-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KnOISlhWjgmNfTTrfOS+BUvTeykvJyD7ZaakWJ22cvdzFGg8Crh1OnYAd226spll 7cAXR1tKaPrWtq9Gsh1jFw== 0001047469-97-007567.txt : 19971216 0001047469-97-007567.hdr.sgml : 19971216 ACCESSION NUMBER: 0001047469-97-007567 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19971212 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INNOSERV TECHNOLOGIES INC CENTRAL INDEX KEY: 0000746072 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS REPAIR SERVICES [7600] IRS NUMBER: 963619990 STATE OF INCORPORATION: CA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13608 FILM NUMBER: 97737057 BUSINESS ADDRESS: STREET 1: 320 WESTWAY STREET 2: STE 520 CITY: ARLINGTON STATE: TX ZIP: 76018 BUSINESS PHONE: 8008485385 MAIL ADDRESS: STREET 1: 320 WESTWAY STREET 2: STE 250 CITY: ARLINGTON STATE: TX ZIP: 76018 FORMER COMPANY: FORMER CONFORMED NAME: MMI MEDICAL INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED OCTOBER 31, 1997 [ ] 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 0-13608 INNOSERV TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) CALIFORNIA 95-3619990 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 320 WESTWAY, SUITE 530, ARLINGTON, TEXAS 76018 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (817) 468-3377 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 twelve 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 ----- ----- At December 10, 1997, the Registrant had outstanding 3,009,395 shares of its common stock, $.01 par value. INNOSERV TECHNOLOGIES, INC. FORM 10-Q OCTOBER 31, 1997 TABLE OF CONTENTS
Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of October 31, 1997 and April 30, 1997 3 Consolidated Statements of Operations for the three months ended October 31, 1997 and 1996 4 Consolidated Statements of Operations for the six months ended October 31, 1997 and 1996 5 Consolidated Statements of Cash Flows for the six months ended October 31, 1997 and 1996 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II - OTHER INFORMATION Item 1. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 INDEX TO EXHIBITS 16
2 INNOSERV TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
October 31, 1997 April 30, (Unaudited) 1997 ----------- --------- ASSETS Current Assets Cash and cash equivalents $ 2,695 $ 1,806 Receivables 3,068 3,693 Inventory: Spare parts and supplies, net 4,547 4,484 Inventory held for sale 1,041 772 Prepaid expenses 251 453 ----------- --------- Total current assets 11,602 11,208 Capital equipment, net 3,802 4,491 Goodwill, net 3,316 3,392 Other assets 7 11 ----------- --------- $ 18,727 $ 19,102 ----------- --------- ----------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current portion of long-term debt $ 657 $ 629 Accounts payable 4,271 3,658 Accrued liabilities 1,762 2,224 Deferred revenues 4,208 3,719 ----------- --------- Total current liabilities 10,898 10,230 Long-term debt, less current portion 155 479 Shareholders' Equity Preferred stock, $.01 par value: 5,000,000 shares authorized; no shares issued -- -- Common stock, $.01 par value: 10,000,000 shares authorized; 5,035,833 issued 51 51 Paid-in capital 17,303 17,303 Accumulated deficit (9,680) (8,961) ----------- --------- Total shareholders' equity 7,674 8,393 ----------- --------- $ 18,727 $ 19,102 ----------- --------- ----------- ---------
The accompanying notes are an integral part of these financial statements. 3 INNOSERV TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data)
Three Months Ended October 31, ----------------------- 1997 1996 -------- -------- Revenues: Service $ 7,761 $ 8,644 Sale of parts and equipment 1,446 2,040 -------- -------- Total revenues 9,207 10,684 Costs: Cost of service 7,283 7,755 Cost of parts and equipment 651 1,366 -------- -------- Total cost of operations 7,934 9,121 Gross profit 1,273 1,563 Depreciation and amortization 430 505 Selling and administrative expenses 1,307 1,445 -------- -------- Loss from operations (464) (387) Interest expense, net 3 69 -------- -------- Loss before income taxes (467) (456) Provision for income taxes -- -- -------- -------- Net loss $ (467) $ (456) -------- -------- -------- -------- Per share information: Net loss $ (.09) $ (.09) -------- -------- -------- -------- Weighted average shares outstanding 5,036 5,036 -------- -------- -------- --------
The accompanying notes are an integral part of these financial statements. 4 INNOSERV TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data)
Six Months Ended October 31, ------------------------ 1997 1996 --------- --------- Revenues: Service $ 15,295 $ 17,783 Sale of parts and equipment 3,056 4,689 --------- --------- Total revenues 18,351 22,472 Costs: Cost of service 14,393 16,165 Cost of parts and equipment 1,142 2,979 --------- --------- Total cost of operations 15,535 19,144 Gross profit 2,816 3,328 Depreciation and amortization 824 1,016 Selling and administrative expenses 2,691 3,299 --------- --------- Loss from operations (699) (987) Interest expense, net 20 96 --------- --------- Loss before income taxes (719) (1,083) Provision for income taxes -- -- --------- --------- Net loss $ (719) $ (1,083) --------- --------- Per share information: Net loss $ (.14) $ (.22) --------- --------- --------- --------- Weighted average shares outstanding 5,036 5,036 --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. 5 INNOSERV TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Six Months Ended October 31, ------------------------ 1997 1996 --------- ---------- Cash flows from: Operations - Net loss $ (719) $ (1,083) Adjustments to reconcile net loss to net cash flows from operations: Depreciation and amortization 824 1,016 Changes in assets and liabilities: Receivables 625 1,025 Inventory (332) 1,189 Prepaid expenses 202 (68) Other assets 3 37 Accounts payable 613 (488) Accrued liabilities (462) (609) Deferred revenues 490 (542) --------- ---------- Net cash provided by operations 1,244 477 Investments and acquisitions - Purchase of capital equipment (59) (163) --------- ---------- Net cash used for investments and acquisitions (59) (163) Financing activities - Borrowings from line of credit -- 242 Principal payments of long-term debt (296) (331) --------- ---------- Net cash used for financing activities (296) (89) --------- ---------- Net increase in cash and cash equivalents 889 225 Cash and cash equivalents at beginning of period 1,806 941 --------- ---------- Cash and cash equivalents at end of period $ 2,695 $ 1,166 --------- ---------- --------- ----------
