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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
for the fiscal year ended June 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
for the transition period from _________________ to _______________
Commission file number 0-26938
HOME HEALTH CORPORATION OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-2224800
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2200 Renaissance Boulevard 19406
Suite 300 (Zip code)
King of Prussia, PA
(Address of principal executive offices)
Registrant's telephone number, including area code: (610) 272-1717
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the 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. [_]
On August 31, 1996, the aggregate market value (based upon the closing price
on such date) of the voting stock held by non-affiliates of the Registrant
was approximately $72,156,000.
The number of shares of the Registrant's, no par value common stock
outstanding as of August 31, 1996 was 8,051,467.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 1996 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange commission
within 120 days after June 30, 1996, are incorporated by reference into Part
III of this report.
Certain exhibits to the Company's Registration Statement on Form S-1 (File No.
33-96888) are incorporated by reference as Exhibits in Part IV of this Report.
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PART I
ITEM 1. BUSINESS
The Company
Home Health Corporation of America, Inc. ("HHCA" or the "Company") is
a leading regional provider of comprehensive home health care services,
delivering nursing and related patient services, respiratory therapy, infusion
therapy and durable medical equipment. The Company currently operates 25 branch
locations in Pennsylvania, Delaware, New Jersey, Maryland and Florida. The
Company believes that its ability to provide a broad range of cost-effective
home health care services gives it a competitive advantage when seeking patient
referrals. In addition, HHCA is one of the few home health care companies that
provides comprehensive services to home health care patients using its own
nursing personnel to assess patients' needs and coordinate the delivery of its
services, enhancing the Company's ability to cross-sell its other services to
meet these patients' needs. As a result, management believes that the Company
is well-positioned to benefit from the increasing preference of payors and
referral sources, particularly managed care organizations, to use home health
care providers that both offer and coordinate the delivery of home health care.
As managed care organizations continue to increase their market share in regions
in which the Company operates, these organizations have become increasingly
important to the Company as referral sources.
Since July 1, 1993, the Company has generated compound annual growth rates
in net revenues and net income of 45% and 48%, respectively, through a
combination of internal growth and acquisitions. The Company has experienced
internal growth rates in net revenues of 24%, 29% and 19% in fiscal 1994, 1995
and 1996, respectively. Management has achieved this internal growth by
expanding its branch locations, expanding the range of services offered,
effective cross-selling of its services and actively seeking to increase patient
referrals, particularly from managed care organizations.
The Company seeks to establish and increase market share by acquiring other
home health care businesses in existing, contiguous and new markets. Since
July 1, 1992, the Company has completed eleven acquisitions, excluding three
acquisitions currently under definitive agreements. Acquisitions completed
prior to fiscal 1996 enhanced the Company's presence in Pennsylvania, Delaware,
Maryland and New Jersey. During fiscal 1996 the Company expanded its operations
into the Tampa/St. Petersburg, Florida market with four acquisitions. In
August 1996, the Company acquired a durable medical equipment and respiratory
therapy company in Northeastern, Pennsylvania and a home infusion therapy
company in the Sarasota, Florida area. Additionally, in September 1996, the
Company signed definitive agreements to acquire substantially all of the assets
and assume certain liabilities of a durable medical equipment and respiratory
therapy company located in Bristol, Pennsylvania and a nursing services company
located in Berlin and Salisbury, Maryland. These acquisitions, which are to be
recorded using the purchase method of accounting, are expected to close by
September 30, 1996. Additionally, on September 10, 1996, the Company signed a
definitive agreement to merge into the Company the operations of a durable
medical equipment and infusion and respiratory therapy services company
providing services in Mount Laurel, New Jersey, Columbia, Maryland and Chicago,
Illinois. This acquisition, which is to be accounted for as a pooling of
interests, is expected to close within 65 days of the signing of the definitive
agreement. Management believes that a substantial number of acquisition
opportunities may continue to arise as managed care and other competitive
pressures encourage further consolidation in the industry. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Forward Outlook and Risks."
The Company's objective is to enhance its position as a leading regional
provider of cost-effective, comprehensive home health care services by:
(i) offering payors, including managed care organizations, access to
comprehensive home health care services provided directly by the Company,
(ii) generating internal growth by adding referral sources and cross-selling its
services, (iii) increasing market share and geographic reach through
acquisitions that capitalize on the industry's consolidation trend and
(iv) continuing to coordinate the delivery of patient care through nursing and
related patient services. The Company believes that it has the local
relationships, the knowledge of the regional markets in which it operates, and
the cost-effective, comprehensive services required to compete effectively for
managed care contracts and other referrals.
The Industry
The importance of home health care is increasing as a result of significant
economic pressures within the health care industry. Total expenditures within
the health care industry, which have increased at twice the rate of inflation in
recent years, were approximately $1.1 trillion in 1995, based upon certain
industry sources. The ongoing pressure to contain health care costs, while
maintaining high quality care, is accelerating the growth of alternate site care
that reduces hospital admissions and lengths of hospital stays, such as home
health care. Home health care, one of the fastest growing segments of the health
care industry, had total expenditures in 1995 of approximately $36.1 billion, up
from $13.1 billion in 1990. Approximately 17,000 providers and 700,000
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caregivers currently serve approximately 8 million patients per year in their
homes. Industry expenditures are expected to continue to increase 8 to 12%
annually to almost $60 billion by the year 2000.
The growth in home health care is also due to increased acceptance by
payors, patients and the medical community, including physicians, hospitals and
other providers. Home health care often results in lower costs, which is
increasingly important under managed care. In addition, home health care has
grown rapidly as a result of advances in medical technology, which have
facilitated the delivery of services in alternate sites; demographic trends,
such as an aging population; and a strong preference among patients to receive
health care in their homes.
Historically, the home health care industry has been highly fragmented and
characterized by local providers that typically do not offer a comprehensive
range of cost-effective services. These local providers often do not have the
capital necessary to expand their operations or the range of services offered,
which limits their ability to compete for managed care contracts and other
referrals and to realize efficiencies in their operations. As managed care has
become more prevalent, payors increasingly are seeking home health care
providers that offer a cost-effective, comprehensive range of services in each
market served, which further inhibits the ability of local providers to compete
effectively. As a result of these economic and competitive pressures, the home
health care industry is undergoing rapid consolidation, a trend the Company
expects will continue.
Business Strategy
The Company's objective is to enhance its position as a leading regional
provider of cost-effective, comprehensive home health care services. Management
believes that offering comprehensive services and maintaining a strong regional
presence are essential to generate referrals, particularly from managed care
organizations and other payors. Accordingly, the Company intends to continue to
pursue the following strategy:
Provide a Cost-Effective, Comprehensive Range of Services. The Company
offers managed care organizations and other payors access to cost-effective,
comprehensive home health care services provided directly by the Company. Unlike
many other home health care providers, the Company is able to provide patients
with a broad range of home health care services without having to coordinate
with other providers. If an acquired business does not provide all of the
services generally offered by the Company, then management intends to introduce
those services over time.
Generate Internal Growth. The Company has experienced internal growth
rates in net revenues of 24%, 29% and 19% in fiscal 1994, 1995 and 1996,
respectively. Management has achieved this internal growth by effective cross-
selling of its services, expanding the range of services offered, expanding
branch locations and by actively seeking to increase patient referrals,
particularly from managed care organizations.
