDEEMABLE
TOTAL CONVERTIBLE CONVERTIBLE CONVERTIBLE
ADDITIONAL ACCUMU- STOCKHOLDERS' PREFERRED PREFERRED PREFERRED
COMMON STOCK PAID-IN LATED EQUITY STOCK STOCK STOCK
------------------ ----------- ----------- ------------- ----------- ----------- -----------
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT) SERIES 1 SERIES 2 SERIES A
--------- ------- ----------- ----------- ------------- ----------- ----------- -----------
BALANCE AT DECEMBER 31,
1993................... 651,855 $ 6,519 $ 6,222 $(2,033,188) $(2,020,447) $2,300,000 $2,091,668
Issuance of redeemable
preferred stock........ 1,206,764
Dividends on redeemable
preferred stock........ (420,113) (420,113) 200,000 220,113
Net loss................ (1,410,429) (1,410,429)
--------- ------- ----------- ----------- ----------- ---------- ---------- ----------
BALANCE AT DECEMBER 31,
1994................... 651,855 6,519 6,222 (3,863,730) (3,850,989) 2,500,000 3,518,545
Issuance of common
stock.................. 20,000 200 4,800 5,000
Issuance of redeemable
preferred stock........ (4,329) (4,329) 600,000
Dividends on redeemable
preferred stock........ (560,676) (560,676) 200,000 360,676
Net loss................ (1,776,411) (1,776,411)
--------- ------- ----------- ----------- ----------- ---------- ---------- ----------
BALANCE AT DECEMBER 31,
1995................... 671,855 6,719 11,022 (6,205,146) (6,187,405) 2,700,000 4,479,221
Exercise of stock
options................ 6,810 31 8,354 8,385
Exchange of OH+R common
stock for Telor common
shares................. 785,995 786 4,263,943 4,264,729
Waiver of preferred
stock dividend......... 1,372,456 1,372,456 (700,000) (672,456)
Conversion of 4,137,843
shares of OH+R Series 1
and 2 preferred stock.. 585,901 586 5,806,179 5,806,765 (2,000,000) (3,806,765)
Conversion of 674,605
shares of OH+R common
stock.................. (579,084) (6,651) 6,651
Issuance of redeemable
preferred stock (less
issuance costs of
$76,999)............... $8,423,003
Net loss................ (1,849,587) (1,849,587)
--------- ------- ----------- ----------- ----------- ---------- ---------- ----------
BALANCE AT DECEMBER 31,
1996................... 1,471,477 $ 1,471 $10,096,149 $(6,682,277) $ 3,415,343 $ -0- $ -0- $8,423,003
========= ======= =========== =========== =========== ========== ========== ==========
See accompanying notes.
F-5
OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
-------------------------------------
1996 1995 1994
----------- ----------- -----------
OPERATING ACTIVITIES
Net loss............................... $(1,849,587) $(1,776,411) $(1,410,429)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization........ 449,170 365,486 222,274
Amortization of discount............. 23,245 30,667 29,145
Minority interest in loss of
subsidiary.......................... (308,215) (322,211)
Loss on sale of equipment............ 1,800
Changes in operating assets and
liabilities:
Accounts receivable................ (1,325,262) 297,074 (145,251)
Prepaid expenses and other current
assets............................ (47,977) (130,756) (7,688)
Due from related party, net........ 366,099 105,556
Deposits and other noncurrent
assets............................ 398,084 91,464 (10,749)
Accounts payable and accrued
expenses and other long-term
liabilities....................... (401,441) 543,072 90,659
----------- ----------- -----------
Net cash used in operating activities.. (2,695,884) (794,259) (1,232,039)
INVESTING ACTIVITIES
Funding of restricted cash............. (345,320)
Cash paid for intangibles.............. (285,623)
Property and equipment additions....... (130,625) (161,570) (73,266)
Cash received in (paid for)
acquisitions.......................... 3,519,069 (336,278) (41,174)
----------- ----------- -----------
Net cash provided (used) by investing
activities............................ 2,757,501 (497,848) (114,440)
FINANCING ACTIVITIES
Proceeds from sale of preferred stock,
net................................... 8,423,003 595,671 1,000,000
Proceeds from sale of common stock..... 8,385
Proceeds from long-term debt........... 500,000 75,000
Payments of obligations under
noncompetition agreements............. (325,000)
Payments of long-term debt............. (313,590) (240,693) (115,959)
Payments of capital lease obligations.. (107,643) (101,197) (48,409)
Cash received by partnership........... 196,000
----------- ----------- -----------
Net cash provided by financing
activities............................ 8,185,155 449,781 910,632
----------- ----------- -----------
Net increase (decrease) in unrestricted
cash and cash equivalents............. 8,246,772 (842,326) (435,847)
Unrestricted cash and cash equivalents
at beginning of year.................. 368,959 1,211,285 1,647,132
----------- ----------- -----------
Unrestricted cash and cash equivalents
at end of year........................ $ 8,615,731 $ 368,959 $ 1,211,285
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH ITEMS:
--The Company entered into capital lease obligations during 1996, 1995 and
1994 totaling $33,147, $167,854 and $87,872, respectively.
