-----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, WvtDphl6/Oy65Q+cD88boSAtBX4pytpqbFjcnOTnob7vg95efzxGTXJg1hxWfYF9 tsC5ZUA0lo8QJOuUFD6Eiw== 0000950109-97-004497.txt : 19970611 0000950109-97-004497.hdr.sgml : 19970611 ACCESSION NUMBER: 0000950109-97-004497 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970610 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQUIMED INC CENTRAL INDEX KEY: 0000892493 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 251668112 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27456 FILM NUMBER: 97622036 BUSINESS ADDRESS: STREET 1: 2171 SANDY DRIVE CITY: STATE COLLEGE STATE: PA ZIP: 16803 BUSINESS PHONE: (814) 238-0375 MAIL ADDRESS: STREET 1: 2171 SANDY DRIVE CITY: STATE COLLEGE STATE: PA ZIP: 16803 FORMER COMPANY: FORMER CONFORMED NAME: EQUIVISION INC DATE OF NAME CHANGE: 19930804 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM 10-K [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 Commission file number 0-27456 ---------------------------------- EQUIMED, INC. (Successor to EquiVision, Inc.) (Exact name of registrant as specified in its charter) Delaware 25-1668112 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2171 Sandy Drive State College, PA 16803 (Address of principal executive offices) (Zip Code) (814) 238-0375 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Exchange Act: None Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, par value $0.0001 per share 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 past 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 No X --- --- 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 number of shares of the Registrant's Common Stock, par value $.0001 per share, outstanding as of April 30, 1997 was 27,733,862. The aggregate market value of voting stock held by nonaffiliates of the Registrant was $15,055,667 as of April 30, 1997. DOCUMENTS INCORPORATED BY REFERENCE None PART I ------ ITEM 1. BUSINESS Company History EquiMed, Inc., a Delaware corporation ("EquiMed" or the "Company") is the legal successor to EquiVision, Inc., a Pennsylvania corporation ("EquiVision"), which was incorporated in October 1991 and commenced operations as an ophthalmology-related and physician practice management business, effective January 1, 1992. EquiVision completed its initial public offering in November 1993 and has been a reporting company under the Securities Exchange Act of 1934 (the "Exchange Act") since that time. EquiMed is the result of the merger between EquiVision and Colkitt Oncology Group, Inc., a Delaware corporation (the "Oncology Group"), and the subsequent reincorporation merger of EquiVision with and into its wholly owned Delaware subsidiary, EquiMed. These two mergers are referred to collectively herein as the "Merger." The business combination of the Oncology Group and EquiVision was accounted for as a reverse purchase. As a result, the Oncology Group was considered for financial reporting purposes as the acquiror. The Merger was consummated on February 2, 1996, and a follow-on public offering was completed on February 15, 1996 consisting of shares sold by the Company and a selling stockholder. The Oncology Group was formed in order to facilitate the acquisition by EquiVision, of Equimed Common Stock and the subsequent acquisition by EquiMed, of the stock and assets of various corporations, partnerships and joint ventures owning or controlling 30 radiation oncology centers comprising the Oncology Group. Pursuant to the merger agreement the stockholders of the Oncology Group received approximately 21 million shares of the Company's common stock (the "Common Stock"). Douglas R. Colkitt, M.D., the principal stockholder of the Oncology Group, is currently the Chairman, Chief Executive Officer and also the principal stockholder of the Company. Dr. Colkitt became the Chief Executive Officer of EquiMed on January 1, 1997. Pursuant to the Merger, EquiMed succeeded to all of the assets, liabilities and contractual obligations of EquiVision and of the Oncology Group. In addition to the acquisition of the radiation oncology centers, the Oncology Group had entered into management agreements (the "Management Agreements") with the professional corporations affiliated with such radiation oncology centers and owned by Dr. Colkitt. These professional corporations employ physicians that maintain medical practices and provide medical care to patients receiving treatment at the radiation oncology centers. In general, the Management Agreements provide that EquiMed, as the surviving corporation of the Merger, must supply the professional corporations with offices and facilities, non-professional personnel, inventory, supplies and management and administrative services. Under the terms of the Management Agreements, EquiMed is responsible for billing and collecting the receivables of the professional corporations. Although each professional corporation has legal title to its receivables and net revenues from patient care, EquiMed is an agent of each of the professional corporations for purposes of billing and collection activities. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Overview." The Company currently owns, operates or manages 35 radiation oncology centers (the "Oncology Centers") and operates or manages the professional corporations affiliated with such Oncology Centers. In addition, the Company currently manages five complementary subspecialty medical practices in medical oncology, urology and internal medicine. The professional corporations and the subspecialty medical practices are hereinafter collectively referred to as the "Affiliated Medical Practices." General Overview EquiMed is a transnational holding company for a group of companies focused primarily on the provision of physician practice management services, information technology and outsourcing services primarily to the health care industry. The Company provides medical practice management services to the Oncology Centers and Affiliated Medical Practices. In addition, through its management services organization division (the "MSO Division") the Company provides data processing, billing, accounting, collections and other administrative and outsourcing services to the health care industry and other businesses. The Oncology Centers and Affiliated Medical Practices provide medical services in selected U.S. geographic markets. Through wholly and majority owned subsidiaries, the Company also engages in real estate leasing, provides medical and legal transcription services, established and operates a cosmetic laser treatment center and is involved, through a captive insurance company, in the reinsurance of professional liability for the Oncology Centers and the Affiliated Medical Pratices and workers' compensation insurance. Effective November 1, 1996, the Company sold the centers comprising its ophthalmology business (the "Ophthalmology Division") to Physicians Resource Group, Inc. and its wholly owned subsidiary, PRG Georgia, Inc., both Delaware corporations (collectively, "PRG"). The consideration received by the Company for the sale to PRG was approximately $55,077,000 in cash and the assumption by PRG of approximately $16,611,000 of liabilities. In addition, the Company agreed to assist PRG in its acquisition of additional ophthalmology practices from November 1996 until April 1997 in consideration for negotiated fees and expenses based on the number of additional ophthalmology practice acquisitions accomplished in such period. PRG has informed the Company that it does not intend to pay such fees and expenses, and in May 1997 the Company initiated an arbitration proceeding. See "ITEM 3. LEGAL PROCEEDINGS." There can be no assurance that the Company will receive any of the fees and expenses from PRG. Effective June 1, 1996, EquiMed established two foreign subsidiaries, EquiMed India Private Limited, an Indian company ("EquiMed India") and EquiMed Pakistan (Private) Limited, a Pakistan company ("EquiMed Pakistan") which provide a wide variety of functions related to the back-office support of EquiMed's corporate and medical practice management operations. EquiMed India and EquiMed Pakistan each maintain a 50% interest in Poseidon Holdings LLC, a Nevis limited liability company ("Poseidon") formed to hold all of the equity of Solemar Insurance Ltd., an insurer domiciled in the Cayman Islands ("Solemar"). EquiMed India, EquiMed Pakistan and Poseidon are hereinafter collectively referred to as "EquiMed Overseas." Through contractual arrangements with EquiMed and its controlled or managed entities, EquiMed Overseas provides a variety of billing-related services and data processing support. Utilizing high-speed, direct telephone and satellite links with EquiMed and its affiliated companies, English-speaking personnel in India and Pakistan are now providing data processing in support of EquiMed's corporate and medical practice management operations. Business Strategy EquiMed's business strategy is to continue to expand, add value to and lower the operating costs of its medical practice management and outsourcing operations, and to acquire additional medical transcription services, court reporting businesses, and accounting, billing and collection service providers, which can benefit from the cost advantage of utilizing the overseas back-office support facilities of EquiMed Overseas. There can be no assurance that EquiMed will acquire any such businesses or if acquired that such acquisitions will be on terms favorable to the Company. In addition, there can be no assurance that the Company will be able to adequately integrate such acquisitions. 2 The Company's long-term strategy is to continue to pursue synergistic acquisitions for the Oncology Centers and Affiliated Medical Practices and to expand its MSO Division and related business activities. In addition, the Company intends to use its MSO Division to enhance the efficiency of the Oncology Centers and Affiliated Medical Practices, as well as to provide outsourcing, temporary staffing and recruiting services to the health care industry. Ongoing rapid advances in communications technology continue to provide business organizations with new ways to organize and configure their operations, particularly entities in the medical practice management industry. The MSO Division assumes responsibility for the "back room" administrative functions, which place burdens on physicians' time and interfere with their ability to provide quality medical services to their patients, by providing physicians, hospitals and other health care providers with billing, collections, accounting and transcription services. Recent Developments In July 1996, the Company entered into a laser equipment, services and revenue sharing agreement with a division of Palomar Medical Technologies, Inc. ("Palomar") in connection with the Company's plans to establish cosmetic laser treatment centers. In March 1997, the Company terminated its revenue sharing agreement with Palomar and Rejuve, Inc. ("Rejuve"), a wholly owned subsidiary of the Company will be responsible for the acquisition of all laser equipment for the Company's cosmetic laser treatment centers. The first new cosmetic laser treatment center was opened in the second quarter of 1997 under the administration of Rejuve. Rejuve expects to open additional cosmetic laser treatment centers. There can be no assurance that the Company will be successful in establishing and operating the planned cosmetic laser treatment centers or that the anticipated benefits of operating such centers will be realized. The Company is also expanding into the reinsurance business through its recent establishment of Solemar. Solemar is a captive insurance company whose equity is held by Poseidon. Solemar is currently involved in the reinsurance of professional liability and workers' compensation policies for the Company and anticipates expanding the scope of its business. Effective January 1, 1997, Solemar's liability is capped at $250,000 per occurrence/incident with a $1,000,000 aggregate limit for 1997. As of January 1, 1997, the Company acquired several equipment and real estate leasing companies from Douglas R. Colkitt, M.D., Chairman and CEO of EquiMed. The companies involved are Nixon Equipment Corporation, ("Nixon") which leases medical equipment to many of the Oncology Centers and the George Washington Real Estate Corporation ("George Washington") and Thomas Jefferson Real Estate Corporation ("Thomas Jefferson"), which own eight buildings, seven of which are leased to the Oncology Centers. 3 Nixon leases various equipment including linear accelerators, simulators, High Dose Radiation units, tissue compensators and other miscellaneous equipment. The 1996 revenues of Nixon were $2,319,438. The total purchase price paid in cash by the Company in the Nixon transaction was approximately $400,000. The Company obtained two independent appraisals of the equipment to arrive at a fair market valuation for purposes of the acquisition of the stock of Nixon. The 1996 revenues of George Washington and Thomas Jefferson were $574,107 and $102,480, respectively. The total purchase prices paid in cash by the Company in the George Washington and Thomas Jefferson transactions were approximately $2,000,000 and $339,000, respectively. An independent opinion of the property value for the eight properties located in Salisbury and Laurinburg, North Carolina, Ft. Pierce, Okeechobee and Tampa, Florida, Vineland, New Jersey, Greenbelt, Maryland and Oneonta, New York was obtained by the Company for purposes of the acquisition of the stock of George Washington and Thomas Jefferson. Effective April 1, 1997, the Company also acquired from Dr. Colkitt all of the capital stock of a group of management services companies including Russell Data Services, Inc. ("Russell"), Billing Services Inc., Trident International Accounting, Inc., Tiger Communications International, LTD and an 80% interest in Nittany Decisions Services Private Limited (collectively, the "Management Services Companies"). The Management Services Companies provide outsourcing to health care clients for billing, accounting, data processing, collections and other administrative services. The 1996 combined revenues for the Management Services Companies was approximately $9,565,000. Approximately 50% of the current clients of the Management Services Companies are third parties not affiliated with the Company. The total consideration paid for the Management Services Companies was $6,000,000 in cash plus a potential earn-out of up to $9,300,000 payable in Common Stock in the event the Management Services Companies achieve aggregate combined pre-tax earnings of $3,500,000 in 1997. The purchase price was determined on the basis of an acquisition valuation study undertaken by an independent appraiser and was approved by the Company's independent directors. The Affiliated Medical Practices currently have contracts with National Medical Financial Services Corporation ("NMFS") for the provision of billing, collection and accounts receivable management services, as well as certain accounting services. NMFS is a Nevada corporation whose securities are registered under the Exchange Act and traded on the Nasdaq Stock Market. Dr. Colkitt is the Chairman of the Board and principal shareholder of NMFS. NMFS subcontracts its obligations to Russell. In conjunction with the acquisition of Russell, the Company is currently in the process of renegotiating the contracts with NMFS to have NMFS provide marketing services for the MSO Division rather than serving as a contractor for outsourcing activities. The Company is also expanding into the transcription services business. On January 3, 1997, Transcriptions International Inc. ("TI"), a wholly owned subsidiary of the Company, acquired the assets of Prophecy Health Information Management, Inc., a medical transcription service business serving hospitals, health maintenance organizations ("HMOs") and private physician practices throughout the United States. The 1996 revenues of Prophecy Health Information Management, Inc. were $602,199. The acquisition price was $500,000 in cash. The Company, through TI, provides medical records dictation to clients. TI utilizes its employee network of transcriptionists, telecommunications network equipment and personal computers to convert free-form medical dictation into the electronically-formatted patient records. 4 The Company believes that medical transcription is a growth industry due to an increasing demand for legible medical records by insurance companies, as a result of health care quality improvement initiatives and by doctors for legal defense purposes. The Company expects to acquire additional medical transcription firms. However, there can be no assurance that the Company will acquire any such businesses or if acquired that such acquisitions will be on terms favorable to the Company. In addition, there can be no assurance that the Company will be able to adequately integrate such acquisitions. On January 8, 1997, ALR Reporting, Inc. ("ALR"), a wholly owned subsidiary of the Company, acquired all of the capital stock of Doyle Reporting Inc., a New York court reporting company and of its related support entities (collectively, "Doyle Reporting") that provide the legal profession printed and computerized transcripts and video recordings of testimony from depositions. The total purchase price was $4,473,000 plus a potential earn-out of $300,000 payable in cash in the event Doyle Reporting achieves combined gross revenues of $4,500,000 in 1997. The 1996 revenues of Doyle Reporting were $4,594,988. ALR expects to acquire other court reporting companies in major business markets around the country. There can be no assurance that the Company will acquire any such businesses or if acquired that such acquisitions will be on terms favorable to the Company. In addition, there can be no assurance that the Company will be able to adequately integrate such acquisitions. EquiMed India has entered into a management agreement with Anesthesia Solutions, Inc. ("ASI"), a provider of hospital-based anesthesia department staffing services. On February 3, 1997, the Company approved the acquisition of ASI, which is owned by Dr. Colkitt. The acquisition is not yet complete. Industry Overview Oncology Treatment Centers. The Health Care Financing Administration ("HCFA") estimated health care expenditures in the United States for 1995 at $989 billion, representing more than 13.6% of gross domestic product ("GDP"), up from $600 billion, or 12.1% of GDP, in 1990. The aging of the population and advances in medical technology have contributed to increases in the demand for health care. Medicare and Medicaid, which provide for the payment of health care services for approximately 39 million individuals in the United States are estimated to have accounted for $214 billion and $98 billion, respectively, of federal expenditure in fiscal 1997. Within the national health care budget, the provision of cancer treatment is a large and growing market. According to the American Medical Association, there are at least 6,000 physicians in the United States specializing in oncology. According to the American Cancer Society, the estimated number of cancer cases diagnosed annually in the United States, excluding certain skin cancers, increased from approximately 782,000 in 1980 to approximately 1,252,000 in 1995. This increase can be attributed to a number of factors, including a growing and aging population. In addition, earlier diagnosis and more effective treatment have increased the relative five-year survival rate of cancer patients from 39% in 1963 to 54% in 1990. As a result, over eight million Americans living today have been diagnosed with cancer. The National Cancer Institute estimates that total cancer costs, including lost productivity and mortality costs, were approximately $104 billion in 1994, with direct medical costs constituting approximately $35 billion of that total. Of the approximately one-third of all Americans who are expected to develop cancer, approximately 50% will receive at least one course of radiation therapy and approximately 20% will receive multiple courses of therapy. Cancer is a group of more than 100 complex diseases characterized by the uncontrolled growth and spread of abnormal cells. Cancer treatment is provided primarily by physicians utilizing radiation 5 therapy, chemotherapy, surgery and immunotherapy, depending on the type of cancer involved. Radiation therapy, the treatment of cancer with high energy radiation, is commonly used to destroy localized tumors and to relieve pain and other symptoms. Chemotherapy, the treatment of cancer with pharmaceuticals, is often complicated, requiring management not only of the chemotherapy treatment itself, but also of its potentially adverse side effects. Chemotherapy is commonly used to destroy cancer cells that have spread to other parts of the body. Surgery is used in both the diagnosis and the treatment of cancer. Immunotherapy, the treatment of cancer by enhancing the patient's own disease-fighting mechanisms, involves advanced therapies, such as interferon (a naturally occurring human protein capable of stopping the growth of cancer) and other immune response modifiers. The Company historically has focused on providing radiation and medical oncology treatment to cancer patients. The Company intends to expand its range of cancer treatment services to include chemotherapy, immunotherapy and surgery. The Company anticipates that these services increasingly will be provided in an outpatient setting. In the Company's view, the delivery of coordinated cancer care in an outpatient setting improves the quality of life of patients by providing high-quality care and services in a more convenient and cost-effective manner than in a traditional hospital setting. The Company believes that the recent national focus on cost- containment has placed small physician groups and individual practices at a disadvantage. These practices typically lack the capital to expand, develop information and billing systems and purchase new technologies, which are often required to improve quality of care and to reduce costs. These practices also lack the cost accounting and quality management systems necessary to allow physicians to enter into sophisticated risk- taking contracts with private third party payors. Additionally, small to mid-sized groups and individual practices often lack formal ties with other medical care providers; nor do they have themselves the ability to offer a variety of medical services. Small practices also have higher operating costs because overhead must be spread over a relatively small revenue base. In order to remain competitive in the changing health care industry, physicians are increasingly affiliating with larger organizations, such as EquiMed. Management Services Organizations. Information collected by HCFA indicates that the approximately 600,000 physicians located in the United States billed between $134 billion and $175 billion for services in 1993 and that billings could have reached almost $195 billion in 1994. In addition, it is estimated that physicians control another $600 billion per year in referral business to hospitals, clinical labs, home health organizations and nursing homes. Although most physician practice groups have an office administrator who handles general administrative tasks, recent estimates indicate that less than 25% of direct physician billings is currently professionally managed by physician practice management companies, hospitals, HMOs or insurance companies. The MSO Division now offers a broad range of business services, principally to health care providers, including accounting, corporate development, managed care administration and quality assurance administration. The Company believes that demand for these services is significant due to an increasingly complex reimbursement process, downward pressure on medical fees, rapid technological changes and processing system obsolescence and the growth in hospital outpatient claims and receivables owed by patients. 6 The Company's recent acquisitions of the Management Services Companies will provide the Company with the necessary infrastructure in its United States facilities and the interface with EquiMed Overseas to offer accounting, billing, collections and medical and legal transcription services. The Company believes that it is uniquely positioned to enhance its revenues through this augmentation of its MSO Division and to provide services on an outsourcing basis to other companies. Cosmetic Laser Treatment Industry. Until recently, plastic surgeons and dermatologists have utilized a variety of chemical and surgical procedures to treat a range of cosmetic skin conditions. While these procedures have produced benefits in some patients, they are subject to complications such as hypo-pigmentation, scarring, discomfort and lengthy recovery times. The introduction of laser technology for cosmetic treatment has dramatically improved patient outcomes while eliminating many frequent complications. Laser cosmetic treatment is becoming a widely accepted form of treatment because it involves non-invasive procedures with the potential for rapid recovery and positive results. National statistics on cosmetic surgery treatment in 1995 indicate a national patient potential of approximately 2,600,000, with potential revenues of $15 billion annually in the U.S., with the potential for an additional $3 billion in annual revenues in the emerging laser hair removal market. With the advent of laser-assisted operations, organizations such as the American Academy of Cosmetic Surgery and the American Society of Plastic and Reconstructive Surgeons have indicated that laser-assisted treatment modalities may dominate this field. The Company believes its plans to develop and operate cosmetic laser treatment centers will allow the Company to compete in this expanding field, although there can be no assurance that the Company will be successful. Medical Transcription. For the year ended September 30, 1995, the American Hospital Association estimated the number of hospital admissions and outpatient visits in the United States to be 8.5 million. Each hospital admission and outpatient visit generates a new patient record or data to be added to an existing record. The Company believes the market for outsourced transcription services will expand due in part to the trends toward outsourcing, the general growth in information and technology, and the need to increase the efficient delivery of patient care. Medical transcription is the process by which free-form, dictated patient data is captured in useable format, routed to the appropriate location and inserted into a patient's medical record. Increasingly, individual hospital departments, such as radiology, emergency, oncology, pediatrics and cardiology, are dictating reports to improve their delivery of care and administrative functions. HMOs, outpatient clinics and physician practice groups are each generating their own set of medical reports. The medical transcription industry is highly fragmented. It has been reported that there are approximately 1,500 providers of medical transcription services in the United States. The majority are small, local, or regional companies that lack the financial resources or the capabilities necessary to provide outsourced services to health care providers nationwide. 7 Court Reporting. Court reporting is the verbatim transcription of the spoken word into the written word, generally from sworn legal testimony. The industry is divided into two distinct sectors -- the recording of proceedings in court, or official court reporting, and all other legal transcription services. Official court reporting is frequently performed by civil servant court reporters employed by municipal, state or federal courts. All other legal transcription services are performed outside the courtroom by free-lance court reporters, who may be either self-employed or employees or independent contractors affiliated with a court reporting agency. Court reporting firms range in size from sole practitioners to firms with more than 100 free-lance court reporters. Although there are no independently verified statistics with respect to the number of court reporters or the total revenues of the court reporting industry, there are approximately 22,000 members of the National Court Reporting Association ("NCRA"), a national professional association in the industry and an estimated additional 50,000 court reporters in the United States. Professional associations such as the NCRA and various national networks facilitate both the development of personal relationships between agency owners and the referral of business between agencies. The Company believes that, by expanding nationally, ALR will be able to more effectively serve new and existing clients, particularly law firms and companies with multistate operations. Company Operations Oncology Centers. The Company currently owns, operates or manages 35 Oncology Centers. Each radiation Oncology Center contains a linear accelerator and contains or has access to a treatment simulator and treatment planning computer. The radiation Oncology Centers are staffed by at least one board certified or board eligible radiation oncology physician, one or more radiation therapy technologists, an oncology nurse and other personnel, including secretarial and maintenance personnel, and van drivers for patient transportation. Ownership and management structures vary among the Oncology Centers, i.e., the Company wholly owns certain of the centers, owns an interest in partnerships that own certain other centers and has entered into long-term management services agreements with certain other centers. Options to purchase two of the Company's Oncology Centers in Holyoke, Massachusetts and Key West, Florida, are presently held by third parties, exercisable prior to 1999. The option price in each case is determined by a market-value formula based on the center's income. Practice Management and Quality Assurance. The Company has developed operational procedures, management information systems, financial controls and cost containment measures which are implemented in each Oncology Center and Affiliated Medical Practice to improve operational and financial performance. The Company also purchases supplies, equipment, drugs and insurance at volume discounts for these entities. In addition, the Company provides the regulatory expertise to assist these centers in complying with increasingly complex laws and regulations applicable to oncology treatment. With respect to subspecialty medical practices operations, the Company operates or manages three medical oncology practices in Ogdensburg, New York, St. Petersburg, Florida and Oaklane, Michigan, one urology practice in Stuart, Florida and one internal medicine practice in Riverdale, Maryland. The Company also operates a health care-related cosmetic laser treatment center in New Orleans. 8 The Company's comprehensive quality assurance program incorporates peer review, patient satisfaction surveys, continuing medical and staff development and regular continuing medical education seminars. The physicians practicing at the Affiliated Medical Practices and Oncology Centers, however, retain full authority and responsibility for the treatment of patients. Management Information Systems. The Company's management information systems, including those operated by EquiMed Overseas, support both medical practice and administrative functions. From a medical practice standpoint, these systems are designed to enable physicians to devote their time to the practice of medicine in a cost-effective and productive manner. The Company's management information systems also support various administrative functions, including appointment scheduling, insurance verification, third party claims processing, billing, accounts payable and receivable, electronic billing to Medicare, financial reporting, determining and managing overhead ratios, marketing results, patient demographics, purchasing patterns and procedure utilization. The Company believes that timely information on utilization patterns improves physician productivity and effectiveness. The data also play an integral role in enabling the Company's medical directors to monitor case management decisions, evaluate patient outcomes and monitor utilization trends. In addition, the Company believes that this data can be used to support negotiations with managed care payors. Cancer Treatment Data Base. The Company has developed and implemented a cancer treatment data base (the "Tumor Registry") in all of the Oncology Centers. The Tumor Registry currently provides outcome analysis for approximately 25,000 patients. Utilizing this data base, the Company is able to determine the outcome of therapy of cancer patients based upon their type of cancer, the stage of cancer, and the type of treatment prescribed. The Company believes that the Tumor Registry provides the Company with certain competitive advantages by allowing it to demonstrate outcome analysis to payors, more fully understand patient demographics and more accurately predict utilization. Administrative Personnel. The Company employs and manages substantially all non-medical personnel at each of the Oncology Centers and Affiliated Medical Practices, including the administrator, secretarial and other administrative personnel. The Company evaluates employees, makes staffing decisions, provides and manages employee benefits and implements personnel policies and procedures. These personnel assist in providing routine and complex medical services in the Oncology Centers and Affiliated Medical Practices. Support personnel are certified in their respective specialties and receive continuing education to update and improve their skills. Strategic Planning Services. The Company's management team provides each of the Oncology Centers and Affiliated Medical Practices with strategic planning services by developing an overall plan for the practice's growth and development. The strategic plan, with significant physician input, identifies additional services and related equipment needs, other possible acquisition or affiliation candidates, satellite office opportunities and radiation center developments. The strategic plan is implemented by an on-site full time administrator and regional manager. Clinical Research Studies. The Company believes its commitment to research through its clinical trial programs enhances its reputation and ability to recruit physicians, and provides patients with access to innovative therapies when more conventional therapies have not been effective. The Company facilitates clinical research conducted by the Affiliated Medical Practices and markets the physician's ability to manage clinical trials to pharmaceutical and biotechnology companies. 9 Government Regulation and Other Risk Factors Reimbursement. The Company derives its revenue primarily from third party payors. The Company attributes its high proportion of Medicare payments to the fact that the incidence of cancer tends to increase with age. Medicare is a federally funded and administered health insurance program for all individuals age 65 and over. Medicare is comprised of Parts A and B. Part A benefits primarily are for inpatient services, and principally are made on the basis of the diagnostic related group ("DRG") of the patient's diagnosis, not on the heath care provider's actual costs or charges. In general, DRGs have created an incentive for health care delivery to shift to the outpatient facilities such as the Oncology Centers operated by the Company. Medicare Part B, which provides coverage for physician and other professional services, generally covers outpatient care delivered at such centers and by the Affiliated Medical Practices. Medicaid is a joint federal-state program that provides medical benefits for the financially needy, including many who are aged, blind and disabled, and those families with dependent children who cannot pay for such care. Medicaid benefits vary widely from state to state. Group health insurance premiums are typically paid in part by employers for their employees. Individuals (generally employees and their dependents) covered by group health insurance tend to comprise a younger population than those covered by Medicare. A leading method of controlling health care expenditures for these populations is the HMO. HMOs provide health care services to enrollees with minimal co-payments and deductibles. HMOs generally require all services to be accessed through primary care physicians who are reimbursed by the HMO with a fixed capitation amount that generally does not vary with the frequency, cost or type of services utilized. The Company in general, and its MSO Division in particular, is impacted by trends in the U.S. health care industry, particularly the manner in which public and private health care cost containment measures affect the margins of health care providers. While some payors continue to pay the fees and costs established by providers, other payors, particularly the government programs and managed care companies, negotiate for and pay significantly reduced reimbursement rates. Accordingly, the Affiliated Medical Practices continually evaluate their charges and fee structures to appropriately maximize the reimbursement received from all third party payors. Additionally, health care providers are affected by the increasing complexity in the reimbursement system and assumption of greater payment responsibility by individuals which have caused higher receivables, bad debt levels and business office costs to health care providers. Various proposals affecting federal and state regulation of the health care industry, including limitations on Medicare and Medicaid payments, have been introduced in the past, including provisions that would reduce funds available for the Medicare program. Any limitation on Medicare, Medicaid or other government sponsored payments may adversely affect the Company. Furthermore, funds received under these programs are subject to audit and retroactive review. In addition, many of the services and procedures provided and performed at the Oncology Centers and Affiliated Medical Practices are reimbursed pursuant to Resource Based Relative Value Scale ("RBRVS") developed under the Medicare program. The Company believes that the impact of RBRVS on the operations and financial condition of the Oncology Centers and Affiliated Medical Practices has not been significant. However, if future changes are adopted relating to the RBRVS fee structure, the aggregate fee payments from Medicare for certain procedures could be affected. If the result is a reduction in such fees, especially if followed by 10 reductions in reimbursement by commercial third party payors, the RBRVS system could adversely affect the Company's operating results or financial condition. There can be no assurance that the payments under any governmental and private third party payor program will remain at levels comparable to present levels or will be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. Furthermore, changes in reimbursement regulations, policies, practices, interpretations or statutes could adversely affect the operations of the Company. Government Regulation. The health care industry is highly regulated, and regulation of health care providers is increasing. There can be no assurance that the regulatory environment in which the Company operates will not change significantly and adversely affect the Company in the future. There are currently several federal and state initiatives designed to amend regulations relating to the provision of health care services, the access to health care, the costs of health care and the manner in which health care providers are reimbursed for their services. However, it is not possible to predict whether any such initiatives will be enacted as legislation or, if enacted, what their form, effective dates or impact on the Company will be. Every state imposes licensing requirements on individual physicians and on facilities and services operated by physicians. Many states require regulatory approval before establishing or expanding certain types of health care facilities, offering certain services or making expenditures for equipment, facilities or programs. The execution of a management agreement with a physician group currently does not require any health care regulatory approval on the part of the Company or the Affiliated Medical Practices. However, in connection with the expansion of existing operations and the entry into new markets, the Company and its Affiliated Medical Practices may become subject to additional regulation. The Company believes its operations are in material compliance with applicable law. The ability of the Company to operate profitably will depend in part upon the Company and its Affiliated Medical Practices obtaining and maintaining all necessary licenses, certificates of need and other approvals and operating in compliance with applicable health care regulations. The Company believes that it has obtained all licenses, permits and approvals necessary for the operation of its business. Fee-Splitting; Corporate Practice of Medicine. The laws of many states prohibit physicians from splitting professional fees with non- physicians and prohibit non-professional corporations from practicing medicine. The laws in most states prohibiting the corporate practice of medicine have been subjected to limited judicial and regulatory interpretation. The Company believes its current and planned activities do not constitute fee-splitting or the corporate practice of medicine as contemplated by such state laws. However, there can be no assurance that future interpretations of such laws will not require structural and organizational modifications of the Company's existing relationships with the Affiliated Medical Practices or that the Company will be able to make changes to comply with future interpretations of such laws. In addition, statutes in some states in which the Company does not currently operate could restrict expansion of Company operations to those jurisdictions. Medicare Referrals and Medicare Fraud and Abuse Provisions. Federal law prohibits the offer, payment, solicitation or receipt of any form of remuneration in return for, or in order to induce, (i) the referral of a person, (ii) the furnishing or arranging for the furnishing of items or services reimbursable under Medicare or Medicaid programs or (iii) the purchase, lease, order, arranging or recommending purchasing, leasing or ordering of any item or service reimbursable under Medicare or Medicaid. The federal government has recently announced a policy of increased scrutiny of joint ventures and other 11 transactions among health care providers in an effort to reduce potential fraud and abuse relating to Medicare costs. The applicability of these provisions to many business transactions in the health care industry has not yet been subject to definitive judicial and regulatory interpretation. In addition, effective January 1, 1995, legislation enacted as part of the Medicare and Medicaid programs restricts the ability of physicians to refer patients to entities in which they have a financial interest for several kinds of health care services including diagnostic services. Many states have similar anti-kickback and self-referral laws. Management believes that although it is receiving fees under the service agreements for management services, it is not in a position to make or influence referrals of patients or services reimbursed under Medicare or Medicaid programs to the Affiliated Medical Practices. Such service fees are intended by management to be consistent with fair market value in arm's length transactions for the nature and amount of management services rendered and therefore would not constitute unlawful remuneration under anti-kickback laws and regulations. For these reasons, management does not believe that fees payable to the Company would be viewed as remuneration for referring or influencing referrals of patients or services covered by such programs as prohibited by the statutes. If the Company is deemed to be in a position to make or influence referrals from or the Affiliated Medical Practices or to individual physicians, the operations of the Company could be subject to scrutiny under federal and state anti-kickback and anti-referral laws. In addition, management believes that the methods used to acquire medical facilities and other assets and to recruit new physicians do not violate anti-kickback and self-referral laws and regulations. Specifically, management believes the consideration paid by the Company to physicians to acquire assets in their practices is consistent with fair market value in arm's length transactions and not intended to induce the referral of patients. Should this practice be deemed to constitute an arrangement designed to induce the referral of Medicare or Medicaid patients, then such could be viewed as possibly violating anti- kickback and anti-referral laws and regulations. A determination of liability under any such law could have a material adverse effect on the Company's revenue. The Company does not believe that its operations generally are likely to be challenged or, if challenged, likely to be subject to a successful enforcement action. Prohibitions on Certain Referrals. The Omnibus Budget Reconciliation Act of 1993 ("OBRA") significantly expands the prohibitions against physician referrals. These prohibitions, commonly known as "Stark II," dramatically enlarged the field of physician-owned or physician-interested entities to which the referrals prohibitions apply. Stark II prohibits a physician from referring Medicare or Medicaid patients to an entity providing "designated health services" in which the physician has an ownership or investment interest, or with which the physician has entered into a compensation arrangement. The designated health services include radiology services and radiation therapy services and supplies. However, the Company believes its activities fall within the range of permissible activities defined in Stark II, including, but not limited to, the provision of in-office technical services. The Company does not believe that Stark II will adversely affect the operations of the Company. Prohibitions on Certain Compensation Arrangements. The OBRA legislation also prohibits physician group practices from developing compensation or bonus arrangements that are directly related to the volume or value of referrals by a physician in the group for designated health services. While there are no regulatory guidelines or case law interpretations of this provision of OBRA, the Company believes that the compensation arrangements of the physicians owning and the physicians employed by the Affiliated Medical Practices are in compliance with the OBRA requirements. 12 Cosmetic Laser Treatment. The cosmetic laser treatment industry is subject to certain federal regulations established by the Food and Drug Administration for the use of certain lasers for various procedures. In addition, some states have established industry regulations adapted from the standards set by national accrediting bodies such as the Conference of Radiation Control Program Directors. With laser treatments emerging as the principal trend in cosmetic skin care, Rejuve will operate in a highly competitive climate. There are currently several well-capitalized corporations who have entered this industry. The industry is also dominated by individual physicians performing such procedures in small office practice settings. There are also potential liabilities and exposure to future litigation in this emerging industry in which the long term effects of laser-based treatment are not fully known. Antitrust Regulation. Because the Affiliated Medical Practices associated with the Company remain separate legal entities, they may be deemed competitors subject to a range of antitrust laws that prohibit anti- competitive conduct, including price fixing, concerted refusals to deal and division of market. If the Affiliated Medical Practices and Oncology Centers are deemed by regulatory authorities or courts to be part of a single entity or system, they may be subject to antitrust laws that prohibit anti-competitive combinations or activities in excess of an immaterial size. The Company believes that it is in compliance with the antitrust laws, but there can be no assurance that the Company's interpretation is consistent with that of federal or state authorities or courts or that such circumstances will remain as the Company grows and matures and as further regulation and interpretations are promulgated. The impact of the antitrust laws in such circumstances could have a material adverse effect on the Company's results of operations. Regulatory Compliance. The Company believes that health care regulations will continue to change and, as a result, regularly monitors developments in health care law. The Company expects to modify its agreements and operations from time to time as the business and regulatory environments change. While the Company believes it will be able to structure all its agreements and operations in accordance with applicable law, there can be no assurance that its arrangements will not be successfully challenged. Any such challenge could have a material adverse effect on the Company's results of operations. Federal and State Laws Regulating Insurance Companies, HMOs and Other Managed Care Organizations. Many states also regulate the establishment and operation of networks of health care providers. Generally, these laws do not apply to the hiring and contracting of physicians by other health care providers. There can be no assurance that regulators of the states in which the Company operates would not apply these laws to require licensure of the Company's operations as an HMO, an insurer or a provider network. The Company believes that it is in compliance with these laws in the states in which it does business, but there can be no assurance that interpretations of these laws by the regulatory authorities in these states or in the states in which the Company may expand will not require licensure or a restructuring of some or all of the Company's operations. In the event that the Company is required to become licensed under these laws, the licensure process can be lengthy and time consuming and, unless the regulatory authority permits the Company to continue to operate while the licensure process is progressing, the Company could experience a material adverse change in its business while the licensure process is pending. In addition, many of the licensing requirements mandate strict financial and other requirements which the Company may not immediately be able to meet. Further, once licensed, the Company would be subject to continuing oversight by and reporting to the respective regulatory agencies. Managed Care Contracts. As an increasing percentage of the population is covered by HMOs and other managed care organizations, the Company believes that its success will, in part, be dependent upon its ability to negotiate contracts with HMOs, employer groups and other private third party payors, pursuant to which services will be provided on a risk-sharing or capitated basis. Under some of these 13 agreements, the health care provider may accept a pre-determined amount per month per patient in exchange for providing all necessary covered services to the patients covered under the agreement. These contracts pass much of the risk of providing care from the payor to the provider. The proliferation of these contracts in markets served by the Company could result in greater predictability of revenues, but less certainty with respect to expenses. There can, however, be no assurance that the Affiliated Medical Practices or the Company on their behalf will be able to negotiate satisfactory arrangements on a risk-sharing or capitated basis. In addition, to the extent that patients or enrollees covered by these contracts require in the aggregate more frequent or extensive care than is anticipated, operating margins may be reduced or the revenue derived from these contracts may be insufficient to cover the costs of the services provided. As a result, the Affiliated Medical Practices may incur additional costs, which would reduce or eliminate anticipated earnings under these contracts. Any such reduction or elimination of earnings of the Affiliated Medical Practices would have a material adverse effect on the Company's results of operations. Confidentiality Requirements. Medical transcription services are subject to statutory and common law requirements regarding the confidentiality of patient medical information. The Company requires its personnel to agree to keep all patient medical information confidential and monitors compliance with applicable confidentiality requirements. Any violation of such confidentiality requirements could have a material adverse effect on the Company's results of operations. Court Reporting Services. Due to the large volume, complexity and high cost of litigation in the United States, various proposals are under consideration to limit the number and length of pretrial depositions, and to substitute audio and/or video-tape recording of stenographic transcription of legal proceedings which may reduce or eliminate the use of court reporters. In addition, alternatives to litigation, such as mediation and arbitration, are increasingly being utilized. These or other trends that reduce litigation and related pretrial depositions could adversely impact ALR's revenues. ALR's revenues can also be adversely affected by a general economic recession that reduces demand for court reporters. ALR currently competes with other companies offering many of the same services. Competition is based on factors such as the existence of personal relationships with clients and other reporting agencies, price and the quality of services provided. Some of ALR's competitors are larger, have greater resources and are more established than ALR. ALR's business is also subject to changes in technology and new service introductions. Accordingly, ALR's ability to compete will be dependent upon its ability to adapt to technological changes in the industry and to develop services based on those changes to satisfy client requirements. The business strategy of ALR involves growth through acquisitions and internal development. ALR is subject to various risks associated with its growth strategy, including the risk that it will be unable to identify and recruit suitable acquisition candidates in the future or to integrate and manage acquired court reporting businesses. The costs associated with such activities could adversely affect ALR's operating results. Integration of Acquisitions. An important part of the Company's strategy is to expand through acquisitions that either expand or complement its business. There can be no assurance that the Company will be able to identify and acquire acceptable acquisition candidates on terms favorable to it or that it will be able to successfully integrate such acquisitions, once acquired. A substantial portion of the Company's capital resources could be used to fund these acquisitions. In addition, acquisitions involve a number of special risks, including adverse short-term effects on the Company's operating results, the diversion of management's attention, the dependence on retention, hiring and training of key personnel and risks associated with unanticipated problems or legal liabilities, some or all of which could have a material adverse effect on the Company's operations and financial performance. The failure to complete acquisitions or to integrate such acquisitions, once acquired, also could have a material adverse effect on the Company's operations and financial performance. Dependence on Foreign Operations. The Company is dependent on the continued operation and efficiency of the operations of EquiMed Overseas. The ability of EquiMed Overseas to successfully provide billing, information, technology and outsourcing services to its clients is subject to interruption or disruption based on labor force issues, worldwide telecommunications problems and failures and political upheaval in the countries where EquiMed Overseas operates. In addition, changes in local tax policies in such countries could adversely affect EquiMed Overseas' operating results. 14 Competition The Company's oncology center and medical practice management businesses operate in a highly competitive environment. The Company and the Affiliated Medical Practices generally compete with other health care providers for acquisitions of medical facilities, physician resources and patients. As a result of several market factors and of the increasing regulation of the health care industry, the Company believes that others in the health care industry may adopt strategies similar to those of the Company. Many of these potential competitors have significantly greater resources than the Company. The Company's net revenues are substantially dependent upon the continued success of the Oncology Centers and the Affiliated Medical Practices. These practices and centers face competition from several types of health care service providers, including sole practitioners, single and multi-specialty groups, hospitals and managed care organizations. Employees As of December 31, 1996, EquiMed employed 185 persons on a full-time basis and 50 persons on a part-time basis. As of December 31, 1996, the Affiliated Medical Practices employed 27 physicians. The Company provides a variety of employment benefits and considers its relationship with its employees to be good. There are no collective bargaining agreements to which the Company is a party. As of May 31, 1997, as a result of the acquisitions described in this Item 1, EquiMed and its subsidiaries employ approximately 740 individuals, including approximately 500 individuals employed by EquiMed Overseas. Insurance The Company maintains insurance in an amount, based on historical claims and the nature and risk of its business, that it believes to be sufficient, including insurance for any vicarious liability of the Company that may result from its relationship with the Affiliated Medical Practices. In addition, the Company requires each of the Affiliated Medical Practices with which it contracts to maintain a designated level of professional liability insurance coverage. Such coverage will be provided in the future by Solemar, the Company's captive insurance company. The type of medical services provided by the Affiliated Medical Practices and at the Oncology Centers have inherent risks of liability and it can reasonably be expected that medical malpractice claims will be made against the Company in the future. The Company has been subject to malpractice claims in the past, and its malpractice insurance has provided adequate coverage against such claims. Any future claims could adversely effect the Company's reputation in the medical community and also could have a material adverse effect on the Company's financial condition depending upon the number, size and insurance coverage for such claims. Important Factors Regarding Forward-Looking Statements Some of the information presented in this Form 10-K Report constitutes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results of the Company's operations will not differ materially from its expectations. Factors which could cause actual results to differ from expectations include, among others, the risk factors discussed in this Item 1 and those risks and uncertainties described in the Company's prior reports and registration statements filed with the Securities and Exchange Commission. Specific reference is made to the risks and 15 uncertainties described in the Company's Registration Statement on Form S- 4, Amendment No. 2, Registration No. 333-12773 (October 15, 1996). ITEM 2. PROPERTIES The Company leases office space from an entity wholly owned by Dr. Colkitt at 2171 Sandy Drive, State College, PA 16803, where its executive offices are located. The annual rental for 1996 was $80,231 and the lease expires in March 2000. In addition, the Company leases space for its centers and patient treatment locations under various lease arrangements. The Company believes its existing space is adequate and suitable for its current and anticipated needs. To the extent the Company requires additional space, the Company believes that suitable additional space will be available on commercially reasonable terms. ITEM 3. LEGAL PROCEEDINGS. On March 21, 1996, the Company entered an appearance as a plaintiff to a declaratory judgment action commenced August 30, 1995, in the Delaware Court of Chancery on behalf of eight corporations which were merged into the Oncology Group prior to its Merger into the Company. The litigation seeks a declaration that an August 1995 merger of the eight corporations (described in detail in previous filings of the Company with the Securities and Exchange Commission) were effected in accordance with applicable Delaware law and that the merger consideration was fair to the former minority stockholders. The former minority stockholders of the eight corporations have filed answers and counterclaims in the Delaware action against the Company and other counterclaim defendants, for breach of fiduciary duty, breach of contract, fraud and violations of Delaware statutory law. The counterclaims seek rescission of the August 1995 mergers of the eight corporations and compensatory and/or rescissory damages. Dr. Colkitt and the entities that were merged into the Company pursuant to the Merger believe that they have meritorious defenses to the allegations of the former minority stockholders. Dr. Colkitt has entered into an agreement with the Company to fully indemnify the Company against any damage, loss, expense or liability, including attorneys' fees and expenses, incurred by the Company resulting from the litigation with the former minority stockholders. Pursuant to pledge agreements securing such indemnification, among other things, as of June 6, 1997 Dr. Colkitt has pledged approximately 4,900,000 shares of Common Stock to secure the indemnity obligation, having a value of approximately $16,080,00 as of May 30, 1997. Such value is less than the value of Common Stock Dr. Colkitt is required to pledge pursuant to the pledge agreements, however, because of a number of factors, Dr. Colkitt intends to ask the Company's Board of Directors to re-evaluate the terms of the pledge agreements. See "ITEM 11. EXECUTIVE COMPENSATION - Compensation Committee Interlocks and Insider Participation." On May 15, 1997, the Company filed a Demand for Arbitration before the American Arbitration Association in Philadelphia, Pennsylvania to enforce certain terms of the Asset Purchase Agreement dated October 7, 1996 between the Company and PRG (the "Agreement") and to recover damages for breach 16 of the Agreement by PRG. Under the Agreement, the Company sold substantially all of the assets of its Ophthalmology Division to PRG and also agreed, during the period beginning November 1996 and ending April 1997, to assist PRG in the acquisition of additional ophthalmology practices. In return for such additional services, the Company was entitled to receive from PRG certain fees and expenses based upon the status of such additional acquisitions as of May 15, 1997. PRG failed to make the May 15, 1997 payment to the Company and has advised the Company that it does not intend to make such payment. Under the Demand for Arbitration, the Company is also seeking damages in connection with PRG's refusal to provide the Company's representatives with access to financial records of the Ophthalmology Division, which refusal has delayed the Company's ability to complete its annual audit and filings required under the Exchange Act. There can be no assurance that PRG will not assert a material counterclaim against the Company. In addition, there can be no assurance that the Company will recover any money as a result of its arbitration claim. The Company and its subsidiaries are not presently parties nor is the Company's property subject to any other material litigation or proceedings, other than the litigation described above and other litigation incidental to business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 17 PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The following table sets forth, for the periods indicated, the high and low sale prices for the Common Stock of EquiMed or of EquiVision, its legal predecessor. The Common Stock is traded under the symbol EQMD on the Nasdaq National Market.