Capitalize on Industry Consolidation. The Company seeks to establish and
increase market share by acquiring other home health care businesses in
existing, contiguous and new markets. The Company believes that having a
significant share of the markets it serves substantially enhances its ability to
generate referrals, particularly from managed care organizations.
Coordinate Care Through Nursing Services. The Company has established a
strong market presence largely through the provision of nursing and related
patient services. Management believes that the Company is one of the few home
health care companies that provides comprehensive services to home health care
patients using its own nursing personnel to coordinate the delivery of its
services. This enables the Company to better control the quality of patient
care, establish the plan of treatment and provide feedback to referral sources.
Develop Managed Care Referral Sources. Managed care organizations, which
are an increasingly significant source of referrals for home health care
services, accounted for 11.6% and 15% of the Company's net revenues in fiscal
1995 and 1996, respectively. The Company has undergone accreditation by the
Joint Commission on Accreditation of Healthcare Organizations ("JCAHO") as a
condition to procuring contracts with certain managed care organizations. The
Company is also targeting managed care organizations by offering disease
management programs for the treatment of asthma, diabetes and other chronic
illnesses, as well as outcome and utilization reports. The Company expects that
managed care contracts will generate an increasing number of referrals as the
penetration of managed care accelerates. The Company has contracts with numerous
managed care organizations, including organizations affiliated with Humana, HIP
of Florida, Aetna Health Plans, Independence Blue Cross/Keystone Health Plans,
U.S. Healthcare and Prudential.
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Services
The Company derives substantially all of its net revenues through the
provision of nursing and related patient services, respiratory therapy, infusion
therapy and durable medical equipment.
The Company generates referrals from hospitals, physicians, discharge
planners and other health care professionals. Additionally, payors, such as
managed care organizations, including health maintenance organizations ("HMOs")
and preferred provider organizations ("PPOs"), traditional indemnity insurers
and third-party administrators ("TPAs"), are becoming a greater source of
referrals. The Company competes for referrals by offering cost-effective,
comprehensive services, a strong regional presence, disease management programs
and continuing education seminars. The Company believes that it has the local
relationships, the knowledge of the regional markets in which it operates and
the cost-effective comprehensive services required to compete effectively for
managed care contracts and other referrals.
After receiving a referral, one of the Company's home care coordinators
reviews the patient's medical history, confirms insurance coverage, and
coordinates and arranges for physician-prescribed home health care services to
be delivered to the patient. As necessary, one or more professionals visit,
train and educate the patient and the patient's caregivers about the prescribed
home health care services and the correct use and maintenance of equipment.
These professionals make periodic follow-up visits to provide additional
training, equipment maintenance and necessary supplies.
Nursing and Related Patient Services. It is estimated that approximately
$22 billion was expended in the United States in 1995 for nursing and related
patient services provided in the home, and that these services have grown at a
compound annual rate of approximately 22% since 1990.
The Company offers a broad range of nursing and related patient services,
including:
Registered nurses who provide a broad range of nursing care, including
pain management, respiratory therapy, infusion therapy, skilled observation
and assessment and teaching procedures.
Licensed practical nurses who perform technical nursing procedures,
such as injections and dressing changes.
Physical therapists who help patients restore strength and range of
joint motion.
Occupational therapists who help patients regain their ability to
perform the activities of daily living, such as feeding, dressing, hygiene
and social activities.
Speech therapists who retrain patients to overcome speech, swallowing,
language or hearing impediments.
Social workers who help patients and their families deal with
financial, personal and social concerns that arise from health problems.
Home health aides who provide personal care, such as bathing or
assistance with walking.
Homemakers/companions who assist with meal preparation and
housekeeping.
Respiratory Therapy Services. It is estimated that approximately $5 billion
was expended in the United States in 1995 for respiratory therapy services
provided in the home, and that these services have grown at a compound annual
rate of approximately 23% since 1990. The Company provides home respiratory
therapy services to patients who suffer from a variety of conditions, including
asthma, chronic obstructive pulmonary diseases (for example, emphysema and
bronchitis), cystic fibrosis and neurologically related respiratory conditions.
The Company offers the following respiratory therapy services:
Oxygen systems of which there are three types: (i) oxygen
concentrators, which are stationary units that extract oxygen from ordinary
air to provide a continuous flow of oxygen, (ii) liquid oxygen systems,
which are portable, thermally insulated containers of liquid oxygen, and
(iii) high pressure oxygen cylinders, which are used for portability with
oxygen concentrators.
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Nebulizers which deliver aerosol medication to patients to treat
asthma, chronic obstructive pulmonary diseases, cystic fibrosis and
neurologically related respiratory problems.
Home ventilators which sustain a patient's respiratory function
mechanically when a patient can no longer breathe normally.
Continuous positive airway pressure therapy which forces air through
respiratory passage-ways during sleep.
Apnea monitors which monitor and warn parents of apnea episodes in
newborn infants as a preventive measure against sudden infant death
syndrome.
Sleep studies which are used to detect sleep disorders and the
magnitude of such disorders.
Infusion Therapy Services. It is estimated that approximately $5.8 billion
was expended in the United States in 1995 for infusion therapy services provided
in the home, and that these services have grown at a compound annual rate of
approximately 23% since 1990.
The Company provides the following home infusion therapy services:
Enteral nutrition which is the infusion of nutrients through a feeding
tube inserted directly into the functioning portion of a patient's
digestive tract. This long-term therapy is often prescribed for patients
who are unable to eat or drink normally.
Antibiotic therapy which is the infusion of antibiotic medications into
a patient's bloodstream typically to treat a variety of serious infections
and diseases.
Total parenteral nutrition which is the long-term provision of
nutrients through surgically implanted central vein catheters or through
peripherally inserted central catheters, for patients who cannot absorb
adequate nutrients enterally due to chronic gastrointestinal conditions.
Pain management which involves the infusion of certain drugs into the
bloodstream of patients suffering from acute or chronic pain.
Chemotherapy which is the infusion of drugs into a patient's
bloodstream to treat various forms of cancer.
Other therapies including new delivery technologies and medications to
address a broad range of patient conditions, such as the side effects
associated with transplants, HIV/AIDS and cancer.
The Company currently operates pharmacies in King of Prussia and Dupont,
Pennsylvania and Sarasota and Pompano Beach, Florida to serve substantially all
of its home infusion patients and employs licensed pharmacists and registered
nurses who have specialized skills in home infusion therapy.
Durable Medical Equipment. It is estimated that approximately $1.9
billion was expended in the United States in 1995 for durable medical equipment
for home health care applications, and that this business has grown at a
compound annual rate of 12% since 1990. The Company provides durable medical
equipment to serve the needs of its patients, including hospital beds,
wheelchairs, ambulatory aids, bathroom aids, patient lifts and rehabilitation
equipment.
Statistical Data
The Company derives substantially all of its net revenues from Medicare,
Medicaid and private payors, which include managed care organizations, including
HMOs and PPOs, traditional indemnity insurers and TPAs. The Company
anticipates that
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Medicare will continue to represent a significant component of net revenues, but
managed care organizations are expected to continue to increase significantly.