--During 1995 and 1994, the Company accrued dividends in kind to preferred
shareholders of $560,676 and $420,113, respectively.
--In 1994, $206,764 of the acquisition of Link Performance and Recovery
Systems, Inc. was financed through the issuance of 137,842 shares of
Series 2 Preferred Stock.
--In 1995, $5,000 of the acquisition of Family Health Care, P.A. was
financed through the issuance of 20,000 shares of Common Stock as part of
a noncompetition agreement.
--In 1996, $500,000 of the acquisition price of Argosy Health was financed
through the obligation to issue Common Stock. These shares were issued on
January 7, 1997.
See accompanying notes.
F-6
OCCUPATIONAL HEALTH + REHABILITATION INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION
Occupational Health + Rehabilitation Inc (formerly Telor Ophthalmic
Pharmaceuticals, Inc.) (the Company) was organized to develop ophthalmic
pharmaceuticals. In June 1996, Occupational Health + Rehabilitation Inc (OH+R)
merged with and into (the Merger) Telor Ophthalmic Pharmaceuticals, Inc.
(Telor), with Telor being the surviving corporation. In connection with the
Merger, Telor changed its name to Occupational Health + Rehabilitation Inc and
assumed the business of OH+R in exchange for all outstanding shares of OH+R
capital stock, outstanding options held by employees, directors and
consultants and warrants to purchase shares of OH+R common stock (see Note
10). The Merger was accounted for as a "reverse acquisition" whereby OH+R was
deemed to have acquired Telor for financial reporting purposes. Consistent
with the reverse acquisition accounting treatment, historical financial
statements for the Company for periods prior to the date of the Merger are
those of OH+R. Under the purchase method of accounting, balances and results
of operations of Telor will be included in the Company's financial statements
from the date of the Merger forward. Effective June 7, 1996, the Company was
listed on the Nasdaq SmallCap Market under the symbol "OHRI."
The Company is a physician practice management company specializing in
occupational health care in various centers and on-site locations throughout
the Northeastern United States. The Company develops and operates
multidisciplinary, outpatient health care centers and provides on-site
services to employers for the prevention, treatment and management of work-
related injuries and illnesses. The Company operates the centers under
management and submanagement agreements with professional corporations and
licensed satellite clinics that practice exclusively through such centers.
The Company has entered into certain joint ventures to provide management
and related services to the centers established by the joint ventures (see
Note 2).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Occupational
Health + Rehabilitation Inc, its wholly-owned subsidiary and its majority-
owned subsidiaries, joint ventures and partnerships. All significant
intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits and short-
term investments with original maturities of three months or less.
RESTRICTED CASH
Restricted bank deposits are held by banks that require such deposits be
maintained in support of certain letters of credit made by the Company. The
letters of credit expire on May 22, 1997 and total $320,000.
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost. Depreciation of
property and equipment is calculated using the straight-line and declining-
balance methods over the estimated useful lives of the assets. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease term or the estimated useful life of the asset. Amortization of assets
under capital leases is included with depreciation.
F-7
OCCUPATIONAL HEALTH + REHABILITATION INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INTANGIBLE ASSETS
Excess Cost of Net Assets Acquired
The excess of cost over the fair value of the net assets of businesses
acquired (goodwill) is amortized using the straight-line method over periods
of 20 to 40 years.