High Low ------ ------ 1996 4th Quarter.................................... $ 8.13 $ 3.48 3rd Quarter.................................... 8.75 6.88 2nd Quarter.................................... 12.88 7.00 1st Quarter(1)................................. 16.00 12.25 1995 4th Quarter(1)................................. $14.75 $ 9.50 3rd Quarter(1)................................. 16.00 10.00 2nd Quarter(1)................................. 10.25 7.00 1st Quarter(1)................................. 10.00 7.00 ------ ------
---------------------- (1) The information for a portion of the first quarter of 1996 and for all quarters in 1995 reflects the high and low sale prices for the Common Stock of EquiVision, the Company's legal predecessor, and reflects the one-for-two reverse stock split that was effective upon the consummation of the Merger effective February 2, 1996. The common stock of EquiVision was traded under the symbol EQVN on the Nasdaq SmallCap Market until January 3, 1996, and thereafter on the Nasdaq National Market until February 2, 1996. As of April 30, 1997, there were approximately 225 holders of record of the Common Stock. The Company, including its legal predecessor, EquiVision, has never declared or paid any cash dividends on its Common Stock. The Company currently intends to retain earnings for use in its business and does not anticipate paying any cash dividends in the foreseeable future. Any payment of future dividends will be at the discretion of the Board of Directors and will depend upon, among other things, the Company's earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions with respect to the payment of dividends and other relevant factors. 18 ITEM 6. SELECTED FINANCIAL DATA The following income statement and balance sheet data have been derived from the audited consolidated financial statements of the Company and of the Oncology Group, predecessor entity for financial reporting purposes to the Company. The selected financial data below should be read in conjunction with the consolidated financial statements and notes thereto and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Year Ended December 31, ------------------------------------------------- 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- (in thousands, except per share data) Net revenues.......... $31,076 $40,086 $52,266 $58,884 $ 99,115 Costs and expenses: Professional expenses........... 8,062 10,554 13,486 15,054 26,479 Center operating expenses........... 8,993 12,089 14,738 18,120 42,422 General and administrative expenses........... 3,047 5,214 7,257 7,383 8,755 Depreciation and amortization....... 1,680 2,176 2,563 2,682 6,040 Interest expense: Related parties... 88 279 826 936 643 Other............. 1,301 1,366 1,357 1,028 1,905 Loss on sale of receivables...... -- -- -- 885 640 Other income, net... (169) (115) (175) (637) (723) Loss on sale of division........... -- -- -- -- 31,112 ------------------------------------------------- Total costs and expenses............. 23,002 31,563 40,052 45,451 117,273 ------------------------------------------------- Income (loss) before minority interest income taxes and extraordinary charge............... 8,074 8,523 12,214 13,433 (18,158) Minority interest..... 668 995 1,947 831 1,171 ------------------------------------------------- Income (loss) before income taxes and extraordinary charge............... 7,406 7,528 10,267 12,602 (19,329) Provision for income taxes................ 1,735 1,058 1,704 2,404 10,613 Cumulative effect of change in income tax status........... -- -- -- -- 1,277 ------------------------------------------------- Total provision for income taxes......... 1,735 1,058 1,704 2,404 11,890 ------------------------------------------------- Income (loss) before extraordinary charge. $ 5,671 $ 6,470 $ 8,563 $10,198 $(31,219) Extraordinary charge for early extinguishment of debt (net of income taxes $85).... -- -- -- -- 127 ------------------------------------------------- Net income (loss)..... $ 5,671 $ 6,470 $ 8,563 $10,198 $(31,346) ================================================= Earnings per share: Net loss before extraordinary charge............. $ (1.13) Extraordinary charge for early extinguishment of debt............ (0.01) -------- Net loss............ $ (1.14) ========
19 Weighted average shares outstanding................. 27,577,000 Supplemental unaudited pro forma information: Net income, as above.............................. $ 5,671 $ 6,470 $ 8,563 $ 10,198 Pro forma adjustment to income tax expense......................................... 1,654 2,211 3,330 3,391 ------------------------------------------------------ Pro forma net income.............................. $ 4,017 $ 4,259 $ 5,233 $ 6,807 ====================================================== Pro forma net income per share.................... $ 0.19 $ 0.20 $ 0.25 $ 0.33 ====================================================== Pro forma weighted average shares outstanding...................................... 20,784,000 20,784,000 20,784,000 20,784,000 ========================================================
Year Ended December 31, --------------------------------------------------------------------- (in thousands) 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Balance Sheet Data: Cash and cash equivalents........................... $ 1,554 $ 1,824 $ 2,565 $ 824 $ 27,010 Intangibles......................................... -- -- 1,224 1,664 5,490 Total assets........................................ 20,380 24,262 27,361 20,579 71,591 Long-term debt and capital lease obligations, less current portion................................... 11,431 11,593 13,034 10,349 5,829 Stockholders' equity(deficit)....................... (1,733) (2,304) (4,091) (10,145) 35,464
20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the financial statements and notes thereto included elsewhere herein. Some of the information presented in this Form 10-K constitutes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results of the Company's physician practice management operations and acquisition strategy and their effect on the Company's results of operations will not differ materially from its expectations. See "ITEM 1. BUSINESS - Important Factors Regarding Forward-Looking Statements." Overview The predecessor companies of the Oncology Group and of EquiMed commenced operation in February 1987. As of December 31, 1995, the Oncology Group owned or operated a total of 30 radiation oncology centers located in Arizona, Florida, Illinois, Maryland, New Jersey, New York, North Carolina, Ohio and Pennsylvania. The Oncology Group also managed four radiation oncology centers in Maryland, New Jersey, New York and Pennsylvania and planned to open an additional center in Massachusetts. The Oncology Group was formed for the purpose of effecting the Merger and, immediately prior to consummation of the Merger, acquired all of the stock or assets of various corporations and certain partnership interests which owned or controlled 30 radiation oncology centers. In addition, the Oncology Group entered into Management Agreements with the Affiliated Medical Practices associated with such centers. See "ITEM 1. BUSINESS - Company History." The Management Agreements are for an initial 40-year term and provide for successive automatic renewals. While EquiMed can terminate the Management Agreements without cause, the Affiliated Medical Practices can terminate the Management Agreements only in the event of non-payment by EquiMed of certain obligations of the Affiliated Medical Practices. EquiMed has the unilateral right to not extend the renewal provisions of the Management Agreements. Because of the provisions of the Management Agreements, the Company currently records all revenue, expenses and results of operations of the Affiliated Medical Practices in its financial statements. Dr. Colkitt has granted to the Company, or its designee, an irrevocable option to acquire for a nominal amount the common stock of each of the Affiliated Medical Practices that he owns. The exercise periods of these option agreements coincide with the duration of the related Management Agreements. EquiMed and its predecessor companies have grown principally through the development of new Oncology Centers either alone or jointly with other entities such as hospitals. Such development is based on EquiMed's internal assessment of market feasibility, design and construction of centers, physician and staff recruitment and acquisition of equipment. In addition, EquiMed acquired existing radiation oncology centers in Tampa, Florida, Brooklyn, New York, Salisbury, North Carolina and Southampton, Pennsylvania and expects that this strategy will become a more significant factor in generating future 21 growth. More recently, the Company has become a holding company for a variety of entities providing a range of information technology, transcription and outsourcing services. The table below indicates, as of the dates noted, the number of Oncology Centers operated by EquiMed and its predecessor companies and full-time oncologists contracting with or employed by Affiliated Medical Practices associated with such centers with which the Company has Management Agreements. In 1996, the Company acquired interests in one Oncology Center and entered into Management Agreements with two complementary subspecialty medical practices in urology and internal medicine.
1993 1994 1995 1996 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Oncologists 22 24 26 28 29 33 34 35 37 37 36 36 38 38 39 40 Oncology Centers 20 22 23 24 25 26 27 28 30 30 30 30 32 32 33 34
A substantial portion of EquiMed's revenue is derived from government health care reimbursement programs, commercial insurance carriers and other third party payors, all of which payors have instituted cost containment measures designed to limit payments made to health care providers such as EquiMed. Continued cost containment efforts by private and government insurers may have a material adverse effect on EquiMed. For example, the recently implemented Medicare RBRVS payment system has reduced Medicare reimbursement rates for certain of the procedures performed at the Oncology Centers and Affiliated Medical Practices. Future implementation of such a system with respect to third party payors, which has been advocated, would adversely affect EquiMed's operating margins to the extent that the cost of providing medical services could not be concomitantly reduced. Results of Operations The following table sets forth certain financial data of the Company for the three years ended December 31, 1994, 1995 and 1996.
Year Ended December 31, ------------------------------------------------------------- 1994 1995 1996 ---- ---- ---- (dollars in thousands) $ % $ % $ % -------- ------ -------- ------ ---------- ------ Net Revenues $52,266 100.0% $58,884 100.0% $ 99,115 100.0% Costs and Expenses: Professional expenses 13,486 25.8 15,054 25.6 26,479 26.7 Center operating expenses 14,738 28.2 18,120 30.8 42,422 42.8 General and administrative expenses 7,257 13.9 7,383 12.5 8,755 8.8 Depreciation and amortization 2,563 4.9 2,682 4.6 6,040 6.1 Interest expense 2,183 4.2 2,849 4.8 3,188 3.2 Other (income) expense, net (175) -0.3 (637) -1.1 (723) -0.7 Loss on sale of division - 0.0 - 0.0 31,112 31.4 ------- ----- ------- ----- -------- ----- Total costs and expenses 40,052 76.6 45,451 77.2 117,273 118.3
22
Income (loss) before income taxes and minority interest 12,214 23.4 13,433 22.8 (18,158) -18.3 Minority interest 1,947 3.7 831 1.4 1,171 1.2 ------- ----- ------- ----- -------- ----- Income (loss) before income taxes and extraordinary charge 10,267 19.6 12,602 21.4 (19,329) -19.5 Provision for income taxes 1,704 3.3 2,404 4.1 11,890 12.0 Extraordinary charge for early extinguishment of debt -- 0.0 - 0.0 127 0.1 ------- ----- ------- ----- -------- ----- Net Income (Loss) $ 8,563 16.4% $10,198 17.3% $(31,346) -31.6%
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 At December 31, 1996, the Company owned, operated or managed 34 Oncology Centers and managed the Affiliated Medical Practices associated therewith, compared with 30 owned, operated or managed Oncology Centers at December 31, 1995. Net revenues increased for the year ended December 31, 1996 as compared to December 31, 1995 by $40,231,000 or 68.3% from $58,884,000 in 1995 to $99,115,000 in 1996. The increased net revenues in 1996 includes $42,200,000 attributable to the Merger with EquiVision that was consummated on February 2, 1996 and $2,100,000 in net revenues associated with the MSO Division which was first established by the Company in 1996. Effective November 1, 1996, the Company sold its Ophthalmology Division, formerly doing business as EquiVision. Excluding revenues from the Ophthalmology Division, net revenues of the Company decreased in 1996 as compared to 1995 by $1,969,000 or 3.3%. The decrease was due to (i) a reduction in reimbursements from third party payors for services rendered, and (ii) the discontinuance of the diagnostic radiology department associated with one of the existing Oncology Centers. This reduction in revenues was partially offset by the acquisition and opening of four additional Oncology Centers in 1996. Professional expenses increased in 1996 by $11,425,000 or 75.9% as compared to 1995. The increase was entirely attributable to the Merger. As a percentage of net revenues, professional expenses were 26.7% in 1996 as compared to 25.6% in 1995. Professional expenses excluding those associated with the Merger decreased to $14,262,000 in 1996 as compared to $15,054,000 in 1995, a decrease of 5.3%. This decrease corresponded to the decrease in net revenues for the year ended December 31, 1996. Most of the physicians affiliated with the Company are compensated under a contractual formula based upon the profitability of the center at which they provide medical services, and accordingly, professional expenses are directly affected by revenue generation. Center operating expenses for the oncology and ophthalmology centers increased from $18,120,000 in 1995 to $42,422,000 in 1996, an increase of $24,302,000 or 134.1%. This increase in expenses was attributable to the ophthalmology centers acquired through the Merger. As a percentage of net revenues, center operating expenses were 42.8% in 1996 as compared to 30.8% in 1995. The increase in percentage was due to the higher costs associated with operating ophthalmology centers as compared to Oncology Centers. Excluding the ophthalmology centers, center operating expenses, increased from $18,120,000 in 1995 to $18,761,000 in 1996, an increase of $641,000 or 3.5%. Such increase in expenses primarily resulted from the expenses associated with the four additional Oncology Centers acquired or 23 opened in 1996 and the offsetting decrease in expenses associated with the diagnostic radiology department discontinued. General and administrative expenses consist of legal, accounting, billing, development and corporate administrative expenses. General and administrative expenses increased to $8,755,000 in 1996 from $7,383,000 in 1995, an increase of $1,372,000 or 18.6%. As a percentage of net revenues, general and administrative expenses decreased from 12.5% in 1995 to 8.8% in 1996. Excluding the general and administrative expenses associated with the ophthalmology centers, expenses decreased to $6,756,000 in 1996 as compared to $7,383,000 in 1995, a decrease of 8.5%. This decrease resulted primarily from the cost reduction efforts instituted by the Company in response to the reduction in net revenues. Depreciation expense relates to property and equipment. Amortization consists primarily of the excess costs of acquired businesses over the fair value of the net identifiable assets acquired in connection with acquisitions. Depreciation and amortization increased to $6,040,000 in 1996 from $2,682,000 in 1995, an increase of $ 3,358,000 or 125.2%. Of such increase, $3,224,000, or 96%, was attributable to the ophthalmology centers acquired in the Merger and sold in connection with the Company's sale of its Ophthalmology Division. Interest expense increased from $2,849,000 in 1995 to $3,188,000 in 1996, an increase of 11.9%. The Merger accounted for $1,279,000 of the 1996 interest expense. Excluding these costs, interest expense decreased from 1995 to 1996 by $940,000, or 33.0%. This decrease resulted from the elimination of certain debt and capital lease obligations paid with proceeds received from the sale of Common Stock in the February 1996 public offering. Other income increased from $637,000 in 1995 to $723,000 in 1996, an increase of $86,000 or 13.5%. Other income includes income generated from management fees along with interest income earned on investments. The increase from 1995 to 1996 was realized through an increase in interest income, primarily earned through the investment of the proceeds received from the sale of the Ophthalmology Division in November 1996. For the year ended December 31, 1996, the Company recorded a loss on sale of $31,112,000 related to the sale of the Ophthalmology Division effective November 1, 1996. Minority interest represents equity interests in individual Oncology Centers held by entities other than the Company. Such entities include hospitals and other health care providers which enter into affiliation arrangements with the Company. Minority interest in the earnings of such centers increased by $340,000 or 40.9% in 1996 as compared to 1995 due to improved performance of these centers. The Company has provided for income taxes of approximately $5,456,000 for an estimated difference between the carrying amount of the assets sold for financial reporting and tax purposes. For the year ended December 31, 1996, the Company also recorded a cumulative adjustment of approximately $1,277,000 to establish deferred income taxes. Effective January 1, 1996, certain of the entities which comprised the Oncology Group ceased to qualify as S corporations and became subject to corporate income taxes. The change from S corporation to C corporation status required the Company to record the cumulative effect of deferred taxes due to this change in tax status. 24 Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 At December 31, 1995, the Oncology Group owned, operated or managed 30 Oncology Centers and managed the Affiliated Medical Practices associated therewith, compared with 28 Oncology Centers at December 31, 1994. In 1995, the Oncology Group acquired one existing center and developed one new center. Net revenues increased for the year ended December 31, 1995 as compared to December 31, 1994 by 13% to $58,884,000. The increase in 1995 was primarily attributable to an increase in volume as measured by treatments rendered. Treatment volume in 1995 exceeded that of 1994 by approximately 19%, with 42% of such increase produced by centers newly opened or acquired during 1995. Professional expenses increased in 1995 by 12% as compared to 1994, rising from $13,486,000 to $15,054,000. This increase corresponded closely with the increase in net revenues for the period. The affiliated physicians are compensated under a contractual formula based upon the profitability of the center at which they perform services and, accordingly, professional expenses are directly affected by revenue generation. Center operating expenses increased 23% in 1995 as compared to 1994, rising from $14,738,000 to $18,120,000. Of this increase of $3,382,000 (i) approximately 69% resulted from an increase in non-personnel costs related to new centers, (ii) approximately 23% resulted from an increase in the number of non-physician personnel required to support both new centers and an increase in volume at certain existing centers, and (iii) approximately 8% resulted from an increase in compensation earned by non-physician personnel. General and administrative expenses consist of legal, accounting, billing, development and corporate administrative expenses. General and administrative expenses increased to $7,383,000 in 1995 from $7,257,000 in 1994, or an increase of 2%. This increase resulted primarily from increased volume and the number of centers, increased development efforts and the effect of the engagement of NMFS to provide billing and accounting services at a fee of 4% of cash collections. As a percentage of net revenues, general and administrative expenses decreased to 12.5% in 1995 from 13.9% in 1994. Depreciation consists of depreciation of property and equipment. Amortization consists primarily of the excess costs of acquired businesses over the fair value of the net identifiable assets acquired in connection with acquisitions. Depreciation and amortization increased to $2,682,000 in 1995 from $2,563,000 in 1994 or an increase of 4.6%. Interest expense increased in 1995 compared to 1994 as a result of interest charges relating to the Company's factoring of its accounts receivable during 1995. Minority interest represents interests in individual oncology centers held by entities other than the Oncology Group. Such entities have included hospitals or other such health care providers which affiliate with the Oncology Group. Minority interests in the earnings of such centers decreased 57% in 1995 as compared to 1994. This decrease of $1,116,000 was primarily the result of the Oncology Group acquiring increased ownership in several such practices. 25 Liquidity and Capital Resources At December 31, 1996, the Company had cash and cash equivalents of $27,010,000. The Company also had outstanding debt balances of $7,586,000, which consisted of long-term debt and capital lease obligations. During the year ended December 31, 1996, the Company used cash in operating activities of $1,085,000, generated cash of $38,603,000 in investing activities, and used $11,332,000 in cash through financing activities. Cash flow from operating activities during the period ended December 31, 1996 included adjustments for the loss on sale of the Company's Ophthalmology Division of $31,112,000 and depreciation and amortization of $6,040,000 offset by an increase in receivables from affiliates of $8,960,000, an increase in accounts receivable of $1,319,000 and an increase in prepaid expenses and other current assets of $949,000. Net cash from investing activities of approximately $38,603,000 related primarily to the sale of the Company's Ophthalmology Division. The consideration consisted of approximately $55,077,000 in cash and the elimination of approximately $16,611,000 of liabilities related to the Ophthalmology Division. The Company used approximately $14,845,000 and $5,456,000 of the proceeds from the sale to pay off its line of credit facility with First Union National Bank relating to its Ophthalmology Division's operations and to pay taxes relating to the tax gain the Company realized on the sale of its Ophthalmology Division, respectively. The Company did not enter into any other credit facilities in 1996. Cash used in its investing activities principally reflected payments of $4,622,000 for Oncology Centers and Affiliated Medical Practices acquired and approximately $3,715,000 in purchases of property and equipment. Cash used in financing activities primarily related to repayments of long-term debt of $42,141,000 and repayments of obligations under capital leases totaling $4,884,000 offset by proceeds from issuance of common stock of $24,227,000 and proceeds from long-term debt of $15,879,000. The Company partially factors its accounts receivable. Proceeds to the Company from receivables sold under its accounts receivable purchase agreement with a factoring company were $27,393,000 and $45,726,000 for the years ended December 31, 1995 and 1996, respectively. During 1995 and 1996, the Company failed to comply with certain covenants of the receivable purchase agreement. Remedies available to the purchaser of its accounts receivable for these events of noncompliance include termination of the accounts receivable purchase agreement. The balance of the receivables transferred that remain uncollected was $4,250,000 and $4,896,000 at December 31, 1995 and 1996, respectively. At December 31, 1995, the Oncology Group had cash and cash equivalents of $824,000. The Oncology Group also had outstanding debt balances of $14,589,000, of which $10,349,000 consisted of long-term debt and capital lease obligations. During the period ended December 31, 1995, the Oncology Group generated cash from operating activities of $18,196,000 and used cash of $328,000 and $19,609,000 in investing and financing activities, respectively. Cash flow from operating activities during the period ended December 31, 1995 principally included net income of $10,198,000 as well as $2,682,000 of depreciation and amortization adjustments. Cash used in investing activities principally reflected purchases of property and equipment. Cash used in financing activities reflected the repayment of long-term debt and capital lease obligations as well as distributions to the principal owner and minority holders. 26 At December 31, 1995, the Oncology Group had a capital deficiency of $10,145,000, primarily as a result of distributions and deemed distributions of available cash to the Oncology Group's shareholders and partners. In 1995, the Oncology Group made no material capital expenditures. In 1995, the Oncology Group acquired or developed two Oncology Centers and related Affiliated Medical Practices. The Company believes that income from operations will be sufficient to fund its capital expenditures and working capital requirements. Effects of Recent Accounting Pronouncements In June 1996, the Financial Accounting Standards Board issued Statement of Accounting Standard No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" which becomes effective for transactions occurring after December 31, 1996. The adoption of this standard is not expected to have a material effect on the Company's financial position or results of operations. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128 "Earnings per Share" ("SFAS 128"), which will change the current method of computing earnings per share. The new standard requires presentation of "basic earnings per share" and "diluted earnings per share" amounts, as defined. SFAS 128 will be effective for the Company's quarter and year ending December 31, 1997, and upon adoption, all prior-period earnings and per share data presented will be restated to conform with the provisions of the new pronouncement. Application earlier than the Company's quarter ending December 31, 1997 is not permitted. The Company does not believe the application of the new standard will materially impact the financial statements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary financial data required by this Item 8 are set forth following Item 14 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 27 PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers, directors and other significant employees of the Company are as follows:
Name Age Position ---- --- -------- Douglas R. Colkitt, M.D.(1)(3) 43 Chairman of the Board of Directors and Chief Executive Officer Larry W. Pearson(1) 50 President and Director Gene E. Burleson 56 Director Jerome Derdel, M.D. 46 Director Brian C. Smith(2) 38 Director Daniel Beckett 38 Chief Financial Officer Marcy L. Colkitt, Esquire 34 Secretary and General Counsel
- ------------------ (1) Member of the Compensation Committee. (2) Member of the Audit Committee. (3) Dr. Colkitt resigned as a member of the Audit Committee effective January 1, 1997. The following sets forth certain information with respect to the members of the Board of Directors, the executive officers and other significant employees of the Company. Douglas R. Colkitt, M.D. has been the Chairman of the Board of Directors of the Company since the Merger in February 1996 and Chief Executive Officer since January 1997. Prior to the Merger, Dr. Colkitt was the Chairman of the Board of Directors of EquiVision since its inception in October 1991. In addition to practicing medicine as a board certified oncologist since 1979, Dr. Colkitt owns several medical businesses, including the businesses comprising Colkitt Oncology Group, Inc. where he served as Chairman, President and Chief Executive Officer from 1986 until the Merger in February 1996. Dr. Colkitt is the Chairman of National Medical Financial Services Corporation, a publicly traded company engaged in medical billing services. Dr. Colkitt received a B.A. from Washington and Jefferson College, an M.D. from the University of Pennsylvania and an M.B.A. from the Wharton School of the University of Pennsylvania. Larry W. Pearson has been President and a director of the Company since the Merger in February 1996. From February 1996 until December 1996, Mr. Pearson was also Chief Executive Officer of the Company. Mr. Pearson was a founder of EquiVision and was President, Chief Executive Officer and a director of EquiVision from its inception in October 1991 until the Merger in February 1996. Mr. Pearson is a graduate of Georgia Institute of Technology. Mr. Pearson has resigned his positions as President and a director of the Company effective June 15, 1997. Gene E. Burleson has been a director of the Company since December 1996. Mr. Burleson is Chairman of the Board, President and Chief Executive Officer of GranCare, Inc. Mr. Burleson served as President and Director of GranCare, Inc. from 1989 through December 1990 when he was named Chief 28 Executive Officer. Mr. Burleson became the Chairman of the Board of GranCare, Inc. in 1994. GranCare, Inc., a publicly traded company, is a leading provider of specialty medical services and long term care, operating 139 skilled nursing facilities in 15 states. Mr. Burleson is also Chief Executive Officer and a director of Vitalink Pharmacy Services, Inc., a publicly traded company that provides pharmacy services to skilled nursing facilities. Mr. Burleson is also a director of Alternative Living Services, Inc., Deckers Outdoor Corporation and Walnut Financial Services. Mr. Burleson is a graduate of East Tennessee State University where he received his B.S. in accounting. Mr. Burleson received his M.B.A. from the University of Tennessee, in Knoxville, Tennessee. Mr. Burleson has resigned as a director of the Company effective June 22, 1997. Jerome Derdel, M.D. has been a director of the Company since June 1996. Dr. Derdel is a board certified radiation oncologist since 1983 and currently serves as the Medical Director of the Radiation Oncology Department at Centre Community Hospital in State College, Pennsylvania. Dr. Derdel is a graduate of John Carroll University in Cleveland, Ohio, where he received his B.S. in Physics. Dr. Derdel received his M.D. from the University of Bologna, Italy. Brian C. Smith has been a director of the Company since the Merger in February 1996 and prior thereto served as a director of EquiVision from November 1993 until February 1996. Since June 1994, Mr. Smith has served as President and Chief Executive Officer of B. Castle Smith & Company, a managed care advisory services firm. From 1988 until June 1994, Mr. Smith served as Vice President, Network Development for Health Net, a federally qualified HMO based in Woodland Hills, California. Mr. Smith received a B.S. from the University of California at Riverside. Mr. Smith has resigned as a director of the Company effective June 15, 1997. Daniel L. Beckett has served as the Chief Financial Officer of the Company since November 1996 having previously served from May through November 1996 as Controller. From February through May 1996, Mr. Beckett was in charge of financial analysis for the Company. Mr. Beckett previously served as the Controller for Oncology Services Corporation, a corporation affiliated with the Oncology Group prior to the Merger, from October 1991 to February 1996. Mr. Beckett is a graduate of Grace College in Winona Lake, Indiana where he received his B.S. degree in Business Administration and Accounting. Marcy L. Colkitt, Esq. has served as Secretary of the Company since November 1996 and as its general counsel since February of that year. Prior to assuming the role as general counsel to the Company, Ms. Colkitt served as general counsel to Oncology Services Corporation, a corporation affiliated with the Oncology Group prior to the Merger, from 1992 through 1996. From 1988 through 1992 Ms. Colkitt was an associate of the Pittsburgh law firm of Reed, Smith, Shaw & McClay. Ms. Colkitt currently participates as a board member in several charitable cancer organizations and is a member of the Pennsylvania and American Bar Associations. Ms. Colkitt is a graduate of Washington and Jefferson College in Washington, Pennsylvania, where she received dual degrees including a B.A. in Chemistry and a B.A. in Business Administration. Ms. Colkitt received her J.D. from the University of Pennsylvania in Philadelphia, Pennsylvania. Stephen F. Brint, M.D., a director of EquiVision and a director of the Company since the Merger in February 1996 resigned as a director of the Company in November 1996 in connection with the sale of the Ophthalmology Division to PRG. 29 Classes of Directors The Board of Directors currently has five members and is divided into two classes. Class I Directors will serve until the Annual Meeting of Stockholders in 1998 and thereafter for terms of two years until their successors have been elected and qualified. Class II Directors will serve until the Annual Meeting of Stockholders in 1997 and thereafter for terms of two years until their successors have been elected and qualified. Currently, Larry W. Pearson, Brian C. Smith and Jerome Derdel, M.D. are Class I Directors and Douglas R. Colkitt and Gene E. Burleson are Class II Directors. Meetings and Committees of the Board of Directors The Company has an Audit Committee and a Compensation Committee, but does not have a Nominating Committee. In 1996, the Audit Committee consisted of Mr. Smith and Dr. Colkitt. The functions of the Audit Committee generally include reviewing with the Company's independent auditors the scope and results of their engagement and reviewing the adequacy of the Company's systems of internal accounting controls. The Audit Committee held one meeting in 1996. Beginning as of January 1, 1997, the Audit Committee consisted of Mr. Smith until his resignation from the Board of Directors when Dr. Derdel will serve as the member of the Audit Committee. The Board of Directors intends to appoint additional independent directors and anticipates appointing new members to the Audit Committee at that time. In 1996, the Compensation Committee consisted of Mr. Pearson, Dr. Derdel and Dr. Colkitt. Mr. Pearson resigned from the Compensation Committee on March 2, 1996. The functions of the Compensation Committee are to review and evaluate the compensation of the Company's executive officers, administer the Company's Stock Option Plan and establish guidelines for compensation of other personnel. The Compensation Committee held two meetings in 1996. The Board of Directors held one regular meeting and six special meetings in 1996 and acted by written consent 25 times. Each director attended at least 75% of the aggregate number of meetings of the Board of Directors and committees on which he served while a member of the board or such committee. Compensation of Directors No compensation is currently paid by the Company to its outside directors but such directors are reimbursed for expenses incurred for attendance at meetings. From time to time, however, outside directors have been and may be granted options to purchase shares of Common Stock. In 1996, the Company issued to Dr. Derdel options to purchase 1,000 shares of Common Stock, at an exercise price of $8.63 per share and to Mr. Smith options to purchase a total of 15,500 shares of Common Stock at exercise prices ranging from $8.00 to $13.13 per share as compensation for services rendered as a director of the Company. 30 Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires the directors, certain officers of the Company and beneficial owners of more than ten percent of the Common Stock to file reports of securities ownership and changes in such ownership with the Securities and Exchange Commission. Based solely upon a review of the copies of such forms furnished to the Company and the representations made by such persons to the Company, the Company believes that during the last fiscal year its directors, officers and ten-percent beneficial owners complied with all filing requirements under Section 16(a) of the Exchange Act, except that Larry W. Pearson and P. Craig Hethcox, who was Chief Operating Officer of the Company, had late filings related to stock option regrants; Gene E. Burleson, David Crane, who was a director of the Company, and Daniel L. Beckett had late filings related to appointments as directors or executive officers of the Company; and Jerome Derdel, M.D., Brian C. Smith and Richard Holdren, who was a director of the Company, had late filings related to stock option grants. 31 ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth certain information with respect to compensation paid or accrued by the Company subsequent to the date of the Merger and by EquiVision prior to the date of the Merger for the years ended December 31, 1996, 1995 and 1994 to the Company's Chief Executive Officer and to each of the Company's other executive officers:
Annual Long Term Compensation Compensation ----------------------------- ---------------------- Securities All Other Underlying Compensation Name and Principal Position Year Salary($) Bonus($) Options(#) ($)(1) --------------------------- ---- --------- -------- ----------- ----------- Larry W. Pearson............................... 1996 269,340 -- 9,375 8,973 President and Chief Executive Officer(2)(3) 1995 193,803 25,000 509,375(4) 9,240 1994 195,058 -- -- 7,985 P. Craig Hethcox............................... 1996 117,500 -- 3,516 7,500 Chief Operating Officer(2)(5) 1995 141,250 9,375 203,516(4) 8,750 1994 73,365 -- 25,000 -- William E. Pritts II........................... 1996 119,103 -- 50,000 9,500 Chief Financial Officer (2)(6) 1995 12,500 -- 50,000(4) --
_______________________ (1) Amounts shown reflect contributions to the 401(k) plan of the Company or of EquiVision as a pre-tax salary deferral. (2) The compensation disclosed for the years ended December 31, 1995 and 1994 reflect compensation paid to the named executive officers by EquiVision, the legal predecessor to the Company. (3) Mr. Pearson resigned as Chief Executive Officer of the Company as of January 1, 1997 and as President of the Company effective June 15, 1997. (4) Of the stock options granted in 1995 to Messrs. Pearson, Hethcox and Pritts, 9,375, 3,516 and 50,000, respectively, were forfeited in return for stock option regrants issued as of June 26, 1996. (5) Mr. Hethcox joined EquiVision in July 1994 and resigned from the Company in November 1996. (6) Mr. Pritts joined EquiVision on December 1, 1995 at an annual salary of $150,000 and resigned from the Company in November 1996. In November 1996, Daniel L. Beckett was named as Chief Financial Officer of the Company. 32 Stock Option Grants in 1996(1)
Individual Grants -------------------------------------------- % of Total Potential Realizable Value Number of Options at Assumed Annual Rates Shares Granted to of Stock Price Appreciation Underlying Employees for Option Term(3) Options During Exercise Expiration ------------------------------- Name Granted(2) Fiscal Year Price Date 5% 10% ---- ---------- ----------- -------- ---------- ------------- ------------- Larry W. Pearson........ 9,375 3.7% $ 8.00 6/06 $ 47,156 $ 119,531 P. Craig Hethcox(4)..... 3,516 1.4 8.00 6/06 17,685 44,829 William E. Pritts II(4).. 50,000 19.5 11.26 6/06 354,000 897,500
----------------------- (1) The option grants disclosed in this table do not reflect options granted to the named executive officers prior to 1996 by EquiVision, the legal predecessor to the Company prior to the Merger and assumed by the Company pursuant to the Merger. For financial reporting purposes, such options are treated as being granted in 1996. (2) The options granted in 1996 to the named executive officers were regrants based on the forfeiture of identical grants of stock options issued between June 2, 1995 and November 29, 1995. (3) These amounts represent certain assumed rates of appreciation only. Actual gains, if any, on stock option exercises are dependent on the future performance of the price of the Common Stock and overall market conditions. The amounts reflected in this table may not necessarily be achieved. (4) The stock options previously granted to Messrs. Hethcox and Pritts were not exercised prior to their resignations and have been forfeited. Aggregated Stock Option Exercises in 1996 and Stock Option Values at December 31, 1996
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options at FY-End Options at FY-End Number of -------------------------- ----------------------------- Shares on Value Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable ---- -------- -------- ----------- ------------- ----------- ------------- Larry W. Pearson 0 0 501,875 7,500 $0 $0 P. Craig Hethcox (1) 0 0 0 0 0 0 William E. Pritts II(1) 0 0 0 0 0 0