The following table outlines the payor mix for the Company's net revenues for
the periods presented:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Medicare 70.9% 59.5% 53.0%
Medicaid 4.2 9.1 12.5
Managed care organizations 7.4 11.6 15.0
Other private payors 17.5 19.8 19.5
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Nursing and related patient services have decreased as a percentage of net
revenues since fiscal 1994, although net revenues from these services have
increased in the aggregate. Infusion therapy has decreased as a percentage of
net revenues in fiscal 1996, although net revenues from these services have
increased in the aggregate since fiscal 1994, primarily as a result of internal
growth. Respiratory therapy and durable medical equipment have grown primarily
through internal growth and acquisitions. The following table shows the
percentage of net revenues represented by each of the Company's services for the
periods presented:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Nursing and related patient services 78.7% 75.6% 65.6%
Respiratory therapy 7.7 8.5 10.9
Infusion therapy 6.9 8.6 7.2
Durable medical equipment 6.7 7.3 16.3
----- ----- -----
Total net revenues 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Although nursing and related patient services have decreased as a
percentage of net revenues since fiscal 1994, Medicare and private nursing
visits and hours have continued to increase. The following table shows the
visits and hours for nursing and related patient services for the periods
presented:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Medicare nursing visits 313,000 391,000 434,000
Non-Medicare nursing services:
Hours 153,000 373,000 438,000
Visits 28,000 97,000 120,000
</TABLE>
The significant increase in non-Medicare nursing hours and visits from
fiscal 1994 to 1996 was due to increased referrals, acquisitions in fiscal 1995,
and effective cross-selling of nursing services through the Company's other
services.
Respiratory therapy, infusion therapy and durable medical equipment net
revenues increased to $30.2 million in fiscal 1996 from $7.7 million in fiscal
1994, as a result of acquisitions, increased referrals and effective cross-
selling of these services to the Company's nursing patients.
Sales and Marketing
The Company's marketing department provides planning and development,
market research, public and community relations support and educational program
development for all of the Company's branch locations. The Company employs 37
sales representatives whose primary responsibilities are to generate referrals
from payors, hospitals, physicians and other health care professionals.
The Company focuses its marketing efforts and sales resources on referral
sources. In particular, the Company targets managed care organizations as a
result of the increasing impact of these payors on the home health care
industry. The Company has
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targeted managed care organizations by offering disease management programs for
the treatment of asthma, diabetes and other chronic illnesses, as well as
outcome and utilization reports.
Competition
The home health care industry is highly competitive and includes national,
regional and local providers. The Company competes with a large number of
companies in all areas in which its operations are located. The Company's
competitors include major national and regional companies, hospital-based
programs, numerous local providers and nursing agencies. Some current and
potential competitors have or may obtain significantly greater financial and
marketing resources than the Company. In addition, relatively few barriers to
entry exist in the home health care industry. Accordingly, other companies,
including managed care organizations and health care providers that currently
are not serving the home health care market, may become competitors. As a
result, the Company could encounter increased competition in the future that may
limit its ability to maintain or increase its market share or otherwise
materially adversely affect its business, results of operations or financial
condition. The Company believes that the principal competitive factors in the
industry are quality of care, including responsiveness of services and quality
of professional personnel, breadth of services offered, and general reputation
with payors and the medical community, including patients, physicians, hospitals
and other health care professionals.
Recent Developments
The health care industry has experienced extensive and dynamic change. In
addition to economic forces and regulatory influences, continuing political
debate is subjecting the health care industry to significant reform. Health care
reform proposals have been formulated by the current federal government
administration, members of Congress, and, periodically, state legislators.
Government officials can be expected to continue to review and assess
alternative health care delivery systems and payment methodologies. Changes in
the law or new interpretations of existing laws may have a dramatic effect on
the definition of permissible or impermissible activities, the relative cost of
doing business, and the methods and amounts of payments for medical care by both
governmental and other payors. Legislative changes to "balance the budget" and
slow the annual rate of growth of Medicare and Medicaid are expected. Such
changes may impact reimbursement for home health care. There can be no assurance
that future legislation or regulatory changes will not have a material adverse
effect on the future operations of the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Forward Outlook and
Risks" and "Regulation."
Regulation
The Company's business is subject to extensive federal, state and local
regulation.
Permits and Licensure. Many states require companies providing certain
home health care services to be licensed as home health agencies. The Company
currently is licensed as a home health agency where required by the law of the
states in which it operates. In addition, certain of the Company's pharmacy
operations require state licensure and are also subject to federal and other
state laws and regulations governing pharmacies and the packaging and
repackaging and dispensing of drugs (including oxygen). Federal laws may require
registration with the Drug Enforcement Administration of the United States
Department of Justice and the satisfaction of certain requirements concerning
security, record keeping, inventory controls, prescription order forms and
labeling. In addition, certain health care practitioners employed by the Company
require state licensure and/or registration and must comply with laws and
regulations governing standards of practice. The failure to obtain, renew or
maintain any of the required regulatory approvals or licenses could adversely
affect the Company's business. There can be no assurance that either the states
or the federal government will not impose additional regulations upon the
Company's activities which might adversely affect its business, results of
operations or financial condition.
Certificates of Need. Certain states require companies providing home
health care services to obtain a certificate of need issued by a state health
planning agency. Some states require such certificates of need only for
Medicare-certified home health agencies. Where required by law, the Company has
obtained certificates of need from those states in which it operates. There can
be no assurance that the Company will be able to obtain any certificates of need
which may be required in the future if the Company expands the scope of its
services or if state laws change to impose additional certificate of need
requirements, and any attempt to obtain additional certificates of need will
cause the Company to incur certain expenses.
JCAHO Accreditation. Since 1993, the Company has been accredited by
JCAHO, a nationally recognized organization that develops standards for various
health care industry segments and monitors compliance with those standards
through voluntary surveys of participating providers. As the home health care
industry has grown, the need for objective quality measurements has increased.
Not all providers have chosen to undergo the accreditation process because of
its expense and time burden. Consequently, the
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Company has positioned itself to procure managed care contracts in part because
of its choice to undergo rigorous review of its operations.
Fraud and Abuse Laws. The Company is also subject to federal and state
laws prohibiting direct or indirect payments for patient referrals, prohibiting
referrals to an entity in which the referring provider has a financial interest,
and regulating reimbursement procedures and practices under Medicare, Medicaid
and state programs as well as in relation to private payors. While the Company
believes that it is in material compliance with such laws, it continues to
monitor its compliance.
The anti-kickback provisions of the federal Medicare and Medicaid Patient
and Program Protection Act of 1987 (the "Anti-kickback Statute") prohibit the
offer, payment, solicitation or receipt of any remuneration in return for the
referral of items or services paid for in whole or in part under the Medicare or
Medicaid programs (or certain other state health care programs). To date, courts
and government agencies have interpreted the Anti-kickback Statute to apply to a
broad range of financial relationships between providers and referral sources,
such as physicians and other practitioners. The United States Department of
Health and Human Services has adopted regulations creating "safe harbors" from
federal criminal and civil penalties under the Anti-kickback Statute by
exempting certain types of ownership interests and other financial arrangements
that do not appear to pose a threat of Medicare and Medicaid program abuse.
Transactions covered by the Anti-kickback Statute that do not conform to an
applicable safe harbor are not necessarily in violation of the Anti-kickback
Statute, but the practice may be subject to increased scrutiny and possible
prosecution. The criminal penalty for conviction under the Anti-kickback Statute
is a fine of up to $25,000 and/or up to 5 years imprisonment. In addition,
conviction mandates exclusion from participation in the Medicare and Medicaid
programs. Such exclusion can also result based on conviction under other federal
laws which impose civil and criminal penalties for submitting false claims, such
as claims for services not provided as alleged. Several health care reform
proposals have included an expansion of the Anti-kickback Statute to apply to
referrals of any patients regardless of payor source.