Noncompetition Agreements
Covenants not to compete are amortized over the term of the noncompetition
agreement, which is currently five years.
Organization Costs
Costs of organizing the Company are being amortized over a period of five
years.
The carrying value of intangible assets will be reviewed if the facts and
circumstances suggest that it may be impaired. If this review indicates that
an intangible asset will not be recoverable, an impairment loss is recognized
to the extent the sum of the undiscounted expected future cash flows is less
than the carrying amount of the asset. Measurement of impairment should be
based on the fair value of the asset. No such impairment exists at December
31, 1996.
Accumulated amortization on intangible assets was $816,164 and $574,452 at
December 31, 1996 and 1995, respectively.
REVENUE RECOGNITION
Revenue is recorded at estimated net amounts to be received from employers,
third-party payors and others for services rendered. The Company operates in
certain states that regulate the amounts which the Company can charge for its
services associated with work-related injuries and illnesses.
PROFESSIONAL LIABILITY COVERAGE
The Company maintains professional liability insurance coverage on a claims-
made basis in Rhode Island and Maine and on an occurrence basis in all other
states it operates in. Management is unaware of any claims that may result in
a loss in excess of amounts covered by its existing insurance.
STOCK COMPENSATION ARRANGEMENTS
The Company accounts for its stock compensation arrangements under the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees",
and intends to continue to do so.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation". These provisions require the Company to disclose pro forma net
income and earnings per share amounts as if compensation expense related to
grants of stock options were recognized based on new fair value accounting
rules (see Note 11).
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-8
OCCUPATIONAL HEALTH + REHABILITATION INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
restricted cash, accounts receivable, accounts payable and accrued expenses,
long-term debt and obligations under noncompetition agreements. The Company
believes that the carrying value of its financial instruments approximates
fair value. The Company has made this determination for its fixed-rate long-
term debt based upon interest rates currently available to it to refinance
such debt.
NET LOSS PER COMMON SHARE
Net loss per share of common stock is computed by dividing net loss by the
weighted-average number of shares of common stock outstanding during each
period presented and assumes the retroactive conversion of the series 1 and 2
preferred stock and common stock in connection with the Merger (see Notes 1
and 10). The effect of options and warrants is not considered as it would be
antidilutive.
3. ACQUISITIONS AND JOINT VENTURES
1996 Joint Ventures
Effective September 1, 1996, the Company purchased a 70% undivided interest
in the assets (excluding accounts receivable) of a business division of Argosy
Health, L.P. (Argosy), which provides industrial on-site occupational and
physical therapy and related assessments in certain Mid-Atlantic states. In
connection with the transaction, the Company and Argosy formed a general
partnership by the name of Argosy Health Northeast (the Partnership).
The Company contributed to the Partnership the assets purchased from Argosy
(excluding goodwill) and Argosy contributed the remaining 30% undivided
interest of the business division's assets (excluding goodwill). The aggregate
purchase price was approximately $1,300,000. The aggregate purchase price was
financed through available cash resources and shares of Common Stock of the
Company. Additional purchase payments may be required if certain financial
objectives are attained. Goodwill recognized in this transaction was $764,000.
During 1996, the Company also consummated a joint venture for aggregate
consideration of $160,000, payable in cash and notes, and additional
contingent consideration of up to $100,000. Goodwill recognized in this
transaction was $120,000.00.
1995 Acquisitions and Joint Ventures
Effective April 1995, the Company entered into a partnership, NEBOH, with
NEB Enterprises, Inc. (NEBE), a wholly-owned subsidiary of New England Baptist
Hospital, to provide management and related services to the centers
established by the partnership. The Company made a capital contribution to
NEBOH of $204,000 in cash and has a partnership interest equal to 51%. OH+R
has control of the business and affairs of the partnership through its
majority control of the Management Committee. Under the terms of a related
agreement, the Company issued a promissory note payable to NEBE in the amount
of $536,446 and incurred a short-term obligation of $104,908 to NEBE for the
purchase of 51% of the assets, properties and rights, both tangible and
intangible, in the Waltham center owned by NEBE and operated by the Company.