------------------- (1) The stock options previously granted to Messrs. Hethcox and Pritts were not exercised prior to their resignations and have been forfeited. Employment Agreements Effective January 1, 1996, EquiVision entered into a employment agreement with Larry W. Pearson (assumed by the Company in connection with the Merger), pursuant to which Mr. Pearson served as President and Chief Executive Officer of EquiVision and subsequently served as President and Chief Executive Officer of the Company until December 31, 1996. Effective January 1, 1997, Mr. Pearson served as President of the Company and effective June 15, 1997, Mr. Pearson has resigned that position. The agreement provided for an annual salary of not less than $300,000 per year plus a bonus of up to 50% of base salary, subject to the approval of the Board of Directors, benefits and reimbursement of 33 expenses. In addition, Mr. Pearson was entitled to severance and other payments following the termination of his employment in certain circumstances, including a breach by the Company of the agreement or a change in control of the Company if, as a result of such change in control, Mr. Pearson was required to accept a decrease in salary or responsibility or a geographical relocation. Mr. Pearson will not be entitled to receive severance pursuant to his voluntary resignation. The agreement contains noncompetition and nonsolicitation provisions for up to one year following termination of employment. In recognition of Mr. Pearson's contributions to the development of the Company since its founding, on July 26, 1995, the Compensation Committee of the Board of Directors granted to Mr. Pearson options to purchase up to 500,000 shares of the Company's Common Stock at an exercise price equal to the market value of the Common Stock. The options are fully vested. The Company has no other employment agreements (other than arrangements terminable by the Company "at will") with any other officers or employees. Compensation Committee Interlocks and Insider Participation The Compensation Committee is currently comprised of Dr. Colkitt. None of the executive officers of the Company currently serves on the compensation committee of another entity or on any other committee of the board of directors of another entity performing similar functions. In connection with the Merger, Dr. Colkitt, the Company's Chairman, CEO and principal stockholder and the former Chairman and principal stockholder of the Oncology Group, received 19,321,571 shares of Common Stock, representing 81.5% of the shares of Common Stock outstanding immediately following the Merger and 75.2% upon completion of a subsequent public offering by the Company in February 1996 in which Dr. Colkitt sold 95,000 shares. Pursuant to the terms of the merger agreement executed in connection with the Merger, Dr. Colkitt has agreed to indemnify the Company against certain losses that may arise in connection with the representations and warranties of the Oncology Group and, as security for such obligation, has agreed to pledge shares of Common Stock having a value of $7,500,000. This indemnification is in addition to Dr. Colkitt's indemnification relating to certain pending litigation. Dr. Colkitt and the entities that were merged into the Company pursuant to the Merger believe that they have meritorious defenses to the allegations of the former minority stockholders described under "ITEM 3. LEGAL PROCEEDINGS." Dr. Colkitt has entered into an agreement with the Company to fully indemnify the Company, among other things, against any damage, loss, expense or liability, including attorneys' fees and expenses, incurred by the Company resulting from the litigation with the former minority stockholders, which indemnity was to be secured, pursuant to a pledge agreement, by a pledge of the number of shares of Common Stock having a value of $25,000,000. The pledge agreements provide that in the event the closing trading price of the Common Stock increases or decreases such that the aggregate value of the shares pledged pursuant to the pledge agreements fall below or exceed the values required by the pledge agreements, an adjustment will be made in the number of shares subject to the pledges to add shares to the pledges in the event the closing trading price decreases or to release shares from the pledges in the event the closing trading price increases. At the time the pledge agreements were executed, Dr. Colkitt pledged to the Company a total 2,888,889 shares of Common Stock with an aggregate value of approximately $32,500,000. As of June 6, 1997, approximately 4,900,000 shares of Common Stock owned by Dr. Colkitt are held by the Company subject to both pledge agreements. Based on the closing trading price of the Common Stock as of May 30, 1997 (which was $3.28125), the value of such pledged stock is approximately $16,080,000. The Company believes the value of such pledged shares is sufficient based on the Company's estimate of any potential damages, costs, expenses or liability, including attorneys' fees and expenses, which may be incurred by the Company resulting from the former minority stockholder litigation and income tax liability not reflected in the financial statements of the Oncology Group related to any period or periods prior to the Merger. However, there can be no assurance that such potential damages, costs, expenses or liability will not exceed the Company's good faith estimate or that the value of the pledged shares will not decrease based on a decrease in the market price of the Common Stock. Because of the Company's estimate of any potential liability related to the former minority stockholder litigation and the resolution of certain other litigation and tax events for which Dr. Colkitt has indemnified the Company, Dr. Colkitt intends to ask the Company's Board of Directors to re- evaluate the terms of the pledge agreements. Pursuant to the terms of the merger agreement, Dr. Colkitt is required to vote all of his shares of Common Stock to elect not less than three independent members to the Board of Directors so long as Dr. Colkitt owns in excess of 20% of EquiMed's outstanding Common Stock. On July 1, 1993, in consideration of the substantial investment Dr. Colkitt made in EquiVision, EquiVision granted Dr. Colkitt an option to purchase 500,000 shares of EquiVision common stock at an 34 exercise price of $50 per share. The option became exercisable on June 30, 1995 and expires on June 30, 2003. Dr. Colkitt owns the common stock of six ophthalmic professional corporations which entered into services agreements to be managed by EquiVision and has an irrevocable option to acquire the common stock of 12 professional corporations for an exercise price of $1.00. Following the Merger and prior to the sale of the Ophthalmology Division in November 1996, the Company was entitled to exercise an irrevocable option granted by Dr. Colkitt to EquiVision, or its designee to acquire the common stock of the six professional corporations he owns for an exercise price of $1.00 and an assignment of the stock option agreements with respect to the professional corporations that he does not own. Prior to November 1996, the Company's President and Chief Executive Officer had the authority to exercise this right on behalf of the Company without prior approval of the Board of Directors. The Company has no further rights under such options subsequent to the November 1996 sale of the Ophthalmology Division to PRG. On November 1, 1994, EquiVision entered into a 40-year services agreement with an ambulatory surgery center ("ASC") in Chevy Chase, Maryland that is 50% owned by Dr. Colkitt. Under the agreement, the Company, as successor to EquiVision, managed the operations of the ASC until November 1996 for a monthly fee of $4,000. In addition, in 1996 the Company was entitled to receive the first $1,000,000 of the ASC's operating income and 50% of the ASC's net income thereafter. Effective with the November 1, 1996 sale of the Ophthalmology Division to PRG, the Company has no further obligations or rights under the services agreement. Dr. Colkitt owns the common stock of 30 of the Affiliated Medical Practices which have entered into Management Agreements with the Company and has granted the Company, or its designee, an irrevocable option to acquire the common stock of the Affiliated Medical Practices for an exercise price of $1.00. The term of the option agreements coincide with the term of the related Management Agreements, which are for a initial 40- year term and provide for successive automatic renewals. In 1996, the Company's President and Chief Executive Officer had the authority to exercise this option agreement on behalf of the Company without prior approval of the Board of Directors. The Company's policy requires a majority of the Company's independent directors to approve transactions between the Company and Dr. Colkitt. Accordingly, there are limitations on Dr. Colkitt's ability to amend or terminate any Management Agreements or option agreements granted to the Company related to the common stock of the Affiliated Medical Practices. On June 1, 1996, EquiMed India, a wholly owned subsidiary of the Company formed to obtain contracts for accounting and billing services, began operations in Madras, India. EquiMed India had revenues and net income of approximately $2,100,000 and $1,900,000, respectively, principally related to a contract for accounting and billing services with Anesthesia Solutions, Inc., a company wholly owned by Dr. Colkitt. Prior to April 1, 1997, EquiMed India subcontracted with Nittany Decisions Services Private Limited ("Nittany"), a company 80% owned by Dr. Colkitt, to provide the accounting and billing services for Anesthesia Solutions, Inc. According to the contract terms, EquiMed India retains approximately 10% of the revenues billed for Anesthesia Solutions, Inc. and pays Nittany its costs and an agreed upon rate of return. Effective April 1, 1997, the Company acquired Dr. Colkitt's interest in Nittany as part of its acquisition of the Management Services Companies. See "ITEM 1. BUSINESS - Recent Developments." EquiMed India is exempt from income taxes payable to agencies of the Indian government and the local provincial government based upon agreements with these agencies when EquiMed India was incorporated. At December 31, 1996, EquiMed India has trade receivables of 35 approximately $2,000,000 which primarily represent receivables for the services from ASI. On February 2, 1997, the Company entered into an agreement to acquire ASI. In 1996, Dr. Colkitt was the Chairman and sole stockholder of George Washington and Thomas Jefferson, which corporations lease premises occupied by certain of the Oncology Centers. The Company made lease payments to George Washington and Thomas Jefferson in the aggregate amount of $568,846. In January 1997, the Company acquired George Washington and Thomas Jefferson from Dr. Colkitt. See "ITEM 1. BUSINESS - Recent Developments." In 1996, the Company leased certain equipment from D&T Leasing Limited Partnership ("D&T") and Nixon, both controlled by Dr. Colkitt. The Company made payments to D&T, in the aggregate, of $113,812 in 1996. The Company made payments to Nixon, in the aggregate, of $160,040 during 1996. During 1996, the Company repaid approximately $3,218,000 of the principal amount under these capital leases, thereby reducing its monthly payment obligations. In January 1997, the Company acquired Nixon from Dr. Colkitt for approximately $400,000. See "ITEM 1. BUSINESS - Recent Developments." The Affiliated Medical Practices have contracts with NMFS for the provision of billing, collection and accounts receivable management services, as well as certain accounting services. The centers paid to NMFS a aggregate of $2,619,470 during 1996 for such services. NMFS is a publicly traded company of which Dr. Colkitt is the Chairman and principal stockholder. The Company entered into a receivable purchase agreement in April 1995. Under the terms of the agreement, receivables are transferred to Oncology Funding Corporation (a company that is wholly owned by Dr. Colkitt) which then factors the receivables with an unrelated financing company, John Alden Asset Management Company ("Alden"). The factored receivables may be denied by Alden for various reasons including nonpayment by the payor. The transfer of receivables to Alden is recognized as a sale, and the difference between the sales price (adjusted for the accrual of probable adjustments) and the net receivables is recognized as a gain or loss on the sale of receivables. Proceeds to the Company from receivables sold under this agreement were approximately $45,726,000 for the year ended December 31, 1996. During 1995 and 1996, the Company failed to comply with certain covenants of the receivable purchase agreement. Remedies available to Alden due to these events of noncompliance include termination of the receivable purchase agreement. The balance of the receivables transferred that remain uncollected was approximately $4,896,000 at December 31, 1996. 36 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of shares of Common Stock as of April 30, 1997 by (i) each person known by the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii) each of the Company's directors, (iii) each executive officer named in the table under the caption "Executive Compensation" and (iv) all directors and executive officers as a group.
Name and Address of Beneficial Owner (1)(2) Number Percent ----------------------- ------ ------- Douglas R. Colkitt, M.D/(3)/ 20,889,880 73.9% Larry W. Pearson/(4)/ 1,121,802 3.9 Brian C. Smith/(5)/ 36,250 * Jerome Derdel, M.D./(6)/ 1,000 * Gene E. Burleson 1,000 * All directors and executive officers as a group (5 persons)/(7)/ 22,049,932 76.6
-------------------------- * Less than 1%. (1) The addresses of all such owners is in care of the Company at 2171 Sandy Drive, State College, PA 16803. (2) A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days upon the exercise of options or warrants. Each beneficial owner's number of shares is determined by assuming that options or warrants that are held by such person (but not those held by any other person) and that are exercisable within 60 days have been exercised. The total outstanding shares used to calculate each beneficial owner's percentage includes such options and warrants. Unless otherwise noted, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. (3) Includes exercisable options to purchase 500,000 shares of Common Stock at an exercise price of $50 per share. Does not include 1,247,517 shares owned by Dr. Colkitt's spouse, of which Dr. Colkitt disclaims beneficial ownership. (4) Includes exercisable options to purchase 501,875 shares of Common Stock at exercise prices ranging from $8.00 to $10.50 per share. (5) Includes exercisable options to purchase 35,500 shares of Common Stock at exercise prices ranging from $7.00 to $10.50 per share. (6) Includes exercisable options to purchase 1,000 shares of Common Stock at an exercise price of $8.63 per share. (7) Includes exercisable options to purchase 1,038,375 shares of Common Stock. 37 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company is the legal successor to EquiVision, which merged with the Oncology Group on February 2, 1996 pursuant to the Merger. See "ITEM 1. BUSINESS - Company History." EquiVision, the Oncology Group and the Company have been parties to a number of transactions with their respective officers and directors and individuals or entities which are affiliated with such officers and directors. Pursuant to the Merger, the Company succeeded to all continuing obligations and benefits of these transactions. Effective November 1, 1996, the Company sold its Ophthalmology Division to PRG. See "ITEM 1. BUSINESS - General Overview." This Item 13 describes certain relationships and related transactions of which the Company had some obligation or benefit in the year ended December 31, 1996. In the future, any transactions between the Company and related parties, other than the defense of actions for which Dr. Colkitt has indemnified the Company, will be approved by a majority of the Company's independent directors. See "ITEM 11. EXECUTIVE COMPENSATION - Compensation Committee Interlocks and Insider Participation" for a description of certain relationships and related transactions between the Company and Dr. Colkitt. In connection with the Merger, the Company assumed the option plans of EquiVision and converted those options into options to receive shares of Common Stock. All EquiVision options described herein have been adjusted to reflect the one-for-two reverse stock split of EquiVision common stock. During 1996 and prior to the November 1, 1996 sale of the Ophthalmology Division to PRG, the Company paid $95,184 as lease expenses for a corporate office to a partnership in which Mr. Pearson is a general partner. Effective November 1, 1996, the Company's obligations under the lease were assigned to and assumed by PRG. On September 1, 1992, EquiVision acquired certain assets of The Eye Surgery Center of Louisiana, a professional medical corporation wholly owned by Stephen F. Brint, M.D., a director of the Company from February until November 1996. In 1996, the Company leased equipment from Dr. Brint and employed Dr. Brint as Medical Director of the Eye Surgery Center of Louisiana. During the year ended December 31, 1996, Dr. Brint received compensation of $427,557. In addition, Dr. Brint is a limited partner of the Ambulatory Eye Surgery Center of Louisiana of which the Company was a general partner prior to November 1996. During the year ended December 31, 1996, Dr. Brint received partnership distributions of $52,900. On November 12, 1993, in consideration of his election to the Board of Directors of EquiVision, Brian C. Smith received an option to purchase 10,000 shares of EquiVision common stock at an exercise price of $7.00 per share. The option became exercisable November 12, 1994 and expires November 12, 2000. EquiVision entered into a one-year, renewable agreement effective July 1, 1994 with B. Castle Smith & Co., Inc. ("BCSI"), a consulting firm whose principal stockholder is Mr. Smith. The agreement provides for BCSI to assist the Company with the development and implementation of its managed care strategy. In connection with the agreement, BCSI has been granted options covering an aggregate of 15,000 shares of EquiVision common stock. The options are exercisable on the first anniversary date of their issuance and expire on the seventh anniversary of issuance. For stock options granted by the Company to Mr. Smith in 1996, see "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Compensation of Directors." 38 The Company retained the services of Parkwood Motors, a corporation owned by Sharon Pearson, Larry Pearson's wife, to assist in the sale of the ophthalmic practices to PRG. Parkwood engaged financial staffing to gather due diligence and other information regarding entities to be acquired. Parkwood was entitled to a commission equal to 5% of the earn-out received by EquiMed from PRG. In 1996, such commission totalled $150,000. Certain legal services are provided on behalf of the Company by Marcy L. Colkitt & Associates, P.C., a firm of which Marcy Colkitt, Secretary and General Counsel of the Company and the sister of Dr. Colkitt, is a partner. In addition to compensation of approximately $134,000 received by Ms. Colkitt in 1996 for her services as General Counsel of the Company, Marcy L. Colkitt & Associates, P.C. received $132,263 during 1996 for the legal service provided by the firm. Fees for legal services were at a rate commensurate with those available from independent third parties. 39 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statement Schedules ----------------------------- II Valuation and Qualifying Accounts Note: All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and have therefore been omitted. (b) Forms 8-K --------- The Company filed the following Current Reports on Form 8-K during the quarter ended December 31, 1996 and through May 31, 1997:
Date of Report Items Reported -------------- -------------- October 7, 1996 5 and 7 October 10, 1996 5 and 7 January 24, 1997 5 May 28, 1997 2 and 7
(c) Exhibits --------
Exhibit No. Description ----------- ----------- 2.1 Agreement and Plan of Merger by and among Douglas R. Colkitt, Colkitt Oncology Group, Inc., EquiVision, Inc. and the Company, as amended* 3.1 Certificate of Incorporation of the Company* 3.2 By-laws of the Company* 4.1 Form of certificate evidencing Common Stock, par value $.0001 per share, of the Company* 10.10 Form of Option to Purchase Stock of Professional Corporation, as amended* 10.11 Employment Agreement between EquiVision, Inc. and Larry W. Pearson dated January 1, 1996* 10.12 Stock Option Agreement between EquiVision, Inc. and Douglas R. Colkitt, M.D. dated July 1, 1993** 10.13 Master Equipment Lease dated February 19, 1993 between D&T Leasing Limited Partnership and EquiVision, Inc.** 10.14 Form of Billing Services Agreement with National Medical Financial Services Corporation* 10.15 Form of Cancer Treatment Center Management Services Agreement* 10.16 Form of Practice Management Services Agreement (Type I)* 10.17 Form of Practice Management Services Agreement (Type II)* 10.18 Form of Stock Option Agreement* 10.19 Form of Master Assignment of the Stock Option Agreements* 10.20 Form of Stock Pledge Agreement between Colkitt and the Company* 10.21 Asset Purchase Agreement dated as of October 9, 1996 by and among EquiMed, Inc., Physicians Resource Group, Inc. and PRG Georgia, Inc.*** 10.22 Stock Purchase Agreement dated as of April 1, 1997 by and among EquiMed, Inc., Russell Data Services, Inc. and Douglas R. Colkitt, M.D.****
40 10.23 Stock Purchase Agreement dated as of April 1, 1997 by and among EquiMed, Inc., Billing Services, Inc. and Douglas R. Colkitt, M.D.**** 10.24 Stock Purchase Agreement dated as of April 1, 1997 by and among EquiMed, Inc., Trident International Accounting, Inc. and Douglas R. Colkitt, M.D.**** 10.25 Stock Purchase Agreement dated as of April 1, 1997 by and among EquiMed, Inc., Tiger Communications International Ltd. and Douglas R. Colkitt, M.D.**** 10.26 Stock Purchase Agreement dated as of April 1, 1997 by and among EquiMed, Inc., Nittany Decisions Services Private Limited and Douglas R. Colkitt, M.D.**** 10.27 Stock Purchase Agreement dated January 8, 1997 among ALR Reporting, Inc. Charles Shapiro and Walter Shapiro 10.28 Asset Purchase Agreement dated as of January 1, 1997 among Transcriptions International Inc., Prophecy Health Information Management, Inc. and Edward J. Bilotti 10.29 Stock Purchase Agreement dated as of January 1, 1997 among EquiMed, Inc., Thomas Jefferson Real Estate Corporation and Douglas R. Colkitt, M.D. 10.30 Stock Purchase Agreement dated as of January 1, 1997 among EquiMed, Inc., George Washington Real Estate Corporation and Douglas R. Colkitt, M.D. 10.31 Stock Purchase Agreement dated as of January 1, 1997 among EquiMed, Inc., Nixon Equipment Corporation and Douglas R. Colkitt, M.D. 11.1 Statement re: computation of net earnings per share 21 Subsidiaries of the Registrant 23.1 Consent of Ernst & Young LLP
--------------------------------- * Incorporated by reference to the exhibit on the Company's Registration Statement on Form SB-2 (No. 33-98058). ** Incorporated by reference to the exhibit on the Company's Registration Statement on Form SB-2 (No. 33-66510-A). *** Incorporated by reference to the exhibit on the Company's current report on Form 8-K filed October 10, 1996. **** Incorporated by reference to the exhibit on the Company's Current Report on Form 8-K filed May 28, 1997. 41 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. EQUIMED, INC. /s/ DOUGLAS R. COLKITT ----------------------- By: Douglas R. Colkitt, Chairman of the Board and Chief Executive Officer 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.
Signatures Title Date ---------- ----- ---- /s/ DOUGLAS R. COLKITT Chairman of the Board and __________, 1997 ---------------------- Chief Executive Officer Douglas R. Colkitt (Principal Executive Officer) /s/ DANIEL L. BECKETT Chief Financial Officer __________, 1997 --------------------- (Principal Financial and Daniel L. Beckett Accounting Officer) /s/ LARRY W. PEARSON Director __________, 1997 -------------------- Larry W. Pearson /s/ GENE E. BURLESON Director __________, 1997 -------------------- Gene E. Burleson /s/ BRIAN C. SMITH Director __________, 1997 ------------------ Brian C. Smith /s/ JEROME DERDEL Director __________, 1997 -------------------- Jerome Derdel, M.D.
42 Consolidated Financial Statements EquiMed, Inc. Years ended December 31, 1994, 1995 and 1996 Contents
Report of Independent Auditors........................................ F-1 Consolidated Financial Statements Consolidated Balance Sheets........................................... F-2 Consolidated Statements of Operations................................ F-4 Consolidated Statements of Stockholders' Equity and Retained Deficit.. F-6 Consolidated Statements of Cash Flows................................. F-7 Notes to Consolidated Financial Statements............................ F-9
Report of Independent Auditors To the Board of Directors and Stockholders of EquiMed, Inc. We have audited the accompanying consolidated balance sheets of EquiMed, Inc. as of December 31, 1995 and 1996 and the related consolidated statements of operations, stockholders' equity and retained deficit, and cash flows for each of the three years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EquiMed, Inc. as of December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Atlanta, Georgia May 21, 1997 F-1 EquiMed, Inc. Consolidated Balance Sheets (In thousands)
December 31 1995 1996 -------------------- Assets Current assets: Cash and cash equivalents $ 824 $ 27,010 Accounts receivable, less allowance for doubtful accounts of $2,922 in 1995 and $4,787 in 1996 4,988 6,307 Receivables from affiliates - 9,718 Deferred income taxes 547 3,171 Prepaid expenses and other current assets 658 1,607 -------------------- Total current assets 7,017 47,813 Property and equipment, at cost: Land 29 29 Buildings 3,446 5,230 Leasehold improvements 1,728 1,380 Equipment 17,973 20,252 -------------------- 23,176 26,891 Less accumulated depreciation and amortization 11,839 14,512 -------------------- Net property and equipment 11,337 12,379 Advances to principal stockholder - 5,025 Management agreements net of accumulated amortization of $44 in 1995 and $58 in 1996 1,664 5,490 Deferred income taxes 273 - Other assets, net 288 884 -------------------- Total assets $ 20,579 $ 71,591 ====================
F-2
December 31 1995 1996 ---------------------- Liabilities and capital deficiency Current liabilities: Note payable to related parties $ 725 $ - Accounts payable 1,377 1,312 Accrued salaries and benefits 249 883 Accrued contractual fees payable 2,874 2,360 Other accrued expenses 1,997 6,006 Income taxes payable 7,236 7,921 Payable to affiliates 506 7,815 Current portion of long-term debt 2,048 686 Current portion of obligations under capital leases: Related parties 596 354 Other 1,596 717 ---------------------- Total current liabilities 19,204 28,054 Long-term debt 3,188 2,431 Obligations under capital leases: Related parties 4,518 1,545 Other 2,643 1,853 Deferred income taxes - 771 Minority interest 1,171 1,473 Stockholders' Equity: Common stock, 0.0001 par value, 100,000,000 shares authorized and 28,591,474 issued and outstanding as of December 31, 1996 - 3 Additional paid-in capital 1,105 81,600 Partners' Capital 657 657 Retained deficit (11,907) (46,796) ---------------------- Total stockholders' equity (deficit) $(10,145) $ 35,464 ====================== Total liabilities and stockholders' equity (deficit) $ 20,579 $ 71,591 ======================
See accompanying notes. F-3 EquiMed, Inc. Consolidated Income Statements (In thousands)
Year ended December 31 1994 1995 1996 ------------------------------------- Net revenues $52,266 $ 58,884 $ 99,115 Costs and expenses: Professional expenses 13,486 15,054 26,479 Center operating expenses (including $896, $860 and $ 481 of lease expenses with related parties in 1994, 1995 and 1996, respectively) 14,738 18,120 42,422 General and administrative expenses (including $1,632, $2,532 and $2,255 of expenses with related parties in 1994, 1995 and 1996, respectively) 7,257 7,383 8,755 Depreciation 2,400 2,496 3,829 Amortization 163 186 2,211 Interest expense: Related parties 826 936 643 Other 1,357 1,028 1,905 Loss on sale of receivables - 885 640 Other income, net (175) (637) (723) Loss on sale of division - - 31,112 ------------------------------------- Total costs and expenses 40,052 45,451 117,273 ------------------------------------- Income (loss) before minority interest, income taxes and extraordinary charge 12,214 13,433 (18,158) Minority interest 1,947 831 1,171 ------------------------------------- Income (loss) before income taxes and extraordinary charge 10,267 12,602 (19,329) Provision for income taxes 1,704 2,404 10,613 Cumulative effect of change in income tax status - - 1,277 ------------------------------------- Total provision for income taxes 1,704 2,404 11,890 ------------------------------------- Income (loss) before extraordinary charge $ 8,563 $ 10,198 $ (31,219)
F-4 EquiMed, Inc. Consolidated Income Statements (continued) (In thousands)
Year ended December 31 1994 1995 1996 --------------------------------------- Income (loss) before extraordinary charge $ 8,563 $10,198 $(31,219) Extraordinary charge for early extinguishment of debt (net of income taxes of $ 85) - - 127 --------------------------------------- Net income (loss) $ 8,563 $10,198 $(31,346) ======================================= Earnings per share: Net loss before extraordinary charge $ (1.13) Extraordinary charge for early extinguishment of debt (0.01) ------------- Net loss $ (1.14) ============= Weighted average shares outstanding 27,577,000 ============= Supplemental unaudited pro forma information: Net income, as above $ 8,563 $10,198 Proforma adjustment to income tax expense 3,330 3,391 -------------------------- Proforma net income $ 5,233 $ 6,807 ========================== Pro forma net income per share $ 0.25 $ 0.33 ========================== Pro forma weighted average shares outstanding 20,784,000 20,784,000 ==========================
See accompanying notes. F-5 EquiMed, Inc. Consolidated Statements of Stockholders' Equity and Retained Deficit (In thousands)
Common Stock ----------------------------------- Additional Paid-in Partners' Retained Shares Amount Capital Capital Deficit Total --------------------------------------------------------------------------------------------------- Balance at December 31, 1993 - $ - - $ 277 $ (2,581) $ (2,304) Net income - - - - 8,563 8,563 Cash and deemed distributions to Dr. Colkitt and affiliates - - - - (10,730) (10,730) Capital contributions by Dr. Colkitt and affiliates - - 380 - 380 --------------------------------------------------------------------------------------------------- Balance at December 31, 1994 - - - 657 $ (4,748) $ (4,091) Net income - - - - 10,198 10,198 Cash and deemed distributions to Dr. Colkitt and affiliates - - - - (17,357) (17,357) Capital contributions by Dr. Colkitt and affiliates - - 1,105 - - 1,105 --------------------------------------------------------------------------------------------------- Balance at December 31, 1995 - - 1,105 657 (11,907) (10,145) Cash and deemed distributions to Dr. Colkitt and affiliates - - - - (3,543) (3,543) Acquisition of EquiVision, Inc. 25,122,464 3 45,578 - - 45,581 Issuance of Common Stock in connection with public offering, net of issuance cost 2,000,000 - 24,200 - - 24,200 Issuance of Common Stock in connection with acquisitions 1,464,078 - 10,690 - - 10,690 Issuance of Common Stock 4,932 - 27 - - 27 Net loss - - - - (31,346) (31,346) --------------------------------------------------------------------------------------------------- Balance at December 31, 1996 28,591,474 $ 3 $ 81,600 $ 657 $(46,796) $ 35,464 ===================================================================================================
See accompanying notes. F-6 EquiMed, Inc. Consolidated Statements of Cash Flows (In thousands)
Year ended December 31 1994 1995 1996 -------------------------------- Cash flows from operating activities Net income(loss) $ 8,563 $10,198 $(31,346) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,563 2,682 6,040 Deferred income taxes 496 127 (1,580) Minority interest 1,947 831 1,171 Loss on sale of Ophthalmology Division - - 31,112 Changes in operating assets and liabilities, net of acquired businesses: Accounts receivable, net (844) 2,169 (1,319) Receivables from/payables to affiliates (1,449) 874 (8,960) Prepaid expenses and other current assets (507) 428 (949) Accounts payable (22) 899 (68) Accrued salaries and benefits 381 (530) 634 Accrued contractual fees payable 1,994 (1,984) (514) Other accrued expenses 352 161 4,009 Income taxes payable 902 2,341 685 -------------------------------- Net cash provided by (used in) operating activities 14,376 18,196 (1,085) Cash flows from investing activities Proceeds from sale of Ophthalmology Division - - 55,077 Payments for acquisition of oncology centers, net of cash acquired (2,000) - (4,622) Purchase of property and equipment (620) (446) (3,715) Increases in advances to principal stockholder - - (5,025) Decrease (increase) in other assets 74 118 (3,112) -------------------------------- Net cash provided by (used in) investing activities (2,546) (328) 38,603
F-7 EquiMed, Inc. Consolidated Statements of Cash Flows (continued) (In thousands)
Year ended December 31 1994 1995 1996 -------------------------------- Cash flows from financing activities Proceeds from long-term debt $ 1,473 $ - $ 15,879 Repayment of long-term debt (1,173) (576) (41,416) Net payments under line of credit (25) - - Proceeds from related party sale-leaseback transactions 2,709 - - Repayment of obligations under capital leases: Related parties (622) (570) (3,215) Other (1,321) (1,240) (1,669) Repayment of note payable - - (725) Proceeds from issuance of common stock - - 24,227 Capital contributions: Primary owner 380 230 - Minority owners 250 - - Distributions: Primary owner (10,730) (17,357) (3,543) Minority owners (2,030) (96) (870) -------------------------------- Net cash used in financing activities (11,089) (19,609) (11,332) -------------------------------- Net increase (decrease) in cash and cash equivalents 741 (1,741) 26,186 Cash and cash equivalents, beginning of period 1,824 2,565 824 -------------------------------- Cash and cash equivalents, end of period $ 2,565 $ 824 $ 27,010 ================================ Supplemental disclosure of non cash investing and financing activities Related party capital lease obligations incurred to acquire equipment: $ 152 $ - $ - Issuance of capital stock for acquisitions $ - $ - $ 56,271 Liabilities assumed by the purchaser of the Ophthalmology Division $ - $ - $ 16,611
See accompanying notes. F-8 EquiMed, Inc. Notes To Consolidated Financial Statements 1. Business, Organization and Basis of Presentation On February 2, 1996, Colkitt Oncology Group, Inc. (the "Oncology Group") merged with and into EquiVision, Inc. ("EquiVision") and, immediately thereafter, effected an immediate reincorporation in Delaware and a 1-for-2 reverse stock split through a merger (the "Reincorporation Merger") with and into EquiMed, Inc. ("EquiMed" or the "Company"), a newly-formed Delaware subsidiary of EquiVision, formed for the purpose of effecting the Reincorporation Merger and reverse stock split. The Oncology Group was formed prior to consummation of the Merger to acquire all of the stock or assets of various corporations, partnerships and joint ventures which owned or controlled 30 radiation oncology centers. All share and per share amounts in this report reflect the 1-for-2 reverse stock split that was effected upon consummation of the Reincorporation Merger. The merger between the Oncology Group and EquiVision and the Reincorporation Merger are referred to collectively as the "Merger". The business combination was accounted for as a reverse purchase. As a result, the Oncology Group is considered the acquiror. The combined financial statements of the Oncology Group as the acquiring Company constitute the historical 1995 and 1994 financial statements of the Company. The consolidated financial statements of EquiVision are included in the consolidated financial statements for the period subsequent to February 2, 1996. The stockholder of the Oncology Group received 20,783,633 shares of the common stock of EquiVision as consideration in the Merger. The purchase price of EquiVision was approximately $45,600,000 and has been allocated to the assets purchased and the liabilities assumed based upon fair market value at the date of acquisition. The excess of purchase price over the fair market value of the net assets was approximately $38,000,000 and has been recorded as goodwill. On January 1, 1996, certain of the entities which comprised the Oncology Group ceased to qualify as S corporations and became subject to corporate income taxes. As a result, the Company recorded a cumulative adjustment of $1,277,000 to establish deferred income taxes for the change in tax status. These deferred taxes represent the cumulative temporary differences between financial reporting and tax reporting. Subsequent to the Merger, long-term debt and capital lease obligations were prepaid. As a result of this prepayment, the Company incurred approximately $212,000 in prepayment fees which have been reflected as a $127,000 extraordinary charge, net of income taxes. In order to effect the Merger and in connection therewith, the stockholders approved an increase of the shares of common stock of the Company from 20,000,000 shares to 100,000,000 shares. On February 14, 1996, the Company consummated the sale of 2,000,000 shares of common stock in connection with a public offering at $14 per share. Net proceeds from the offering were approximately $24,200,000. On October 15, 1996, the Company registered 10,000,000 shares of its common stock, par value $ .0001 per share. F-9 EquiMed, Inc. Notes To Consolidated Financial Statements (continued) 1. Business, Organization and Basis of Presentation (continued) Effective November 1, 1996, the Company consummated the sale of the ophthalmology physician practice management and ambulatory center business of the Company, formerly doing business as EquiVision (hereafter referred to as the "Ophthalmology Division"), effective as of October 31, 1996. The consideration consisted of approximately $55,077,000 in cash and the elimination of approximately $16,611,000 of liabilities related to the Ophthalmology Division. As a result of the sale, the Company recorded a loss of approximately $31,112,000. Included in the loss on the sale of the Company's Ophthalmology Division is an impairment charge of approximately $24,200,000 which the Company previously reflected in its September 30, 1996 interim financial statements based upon its estimate of the expected consideration to be received upon the consummation of the sale on November 5, 1996. The operating results of the Ophthalmology Division included in the Company's 1996 results of operations are as follows:
1996 ---- Net revenues $ 42,250 Costs and expenses Professional expenses 12,217 Center operating expenses 23,787 General and administrative expenses 1,783 Depreciation and amortization 3,224 Interest expense 1,279 Other income, net (29) Loss on sale of division 31,112 ----------- Total costs and expenses 73,373 ----------- Loss before income taxes (31,123) Provision for income taxes 5,456 ----------- Net loss $(36,579) =========== Net loss per share $ (1.33) ===========
Since the date of the Merger and prior to the consummation of the sale, the Ophthalmology Division acquired various ophthalmology medical practices for approximately $12,880,000. The pro forma results of these acquisitions have not been presented as they are not reflective of the Company's ongoing operations. F-10 EquiMed, Inc. Notes To Consolidated Financial Statements (continued) 1. Business, Organization and Basis of Presentation (continued) The Company is comprised of radiation and medical oncology centers and affiliated medical practices located in Pennsylvania, New York, New Jersey, Illinois, Florida, North Carolina, Arizona, Massachusetts and Maryland. Certain of the centers are structured as limited partnerships. A corporation, wholly- owned by Dr. Colkitt, principal shareholder of the Company, Oncology Services Corporation ("OSC"), provided accounting, technical and management services through the date of the Merger to the centers and has charged the centers a management fee. OSC was not included in the Oncology Group and all of the services previously provided by OSC were included within the Oncology Group, except for accounting, billing and collections as disclosed in Note 13. For purposes of the accompanying consolidated financial statements, the actual expenses of OSC, which pertain to the Oncology Group are recorded in these consolidated financial statements through the date of the Merger, and the difference between the management fee charged by OSC and its actual expenses are recorded as distributions to Dr. Colkitt. In addition, the Company has entered into long term management agreements with certain professional corporations ("PCS") owned or controlled by the Company. These PCs employ physicians, who provide professional medical care to patients. Under the terms of the management agreements, the Company is responsible for billing and collecting the receivables of the PCs. Although the PCs have legal title to all receivables, the Company is an agent of the PCs and, accordingly, receivables, revenues and professional services of the PCs are included in the consolidated financial statements. Options to purchase two of the Company's oncology centers are presently held by third parties, exercisable prior to 1999. The option price in each case is derived from a market-value formula based on the center's income. On June 1, 1996, EquiMed India Private Limited ("EquiMed India"), a subsidiary of the Company formed to obtain contracts for accounting and billing services, began operations in Madras, India. The Company had earnings in India from this subsidiary of $1,881,000 during the year ended December 1996. As discussed in Note 13, these earnings were derived from a contract to provide accounting and billing services to Anesthesia Solutions, Inc., a company wholly-owned by Dr. Colkitt. The United States dollar is the functional currency for EquiMed India. All significant intercompany accounts and transactions have been eliminated. Certain amounts in the 1995 and 1994 financial statements have been reclassified to conform to the 1996 presentation. F-11 EquiMed, Inc. Notes To Consolidated Financial Statements (continued) 2. Summary of Significant Accounting Policies Cash Equivalents Cash equivalents include investments in highly liquid instruments with a maturity of three months or less at the date of purchase. Accounts Receivable Accounts receivable include receivables from patients for medical services provided. Such amounts are recorded net of contractual allowances and estimated bad debts. These receivables are geographically dispersed throughout the United States and are paid by government sponsored health care plans (primarily Medicare and Medicaid), insurance companies, employer self-insurance plans, and self-insured patients. Concentration of Credit Risk The Company's principal financial instrument subject to potential concentration of credit risk is trade accounts receivable for which the Company does not generally require collateral. The concentration of credit risk with respect to trade accounts receivable is limited due to the large number of payors and their dispersion across many different government sponsored health care plans, insurance companies, individuals and geographic locations. Substantially all accounts receivable at December 31, 1995 and 1996 are due from third party payors. Property and Equipment Property and equipment are recorded at cost. Equipment under capital leases is recorded at the net present value of the future minimum lease payments at the inception of the related leases. Depreciation of property and equipment (which includes amortization of assets under capital leases) is provided using the straight-line method over the estimated useful lives (or the term of the related lease, if less) ranging from five to eight years for equipment, from five to 15 years for leasehold improvements and from 30 to 39 years for buildings. F-12 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) Other Assets Other assets consist primarily of costs of obtaining management agreements and non-compete agreements. Costs of obtaining management agreements are amortized on a straight-line basis over the non-cancelable term of the agreements, 40 years for the Company's current agreements. Non-compete agreements are amortized on a straight-line basis over periods ranging from three to five years, which represent the shorter of the economic value or the term of the respective agreements. The carrying value of intangible assets and other long-lived assets is reviewed whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If this review indicates that the asset will not be recoverable, as determined based on the undiscounted cash flows of the operating entity or asset over the remaining amortization period, the carrying value of the asset will be reduced to its fair value. Accrued Contractual Fees Physicians associated with the Company received compensation in accordance with a contractual formula based upon cash receipts. Accrued contractual fees of approximately $950,000, $1,395,000 and $1,638,000 at December 31, 1994, 1995 and 1996, respectively, represent fees based on accounts receivable at the respective dates. Income Taxes Prior to January 1, 1996, certain of the entities comprising the Company were S corporations or partnerships. For these entities, the owners or partners assumed responsibility for the income tax of such entities. Accordingly, income taxes prior to January 1, 1996 excluded the taxable income of such entities. The unaudited pro forma adjustment to income tax expense for the years ended December 31, 1994 and 1995 represents the federal and state income taxes at the applicable statutory rate for these entities. For the entities comprising the Company that are C corporations or that are C corporation subsidiaries, income taxes have been provided in accordance with Statement of Financial Accounting Standards No. 109. Deferred taxes arise primarily from the recognition of revenues and expenses in different periods for income tax and financial reporting purposes. Effective January 1, 1996, the Company became liable for income taxes for all of its subsidiaries and accordingly provides for income taxes in accordance with Statement of Financial Accounting Standards No. 109. F-13 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) Capital Deficiency Prior to the Merger, as part of the primary owner's cash management strategy, available cash generated at the centers comprising the Company was generally transferred from the centers to OSC and other affiliates of Dr. Colkitt. Such transfers have been treated as deemed distributions. In addition, for those centers comprising the Oncology Group requiring cash for operations, cash was generally transferred from OSC or other affiliates of Dr. Colkitt. These cash transfers were recorded on the centers' books as amounts due to or from affiliates. No interest income or expense was applied to these receivables and payables. On a combined basis, the Oncology Group has been a net provider of cash to OSC and other affiliates of Dr. Colkitt. As it is not the owner's intention to repay or request repayment of certain of these amounts, such amounts have been reflected as deemed distributions to Dr. Colkitt. Stock-Based Compensation The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no compensation expense for the stock option grants. A recently issued accounting standard encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in previously issued standards. Earnings Per Share Earnings per share of common stock for 1996 is computed on the basis of the weighted average shares of common stock outstanding plus common equivalent shares arising from the effect of dilutive stock options using the treasury stock method. The weighted average number of shares of common stock and common equivalent shares outstanding for the calculation of primary and fully diluted earnings per share was 27,577,000 in 1996. F-14 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 2. Summary of Significant Accounting Policies (continued) Pro Forma Financial Information (Unaudited) Net income per share for the years ending December 31, 1994 and 1995 reflects pro forma adjustments to income tax expense of $3,330,000 and $3,391,000, respectively. The weighted average number of shares used to calculate the 1994 and 1995 pro forma net income per share amounts represent the number of shares of EquiVision common stock that the Oncology Group received as part of the Merger. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results inevitably will differ from those estimates and such differences may be material to the financial statements. Accounting Pronouncements In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard no. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" which becomes effective for transactions occurring after December 31, 1996. The adoption of this standard is not expected to have a material effect on the Company's financial position or results of operations. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard no. 128 "Earnings per Share" ("SFAS 128"), which will change the current method of computing earnings per share. The new standard requires presentation of "basic earnings per share" and "diluted earnings per share" amounts, as defined. SFAS 128 will be effective for the Company's quarter and year ending December 31, 1997, and upon adoption, all prior-period earnings and per share data presented will be restated to conform with the provisions of the new pronouncement. Application earlier than the Company's quarter ending December 31, 1997 is not permitted. The Company does not believe the application of the new standard will materially impact the financial statements. F-15 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 3. Net Revenues Net revenues are recorded at established rates reduced by allowances for contractual adjustments. Contractual adjustments arise due to the difference between the Company's established rates for services and the amounts allowed for such services by government sponsored healthcare programs and by others. The following represents amounts included in the determination of net revenues (in thousands):