The federal government has enacted the so-called "Stark Law," which
generally prohibits referrals by physicians to certain entities with which they
have a financial relationship. More recently, the Stark Law was broadly expanded
by the "Amended Stark Law," which provides that where a physician has a
"financial relationship" with a provider of "designated health services"
(including, among other things, the provision of parenteral and enteral
nutrients, equipment and supplies, home health services, ultrasound services,
and durable medical equipment, which are products and services, provided by the
Company), the physician will be prohibited from making a referral to the health
care provider and the provider will be prohibited from billing for the
designated health service for which Medicare or Medicaid payment would otherwise
be made. Certain exceptions are available under the Amended Stark Law, which may
or may not be available to the Company for arrangements in which the Company may
be involved. Submission of a claim that a provider knows or should know is for
services for which payment is prohibited under the Amended Stark Law could
result in refunds of any amounts billed, civil money penalties of not more than
$15,000 for each such service billed, and possible exclusion from the Medicare
and Medicaid programs. Furthermore, Medicare regulations contain similar self-
referral restrictions which provide that unless certain conditions are met, a
plan of care for home health services generally may not be certified by a
physician who has a significant ownership interest in, or a significant
financial or contractual relationship with, that home health agency. It is the
Company's policy to monitor its compliance with the Amended Stark Law and to
take appropriate actions to ensure such compliance. A violation of the Amended
Stark Law could result in civil penalties and exclusion from participation in
Medicare and Medicaid programs.
Many states have adopted statutes and regulations, which vary from state to
state, prohibiting provider referrals to an entity in which the provider has a
financial interest, direct or indirect remuneration or fee-splitting
arrangements between health care providers for patient referrals, and other
types of financial arrangements with health care providers. Sanctions for
violation of these state restrictions may include loss of licensure and civil
and criminal penalties. Certain states, including Pennsylvania, also require
health care practitioners to disclose to patients any financial relationship
with a provider and advise patients of the availability of alternative
providers.
The federal government has increased significantly the financial and human
resources allocated to enforcing the fraud and abuse laws. In May 1995, the
Clinton Administration instituted Operation Restore Trust, a health care fraud
and abuse initiative focusing on nursing homes, home health care agencies and
durable medical equipment companies located in the five states with the largest
Medicare populations. The targeted states include California, Florida, Illinois,
New York and Texas. Operation Restore Trust has been responsible for millions of
dollars in civil and criminal restitution, fines, recovery of overpayments and
the exclusion of a number of individuals and corporations from the Medicare
program. Operation Restore Trust has since been expanded to cover six states and
the Clinton Administration has called for an expansion of this initiative to all
fifty states in fiscal year 1997. While the Company believes that it is in
material compliance with such laws, there can be no assurance that the practices
of the Company, if reviewed, would be found to be in full compliance with such
laws, as such laws ultimately may be interpreted. It is the Company's policy to
monitor its compliance with such laws and to take appropriate actions to ensure
such compliance. Although the Company does not believe it has violated any
regulatory requirements, there can be no assurance that future related
legislation, either health care
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or budgetary, related regulatory changes or interpretations of such regulations,
will not have a material adverse effect on the future operations of the Company.
Private insurers and various state enforcement agencies also have increased
their scrutiny of health care providers' practices and claims, particularly in
the home health and durable medical equipment areas. No assurance can be given
that the practices of the Company, if reviewed, would be found to be in
compliance with such laws or with any future laws, as such laws ultimately may
be interpreted.
Current Developments. Political, economic and regulatory influences are
subjecting the health care industry in the United States to fundamental change.
Although Congress has failed to pass comprehensive health care reform
legislation, the Company anticipates that Congress and state legislatures will
continue to review and assess alternative health care delivery and payment
systems and may in the future propose and adopt legislation effecting
fundamental changes in the health care delivery system. Legislative debate is
expected to continue in the future. In addition, the level of net revenues and
profitability of the Company, like those of other health care providers, will be
affected by the continuing efforts of payors to contain or reduce the costs of
health care by lowering reimbursement rates, increasing case management review
of services, negotiating reduced contract pricing and capitation arrangements.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Forward Outlook and Risks."
The Health Care Financing Administration of the U.S. Department of Health
and Human Services ("HCFA"), the federal agency responsible for the rules
governing Medicare and Medicaid, is currently examining a number of proposed
changes to the Medicare reimbursement system for nursing services, including
changing nursing reimbursement from a retrospective cost-based system to a
prospective payment system. Currently, Medicare reimburses participating nursing
home health agencies for the reasonable costs incurred to provide covered visits
to eligible beneficiaries, subject to certain cost limits which vary according
to geographic regions of the country. The impact of such a change, if
implemented, on the Company's results of operations cannot be predicted with any
certainty at this time and would depend, to a large extent, on the reimbursement
rates for home nursing established under the prospective payment system. There
can be no assurances that such reimbursement rates, if enacted, would cover the
costs incurred by the Company to provide home nursing services. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Forward Outlook and Risks."
In August 1996, HCFA submitted a proposal to the Secretary of the
Department of Health and Human Services to reduce oxygen reimbursement to
providers by 40%. A reduction in oxygen reimbursement is not expected to have a
significant effect on the Company's results of operations as oxygen therapy
services represent less than 5% of net revenues in fiscal 1996. However, as the
Company cannot be certain of the timing or level of such reductions in Medicare
oxygen reimbursement, the effect of such reductions cannot be predicted with any
level of certainty. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Forward Outlook and Risks."
Employees
The retention of qualified employees is a high priority for the Company.
As of June 30, 1996, the Company employed approximately 940 full- and part-time
employees. Of these employees, approximately 225 are nurses and approximately
75 are employed at the Company's executive offices. In addition, the Company
maintains registries of approximately 1,665 licensed nurses, therapists, home
health aides and other home health care providers available for staffing
assignments on a temporary basis. Management believes that the Company's
employee relations are good. The Company's employees are not represented by a
labor union.
9
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers
The executive officers of the Company are currently as follows:
<TABLE>
<CAPTION>
Name Age Position
------------------ --- ---------------------------------------
<S> <C> <C>
Bruce J. Feldman 47 President, Chief Executive Officer and
Chairman of the Board
Bruce J. Colburn 41 Chief Financial Officer
Fred J. Nicholas 51 Chief Operating Officer
John D. Miladin 51 Senior Vice President of Operations
Colleen M. Lederer 40 Vice President of Professional Services
James J. Swiniuch 39 Vice President of Mergers, Acquisitions
and Business Development
</TABLE>
Bruce J. Feldman, the founder of the Company, has served as President,
Chief Executive Officer and Chairman of the Board of the Company since it was
founded in December 1982. Prior to founding the Company, Mr. Feldman owned a
Medicare-certified home health agency, which became a subsidiary of the Company
in 1982.