NEBE acquired from the Company a 49% interest in certain of the Company's
Boston center assets. These exchanges of assets of the Waltham center and
Boston center were consummated at the fair value of the tangible and
intangible net assets of the centers. Goodwill of $337,464 was recorded by
OH+R in connection with these transactions. Both the Company and NEBE
contributed their respective interests in the Waltham and Boston centers to
the partnership.
F-9
OCCUPATIONAL HEALTH + REHABILITATION INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1995, the Company also consummated two other purchase transactions
with an aggregate purchase price of $505,000, payable in cash, notes and
20,000 shares of common stock of the Company.
In conjunction with certain acquisitions, the Company has entered into
contractual arrangements whereby the selling parties are entitled to receive
contingent consideration payments in cash based upon the achievement of
certain minimum operating results. Obligations related to these contingencies
are reflected as increases to goodwill in the period they become known. Any
quantifiable unpaid balances are reflected as liabilities in the accompanying
consolidated financial statements. During 1996, no additional payments were
made.
These acquisitions have been accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based upon their estimated fair values at the
dates of acquisition. The results of operations of the acquired practices are
included in the consolidated financial statements from the respective dates of
acquisition.
The pro forma results of operations as if the Merger and the 1996 and 1995
acquisitions and joint ventures had occurred at the beginning of the preceding
fiscal year are as follows:
DECEMBER 31
------------------------
1996 1995
----------- -----------
(UNAUDITED)
Total revenue...................................... $11,665,378 $10,557,618
=========== ===========
Net loss........................................... $(2,224,481) $(9,466,174)
=========== ===========
Net loss per share................................. $ (1.42) $ (6.13)
=========== ===========
The pro forma financial information is not necessarily indicative of the
results of operations as they would have been had the transactions been
effected on the assumed dates, or of the future results of operations of the
combined entities.
4. MANAGEMENT AGREEMENTS
Effective April 1995, NEBOH entered into a management agreement with New
England Baptist Hospital. Under the terms of the agreement, NEBOH operates an
outpatient medical center in Waltham, Massachusetts in return for a fee equal
to the net revenue (as defined) of the center, less certain primary expenses.
Net fees earned during 1996 and 1995 were $881,663 and $589,363, respectively.
The Company is involved in several management and sub-management agreements.
Under the terms of the agreements, management fees of $187,339 and $167,768
were earned in 1996 and 1995, respectively.
5. SALE OF ACCOUNTS RECEIVABLE
In June 1995, the Company entered into an agreement (the "Sales Agreement")
with NPF-WL, Inc. (Purchaser) and National Premier Financial Services, Inc.
(Services) of Dublin, Ohio for the sale of receivables from certain Company
centers.
Under the terms of the Sales Agreement, certain eligible medical receivables
are sold to the Purchaser on a weekly basis. Up to $1,200,000, ongoing, is
available to the Company. Total proceeds during 1996 were
F-10
OCCUPATIONAL HEALTH + REHABILITATION INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$3,774,156 and $1,857,978 in 1995 under the Sales Agreement. The Company is
required to maintain credit reserves with the Purchaser equal to 17% of the
total outstanding purchase and to pay interest equal to 1.17% per month on the
outstanding purchase balance. The Company paid $74,383 and $72,134 in interest
during 1996 and 1995, respectively. At December 31, 1996, the outstanding
purchase was $236,439 and was appropriately recorded as a reduction of
accounts receivable. The Company maintained credit reserves in other current
assets of $50,303 and $116,056 at December 31, 1996 and 1995, respectively.
In November 1996, the Company agreed to terminate the sales agreement (the
"Termination Agreement") with an effective date of January 1997. Upon receipt
of the buy out totaling approximately $220,000, OH+R shall have fully
satisfied and complied with the terms and provisions of the Sales Agreement.
The Termination Agreement requires the Company to repurchase all outstanding
accounts receivable as of the date of the termination.