The accompanying notes are an integral part of these financial statements. 6 INNOSERV TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1997 (UNAUDITED) 1. GENERAL The consolidated financial statements included herein have been prepared by InnoServ Technologies, Inc. ("InnoServ") without audit, include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the three months and six months ended October 31, 1997 and 1996, pursuant to the rules and regulations of the Securities and Exchange Commission, and include the accounts of InnoServ and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated. Any and all adjustments made are of a normal and recurring nature in accordance with Rule 10-01(b)(8) of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulation, however, InnoServ believes that the disclosures in such financial statements are adequate to make the information presented not misleading. These financial statements should be read in conjunction with InnoServ's annual report on Form 10-K for the fiscal year ended April 30, 1997, filed with the Securities and Exchange Commission. The results of operations for the six months ended October 31, 1997, are not necessarily indicative of the results that may be expected for the year ending April 30, 1998. Certain reclassifications have been made in the prior year's consolidated financial statements to conform to the fiscal 1998 presentation. 2. INTEREST EXPENSE, NET Interest expense is net of interest income of $18,000 and $8,000 for the three months ended October 31, 1997 and 1996, respectively. Interest expense is net of interest income of $34,000 and $23,000 for the six months ended October 31, 1997 and 1996, respectively. 3. SUPPLEMENTAL CASH FLOW DISCLOSURE Interest and income taxes paid in the six months ended October 31, 1997 and 1996 were as follows: Six Months Ended October 31, --------------------- 1997 1996 -------- --------- Interest $ 48,000 $ 124,000 Income taxes $ 5,000 $ 53,000 7 INNOSERV TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1997 (UNAUDITED) 4. EARNINGS PER SHARE Earnings per share amounts are computed based upon the weighted average shares of common stock and common stock equivalents outstanding during each period. Outstanding stock options are included as common stock equivalents using the treasury stock method. If the computation of fully diluted earnings per share is anti-dilutive, only primary earnings per share amounts are presented. 5. LONG-TERM DEBT On April 14, 1997 InnoServ entered into a new loan agreement with a bank pursuant to which amounts outstanding under InnoServ's prior revolving line of credit and term loan agreements with the bank were converted into a new term loan aggregating $1,198,000. Borrowings under the new term loan bear interest at the rate of prime (8.5% at October 31, 1997) plus 1% per annum. Monthly principal installments of $54,000 plus interest are required through January 8, 1999. Obligations under the loan agreement are secured by a security interest in InnoServ's accounts receivable, inventory and capital equipment. The loan agreement contains financial covenants including maintenance of certain financial ratios, net worth requirements and restrictions on future borrowings and payment of dividends. As a result of the loss for the period, InnoServ failed to meet the net worth covenant under the loan agreement as of October 31, 1997. InnoServ's bank waived this event of default and has amended the net worth covenant effective October 31, 1997 through the expiration date of the loan agreement of January 8, 1999. InnoServ was in compliance with the financial covenants, as amended, at October 31, 1997. 6. SUBSEQUENT EVENT Pursuant to a Stock Purchase Agreement dated November 13, 1997 ("Agreement"), among InnoServ, a California corporation, MEDIQ Incorporated ("MEDIQ") and MEDIQ Investment Services, Inc. ("MIS" and together with MEDIQ, collectively the "Seller"), each a Delaware corporation, InnoServ reacquired from Seller 2,026,438 shares of InnoServ's common stock ("Shares") and a warrant to purchase 325,000 shares of InnoServ's common stock ("Warrant"). Such 2,026,438 shares represented approximately 40% of the then outstanding shares of common stock of InnoServ. The Shares and Warrant had been issued to MEDIQ in connection with InnoServ's acquisition of MEDIQ Equipment and Maintenance Services, Inc., a wholly-owned subsidiary of MEDIQ, in August 1994. 8 INNOSERV TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1997 (UNAUDITED) Under the terms of the Agreement, no cash payment was made for the reacquisition of the Shares and Warrant. However, in the event of a change of control of InnoServ prior to April 1, 1998, Seller will be entitled to certain payments from the acquiring party as if 100% of the Shares remained outstanding. In the event of a change of control of InnoServ from and after April 1, 1998 and through September 30, 1998, Seller will be entitled to certain payments as if 50% of the Shares remained outstanding. Additionally, in connection with the transaction, MEDIQ and InnoServ agreed to terminate certain continuing arrangements including the right to designate two directors. Consequently, Thomas E. Carroll, President and Chief Executive Officer of MEDIQ, who had been serving at MEDIQ's designation, resigned from InnoServ's Board of Directors. Michael Sandler, the former Chief Financial Officer of MEDIQ, who also had been serving at MEDIQ's designation, will continue as a director of InnoServ. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS SECOND QUARTER FISCAL 1998 COMPARED TO SECOND QUARTER FISCAL 1997 Consolidated revenues for the second quarter of fiscal 1998 were $9,207,000 as compared to $10,684,000 in the same period of fiscal 1997, a decline of $1,477,000, or 14 percent. The decline in revenues is primarily attributable to a decrease of $1,200,000 resulting from the disposition of substantially all of the revenue producing assets of Advanced Imaging Technologies ("AIT"), a wholly owned subsidiary of InnoServ, on March 17, 1997. Revenues from computerized tomography ("CT") maintenance service agreements decreased approximately $650,000 primarily as a result of the continued decline in the number and average contract amount of CT maintenance service agreements in effect as older equipment is being upgraded or removed from service by customers and InnoServ's decision to not renew certain CT maintenance agreements in unprofitable locations. Offsetting these declines, revenues from comprehensive asset management services ("Asset Management") and multi-vendor services increased approximately $290,000 as InnoServ continues to focus on the growing market for these type services. In addition, after taking into effect the disposal of AIT, sales of spare parts increased by approximately $170,000. Cost of operations decreased $1,187,000 from the same period in the prior fiscal year primarily as a result of the disposition of AIT. As a percent of on-going revenues, cost of operations for the second quarter of 1998 was 85%, unchanged from the same period of fiscal 1997. Selling and administrative expenses decreased $138,000, or 10 percent, from the prior year primarily as a result of reductions in InnoServ's administrative functions resulting from the disposal of AIT. Depreciation and amortization expenses decreased by $75,000 due to the completed depreciation of certain capital equipment and a change in the estimated remaining life of certain other assets. The loss before income taxes for the second quarter of fiscal 1998 was $467,000 as compared to a loss of $456,000 in the second quarter of fiscal 1997. The loss for fiscal 1998 was primarily the result of unfavorable operating margins associated with InnoServ's maintenance business. Because InnoServ employs field service engineers over a wide geographic area, the current level of revenues are not sufficient in certain locations to cover the direct and indirect costs of providing maintenance and repair services. In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". InnoServ is required to adopt SFAS No. 128 in the third quarter of fiscal 1998. The adoption of this standard is not expected to materially impact InnoServ's earnings per share calculations. The adoption will have no impact on InnoServ's results of operations. 10 In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", and No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 requires that an enterprise report, by major component and as a single total, the change in its equity during the period from nonshareholder sources, and SFAS No. 131 establishes annual and interim reporting requirements for an enterprise's operating segments and related disclosures about its products and services, geographical areas in which it operates and major customers. Both statements are effective for fiscal years beginning after December 15, 1997, with earlier application permitted. Adoption of these statements is not expected to materially impact InnoServ's consolidated financial position or statements of operations, shareholders' equity and cash flows. Effects of the adoption of these statements, if any, will primarily be limited to the form and content of InnoServ's disclosures. SIX MONTHS FISCAL 1998 COMPARED TO SIX MONTHS FISCAL 1997 Consolidated revenues for the first six months of fiscal 1998 were $18,351,000 as compared to $22,472,000 in the same period of fiscal 1997, a decline of $4,121,000, or 18 percent. The decline in revenues is primarily attributable to a decrease of $2,900,000 resulting from the disposition of substantially all of the revenue producing assets of AIT on March 17, 1997. Revenues from CT maintenance service agreements decreased approximately $1,800,000 primarily as a result of the continued decline in the number and average contract amount of CT maintenance service agreements in effect as older equipment is being upgraded or removed from service by customers and InnoServ's decision to not renew certain CT maintenance agreements in unprofitable locations. Offsetting these declines, revenues from Asset Management and multi-vendor services increased approximately $370,000 as InnoServ continues to focus on the growing market for these type services. In addition, after taking into effect the disposal of AIT, sale of spare parts increased by approximately $420,000. Cost of operations decreased $3,609,000 from the same period in the prior fiscal year, primarily as a result of the disposition of AIT and the decline in on-going revenues. As a percent of on-going revenues, cost of operations for the first six months of 1998 was 85%, unchanged from the first six months of fiscal 1997. Selling and administrative expenses decreased $608,000, or 18 percent, from the prior year primarily as a result of reductions in InnoServ's administrative functions resulting from the disposal of AIT and cost containment activities. Depreciation and amortization expenses decreased $192,000 from fiscal 1997 due to the completed depreciation of certain capital equipment and a change in the estimated remaining life of certain other assets. The loss before income taxes for the first six months of fiscal 1998 was $719,000 as compared to a loss of $1,083,000 in the first six months of fiscal 1997. The loss in fiscal 1998 was primarily the result of unfavorable operating margins associated with InnoServ's maintenance business. Because InnoServ employs field service engineers over a wide geographic area, the current level of revenues are not sufficient in certain locations to cover the direct and indirect costs of providing maintenance and repair services. InnoServ is continuing to implement plans to reorganize its service operations to more cost effectively provide the services required by its customers and to discontinue service in selected locations upon the expiration of the existing maintenance agreements in those locations. InnoServ believes these actions, coupled with strategic changes it is making in the operations of the CT and Asset Management business and efforts to expand the revenue base, will improve InnoServ's operations. 