Bruce J. Colburn became the Company's Chief Financial Officer in April
1996. From 1995 to 1996, Mr. Colburn was Senior Vice President, Chief Financial
Officer and Treasurer of NovaCare, Inc., a national provider of rehabilitation
services. From 1994 to 1995, Mr. Colburn was Senior Vice President, Chief
Financial Officer and Treasurer of Primary Health Systems, L.P., an acute care
hospital management company. In 1994, Mr. Colburn was Senior Vice President,
Finance, of OrNda Healthcorp, an acute care hospital management company, and
prior to that held various financial officer positions with American Healthcare
Management, Inc., a hospital management company acquired by OrNda Healthcorp in
1994.
Fred J. Nicholas became the Company's Chief Operating Officer in
January 1995. He joined the Company in 1992 as Chief Operating Officer of the
Florida division. From 1990 to 1992, Mr. Nicholas was President and Chief
Operating Officer of Unity Health Care, Inc., a home health care company.
John D. Miladin became the Company's Senior Vice President of
Operations in September 1995. Prior to joining the Company, Mr. Miladin founded
and served as President and Chief Executive Officer of Infusion Care Systems,
Inc., a home infusion therapy company, and Respiratory Support Systems, Inc., a
home respiratory therapy company, from 1984 to 1993 and from 1987 to 1993,
respectively. Mr. Miladin also served as President of Matrix, Inc., a retail
mail and parcel center located in Mt. Laurel, New Jersey from 1987 to 1995.
Colleen M. Lederer has been the Company's Vice President of
Professional Services since July 1994. From 1987 to 1994, Ms. Lederer was
director of professional services and an owner of Nursing Unlimited, Inc., a
provider of supplemental nursing personnel.
James J. Swiniuch became the Vice President of Mergers, Acquisitions
and Business Development in April 1996. From 1994 to 1996 Mr. Swiniuch served as
the Company's Chief Financial Officer. From 1991 to 1994, he served as Director
of Accounting. From 1990 to 1991, Mr. Swiniuch was president of Equitable
Beneficial Life Insurance Company, a life and health insurer located in
Broomall, Pennsylvania.
10
<PAGE>
ITEM 2. PROPERTIES
The Company leases its corporate office in King of Prussia, Pennsylvania.
The corporate office is approximately 16,000 square feet with a remaining lease
term of four years. The Company leases all of its branch locations. Management
believes that the leased properties are adequate for its present needs and that
suitable additional or replacement space will be available as required. The
Company's branch locations are in two regions encompassing five states, as
indicated in the following chart:
<TABLE>
<CAPTION>
Services Provided
----------------------------------------------------
Nursing and
Related Respiratory Infusion Durable
Date Opened Patient Therapy Therapy Medical
Region Branch Location or Acquired Services Services Services Equipment
------ --------------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Midatlantic
Southeastern PA and Pennsauken, NJ 5/95 x x
Southern New Jersey King of Prussia, PA (1) 5/92 x x x x
Philadelphia, PA 10/88 x x x x
Northeastern, PA Dupont, PA (1) 3/93 x x x x
Scranton, PA 2/95 x
Stroudsburg, PA 11/92 x x x x
Wilkes-Barre, PA 12/94 x x x x
Delaware and Dover, DE 3/95 x x x x
Eastern Maryland Newark, DE 3/95 x x x
Newark, DE 3/95 x
Seaford, DE 6/95 x x x x
Salisbury, MD 3/95 x x x x
Florida
Southeast Florida Boca Raton, FL 3/95 x x x x
Ft. Pierce, FL 9/90 x x x x
Jupiter, FL (2) 5/92 x x x x
Lauderhill, FL 8/86 x x x x
Pompano Beach, FL (1) 3/93 x x x
Vero Beach, FL 10/93 x x x x
W. Palm Beach, FL 8/90 x x x x
West Florida Kenneth City, FL 5/96 x
Largo, FL 5/96 x
Sarasota, FL (1) (3) 8/96 x
St. Petersburg, FL 5/96 x
Tampa, FL 10/95 x x
Tampa, FL 5/96 x
Tarpon Springs, FL 5/96 x
</TABLE>
(1) Regional pharmacy location.
(2) Branch combined with West Palm Beach office subsequent to June 30, 1996.
(3) Branch acquired in connection with an August 1996 acquisition.
11
<PAGE>
Each branch location reports to a regional office which maintains operating
control over the region. The Company places regional control over those
functions necessary to monitor quality of patient care and to maximize
operational efficiency. The Company's corporate office provides sophisticated
management and marketing support, sales training and support, product
development, policy and procedure development, systems design and financial and
information systems support.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain legal actions arising in the ordinary
course of business. The Company believes it has adequate legal defenses and
insurance coverage for these actions and the ultimate outcome of these actions
will not have a material adverse effect on the Company's financial condition,
results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ national market under
the symbol HHCA. The Company became publicly traded on November 8, 1995, and the
following table shows the quarterly range of high and low sales prices of the
common stock on the NASDAQ national market since that date:
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
June 30, 1996 $15.38 $11.00
March 31, 1996 12.50 8.25
December 31, 1995 11.25 7.25
</TABLE>
As of August 31, 1996, there were approximately 85 stockholders of record,
including 10 entities holding common stock in nominee name.
The Company has never declared or paid cash dividends on its common stock.
The Company intends to retain any future earnings to finance the growth and
development of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's senior credit
agreement prohibits the payment of cash dividends.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below as of June 30,
1995 and 1996, and for each of the years in the three year period ended June 30,
1996, have been derived from the Company's consolidated financial statements,
which were audited by Coopers & Lybrand L.L.P., independent accountants, and are
included elsewhere in this report. The selected consolidated data set forth
below as of June 30, 1992, 1993 and 1994 and for the years ended June 30, 1992
and 1993 have been derived from the Company's audited consolidated financial
statements which are not included in this report. This data should be read in
conjunction with the Company's consolidated financial statements and notes
thereto, and other financial information included elsewhere in this report.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-------------------------------------------------------------
1992 1993 1994 1995 1996
------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Statement of Income Data: (in thousands, except per share data)
Net revenues................................. $22,128 $28,543 $36,104 $55,965 $87,694
Adjusted EBITDA (1).......................... 1,945 2,101 2,427 4,478 9,903
Income before income taxes................... 1,174 1,231 1,334 2,455 5,736 (2)
Income taxes................................. 540 537 617 1,066 2,348
Income before extraordinary item and cumulative
effect of change in accounting principle.... 634 694 718 1,389 3,388
Net income................................... $ 634 $ 694 $ 928 $ 1,389 $ 2,227
======= ======= ======= ======= =======
Net income available to common and common
equivalent stockholders..................... $ 514 $ 614 $ 871 $ 1,326 $ 1,390
======= ======= ======= ======= =======
Net income per common and common equivalent
share....................................... $ .25 $ .18 $ .26 $ .38 $ .21
======= ======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding............... 2,072 3,356 3,377 3,491 6,468
======= ======= ======= ======= =======
June 30,
--------------------------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ -------
(in thousands)
Balance Sheet Data:
Working capital.............................. $ 4,018 $ 4,100 $ 7,630 $10,022 $19,983
Total assets................................. $ 8,854 $ 9,869 $15,025 $30,605 $66,170
Long-term debt and capital lease obligations,
less current portion...................... $ 1,375 $ 2,569 $ 5,514 $12,588 $16,137
Redeemable stock............................. $ 2,717 $ 1,867 $ 1,873 $ 2,377 $ 500
Total stockholders' equity................... $ 1,693 $ 2,164 $ 3,124 $ 5,478 $38,348
</TABLE>
(1) Adjusted EBITDA represents earnings before interest, income taxes,
depreciation, amortization, the cumulative effect of a change in accounting
principles of $210 in fiscal 1994, nonrecurring bridge financing expenses
of $913 in fiscal 1996, and an extraordinary loss of $1.2 million in fiscal
1996.