1994 1995 1996 ------------------------------ Gross revenues $73,210 $93,525 $159,944 Less provision for contractual adjustments 20,944 34,641 60,829 ------------------------------ Net revenues $52,266 $58,884 $ 99,115 ==============================
The Group derived approximately 48%, 51% and 46% of its net revenue from services provided under the Medicare and state Medicaid programs in 1994, 1995, and 1996, respectively. Substantially all of the Company's accounts receivable at December 31, 1994, 1995, and 1996 are due from third party payors. The Company does not provide significant charity care to patients. F-16 EquiMed, Inc. Notes To Consolidated Financial Statements (continued) 4. Acquisitions In March 1994, the Company acquired substantially all the assets, other than accounts receivable, of a radiation oncology and a diagnostic oncology practice located in Brooklyn, New York. The selling physician entered into a non-compete agreement for an aggregate consideration of $2,000,000 in cash and $1,000,000 in notes. Concurrent with this acquisition, the equipment acquired with an estimated fair value of $1,500,000 was sold to a related party for $2,709,000 in cash. These cash proceeds were used to fund the cash portion of the Company's consideration for the acquisition and for working capital of the Brooklyn center. The equipment was leased from the related party under capital leases with an aggregate obligation of $2,709,000. For purposes of the accompanying financial statements, a gain was not recognized on the initial sale of the equipment to the related party. On January 1, 1995, the property and equipment of a radiation oncology practice located in Tampa, Florida were acquired by a leasing company owned by Dr. Colkitt. The Company purchased the accounts receivable of the center for $250,000 and is leasing, under operating leases, the property and equipment of the Tampa center from the related party leasing company. On June 1, March 1, and August 29, 1996, the Company acquired the primary operating assets of three medical practices and obtained 40 year management agreements with the professional corporations of these medical practices for approximately $5.5 million consisting of approximately 315,000 shares of the Company's common stock with a market value at the time of acquisition of approximately $3.0 million and $2.5 million in cash. Approximately $3,864,000 of the consideration paid has been allocated to the management agreements and is being amortized over the term of the management agreements. The 1996 acquisitions were accounted for using the purchase method. The financial results of the acquisitions have been included in the consolidated financial statements of the Company from the date of their acquisition. The unaudited pro forma effect of the acquisitions as if they occurred on January 1 of the year preceeding the year of acquisition are as follows (in thousands, except per share amounts):
1995 1996 ------------------- Net revenue $61,554 $100,401 ======= ======== Net income/(loss) before extraordinary charge $11,148 $(30,757) ======= ======== Net income/(loss) $11,148 $(30,884) ======= ======== Net income/(loss) per share $ 0.53 $ (1.11) ======= ========
F-17 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 4. Acquisitions (Continued) Since the date of the Merger and prior to the consummation of the sale, the Ophthalmology Division acquired various ophthalmology medical practices for approximately $12,880,000. The pro forma results of these acquisitions have not been presented as they are not reflective of the Company's ongoing operations. 5. Amendment of Revolving Credit Agreement On May 14, 1996, the Company entered into an amendment of its $20,000,000 revolving Credit Agreement ("Credit Agreement") with a bank. The amendment shortened the remaining term of the Credit Agreement to November 30, 1996 and limited (i) future borrowings under the facility to $15,000,000 and (ii) acquisitions to an aggregate of $50,000,000. In connection with the sale of the Ophthalmology Division on November 5, 1996, the Company used a portion of the proceeds from this transaction to repay and terminate the Credit Agreement. F-18 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 6. Long-Term Debt Long-term debt consists of the following at December 31, 1995 and 1996 (in thousands):
December 31 1995 1996 -------------------- Mortgages payable to various institutional lenders; bearing interest at 7.19% to 10.96%; payable in monthly installments of principal and interest ranging from $3,000 to $12,000 due at various dates through 2001 $1,617 $1,972 Notes payable to various institutional lenders and former minority shareholders; bearing interest at 10.22% to 11.5%; payable in monthly installments of principal and interest ranging from $4,000 to $14,000; due at various dates through 2001 1,569 $1,145 Term notes payable; bearing interest at 8%; payable in monthly installments of principal and interest ranging from $3,000 to $7,000; due in 1999 1,213 - Other 837 - ----------------- 5,236 3,117 Less amounts due within one year 2,048 686 ----------------- $3,188 $2,431 =================
The above debt is secured by assets with a net book value of $2,405,000 and $2,473,000 at December 31 1995 and 1996, respectively. Certain debt obligations contain restrictive covenants which limit, among other things, change of ownership of the centers. As of December 31, 1996, the Company has complied with existing loan covenants. F-19 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 6. Long-Term Debt (continued) As of December 31, 1996, the aggregate amounts of annual principal maturities of long-term debt (excluding capital lease obligations) are as follows (in thousands):
December 31, 1996 -------------------------------------------- 1997 $ 686 1998 452 1999 790 2000 175 2001 879 Thereafter 135 -------- $3,117 ========
Interest paid (including interest paid on capital lease obligations) during the years ended December 31, 1994, 1995 and 1996 was $2,093,000, $3,081,000, and $1,864,000 respectively. 7. Leases The Company leases office space as well as certain equipment and automobiles under capital leases and noncancelable operating lease agreements which expire at various dates. Certain of these leases are with entities in which Dr. Colkitt is the sole shareholder or a principal shareholder. The Oncology Group, predecessor entity to the Company, entered into several sale-leaseback transactions with D&T Leasing Limited Partnership ("D&T"), a partnership in which Dr. Colkitt is the general and controlling partner. In connection with this transaction, the Oncology Group, predecessor entity to the Company, sold to D&T property and equipment with a net book value of approximately $316,000 for cash consideration of approximately $1,359,000 and leased the property and equipment back from D&T under capital leases. Due to the related party nature of the sale-leaseback transactions, the property and equipment are shown in the accompanying balance sheets at their historical cost of $965,000 and are being depreciated based upon this historical cost and their original purchase dates. The related capital lease obligation was approximately $1,113,000 and $631,000 at December 31, 1995 and 1996, respectively and is included in obligations under capital leases in the accompanying balance sheets. No gain was recognized in the accompanying consolidated financial statements in connection with these transactions F-20 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 7. Leases (continued) The Company is the lessee in two capital leases under which the lessor has the option to require the Company to purchase the leased assets in 1998 for approximately $1,273,000. In addition, the Company has the option to purchase the leased assets in 1998 for approximately $1,403,000. The Company's obligation under the lessor's put option is included in capital lease obligations in the accompanying balance sheets. At December 31, 1996, minimum annual lease commitments under capital leases are as follows (in thousands):
Related Parties Others --------------------- 1997 $ 694 $ 1,066 1998 657 1,751 1999 651 113 2000 788 67 2001 - 67 Thereafter - 112 --------------------- Total minimum lease payments 2,790 3,176 Less - amounts representing interest 891 606 --------------------- Present value of minimum capital lease payments 1,899 2,570 Less - current portion of obligations under capital leases 354 717 --------------------- Long-term obligations under capital leases, net of current portion $ 1,545 $ 1,853 =====================
Assets under capital leases at December 31, 1995 and 1996 are as follows (in thousands):
1995 1996 ---------------------- Buildings $ 1,579 $ 1,579 Equipment 14,494 9,590 ---------------------- 16,073 11,169 Accumulated amortization (8,028) (6,939) ---------------------- $ 8,045 $ 4,230 ======================
F-21 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 7. Leases (continued) At December 31, 1996, minimum annual rental commitments under noncancelable operating leases with terms in excess of one year are (in thousands):
Related Parties Others --------------------------- 1997 $1,144 $ 1,273 1998 584 1,174 1999 412 1,083 2000 84 1,091 2001 84 1,080 Thereafter 1,229 6,859 --------------------------- $3,537 $12,560 ===========================
Rent expense related to all operating leases amounted to approximately $2,075,000, $2,119,000 and $3,937,000 in 1994, 1995 and 1996, respectively. Rent expense under operating leases with related parties amounted to approximately $896,000, $860,000 and $575,000 in 1994, 1995 and 1996, respectively. F-22 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 8. Partnerships At December 31, 1994 and 1995, and through the date of the Merger, the Oncology Group, predecessor entity to the Company, included the accounts of 45 and 49 corporations, respectively. Each of these corporations had 1,500 authorized common shares at no par value and had 100 common shares issued and outstanding for which only nominal amounts were paid. Through the date of the Merger, the Oncology Group, predecessor entity to the Company, also included partnerships of which Dr. Colkitt or an entity wholly owned by Dr. Colkitt was the sole general partner. Under the terms of the partnership agreements, Dr. Colkitt or an entity wholly owned by Dr. Colkitt exercised unilateral control over these partnerships. Effective with the Merger, the Company became the sole general partner of these new partnerships. These partnerships were capitalized as follows at December 31, 1995.
Company's Partnership Portion of Outstanding Units Owned by Partnership Partnership the Company Capital (in Name of Partnership Units thousands) - -------------------------------------------------------------------------------- Albemarle Regional Cancer Center Limited Partnership 100 50 $201 Lawnwood Regional Cancer Center Limited Partnership 100 50 $352 Jefferson Radiation Oncology Center Limited Partnership 40 20 $85 St. Lucie County Radiation Oncology Limited Partnership 100 50 $- Greenbelt Cancer Treatment Center 100 50 $19
F-23 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 9. Stockholders' Equity The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Upon the acquisition of EquiVision, the Company adopted and amended the stock based compensation plans of EquiVision to include all of its employees, consultants, and directors. In connection with the adoption of these plans, the chairman of the Company was granted nonqualified stock options to purchase 500,000 shares of the Company's stock at $50.00 per share. The options are exercisable and expire in 2003. The Company granted a total of 1,092,500 options including the options granted to the chairman of the Company, to certain employees, directors and consultants to purchase shares of the Company's stock in connection with the merger at prices ranging from $7.00 to $50.00. These options expire in years beginning 2003 through 2006. The Company granted subsequent to the merger non-qualified stock options to purchase 56,500 shares of stock at prices ranging from $8.63 to $13.13 per share to directors and consultants. These options vest within a one year period from the date of the grant and expire in 2006. Also in connection with the Merger, the Company adopted and maintains the former EquiVision Stock Option Plan (the "Plan"). The Plan permits the Company to grant up to 1,000,000 options to employees, directors and consultants at the fair value of shares on the effective date of grant. In connection with the merger, the Company granted 492,966 options to purchase shares of the Company's common stock at prices ranging from $2.84 to $15.10. These options vest within a one year period and expire in ten years. During 1996, the Company granted an additional 199,358 options to purchase shares of the Company's stock at prices ranging from $11.50 to $15.10. These options vest within a one year period and expire in ten years. In connection with the sale of the Company's Ophthalmology Division approximately 572,000 options were not exercised and subsequently forfeited by the Company's former Ophthalmology Division employees. At December 31, 1996, there were approximately 10,000 options outstanding to employees and directors, respectively, under the Plan. At December 31, 1996, approximately 990,000 shares were available for future grants under the Plan. F-24 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 9. Stockholders' Equity (continued) Pro forma information regarding net income and earnings per share is required by Statement 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The Company did not grant stock options prior to January 1, 1996. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996: risk-free interest rate of 6.7%; a dividend yield of 0%; volatility factors of the expected market price of the Company's common stock of .464; and a weighted- average expected life of the option of five years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands except for earnings per share information):
1996 ---- Pro forma net loss $(31,419) Pro forma net loss per share $ ( 1.14)
A summary of the Company's stock option activity, and related information for the year ended December 31, 1996 follows:
Options Weighted-Average (000) Exercise Price ----- -------------- Outstanding-beginning of year - $ - Granted 1,841 21.98 Exercised (5) 5.47 Forfeited (769) 10.31 ------ ------ Outstanding-end of year 1,067 $28.79 ====== ====== Exercisable at end of year 1,065 $28.83 Weighted-average fair value of options granted during the year $4.71
F-25 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 9. Stockholders' Equity (continued) Exercise prices for options outstanding as of December 31, 1996 ranged from $5.68 to $50.00. The weighted-average remaining contractual life of those options is 8 years. In 1995, the Company issued to the bank a stock purchase warrant to purchase 150,000 shares of its common stock at an exercise price of $4.31 per share. The warrant expires in February 2005 and may be exercised at any time at the option of the warrant holder. Under the terms of the warrant agreement, the warrant holder has certain registration rights and antidilution protection from future equity securities issued at below fair market value, and can restrict the payment of dividends to any class of capital stock. 10. Income Taxes Effective January 1, 1996, certain entities comprising the Oncology Group, predecessor to the Company, terminated their election to be taxed as S corporations. As a result of these terminations, the Company became liable for income taxes relating to these entities. Accordingly, as a required by generally accepted accounting principles, the Company recorded deferred tax assets and liabilities on temporary differences between the income tax basis and book basis of certain assets and liabilities. The effect of recording these net deferred tax liabilities upon the results of operations for the year ended December 31, 1996 was approximately $1,277,000 ($0.05 per share). The provision (benefit) for income taxes includes the following components (in thousands):
1994 1995 1996 ------------------------------------------- Current: Federal $ 942 $1,822 $12,005 State 266 455 2,119 Deferred: Federal 382 102 (2,984) State 114 25 (527) ------------------------------------------- Total $1,704 $2,404 $10,613 ===========================================
F-26 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 10. Income Taxes (continued) A reconciliation between reported income tax expense and the amount computed by applying the statutory federal income tax rate of 34% is as follows (in thousands):
1994 1995 1996 ------------------------------ Computed tax expense/(benefit) $ 4,148 $ 4,567 $(6,572) State taxes 251 336 (1,160) Nondeductible loss related to sale of the Ophthalmology Division - - 17,967 Income earned in jurisdictions not taxed in the United States - - (752) Tax effect of S corporation and partnership income (3,330) (3,391) - Federal pro forma benefit for certain losses 429 - - State tax effect of S corporation and partnership income 500 500 - Minority interest pro forma taxes (514) (134) - Penalties and interest 303 902 1,199 Other, net (83) (376) (69) ------------------------------ Total $ 1,704 $ 2,404 $10,613 ==============================
F-27 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 10. Income Taxes (continued) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1995 and 1996 are (in thousands):
December 31 1995 1996 ----------------- Deferred tax assets: Accrued physicians' $ 175 $ 936 compensation Accounts payable and other accrued liabilities 475 497 Accrued liability relating to the sale of the Ophthalmology Division - 2,000 Property and equipment 170 - Net operating losses 29 - ----------------- Total deferred tax assets 849 3,433 Deferred tax liabilities: Property and equipment - 751 Other - 282 ----------------- - 1,033 Valuation allowance (29) - ----------------- Net deferred tax assets $ 820 $ 2,400 =================
The Company made federal and state income tax payments of approximately $397,000, $0, and $12,600,000 in 1994, 1995 and 1996, respectively. 11. Employee Benefit Plans In connection with the Merger, the Company merged its qualified defined contribution plans with the qualified defined contribution plan of EquiVision. The Company's merged qualified defined contribution plan covers substantially all of the employees of the Company. The plan permits participants to make voluntary contributions. The Company pays all general and administrative expenses of the plan and makes matching contributions on behalf of the employees. The Company made contributions related to these plans totaling approximately $56,000, $57,000 and $158,000 in 1994, 1995 and 1996, respectively. F-28 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 12. Commitments and Contingencies In connection with the Merger, Dr. Colkitt has indemnified the Company from any income tax liabilities, if any, not reflected in the financial statements of the Oncology Group related to any period or periods prior to the Merger (the "General Indemnification Agreement"). On March 21, 1996, the Company entered an appearance as a plaintiff to a declaratory judgment action commenced August 30, 1995, in the Delaware Court of Chancery. The litigation seeks a declaration that the merger of the non-professional component of eight oncology centers into the Oncology Group prior to the Merger was effected in accordance with applicable Delaware law and that the merger consideration was fair to the interests held by minority shareholders (the "Minority Holders") in connection with the purchase of their shares. The Minority Holders have filed answers and counterclaims in the Delaware action against the Company and other counterclaim defendants for breach of fiduciary duty, breach of contract, fraud and other violations of Delaware statutory law. The counterclaims seek rescision of the August 1995 mergers of the eight corporations and compensatory and / or rescissory damages. The Minority Holders allege that the value of their holdings that were cancelled pursuant to these mergers exceeded $50,000,000. While Dr. Colkitt and the entities that were merged into the Company pursuant to the Merger believe they have meritorious defenses to the allegations of the Minority Holders, Dr. Colkitt has entered into an agreement with the Company to fully indemnify the Company against any damage, loss, expense or liability, including attorneys' fees and expenses, incurred by the Company resulting from the litigation with the Minority Holders (the "MH Indemnification Agreement"). As a part of the General and MH Indemnification Agreements, Dr. Colkitt is required to place shares of the Company's stock held by him with the Company. Dr. Colkitt has placed shares of the Company's stock with the Company based upon the Company's estimate of any potential damage, loss, expense or liability, including attorneys' fees and expenses, which may be incurred by the Company resulting from the litigation with the Minority Holders and from any income tax liabilities not reflected in the financial statements of the Oncology Group related to any period or periods prior to the Merger. F-29 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 12. Commitments and Contingencies (continued) On May 15, 1997, the Company filed a Demand for Arbitration before the American Arbitration Association in Philadelphia, Pennsylvania to enforce certain terms of the Asset Purchase Agreement (the "Agreement") relating to the sale of the Company's Ophthalmology Division and to recover damages for breach of the Agreement by the purchaser of the Company's Ophthalmology Business (the "Purchaser"). Under the Agreement, the Company sold substantially all of the assets of its Ophthalmology Division to the Purchaser and also agreed, during the period beginning November 1996 and ending April 1997, to assist the Purchaser in the acquisition of additional ophthalmology practices. In return for such additional services, the Company is entitled to receive from the Purchaser certain fees and expenses based upon the status of such additional acquisitions as of May 15, 1997. The Purchaser failed to make the May 15, 1997 payment to the Company and has advised the Company that it does not intend to make such payment. Under the Demand for Arbitration, the Company is also seeking damages in connection with the Purchaser's refusal to provide the Company's representatives with access to financial records of the Ophthalmology Division. There can be no assurance that the Purchaser will not assert a material counterclaim against the Company. The Company is insured with respect to medical malpractice risks on a claims-made basis. Should these claims-made policies not be renewed or replaced with equivalent insurance, claims based on occurrences during the term of the respective policies, but asserted subsequently would be uninsured. The Company has been named in two actions relating to professional liability claims at one of its ophthalmology centers. The claims pertain to a period when the Company was partially self insured for that center. The Company intends to defend these claims vigorously and believes it has meritorious defenses. Management believes the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position or the results of operations. F-30 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 12. Commitments and Contingencies (continued) At December 31, 1995 and 1996, the Company has several other malpractice claims outstanding which have arisen in the normal course of business. In addition, it is possible that certain incidents may have occurred which have not been reported as of this date. The Company has policies and procedures in place to track and monitor incidents of significance. Based on management's knowledge of the facts to date, consultation with its legal advisors and extent of existing insurance coverages, management believes the ultimate disposition of these matters will not have a material adverse effect on the Company's financial position or the results of operations. 13. Related-Party Transactions The receivable from affiliates of approximately $9,718,000 as of December 31, 1996 consists of amounts due from companies majority-owned by the Company's primary shareholder. The advances to the principal shareholder of $5,025,000 at December 31, 1996 consists of amounts advanced for the acquisition of companies wholly owned by the principal shareholder. Included in payables to affiliates is approximately $6,555,000 payable to the principal owner of a medical practice acquired during 1996 which the Company purchased for approximately $9,000,000 worth of the Company's common stock. In connection with this acquisition, the Company guaranteed that the market value of the common stock would not fall below the market value of the stock at the time of acquisition. The $6,555,000 represents amounts due as of December 31, 1996 in connection with the guarantee. In July 1995, the Company terminated its $1,000,000 line of credit with a bank. The outstanding balance of approximately $725,000 on the line of credit was repaid by OSC in exchange for a note from the Company due in one year and bearing interest at 9%. The note was paid during 1996. F-31 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 13. Related-Party Transactions (continued) On October 1, 1994, the Company contracted with National Medical Financial Services ("NMFS"), a public company in which Dr. Colkitt is the Chairman and primary and controlling shareholder, to perform billing services for the Company. The contract provided that NMFS would receive a fee of 10% of collected revenues for these services. In addition, NMFS agreed to collect the Company's outstanding accounts receivable at October 1, 1994 for a fee of 3% of the amounts collected. Concurrent with this transaction, the employees of the Company's in-house billing department were transferred to Billing Services, Inc. ("BSI"), a company in which Dr. Colkitt is the primary and controlling shareholder. NMFS contracted with BSI to perform the billing services for the Company. Effective January 1, 1995, the contract with NMFS was renegotiated and the fee for billing services was reduced to 3% of collected revenues. In addition, NMFS agreed to begin performing accounting services for the Company for a fee of 1% of collected revenues. As a result of the above, a portion of the Company's accounting personnel were transferred to BSI. The Company expensed $1,673,000, $2,534,000 and $2,255,000 for billing services provided by NMFS during the three months ended December 31, 1994 and the years ended December 31, 1995 and 1996, respectively. Included in payables to affiliates is approximately $817,000 owed to NMFS by the Company relating to these services. The actual costs of accounting, technical and management services provided by OSC, as described in Note 1, of approximately $5,690,000, $4,849,000 and $595,000 for 1994, 1995, and for the month ended January 31, 1996, respectively, are included in general and administrative expenses. Subsequent to the Merger, these services were no longer provided by OSC. On June 1, 1996, EquiMed India, a wholly-owned subsidiary of the Company formed to obtain contracts for accounting and billing services, began operations in Madras, India. EquiMed India had revenues and net income of approximately $2,100,000 and $1,900,000, respectively principally related to a contract for accounting and billing services with Anesthesia Solutions, Inc., a company wholly-owned by Dr. Colkitt. EquiMed India subcontracts with Nittany Decisions Private LTD, a company 80% owned by Dr. Colkitt, to provide the accounting and billing services for Anesthesia Solutions, Inc. According to the contract terms, EquiMed India retains approximately 10% of the revenues billed for Anesthesia Solutions, Inc. and pays Nittany Decisions Private LTD its costs and an agreed upon rate of return. EquiMed India is exempt from income taxes payable to agencies of the Indian government and the local provincial government based upon agreements with these agencies when EquiMed India was incorporated. At December 31, 1996, EquiMed India has trade receivables of approximately $2,000,000 which primarily represent receivables for the services from Anesthesia Solutions, Inc. F-32 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 13. Related-Party Transactions (continued) The Company entered into a receivable purchase agreement in April 1995. Under the terms of the agreement, receivables are transferred to Oncology Funding Corporation (a company that is wholly-owned by Dr. Colkitt) which then factors the receivables with an unrelated financing company, John Alden Asset Management Company ("Alden"). The factored receivables may be denied by Alden for various reasons including nonpayment by the payor. The transfer of receivables to Alden is recognized as a sale, and the difference between the sales price (adjusted for the accrual of probable adjustments) and the net receivables is recognized as a gain or loss on the sale of receivables. Proceeds to the Company from receivables sold under this agreement were approximately $27,393,000 and $45,726,000 for the years ended December 31, 1995 and 1996, respectively. During 1995 and 1996, the Company failed to comply with certain covenants of the receivable purchase agreement. Remedies available to Alden due to these events of noncompliance include termination of the receivables purchase agreement. The balance of the receivables transferred that remain uncollected was approximately $4,250,000 and $4,896,000 at December 31, 1995 and 1996, respectively. The Company retained the services of Parkwood Motors, a company owned by the President and Chief Executive Officer's wife, to assist in the sale of the Ophthalmology Division. Parkwood Motors provides staffing to gather due diligence and other information regarding entities to be acquired. Parkwood Motors was entitled to a commission equal to 5% of the earnout received by EquiMed from the purchaser of the Ophthalmology Division. In the year ended December 31, 1996, such commissions approximated $150,000. Certain legal services are provided on behalf of the Company by a law firm in which Dr. Colkitt's sister is a partner. This law firm received approximately $132,000 for these services during the year ended December 31, 1996. F-33 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 14. Financial Instruments The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and Cash Equivalents, Accounts Receivable, Other Accounts Receivable, Prepaid Expenses and Other Current Assets, Accounts Payable and Accrued Expenses The carrying amount reported in the balance sheet for cash and cash equivalents, accounts receivable, other accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate fair values because of the short maturities of the financial instrument. Long Term Debt and Capital Leases The carrying amounts reported in the balance sheet for long term debt and capital leases approximate fair value since the debt and leases bear interest at rates which approximate current market rates. F-34 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 15. Quarterly Financial Data (unaudited) The following is a summary of the unaudited quarterly financial information for the years ended December 31, 1996 and 1995 (in thousands except per share amounts).
Year ended December 31, 1996 Quarters ended March 31 June 30 Sept. 30 Dec. 31 -------------------------------------------------------------------------- Net revenues $20,732 $29,410 $ 29,046 $ 19,927 Net (loss) income before extraordinary charge 508 2,711 (21,673) (12,765) Net (loss) income 381 2,711 (21,673) (12,765) (Loss) earnings per share: Net (loss) income before extraordinary charge 0.02 0.10 (0.76) (0.49) Net (loss) income 0.02 0.10 (0.76) (0.49) Year ended December 31, 1995 Quarters ended March 31 June 30 Sept. 30 Dec. 31 -------------------------------------------------------------------------- Net revenues $ 15,014 $ 15,188 $ 13,963 $ 14,719 Net income 2,977 3,043 2,631 1,547 Pro forma net income 2,116 2,057 1,831 803 Pro forma earnings per share 0.10 0.10 0.09 0.04
16. Loss on Sale of Division The Company has reflected in its financial statements a pretax loss of approximately $31,112,000 on the sale of its Opthalmology Division on November 5, 1996. The Company had previously reflected approximately $24,200,000 as an impairment charge in its September 30, 1996 interim financial statements based upon its expectation of the final sales price for this business. 17. Subsequent Events In January 1997, the Company formed two wholly-owned subsidiaries for the purpose of acquiring a medical transcription company and a court reporting company. The two companies were acquired in January 1997 for approximately $5,000,000 in cash plus a potential earn-out of $300,000 payable in cash. These acquisitions have been accounted for as purchases. Revenues related to these companies were approximately $5,200,000 for the year ended December 31, 1996. F-35 EquiMed, Inc. Notes to Consolidated Financial Statements (continued) 17. Subsequent Events (continued) In February 1997, the Company acquired the primary operating assets of two medical practices and obtained 40 year management agreements with the professional corporations of these medical practices for approximately $4,439,000 in cash. Approximately $4,100,000 of the consideration paid has been allocated to the management agreements. These acquisitions have been accounted for as purchases. Revenues related to these medical practices were approximately $5,604,000 million for the year ended December 31, 1996. In addition, during February 1997, the Company acquired several equipment and real estate leasing companies wholly owned by Dr. Colkitt for approximately $2,739,000 in cash. These acquisitions have been accounted for as purchases. Revenues related to these equipment and real estate leasing companies were approximately $2,996,000 for the year ended December 31, 1996. In May 1997, the Company acquired Russell Data Services, Inc., Nittany Decisions Services Private Limited, Trident International Accounting, Inc., Billing Services, Inc., and Tiger Communications International LTD. for approximately $6,000,000 in cash and a potential earnout up to $9,300,000 payable in the Company's common stock. These acquisitions have been accounted for as purchases. Russell Data Services, Inc., Trident International Accounting, Inc., Billing Services, Inc., and Tiger Communications International LTD. were wholly owned by Dr. Colkitt. Dr. Colkitt owned eighty percent of Nittany Decisions Services Private Limited. These companies are engaged in a variety of businesses providing outsourcing for accounting, billing, data processing, collections, and other administrative services and had combined revenues for the year ended December 31, 1996 of approximately $9,565,000. F-36 REPORT OF INDEPENDENT AUDITORS We have audited the consolidated financial statements of EquiMed, Inc. as of December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996, and have issued our report thereon dated May 21, 1997 (included elsewhere in this Form 10-K). Our audits also included the financial statement schedule listed in the index Item 14(a) of this Form 10-K. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Atlanta, Georgia May 21, 1997 EquiMed, Inc. Schedule II - Valuation and Qualifying Accounts
- ---------------------------------------------------------------------------------------------------------------------------------- Column A Column B Column C Column D Column E - ---------------------------------------------------------------------------------------------------------------------------------- Additions ----------------------------- Charges to Balance at Charged to Other Accounts- Balance at End Beginning Costs and Describe Deductions- of Period Description of Period Expenses Describe - ---------------------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1994: Deducted from asset accounts: Allowance for doubtful accounts $1,761,000 $ 523,000 $761,000 (a) $1,523,000 Valuation allowance for deferred tax assets 45,000 26,000 71,000 Year ended December 31, 1995: Deducted from asset accounts: Allowance for doubtful accounts 1,523,000 1,472,000 73,000 (a) 2,922,000 Valuation allowance for deferred tax assets 71,000 42,000 (d) 29,000 Year ended December 31, 1996: Deducted from asset accounts: Allowance for doubtful accounts 2,922,000 2,478,000 376,000 (c) 989,000 (b) 4,787,000 Valuation allowance for deferred tax assets 29,000 29,000 (d) 0 - ----------------------------------------------------------------------------------------------------------------------------------
(a) Uncollectible accounts written off, net of recoveries (b) Allowance for doubtful accounts relating to the receivables of the Ophthalmology Business which were sold in November 1996 ($587,000) and uncollectible accounts written off, net of recoveries ($402,000) (c) Allowance for doubtful accounts relating to the receivables of the Ophthalmology Business which were purchased in February 1996 (d) Use of net operating loss carryforwards relating to the valuation allowance 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. EQUIMED, INC. /s/ DOUGLAS R. COLKITT ----------------------- By: Douglas R. Colkitt, Chairman of the Board and Chief Executive Officer 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.
Signatures Title Date ---------- ----- ---- /s/ DOUGLAS R. COLKITT Chairman of the Board and June 10, 1997 ---------------------- Chief Executive Officer Douglas R. Colkitt (Principal Executive Officer) /s/ DANIEL L. BECKETT Chief Financial Officer June 10, 1997 --------------------- (Principal Financial and Daniel L. Beckett Accounting Officer) /s/ LARRY W. PEARSON Director June 10, 1997 -------------------- Larry W. Pearson Director __________, 1997 -------------------- Gene E. Burleson Director __________, 1997 ------------------ Brian C. Smith /s/ JEROME DERDEL Director June 10, 1997 -------------------- Jerome Derdel, M.D.
EXHIBIT INDEX -------------
Exhibit No. Description ----------- ----------- 2.1 Agreement and Plan of Merger by and among Douglas R. Colkitt, Colkitt Oncology Group, Inc., EquiVision, Inc. and the Company, as amended* 3.1 Certificate of Incorporation of the Company* 3.2 By-laws of the Company* 4.1 Form of certificate evidencing Common Stock, par value $.0001 per share, of the Company* 10.10 Form of Option to Purchase Stock of Professional Corporation, as amended* 10.11 Employment Agreement between EquiVision, Inc. and Larry W. Pearson dated January 1, 1996* 10.12 Stock Option Agreement between EquiVision, Inc. and Douglas R. Colkitt, M.D. dated July 1, 1993** 10.13 Master Equipment Lease dated February 19, 1993 between D&T Leasing Limited Partnership and EquiVision, Inc.** 10.14 Form of Billing Services Agreement with National Medical Financial Services Corporation* 10.15 Form of Cancer Treatment Center Management Services Agreement* 10.16 Form of Practice Management Services Agreement (Type I)* 10.17 Form of Practice Management Services Agreement (Type II)* 10.18 Form of Stock Option Agreement* 10.19 Form of Master Assignment of the Stock Option Agreements* 10.20 Form of Stock Pledge Agreement between Colkitt and the Company* 10.21 Asset Purchase Agreement dated as of October 9, 1996 by and among EquiMed, Inc., Physicians Resource Group, Inc. and PRG Georgia, Inc.*** 10.22 Stock Purchase Agreement dated as of April 1, 1997 by and among EquiMed, Inc., Russell Data Services, Inc. and Douglas R. Colkitt, M.D.**** 10.23 Stock Purchase Agreement dated as of April 1, 1997 by and among EquiMed, Inc., Billing Services, Inc. and Douglas R. Colkitt, M.D.**** 10.24 Stock Purchase Agreement dated as of April 1, 1997 by and among EquiMed, Inc., Trident International Accounting, Inc. and Douglas R. Colkitt, M.D. **** 10.25 Stock Purchase Agreement dated as of April 1, 1997 by and among EquiMed, Inc., Tiger Communications International Ltd. and Douglas R. Colkitt, M.D.**** 10.26 Stock Purchase Agreement dated as of April 1, 1997 by and among EquiMed, Inc., Nittany Decisions Services Private Limited and Douglas R. Colkitt, M.D.**** 10.27 Stock Purchase Agreement dated January 8, 1997 among ALR Reporting, Inc. Charles Shapiro and Walter Shapiro 10.28 Asset Purchase Agreement dated as of January 1, 1997 among Transcriptions International Inc., Prophecy Health Information Management, Inc. and Edward J. Bilotti 10.29 Stock Purchase Agreement dated as of January 1, 1997 among EquiMed, Inc., Thomas Jefferson Real Estate Corporation and Douglas R. Colkitt, M.D. 10.30 Stock Purchase Agreement dated as of January 1, 1997 among EquiMed, Inc., George Washington Real Estate Corporation and Douglas R. Colkitt, M.D.