11 InnoServ did not recognize a tax benefit from the operating loss for the first six months of fiscal 1998. Under SFAS No. 109, "Accounting for Income Taxes", net operating losses enter into the calculation of deferred tax assets and liabilities. At October 31, 1997, InnoServ had an estimated net deferred tax asset of $5,800,000, primarily as a result of net operating losses. In accordance with SFAS No. 109, InnoServ recorded a valuation allowance for the full amount of the net deferred tax asset. The ultimate realization of the deferred tax asset depends on the ability of InnoServ to generate sufficient taxable income in the future. While InnoServ believes the deferred tax asset will be substantially realized by future operating results, due to the cumulative losses incurred in recent years the deferred tax assets do not currently meet the criteria for recognition under SFAS No. 109. LIQUIDITY AND CAPITAL RESOURCES At October 31, 1997, InnoServ had working capital of $704,000, of which $2,695,000 was in cash and cash equivalents. Operations provided $1,244,000 of cash for the six months ended October 31, 1997, primarily as a result of a $625,000 reduction in accounts receivable due to successful collection activities and lower revenues, an increase in accounts payable of $613,000 due to the timing of cash disbursements, and an increase in deferred revenues of $490,000 as payments received for services to be provided exceeded services provided during the period. These cash increases were offset by a reduction of accrued liabilities of $462,000 and an increase in inventory of $332,000 due to the purchase of spare parts and x-ray tubes required to service newer technology CT and magnetic resonance imaging scanners. Cash provided by operations was used to fund $59,000 of capital equipment purchases and $296,000 of principal payments of long-term debt during the period. InnoServ's allowance for doubtful accounts at October 31, 1997 was $851,000, or 22 percent of gross accounts receivable. InnoServ's customers include hospitals, physician practices, outpatient clinics and entrepreneurial operations. Some of these customers are thinly capitalized, operate on small margins and experience cash flow difficulties due to the lengthy time required to receive reimbursements from Medicare and insurance companies. Factors impacting InnoServ's allowance for doubtful accounts include the changes occurring in the healthcare industry, primarily the move to managed care, which has weakened healthcare providers' ability to honor their debts and have forced some of the providers out of business. On April 14, 1997 InnoServ entered into a new loan agreement with a bank pursuant to which amounts outstanding under InnoServ's prior revolving line of credit and term loan agreements with the bank were converted into a new term loan aggregating $1,198,000. Borrowings under the new term loan bear interest at the rate of prime (8.5% at October 31, 1997) plus 1% per annum. Monthly principal installments of $54,000 plus interest are required through January 8, 1999. Obligations under the loan agreement are secured by a security interest in InnoServ's accounts receivable, inventory and capital equipment. The loan agreement contains financial covenants including maintenance of certain financial ratios, net worth requirements and restrictions on future borrowings and payment of dividends. As a result of the loss for the period, InnoServ failed to meet the net worth covenant under the loan agreement as of October 31, 1997. InnoServ's bank waived this event of default and has amended the net worth covenant effective October 31, 1997 through the expiration date of the loan agreement of January 8, 1999. InnoServ was in compliance with the financial covenants, as amended, at October 31, 1997. 12 InnoServ does not foresee the need to make significant amounts of capital purchases in the next twelve months and believes sufficient funds will be available from its operations to meet its working capital requirements. Should cash flows from operations not be sufficient to meet all of InnoServ's cash requirements, InnoServ would attempt to obtain a line of credit to provide the necessary funds. CAUTIONARY STATEMENT The statements in this Management's Discussion and Analysis and elsewhere in this report that are forward looking are based on current expectations which involve numerous risks and uncertainties. InnoServ's future results of operations and financial condition may differ materially due to many factors including InnoServ's ability to attract and retain Asset Management contracts, competitive and regulatory conditions in the healthcare industry generally, and other factors, many of which are beyond the control of InnoServ. 