(2) Income before income taxes includes nonrecurring bridge financing expenses
of $913 in fiscal 1996 incurred in connection with an acquisition in Tampa,
Florida and repaid with a portion of the net proceeds from the Company's
initial public offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of Operations and
Liquidity and Capital Resources."
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
During fiscal 1996, the Company's income before nonrecurring costs and an
extraordinary loss aggregating $2.1 million, increased to $4.0 million compared
with $1.4 million in fiscal 1995, a 185% increase. The nonrecurring costs
consisted of $913,000 in bridge financing expenses, before the related tax
benefit of $344,000. This expense resulted from bridge financing incurred in
connection with an acquisition in Tampa, Florida (the "Tampa Acquisition") and
repaid in fiscal 1996. The extraordinary loss of $1.2 million resulted from the
early extinguishment of indebtedness. Earnings per share in fiscal 1996, before
the nonrecurring costs and extraordinary item, increased to $.61 per share from
$.40 per share in fiscal 1995, a 53% increase. This increase generally resulted
from (i) internal net revenue growth of 19%, (ii) fiscal 1996 acquisitions,
(iii) a full year of operations of the fiscal 1995 acquisitions, (iv) reduced
direct and general and administrative costs as a percentage of net revenues and
(v) a reduced effective income tax rate. The rate of increase in earnings per
share was less than the rate of increase in net income as a result of additional
shares issued in November 1995 in connection with the Company's initial public
offering (the "Offering").
Initial Public Offering
In November 1995, the Company completed the Offering. A portion of the
net proceeds of $25.8 million from the Offering were used to repay the bridge
financing incurred in connection with the Tampa Acquisition, to redeem senior
subordinated indebtedness, to repay a portion of the Company's senior credit
facility, to redeem preferred stock and for working capital. See "Liquidity and
Capital Resources" and the Company's consolidated financial statements and notes
thereto.
Acquisitions
During fiscal 1995 and 1996, the Company completed seven acquisitions.
These acquisitions have been accounted for under the purchase method. Under the
purchase method, the results of operations from acquisitions are included in the
Company's results of operations from the dates of acquisition and the purchase
price is allocated to net identifiable assets, principally accounts receivable,
fixed assets and inventory, with any excess allocated to goodwill and other
intangible assets.
Fiscal 1996 Acquisitions
May 1996 Acquisitions. In May 1996, the Company acquired three companies
in three separate transactions (the "May 1996 Acquisitions") with approximately
$8.9 million in aggregate net revenues for the twelve months ended June 30,
1995, for an aggregate purchase price of $5.2 million. Two of these
acquisitions provided the Company with nursing services in the Tampa/St.
Petersburg, Florida market and one provided mobile diagnostic services in the
Tampa and Palm Harbor, Florida markets.
Tampa Acquisition. In September 1995, the Company acquired a company in
the Tampa, Florida market, with approximately $8.7 million in aggregate net
revenues for the twelve months ended June 30, 1995, for an aggregate purchase
price of $17.5 million. This acquisition provided the Company with respiratory
therapy, durable medical equipment and mobile diagnostic services.
Fiscal 1995 Acquisitions
Alpha Acquisition. In May 1995, the Company completed the acquisition of a
company servicing the Southern New Jersey and Philadelphia markets (the "Alpha
Acquisition") with approximately $1.0 million in net revenues for the twelve
month period ended December 31, 1994, for an aggregate purchase price of $1.5
million. This acquisition provided the Company with additional respiratory
therapy and durable medical equipment services.
Delaware Acquisition. In March 1995, the Company completed the
acquisition of a company servicing the Delaware and Eastern Maryland markets
(the "Delaware Acquisition") with approximately $13.6 million in aggregate net
revenues for the twelve month periods ended in fiscal 1994, for an aggregate
purchase price of $5.2 million. This acquisition provided the Company with
nursing, respiratory therapy and durable medical equipment services.
HPI Acquisition. In July 1994, the Company completed the acquisition of a
company (the "HPI Acquisition") with approximately $2.6 million in aggregate
net revenues for the twelve month period ended December 31, 1993, for a total
purchase price of $1.1 million. This company specialized in pediatric nursing
services in the Eastern Pennsylvania and Southern New Jersey markets.
14
<PAGE>
Results of Operations
General Trends
During the periods discussed below, the Company's results of operations
have been affected principally by substantial growth, changes in the Company's
debt and equity structure and a decrease in the Company's effective income tax
rate.
Industry Trends
The Company and other home health care providers have faced, and will
continue to face, a number of risks creating an environment of uncertainty as to
the future growth and profitability of the industry. These risks include (i)
the potential impact of any Congressional proposals addressing health care
reform, (ii) pending regulatory pressure to reduce certain reimbursement rates,
(iii) continued pricing pressure by governmental and other payors for home
health care services and (iv) increasing competition among home health care
providers for existing business. See "Forward Outlook and Risks" and
"Regulation."
Continuing political debate is subjecting the health care industry to
significant reform. Health care reform proposals have been formulated by the
current administration, members of Congress, and, periodically, state
legislators. Government officials can be expected to continue to review and
assess alternative health care delivery systems and payment methodologies.
Changes in the law or new interpretations of existing laws may have a dramatic
effect on the definition of permissible or impermissible activities, the
relative cost of doing business, and the methods and amounts of payments for
medical care by both governmental and other payors. Legislative changes to
"balance the budget" and slow the annual rate of growth of Medicare and Medicaid
are expected. Such changes may impact reimbursement for home health care.
The Company anticipates demand for its services will continue to increase
as the ongoing pressure to contain health care costs accelerates the growth and
utilization of alternate site care, such as home health care. The Company also
believes that industry-wide pressure to significantly reduce health care costs
and the growth of managed care organizations will continue to result in
increased pricing pressure. Net revenues from managed care organizations have
increased and are expected to continue to increase. Reimbursement per visit from
managed care organizations typically has been lower than Medicare and other
payors, resulting in services with relatively fixed labor and other related
costs being provided at lower levels of reimbursement.
Fiscal Year Ended June 30, 1996 Compared with Fiscal Year Ended June 30, 1995
During fiscal 1996, the Company completed four acquisition transactions
(the "Fiscal 1996 Acquisitions") increasing the total number of branch locations
to 26 at June 30, 1996 from 18 at June 30, 1995. During fiscal 1995, the
Company completed three acquisition transactions (the "Fiscal 1995
Acquisitions") and also opened one new branch location in Boca Raton, Florida.
The operations of the acquired companies are included from their respective
acquisition dates, which occurred at various times throughout fiscal 1995 and
1996. Accordingly, the operating results for any fiscal year are not
necessarily comparable with the results for any past or future fiscal year.
Net Revenues. Net revenues are derived from the provision of nursing and
related patient services, respiratory therapy, infusion therapy and durable
medical equipment. In fiscal 1996, net revenues increased to $87.7 million.