10.31 Stock Purchase Agreement dated as of January 1, 1997 among EquiMed, Inc., Nixon Equipment Corporation and Douglas R. Colkitt, M.D. 11.1 Statement re: computation of net earnings per share 21 Subsidiaries of the Registrant 23.1 Consent of Ernst & Young LLP 27 Financial Data Schedule
--------------------------------- * Incorporated by reference to the exhibit on the Company's Registration Statement on Form SB-2 (No. 33-98058). ** Incorporated by reference to the exhibit on the Company's Registration Statement on Form SB-2 (No. 33-66510-A) . *** Incorporated by reference to the exhibit on the Company's current report on Form 8-K filed October 10, 1996. **** Incorporated by reference to the exhibit on the Company's Current Report on Form 8-K filed May 28, 1997. EX-10.27 2 STOCK PURCHASE AGREEMENT (ALR REPORTING) EXHIBIT 10.27 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT, dated as of January 8, 1997 (the "Signing Date"), by and among ALR REPORTING, INC., a Delaware corporation (the "Buyer"), CHARLES SHAPIRO ("Charles") and WALTER SHAPIRO ("Walter", and together with CHARLES, the "Sellers"). Preliminary Statement --------------------- Sellers are the sole shareholders of Doyle Reporting, Inc., a New York corporation ("Doyle"), Herm Conversion and Duplicating Inc., a New York corporation ("HCD"), and Twin Brothers Reporting, Inc., a New York corporation ("TBR", and together with Doyle and HCD, the "Companies"), as follows:
Charles Walter Total ------- ------ ----- Doyle 50 50 100 (the Doyle Shares) HCD 50 50 100 (the HCD Shares) TBR 100 100 200 (the TBR Shares) and together with the Doyle Shares and the HCD Shares the Shares);
Buyer desires to acquire from Sellers, and Sellers desire to sell to Buyer, the Shares, upon the terms and subject to the conditions hereinafter set forth. Accordingly, in consideration of the premises, the parties agree as follows: 1. Sale and Purchase of Shares. Upon the terms and subject to the --------------------------- conditions hereinafter set forth, at the Closing referred to in Section 3 hereof, each Seller agrees to sell and deliver to the Buyer, and Buyer agrees to purchase from Sellers, all of the Shares owned by Sellers, free and clear of all security interests, liens, pledges, claims, mortgages, encumbrances, options and rights of first refusal (collectively "Liens") against payment of the purchase price referred to in Section 2 hereof. 2. Purchase Price. The total purchase price (the "Purchase Price") to be -------------- paid by Buyer for the purchase of the Shares shall be an amount equal to the sum of (i) $4,473,471 (the "Base Purchase Price") and (ii) the Additional Amount, as defined in Section 2(b). The portion of the Purchase Price allocable to the Doyle Shares, the HCD Shares and the TBR Shares is 90.4%, 8.8% and .8%, respectively. (a) The Buyer shall pay the Base Purchase Price to Sellers as follows: (1) $2,023,471 in cash (the "Initial Cash Payment") at the Closing. (2) Five monthly installments of $60,000 payable commencing one month after Closing, as defined below and a sixth installment of $150,000 payable on the first anniversary of the Closing (the "Installments, which in the aggregate total $450,000) and secured as provided herein. A failure to make any such payment shall result in the acceleration of all Installments due thereafter. (3) Buyer's secured promissory notes in the aggregate principal amount of $2,000,000, in the forms annexed hereto as Exhibits A-1 and A-2 (the "Promissory Notes"). The principal amount of the Promissory Notes, together with interest thereon at the rate of eight (8%) percent per annum, shall be self-amortizing and payable in thirty-four (34) equal consecutive monthly installments of $66,816.02, commencing three months following the date of the Closing (the "Closing Date") and thereafter on the respective monthly anniversaries of the Closing Date until the entire principal amount of the Promissory Notes, and accrued interest thereon, has been paid in full; provided, however, that in the event Buyer fails to pay principal or interest on the Promissory Notes or Installment payments when due, and the Buyer fails to cure the default within ten days after the receipt of a written notice thereof, then the amount due under the promissory note shall become immediately due and payable, with accrued interest thereon recalculated assuming a rate of interest (the "Default Rate") equal to the higher of 12% per annum and 3% per annum over the Prime Rate in effect from time to time as reported in The Wall Street Journal. (b) In the event the total gross revenues of the Companies, calculated on an accrual basis, and work-in-process, calculated on an accrual basis for the fiscal year commencing January 1, 1997 and ending December 31, 1997 ("Gross Revenues") (as the same may be adjusted in accordance with the provisions of Section 7.1(i)(C) hereof), exceeds $4,500,000, the Buyer shall pay the Sellers (50% to Charles and 50% to Walter) an amount in cash (the "$300,000 Additional Amount") equal to $300,000. Furthermore, to the extent Gross Revenues exceeds $4,600,000, the Buyer shall pay the Sellers (50% to Charles and 50% to Walter) an amount equal to $5,000 for each $100,000 of Gross Revenues in excess of $4,600,000 ("Incremental Additional Amount which together with the $300,000 Additional Amount, the "Additional Amount"). The Additional Amount shall be payable to Sellers within 20 days after the computation of Gross Revenues. Such computation shall be completed no later than March 31, 1998. The Sellers shall have the opportunity, at their own cost, to review such calculations, provided, -------- however, that if it is determined that the amount of actual Gross Revenues is 5% - ------- or greater of the amount reported by the Companies, the Buyer shall bear the cost of such review. Anything to the contrary in the foregoing notwithstanding, in the event of a Prohibited Event occurring prior to December 31, 1997, 2 as defined below, Gross Revenues shall be the greater of (X) the actual Gross Revenues for the fiscal year ending December 31, 1997 and (Y) the Gross Revenues for the period commencing January 1, 1997 and ending on the Prohibited Event redetermined on an annualized basis. As used herein, a "Prohibited Event" means (i) the sale (involving stock or assets), liquidation, dissolution or other transaction (including, without limitation, a merger or corporate reorganization) as a result of which the identity of the Companies as separate entities is no longer maintained or the nature of the business conducted by the Companies prior to the Signing Date terminates or substantially terminates, (ii) the acquisition by Buyer, directly or indirectly, of a Reporting Service (other than the Target Reporting Service) in the Restricted Area or (iii) an initial public offering (A) by the Buyer and/or the Companies, or (B) by an Affiliate (as defined in Rule 405 under the Securities Act of 1933, as amended) of the Buyer or the Companies in the court-reporting services business (in the case of (A) or (B) of this clause (iii), a "Disqualifying IPO"). Anything to the contrary notwithstanding, a Disqualifying IPO by an Affiliate will not constitute a Prohibited Event, provided the Affiliate unconditionally assumes or guarantees the obligations of Buyer hereunder. As used herein, the terms "Reporting Service," "Restricted Area" and "Target Reporting Service" shall have the meanings assigned to them in Section 7.1 hereof. The parties hereto acknowledge that the ability of the Buyer to engage in a prohibited event is limited by the rights granted to the Sellers under the Security Agreement, as defined below. (c) The Installments, all payments of principal and interest on the Promissory Notes, the Additional Amount and the payments required under the Employment agreements, as defined below (collectively, the "Obligations") shall be secured by (X) a pledge of the Shares, (Y) the guarantee of Buyer's parent, EquiMed, Inc., of payment of the last $1,000,000 of the Obligations (the "Guarantee") and (Z) a valid and enforceable perfected first security interest on all the assets of the Companies (the assets set forth in (X), (Y) and (Z) above, together with the proceeds therefrom collectively referred to as the "Collateral"), pursuant to a Security Agreement in the form annexed hereto as Exhibit B-1, the Stock Pledge Agreements annexed hereto as Exhibits B-2 and the Guarantee attached hereto as Exhibit B-3 (collectively the "Security Documents"). Buyer and EquiMed, Inc. agree to execute and deliver to Sellers for filing with the appropriate governmental authorities Uniform Commercial Code financing statements so that Sellers may perfect their security interest in the Collateral. In the event Buyer defaults in the payment, when due, of the Obligations, for a period of ten days after written notice thereof, the Sellers shall have the option, in its sole and absolute discretion, to pursue one or more of its remedies under the Security Documents, including but 3 not limited to enforcing its rights with respect to the Guarantee, the Collateral and/or the Shares. 3. Closing. The closing of the transactions contemplated by this Agreement ------- (the "Closing") shall take place at the offices of SNOW BECKER KRAUSS P.C., 605 Third Avenue, 25th floor, New York, New York at 5:00 p.m. on January 8, 1997 (the "Effective Time"). At Closing: (a) The Buyer will deliver to a mutually acceptable escrow agent (the "Escrow Agent"), pursuant to the Stock Pledge Agreement referred to above, stock certificates evidencing the number of Shares transferred by Seller to Buyer at Closing duly endorsed in blank or with stock powers attached and in proper form for transfer, and evidence of payment of, or agreement to pay, any stock transfer taxes as may be required. The Escrow Agent shall hold the Shares to secure payment of the Obligations. The Escrow Agent shall deliver the Shares (x) to Buyer upon receipt of joint written instructions from Buyer and Sellers or other evidence acceptable to the Escrow Agent that Buyer has paid the Obligations (provided the notice provisions of Section 14(b) hereof are complied with), or (y) to Seller upon receipt of joint written instructions from Buyer and Sellers or other evidence acceptable to the Escrow Agent that Buyer has defaulted in the payment of the Obligations (provided the notice provisions of Section 14.2 hereof are complied with). In the event of a bona fide dispute ---------- concerning whether payment of the Obligations has occurred, the Escrow Agent shall continue to hold the Shares until the issue has been finally determined, or it may commence an interpleader action in a court of competent jurisdiction, and in connection therewith deposit the Shares. The Escrow Agent shall not be liable for any action(s) taken, or the failure to take action(s), in good faith, except for gross negligence or willful misconduct of the Escrow Agent. Sellers and Buyer acknowledge that the Escrow Agent is merely a stakeholder. Upon delivery of the Shares in accordance with the joint written instruction of the parties or a final determination, the Escrow Agent shall be released from all liability and obligations with respect to the Shares. (b) Buyer will deliver to the Sellers: (i) certified checks of Buyer or official bank cashier's check payable to Sellers in the amount of the Initial Cash Payment (50% to Charles and 50% to Walter); and (ii) Buyer's Promissory Notes (in the aggregate principal amounts of $1,000,000 to Charles and $1,000,000 to Walter. (c) Buyer shall elect each of the Sellers as directors of Buyer and the Companies until the Obligations are paid in full 4 and enter into indemnity agreements (the "Indemnity Agreements") with Sellers pursuant to which Buyer agrees to indemnify each of Sellers to the fullest extent permitted by the laws of the jurisdiction in which Buyer is incorporated and any other applicable jurisdictions, from and against any and all damages, expenses and liabilities arising from or in connection with the breach of duty as a director, except for gross negligence or wilful misconduct. Each of the Sellers may resign as a director of Buyer at any time. (d) EquiMed, Inc. shall deliver its Guarantee. (e) Sellers, Buyer and EquiMed, Inc. shall execute the respective Employment Agreements and the Security Documents to which they are parties. 4. Representations and Warranties of Sellers. Sellers, jointly and ----------------------------------------- severally, represent and warrant to Buyer as follows, except as stated with respect to a specific representation or warranty in a disclosure letter dated the date of this Agreement, delivered by Sellers to Buyer simultaneously with the execution and delivery of this Agreement (the "Disclosure Letter"): 4.1 Organization. Standing and Corporate Power. Each of the Companies is a ------------------------------------------ corporation, duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, has full corporate power and authority to carry on its business, and to own or lease its properties as and in the places where such business is now conducted and such properties are now owned, leased or operated; and is qualified to transact business as a foreign corporation in the jurisdictions listed in the Disclosure Letter. No proceedings for the bankruptcy or insolvency of any of the Companies are pending or, to the Sellers' knowledge, are contemplated. 4.2 Ownership. The authorized capital stock and the number of issued and --------- outstanding shares of each of the Companies is as set forth in the Disclosure Letter, and all such issued and outstanding shares are owned by the Sellers and are validly issued and outstanding, fully paid and nonassessable, and no third person holds any proxy or similar right with respect thereto. Each of the Sellers is the lawful owner, of record and beneficially, of the number of shares of each of the Companies set forth above in the Preliminary Statement and has, and will transfer to the Buyer at the Closing, good and marketable title to such Shares, free and clear of any Liens and with no restriction on the voting rights and other incidents of record and beneficial ownership pertaining thereto. No stock transfer tax is imposed in connection herewith. There are no outstanding options, warrants or rights to purchase or acquire any shares of the capital stock or other securities of any of the Companies, 5 and there are no agreements or understandings between any Seller and any other person with respect to the voting of any of the Shares or any other matters. None of the Companies has any subsidiaries or owns, directly or indirectly, shares or other securities in any other corporation, or any interest in any partnership, joint venture or other business entity. 4.3 Authorization and Binding Effect: No Governmental Consents Required. ------------------------------------------------------------------- This Agreement constitutes a valid and binding agreement of each of the Sellers, enforceable in accordance with its terms, and neither the execution and delivery of this Agreement nor the consummation by the Sellers of the transactions contemplated hereby, nor compliance with any of the provisions hereof, will (i) conflict with or result in a breach of the Certificate of Incorporation or the By-Laws of any of the Companies, each as in effect as of the date hereof (including amendments, if any, thereto), true and complete copies of which have previously been delivered to Buyer or its representatives, (ii) to the Sellers' knowledge, violate any statute, law, rule or regulation or any order, writ, injunction or decree of any court or governmental authority, or (iii) violate or conflict with or constitute a default under (or give rise to any right of termination, cancellation or acceleration under) the terms or conditions or provisions of any note, bond, lease, mortgage, obligation, agreement, understanding, arrangement or restriction of any kind to which the Company or any of the Sellers is a party or by which the Company or any of the Sellers or their respective assets or properties may be bound (it being understood that with respect to any leases which require the consent of, or an assignment from, the lessor (other than with respect to the lease of the premises where the Company conducts business) in connection with the sale of the Shares contemplated hereby, the representation and warranty of the Sellers contained in this clause (iii) shall not be deemed to be breached as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby). To the Sellers' knowledge, no consent or approval by any governmental authority is required in connection with the execution and delivery by the Sellers of this Agreement or the consummation of the transactions contemplated hereby. 4.4 Balance Sheet; No Undisclosed Liabilities; Absence of Changes; Signing ---------------------------------------------------------------------- Date Asset Schedule; Revenues. (a) Sellers have previously delivered to the - ----------------------------- Buyer unaudited balance sheets of the Companies as at December 31, 1995 (the "Balance Sheets") and profit and loss statements for the year ended December 31, 1995. The amount of the tangible assets and liabilities of the Companies set forth on the Balance Sheets are true and correct. Except as set forth on the Balance Sheets, as of December 31, 1995, the Companies did not have any claims, liabilities or obligations of any material nature, fixed of contingent, matured 6 or unmatured, liquidated or unliquidated, which were not shown or otherwise provided for in the Balance Sheets, it being understood that no representation or warranty is hereby made concerning any tax liability of the Companies for which the Sellers have agreed to indemnify Buyer as provided in Section 10.1 hereof. Except as set forth on the Balance Sheets or in the Disclosure Letter, or for changes reflected in the Signing Date Asset Schedule (as hereinafter defined), subsequent to December 31, 1995, there has been no: (i) Material and adverse change in the business, properties, assets or liabilities, operations, condition (financial or otherwise) or prospects of the Companies, nor has any event occurred or been threatened, which may have a material and adverse effect on the Companies; (ii) Sale, transfer or other disposition of any assets owned or used by Companies (whether or not capitalized or expensed for tax or financial statement purposes); (iii) Claim, obligation or liability incurred by the Companies other than in the ordinary course of business and consistent with past practice; (iv) Transaction not in the ordinary course of business; (v) Write-off as uncollectible of any notes or accounts receivable of the Companies or any portion thereof, except in the ordinary course of business; (vi) Dividend declared, paid or set aside for payment or other distribution on the Companies' capital stock, or any redemption, purchase or other acquisition by the Companies of any capital stock, except as contemplated by the Signing Date Asset Schedule or consistent with past practice; (vii) Issuance or sale of any shares of capital stock, or any securities convertible into or exchangeable for capital stock of the Companies; (viii) General uniform increase in the compensation (including bonuses and other employee benefits) of employees, any increase in any such compensation payable to any officer, employee, consultant or agent thereof having an annual salary or remuneration in excess of $35,000, or loans made by any of the Companies to any of their respective stockholders, directors, officers or employees; (ix) Capital expenditures or commitments in excess of $10,000 in the aggregate for additions to property, plant or equipment of the Companies; 7 (x) Change in the accounting methods or practices followed by any of the Companies or any depreciation or amortization policies or rates theretofore adopted; (xi) Agreement or commitment, whether or not in writing, to do any of the foregoing. (b) The unaudited asset schedule of the Companies dated as of the Signing Date (the "Signing Date Asset Schedule") annexed as Exhibit C hereto, which reflect the assets of the Companies as of the Signing Date, without giving effect to reserves for bad debts but after giving effect to the transactions contemplated hereby, is true and correct in all material respects. (c) The Companies' ledger accounts, as adjusted through the Closing, for its taxable year ended December 31, 1995 allocates to one or more of the accounts set forth on Exhibit B hereto, the recurring portion of the accrued expenses of the Companies for such year. A recurring accrued expense means for purposes hereof an item of expense contemplated to be incurred by the Companies on a continuing basis after Closing, other than salaries and benefits payable to Sellers and their Affiliates. (d) Total gross revenues of the Companies in the aggregate, calculated on a cash basis, for the fiscal years ended December 31, 1994 and 1995 and the three quarters ending September 30, 1996 were $5,301,587, $4,881,009 and $3,548,773, respectively. 4.5 Consents Required. Except as set forth in the Disclosure Letter, no ----------------- consent of any party to any agreement, contract, instrument, lease, license, note, bond, mortgage, indenture or other obligation to which the Companies or Sellers is a party, or by which the Companies or Sellers, or any of the assets of the Companies or Sellers, is subject, is required for the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. 4.6 Account Receivable. (a) The Signing Date Asset Schedule sets forth the ------------------ accounts receivable of the Companies as of the Signing Date, on an aging basis of 30-day intervals, including the name of the account debtor and the amount of the receivable. At the Effective Time, the Companies aggregate accounts receivable prior to deducting the usual and ordinary reserves for bad debts, shall not be less than $1,786,695 (the "Accounts Receivable"). All Accounts Receivable are for services actually provided in the ordinary course of business. The aforementioned Accounts Receivable are collectible in full. To the extent of any breach of this Section 4.6 and any resulting breach of Section 4.4(b) above, the sole remedy of Buyer shall be the reduction of the Purchase Price by an amount ("Maximum Offset") not to exceed $446,674. The determination of whether a breach has occurred 8 under this Section 4.6 and the amount and the manner of applying any such offset shall be made as follows: (X) upon the first anniversary of the Closing, the Buyer may offset against the last Installment an amount equal to 25% of the uncollected Accounts Receivable, but not to exceed 16.75% of the Maximum Offset and (Y) upon the thirty second month from the Closing, the Buyer may offset against the Promissory Notes the remainder of the Maximum Offset not otherwise offset pursuant to (X) above. Notwithstanding the above, 25% of any such Accounts Receivable collected by Buyer or an affiliate thereof after application of such shortfall against the last Installment and/or 100% of such Accounts Receivable with respect to Promissory Notes, shall be paid to the Sellers within 10 days after payment is received as a reinstatement of a portion of the aforementioned reduction in the Purchase Price. (b) The Signing Date Asset Schedule sets forth the clients of the Companies for whom the Companies are providing stenographic-based court reporting services as of the Signing Date, exclusive of any carrying value for the Companies' work-in-process as at such date. 4.7 Material Contracts. True and complete copies of all contracts, ------------------ agreements, instruments and leases to which the Companies are a party or by which the Companies or their respective assets or properties are bound and which are material to the Companies' business, each as in effect as of the date hereof (including all amendments thereto, if any), have previously been furnished to Buyer or its representatives and are identified in the Disclosure Letter (the "Material Contracts"). Each of the Material Contracts is in full force and effect and is, to Sellers' knowledge, the legal, valid and binding obligation of the parties thereto and is enforceable as to them in accordance with its terms. None of the Companies has given or received notice of, and Sellers do not know that there exists, any default or event of default under any of the Material Contracts, or any event or condition which with or without notice or passage of time or both would constitute an event of default under any of the Material Contracts by the Companies or by any other party thereto. Each of the Companies has performed in all material respects all obligations required to be performed by it under the Material Contracts to which it is a party. 4.8 Title to Assets; Liens. Each of the Companies has good and marketable ---------------------- title to all the properties and assets reflected as being owned by it on the Signing Date Asset Schedule, free and clear of all Liens, except liens for current taxes not yet due and payable. To Sellers' knowledge, the machinery and equipment of the Companies is in reasonable working condition and repair, without any material defects, and without need of maintenance or repairs, except for ordinary, routine maintenance and repairs 9 which are not material in nature or cost, and all of the machinery and equipment of the Companies is adequate for its use. 4.9 Litigation. There are no actions, suits, claims or legal, ---------- administrative or arbitration proceedings or investigations pending, or to Sellers' knowledge threatened, against, involving or affecting the Companies, which if adversely determined could individually or in the aggregate materially and adversely affect the business, operations, condition (financial or otherwise), or prospects of the Companies. To Sellers' knowledge, there are no outstanding orders, writs, injunctions or decrees of any court, governmental agency or arbitration tribunal against, involving or affecting the Companies. 4.10 Taxes. Each of the Companies has filed with appropriate Federal, ----- state and local authorities all tax returns required by law, regulation, or otherwise to be filed by it for all taxable periods ending on or prior to the date hereof, for which returns have become due, and will continue to file such tax returns as they become due for tax periods ending on or prior to the Closing Date. Sellers shall be responsible for the preparation of income tax returns required to be filed with respect to taxable years ending on or prior to the Closing Date, and the Companies will reimburse the Sellers for the preparation of such returns. Sellers and the Companies shall mutually prepare income tax returns for the taxable year in which the Closing occurs. Sellers shall have the right to represent the Companies with respect to the audit of any tax returns of the Companies relating to the aforementioned periods. Except as set forth in the Disclosure Letter, none of the tax returns filed by the Company have been audited by the relevant governmental tax authorities. All deficiencies proposed as a result of such audits having been paid, reserved against, settled or as described in the Disclosure Letter, are being contested in good faith by appropriate proceedings. None of the Companies has executed or filed with any taxing authority any agreement which is still in effect extending the period for assessment or collection of any income or other taxes for which it may be directly or indirectly liable, and no claim for assessment or collection of taxes for which it may be directly or indirectly liable has been asserted or threatened against it. Sales taxes have been withheld or collected and remitted, to the extent required, in all jurisdictions in which the Companies are required to pay sales taxes and none of the Companies nor either of the Sellers has received any claim or notice, and Sellers do not have any knowledge that any of the Companies have not withheld or collected and paid all required sales taxes. 4.11 Compliance with Law. To Seller's knowledge, the Companies are in ------------------- substantial compliance in all material respects with all applicable Federal, state and local laws, rules, 10 regulations and orders (collectively, "Laws"), including without limitation, all Laws relating to occupational health and safety standards, employment discrimination and sexual harassment. 4.12 Labor Relations. Except as set forth in the Disclosure Letter, none --------------- of the Companies have in effect with any employee or other person an employment contract or other arrangement relating to the length or terms and conditions of such employee's or other person's employment, and other commitments imposed by applicable law which is not terminable within thirty (30) days. The Companies have paid in full to their employees all wages, salaries, commissions, bonuses and other direct compensation for all services performed by them, other than amounts that have not yet become payable in accordance with the Companies' customary practices. None of the Companies is liable for any severance pay or other payments on account of termination of any former employee. Furthermore, if after Closing, the Company lawfully terminates any person who was an employee or independent contractor of the Company at Closing, the Company will not be liable to pay any such person commissions not accrued at the date of termination, provided the Company does not otherwise agree after Closing or termination of engagement to pay same. Except as set forth in the Disclosure Letter, (a) each of the Companies is in substantial compliance in all material respects with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and none of the Companies is or has been engaged in any unfair labor practice, (b) there is no unfair labor practice complaint against any of the Companies pending before the National Labor Relations Board, (c) there is no labor strike, dispute, slowdown or stoppage actually pending or threatened against or affecting any of the Companies, (d) no representation question exists respecting the employees of any of the Companies, (e) no grievance or arbitration proceeding arising out of or under collective bargaining agreements relating to employees of any of the Companies is pending and no claim therefor exists, (f) the Company is not a party to any collective bargaining agreement with any union representing its employees or independent contractors, and (g) no collective bargaining agreement relating to employees of any of the Companies is currently being negotiated. 4.13 Employee Benefit Plans; ERISA. Except as set forth in the Disclosure ----------------------------- Letter, none of the Companies has, none of its employees are covered by, and none of the Companies has any obligation with respect to, any bonus, deferred compensation, pension, profit-sharing, retirement, insurance, stock purchase, stock option, or other fringe benefit plan, arrangement or practice, or any other employee benefit plan, as defined in section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether formal or informal 11 (collectively "Plans"). The Disclosure Letter contains an accurate and complete description of, and sets forth the annual amount payable pursuant to, each of those Plans. The Balance Sheets reflect in the aggregate an accrual of all amounts accrued but unpaid under such Plans as of the date thereof. The Companies have performed and complied with all of their obligations under or with respect to such Plans and such Plans have operated in accordance with their terms. Except as set forth in the Disclosure Letter, there are no accrued but unpaid contributions to any of the Plans. The Plans have operated in accordance with the applicable requirements of ERISA and the Internal Revenue Code of 1986, as amended (the "Code"). No reportable event (as defined in section 4043(e) of ERISA), prohibited transaction (as defined in section 406 of ERISA or section 4975 of the Code), accumulated funding deficiency (as defined in section 302 of ERISA) or plan termination (as defined in Title IV of ERISA or section 411(d) of the Code) has occurred with respect to any of the Plans. None of the Plans is a multi-employer plan (as defined in section 3(37) of ERISA) and none of the Companies has any actual or potential liability with respect to any multi- employer plan or a past or present withdrawal therefrom. All of the Plans that are pension plans (as defined in Section 3(2) of ERISA) are qualified under section 401(a) of the Code and conform in all respects with the requirements of the Code and ERISA. The present value or accrued benefits (valued on a termination basis as of the Closing Date under Pension Benefit Guaranty Corporation Regulations) under any of the Plans that is covered by Title IV of ERISA does not exceed the value of the assets of such Plan. Except as set forth in the Disclosure Letter, no filing, application or other matter with respect to any of the Plans is pending with the Internal Revenue Service, Pension Benefit Guaranty Corporation, United States Department of Labor or other governmental agency or body, none of the Plans (other than a profit sharing plan) has been terminated, the Pension Benefit Guaranty Corporation has not taken action to terminate any of the Plans and no trustee has been appointed by any court to administer any of the Plans. None of the Plans has been amended since the date of the Balance Sheets or will be amended prior to the Closing Date. 4.14 Liabilities. As at the date of Closing, the Companies shall not have ----------- any unpaid accrued expenses, whether contingent or non-contingent, other than any accrued taxes for the 1996 and 1997 taxable years, the loans payable to Sellers, amounts owed ZAGAT and the amount referred to in Section 7.7. 5. Representations and Warranties of Buyer. Buyer represents and warrants --------------------------------------- to Sellers as follows: 12 5.1 Organization and Standing. Buyer is a corporation duly organized, ------------------------- validly existing and in good standing under the laws of the jurisdiction of its incorporation. 5.2 Corporate Power. Buyer has full corporate power and authority to enter --------------- into this Agreement and to consummate the transactions contemplated by this Agreement and to perform its obligations under this Agreement. 5.3 Authorization; Binding Effect. The execution and delivery by Buyer of ----------------------------- this Agreement, and the consummation by Buyer of the transactions contemplated by this Agreement and the performance by Buyer of its obligations under this Agreement, including without limitation, the execution and delivery of the Employment Agreements, have been duly and validly authorized by all necessary corporate action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer and constitutes, and the Employment Agreement when executed and delivered at Closing in accordance with the terms hereof will constitute, a legal, valid and binding obligation or agreement, as the case may be, of Buyer, enforceable against Buyer in accordance with its terms. 6. Covenants of Sellers. -------------------- 6.1 Third Party Consents. Sellers will use their best efforts to obtain -------------------- and deliver to Buyer all written consents of, or assignments from, third parties which are required in connection with the sale of the Shares and the other transactions contemplated by this Agreement. 6.2 Access. Prior to the Closing, Sellers will allow Buyer and its ------ representatives reasonable access to the books, records and properties of the Companies and furnish such information concerning the Companies as Buyer reasonably may request from time to time, subject to Buyer entering into confidentiality agreements acceptable to Sellers. 6.3 Conduct of Business Until Closing. Except as set forth in the --------------------------------- Disclosure Letter, Sellers agree that until the Closing Date they will: (a) Operate the business of the Companies only in the usual, regular and ordinary course, consistent with reasonable business practice; (b) Use their best efforts to preserve the Companies' present relationship with their respective suppliers, customers and others with which they have business dealings; 13 (c) Not permit the Companies to modify or change in any material respect or terminate any Material Contract to which they are party; (d) Not permit the Companies to incur any indebtedness for money borrowed; (e) Not permit the Companies to make any loans or extensions of credit, except to trade purchasers in the ordinary course of business consistent with past practice; (f) Continue all policies of insurance in full force and effect up to and including the Closing Date; (g) Not permit the Companies to declare or pay any dividend or other distribution on their capital stock, or effect any redemption, purchase or other acquisition of such capital stock, other than as contemplated by the Signing Date Asset Schedule; or (h) Not permit the Companies to issue or sell, or enter into any contract for the issuance or sale, of any shares of capital stock, or securities convertible or exchangeable for shares of capital stock. (i) No change will be made in the Companies Articles of Incorporation or By-laws, except as may be first approved in writing by Buyer. (j) No change will be made affecting personnel, compensation payments, or banking or safe deposit arrangements without the Buyer's written approval. (k) No contract of commitment will be entered into by or on behalf of the Companies extending beyond December 31, 1996, except normal commitments for the purchase of materials and supplies which in any single case will not involve payment by the Companies of more than $5,000.00. (l) Except as otherwise requested by the Buyer, the Sellers will cause the Companies to preserve the Companies' business organizations intact, to keep available to the Companies the services of its present officers and employees, and to preserve for the Companies the goodwill of its suppliers, customers, and other having business relations with the Companies. 6.4 Updating of Representations and Warranties. Between the date of this ------------------------------------------ Agreement and the Closing Date, Sellers shall as necessary or appropriate update the Disclosure Letter and give notice to Buyer promptly upon becoming aware of (i) any inaccuracy of a representation or warranty set forth in Section 4 hereof or in the Disclosure Letter, or (ii) any event or state of 14 facts that, if it had occurred or existed on or prior to the date of this Agreement, would have caused any such representation and warranty to be inaccurate, any such notice to describe such inaccuracy, event or state of facts in reasonable detail. 7. Covenants of Buyer. ------------------ 7.1 Restrictions on Buyer Purchasing Competitive Companies. Through April ------------------------------------------------------ 10, 1998, Buyer shall not establish, purchase or otherwise acquire, directly or indirectly, a stenography-based court reporting service (the "Reporting Service"), or a controlling interest in a Reporting Service, located in, or which has an Affiliate located in, the Restricted Area. As used herein, "Restricted Area" means the five boroughs of New York City; Westchester, Rockland, Putnam, Nassau and Suffolk Counties in New York; and Passaic, Union, Sussex, Warren, Essex, Bergen and Morris Counties in New Jersey. Notwithstanding the foregoing, through April 10, 1998, within the Restricted Area (i) Buyer or an Affiliate of Buyer (the "Acquiring Entity") may purchase the stenography- based New York Reporting Service for which Buyer is currently negotiating (the "Target Reporting Service"), provided that (A) prior to the execution of this Agreement, the name of the Target Reporting Service is disclosed and is acceptable to the Sellers, (B) the Acquiring Entity shall not solicit the personnel of the Companies for employment or the law firms that have been clients of the Companies at any time through December 31, 1997 as prospective clients, (C) if the annual gross revenues of the Target Reporting Service ("Target Gross Revenues") following the acquisition by the Acquiring Entity (the "Acquisition") on an annualized basis for the period commencing on January 1, 1997 and ending December 31, 1997 (the "Measuring Period") exceeds Target Gross Revenues for the fiscal year ending on the last day of the month prior to the Acquisition ("Base Target Gross Revenues") by more than 25%, then the excess of the highest amount of Target Gross Revenues for the Measuring Period over 125% of Base Target Gross Revenues shall be added to Gross Revenues of the Companies for the purposes of calculating the Contingent Payments; (ii) if Sellers introduce Buyer to a Reporting Service as a prospective acquisition, and Buyer and the Sellers agree upon the terms of compensation for such introduction, Buyer may acquire such Reporting Service; and (iii) Buyer may acquire any electronic-based court reporting service. 7.2 Restricted Payments. Buyer agrees that until the Obligations are paid ------------------- in full, that it will not, or will not permit the Companies to: (i) Declare dividends or make any other distributions in respect of the Shares or any shares of its capital stock; 15 (ii) Redeem, purchase or otherwise acquire any shares of its capital stock; (iii) Guarantee, directly or indirectly, any obligations of Buyer or the Affiliates of the Companies; (iv) Make any advances or similar payments to Affiliates; (v) Assign or otherwise encumber the revenues of the Companies; or (vi) Pay remuneration to all officers and directors in an amount in excess of $200,000 in the aggregate, excepting herefrom remuneration paid to Sellers. 7.3 Accounts Receivable and Work In Process. Buyer agrees to use its best --------------------------------------- efforts to collect the Accounts Receivable. No Account Receivable shall be written-off, settled or compromised without the written consent of Sellers and Buyer. 7.4 Access. Following the Closing and until such time as the Obligations ------ have been paid in full, Buyer will allow Sellers and their representatives reasonable access to the books, records and properties of the Companies and furnish such information concerning Buyer as Sellers reasonably may request. 7.5 Taxes. The Companies shall notify Sellers of any correspondence or ----- other communication received by a taxing authority with respect to any period ending on or before the Closing. Buyer agrees not to file any amended tax return for any taxable year ending on or before December 31, 1996 without the prior written consent of Sellers. Buyer shall reimburse Sellers for any after-tax benefit the Companies may realize from any net operating loss of the Companies for the period 1/1/97 to Closing. 7.6. Confidentiality. Prior to the Closing Date, Buyer shall maintain the --------------- confidentiality of all confidential information furnished to it by Sellers concerning the Companies and shall not disclose such information to others, or use any such information for any purpose, except in furtherance of the transactions contemplated by this Agreement and except as such information may be required to be disclosed by subpoena or other court order or upon advice of counsel that such disclosure is required by law or is necessary in connection with the prosecution or defense of any judicial proceeding or any application to, or proceeding before, any governmental body. As used herein, "confidential information" does not include that (i) which was in the public domain prior to receipt from Sellers, or (ii) which Buyer can demonstrate was in its possession prior to receipt, or (iii) which subsequently becomes known to Buyer from third parties not subject to any restriction on disclosure, or 16 (iv) which subsequently comes into the public domain through no fault of Buyer, or (v) which was specifically approved for disclosure by written consent of Sellers. 7.7 Reimbursement of Fees. Buyer will cause Doyle to reimburse Sellers for --------------------- expenses incurred by Sellers on Doyle's behalf, the sum of $2,000 each immediately after the Closing. 8. Conditions Precedent to Obligations of Buyer. The obligations of Buyer -------------------------------------------- under this Agreement are subject to the satisfaction at or prior to Closing of each of the following conditions (which may be waived by Buyer): 8.1 Representations and Warranties Correct. The representations and -------------------------------------- warranties made by Sellers in this Agreement shall be true and correct in all material respects as of the Closing Date as though such representations and warranties were restated and made at and as of the Closing Date, and Sellers and shall have furnished Buyer with a certificate to that effect. 8.2 Compliance with Obligations. All of the terms, covenants and --------------------------- conditions of this Agreement required to be complied with by Sellers at or prior to the Closing, in connection with the sale of the Shares contemplated hereby, shall have been duly complied with and Sellers shall have furnished Buyer with a certificate to that effect and such other evidence of compliance as Buyer may reasonably request. 8.3 No Action or Litigation. There shall be no order of any court or ----------------------- governmental body restraining or prohibiting the transactions contemplated by this Agreement, nor shall any litigation or other proceeding be pending or threatened against the Companies, the Sellers or Buyer seeking to prohibit or otherwise challenge the consummation of the transactions contemplated by this Agreement or to obtain substantial damages in respect thereof. 8.4 Third Party Consents. Sellers shall have obtained all consents and -------------------- assignments, if any, required for the consummation of the transactions contemplated by this Agreement. 9. Conditions Precedent to Obligations of Sellers. The obligations of ---------------------------------------------- Sellers under this Agreement are subject to the satisfaction at or prior to Closing of each of the following conditions (which may be waived by Sellers): 9.1 Representations and Warranties Correct. The warranties and -------------------------------------- representations made by Buyer in this Agreement shall be true and correct in all material respects as of the Closing Date, as though such warranties and representations were restated and made as and at the Closing Date, and Buyer shall have furnished 17 Sellers with a certificate executed by its Chief Executive Officer to that effect. 9.2 Compliance With Obligations. All of the terms, covenants and --------------------------- conditions of this Agreement required to be complied with by Buyer at or prior to Closing shall have been duly complied with and Buyer shall have furnished Sellers with a certificate executed by its Chief Executive Officer to that effect and such other evidence of compliance as Sellers may reasonably request. 9.3 Appointment of Sellers as Directors of Buyer. Buyer shall have ---------------------------------------------- appointed each of the Sellers as a director of the Buyer, and shall have entered into the Indemnity Agreements. 9.4 Employment Agreements. Buyer shall have entered into the employment --------------------- agreements with each of the Sellers, substantially in the forms annexed hereto as Exhibit D-l and D-2, respectively (the "Employment Agreements"), pursuant to which Buyer will employ the Sellers for a period of fifteen months, unless terminated earlier by one or both of the Sellers upon the first anniversary hereof (the "Term"), commencing on the Closing Date. During the Term, the Sellers shall each devote an average of 32 hours per week to the affairs of the Companies, provided that in no event will they be required, in the aggregate, to be at Buyer's or the Companies' offices for more than four days per week, with maximum hours (unless otherwise agreed to by Sellers) of 10:15 a.m. to 3:15 p.m. per day (hereinafter referred to as "Full-Time Employment"). Notwithstanding the above, to the extent feasible, the Sellers may perform executive services on behalf of the Companies from their home, provided one of the two of them is available to be at the Companies' offices during the period set forth above. Each of the Sellers shall receive $10,000 per month during the Term as compensation for his services, to be paid pursuant to the general payroll practices of the Buyer, but no less than monthly. The Sellers shall be entitled to six weeks of paid vacation per 12 month period, all standard holidays observed by the Buyer or the Company and all sick leave and personal time pursuant to the Buyer's policy. The Sellers shall also be entitled to full benefits under a medical/health insurance plan of Buyer for the Term and for a period of one year following the Term, which plan shall be comparable to the plan currently provided the Sellers by the Companies. In the event Buyer or the Companies are unable to include the Sellers in their medical/health insurance plans, both the Buyer and the Companies jointly and severally agree to reimburse the Sellers an amount equal to that which would have been paid by the Buyer or Companies if the Sellers were able to be included. 