13 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS InnoServ is party to a lawsuit filed on April 12, 1995 in Superior Court in the County of Riverside, California, by two former employees who have claimed wrongful termination in retaliation for filing a claim with the U.S. Department of Labor. The plaintiffs have sought damages in the amount of approximately $1,000,000 in the aggregate. In July 1997, one of the plaintiffs accepted an offer of compromise made by InnoServ for significantly less than the damages sought by such plaintiff. InnoServ funded this settlement in early September 1997. The amount of the settlement was accrued in a previous period and did not impact the earnings of the three months and six months ended October 31, 1997. InnoServ continues to defend itself against the other plaintiff and believes the ultimate liability related to this matter will not exceed amounts currently accrued in the financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of shareholders was held on September 15, 1997. At the annual meeting the shareholders elected directors to hold office until the 1998 annual meeting of shareholders and until their successors are elected and qualified. The following directors were elected: VOTES CAST ------------------------- DIRECTOR FOR WITHHELD ------------------- --------- -------- Thomas E. Carroll 3,651,302 9,025 Bernard J. Korman 3,651,902 8,425 Michael G. Puls 3,651,902 8,425 Dudley A. Rauch 3,651,902 8,425 Michael M. Sachs 3,651,902 8,425 Samuel Salen, M.D. 3,651,902 8,425 Michael F. Sandler 3,651,302 9,025 David A. Wegmann 3,651,902 8,425 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: The information required by this portion of Item 6 is set forth in the Index to Exhibits beginning on page 16. (b) Reports on Form 8-K: During the three months ended October 31, 1997 no reports were filed by the Registrant on Form 8-K. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATED: December 10, 1997 INNOSERV TECHNOLOGIES, INC. By: /s/ Thomas Hoefert ------------------------ Thomas Hoefert Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) 15 INDEX TO EXHIBITS Exhibit No. Description of Exhibit --- ---------------------- 10.1 Letter Agreement of Employment dated September 10, 1997 by and between Registrant and Thomas E. Hoefert. 10.2 Indemnity Agreement dated as of September 29, 1997 by and between Registrant and Thomas E. Hoefert. 10.3 Bonus Agreement dated as of September 29, 1997 between Registrant and Thomas E. Hoefert. 10.4 Letter Agreement dated December 5, 1997 amending the Loan Agreement dated as of April 14, 1997, by and between Registrant and Overton Bank & Trust, N.A. 11.1 Computation of Per Share Earnings. 27.1 Financial Data Schedule. 16 EX-10.1 2 LETTER TO THOMAS HOEFERT Exhibit 10.1 InnoServ Technologies, Inc. September 10, 1997 Mr. Thomas E. Hoefert 1015 Walnut Falls Circle Mansfield, TX 76063 Dear Tom: I am pleased that you have decided that you would like to return to INNOSERV. On that basis, INNOSERV Technologies, Inc. -Registered Trademark- ("The Company") is pleased to extend to you an offer of employment for the position of Vice President, Chief Financial Officer. This position will report to the President and CEO. You will be an officer of the Company and a member of the executive management group that directs the Company. The offer of employment, as set forth in this letter, supersedes any representations, whether written or oral, that may have occurred previously. Effectively, it is our intent to "bridge your service" and return your status at historical compensation and benefit levels. Your annual base salary will be $157,500 with the opportunity for annual merit increases with the first annual review occurring on or about July 1, 1998. Subject to the approval of an executive bonus program, for fiscal year 1998, you will be eligible for an annual bonus based on your performance against established objectives up to a maximum of 40% of your base salary. For fiscal 1998, you will be eligible for 7/12 of your total bonus opportunity. You will also receive a grant of options to purchase 25,000 shares of the Company's common stock pursuant to the Company's Stock Incentive Plan. The stock options will have an exercise price equal to the exercise price of your previous grant or $3.50 and a term of ten years, and one-third of the stock options will vest on an annual basis so that after three years of employment the options will be fully vested. Your previous time of service (i.e. 15 months) will count towards your vesting period. As you are aware, there are stock options available for grant to key employees in the discretion of the Company's Compensation Committee as part of an overall management group incentive program. Upon employment with the Company you will be eligible to participate in the Company's medical and dental insurance plans which are available to other officers and employees of the Company. You will be entitled to four weeks of paid vacation per year, which will be accrued per Company policy. You will receive a car allowance of $600 per month, as well as, reimbursement for certain maintenance and operating costs, as defined in the Company Policy and Procedures Manual. If your employment is terminated by the Company for any reason other than for cause (which shall mean for all purposes herein, fraud, dishonesty or willful misconduct), you will receive a severance payment by 17 the continuation of your then current monthly salary (less appropriate withholding amounts) for six months following your separation. In addition, the Company will pay for your participation in its medical and insurance plans for six months following your separation. Payment of the severance benefit is conditioned upon your providing to the Company at the time of your separation a written release of any and all claims against the Company and your agreement not to compete with the Company or to hire any of its employees for a period of two years following your separation from the Company. You are not eligible for a severance benefit if you voluntarily terminate your employment with the Company. If a Change of Control (as defined below) occurs, all or your then unvested stock options will vest immediately. Furthermore, if within