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31
---------------------
1996 1995
---------- ----------
Medical equipment..................................... $1,082,747 $ 911,058
Furniture and office equipment........................ 671,873 451,631
Leasehold improvements................................ 224,535 220,504
Vehicles.............................................. 13,000 13,000
---------- ----------
1,992,155 1,596,193
Less accumulated depreciation......................... 872,817 537,882
---------- ----------
$1,119,338 $1,058,311
========== ==========
The cost of certain equipment leased under capital lease agreements was
$467,597 and $420,727 at December 31, 1996 and 1995, respectively. Accumulated
depreciation on these capitalized lease assets was $137,504 and $81,813 at
December 31, 1996 and 1995, respectively. Depreciation expense was $207,459 in
1996 and $171,110 in 1995.
7. LONG-TERM DEBT AND NONCOMPETITION AGREEMENTS
Long-term debt consists of the following:
DECEMBER 31
-------------------
1996 1995
---------- --------
Note payable to NEBE.................................... $ 536,446 $536,446
Promissory note, bearing interest at 9.0% due in three
annual installments through June 1998.................. 133,333 200,000
Promissory note, bearing interest at 8.5% due in four
annual installments through June 1999.................. 75,000 100,000
Line of credit with bank, bearing interest at prime plus
0.75%, secured by accounts receivable of NEBOH......... 300,000
Promissory note, bearing interest at 8.25%, with
principal due in two equal installments through August
1998................................................... 67,000
---------- --------
1,111,779 836,446
Less current portion.................................... 425,166 91,667
---------- --------
$ 686,613 $744,779
========== ========
F-11
OCCUPATIONAL HEALTH + REHABILITATION INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with its investment in NEBOH, on April 1, 1995 (see Note 3),
the Company entered into a note agreement with NEBE in the amount of $536,446.
The note carries interest at 9.75% and requires payment of interest only, in
arrears, on April 1, 1996, 1997 and 1998. Beginning October 1, 1999, the
Company is required to make semiannual payments of interest, in arrears, on
each October 1 and April 1. Beginning April 1, 1999, the Company is required
to make annually four equal installments of principal of $107,293 and one
installment of $107,274 at final maturity on April 1, 2003. Payments of
principal may be deferred at the option of the payee. The Note is secured by a
special distribution of certain assets of NEBOH.
Aggregate maturities of obligations under long-term debt agreements are as
follows:
1997.......................................................... $ 425,166
1998.......................................................... 125,167
1999.......................................................... 132,289
2000.......................................................... 107,289
2001.......................................................... 107,289
Thereafter.................................................... 214,579
----------
$1,111,779
==========
Obligations under noncompetition agreements of $316,938 are net of
unamortized discount of $8,060 at December 31, 1996 (effective interest rate
of 5.22%). These obligations consist of amounts due to five individuals in
connection with the acquisition in July 1992 of Occupational Orthopedic
Center, Inc. and are payable in equal installments of $325,000, with one
remaining installment in 1997.
Interest paid in 1996, 1995 and 1994 amounted to $217,607, $113,903 and
$50,676, respectively.
8. LEASES
The Company maintains operating leases for commercial property and office
equipment. The commercial leases contain renewal options and require the
Company to pay certain utilities and taxes over established base amounts.
Operating lease expense amounted to $925,267, $717,804 and $392,862 for 1996,
1995 and 1994, respectively.
Future minimum lease payments under capital leases and noncancelable
operating leases are as follows:
OPERATING
CAPITAL LEASES LEASES
-------------- ----------
1997.......................................... $124,530 $ 614,586
1998.......................................... 50,913 349,085
1999.......................................... 10,052 353,546
2000.......................................... 538 79,344
-------- ----------
Total minimum lease payments.................. 186,033 $1,396,561
==========
Amounts representing interest................. 19,887
--------
Present value of net minimum lease payments... $166,146
========
F-12
OCCUPATIONAL HEALTH + REHABILITATION INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
The Company provides for income taxes under the liability method. Deferred
income taxes arise principally from temporary differences related to accrued
bonuses, net operating losses, bad debt reserves and use of accelerated
depreciation for tax return purposes. The components of the Company's deferred
income taxes at December 31, 1996 and 1995 are as follows:
DECEMBER 31
------------------------
1996 1995
----------- -----------
Deferred tax assets.......................... $ 2,754,694 $ 1,906,225
Less valuation allowance..................... (2,661,885) (1,852,874)
----------- -----------
Deferred tax asset after valuation
allowance................................... $ 92,809 $ 53,351
=========== ===========
Deferred tax liability....................... $ (92,809) $ (53,351)
=========== ===========
At December 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of $6,665,506 which begin to expire in 2008. For
financial reporting purposes, a valuation allowance of $2,661,885 has been
recognized to offset deferred tax assets related to this carryforward since
uncertainty exists with respect to future realization of such carryforwards.
10. STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
STOCK CONVERSION PURSUANT TO THE MERGER (SEE NOTE 2)
Effective on the date of the Merger, the outstanding equity of OH+R were
canceled and converted at a rate of .1415957 to 1 as follows:
. Outstanding OH+R Common Stock, aggregating 674,605 shares, were
converted and exchanged for 95,514 shares of the Company's common stock.
. Outstanding OH+R Series 1 and Series 2 Preferred Stock, aggregating
4,137,843 shares, were converted and exchanged for 585,901 shares of the
Company's common stock.
. Outstanding options held by employees, directors and consultants of OH+R
to purchase 832,000 shares of OH+R common stock were converted to
options to purchase 117,808 shares of the Company's common stock.
. Outstanding warrants to purchase 148,150 shares of OH+R common stock at
$1.25 per share were converted to warrants to purchase 20,975 shares of
the Company's common stock at $8.83 per share.
The number of shares of common stock, $.001 par value, outstanding after the
Merger was 1,467,417.
In connection with the Merger, the Company amended its certificate of
incorporation to decrease the authorized number of shares of common stock by
15,000,000 from 25,000,000 to 10,000,000. At December 31, 1996, 5,000,000
shares of preferred stock $.001 par value, were authorized, with 1,666,667 of
such shares designated as Series A Convertible Preferred Stock.
PREFERRED STOCK
On November 6, 1996, the Company issued 1,416,667 shares of Series A
Convertible Preferred Stock (Series A Preferred Stock) in a private placement
at a purchase price of $6.00 per share. Subject to certain conditions, the
Company may require the purchasers to purchase up to an additional 250,000
shares of Series A Preferred Stock prior to May 1997.
F-13
OCCUPATIONAL HEALTH + REHABILITATION INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Each share of Series A Preferred Stock is convertible, at the option of the
holder, into one share of Common Stock (subject to adjustment upon the
occurrence of certain specified events). The holders of the Series A Preferred
Stock are entitled to vote as a single class with the holders of the Common
Stock, and each share of Series A Preferred Stock is entitled to the number of
votes that is equal to the number of shares of Common Stock into which each
share of Preferred Stock is convertible at the time of such vote. The holders
of Series A Preferred Stock are entitled to certain registration rights with
respect to the Common Stock into which the Series A Preferred Stock is
convertible. Dividends will be payable on the shares of Series A Preferred
Stock when and if declared by the Board of Directors after three years from
the date of issuance and will thereafter accrue at an annual cumulative rate
of $.048 per share, subject to certain adjustments.
Holders of shares of Series A Preferred Stock constituting a majority of the
then outstanding shares of Series A Preferred Stock may, by giving notice to
the Company at any time after November 5, 2001 require the Company to redeem
all of the outstanding shares of Series A Preferred Stock at $6.00 per share
plus an amount equal to all dividends accrued or declared but unpaid thereon,
in four equal installments over a four-year period.
In the event of voluntary or involuntary liquidation, dissolution or winding
up of the Company the holders of shares of Series A Preferred Stock shall be
paid an amount equal to the greater of (i) $6.00 per share plus all accrued
but unpaid dividends or (ii) the amount per share had each such share been
converted to Common Stock immediately prior to such liquidation, dissolution
or winding up.
COMMON STOCK
On September 11, 1996, the Company promised 100,502 shares of Common Stock
with a purchase price of $4.975 as partial consideration for the purchase of a
70% interest in a division of Argosy Health, L.P. (Seller) (see Note 2). The
shares were delivered to Seller on January 6, 1997. At December 31, 1996, the
Company has recorded $500,000 as a liability in order to properly accrue for
the amount due to the Seller. During 1996, the par value of the Company's
common stock was changed from $.01 to $0.001 and the number of authorized
shares was increased from 8,000,000 to 10,000,000.
SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 1996, the Company has reserved shares of common stock for
future issuance for the following purposes:
Series A Preferred Stock........... 1,416,667
Stock Plans........................ 542,354
Warrants........................... 20,975
---------
1,979,996
=========
WARRANTS
The Company has issued stock purchase warrants which, subsequent to the
conversion pursuant to the Merger, provide the holders the right to purchase
an aggregate of 20,975 shares of Common Stock at $8.83 per share. The warrants
are exercisable in part or whole from July 1, 1997 until August 31, 1997.
11. BENEFIT PLANS
STOCK PLANS
1996 Stock Plan: In October 1996, the Company's board of directors adopted
the 1996 Stock Plan, which provides for the granting of up to 265,000
nonqualified stock options, "incentive stock options" (ISOs) and stock
appreciation rights to employees, directors and consultants of the Company.
F-14
OCCUPATIONAL HEALTH + REHABILITATION INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Nonqualified options granted may not be at a price less than 50% of fair
market value of the common stock, and ISOs granted may not be at a price of
less than 100% of fair market value of the common stock on the date of grant.
Granting of incentive stock options is subject to the approval of the 1996
Stock Plan by the Company's stockholders.
1993 Stock Plan: The Company's 1993 Stock Plan provided for the granting of
options to purchase up to 140,000 shares of the Company's Common Stock. Upon
consummation of the Merger, the Plan was amended to increase the aggregate
number of shares of the Company's common stock which may be granted to
245,000.
1988 Stock Plan: Pursuant to the 1988 Stock Plan, the Company may grant
incentive stock options, nonqualified stock options and common stock purchase
rights. The Company has reserved 32,354 shares of common stock for issuance
under this plan.
The options in all of the above plans generally become exercisable over a
four-year period and expire over a period not exceeding ten years.
A summary of the activity under the stock plans follows. The number of
options outstanding at December 31, 1996, 1995 and 1994 assumes the
retroactive conversion related to the Merger (see Note 10):
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
1996 PRICE 1995 PRICE 1994 PRICE
------- --------- ------ --------- ------- ---------
Outstanding at beginning
of the year............ 78,731 $ 1.78 76,444 $1.77 61,879 $1.77
Options assumed in
connection with the
Merger................. 34,205 28.78
Granted................. 366,783 5.55 10,174 1.86 25,524 1.77
Exercised............... 4,448 1.88
Canceled................ (45,398) 13.23 (7,887) 1.77 (10,959) 1.77
------- ------ ------ ----- ------- -----
Outstanding at end of
the year............... 438,769 $ 5.75 78,731 $1.78 76,444 $1.77
======= ====== ====== ===== ======= =====
Related information for options outstanding and exercisable as of December
31, 1996 under the stock plans is as follows:
WEIGHTED-AVERAGE
RANGE OF EXERCISE OPTIONS OPTIONS REMAINING LIFE
PRICE OUTSTANDING EXERCISABLE (YEARS)
----------------- ----------- ----------- ----------------
$1.77-$ 2.50.................. 60,638 40,982 7.54
$3.50-$ 3.53.................. 56,048 21,364 9.20
$4.50-$ 6.00.................. 310,833 9.80
$8.75-$81.25.................. 11,250 8,034 7.25
PRO FORMA INFORMATION FOR STOCK-BASED COMPENSATION
Pro forma information regarding net income and earnings per share, as if the
Company had used the fair value method of SFAS 123 to account for stock
options issued under its stock plans, is presented below. The fair value of
stock activity under these plans was estimated at the date of grant using the
minimum value method for options granted prior to the date of the Merger (see
Note 1) and the Black-Scholes option pricing model for options granted on and
subsequent to the date of the Merger. The following weighted-average
assumptions were used to determine the fair value for 1996, 1995 and 1994,
respectively; risk-free interest rates of 6.3%, 6.3% and 6.2%, an expected
dividend yield of 0% each year, an average volatility factor of the expected
market price of
F-15
OCCUPATIONAL HEALTH + REHABILITATION INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the Company's common stock over the expected life of the option of 1.276 (for
options granted on or subsequent to the date of the Merger only) and a
weighted-average expected life of the options of six years.