This represented an increase of $31.7 million, or 57%, over fiscal 1995. Of
this increase, $22 million, or 69%, was attributable to the Fiscal 1996
Acquisitions and a full year of operations from the Fiscal 1995 Acquisitions
with the balance of the increase due to a full year of operations from the
branch location opened in fiscal 1995 and volume growth in other existing branch
locations, representing a 19% internal growth rate. Total Medicare nursing
visits increased 11% to approximately 434,000 visits in fiscal 1996. Total non-
Medicare nursing hourly and visit volume increased 17% and 24%, respectively, to
approximately 438,000 hours and 120,000 visits in fiscal 1996, respectively.
Increased referrals, acquisitions and effective cross-selling of other services
contributed to these volume increases. Respiratory therapy, infusion therapy
and durable medical equipment net revenues increased to $30.2 million from $13.7
million in fiscal 1995 as a result of acquisitions, increased referrals, and
effective cross-selling of these services to the Company's nursing patients.
Patient Care Costs. Patient care costs are comprised of salaries and
related benefits for patient care personnel, cost of sales for durable medical
equipment and supplies and depreciation on equipment held for rental. In fiscal
1996, patient care costs increased to $42.1 million. This represented an
increase of $13.6 million, or 48%, over fiscal 1995. This increase was due
principally to the increases in net revenues previously discussed. Patient
care costs decreased as a percentage of net revenues from 50.8% to 48.0% due to
(i) the increase in the portion of net revenues from higher-margin non-nursing
services, principally due to acquisitions, and (ii) improved management of
nursing service costs.
15
<PAGE>
General and Administrative Expenses. General and administrative expenses
are comprised of administrative and support staff salaries and benefits, and
occupancy and other operating costs. In fiscal 1996, general and administrative
expenses increased to $32.9 million. This represented an increase of $11.4
million, or 53%, over fiscal 1995. This increase was due principally to the
increases in net revenues previously discussed. General and administrative
expenses decreased as a percentage of net revenues from 38.5% to 37.5% as
certain general and administrative costs do not fluctuate with increases in net
revenues.
Provision for Doubtful Accounts. The provision for doubtful accounts
consists principally of an estimate of net revenues that may prove to be
uncollectible primarily derived from services subject to patient self-payment,
which include co-payments from patients insured by third-party payors. In
fiscal 1996, the provision for doubtful accounts increased to $2.8 million. This
represented an increase of $1.3 million, or 86%, over fiscal 1995. This
increase was due principally to the increases in net revenues previously
discussed. The provision for doubtful accounts increased slightly as a
percentage of net revenues from 2.7% to 3.2%.
Depreciation. In fiscal 1996, depreciation expense increased to
approximately $784,000. This represented an increase of $365,000, or 87% over
fiscal 1995. Of this increase, $278,000 was attributable to the Fiscal 1996
Acquisitions and a full year of depreciation on the Fiscal 1995 Acquisitions
with the remainder resulting from internal growth at the new and existing branch
locations and enhancements in management information systems.
Amortization. This includes amortization of the excess of the purchase
price over the fair market value of the net identifiable assets acquired and
amortization of other intangible assets. In fiscal 1996, amortization increased
to $1.0 million. This represented an increase of $785,000, over fiscal 1995,
which was entirely attributable to amortization of goodwill arising from the
Fiscal 1996 Acquisitions and a full year of amortization of goodwill relating to
the Fiscal 1995 Acquisitions.
Interest, Net. In fiscal 1996, interest, net, increased to $1.5 million.
This represented an increase of $81,000, or 6%, over fiscal 1995. This
increase was comprised principally of increases of $251,000 from indebtedness
incurred in connection with the Fiscal 1996 Acquisitions and a full year of
interest expense from the Fiscal 1995 Acquisitions and $185,000 from increased
indebtedness under the Company's revolving credit facility to fund growth at the
existing branch locations. Interest is net of a decrease of $447,000 due to the
repayment of approximately $10 million in outstanding indebtedness during
November 1995, excluding the Tampa Acquisition bridge financing, with a portion
of the Offering net proceeds.
Bridge financing expenses. Nonrecurring expenses of $913,000 were comprised
of (i) $605,000 pertaining to the write-off of deferred financing fees and the
unamortized discount on the bridge financing note payable, (ii) interest expense
of $186,000 and (iii) other costs of $122,000. These expenses were recorded
during the second quarter of fiscal 1996 in connection with the Tampa
Acquisition bridge financing.
Provision for Income Taxes. The Company's effective tax rate decreased to
40.9% of pretax income from 43.4%, principally as a result of reduced pretax
income as a percentage of total pretax income relating to states with higher
income tax rates.
Loss on debt redemption, net. An extraordinary charge of $1.2 million
relating to the extinguishment of indebtedness with a portion of the Offering
net proceeds was recorded in the second quarter of fiscal 1996, net of an
estimated income tax benefit of $660,000. The charge consisted primarily of a
write-off of deferred financing costs of $294,000 and a write-off of the
remaining unamortized discounts of $1,490,000 on senior subordinated
indebtedness.
Fiscal Year Ended June 30, 1995 Compared with Fiscal Year Ended June 30, 1994
During fiscal 1995, the Company increased the total number of branch
locations to 18 at June 30, 1995 from ten at June 30, 1994 as a result of the
Fiscal 1995 Acquisitions and one new branch location opened in Boca Raton,
Florida. The operations of the acquired businesses are included from their
respective acquisition dates, which occurred at various times throughout the
year. Accordingly, the operating results for any fiscal year are not
necessarily comparable to the results for any past or future fiscal year.
Net Revenues. In fiscal 1995, net revenues increased to $56.0 million. This
represented an increase of $19.9 million, or 55%, over fiscal 1994, of which
$10.6 million resulted from internal growth, comprised of volume increases at
existing branch locations, the opening of the new branch location and the
addition of new referral sources, with the remainder of $9.3 million resulting
from the Fiscal 1995 Acquisitions.
Patient Care Costs. In fiscal 1995, patient care costs increased to $28.4
million. This represented an increase of $11.4 million, or 67%, over fiscal
1994. This increase was due principally to the increases in net revenues
previously discussed. Patient care costs increased as a percentage of net
revenues from 47.1% to 50.8%. This was principally a result of increases in the
portion of respiratory therapy, infusion therapy, and durable medical equipment
generated from managed care contracts which increased the
16
<PAGE>
related costs of goods sold as a percentage of net revenues from these lines of
businesses. Net revenues generated from managed care organizations typically
have lower reimbursement rates than Medicare and other payors.
General and Administrative Expenses. In fiscal 1995, general and
administrative expenses increased to $22.0 million. This represented an increase
of $5.7 million, or 35%, over fiscal 1994. This increase was due principally to
the increases in net revenues previously discussed. General and administrative
expenses decreased as a percentage of net revenues from 44.3% to 38.5%.
Provision for Doubtful Accounts. In fiscal 1995, the provision for doubtful
accounts increased to $1.5 million. This represented an increase of $830,000,
or 119%, over fiscal 1994. This increase was due principally to the increases
in net revenues previously discussed. The provision for doubtful accounts
increased as a percentage of net revenues from 1.9% to 2.7%.
Depreciation. Depreciation expense increased to $419,000. This
represented an increase of $124,000, or 42% , over fiscal 1994. This increase
was due principally to the Fiscal 1995 Acquisitions.
Amortization. In fiscal 1995, amortization increased to $231,000. This
represented an increase of $105,000, or 84%, over fiscal 1994, which was
attributable to amortization of goodwill arising from the Fiscal 1995
Acquisitions.