six months following a Change of Control, your employment is terminated without cause, you will also receive a severance payment as provided for above. For purposes of the preceding paragraph a "Change of Control" shall be deemed to have occurred if (x) any "person" or "group" of "persons" (as the terms "person" and "group" are used in Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934 and the rules and regulations thereunder) is or becomes, after the date of your employment by the Company, the beneficial owner, directly or indirectly, of the securities of the Company representing 50% of the combined voting power of the then outstanding voting securities of the Company (whether by purchase or acquisition of such securities or by agreement to act in concert with respect to the voting of such securities or otherwise); (y) all or substantially all of the assets and/or business of the Company is sold, transferred or otherwise disposed of to a third party; or (z) a majority of the Board of Directors of the Company shall be comprised of persons who were not elected to such offices as part of the "Company nominated slate" of directors (i.e., the slate of nominees proposed by the Board of Directors in office immediately prior to the election). Notwithstanding the foregoing, there shall be excluded from the definition of "Change of Control" any direct or indirect beneficial ownership change resulting in 50% or more of the combined voting power of the then outstanding securities of the Company being beneficially owned individually, jointly or as a group by Dudley A. Rauch, Samuel Salen, M.D., Donald G. Moehering, Michael M. Sachs, MEDIQ Incorporated or the trust created by agreement dated November 18, 1983 by Bernard B. Rotko as grantor (the "Rotko Trust") or any of affiliates, personal representatives, heirs, testamentary trusts or donees who are members of their family or any of them. Your starting date of employment will be no later than September 29, 1997. Your employment will be governed by the legal principles applicable to employment at will and nothing contained in this letter shall constitute a contract of employment. Tom, I am excited with the prospect of working together again. Your commitment and contribution are important to me as we continue to build InnoServ. On behalf of InnoServ, welcome back! Sincerely, INNOSERV TECHNOLOGIES, INC. Understood, Agreed and Accepted /s/ Michael G. Puls /s/ Thomas Hoefert Michael G. Puls -------------------------------- President & CEO Thomas E. Hoefert Date: 9/26/97 -------------------------- 18 EX-10.2 3 INDEMNITY AGREEMENT Exhibit 10.2 INDEMNITY AGREEMENT This Indemnity Agreement ("Agreement") is made and entered into as of the 29th day of September, 1997, by and between INNOSERV Technologies, Inc. - -Registered Trademark-, a California corporation (the "Corporation"), and Thomas E. Hoefert (the "Agent"). WHEREAS, the Agent is currently serving as an Officer of the Corporation and the Corporation wishes the Agent to continue in such capacity; NOW, THEREFORE, in consideration of the foregoing recital and the mutual agreements set forth herein, and in order to induce the Agent to continue to serve as an Officer of the Corporation and in consideration of his continued service, the parties hereto hereby agree as follows: 1. The corporation will pay on behalf of the Agent, and his executors, administrators or assigns, any amount which the Agent is or becomes legally obligated to pay in connection with any claim or claims made against the Agent because of any act or omission or neglect or breach of duty, including any actual or alleged error or misstatement or misleading statement, which the Agent commits or suffers while acting in his capacity as an Officer of the Corporation and solely because of being an Officer. The payments which the Corporation will be obligated to make hereunder shall include, INTER ALIA, damages, judgments, settlements and costs, cost of investigation (excluding salaries of officers or employees of the Corporation) and costs of defense of legal actions, claims or proceedings and appeals therefrom, and costs of attachment or similar bonds; provided however, that the Corporation shall not be obligated to pay fines or other obligations or fees imposed by law or otherwise make any payments hereunder which it is prohibited by applicable law from paying as indemnity or for any other reason. 2. If a claim under this Agreement is not paid by the Corporation, or on its behalf, within 90 days after a written claim has been received by the Corporation, the claimant may at anytime thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, the claimant also shall be entitled to be paid the expense of prosecuting such claim. 3. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary or appropriate to secure such rights, including the execution of such documents necessary or appropriate to enable the Corporation effectively to bring suit to enforce such rights. 4. The Corporation shall not be liable under this Agreement to make any payment in connection with any claim made against the Agent: (a) for which payment is actually made to the Agent under a valid and collectible insurance policy, except in respect of any excess beyond the amount of payment under such insurance; 19 (b) for which the Agent is entitled to indemnity and/or payment by reason of having given notice of any circumstance which might give rise to a claim under any policy of insurance, the terms of which have expired prior to the effective date of this Agreement; (c) for which the Agent is indemnified by the Corporation otherwise than pursuant to this Agreement; (d) based upon or attributed to the Agent gaining in fact any personal profit or advantage to which the Agent was not legally entitled; (e) for an accounting of profits made from the purchase or sale by the Agent of securities of the Corporation within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any state statutory law or common law; or (f) brought about or contributed to by the dishonesty of the Agent seeking payment hereunder; however, notwithstanding the foregoing, the Agent shall be protected under this Agreement to the fullest extent permitted under law as to any claims upon which suit may be brought against the Agent by reason of any alleged dishonesty n his part, unless a judgment or other final adjudication thereof adverse to the Agent shall establish that the Agent committed acts of active and deliberate dishonesty with actual dishonest purpose and intent, which acts were material to the cause of action so adjudicated. 