For purposes of pro forma disclosures, the estimated fair value of options
is amortized to expense over the related vesting period. Pro forma information
is as follows:
1996 1995 1994
---------- ---------- ----------
Pro forma net loss..................... $2,281,110 $1,792,679 $1,421,452
Pro forma net loss per share........... (2.02) (2.71) (2.70)
EMPLOYEE BENEFIT PLAN
The Company has a qualified 401(k) plan (the Plan) for all employees meeting
certain eligibility requirements. The Company contributes a stipulated
percentage based on employee contributions. Company contributions to the Plan
were $66,814, $38,118 and $26,269 during 1996, 1995 and 1994, respectively.
12. TRANSACTIONS WITH RELATED PARTIES
Amounts due to NEBOH from New England Baptist Hospital at December 31, 1996
and 1995 were $226,328 and $680,445, respectively, and consist of cash
collected from certain accounts related to a management agreement (see Note 4)
and from certain accounts contributed to NEBOH under a partnership agreement
(see Note 3).
Amounts due to New England Baptist Hospital from NEBOH at December 31, 1996
and 1995 were $187,101 and $377,862, respectively, and consist of certain
operating expenses paid by New England Baptist Hospital during the year.
Amounts due to Argosy Health, LP from Argosy Health Northeast at December 31,
1996 were $102,743.
The Company rents certain fixed assets to NEBOH. Equipment rent expense for
1996 and 1995 was $52,200 and $14,569, respectively.
13. SUBSEQUENT EVENTS
In January and March 1997, the Company consummated the purchase of two
physician practices, with an aggregate purchase consideration of $1,075,000,
payable in cash and notes. Additional purchase payments may be required if
certain objectives are attained.
In February and March 1997, the Company consummated two joint ventures, with
aggregate purchase consideration of $200,000 in cash. In both cases, the
Company has an equity interest in excess of 51% and controls the joint venture
through its majority control of the management committee.
F-16
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Occupational Health + Rehabilitation
Inc
March 26, 1997
/s/ John C. Garbarino
By: _________________________________
JOHN C. GARBARINO PRESIDENT, CHIEF
EXECUTIVE OFFICER AND DIRECTOR
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.
SIGNATURE TITLE DATE
/s/ John C. Garbarino President, Chief March 26, 1997
- ------------------------------------- Executive Officer
JOHN C. GARBARINO (principal
executive officer)
/s/ Richard P. Quinlan Chief Financial March 26, 1997
- ------------------------------------- Officer,Treasurer,
RICHARD P. QUINLAN Secretary and
General Counsel
(principal
financial officer)
/s/ Edward L. Cahill Director March 26, 1997
- -------------------------------------
EDWARD L. CAHILL
/s/ Kevin J. Dougherty Director March 26, 1997
- -------------------------------------
KEVIN J. DOUGHERTY
/s/ Angus M. Duthie Director March 26, 1997
- -------------------------------------
ANGUS M. DUTHIE
S-1
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
3.02 Restated Bylaws, as amended.
10.01 Form of Common Stock Purchase Warrant to purchase 4,195
shares of the Company's Common Stock, held by each of
Stephan Deutsch, Mark DeNino, Mehrdad Motamed, Ira
Singer and Steven Blazar.
10.02 Termination Agreement among the Company and certain
securityholders dated as of June 1, 1996.
10.04(b) Amendment No. 1 to Registration Rights Agreement among
the Company and certain securityholders dated as of
November 6, 1996.
10.05(a) Registration Rights Agreement between the Company and
Argosy Health, L.P. dated as of September 11, 1996.
(b) Amendment No. 1 to Registration Rights Agreement between
the Company and Argosy Health, L.P. dated as of November
6, 1996.
10.06(a) Series A Convertible Preferred Stock Purchase Agreement
among the Company and certain securityholders dated as
of November 6, 1996.
(b) Stockholders' Agreement among the Company and
securityholders of Series A Convertible Preferred Stock
dated as of November 6, 1996.
(c) Registration Rights Agreement between the Company and
securityholders of Series A Convertible Preferred Stock
dated as of November 6, 1996.
11.01 Statement re Computation of Per Share Earnings.
21.01 Subsidiaries of the Company.
23.01 Consent of Ernst & Young LLP.
27.01 Financial Data Schedule.