18 10. Indemnification --------------- 10.1 Obligation of Sellers to Indemnify. Sellers hereby agree, jointly and ---------------------------------- severally, to indemnify, defend and hold harmless Buyer and its successors and assigns from and against the after-tax cost of any and all claims, damages, losses, liabilities, deficiencies, actions, suits, proceedings, costs or legal expenses (the after-tax cost of all such items being hereinafter referred to individually as a "Loss", and collectively, as "Losses") arising out of or resulting from: (i) any breach of a representation, warranty or covenant by Sellers contained in this Agreement, as the same may be qualified by the Disclosure Letter, Section 4.6 hereof, or other documents delivered to Buyer and referred to herein (the "Collateral Documents"); or (ii) events occurring in the course of or relating to the business of the Companies prior to Closing (a "Third Party Claim") which are not disclosed in this Agreement (including the Disclosure Letter) and the Collateral Documents or of which Buyer otherwise did not have actual knowledge prior to Closing; or (iii) a liability finally determined for Federal, state, local or foreign taxes that relates to periods up to and including the Closing Date (a "Tax Claim") to the extent that such taxes were not paid prior to the Closing Date or were not reflected on the Balance Sheets, or (iv) any and all costs and expenses (including reasonable attorneys fees) related to the foregoing. 10.2 Obligation of Buyer to Indemnify. Buyer hereby agrees to indemnify, -------------------------------- defend and hold harmless the Sellers from and against after-tax costs: (i) any and all Losses resulting from any breach of a representation, warranty or covenant of Buyer contained in this Agreement, as the same may be qualified by the Disclosure Letter or the Collateral Documents; (ii) any and all Losses suffered by Sellers arising out of or relating to the conduct of the business of the Companies after the Closing and (iii) any claims brought against Sellers as directors of the Companies and/or Buyer with respect to their activities as such after Closing, except for gross negligence or willful misconduct. 10.3 Notice of Claim. If any party (the "Indemnitee") receives written --------------- notice of the commencement of any legal action, suit or proceeding with respect to which any other party or parties is or may be obligated to provide indemnification (the "Indemnitor") pursuant to Sections 10.1 or 10.2 of this Agreement, the Indemnitee shall, within thirty (30) days of the receipt of such written notice, give the Indemnitor written notice thereof (a "Claim Notice"). Failure to give such Claim Notice within such thirty (30) day period shall constitute a waiver by the Indemnitee of its right to indemnity hereunder with respect to such action, suit or proceeding. 19 10.4 Defense of Claims. Except as otherwise provided in Section 4.10 ----------------- hereof, upon receipt by an Indemnitor of a Claim Notice from an Indemnitee with respect to any claim for indemnification which is based upon a Third Party Claim or a Tax Claim, such Indemnitor, either alone or together with any other Indemnitor similarly notified, may assume the defense of the Third Party Claim or Tax Claim with counsel of its or their own choosing. The Indemnitee(s) shall cooperate in the defense of the Third Party Claim or Tax Claim and shall furnish such records, information and testimony and attend all such conferences, discovery proceedings, hearings, trial and appeals as may be reasonably required in connection therewith. The Indemnitee(s) shall have the right to employ its or their own counsel in any such action, but the fees and expenses shall be at the expense of the Indemnitee unless the Indemnitor(s) shall not have promptly employed counsel to assume the defense of the Third Party Claim or Tax Claim, in which event such fees and expenses shall be borne by the Indemnitor(s). The Indemnitor(s) shall have the right, in its or their sole discretion, to satisfy or settle any Third Party Claim or Tax Claim for which indemnification has been sought and is available hereunder. If the Indemnitor(s) shall fail with reasonable promptness either to defend such Third Party Claim or Tax Claim or to satisfy or settle the same, the Indemnitee(s) may defend, satisfy or settle the Third Party Claim or Tax Claim at the expense of the Indemnitor(s) and the Indemnitor(s) shall pay to the Indemnitee(s) the amount of any such Loss within ten (10) days after written demand therefor. 10.5 Determination of After-Tax Cost. The after-tax cost of any Losses ------------------------------- indemnifiable under this Section 10 shall initially be determined by accountants (the "Indemnitee's Accountants") selected by the Indemnitee(s), after giving effect to the effective tax rate of the Indemnitee(s) and the actual marginal tax benefit realized by the Indemnitee(s) by reason of any such Losses, and notice shall be given to the Indemnitor(s) setting forth the amount of the after-tax cost so determined and the basis for such determination (the "After- Tax Notice"). The determination of after-tax cost set forth in the After-Tax Notice shall be binding absent a showing of manifest error or fraud. 10.6 Certain Limitations on Indemnification Obligations of Sellers. The ------------------------------------------------------------- indemnification obligations of Sellers under Section 10.1 hereof and Buyer under Section 10.2 hereof: (i) shall terminate on the second anniversary of the Closing Date, except with respect to any Tax Claim, as to which Sellers' obligation to indemnify shall survive until the end of the applicable statute of limitations (the parties approval being required in order to extend such statute); (ii) shall not apply to the first $25,000, in the aggregate, of Losses, except for a breach of the representations and warranties of Sellers set forth in Section 4 hereof as to which Sellers liability to indemnify Buyer shall 20 apply to all Losses, beginning with the first dollar in Losses; (iii) shall not apply to any Loss disclosed in writing to Buyer prior to Closing; (iv) shall not in the aggregate exceed amounts paid to Sellers for the purchase of the Shares pursuant to this Agreement; (v) shall not apply to any Loss to the extent covered by insurance maintained by the Companies; and (vi) shall not relate to Losses arising by reason of the breach of any representation or warranty by Sellers of which Buyer had actual knowledge prior to the Closing. 11. Adjustment to Purchase Price. (a) The Base Purchase Price shall be ---------------------------- increased by the excess of the cash on hand at Closing and the amount of cash reflected on the Signing Date Asset Schedule, but in no event more than the excess, if any, of the Companies' working capital at Closing and the amount reflected on the Signing Date Asset Schedule or decreased by any excess of the Companies' working capital reflected on the Signing Date Asset Schedule at Closing and the amount thereof at Closing. (b) Within forty-five (45) days after Closing, the Sellers' and Buyers' accountant shall complete a Post Closing Review of the Companies' working capital as at Closing. In connection therewith, prepaid expenses (i.e. rent) shall be allocated based on the number of days the parties owned the Shares in such relevant period. The Purchase Price shall be increased or decreased to reflect the difference between the estimated working capital at the Effective Time and the amount of working capital determined pursuant to the aforementioned review. 12. Termination. ----------- 12.1 Conditions. This Agreement may be terminated at any time on or prior ---------- to the Closing Date: (a) by mutual consent of the Sellers and Buyer; (b) By Buyer, in the event of a Seller's Breach. As used herein, a "Seller's Breach means (i) a material misrepresentation or breach on the part of the Sellers with respect to any representations or warranties of the Sellers set forth herein, or (ii) any material failure on the part of the Sellers to comply with any of their obligations or to perform any of their covenants hereunder, or (iii) any of the conditions set forth in Section 8 hereof shall not have been fulfilled in any material respect by the Closing Date and the fulfillment thereof shall not have been waived by Buyer. (c) By the Sellers, in the event of a Buyer's Breach. As used herein, a "Buyer's Breach" means (i) a material misrepresentation or breach on the part of the Buyer with respect to any misrepresentations or warranties of the Buyer set forth 21 herein, or (ii) any material failure on the part of the Buyer to comply with any of its obligations or to perform any of its covenants hereunder, or (iii) any of the conditions set forth in Section 9 hereof shall not have been fulfilled in any material respect by the date scheduled for the Closing in Section 3 hereof and the fulfillment thereof shall not have been waived by Sellers. (d) By Buyer or Sellers, by notice to the other at any time after the date scheduled for Closing in accordance with Section 3 hereof. 12.2 Termination Date. ---------------- A termination pursuant to Sections 12.1 (b) or (c) shall be effective immediately upon delivery, by the party or parties having the right to terminate, of a notice of termination to the other party or parties. 12.3 No Liability. ------------ In the event of a termination of this Agreement as provided above, this Agreement shall forthwith terminate and there shall be no liability on the part of either the Sellers or Buyer, except: (i) to the extent that such termination results from the willful breach by a party hereto of any of its representations, warranties, covenants or agreements set forth in this Agreement, in which event the parties shall have all their remedies at law or in equity; and (ii) as set forth in Section 20 hereof. 13. Survival. The representations, warranties, covenants and agreements -------- of the parties set forth in this Agreement shall survive the Closing until the second anniversary of the Closing Date, provided however, that representations, warranties, covenants and agreements with respect to Federal, state, local and foreign tax issues shall survive the Closing until the expiration of the applicable statute of limitation for all filings for the periods up to and including December 31, 1996. 14. Notices. -------- 14.1 How and When Given. All notices, requests, demands and other ------------------ communications which are required or permitted under this Agreement shall be in writing and shall be deemed sufficiently given upon receipt if personally delivered, faxed or mailed by certified mail, return receipt requested, addressed to the party to be notified at the address hereafter set forth for such party or to such other address as such party may hereafter designate in writing: 22 (i) If to Sellers: Charles Shapiro, 6 Croton Lake Road Croton-On-Hudson, New York 10520, Fax: (914) 271-5255 Walter Shapiro P.O. Box 67 Stanfordville, New York, 12581, Fax: with a copy to: Jack Becker, Esq. Snow Becker Krauss P.C. 605 Third Avenue 25th Floor New York, New York 10158-0125 Fax: (212) 949-7052 (ii) If to Buyer: ALR Reporting, Inc. 901 Dulaney Valley Road, Suite 400 Towson, Maryland 21204 Attention: Douglas Colkitt, M.D. Fax: (410) 823-6017 with a copy to: Iles Cooper, Esq. 10 Westwood Road Pottsville, Pennsylvania 17901 Fax: (717) 622-5033 14.2 Escrow Notices. (a) In the event the Escrow Agent receives notice -------------- from Buyer that the Obligations have been paid in full, then the Escrow Agent shall deliver a copy of the notice to Sellers. Unless the Escrow Agent has received a written objection to Buyer's demand from one or both of the Sellers within ten (10) business days after the Escrow Agent's delivery of a copy of Buyer's notice to Sellers, the Escrow Agent shall deliver to Buyer all of the Shares fifteen (15) business days after the Escrow Agent's delivery of a copy of Buyer's notice to Sellers. If the Escrow Agent receives a written objection from one or both of Sellers as provided above, Escrow Agent shall not consider there to be for purposes of Section 3 (a' above, acceptable evidence that the Obligation has been paid. (b) In the event the Escrow Agent receives notice from Sellers that Buyer has defaulted in the payment of the Obligations, then the Escrow Agent shall deliver a copy of the notice to Buyer. Unless the Escrow Agent has received a written objection to Sellers' demand from Buyer within ten (10) business days after the Escrow Agent's delivery of a copy of Sellers' notice to Buyer, the Escrow Agent shall deliver to Sellers all or a portion of the Shares fifteen (15) business days after the Escrow Agent's delivery of a copy of Sellers' notice to Buyer. If the Escrow Agent receives a written objection from Buyer as provided above, Escrow Agent shall not consider there to be for purposes of Section 3(a) above, acceptable evidence that Buyer has defaulted in the payment of the Obligations. 23 (c) Costs of the Escrow Agent shall be borne equally by the Buyer and Sellers. 15. Binding Effect; Benefits. This Agreement shall inure to the benefit ------------------------ of, and be binding upon the parties hereto and their respective legal representatives, successors and permitted assigns, and no other person shall acquire or have any other rights under this Agreement or by virtue of this Agreement. 16. Assignment. Neither this Agreement nor any right, remedy, obligation ---------- or liability arising hereunder or by reason hereof shall be assignable by Sellers or Buyer without the prior written consent of the other, except that Buyer, by an amendment to this Agreement, may assign all of its rights hereunder to an entity all of the equity interests of which are owned by Buyer, provided that entity assumes all of the obligations of Buyer hereunder and Buyer guarantees the payment and performance of all of those obligations. 17. No Brokerage. Except for certain conversations disclosed to Sellers ------------ and their counsel, the Buyer represents and warrants that it has not dealt with any broker or finder in connection with the transactions contemplated by this Agreement. To the extent Sellers or the Companies have dealt with brokers in connection herewith, the Sellers shall bear the Brokerage Commission. Insofar as any claims for brokerage commission or finder's fees may be alleged to be based on any arrangements or agreements made by, or on behalf of a party, such party agrees to indemnify and hold the other harmless against all liability, damage or expense, including reasonable attorneys' fees and expenses, arising therefrom. 18. Governing Law. This Agreement shall in all respects be governed by, ------------- construed under and enforced in accordance with the laws of the State of New York applicable to contracts executed and to be performed wholly within such State. 19. Designation of Forum in the Event of Litigation. Sellers and Buyer ----------------------------------------------- agree that any legal action or proceedings with respect to, or arising out of, the negotiation, execution, performance or breach of, or the rights and privileges provided by, or responsibilities and obligations under, this Agreement must be brought in either the Supreme Court of the State of New York for the County of New York or the United States District Court for the Southern District of New York and in no other jurisdiction. By execution and delivery of this Agreement, each of the Sellers and Buyer accept and submit to the jurisdiction of such courts in any such legal action or proceeding and irrevocably consent to service of process in any action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to each of the parties at its address for notices as specified herein, such service to become effective thirty (30) days after such mailing. Nothing herein shall affect the right to serve process in any other 24 manner permitted by law. The parties hereby agree to be bound by the determination of the aforesaid courts and hereby waive any right which they may have to relitigate issues determined by the aforesaid courts or to raise new issues not raised by it in the aforesaid courts. 20. Expenses. Each of the parties shall pay its or his own legal, -------- accounting and other expenses in connection with the negotiation and preparation of this Agreement and the consummation of the transactions contemplated hereby, whether or not said transactions are consummated. 21. Severability. If any term, covenant or condition of this Agreement or ------------ the application thereof to any party or circumstance shall, to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term, covenant or condition to circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law. 22. Waiver. Any waiver by any party of a breach provisions of this ------ Agreement shall not operate as or be construed to be a waiver of any other breach of that provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions will not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. 23. Headings. The headings in this Agreement are for convenience only and -------- shall not affect the construction of this Agreement. 24. Entire Agreement; Modification. This Agreement constitutes the entire ------------------------------ understanding between the parties with respect to its subject matter. It supersedes and cancels all prior agreements and understandings among the parties relating to its subject matter. This Agreement may not be amended or supplemented, except by subsequent written agreement of the parties which specifically states that it is intended to be an amendment or supplement to this Agreement, signed by the parties hereto. No course of dealing or custom shall be referred to as modifying any of the terms and conditions of this Agreement. 25. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be enforceable against the 25 parties actually executing such counterparts, and all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on this 8th day of January, 1997. /s/ Charles Shapiro --------------------------------- Charles Shapiro /s/ Walter Shapiro --------------------------------- Walter Shapiro ALR REPORTING, INC. By: /s/ Douglas Colkitt ------------------------------ Douglas Colkitt, M.D. Chairman and Chief Executive Officer 26 INDEMNIFICATION - --------------- In order to induce the Buyer to execute this Stock Purchase Agreement, the undersigned,the spouses of Sellers, agree in the event (i) of their respective spouse's death prior to the time a Loss occurs with respect to a Tax Claim, as defined in Section 10.1 hereof or (ii) their respective spouse has transferred assets to her (in her individual name or jointly with the transferor) after the date hereof and prior to death, to indemnify and hold Buyer harmless with respect to fifty percent (50%) of any Tax Claim, to the extent provided and in accordance with the terms of Section 10 hereof, provided, however, that (X) any -------- ------- payment made by Sellers and the other signatory below under Section 10 shall be deemed a payment made by the undersigned and (Y) in the event this indemnification results from (ii) above, an amount not in excess of the amount transferred. /s/ Kathleen C. Shapiro --------------------------------- /s/ Deanna Shapiro --------------------------------- 27 DISCLOSURE LETTER 1. A Sales/Use Tax Audit for the years 1990/1995 is in process. An assessment in the approximate amount of $17,500 was made and paid. Awaiting final interest calculation from New York State. 2. The Labor Contract with Federation of Shorthand Reporters has technically expired. No representation is made with respect to the terms and conditions of any new or extended contract. 3. As at the Effective Time, the Companies have placed for collection with their attorneys approximately $113,600. 28 EX-10.28 3 ASSET PURCHASE AGREEMENT (TRANSCRIPTIONS INTERNATIONAL) EXHIBIT 10.28 ASSET PURCHASE AGREEMENT ------------------------ THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into as of January 1, 1997 by and among PROPHECY TRANSCRIPTION SERVICES, INC., a New Jersey corporation ("Purchaser"); and PROPHECY HEALTH INFORMATION MANAGEMENT, INC., a New Jersey corporation ("Seller"); and EDWARD J. BILOTTI, a resident of the State of New Jersey (the "Shareholder"). W I T N E S S E T H: WHEREAS, Seller owns and operates a medical transcription business at 10 North Gaston Avenue, Somerville, New Jersey 18876 (the "Business"); WHEREAS, the Shareholder and his spouse own a substantial amount of the outstanding stock of Seller; WHEREAS, it is Seller's intention to cause the sale of Seller's assets in order to liquidate Seller's investment in said assets; WHEREAS, Purchaser desires to buy, and Seller desires to sell, substantially all of the assets owned by Seller and used in the operation of the Business, upon the terms and conditions hereinafter set forth; and WHEREAS, to induce Purchaser to perform under this Agreement and as a condition thereto, Seller and Shareholder have agreed to execute a noncompetition agreement in favor of Purchaser ("Noncompetition Agreement"). NOW, THEREFORE, in consideration of the premises and the agreements contained herein, the sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows: Section 1. Sale of Assets; Assumption of Specified Liabilities. ---------------------------------------------------------------- 1.1 Sale of Assets. On the terms, subject to the conditions, and -------------- for the consideration hereinafter stated, Seller hereby agrees to sell, convey, transfer, assign and deliver to Purchaser, and Purchaser agrees to buy and acquire as hereinafter provided, at the "Closing" (as hereinafter defined), substantially all assets of Seller, tangible or intangible, real or personal, including, without limitation, the following described assets owned and used by Seller: (a) all equipment, business machines, computers, furniture, furnishings, and other tangible personal property of Seller including, without limitation, that listed in Exhibit 1.1(a) hereto; (b) DELETED (c) all claims and rights under the contracts of Seller listed in Exhibit 1.1(c) (the "Assigned Contracts"); (d) all patient transcribed reports as dictated by physicians (to the extent permitted by law), and all personnel lists (whether past or present, whether stored in computer memory or on hard copy); (e) all sales literature, promotional material and other general files and printed forms used by Seller; (f) all goodwill, trademarks, services marks and trade names used by Seller (including, without limitation, the name "Prophecy" when used in connection with the Business). (g) DELETED (h) all telephone numbers and telephone and yellow pages directory listings; (i) all prepaid expenses and deposits of Seller, including any lease deposits; Security Deposit on Lease will be adjusted at closing; (j) all inventory and supplies of Seller; (k) all rights to leasehold improvements and fixtures; (l) all software and passwords to LAN networks used by Seller; (m) all payroll records for all employees of Seller; (n) all information and documentation relating to the names, addresses, customer computer access codes, and telephone numbers of Seller's referral sources; 2 (o) all records and lists of third party payor and case manager contacts including names, addresses and telephone numbers; and (p) all records relating to vendors dealing with Seller, business leads, and prospective customers and employees. The foregoing assets may be referred to herein collectively as the "Assets". The "Assets" shall not include any "Excluded Assets", as defined in Section 1.2 below. The "Assets" shall include, without limitation, all properties and assets of Seller and the Business as reflected in the 1996 Financial Statement referred to in Section 4.3 hereof and all properties and assets acquired by Seller after November 30, 1996, except those properties and assets disposed of thereafter in the ordinary course of business and except for the "Excluded Assets" as defined below. 1.2 Excluded Assets. Notwithstanding the provisions of Section 1.1 --------------- hereof, the following described assets of Seller shall not be acquired by Purchaser, shall not constitute "Assets," and shall be defined herein as the "Excluded Assets": (a) the minute books and stock ledger books of Seller; (b) all cash of Seller as of midnight the day before the Closing Date; (c) all accounts receivable and all unbilled amounts for services of Seller as of midnight of the day before the Closing Date; (d) any land or buildings owned by Seller; (e) all pension plan assets of Seller; and (f) the assets described in Exhibit 1.2(g) hereof. 1.3 No Assumption of Liabilities. It is expressly acknowledged and ---------------------------- agreed that, except in respect of the Assigned Contracts, Purchaser is assuming no obligations, debts or liabilities of Seller or Shareholder (and Seller and Shareholder shall jointly and severally indemnify Purchaser against any and all such debts, obligations and liabilities) including, without limitation, the following described debts, obligations or liabilities: 3 (a) any liability, indebtedness or obligation of Seller or Shareholder for borrowed money, whether absolute or contingent, direct or indirect; (b) liabilities and obligations of Seller or Shareholder, the existence of which constitute a breach of any of the representations or warranties made by Seller or Shareholder in this Agreement or in any document delivered by Seller or Shareholder pursuant to this Agreement; (c) any liabilities or obligations arising out of or in connection with any litigation, claim, investigation or proceeding (including, without limitation, losses, costs, expenses, attorneys' fees, and damages incurred in connection therewith) which relate to Seller or Shareholder or relate to services performed or products delivered prior to the Closing or which arise out of actions taken by, or omissions of, Seller or Shareholder prior to the Closing (whether or not scheduled on Exhibit 4.8); (d) any federal, state, local or other income taxes payable by Seller or Shareholder or any interest or penalties with respect thereto; (e) any liability under any employee benefit or welfare plan or regarding any compensation or withholding taxes owed to or with respect to any employee or independent contractor of Seller or Shareholder; (f) liabilities and obligations of Seller or Shareholder for payroll, wages, salaries, bonuses, vacation, sick pay and severance pay and other like amounts due as of the Closing Date to officers, directors, employees, contractors and agents of Seller or Shareholder, all of which amounts are listed in Exhibit 1.3(f) attached hereto; (g) liabilities and obligations of Seller or Shareholder based upon tortious or illegal conduct; (h) liabilities and obligations of Seller or Shareholder for any breach or violation, as of the Closing, of any contracts of Seller or Shareholder including, without limitation, the Assigned Contracts; 4 (i) liabilities and obligations of Seller or Shareholder for environmental or ecological matters, including those relating to the use, transport, disposal, handling or storage of hazardous or toxic materials, pollutants, contaminants, petroleum products, or waste; (j) any liability or obligation to Medicare, Medicaid, Blue Cross/Blue Shield (or any other third party payor) as a result of recapture of amounts paid by any such payor to Seller or Shareholder or any overpayments made by such payor to Seller or Shareholder or any disallowance of any claim of Seller or Shareholder; (k) liabilities and obligations of Seller or Shareholder incurred in connection with the preparation of this Agreement and the consummation of transaction contemplated hereby, including, without limitation, legal and accounting fees; and (l) trade payables and operating expenses of Seller incurred prior to the Closing Date. All of the foregoing items described in clauses (a) through (l) above are referred to herein collectively as the "Excluded Liabilities". Notwithstanding the foregoing, Purchaser will assume the obligations of Seller under the "Assigned Contracts", but only to the extent that they represent obligations which are by their stated terms to be performed, in the ordinary course, subsequent to the Closing Date. 1.4 Freedom from Encumbrances. The conveyance of the Assets to ------------------------- Purchaser hereunder shall be free and clear of all claims, security interests, pledges, options, rights of first refusal, liens, financing statements, deeds of trust, mortgages, charges, assessments, restrictions, leases, and encumbrances (all such claims, security interests, pledges, options, rights of first refusal, liens, financing statements, deeds of trust, mortgages, charges, assessments, restrictions, leases and encumbrances being referred to individually as an "Encumbrance" and collectively as "Encumbrances"), except solely for the Assigned Contracts. Section 2. Amount, Payment and Allocation of Consideration. ---------- ------------------------------------------------ 2.1 Amount and Payment. At the "Closing" (as defined in Section 3.1 ------------------ hereof), Purchaser shall deliver the following 5 "Consideration" for the Assets and for the execution, delivery and performance by Seller and Shareholder of the "Noncompetition Agreement" (as defined in Section 3.4(i) hereof): (i) $425,000.00 in cash or in bank or certified funds shall be delivered to Seller at closing in consideration of the sale of the Assets to Purchaser; (ii) $50,000.00 in cash or in bank or certified funds shall be delivered on or before March 1, 1997 in consideration of the sale of the Assets to Purchaser. Said $50,000.00 will be secured by a Promissory Note signed by Purchaser and guaranteed by EquiMed, Inc.; and (iii) $25,000.00 in cash or in bank or certified funds shall be delivered to Seller and Shareholder at closing in consideration of the execution, delivery and performance by Seller and Shareholder of the Noncompetition Agreement. 2.2 Allocation. The Consideration shall be allocated for tax ---------- purposes as provided in Exhibit 2.2 hereof and as otherwise required by Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"). Each party will timely file IRS Form 8594 as required under the Code, which shall be completed in conformity with the allocations set forth in this Agreement. Section 3. Closing. ------------------- 3.1 Closing and Closing Date. The closing (the "Closing") of the ------------------------ sale and purchase of the Assets and the execution and delivery of the other agreements and documents contemplated herein shall take place on or before January 3, 1997 (the "Closing Date") at 10:00 a.m., Somerville, New Jersey time at 10 North Gaston Avenue, Somerville, New Jersey 08876, or at such other place and time as may be deemed appropriate by the parties hereto, at which time the cash consideration as stated in Section 2.1(I) and 2.1(iii) shall be delivered in bank certified funds pursuant to Seller's further direction. For purposes of this Agreement and for accounting purposes, the "Closing Date" shall be January 1, 1997. If the parties agree, the Closing may be consummated by exchange of signature pages by facsimile transmission, with the originals thereof to be delivered by mail as soon thereafter as practicable. At the Closing, all charges for rent, utilities, payroll, payments under Assigned Contracts, and other current operating expenses of the Business shall be prorated based on actual days elapsed for the appropriate period, with Seller being responsible for its share of such prorations through midnight of the day preceding the Closing Date. 6 3.2 Action by Purchaser. Upon the terms and subject to the ------------------- conditions herein contained, at the Closing on the Closing Date, Purchaser will deliver to Seller and Shareholder the following: (i) The certificate referred to in Section 6.1 hereof; (ii) The opinion of counsel for Purchaser referred to in Section 6.3 hereof; (iii) Resolutions of Purchaser, certified by an appropriate officer, authorizing the execution, delivery and performance of this Agreement and the other agreements to be delivered by Purchaser in connection with the Closing hereunder; and (iv) The Consideration in the manner specified in Section 2.1 hereof and in the form specified in Section 3.1 hereof. 3.3 Action by Seller. Upon the terms and subject to the conditions ---------------- herein contained, at the Closing on the Closing Date, Seller and Shareholder will deliver to Purchaser the following: (i) A duly executed Bill of Sale and Assignment in substantially the form of Exhibit 3.3(i) hereto; (ii) The certificate referred to in Section 7.1 hereof; (iii) The opinion of counsel for Seller and Shareholder referred to in Section 7.3 hereof; and (iv) Resolutions of Seller, certified by an appropriate officer, authorizing the execution, delivery and performance of this Agreement and the other agreements to be delivered by Seller in connection with the Closing hereunder. 3.4 Action by All Parties. Upon the terms and subject to the --------------------- conditions herein contained, at the Closing on the Closing Date, the parties will, as appropriate, execute and deliver to each other the "Noncompetition Agreement" in substantially the form attached hereto as Exhibit 3.4. 3.5 Further Acts and Assurances. From time to time and at any --------------------------- time, at Purchaser's request, whether on or after the Closing Date, and without further consideration, Seller shall, at its expense, execute and deliver such further documents and instruments of conveyance and transfer and shall take such further actions (i) as may be reasonably necessary to transfer 7 and convey to Purchaser all of the right, title and interest in and to the Assets, free and clear of any Encumbrance whatsoever, or (ii) as may be reasonably necessary to carry out the intent of this Agreement and the transactions contemplated hereby, or (iii) as may be reasonably necessary in connection with any audit which Purchaser may conduct of Seller's financial statements, which audit (if any) shall be at Purchaser's sole expense and consistent with this Agreement. 3.6 Seller's Records. Following the Closing, Purchaser shall ---------------- cooperate reasonably in making available to Seller for its review the records of the Business created prior to Closing and in the possession of Purchaser. 3.7 Collection of Seller's Accounts Receivable. From and after the ------------------------------------------ Closing, Purchaser will promptly forward to Seller all payments received by Purchaser with respect to Seller's accounts receivable. Section 4. Representations and Warranties of Seller and Shareholder. -------------------------------------------------------------------- Seller and Shareholder hereby jointly and severally represent, warrant, covenant and agree to and with Purchaser as follows: 4.1 Seller's Existence and Power. Seller is a corporation duly ---------------------------- organized, validly existing and in good standing under the laws of the State of New Jersey. Seller has the corporate power to own its property and to carry on the Business as now being conducted. 4.2 DELETED 4.3 Accuracy of Financial Statements. Seller has delivered to -------------------------------- Purchaser as Exhibit 4.3 a copy of the financial statements of Seller for the years ended December 31, 1994 and 1995 and a balance sheet and an income statement for the eleven-month period ending November 30, 1996 (the "Financial Statements"). The balance sheet and income statement for the eleven-month period ending November 30, 1996 are referred to hereinafter as the "1996 Financial Statement". The Financial Statements are complete and accurate and fairly present, in all material respects, the financial condition of Seller and the income and expenses of Seller as of the respective dates thereof. Except as noted in Exhibit 4.3, the Financial Statements have been prepared on a cash basis and are accurate. Seller has no material liabilities or obligations (including, without limitation, any liability for federal, state or local taxes of Seller), for any period ended on or prior to the 1996 Financial Statement or any liability or obligation in connection with any 8 transaction or state of affairs entered into or existing on or before the date thereof, which is not fully reflected on the 1996 Financial Statement or otherwise disclosed to Purchaser in the Exhibit 4.10 hereto. 4.4 Properties of Seller. -------------------- (i) The 1996 Financial Statement reflects all of the properties presently owned by Seller and used in the Business. (ii) Exhibit 4.4(ii) attached hereto is an accurate and complete list of all real or personal property which is used by Seller in the Business and which either is not owned by Seller or is leased or rented by Seller. 4.5 Taxes and Tax Returns. Seller has filed all federal, state and --------------------- local tax returns and reports of Seller which have become due to be filed (including, without limitation, those due in respect of its properties, income, franchises, licenses, sales and payrolls), and such returns are complete and accurate in all material respects. A copy of Seller's most recent federal income tax return is attached as Exhibit 4.5 hereto. Seller has paid all taxes, assessments, fees, interest, penalties (if any) and other governmental charges due with respect to the periods covered by such tax returns and reports and as reflected on said returns and reports. Seller is not delinquent in the payment of any taxes, assessments or governmental charges, and there are no assessments of additional taxes threatened against Seller or any of Seller's properties. No waiver of any statute of limitations or agreement for extension of time for assessment in respect of any tax liability of Seller has been given by Shareholder or Seller which is presently in effect. Without limiting the foregoing, (a) Seller has timely filed all FICA, FUTA and similar state and local tax returns and withholding of employee tax returns and reports of Seller which have become due to be filed and has paid all amounts required to be paid thereunder, and (b) Seller has paid over to the appropriate taxing authorities all amounts required to have been withheld by Seller from employee compensation, except such withheld amounts not yet due to have been paid over, all of which amounts not yet paid over are being held by Seller for the account of the appropriate taxing authority. The income tax returns of Seller have never been audited by any taxing authority. Neither Seller nor Shareholder knows of any questions which have been raised by any federal, state or local taxing authority relating to taxes or assessments of Seller which, if determined adversely to Seller, would result in the assertion of any tax deficiency. 4.6 Contracts. Exhibit 1.1(c) is a list of the Assigned Contracts. --------- Exhibit 4.6 is a list of all agreements of Seller other than the Assigned ----------- Contracts. Except as set forth in 9 Exhibit 1.1(c) or in Exhibit 4.6 hereto, Seller is not a party to any material contract, agreement, lease, or power of attorney of any kind whatsoever. As to Seller, all Assigned Contracts are valid and are in full force and effect according to their material terms, and no material default by Seller exists under any such contract, lease or agreement and no condition or state of facts exists which, with notice or the passage of time, or both, would constitute a default under any such contract, lease or agreement. To Seller's knowledge, all Assigned Contracts are valid as to the other contracting parties thereto and there is no material default by any such party existing under the Assigned Contracts and no condition or state of facts exists which, with notice or the passage of time, or both would constitute a default by any such party thereunder. All Assigned Contracts are enforceable in accordance with their terms by Seller against all other parties thereto in all material respects. Neither the execution, the delivery nor the performance of this Agreement by Seller will cause any default in or breach of any provision of Seller's Articles of Incorporation, as amended, bylaws or any agreement or commitment to which Seller is a party or by which Seller is bound, and none of such actions will result in either acceleration, or any similar right of any other party, under any Assigned Contract, or constitute a default under any Assigned Contract, or result in the creation or imposition of any Encumbrance against the Assets. 4.7 Compliance with Laws. To the best of Shareholder's knowledge, -------------------- Seller is in compliance in all material respects with the laws, regulations, rules and decrees of all governmental authorities whatsoever relating to the conduct of its business, including, without limitation, the Fair Labor Standards Act. 4.8 Litigation. Except as scheduled in Exhibit 4.8, there is no ---------- litigation, action, suit, proceeding or governmental investigation pending or (to the best of Seller's or Shareholder's knowledge) threatened against Seller or Shareholder or affecting Seller or its business or any of its assets, at law or in equity or before any federal, state, municipal, local or other governmental authority, or before any arbitrator, nor does Seller or Shareholder know of any reasonable basis for any such litigation, action, suit, proceeding or investigation. Neither Seller nor Shareholder is subject to any order, writ or decree of any court or other governmental authority. 4.9 Employee Plans and Agreements. Seller is not a party to any ----------------------------- collective bargaining or labor agreement or to any written employment agreement, profit sharing, deferred compensation, bonus, stock option, stock purchase, pension, retainer, consulting, retirement, welfare, or incentive plan or policy or increases in the rate of remuneration entered into with 10 or for the benefit of present or former employees, whether or not unionized, of Seller or any other like agreement, plan or policy, other than as set forth in Exhibit 4.9. 4.10 Liabilities. All liabilities and obligations of Seller, direct, ----------- indirect or contingent, are either listed on the 1996 Financial Statement or on Exhibit 4.10 attached hereto. 4.11 Insurance. All insurance maintained by Seller is listed and --------- described on Exhibit 4.11 attached hereto. 4.12 Absence of Certain Changes. From November 30, 1996 until the -------------------------- Closing, (a) the operations of Seller shall have been conducted in the ordinary course of business, (b) no event shall have occurred or have been threatened which has or would have a material and adverse affect upon Seller, and (c) Seller shall not have sustained any loss or damage to its assets or property, whether or not insured, or union activity that affects materially and adversely its ability to conduct its business. Except as described in Exhibit 4.12, since November 30, 1996, Seller has not: (i) incurred or suffered any obligations or liabilities (absolute or contingent) except current liabilities incurred in the ordinary course of business; (ii) issued any stock or other corporate securities or granted any option or right with respect to the acquisition of any of its corporate securities; (iii) declared or made (or became obligated for) any payment or distribution or dividend (other than cash or cash equivalents) to shareholders or purchased or redeemed (or became obligated to purchase or redeem) any shares of its capital stock; (iv) mortgaged, pledged or subjected (whether or not voluntarily) to any Encumbrance, any of its assets, other than Encumbrances incidental to the conduct of its business or the ownership of its property and assets which were not incurred in connection with the borrowing of money, or the obtaining of advances or credit, and which do not in the aggregate impair the use or value thereof in the operation of the business of Seller; (v) sold, assigned or transferred or agreed to sell, assign or transfer any of its tangible assets or 11 cancelled any debts or claims, except in each case in the ordinary course of business; (vi) sold, assigned, or transferred or agreed to sell, assign or transfer any trade names, or other intangible assets, or permitted existing rights with respect thereto to lapse; (vii) suffered any extraordinary loss or knowingly waived or permitted to lapse any right of substantial value; (viii) made any capital expenditures, or otherwise entered into any executory transactions or commitments to make any capital expenditures, in excess of $5,000 per item or $25,000 in the aggregate; (ix) failed to comply in any material respect with any applicable local, state or federal law, rule or regulation; or (x) suffered any event or condition of any character, materially and adversely affecting the business, properties or prospects of Seller or the Business. 4.13 Employees. A listing of all employees (including their rates of --------- pay and their accrued but unpaid vacation and sick days ) of Seller is attached as Exhibit 4.13. 4.14 Authority. Seller has the corporate power to execute and deliver --------- this Agreement and consummate the transactions contemplated hereby and has taken (or by the Closing Date will have taken) all action required by law, its Articles of Incorporation, bylaws or otherwise to authorize such execution and delivery and the consummation of the transactions contemplated hereby, including, without limitation, execution and delivery of the Bill of Sale and Assignment. 4.15 Licenses. To the best knowledge of Seller and Shareholder, there -------- are no licenses or permits required for Seller to operate the Business, and the Seller has no notice of violation of any such licenses or permits. 4.16 No Finders or Brokers. Neither Shareholder, nor Seller, nor any --------------------- officer or director thereof has engaged any finder or broker in connection with the transactions contemplated hereunder. Seller and Shareholder will indemnify and hold Purchaser harmless against claims (and attorneys' fees and expenses in the defense thereof) of any person, firm or corporation for finder's fees, broker's fees, brokerage 12 commissions, sales commissions or the like alleged in connection with the transactions contemplated hereunder due to acts of Seller or Shareholder. 4.17 Disclosure. No representation or warranty by Seller or Shareholder ---------- in this Agreement and no statement pertaining to Seller or Shareholder in this Agreement or any document, exhibit or certificate furnished or to be furnished to Purchaser pursuant hereto will contain any untrue statement which, if corrected, would have a material adverse effect on the fair market value of the property being transferred hereunder. There are no facts known to Seller or Shareholder not described herein which would adversely affect the future operations of the Business or the use of the Assets in the conduct of a similar business at the same location. 4.18 Validity of Agreements. Upon execution and delivery by all ---------------------- parties, the obligations of Seller and Shareholder under this Agreement and all other agreements to be executed by Seller or Shareholder in connection herewith, will constitute the valid and binding obligation of Seller or Shareholder, as the case may be, and be binding against them and enforceable in accordance with their respective terms (except as enforceability may be restricted, limited, or delayed by bankruptcy, insolvency, moratorium or similar laws affecting or relating to the enforcement of creditors' rights in general and except as the enforceability is subject to general principles of equity, regardless of whether enforceability is considered in a proceeding at law or in equity). 4.19 DELETED 4.20 Title to Assets. Except as described in the 1996 Financial --------------- Statement referred to in Section 4.3 or in Exhibits 4.10 and 4.12 hereof, Seller holds good and marketable title to the Assets, free and clear of restrictions on or conditions to transfer or assignment, and free and clear of Encumbrances. 4.21 Transfer Not Subject to Encumbrances or Third-Party Approval. ------------------------------------------------------------ Except as disclosed in Exhibit 4.21 hereto, the execution and delivery of this Agreement by Seller and Shareholder, and the consummation of the contemplated transactions, will not result in the creation or imposition of any Encumbrance on any of the Assets, and will not require the authorization, consent, or approval of any third party, including any governmental subdivision or regulatory agency. 4.22 Condition of Personal Property. Except as set forth in Exhibit ------------------------------ 4.22 attached hereto, all tangible personal property, equipment, fixtures and inventories included within the Assets or required to be used in the ordinary course of Seller's 13 business are in good condition and are suitable for the purposes for which they are being used. No value in excess of applicable reserves has been given to any inventory with respect to obsolete or discontinued products. Section 5. Representations and Warranties of Purchaser. ------------------------------------------------------- Purchaser represents, warrants, covenants and agrees to and with Seller as follows: 5.1 Organization and Standing of Purchaser. Purchaser is a corporation -------------------------------------- duly organized, validly existing and in good standing under the laws of the State of New Jersey and has full corporate power and authority to conduct its business as now being conducted; and is duly qualified to do business in each jurisdiction in which the nature of the property owned or leased or the nature of the businesses conducted would require such qualification, specifically including the State of New Jersey. 