5. No costs, charges or expenses for which indemnity shall be sought hereunder shall be incurred without the Corporation's consent, which shall not be unreasonably withheld. 6. The Agent, as a condition precedent to indemnification under this Agreement, shall give to the Corporation notice in writing as soon as practicable of any claim made against the Agent for which indemnity will or could be sought under this Agreement. Notice to the Corporation shall be directed to INNOSERV Technologies, Inc., 320 Westway, Suite 520, Arlington, Texas 76018, Attention: President and Chief Executive Officer (or such other address as the Corporation shall designate in writing to the Agent); notice shall be deemed received I sent by prepaid mail properly addressed, the date of such notice being the date postmarked. In addition, the Agent shall give the Corporation such information and cooperation as it may reasonably require and as shall be within the Agent's power. 7. Costs and expenses (including attorneys' fees) incurred by the Agent in defending or investigating any action, suit, proceeding or investigation shall be paid by the Corporation in advance of the final disposition of such matter, if the Agent shall undertake in writing to repay any such advances in he event that it is ultimately determined that the Agent is not entitled to indemnification under the terms of this Agreement. Notwithstanding the foregoing or any other provision of this Agreement, no advance shall be made by the Corporation if a determination is reasonable and promptly made by the Board of Directors by a majority vote of a quorum of disinterested directors, or (if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs) by independent legal counsel, that, based upon the facts known to the Board of Directors or counsel at the time such determination is made, (a) the Agent acted in bad faith or deliberately breached his duty to the Corporation or its stockholders, and (b) as a result of such actions by the Agent, it is more likely than not that it will ultimately be determined that the Agent is not entitled to indemnification under the terms of this Agreement. 20 8. Nothing herein shall be deemed to diminish or otherwise restrict the Agent's right to indemnification under any provision of the articles of incorporation or bylaws of the Corporation or under California law. 9. This Agreement shall be governed by and construed in accordance with in internal laws of the State of California. 10. This Agreement shall be binding upon all successors and assigns of the Corporation (including any transferee of all or substantially all of its assets and any successor by merger or operation of law) and shall and inure to the benefit of the heirs, personal representatives and estate of the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and signed as of the day and year first written. INNOSERV TECHNOLOGIES, INC. By: /s/ Michael G. Puls ------------------------------------- Title: President & CEO AGENT: /s/ Thomas Hoefert ----------------------------------------- Thomas E. Hoefert, VP & CFO 21 EX-10.3 4 BONUS AGREEMENT Exhibit 10.3 INNOSERV TECHNOLOGIES, INC. BONUS AGREEMENT This Bonus Agreement (this "Agreement") is entered into between InnoServ Technologies, Inc. (the "Company") and Thomas Hoefert, Vice President and Chief Financial Officer of the Company (the "Executive"). WITNESSETH: WHEREAS, the Executive is currently employed by the Company in the capacity of Vice President and Chief Financial Officer; and WHEREAS, the board of directors of the Company (the "Board of Directors") has determined that it is in the best interests of the Company and the shareholders of the Company that the Company from time to time investigate strategic alternatives in order to maximize shareholder value; and WHEREAS, the Executive is a member of senior management of the Company and has access to proprietary information pertaining to the business and operations of the Company; and WHEREAS, the Board of Directors has determined that it is in the best interests of the Company to provide an incentive to the Executive to remain in the employ of the Company while the Company is investigating such strategic alternatives; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the Company and Executive agree as follows: 1. Subject to paragraph 2 below, if Executive is a full-time employee of the Company in good standing on the closing of a Sale of the Company (as defined in paragraph 3 below), then Executive will be entitled to a one-time bonus determined according to paragraph 4 below (the "Bonus"). The Bonus will be payable in full, in cash on the closing date of such Sale of the Company. 2. Executive will not be eligible for benefits hereunder if he resigns, retires, becomes disabled, fails to return from a leave of absence, dies, or is terminated for cause prior to the close of the Sale of the Company. 3. For purposes of this Agreement, a Sale of the Company shall be deemed to have occurred if the Company disposes of all of its stock or substantially all of its assets to another party, whether by way of merger, transfer of assets or otherwise, for cash or securities, in one or a series of transactions. 