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ADAC takes another step toward acquiring stricken CHC


CHC files restructuring plan under Chapter 11ADAC Laboratories of Milpitas, CA, is on track to take controlof Community Health Computing (CHC) of Houston. On Jan. 13, thetwo companies signed a definitive agreement for ADAC to acquireall shares

CHC files restructuring plan under Chapter 11

ADAC Laboratories of Milpitas, CA, is on track to take controlof Community Health Computing (CHC) of Houston. On Jan. 13, thetwo companies signed a definitive agreement for ADAC to acquireall shares of stock to be issued by CHC after the company's reorganizationunder Chapter 11 rules. One day previously, CHC had filed a planof reorganization incorporating the agreement into its restructuring.

CHC filed for Chapter 11 in U.S. Bankruptcy Court in Houstonon Dec. 7 after several months of struggling with red ink (SCAN12/14/94). ADAC quickly moved into position to take control ofthe company by offering it several rounds of financing securedby CHC's assets.

The transaction in which ADAC would buy CHC is subject onlyto confirmation of the reorganization plan by the bankruptcy courtand by a vote of the creditors' committee, according to DavidLowe, ADAC CEO. It is not known when these conditions will bemet.

"You can't put a deadline on a court," Lowe said."But it could be done as early as April."

ADAC has agreed to provide debtor-in-possession financing toCHC, to provide cash and ADAC common stock purchase warrants forCHC creditors, and to satisfy the company's need for working capital.

Despite filing Chapter 11, CHC remains an important part ofADAC's plan to expand into the health-care information systemsmarket.

"We don't want to comment too much about the state ofthe company because it is still in the Chapter 11 process, butwe think its assets have value to our strategic plan," Lowesaid.

ADAC is attracted to CHC's installed base of information systems,especially in the laboratory and radiology markets. CHC also offersa solid core of staff, although layoffs precipitated by the recentchange in the company's financial condition have reduced its workforce to about 100.

"They still have an outstanding customer support organizationfor their laboratory and radiology product lines, and for theirhospital information systems," Lowe said. "They alsohave some engineering efforts under way for both the radiologyand laboratory product lines."

ADAC made its first move to acquire CHC in late November whenthe company agreed to lend CHC up to $3.5 million. Principal andinterest on the loan were due Dec. 31, 1994, and were securedby all of CHC's assets. ADAC had also obtained a three-year optionfrom several significant shareholders to acquire approximately4.8 million shares -- some 56% of the company's common stock --at 30¢ per share, subject to certain conditions.

When CHC filed for Chapter 11 less than two weeks later, ADACincreased its stake to about $8 million in debtor-in-possessionfinancing and rewrote the loan to extend the payback deadlineto April 15, 1995. The financing has allowed CHC to continue businessoperations while in Chapter 11 proceedings. The deal also laidthe groundwork for further discussions between ADAC and CHC ona plan of reorganization that would enable ADAC to acquire thecompany.

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