5.2 Authority. Purchaser has corporate power to execute and deliver --------- this Agreement and consummate the transactions contemplated hereby and has taken (or by the Closing Date will have taken) all action required by law, its Articles of Incorporation, bylaws or otherwise to authorize such execution and delivery and the consummation of the transactions contemplated hereby. 5.3 No Finders or Brokers. Neither Purchaser nor any officer or --------------------- director thereof has engaged any finder or broker in connection with the transactions contemplated hereunder. Purchaser will indemnify and hold Seller harmless against claims (and attorneys' fees and expenses in the defense thereof) of any person, firm or corporation for finder's fees, broker's fees, brokerage commissions, sales commissions or the like alleged in connection with the transactions contemplated hereunder due to acts of Purchaser. 5.4 Validity of Agreements. Upon execution and delivery by all parties ---------------------- hereto, this Agreement and all other agreements to be executed by Purchaser in connection herewith will constitute the valid and binding obligation of Purchaser and be binding against Purchaser and enforceable in accordance with their respective terms (except as enforceability may be restricted, limited, or delayed by bankruptcy, insolvency, moratorium or similar laws affecting or relating to the enforcement of creditors' rights in general and except as the enforceability is subject to general principles of equity, regardless of whether enforceability is considered in a proceeding at law or in equity). 14 Section 6. Conditions Precedent to the Obligations of Seller. ------------------------------------------------------------- All obligations of Seller which are to be discharged under this Agreement at the Closing are subject to the performance, at or prior to the Closing, of all covenants and agreements contained herein which are to be performed by Purchaser at or prior to the Closing and to the fulfillment at, or prior to, the Closing, of each of the following conditions (unless expressly waived in writing by Seller at any time at or prior to the Closing): 6.1 Representations and Warranties True. All of the representations and ----------------------------------- warranties made by Purchaser contained in Section 5 of this Agreement shall be true as of the date of this Agreement, shall be deemed to have been made again at and as of the date of Closing, and shall be true at and as of the date of Closing in all material respects; Purchaser shall have performed and complied with all covenants and conditions required by this Agreement to be performed or complied with by Purchaser prior to or at the Closing; and Seller shall have been furnished with a certificate of the President or any Vice President of Purchaser dated the Closing, certifying to the truth of such representations and warranties as of the Closing and to the fulfillment of such covenants and conditions. 6.2 Authority. All action required to be taken by or on the part of --------- Purchaser to authorize the execution, delivery and performance of this Agreement by Purchaser and the consummation of the transactions contemplated hereby shall have been duly and validly taken by the Board of Directors of Purchaser. 6.3 Opinion of Counsel. Seller shall have been furnished with an ------------------ opinion, dated as of the Closing Date, of Marcy Colkitt, Esq., general counsel to Purchaser, to the effect set forth in Exhibit 6.3 attached hereto. 6.4 No Obstructive Proceeding. No action or proceedings shall have been ------------------------- instituted against, and no order, decree or judgment of any court, agency, commission or governmental authority shall be subsisting against Seller which seeks to, or would, render it unlawful as of the Closing to effect the transactions contemplated hereby, and no such action shall seek damages in a material amount by reason of the transactions contemplated hereby. Also, no substantive legal objection to the transactions contemplated by this Agreement shall have been received from or threatened by any governmental department or agency. 15 Section 7. Conditions Precedent to the Obligations of Purchaser. ---------------------------------------------------------------- All obligations of Purchaser which are to be discharged under this Agreement at the Closing are subject to the performance, at or prior to the Closing, of all covenants and agreements contained herein which are to be performed by Seller and Shareholder at or prior to the Closing and to the fulfillment at or prior to the Closing of each of the following conditions (unless expressly waived in writing by Purchaser at any time at or prior to the Closing): 7.1 Representations and Warranties True. All of the representations and ----------------------------------- warranties of Seller and Shareholder contained in Section 4 of this Agreement shall be true as of the date of this Agreement, shall be deemed to have been made again at and as of the Closing, and shall be true at and as of the date of Closing in all material respects; Seller and Shareholder shall have performed or complied with all covenants and conditions required by this Agreement to be performed or complied with by Seller or Shareholder prior to or at the Closing; and Purchaser shall be furnished with a certificate of an officer of Seller and of Shareholder, dated the Closing, certifying to the truth of such representations and warranties as of the time of the Closing and to the fulfillment of such covenants and conditions. 7.2 Authority. All action required to be taken by or on the part of --------- Seller to authorize the execution, delivery and performance of this Agreement by Seller and the consummation of the transactions contemplated hereby shall have been duly and validly taken by the Board of Directors of Seller. 7.3 Opinion of Counsel. Seller and Shareholder shall have delivered to ------------------ Purchaser an opinion, dated as of the Closing Date, of Robert A. Gaccione, Esq., of Gaccione, Pomaco & Beck, counsel to Seller and Shareholder, in form and substance to the effect set forth in Exhibit 7.3 attached hereto or as otherwise acceptable to Purchaser. 7.4 No Obstructive Proceeding. No action or proceedings shall have been ------------------------- instituted against, and no order, decree or judgment of any court, agency, commission or governmental authority shall be subsisting against Purchaser or its affiliates which seeks to, or would, render it unlawful as of the Closing to effect the asset sale in accordance with the terms hereof, and no such action shall seek damages in a material amount by reason of the transactions contemplated hereby. Also, no substantive legal objection to the transactions contemplated by this Agreement shall have been received from or threatened by any governmental department or agency. 16 7.5 Consents and Approvals. Each of the parties to any of the Assigned ---------------------- Contracts under which the asset sale contemplated hereby would constitute or result in a default or acceleration of obligations shall have given such consent as may be necessary to permit the consummation of the transactions contemplated hereby without constituting or resulting in a default or acceleration under such agreement, and any consents required from any public or regulatory agency or organization having jurisdiction shall have been given. 7.6 Release of Encumbrances. All Encumbrances shall have been released ----------------------- at or prior to the closing. 7.7 Employment Contract with Susanne Bilotti. Purchaser shall enter ---------------------------------------- into an employment agreement with Susanne Bilotti for a term of two months, with a compensation rate equal to $27,500 per annum. Section 8. Indemnification. --------------------------- 8.1 Indemnity by Shareholder and Seller. Shareholder and Seller jointly ----------------------------------- and severally shall indemnify, defend and hold harmless Purchaser and each affiliate of Purchaser from and against: (a) all Excluded Liabilities; (b) any and all losses, damages; costs or deficiencies resulting from any and all misrepresentations or breaches of warranty or failures to perform agreements or undertakings by Seller or Shareholder contained in or made pursuant to this Agreement or in other agreements executed by Seller or Shareholder in connection with this Agreement; and (c) any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs and expenses (including, without limitation, attorneys' fees, interest, penalties and amounts paid in settlement of any such claim) relating to any of the foregoing. Seller and Shareholder shall jointly and severally pay to Purchaser or any affiliate of Purchaser, as the case may be, all amounts owed to Purchaser pursuant to subparagraphs (a), (b) and (c) above of this Section 8.1 which, in the aggregate, exceed $10,000.00, within thirty (30) days after written demand therefor. In the event that any third person, including, without limitation, any governmental taxing authority, shall assert any claim or action in excess of $1,000 against Purchaser or an 17 affiliate of Purchaser which, if successful, might result in a claim for indemnity hereunder (collectively, an "indemnifiable loss"), Purchaser shall notify Seller, in writing, of such claim or action; and at Shareholder's and Seller's option, Shareholder and Seller may, at their sole expense, assume control over the defense of such claim or action, but in any event Purchaser (and its affiliate, as the case may be) shall have the right to participate in the defense of any such claim or action. If, after notice thereof, Shareholder and Seller shall not assume the defense of, or if after so assuming such defense they shall fail to continue to defend, any such claim or action, Purchaser (and its affiliate, as the case may be) may defend any such claim or action and Purchaser (and its affiliate as the case may be) may then settle or compromise such claim or action on terms it deems reasonable. Shareholder and Seller shall promptly satisfy and pay any final judgment rendered with respect to any such claim or action or any compromise or settlement thereof and shall pay the reasonable expenses, legal or otherwise of Purchaser (and its affiliate, as the case may be) in the defense of any such claim or action. If Seller and Shareholder do not pay any such indemnifiable loss pursuant to any such judgment, settlement or compromise within thirty (30) days after written demand, Purchaser may pay the same and set off the amount paid against payments otherwise due to Shareholder or Seller. If Purchaser (or an affiliate of Purchaser) suffers an indemnifiable loss directly (not as a result of a third party claim or action), Purchaser may set off the amount of the same against payments otherwise due to Shareholder or Seller or demand payment therefor from Shareholder or Seller. 8.2 Remedies Cumulative. The remedies provided herein shall be ------------------- cumulative and shall not preclude any party from asserting any other rights or seeking any other remedies to which such party is entitled by law. Section 9. Miscellaneous. ------------------------- 9.1 Expenses. All expenses incurred by the parties in connection with -------- the preparation of this Agreement and the other agreements contemplated hereby and in connection with the closing of the transactions contemplated hereby, including, without limitation, attorneys' fees, accounting fees, investment advisor's fees and disbursements, shall be borne by the respective parties incurring such expense. 9.2 Notices. All notices, demands and other communications hereunder ------- shall be written and shall be deemed to have been duly given if delivered in person or mailed by certified mail, postage prepaid, to the address set forth below: 18 To Purchaser: Purchaser, Inc. 3754 LaVista Road Tucker, Georgia 30084 Attention: Larry Pearson, President with a copy to: Marcy Colkitt, Esq. Purchaser General Counsel 2171 Sandy Drive State College, PA 16803 To Seller: Prophecy Health Information Management, Inc. 10 North Gaston Avenue Somerville, New Jersey 08876 Attention: Edward J. Bilotti with a copy to: Robert A. Gaccione, Esq. Gaccione, Pomaco & Beck 524 Union Avenue P.O. Box 98 Belleville, NJ 07109 To Shareholder: Edward J. Bilotti 110 North Bridge Street Somerville, New Jersey 08876 with a copy to: Robert A. Gaccione, Esq. Gaccione, Pomaco & Beck 524 Union Avenue P.O. Box 98 Belleville, NJ 07109 or to such other address as Purchaser or Seller may designate by written notice to the other. Notices delivered in person shall be deemed delivered on the date of delivery and notices mailed, as aforesaid, shall be deemed delivered forty- eight (48) hours after the date mailed. Rejection or other refusal to accept or inability to deliver because of a changed address of which no notice was given shall be deemed to be a receipt of the notice, request or other communication. Any notice, request or other communication required or permitted to be given by any party may be given by such party's legal counsel. 9.3 Form of Transaction. If after the execution hereof, Purchaser ------------------- determines that the sale of the Assets can be better achieved through a different form of transaction without economic injury to Seller or Shareholder, or delay or the consummation of the transaction, Seller and Shareholder shall cooperate in revising the structure of the transaction to a stock sale or merger or similar transaction and shall negotiate in good faith to so amend this Agreement; provided, that Purchaser shall 19 reimburse Seller and Shareholder at Closing for all reasonable additional expenses, including attorneys' fees, incurred by Seller and Shareholder as a result of such change in form. 9.4 Entire Agreement. This Agreement and the Exhibits, and the other ---------------- agreements, schedules and documents delivered pursuant hereto, constitute the entire agreement between the parties hereto pertaining to the subject matter hereof and supersede all prior and contemporaneous agreements, understandings, letters of intent negotiations and discussions, whether written or oral, of the parties, and there are no representations, warranties or other agreements between the parties in connection with the subject matter hereof, except as specifically set forth herein. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the parties to be bound thereby. 9.5 Governing Law: Arbitration. This Agreement shall be construed and -------------------------- interpreted under the laws of the State of New Jersey, exclusive of the principles of conflicts of laws. The parties agree that all disputes concerning this Agreement shall be submitted to binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association and the provisions contained herein. The arbitration shall be conducted in Trenton, New Jersey, by one arbitrator. The party initiating arbitration shall give the other notice of the matter in dispute. If the parties fail to agree upon an arbitrator within ten days after notice of initiation of the arbitration is given, the American Arbitration Association shall select the arbitrator. All determinations and the final decision of the arbitrator shall be made in writing. The fees and expenses of the arbitrator shall be awarded by the arbitrator in his discretion as part of the award. The arbitrator's award shall be binding on the parties hereto and may be entered in any court of competent jurisdiction. The parties reserve the right to seek a judicial temporary restraining order, preliminary injunction, or other similar short term equitable relief prior to the appointment of the arbitrator. The arbitrator will have the right to make a final determination of the parties' rights including, without limitation, whether to make permanent, modify or dissolve the judicial order. 9.6 Section and Exhibit Headings. The Section and Exhibit headings are ---------------------------- for reference only and shall not limit or control the meaning of any provisions of this Agreement. 9.7 Waiver. No delay or omission on the part of any party hereto in ------ exercising any right hereunder shall operate as a waiver of such right or any other right under this Agreement. 20 9.8 Nature and Survival of Representations. All statements contained in -------------------------------------- any certificate delivered by or on behalf of a party to this Agreement pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties made by such party hereunder. The covenants, representations and warranties made by the parties each to the other in this Agreement or pursuant hereto shall survive for two (2) years following the Closing. 9.9 Exhibits. All Exhibits, schedules and documents referred to in or -------- attached to this Agreement are integral parts of this Agreement as if fully set forth herein and all statements appearing therein shall be deemed to be representations. All items disclosed hereunder shall be deemed disclosed only in connection with the specific representation to which they are explicitly referenced. 9.10 DELETED 9.11 Binding on Successors and Assigns. Subject to Section 9.10, this --------------------------------- Agreement shall inure to the benefit of and bind the respective heirs, administrators, successors and assigns of the parties hereto. Nothing expressed or referred to in this Agreement is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or permitted assigns any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein, it being the intention of the parties to this Agreement that this Agreement shall be for the sole and exclusive benefit of such parties or such successors and assigns and not for the benefit of any other person. 9.12 Amendments. This Agreement may be amended, but only in writing, ---------- signed by the parties hereto. 9.13 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, but all of which together shall comprise one and the same instrument. 9.14 Nonarbitral Attorneys' Fees. In the event that a suit, action, or --------------------------- other proceeding of any nature whatsoever (other than arbitration), including, without limitation, any proceeding under the U.S. Bankruptcy Code and involving issues peculiar to federal bankruptcy law, any action seeking a declaration of rights or any action for rescission, is instituted to interpret or enforce this Agreement or any provision of this Agreement, the prevailing party shall be entitled to recover from the losing party the prevailing party's reasonable attorneys', paralegals', accountants', and other experts' professional fees and all other fees, costs, and expenses actually incurred and reasonably 21 necessary in connection therewith, as determined by the judge or arbitrator at trial or other proceeding, or on any appeal or review, in addition to all other amounts provided by law. 9.15 Rules of Construction. All references herein to the singular shall --------------------- include the plural, and vice versa, and all references herein to the neuter shall include the masculine or feminine, as the case may be, and vice versa. When general words or terms are used herein followed by the word "including" (or another form of the word "include") and words of particular and specific meaning, the general words shall be construed in their widest extent, and shall not be limited to persons or things of the same general kind or class as those specifically mentioned in the words of particular and specific meaning. All parties have participated in the drafting of this Agreement. No provision of this Agreement shall be construed against or interpreted to the disadvantage of a party by reason of such party having or being deemed to have drafted, structured or dictated such provisions. Time is of the essence of this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. PROPHECY TRANSCRIPTION SERVICES, INC., a New Jersey corporation ("Purchaser") By: /s/ Douglas R. Colkitt ----------------------- Title: President -------------------- /s/ Edward J. Bilotti (SEAL) ---------------------------- EDWARD J. BILOTTI (" Shareholder") PROPHECY HEALTH INFORMATION MANAGEMENT, INC., a New Jersey corporation ("Seller") By: /s/ Edward J. Bilotti ------------------------------ Title: President --------------------------- 22 EX-10.29 4 STOCK PURCHASE AGREEMENT (T. JEFFERSON RE) EXHIBIT 10.29 STOCK PURCHASE AGREEMENT ------------------------ Thomas Jefferson Real Estate Corporation AGREEMENT made as of January 1, 1997, between DOUGLAS R. COLKITT, M.D. of 2171 Sandy Drive, State College PA 16803 (the "Seller") and EQUIMED, INC., a Delaware corporation with offices at 2171 Sandy Drive, State College PA 16803 (the "Buyer"). The parties have reached an understanding with respect to the sale and purchase of all the outstanding corporate shares of Thomas Jefferson Real Estate Corporation, a Delaware corporation, engaged in the ownership, management and leasing of real estate (the "Company"). It is therefore agreed: 1.1 Sale of Corporate Shares. The Seller shall sell to the Buyer and the ------------------------ Buyer shall purchase from the Seller all of the issued and outstanding shares of stock in the Company for the purchase price described in Section 1.2 below. The Seller is the owner of all the issued and outstanding stock of the Company as listed on Schedule 1.1 which is attached hereto and incorporated herein by ------------- reference (the "Shares"). 1.2 Purchase Price. The purchase price for the Shares shall be Three -------------- Hundred Thirty-Eight Thousand Seven Hundred Fifty-Five ($338,755.00) Dollars (the "Purchase Price"). The Purchase Price payable to the Seller shall be reduced by all funds advanced by Buyer to Seller on December 31, 1996. 2.1 Closing. The closing of the sale and transfer of the Shares shall ------- take place at the location agreed upon by Seller and Buyer (the "Closing"). At the Closing, Seller shall deliver to the Buyer, free and clear of all encumbrances, certificates for the Shares which he is required to sell in negotiable form, with all requisite transfer stamps attached. Upon such delivery, the Buyer shall deliver to Seller the Purchase Price payable at Closing by a certified or bank cashier's check or wire transfer. 3.1 Access, Information and Documents. Seller and Company shall give to --------------------------------- Buyer and to Buyer's counsel, accountants and other representatives full access during normal business hours to all the properties, books, tax returns, contracts, commitments, records, officers, personnel and accountants of the Company and will furnish to Buyer all such documents and copies of documents (certified to be true copies if requested) and all information with respect to the affairs of the Company as Buyer may reasonably request. All such information furnished to Buyer in connection with the transactions contemplated herein shall be kept confidential, unless the Buyer is compelled to disclose such information by judicial or administrative process or by other requirements of law, including but not limited to any applicable securities laws or regulations. 3.2 Disclosure Schedules. Seller shall deliver at or prior to Closing, -------------------- all schedules described in this Agreement. 4. Representations and Warranties. The Seller represents and warrants to ------------------------------ Buyer as follows: 4.1 Organization and Standing of Company. The Company is a corporation ------------------------------------ duly organized, validly existing, and in good standing under the laws of Delaware. Copies of the Company's Certificate of Incorporation, and all amendments thereof to date, certified by the Secretary of State of Delaware, and of the Company's Bylaws as amended to date, certified by the Company's Secretary, have been delivered to the Buyer, and are complete and correct as of the date of this Agreement. The Company is duly licensed or qualified and in good standing as a foreign corporation in the states listed in Schedule 4.1, ------------ which are the only states where the character of the properties owned by the Company, or the nature of the business transacted by it, make such license or qualification necessary. 4.2 Subsidiaries. The Company has no subsidiaries. ------------ 4.3 Capitalization. The aggregate number of shares which the Company is -------------- authorized to issue is 1500 common shares, of which 100 shares are issued and presently outstanding as shown on Schedule 1.1. All such issued shares have ------------ been validly issued and are fully paid and nonassessable. The Company has no outstanding subscriptions, contracts, options, warrants, or other obligations to issue, sell, or otherwise dispose of, or to purchase, redeem or otherwise acquire any of its shares. 4.4 Share Ownership. Seller represents and warrants that he is the owner, --------------- free and clear of any encumbrances, of the number of the Company's common shares set opposite his name on Schedule 1.1. Seller has full right and authority to ------------ transfer said shares to Buyer, and there are no other shares of the Company owned or claimed by any other person or entity. 4.5 Financial Statement. The Seller has delivered to the Buyer copies of ------------------- the following financial statements, all of which are true and complete, to the best of Seller's knowledge and have been prepared on an accrual basis: (a) Unaudited balance sheets of the Company as of December 31, 1995, December 31, 1994 and December 31, 1993, together with related unaudited statements of income and retained 2 earnings and cash flows for the fiscal years ended on such dates, and the notes thereto, (b) The unaudited balance sheets of the Company as of December 31, 1996, together with the related unaudited statements of income and retained earnings and cash flows for the twelve (12) month period ended on such date, and the notes thereto; (c) Federal tax returns of the Company as of December 31, 1995, December 31, 1994 and December 31, 1993. The above financial statements are hereinafter referred to as the "Financial Statements." To the best of Seller's knowledge the Financial Statements: (i) are correct and complete in accordance with the books and records of the Company: and (ii) fairly present the financial condition, assets and liabilities of the Company as of their respective dates and the results of the Company's operations and cash flows for the periods covered thereby. 4.6 Absence of Undisclosed Liabilities. Except to the extent listed on ---------------------------------- Schedule 4.6, the Company has no liabilities of any nature, whether accrued - ------------ absolute, contingent, or otherwise, including, without limitation, tax liabilities due or to become due, and whether incurred in respect of or measured by the Company's income for any period prior to December 31, 1996, or arising out of transactions entered into, or any state of facts existing, prior thereto. Seller represents and warrants that he does not know or have reasonable grounds to know of any basis for the assertion against the Company of any liability, except as listed in Schedule 4.6. ------------ 4.7 Absence of Certain Changes. Since December 31, 1996, to the best of -------------------------- Seller's knowledge, there has not been (i) any change in the Company's financial condition, assets, liabilities, or business, other than changes in the ordinary course of business, none of which has been materially adverse; (ii) any declaration, or setting aside, or payment of any dividend or other distribution in respect of the Company's shares, or any direct or indirect redemption, purchase, or other acquisition of any of such shares; (iii) any increase in the compensation payable or to become payable by the Company to any of its officers, employees, or agents, or any bonus payment or arrangement made to or with any of them; or (iv) any labor trouble, or any event, damage, loss or condition of any character, materially and adversely affecting the Company's business or prospects. 3 4.8 Taxes; Tax Audit. The Company has (i) timely filed all tax returns ---------------- required to be filed by it with respect to all taxes payable by the Company including, but not limited to, income, capital stock, franchise, sales or use, personal property and real estate taxes ("Taxes"); (ii) timely paid in full all Taxes shown to have become due pursuant to such tax returns; and (iii) paid all other Taxes for which a notice of assessment or demand for payment has been received. All taxes that the Company is required by the law to pay, withhold or collect including, but not limited to, payroll taxes and sales and use taxes on any of the Company's sales or leases of tangible personal property or services, have been timely paid over to the appropriate tax authority. All taxes of the Company have been paid or are adequately reserved against on the books of account of the Company as of December 31, 1996 or reflected on Schedule 4.6 with ------------ respect to any liabilities accruing between December 31, 1996 and Closing. To the best of Seller's knowledge, the Company has timely filed all information returns or reports, including Forms 1099, which are required to be filed and has accurately reported all information required to be included on such returns or reports. Except as disclosed in Schedule 4.8, the Company's federal income tax ------------ returns and state income tax returns have not been audited by the Internal Revenue Service or any state. The Seller has not received any notice of any tax audits being conducted by any taxing authority with respect to any tax liabilities of the Company, including income, sales or other taxes, and Seller and Company have not received any notice from any taxing authority of an intention of any taxing authority to conduct any audits. 4.9 Title to Properties; Mortgages; Liens Compliance. The Company has good ------------------------------------------------ and marketable title to all its properties and assets, real and personal, listed on Schedule 4.9, subject to no security interests, mortgage, pledge, lien, ------------ encumbrance, or charge, except for mortgages and liens shown on Schedule 4.6 as ------------ securing specified liabilities set forth therein (with respect to which no default exists), and except for minor imperfections of title and encumbrances, if any, which are not substantial in amount, do not materially detract from the marketability or the value of the properties subject thereto, or materially impair the Company's operations, and have arisen only in the ordinary course of business. All the mortgages, liens, security interests and encumbrances against the real estate, machinery, equipment and other property owned or leased by the Company are listed on Schedule 4.6. To the best of Seller's knowledge, all ------------ Company buildings and equipment are in confirmation with all applicable ordinances and regulations and environmental, building, zoning and other laws and the real estate is in good operating condition, reasonable wear and tear accepted. 4 4.10 Accounts Receivable. The Accounts Receivable of the Company as of ------------------- December 31, 1996 are as shown on Schedule 4.10. Except as disclosed in Schedule ------------- -------- 4.10, the Seller is not aware of anything that would indicate that these - ---- Accounts Receivable are not collectible. 4.11 Leases; Contracts. The Company has no leases, contracts, or other ----------------- agreements or commitments involving annual payments by or to the Company in excess of $10,000 each, except as listed in Schedule 4.11. True and complete ------------- copies of all the foregoing have been made available to the Buyer. To the best of Seller's knowledge, the Company has complied with all the provisions of such instruments and of all other contracts, leases, agreements and commitments to which it is a party, and is not in default under any of them. 4.12 Directors and Officers' Compensation; Banks. The Seller has made or ------------------------------------------- will make available to Buyer (i) the names of all the Company's directors and officers, (ii) the names of all persons whose compensation from the Company for the year 1996 will equal or exceed $50,000, together with a statement of the full amount paid or payable to each such person for services rendered or to be rendered in 1996, and the basis therefor; (iii) the name of each bank in which the Company has an account, or safe deposit box, and the names of all persons authorized to draw thereon, or to have access thereto; and (iv) the names of all persons holding powers of attorney from the Company, and a summary statement of the terms thereof. 4.13 Litigation. Except for suits of a character incident to the normal ---------- conduct of the Company's business and involving not more than $5,000 in the aggregate and except as disclosed in Schedule 4.13, there is no litigation or ------------- proceeding pending (except for litigation or proceedings which may have been initiated, but notice of which has not been received by the Seller), or to the Seller's knowledge threatened, against or relating to the Company, its properties, or business, nor do the Sellers know or have reasonable grounds to know of any basis for any such action, or of any governmental investigation relative to the Company, its properties, or business. 4.14 Leases, Contracts, and Licenses. To the best of Seller's knowledge, ------------------------------- Seller represents and warrants that the transfer of its shares in accordance with the terms of this agreement will not constitute a prohibited assignment or transfer of any of its licenses, leases, or contracts, and that all of the foregoing will remain in full force and effect without acceleration as a result of this transaction. 4.15 Authorization and Enforceability. This Agreement has been duly -------------------------------- executed and delivered by Seller and constitutes 5 the legal, valid and binding obligation of Seller, enforceable against him in accordance with its terms. 4.16 No Violation of Laws or Agreements. To the best of Seller's ---------------------------------- knowledge, the execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and the compliance with the terms, conditions and provisions of this Agreement by Seller and Company will not (a) contravene any provision of the certificate or articles of incorporation or bylaws of the Company; or (b) conflict with or result in a breach of or constitute a default (or an event which is reasonably likely to, with the passage of time or the giving of notice, or both, constitute a default) under, or result in or permit the modification or termination of any provision of, or result in or permit the acceleration of the maturity or the cancellation of the performance of any obligation under, or result in the creation or imposition of any liens of any nature whatsoever upon the Company's assets or give to others any interests or rights therein under, any indenture, mortgage, loan or credit agreement, license, contract, lease or other agreement or commitment to which the Company or Seller is a party or by which any of them or any of their assets may be bound or affected, or any judgment or order of any court or authority, domestic or foreign, or any applicable law, rule or regulation. 4.17 Disclosure. No representation or warranty by the Seller in this ---------- Agreement or the Schedules to this Agreement, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. 5. Representations and Warranties of Buyers. Buyer represents and ---------------------------------------- warrants to Seller as follows: 5.1 Organization and Good Standing. Buyer is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of the State of Delaware. The copies of Buyer's certificate of incorporation and by-laws, as amended to date, which have been delivered to Seller, are true and correct and complete and are in full force and effect. 5.2 Authorization and Enforceability. Buyer has full corporate power and -------------------------------- authority to make, execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by Buyer have been duly authorized by all necessary corporate action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer and constitutes the legal, valid and binding obligation of Buyer, enforceable in accordance with its terms. 6 5.3 Brokerage. Buyer has not made any agreement or taken any other action --------- which might cause anyone to become entitled to a broker's fee or commission as a result of the transactions contemplated hereunder. 6. Conduct of Business Pending Closing. The Seller covenants that, ----------------------------------- pending the Closing: (a) The Company's business will be conducted only in the ordinary course. (b) No change will be made in the Company's authorized or issued corporate shares. (c) No dividend or other distribution or payment will be declared or made in respect of the Company's corporate shares. (d) All debts will be paid as they become due. (e) No contract right of the Company will be waived. (f) No obligations except current liabilities under contracts entered into the ordinary course of business will be incurred. 7. Company Personnel. At the closing, the Seller shall make available to ----------------- the Buyer, unless otherwise requested by it, the written resignations of the Company's directors and officers and shall take, or cause to be taken, such action as the Buyer may request with respect to changes in directors and officers. 8. Conditions Precedent for Buyer. All obligations of the Buyer under ------------------------------ this Agreement are, at its option, subject to the fulfillment, prior to or at the closing, of each of the conditions described in this Section 8. 8.1 Representations and Warranties True at Closing. The Seller's ---------------------------------------------- representations and warranties contained in this Agreement shall be true at the time of Closing as though such representations and warranties were made at Closing and shall continue to be true at the time payment is due under the Note. 8.2 Performance. The Seller shall have performed and complied with all ----------- agreements and conditions required by this Agreement to be performed or complied with by him prior to or at the Closing. 8.3 Opinion of Company's Counsel. The Seller shall have delivered to the ---------------------------- Buyer an opinion of counsel that the Company was incorporated and is in good standing under the laws 7 of the State of its incorporation and, that to the best of their knowledge, there is no litigation pending against the Company which is not listed in Schedule 4.13. - ------------- 9. Indemnification. The Seller shall indemnify and hold harmless the --------------- Company and the Buyer, at all times after the date of this agreement, against and in respect of: (a) Undisclosed Liabilities. All liabilities of the Company of any ----------------------- nature, whether accrued, absolute, contingent, or otherwise, existing as of the date of Closing excepting those listed on Schedules 4.6 and 4.11, including, ------------- ---- without limitation, any tax liabilities, accrued in respect of, or measured by the Company's income for any period prior to December 31, 1996, or arising out of transactions entered into, or any state of facts existing, prior to such date, (b) Interim Liabilities. All liabilities of, or claims against, the ------------------- Company arising out of the conduct of the Company's business between December 31, 1996 and the Closing, otherwise than in ordinary course, or arising out of any presently existing contract or commitment listed in Schedule 4.11. ------------- (c) Taxes. All the Company's Taxes attributable to or apportioned to ----- any period on or before December 31, 1996 and Seller's Taxes (including, but not limited to, those Taxes arising on account of the transactions contemplated in this Agreement). For the purposes of this section, Taxes shall be deemed attributable to or apportioned to a period on or before December 31, 1996 if (i) such Taxes are for the taxable year or other tax reporting period that ends on or before December 31, 1996 or (ii) such Taxes are apportionable to the pre- Closing portion of a straddle year. (d) Misrepresentations. Any damage or deficiency resulting from any ------------------ misrepresentation, breach of warranty, or nonfulfillment of any agreement on the part of the Seller, under this agreement, or from any misrepresentation in or omission from this Agreement or any Schedule to this Agreement; and (e) Incidental Expenses. All actions, suits, proceedings, demands, ------------------- assessments, judgments, costs, reasonable attorney's fees, and expenses incident to any of the foregoing, to the extent that such items described in this Section 9(d) exceed in the aggregate $10,000.00. The Seller shall reimburse the Company or the Buyer, on demand, for any payment made by the Company or the Buyer at any time after the date of this Agreement, in respect of any liability or claim to which the foregoing indemnity relates. 8 Seller and Buyer agree that any indemnification payments made pursuant to this Section 9 shall be treated for tax purposes as an adjustment to the Purchase Price unless otherwise required by applicable law. Seller shall not be obligated to indemnify the Buyer and the Company pursuant to this Section 9 unless the aggregate of all such indemnification claims exceeds $10,000.00 (the "Threshold"), in which event the Seller shall be liable for all amounts in excess of the Threshold. 10. Brokerage. The Seller represents and warrants that all --------- negotiations relative to this agreement have been carried on by him directly with the Buyer, without the intervention of any person, and the Seller shall indemnify the Buyer and hold it harmless against and in respect of any claim for brokerage or other commissions relative to this agreement, or to the transactions contemplated hereby, and also in respect of all expenses of any character incurred by the Seller in connection with this agreement or such transactions. 11. Purchase for Investment. The Buyer represents that its purchase ----------------------- hereunder is being made for its own account for investment, and with no present intention of resale. All stock certificates presenting the shares purchased under this Agreement shall be endorsed with the following restrictive legend: The Shares represented by this certificate have not been registered under the Securities Act of 1933, and said Shares may not be offered or sold and no transfer will then be made by the Company or its transferee except in compliance with the Securities Act of 1933 and the rules and regulations promulgated thereunder. 12. Nature and Survival of Representations. All statements contained -------------------------------------- in any schedule, certificate or other instrument delivered by or on behalf of the Seller pursuant hereto, or in connection with the transactions contemplated hereby, shall be deemed representations and warranties by the Seller hereunder. All representations, warranties, and agreements made by the Seller in this Agreement, or pursuant hereto, shall survive the closing and any investigation at any time made by or on behalf of the Buyer. 13. Benefit. This Agreement shall be binding upon, and inure to the ------- benefit of, the legal representatives of the Seller, and the successors and assigns of the Buyer. Without limiting the foregoing, the Company's rights hereunder may be enforced by it in its own name. In the event that the Buyer causes the assets and business of the Company to be transferred to some other corporation, the rights of the Buyer and of the 9 Company hereunder may be enforced by such other corporation in its own name. 14. Construction. This Agreement is being delivered and is intended ------------ to be performed in the Commonwealth of Pennsylvania, and shall be construed and enforced in accordance with the laws of that state. 15. Notices. All notices, requests, demands, and other ------- communications hereunder shall be in writing, and shall be deemed to have been duly given if delivered or mailed, first class postage prepaid, if to Seller, at 2171 Sandy Drive, State College PA 16803, Attn: Douglas R. Colkitt, or at such other address as he may have furnished to the Buyer in writing, or, if to the Buyer at 3754 LaVista Road, Tucker, GA 30084-5637. 16. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. Approval of Buyer's Board of Directors. This Stock Purchase -------------------------------------- Agreement is contingent upon the approval of the disinterested members of the Board of Directors of the Buyer, which approval shall be obtained prior to Closing. In witness whereof the parties have duly executed this agreement. /s/ Douglas R. Colkitt - ------------------------------ ------------------------------------- WITNESS DOUGLAS R COLKITT, M.D., SELLER ATTEST: EQUIMED, INC. BY: /s/ Larry Pearson - ------------------------------ ---------------------------------- (Assistant) Secretary LARRY PEARSON, PRESIDENT and CHIEF EXECUTIVE OFFICER The Company hereby consents to the transactions described in this Stock Purchase Agreement to the extent such consent is necessary and joins in those representations and warranties in Article 4 related to the Company. ATTEST: THOMAS JEFFERSON REAL ESTATE CORPORATION BY: /s/ Douglas R. Colkitt - ------------------------------ --------------------------------- 10 EX-10.30 5 STOCK PURCHASE AGREEMENT (G. WASHINGTON RE) EXHIBIT 10.30 STOCK PURCHASE AGREEMENT ------------------------ George Washington Real Estate Corporation AGREEMENT made as of January 1, 1997, between DOUGLAS R. COLKITT, M.D. of 2171 Sandy Drive, State College PA 16803 (the "Seller") and EQUIMED, INC., a Delaware corporation with offices at 2171 Sandy Drive, State College PA 16803 (the "Buyer"). The parties have reached an understanding with respect to the sale and purchase of all the outstanding corporate shares of George Washington Real Estate Corporation, a Delaware corporation, engaged in the ownership, management and leasing of real estate (the "Company"). It is therefore agreed: 1.1 Sale of Corporate Shares. The Seller shall sell to the Buyer and the ------------------------ Buyer shall purchase from the Seller all of the issued and outstanding shares of stock in the Company for the purchase price described in Section 1.2 below. The Seller is the owner of all the issued and outstanding stock of the Company as listed on Schedule 1.1 which is attached hereto and incorporated herein by ------------ reference (the "Shares"). 1.2 Purchase Price. The purchase price for the Shares shall be Two --------------- Million ($2,000,000.00) Dollars (the "Purchase Price"). The Purchase Price payable to the Seller shall be reduced by all funds advanced by Buyer to Seller on December 31, 1996. 2.1 Closing. The closing of the sale and transfer of the Shares shall ------- take place at the location agreed upon by Seller and Buyer (the "Closing"). At the Closing, Seller shall deliver to the Buyer, free and clear of all encumbrances, certificates for the Shares which he is required to sell in negotiable form, with all requisite transfer stamps attached. Upon such delivery, the Buyer shall deliver to Seller the Purchase Price payable at Closing by a certified or bank cashier's check or wire transfer. 3.1 Access, Information and Documents. Seller and Company shall give to --------------------------------- Buyer and to Buyer's counsel, accountants and other representatives full access during normal business hours to all the properties, books, tax returns, contracts, commitments, records, officers, personnel and accountants of the Company and will furnish to Buyer all such documents and copies of documents (certified to be true copies if requested) and all information with respect to the affairs of the Company as Buyer may reasonably request. All such information furnished to Buyer in connection with the transactions contemplated herein shall be kept confidential, unless the Buyer is compelled to disclose such information by judicial or administrative process or by other requirements of law, including but not limited to any applicable securities laws or regulations. 3.2 Disclosure Schedules. Seller shall deliver at or prior to Closing, -------------------- all schedules described in this Agreement. 4. Representations and Warranties. The Seller represents and warrants to ------------------------------ Buyer as follows: 4.1 Organization and Standing of Company. The Company is a corporation ------------------------------------ duly organized, validly existing, and in good standing under the laws of Delaware. Copies of the Company's Certificate of Incorporation, and all amendments thereof to date, certified by the Secretary of State of Delaware, and of the Company's Bylaws as amended to date, certified by the Company's Secretary, have been delivered to the Buyer, and are complete and correct as of the date of this agreement. The Company is duly licensed or qualified and in good standing as a foreign corporation in the states listed in Schedule 4.1, ------------- which are the only states where the character of the properties owned by the Company, or the nature of the business transacted by it, make such license or qualification necessary. 