4. a. For purposes of this Agreement, Executive's Bonus shall be based upon the Sale Price (as hereinafter defined) of the Company. The Bonus shall be a cash payment, less all applicable withholdings, computed as follows: 22 ------------------------------------------------------------------------ SALE PRICE AMOUNT OF BONUS ------------------------------------------------------------------------ up to $26,666,667 $150,000 ------------------------------------------------------------------------ $26,666,668 to $125,000 + ($75,000 x [(Sale Price - $29,999,999 $25,000,000)/ $5,000,000]) ------------------------------------------------------------------------ $30,000,000 to $200,000 + ($50,000 x [(Sale Price - $34,999,999 $30,000,000)/$5,000,000]) ------------------------------------------------------------------------ $35,000,000 or more $250,000 ------------------------------------------------------------------------ b. The Sale Price of the Company, if a stock sale, shall be the product of (i) the average consideration paid for a share of common stock of the Company and (ii) the sum of (A) the number of such shares acquired by the other party to the transaction, plus (B) the number of such shares issuable upon exercise of options, warrants or other rights or conversion or exchange of securities all as outstanding on the date of this Agreement and, without duplication, as thereafter issued or granted. For the purpose of clause (i) of the foregoing sentence, all shares shall be deemed to have been acquired if more than 50% of the Company's outstanding common stock is acquired by a "group" as that term is used in Section 13 (d) (3) of the Securities Exchange Act of 1934. c. For the purposes of calculating the Sale Price of the Company, equity securities constituting a part of the consideration referred to in clause (i) of paragraph 4.b. above that are traded on a national securities exchange or quoted on the National Association of Securities Dealers National Market System shall be valued at the last closing price thereof prior to the date of the consummation or closing of any such Sale of the Company. d. The Sale Price of the Company, if an asset sale, shall be the sum of (i) the cash (or other consideration) paid by the purchaser for such assets and (ii) any debt incurred by the purchaser of such assets. 5. This Agreement is not and shall not be deemed an employment agreement, and shall not give the Executive the right to be retained in the employment of the Company. 6. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representative, and assigns. 7. Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive, his beneficiaries or legal representatives. 8. If any provision of this Agreement shall be determined to be invalid, illegal or unenforceable in whole or in part, neither the validity of the remaining part of such provision nor the validity of any other provision of this Agreement shall in any way be affected thereby. In lieu of such invalid, illegal or unenforceable provision, there shall be added automatically as part of this Agreement a 23 provision as similar in terms to such invalid, illegal or unenforceable provision as may be possible and be valid, legal and enforceable. 9. This Agreement shall be governed by Texas law. 10. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto. 11. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together constitute one and the same instrument. [SIGNATURES ON THE NEXT PAGE] 24 IN WITNESS WHEREOF, the Company and Executive have executed this Agreement as of the day and year indicated below. INNOSERV TECHNOLOGIES, INC. Dated: 9/29/97 By: /s/ Michael G. Puls -------------- ---------------------------- Name: Michael G. Puls ---------------------------- Its: President & CEO ---------------------------- EXECUTIVE: Dated: 9/29/97 /s/ Thomas Hoefert -------------- ---------------------------------- Printed Name: Thomas Hoefert -------------------- 25 EX-10.4 5 LETTER FROM OVERTON BANK Exhibit 10.4 OVERTON BANK AND TRUST, N.A. SOUTH ARLINGTON OFFICE CURTIS F. VON DER AHE President December 5, 1997 Mr. Tom Hoefert, CFO InnoServ Technologies, Inc. 4330 Beltway #300 Arlington, TX. 76018 REFERENCE: LOAN AGREEMENT DATED APRIL 14, 1997 COVENANT VIOLATIONS. Dear Mr. Hoefert, You have indicated that InnoServ is in violation of the Minimum Tangible Net Worth covenant as outline in the loan agreement referenced above. We hereby waive compliance with this covenant and re-set the covenant as follows: Minimum Tangible Net Worth $2,750,000 If you require anything else, please do not hesitate to call. Sincerely, /s/ Curtis F. Von Der Ahe - -------------------------- Curtis F. Von Der Ahe, President 26 EX-11.1 6 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 - COMPUTATION OF PER SHARE EARNINGS (In thousands, except per share amounts)
Three Months Ended Six Months Ended October 31, October 31, ------------------------- -------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Primary: Earnings: Net loss $ (467) $ (456) $ (719) $ (1,083) Shares: Weighted average shares outstanding 5,036 5,036 5,036 5,036 Per share amounts: Net loss $ (.09) $ (.09) $ (.14) $ (.22) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Fully diluted (A): Earnings: Net loss $ (467) $ (456) $ (719) $ (1,083) Shares: Weighted average shares outstanding 5,036 5,036 5,036 5,036 Net shares issuable on exercise of certain stock options -- 25 -- 67 ---------- ---------- ---------- ---------- Weighted average shares outstanding, as adjusted 5,036 5,061 5,036 5,103 Per share amounts: Net loss $ (.09) $ (.09) $ (.14) $ (.21) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Note A: This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result. 27 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS APR-30-1998 MAY-01-1997 OCT-31-1997 2,695 0 3,730 851 5,588 11,602 27,966 24,164 18,727 10,898 812 0 0 51 7,623 18,727 3,056 18,351 1,142 15,535 824 6 54 (719) 0 (719) 0 0 0 (719) (.14) (.14)
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