4.2 Subsidiaries. The Company has no subsidiaries. ------------ 4.3 Capitalization. The aggregate number of shares which the Company is -------------- authorized to issue is 1500 common shares, of which 100 shares are issued and presently outstanding as shown on Schedule 1.1. All such issued shares have ------------- been validly issued and are fully paid and nonassessable. The Company has no outstanding subscriptions, contracts, options, warrants, or other obligations to issue, sell, or otherwise dispose of, or to purchase, redeem or otherwise acquire any of its shares. 4.4 Share Ownership. Seller represents and warrants that he is the owner, --------------- free and clear of any encumbrances, of the number of the Company's common shares set opposite his name on Schedule 1.1. Seller has full right and authority to ------------ transfer said shares to Buyer, and there are no other shares of the Company owned or claimed by any other person or entity. 4.5 Financial Statement. The Seller has delivered to the Buyer copies of ------------------- the following financial statements, all of which are true and complete, to the best of Seller's knowledge and have been prepared on an accrual basis: (a) Unaudited balance sheets of the Company as of December 31, 1995, December 31, 1994 and December 31, 1993, together with related unaudited statements of income and retained earnings and cash flows for the fiscal years ended on such dates, and the notes thereto, (b) The unaudited balance sheets of the Company as of December 31, 1996, together with the related unaudited statements of income and retained earnings and cash flows for the twelve (12) month period ended on such date, and the notes thereto; 2 (c) Federal tax returns of the Company as of December 31, 1995, December 31, 1994 and December 31, 1993. The above financial statements are hereinafter referred to as the "Financial Statements." To the best of Seller's knowledge the Financial Statements: (i) are correct and complete in accordance with the books and records of the Company; and (ii) fairly present the financial condition, assets and liabilities of the Company as of their respective dates and the results of the Company's operations and cash flows for the periods covered thereby. 4.6 Absence of Undisclosed Liabilities. Except to the extent listed on ---------------------------------- Schedule 4.6, the Company has no liabilities of any nature, whether accrued, absolute, contingent, or otherwise, including, without limitation, tax liabilities due or to become due, and whether incurred in respect of or measured by the Company's income for any period prior to December 31, 1996, or arising out of transactions entered into, or any state of facts existing, prior thereto. Seller represents and warrants that he does not know or have reasonable grounds to know of any basis for the assertion against the Company of any liability, except as listed in Schedule 4.6. 4.7 Absence of Certain Changes. Since December 31, 1996, to the best of -------------------------- Seller's knowledge, there has not been (i) any change in the Company's financial condition, assets, liabilities, or business, other than changes in the ordinary course of business, none of which has been materially adverse; (ii) any declaration, or setting aside, or payment of any dividend or other distribution in respect of the Company's shares, or any direct or indirect redemption, purchase, or other acquisition of any of such shares, (iii) any increase in the compensation payable or to become payable by the Company to any of its officers, employees, or agents, or any bonus payment or arrangement made to or with any of them; or (iv) any labor trouble, or any event, damage, loss or condition of any character, materially and adversely affecting the Company's business or prospects. 4.8 Taxes; Tax Audit. The Company has (i) timely filed all tax returns ---------------- required to be filed by it with respect to all taxes payable by the Company including, but not limited to, income, capital stock, franchise, sales or use, personal property and real estate taxes ("Taxes"), (ii) timely paid in full all Taxes shown to have become due pursuant to such tax returns; and (iii) paid all other Taxes for which a notice of assessment or demand for payment has been received. All taxes that the Company is required by the law to pay, withhold or collect including, but not limited to, payroll taxes and sales and use taxes on any of the Company's sales or leases of tangible personal property or services, have been timely paid over to the appropriate tax authority. All taxes of the Company have been paid or are adequately reserved against on the books of account of the Company as of December 31, 1996 or reflected on Schedule 4.6 with respect to any liabilities accruing between December 31, 1996 3 and Closing. To the best of Seller's knowledge, the Company has timely filed all information returns or reports, including Forms 1099, which are required to be filed and has accurately reported all information required to be included on such returns or reports. Except as disclosed in Schedule 4.8, the Company's federal income tax -------------- returns and state income tax returns have not been audited by the Internal Revenue Service or any state. The Seller has not received any notice of any tax audits being conducted by any taxing authority with respect to any tax liabilities of the Company, including income, sales or other taxes, and Seller and Company have not received any notice from any taxing authority of an intention of any taxing authority to conduct any audits. 4.9 Title to Properties; Mortgages; Liens; Compliance. The Company has ------------------------------------------------- good and marketable title to all its properties and assets, real and personal, listed on Schedule 4.9, subject to no security interests, mortgage, pledge, lien, encumbrance, or charge, except for mortgages and liens shown on Schedule 4.6 as securing specified liabilities set forth therein (with respect to which no default exists), and except for minor imperfections of title and encumbrances, if any, which are not substantial in amount, do not materially detract from the marketability or the value of the properties subject thereto, or materially impair the Company's operations, and have arisen only in the ordinary course of business. All the mortgages, liens, security interests and encumbrances against the real estate, machinery, equipment and other property owned or leased by the Company are listed on Schedule 4.6. To the best of ------------ Seller's knowledge, all Company buildings and equipment are in confirmation with all applicable ordinances and regulations and environmental, building, zoning and other laws and the real estate is in good operating condition, reasonable wear and tear accepted. 4.10 Accounts Receivable. The Accounts Receivable of the Company as of ------------------- December 31, 1996 are as shown on Schedule 4.10. Except as disclosed in Schedule 4.10, the Seller is not aware of anything that would indicate that these Accounts Receivable are not collectible. 4.11 Leases; Contracts. The Company has no leases, contracts, or other ----------------- agreements or commitments involving annual payments by or to the Company in excess of $10,000 each, except as listed in Schedule 4.11. True and complete -------------- copies of all the foregoing have been made available to the Buyer. To the best of Seller's knowledge, the Company has complied with all the provisions of such instruments and of all other contracts, leases, agreements and commitments to which it is a party, and is not in default under any of them. 4.12 Directors and Officers, Compensation; Banks. The Seller has made or ------------------------------------------- will make available to Buyer (i) the names of all the Company's directors and officers; (ii) the names of all persons whose compensation from the Company for the year 1996 will equal or exceed $50,000, together with a statement of the full amount paid or payable to each such person for services rendered or to be rendered in 1996, and the basis therefor; (iii) the name 4 of each bank in which the Company has an account, or safe deposit box, and the names of all persons authorized to draw thereon, or to have access thereto; and (iv) the names of all persons holding powers of attorney from the Company, and a summary statement of the terms thereof. 4.13 Litigation. Except for suits of a character incident to the normal ---------- conduct of the Company's business and involving not more than $5,000 in the aggregate and except as disclosed in Schedule 4.13, there is no litigation or ------------- proceeding pending (except for litigation or proceedings which may have been initiated, but notice of which has not been received by the Seller), or to the Seller's knowledge threatened, against or relating to the Company, its properties, or business, nor do the Sellers know or have reasonable grounds to know of any basis for any such action, or of any governmental investigation relative to the Company, its properties, or business. 4.14 Leases, Contracts, and Licenses. To the best of Seller's knowledge, ------------------------------- Seller represents and warrants that the transfer of its shares in accordance with the terms of this agreement will not constitute a prohibited assignment or transfer of any of its licenses, leases, or contracts, and that all of the foregoing will remain in full force and effect without acceleration as a result of this transaction. 4.15 Authorization and Enforceability. This Agreement has been duly -------------------------------- executed and delivered by Seller and constitutes the legal, valid and binding obligation of Seller, enforceable against him in accordance with its terms. 4.16 No Violation of Laws or Agreements. To the best of Seller's ---------------------------------- knowledge, the execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and the compliance with the terms, conditions and provisions of this Agreement by Seller and Company will not (a) contravene any provision of the certificate or articles of incorporation or bylaws of the Company; or (b) conflict with or result in a breach of or constitute a default (or an event which is reasonably likely to, with the passage of time or the giving of notice, or both, constitute a default) under, or result in or permit the modification or termination of any provision of, or result in or permit the acceleration of the maturity or the cancellation of the performance of any obligation under, or result in the creation or imposition of any liens of any nature whatsoever upon the Company's assets or give to others any interests or rights therein under, any indenture, mortgage, loan or credit agreement, license, contract, lease or other agreement or commitment to which the Company or Seller is a party or by which any of them or any of their assets may be bound or affected, or any judgment or order of any court or authority, domestic or foreign, or any applicable law, rule or regulation. 4.17 Disclosure. No representation or warranty by the Seller in this ---------- Agreement or the Schedules to this Agreement, contains or will contain any untrue statement of a material 5 fact, or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. 5. Representations and Warranties of Buyers. Buyer represents and ---------------------------------------- warrants to Seller as follows: 5.1 Organization and Good Standing. Buyer is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of the State of Delaware. The copies of Buyer's certificate of incorporation and by-laws, as amended to date, which have been delivered to Seller, are true and correct and complete and are in full force and effect. 5.2 Authorization and Enforceability. Buyer has full corporate power and -------------------------------- authority to make, execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by Buyer have been duly authorized by all necessary corporate action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer and constitutes the legal, valid and binding obligation of Buyer, enforceable in accordance with its terms. 5.3 Brokerage. Buyer has not made any agreement or taken any other action --------- which might cause anyone to become entitled to a broker's fee or commission as a result of the transactions contemplated hereunder. 6. Conduct of Business Pending Closing. The Seller covenants that, ----------------------------------- pending the Closing: (a) The Company's business will be conducted only in the ordinary course. (b) No change will be made in the Company's authorized or issued corporate shares. (c) No dividend or other distribution or payment will be declared or made in respect of the Company's corporate shares. (d) All debts will be paid as they become due. (e) No contract right of the Company will be waived. (f) No obligations except current liabilities under contracts entered into the ordinary course of business will be incurred. 7. Company Personnel. At the closing, the Seller shall make available to ----------------- the Buyer, unless otherwise requested by it, the written resignations of the Company's directors 6 and officers and shall take, or cause to be taken, such action as the Buyer may request with respect to changes in directors and officers. 8. Conditions Precedent for Buyer. All obligations of the Buyer under ------------------------------ this agreement are, at its option, subject to the fulfillment, prior to or at the closing, of each of the conditions described in this Section 8. 8.1 Representations and Warranties True at Closing. The Seller's ---------------------------------------------- representations and warranties contained in this agreement shall be true at the time of closing as though such representations and warranties were made at closing and shall continue to be true at the time payment is due under the Note. 8.2 Performance. The Seller shall have performed and complied with all ----------- agreements and conditions required by this Agreement to be performed or complied with by him prior to or at the Closing. 8.3 Opinion of Company's Counsel. The Seller shall have delivered to the ---------------------------- Buyer an opinion of counsel that the Company was incorporated and is in good standing under the laws of the State of its incorporation and, that to the best of their knowledge, there is no litigation pending against the Company which is not listed in Schedule 4.13. 9 Indemnification. The Seller shall indemnify and hold harmless the --------------- Company and the Buyer, at all times after the date of this agreement, against and in respect of: (a) Undisclosed Liabilities. All liabilities of the Company of any ----------------------- nature, whether accrued, absolute, contingent, or otherwise, existing as of the date of Closing excepting those listed on Schedules 4.6 and 4. 11, including, without limitation. any tax liabilities, accrued in respect of, or measured by the Company's income for any period prior to December 31, 1996, or arising out of transactions entered into, or any state of facts existing, prior to such date; (b) Interim Liabilities. All liabilities of, or claims against, the ------------------- Company arising out of the conduct of the Company's business between December 31, 1996 and the Closing, otherwise than in ordinary course, or arising out of any presently existing contract or commitment listed in Schedule 4.11. (c) Taxes. All the Company's Taxes attributable to or apportioned to ----- any period on or before December 31, 1996 and Seller's Taxes (including, but not limited to, those Taxes arising on account of the transactions contemplated in this Agreement). For the purposes of this section, Taxes shall be deemed attributable to or apportioned to a period on or before December 31, 1996 if (i) such Taxes are for the taxable year or other tax reporting 7 period that ends on or before December 31, 1996 or (ii) such Taxes are apportionable to the pre-Closing portion of a straddle year. (d) Misrepresentations. Any damage or deficiency resulting from any ------------------ misrepresentation, breach of warranty, or nonfulfillment of any agreement on the part of the Seller, under this agreement, or from any misrepresentation in or omission from this Agreement or any Schedule to this Agreement; and (e) Incidental Expenses. All actions, suits, proceedings, demands, ------------------- assessments, judgments, costs, reasonable attorney's fees, and expenses incident to any of the foregoing, to the extent that such items described in this Section 9(d) exceed in the aggregate $10,000.00. The Seller shall reimburse the Company or the Buyer, on demand, for any payment made by the Company or the Buyer at any time after the date of this Agreement, in respect of any liability or claim to which the foregoing indemnity relates. Seller and Buyer agree that any indemnification payments made pursuant to this Section 9 shall be treated for tax purposes as an adjustment to the Purchase Price unless otherwise required by applicable law. Seller shall not be obligated to indemnify the Buyer and the Company pursuant to this Section 9 unless the aggregate of all such indemnification claims exceeds $10,000.00 (the "Threshold"), in which event the Seller shall be liable for all amounts in excess of the Threshold. 10. Brokerage. The Seller represents and warrants that all negotiations --------- relative to this agreement have been carried on by him directly with the Buyer, without the intervention of any person, and the Seller shall indemnify the Buyer and hold it harmless against and in respect of any claim for brokerage or other commissions relative to this agreement, or to the transactions contemplated hereby, and also in respect of all expenses of any character incurred by the Seller in connection with this agreement or such transactions. 11. Purchase for Investment. The Buyer represents that its purchase ----------------------- hereunder is being made for its own account for investment, and with no present intention of resale. All stock certificates presenting the shares purchased under this agreement shall be endorsed with the following restrictive legend: The Shares represented by this certificate have not been registered under the Securities Act of 1933, and said Shares may not be offered or sold and no transfer will then be made by the Company or its transferee except in compliance with the Securities Act of 1933 and the rules and regulations promulgated thereunder. 8 12. Nature and Survival of Representations. All statements contained in -------------------------------------- any schedule, certificate or other instrument delivered by or on behalf of the Seller pursuant hereto, or in connection with the transactions contemplated hereby, shall be deemed representations and warranties by the Seller hereunder. All representations, warranties, and agreements made by the Seller in this agreement, or pursuant hereto, shall survive the closing and any investigation at any time made by or on behalf of the Buyer. 13. Benefit. This agreement shall be binding upon, and inure to the ------- benefit of, the legal representatives of the Seller, and the successors and assigns of the Buyer. Without limiting the foregoing, the Company's rights hereunder may be enforced by it in its own name. In the event that the Buyer causes the assets and business of the Company to be transferred to some other corporation, the rights of the Buyer and of the Company hereunder may be enforced by such other corporation in its own name. 14. Construction. This agreement is being delivered and is intended to be ------------ performed in the Commonwealth of Pennsylvania, and shall be construed and enforced in accordance with the laws of that state. 15. Notices. All notices, requests, demands, and other communications ------- hereunder shall be in writing, and shall be deemed to have been duly given if delivered or mailed, first class postage prepaid, if to Seller, at 2171 Sandy Drive, State College PA 16803, Attn: Douglas R. Colkitt, or at such other address as he may have furnished to the Buyer in writing, or, if to the Buyer at 3754 LaVista Road, Tucker, GA 30084-5637. 16. Counterparts. This agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. Approval of Buyer's Board of Directors. This Stock Purchase Agreement -------------------------------------- is contingent upon the approval of the disinterested members of the Board of Directors of the Buyer, which approval shall be obtained prior to Closing. 9 In witness whereof the parties have duly executed this agreement. /s/ Douglas R. Colkitt - ------------------------------ ----------------------------------- WITNESS DOUGLAS R. COLKITT, M.D., SELLER ATTEST: EQUIMED, INC. BY: /s/ Larry Pearson - ------------------------------ ----------------------------------- (Assistant) Secretary LARRY PEARSON, PRESIDENT and CHIEF EXECUTIVE OFFICER The Company hereby consents to the transactions described in this Stock Purchase Agreement to the extent such consent is necessary and joins in those representations and warranties in Article 4 related to the Company. ATTEST: GEORGE WASHINGTON REAL ESTATE CORPORATION BY: /s/ Douglas R. Colkitt - ------------------------------ ----------------------------------- 10 EX-10.31 6 STOCK PURCHASE AGREEMENT (NIXON EQUIPMENT) EXHIBIT 10.31 STOCK PURCHASE AGREEMENT ------------------------ Nixon Equipment Corporation AGREEMENT made as of January 1, 1997, between DOUGLAS R. COLKITT, M.D. of 2171 Sandy Drive, State College PA 16803 (the "Seller") and EQUIMED, INC., a Delaware corporation with offices at 2171 Sandy Drive, State College PA 16803 (the "Buyer"). The parties have reached an understanding with respect to the sale and purchase of all the outstanding corporate shares of Nixon Equipment Corporation, a Delaware corporation, engaged in the ownership, management and leasing of real estate (the "Company"). It is therefore agreed: 1.1 Sale of Corporate Shares. The Seller shall sell to the Buyer and the ------------------------ Buyer shall purchase from the Seller all of the issued and outstanding shares of stock in the Company for the purchase price described in Section 1.2 below. The Seller is the owner of all the issued and outstanding stock of the Company as listed on Schedule 1.1 which is attached hereto and incorporated herein by ------------- reference (the "Shares"). 1.2 Purchase Price. The purchase price for the Shares shall be Four Hundred -------------- Thousand ($400,000.00) Dollars (the "Purchase Price"). The Purchase Price payable to the Seller shall be reduced by all funds advanced by Buyer to Seller on December 31, 1996. 2.1 Closing. The closing of the sale and transfer of the Shares shall take ------- place at the location agreed upon by Seller and Buyer (the "Closing"). At the Closing, Seller shall deliver to the Buyer, free and clear of all encumbrances, certificates for the Shares which he is required to sell in negotiable form, with all requisite transfer stamps attached. Upon such delivery, the Buyer shall deliver to Seller the Purchase Price payable at Closing by a certified or bank cashier's check or wire transfer. 3.1 Access, Information and Documents. Seller and Company shall give to --------------------------------- Buyer and to Buyer's counsel, accountants and other representatives full access during normal business hours to all the properties, books, tax returns, contracts, commitments, records, officers, personnel and accountants of the Company and will furnish to Buyer all such documents and copies of documents (certified to be true copies if requested) and all information with respect to the affairs of the Company as Buyer may reasonably request. All such information furnished to Buyer in connection with the transactions contemplated herein shall be kept confidential, unless the Buyer is compelled to disclose such information by judicial or administrative process or by other requirements of law, including but not limited to any applicable securities laws or regulations. 3.2 Disclosure Schedules. Seller shall deliver at or prior to Closing, all -------------------- schedules described in this Agreement. 4. Representations and Warranties. The Seller represents and warrants to ------------------------------ Buyer as follows: 4.1 Organization and Standing of Company. The Company is a corporation duly ------------------------------------ organized, validly existing, and in good standing under the laws of Delaware. Copies of the Company's Certificate of Incorporation, and all amendments thereof to date, certified by the Secretary of State of Delaware, and of the Company's Bylaws as amended to date, certified by the Company's Secretary, have been delivered to the Buyer, and are complete and correct as of the date of this agreement. The Company is duly licensed or qualified and in good standing as a foreign corporation in the states listed in Schedule 4.1, which are the only -------------- states where the character of the properties owned by the Company, or the nature of the business transacted by it, make such license or qualification necessary. 4.2 Subsidiaries. The Company has no subsidiaries. ------------ 4.3 Capitalization. The aggregate number of shares which the Company is -------------- authorized to issue is 1500 common shares, of which 100 shares are issued and presently outstanding as shown on Schedule 1.1. All such issued shares have ------------- been validly issued and are fully paid and nonassessable. The Company has no outstanding subscriptions contracts, options, warrants, or other obligations to issue, sell, or otherwise dispose of, or to purchase, redeem or otherwise acquire any of its shares. 4.4 Share Ownership. Seller represents and warrants that he is the owner, --------------- free and clear of any encumbrances, of the number of the Company's common shares set opposite his name on Schedule 1.1. Seller has full right and authority to transfer said shares to Buyer, and there are no other shares of the Company owned or claimed by any other person or entity. 4.5 Financial Statement. The Seller has delivered to the Buyer copies of ------------------- the following financial statements, all of which are true and complete, to the best of Seller's knowledge and have been prepared on an accrual basis: (a) Unaudited balance sheets of the Company as of December 31, 1995, December 31, 1994 and December 31, 1993, together with related unaudited statements of income and retained earnings and cash flows for the fiscal years ended on such dates, and the notes thereto; (b) The unaudited balance sheets of the Company as of December 31, 1996, together with the related unaudited statements of income and retained earnings and cash flows for the twelve (12) month period ended on such date, and the notes thereto; 2 (c) Federal tax returns of the Company as of December 31, 1995, December 31, 1994 and December 31, 1993. The above financial statements are hereinafter referred to as the "Financial Statements." To the best of Seller's knowledge the Financial Statements: (i) are correct and complete in accordance with the books and records of the Company; and (ii) fairly present the financial condition, assets and liabilities of the Company as of their respective dates and the results of the Company's operations and cash flows for the periods covered thereby. 4.6 Absence of Undisclosed Liabilities. Except to the extent listed on ---------------------------------- Schedule 4.6, the Company has no liabilities of any nature, whether accrued, absolute, contingent, or otherwise, including, without limitation, tax liabilities due or to become due, and whether incurred in respect of or measured by the Company's income for any period prior to December 31, 1996, or arising out of transactions entered into, or any state of facts existing, prior thereto. Seller represents and warrants that he does not know or have reasonable grounds to know of any basis for the assertion against the Company of any liability, except as listed in Schedule 4.6. 4.7 Absence of Certain Changes. Since December 31, 1996, to the best of -------------------------- Seller's knowledge, there has not been (i) any change in the Company's financial condition, assets, liabilities, or business, other than changes in the ordinary course of business, none of which has been materially adverse, (ii) any declaration, or setting aside, or payment of any dividend or other distribution in respect of the Company's shares, or any direct or indirect redemption, purchase, or other acquisition of any of such shares; (iii) any increase in the compensation payable or to become payable by the Company to any of its officers, employees, or agents, or any bonus payment or arrangement made to or with any of them; or (iv) any labor trouble, or any event, damage, loss or condition of any character, materially and adversely affecting the Company's business or prospects. 4.8 Taxes; Tax Audit. The Company has (i) timely filed all tax returns ---------------- required to be filed by it with respect to all taxes payable by the Company including, but not limited to, income, capital stock, franchise, sales or use, personal property and real estate taxes ("Taxes"); (ii) timely paid in full all Taxes shown to have become due pursuant to such tax returns; and (iii) paid all other Taxes for which a notice of assessment or demand for payment has been received. All taxes that the Company is required by the law to pay, withhold or collect including, but not limited to, payroll taxes and sales and use taxes on any of the Company's sales or leases of tangible personal property or services, have been timely paid over to the appropriate tax authority. All taxes of the Company have been paid or are adequately reserved against on the books of account of the Company as of December 31, 1996 or reflected on Schedule 4.6 with respect to any liabilities accruing between December 31, 1996 and Closing. To the best of Seller's knowledge, the Company has timely filed all information returns or reports, including Forms 1099, which are required to be filed and has accurately reported all information required to be included on such returns or reports. 3 Except as disclosed in Schedule 4.8, the Company's federal income tax -------------- returns and state income tax returns have not been audited by the Internal Revenue Service or any state. The Seller has not received any notice of any tax audits being conducted by any taxing authority with respect to any tax liabilities of the Company, including income, sales or other taxes, and Seller and Company have not received any notice from any taxing authority of an intention of any taxing authority to conduct any audits. 4.9 Title to Properties; Mortgages; Liens; Compliance. The Company has good ------------------------------------------------- and marketable title to all its properties and assets, real and personal, listed on Schedule 4.9, subject to no security interests, mortgage, pledge, lien, encumbrance, or charge, except for mortgages and liens shown on Schedule 4.6 as securing specified liabilities set forth therein (with respect to which no default exists), and except for minor imperfections of title and encumbrances, if any, which are not substantial in amount, do not materially detract from the marketability or the value of the properties subject thereto, or materially impair the Company's operations, and have arisen only in the ordinary course of business. All the mortgages, liens, security interests and encumbrances against the real estate, machinery, equipment and other property owned or leased by the Company are listed on Schedule 4.6. To the best of Seller's knowledge, all ------------ Company buildings and equipment are in confirmation with all applicable ordinances and regulations and environmental, building, zoning and other laws and the real estate is in good operating condition, reasonable wear and tear accepted. 4.10 Accounts Receivable. The Accounts Receivable of the Company as of ------------------- December 31, 1996 are as shown on Schedule 4.10. Except as disclosed in Schedule 4.10, the Seller is not aware of anything that would indicate that these Accounts Receivable are not collectible. 4.11 Leases; Contracts. The Company has no leases, contracts, or other ----------------- agreements or commitments involving annual payments by or to the Company in excess of $25,000 each, except as listed in Schedule 4.11. True and complete copies of all the foregoing have been made available to the Buyer. To the best of Seller's knowledge, the Company has complied with all the provisions of such instruments and of all other contracts, leases, agreements and commitments to which it is a party, and is not in default under any of them. 4.12 Directors and Officers, Compensation, Banks. The Seller has made or ------------------------------------------- will make available to Buyer (i) the names of all the Company's directors and officers; (ii) the names of all persons whose compensation from the Company for the year 1996 will equal or exceed $50,000, together with a statement of the full amount paid or payable to each such person for services rendered or to be rendered in 1996, and the basis therefor; (iii) the name of each bank in which the Company has an account, or safe deposit box, and the names of all persons authorized to draw thereon, or to have access thereto; and (iv) the names of all persons holding powers of attorney from the Company, and a summary statement of the terms thereof. 4.13 Litigation. Except for suits of a character incident to the normal ---------- conduct of the Company's business and involving not more than $5,000 in the aggregate and except as 4 disclosed in Schedule 4.13, there is no litigation or proceeding pending (except --------------- for litigation or proceedings which may have been initiated, but notice of which has not been received by the Seller), or to the Seller's knowledge threatened, against or relating to the Company, its properties, or business, nor do the Sellers know or have reasonable grounds to know of any basis for any such action, or of any governmental investigation relative to the Company, its properties, or business. 4.14 Leases, Contracts, and Licenses. To the best of Seller's knowledge, ------------------------------- Seller represents and warrants that the transfer of its shares in accordance with the terms of this agreement will not constitute a prohibited assignment or transfer of any of its licenses, leases, or contracts, and that all of the foregoing will remain in full force and effect without acceleration as a result of this transaction. 4.15 Authorization and Enforceability. This Agreement has been duly -------------------------------- executed and delivered by Seller and constitutes the legal, valid and binding obligation of Seller, enforceable against him in accordance with its terms. 4.16 No Violation of Laws or Agreements. To the best of Seller's knowledge, ---------------------------------- the execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and the compliance with the terms, conditions and provisions of this Agreement by Seller and Company will not (a) contravene any provision of the certificate or articles of incorporation or bylaws of the Company; or (b) conflict with or result in a breach of or constitute a default (or an event which is reasonably likely to, with the passage of time or the giving of notice, or both, constitute a default) under, or result in or permit the modification or termination of any provision of, or result in or permit the acceleration of the maturity or the cancellation of the performance of any obligation under, or result in the creation or imposition of any liens of any nature whatsoever upon the Company's assets or give to others any interests or rights therein under, any indenture, mortgage, loan or credit agreement, license, contract, lease or other agreement or commitment to which the Company or Seller is a party or by which any of them or any of their assets may be bound or affected, or any judgment or order of any court or authority, domestic or foreign, or any applicable law, rule or regulation. 4.17 Disclosure. No representation or warranty by the Seller in this ---------- Agreement or the Schedules to this Agreement, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. 5. Representations and Warranties of Buyers. Buyer represents and warrants ---------------------------------------- to Seller as follows: 5.1 Organization and Good Standing. Buyer is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of the State of Delaware. The copies of 5 Buyer's certificate of incorporation and by-laws, as amended to date, which have been delivered to Seller, are true and correct and complete and are in full force and effect. 5.2 Authorization and Enforceability. Buyer has full corporate power -------------------------------- and authority to make, execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by Buyer have been duly authorized by all necessary corporate action on the part of Buyer. This Agreement has been duly executed and delivered by Buyer and constitutes the legal, valid and binding obligation of Buyer, enforceable in accordance with its terms. 5.3 Brokerage. Buyer has not made any agreement or taken any other --------- action which might cause anyone to become entitled to a broker's fee or commission as a result of the transactions contemplated hereunder. 6. Conduct of Business Pending Closing. The Seller covenants that, ----------------------------------- pending the Closing: (a) The Company's business will be conducted only in the ordinary course. (b) No change will be made in the Company's authorized or issued corporate shares. (c) No dividend or other distribution or payment will be declared or made in respect of the Company's corporate shares. (d) All debts will be paid as they become due. (e) No contract right of the Company will be waived. (f) No obligations except current liabilities under contracts entered into the ordinary course of business will be incurred. 7. Company Personnel. At the closing, the Seller shall make available to ----------------- the Buyer, unless otherwise requested by it, the written resignations of the Company's directors and officers and shall take, or cause to be taken, such action as the Buyer may request with respect to changes in directors and officers. 8. Conditions Precedent for Buyer. All obligations of the Buyer under this ------------------------------ agreement are, at its option, subject to the fulfillment, prior to or at the closing, of each of the conditions described in this Section 8. 8.1 Representations and Warranties True at Closing. The Seller's ---------------------------------------------- representations and warranties contained in this agreement shall be true at the time of closing 6 as though such representations and warranties were made at closing and shall continue to be true at the time payment is due under the Note. 8.2 Performance. The Seller shall have performed and complied with all ----------- agreements and conditions required by this Agreement to be performed or complied with by him prior to or at the Closing. 8.3 Opinion of Company's Counsel. The Seller shall have delivered to ---------------------------- the Buyer an opinion of counsel that the Company was incorporated and is in good standing under the laws of the State of its incorporation and, that to the best of their knowledge, there is no litigation pending against the Company which is not listed in Schedule 4.13. 9. Indemnification. The Seller shall indemnify and hold harmless the --------------- Company and the Buyer, at all times after the date of this agreement, against and in respect of: (a) Undisclosed Liabilities. All liabilities of the Company of any ----------------------- nature, whether accrued, absolute, contingent, or otherwise, existing as of the date of Closing excepting those listed on Schedules 4.6 and 4.11, including, without limitation, any tax liabilities, accrued in respect of, or measured by the Company's income for any period prior to December 31, 1996, or arising out of transactions entered into, or any state of facts existing, prior to such date; (b) Interim Liabilities. All liabilities of, or claims against, the ------------------- Company arising out of the conduct of the Company's business between December 31, 1996 and the Closing, otherwise than in ordinary course, or arising out of any presently existing contract or commitment listed in Schedule 4.11. (c) Taxes. All the Company's Taxes attributable to or apportioned to ----- any period on or before December 31, 1996 and Seller's Taxes (including, but not limited to, those Taxes arising on account of the transactions contemplated in this Agreement). For the purposes of this section, Taxes shall be deemed attributable to or apportioned to a period on or before December 31, 1996 if (i) such Taxes are for the taxable year or other tax reporting period that ends on or before December 31, 1996 or (ii) such Taxes are apportionable to the pre- Closing portion of a straddle year. (d) Misrepresentations. Any damage or deficiency resulting from any -------------------- misrepresentation, breach of warranty, or nonfulfillment of any agreement on the part of the Seller, under this agreement, or from any misrepresentation in or omission from this Agreement or any Schedule to this Agreement; and (e) Incidental Expenses. All actions, suits, proceedings, demands, --------------------- assessments, judgments, costs, reasonable attorney's fees, and expenses incident to any of the foregoing, to the extent that such items described in this Section 9(d) exceed in the aggregate $10,000.00. 7 The Seller shall reimburse the Company or the Buyer, on demand, for any payment made by the Company or the Buyer at any time after the date of this Agreement, in respect of any liability or claim to which the foregoing indemnity relates. Seller and Buyer agree that any indemnification payments made pursuant to this Section 9 shall be treated for tax purposes as an adjustment to the Purchase Price unless otherwise required by applicable law. Seller shall not be obligated to indemnify the Buyer and the Company pursuant to this Section 9 unless the aggregate of all such indemnification claims exceeds $50,000.00 (the "Threshold"), in which event the Seller shall be liable for all amounts in excess of the Threshold. 10. Brokerage. The Seller represents and warrants that all negotiations --------- relative to this agreement have been carried on by him directly with the Buyer, without the intervention of any person, and the Seller shall indemnify the Buyer and hold it harmless against and in respect of any claim for brokerage or other commissions relative to this agreement, or to the transactions contemplated hereby, and also in respect of all expenses of any character incurred by the Seller in connection with this agreement or such transactions. 11. Purchase for Investment. The Buyer represents that its purchase ----------------------- hereunder is being made for its own account for investment, and with no present intention of resale. All stock certificates presenting the shares purchased under this agreement shall be endorsed with the following restrictive legend: The Shares represented by this certificate have not been registered under the Securities Act of 1933, and said Shares may not be offered or sold and no transfer will then be made by the Company or its transferee except in compliance with the Securities Act of 1933 and the rules and regulations promulgated thereunder. 12. Nature and Survival of Representations. All statements contained in any -------------------------------------- schedule, certificate or other instrument delivered by or on behalf of the Seller pursuant hereto, or in connection with the transactions contemplated hereby, shall be deemed representations and warranties by the Seller hereunder. All representations, warranties, and agreements made by the Seller in this agreement, or pursuant hereto, shall survive the closing and any investigation at any time made by or on behalf of the Buyer. 13. Benefit. This agreement shall be binding upon, and inure to the benefit ------- of, the legal representatives of the Seller, and the successors and assigns of the Buyer. Without limiting the foregoing, the Company's rights hereunder may be enforced by it in its own name. In the event that the Buyer causes the assets and business of the Company to be transferred to some other corporation, the rights of the Buyer and of the Company hereunder may be enforced by such other corporation in its own name. 8 14. Construction. This agreement is being delivered and is intended to be ------------ performed in the Commonwealth of Pennsylvania, and shall be construed and enforced in accordance with the laws of that state. 15. Notices. All notices, requests, demands, and other communications ------- hereunder shall be in writing, and shall be deemed to have been duly given if delivered or mailed, first class postage prepaid, if to Seller, at 2171 Sandy Drive, State College PA 16803, Attn: Douglas R. Colkitt, or at such other address as he may have furnished to the Buyer in writing, or, if to the Buyer at 3754 LaVista Road, Tucker, GA 30084-5637. 16. Counterparts. This agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. Approval of Buyer's Board of Directors. This Stock Purchase Agreement -------------------------------------- is contingent upon the approval of the disinterested members of the Board of Directors of the Buyer, which approval shall be obtained prior to Closing. 9 In witness whereof the parties have duly executed this agreement. /s/ Douglas R. Colkitt - ------------------------------- --------------------------------------- WITNESS DOUGLAS R. COLKITT, M.D., SELLER ATTEST: EQUIMED, INC. BY: /s/ Larry Pearson - ------------------------------- ------------------------------------ (Assitant) Secretary LARRY PEARSON, PRESIDENT and CHIEF EXECUTIVE OFFICER The Company hereby consents to the transactions described in this Stock Purchase Agreement to the extent such consent is necessary and joins in those representations and warranties in Article 4 related to the Company. ATTEST: NIXON EQUIPMENT CORPORATION BY: /s/ Douglas R. Colkitt - ------------------------------- ------------------------------------ 10 EX-11.1 7 STATEMENT REGARDING COMPUTATION EXHIBIT 11 EQUIMED, INC. STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Year Ended December 31, 1994 1995 1996 ---- ---- ---- Primary: Weighted average common shares outstanding 27,570,000 Net effect of dilutive stock options and warrants - based on the treasury stock method 7,000 ------ Weighted average common share and equivalents outstanding 27,577,000 =========== Net loss $(31,346,000) ============= Net loss per share $ (1.14) ====== Fully Diluted: Weighted average common shares outstanding 27,570,000 Net effect of dilutive stock options and warrants - based on the treasury stock method 7,000 ------ Weighted average common share and equivalents outstanding 27,577,000 =========== Net loss $(31,346,000) ============= Net loss per share $ (1.14) ====== Pro forma weighted average common shares outstanding 20,784,000 20,784,000 Pro forma net effect of dilutive stock options and warrants - based on the treasury stock method - - ---------- ---------- Pro forma weighted average common share and equivalents outstanding 20,784,000 20,784,000 ========== ========== Pro forma net income $5,233,000 $6,807,000 ========= ========= Pro forma net income per share $ 0.25 $ 0.33
EX-21 8 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 EQUIMED, INC. SUBSIDIARIES EquiMed, Inc. owns 100% of the outstanding capital stock of the following entities: ALR Reporting, Inc. Billing Services, Inc. EquiMed India Private Limited EquiMed Pakistan (Private) Limited George Washington Real Estate Corporation Nixon Equipment Corporation Rejuve, Inc. Russell Data Services, Inc. Thomas Jefferson Real Estate Corporation Tiger Communications International, LTD. Transcriptions International Inc. Trident International Accounting, Inc. ALR Reporting, Inc. owns 100% of the outstanding capital stock of the following entities: Doyle Reporting, Inc. Herm Conversion and Duplicating Inc. Twin Brothers Reporting, Inc. EquiMed, Inc. owns 80% of the outstanding capital stock of Nittany Decisions Services Private Limited. EquiMed India Private Limited and EquiMed Pakistan (Private) Limited each hold a 50% interest in Poseidon Holdings LLC. Poseidon Holdings LLC holds 100% of the equity of Solemar Insurance Ltd., an insurer domiciled in the Cayman Islands. EX-23.1 9 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-01112) pertaining to the EquiVision, Inc. Stock Option Plan and all non-qualified stock options and in the Registration Statements and in the related prospectuses of EquiMed, Inc. (successor to EquiVision, Inc.) on Form S-3 (No. 333-01096 and No. 333-12595) and on Form S-4 (No. 333-12773) of our reports dated May 21, 1997 related to the consolidated financial statements and financial statement Schedule II of EquiMed, Inc. (successor to EquiVision, Inc.) included in this Annual Report on Form 10-K for the year ended December 31, 1996. /s/ ERNST & YOUNG LLP ERNST & YOUNG LLP Atlanta, Georgia June 6, 1997 EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF EQUIMED, INC. FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 DEC-31-1996 27,010 0 6,307 0 0 47,813 12,379 0 71,591 28,054 0 0 0 3 35,461 71,591 0 99,115 0 83,696 30,389 0 3,188 (19,329) 10,613 (31,219) 0 (127) 0 (31,346) (1.14) (1.14)
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