Interest, Net. In fiscal 1995, interest, net, increased to $1.4 million.
This represented an increase of $702,000, or 104%, over fiscal 1994. This
increase was attributable principally to indebtedness incurred in connection
with the Fiscal 1995 Acquisitions and increased indebtedness under the Company's
senior credit facilities to fund the new branch location and growth at existing
branch locations.
Provision for Income Taxes. The Company's effective tax rate decreased to
43.4% of pretax income from 46.2%, principally as a result of reduced pretax
income as a percentage of total pretax income relating to states with higher
income tax rates.
Quarterly Results
The following table presents selected unaudited quarterly operating
results for the Company for each of the four quarters in fiscal 1995 and 1996.
The Company believes that the following information includes all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation.
Historically, the Company has experienced a lower growth rate in net revenues
during the first fiscal quarter which ends on September 30 due to fewer
referrals during the summer months. However, the results for fiscal 1995 and
1996 do not reflect this seasonality because of the Fiscal 1995 Acquisitions,
the Fiscal 1996 Acquisitions and internal growth. The Company anticipates that
this trend in seasonality will continue for the foreseeable future and,
therefore, expects that the first quarter of fiscal 1997 will have lower net
revenues than the prior fiscal quarter, except for the effect of net revenues
related to acquisitions. Although the Company's net revenues tend to be somewhat
seasonal in nature, quarterly revenues and profitability may be affected by
other factors, including the timing of acquisitions and internal growth. Results
of operations for any period are not necessarily indicative of results of
operations for the full fiscal year or predictive of future periods.
<TABLE>
<CAPTION>
Three Months Ended
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- --------- --------- --------- --------- ---------- ----------
Statement of Income Data: (in thousands, except per share information)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues....................... $10,810 $12,070 $14,928 $18,157 $18,808 $21,380 $22,777 $24,729
Income before income taxes
and extraordinary item 411 491 702 852 709 662 1,986 2,379
Income before
extraordinary item................ 231 284 422 453 391 377 1,192 1,427
Net income......................... $ 231 $ 284 $ 422 $ 453 $ 391 $ (783)(1) $ 1,192 $1,427
======= ======= ======= ======= ======= ======= ======= ======
Net income per common and
common equivalent share............ $ .06 $ .08 $ .12 $ .12 $ .10 $ (.27)(1) $ .15 $ .18
======= ======= ======= ======= ======= ======= ====== ======
</TABLE>
(1) Represents net income per common and common equivalent share after an
extraordinary item in the quarter ended December 31, 1995 of $1.2 million. Net
income per common and common equivalent share before the extraordinary item was
$(0.07).
17
<PAGE>
Liquidity and Capital Resources
On November 13, 1995, the Company completed the Offering, pursuant to which
the Company sold 3,500,000 shares of common stock, no par value. The Offering
resulted in net proceeds of $24.4 million before deduction of certain expenses
payable by the Company. The Company used the net proceeds to repay the Tampa
Acquisition bridge financing, senior subordinated indebtedness, a portion of the
Company's senior credit facilities and to redeem preferred stock. Additionally,
on December 12, 1995, the underwriters in the Offering exercised their option to
purchase additional shares of common stock, pursuant to which the Company sold
193,192 shares of common stock, no par value, resulting in net proceeds of $1.3
million to the Company.
Consistent with its growth strategy, the Company has significantly expanded
its operations over the past three years through a combination of internal
expansion and acquisitions. Historically, this growth has been principally
financed through cash flow from operations, borrowings under the Company's
senior credit facilities, installment notes and stock issued to sellers in
connection with acquisitions and, more recently, through the Offering.
Working capital increased to $20.0 million at June 30, 1996 from $10.0
million at June 30, 1995, an increase of $10.0 million. Approximately $1.5
million of this increase was due to the Fiscal 1996 Acquisitions. The remainder
primarily resulted from a $5.7 million increase in same-store accounts
receivable and a $3.0 million reduction in same-store current liabilities,
including the current portion of long-term debt, accounts payable and accrued
expenses, and income taxes payable. The current ratio increased to 2.96 at June
30, 1996 from 2.0 at June 30, 1995. The growth in net revenues during fiscal
1996 was accompanied by an increase in accounts receivable. Accounts receivable
increased to $26.0 million at the end of fiscal 1996 from $17.6 million at the
end of fiscal 1995. This increase was principally due to acquisitions, internal
growth and a slight increase in days net revenue outstanding. Cash provided by
operating activities was $455,000 for fiscal 1995. Cash used in operating
activities was $1.7 million and $2.0 million for fiscal 1994 and 1996,
respectively, and was primarily attributable to an increase in accounts
receivable resulting from internal growth and a slight increase in days net
revenue outstanding.
Cash expenditures for acquisitions were approximately $5.0 million and
$15.7 million for fiscal 1995 and 1996, respectively. There were no
acquisitions in fiscal 1994. It is anticipated that expenditures for
acquisitions will increase in fiscal 1997 as the Company continues to implement
its growth strategy. Expenditures for purchases of capital equipment were
$735,000, $1.6 million and $3.2 million for fiscal 1994, 1995 and 1996,
respectively, and are expected to increase in the future as the Company expands
its operations and implements its growth strategy, which includes continuing
investments in management information systems.
On August 22, 1996, the Company entered into a Second Amended and Restated
Credit Agreement (the "Second Credit Agreement"), maturing August 22, 1999, with
a syndicate of lenders to borrow up to $50 million. The Second Credit Agreement
was used to refinance $17.6 million of amounts outstanding under the Credit
Agreement, related accrued interest and transaction fees. The Second Credit
Agreement consists of (i) a revolving facility with a commitment of up to $20
million for general corporate purposes, which includes a commitment to issue up
to $10 million of letters of credit and (ii) an acquisition facility with a
commitment of up to $30 million for permitted acquisitions, as defined in the
agreement. The Company elected various rates on the initial outstanding
borrowing under the Second Credit Agreement representing a weighted average
interest rate of 6.7% per annum as of August 22, 1996. Available borrowings
under this agreement were $32.4 million at August 31, 1996. As of August 31,
1996, the Company had approximately $17.6 million of debt outstanding with an
interest rate that fluctuates with changes in market increases in interest
rates. To the extent that inflation occurs in the future, the Company may
experience higher interest rates on such debt.
Management anticipates the Company's available lines of credit and cash
flow generated from operations will be adequate to enable the Company to fund
its operations and anticipated growth for at least the next year.
Impact of Inflation
A substantial portion of the Company's net revenues is subject to
reimbursement rates which are regulated by the federal and state governments or
through contractual arrangements and do not automatically adjust for inflation.
These reimbursement rates are adjusted periodically based upon certain factors,
including legislation and executive and congressional budget reduction and
control processes, inflation and costs incurred in rendering the services, but
in the past have had little relationship to the actual cost of doing business.
Additionally, the Company continues to experience pricing pressure from managed
care and other payors. As a result, to the extent that inflation occurs in the
future, the Company will unlikely be able to pass on all of the increased costs
associated with providing home health services to customers insured by
governmental, managed care or other payors.
18
<PAGE>
New Accounting Pronouncements
See the Company's consolidated financial statements and notes thereto for
information relating to the impact on the Company of new accounting
pronouncements.
Forward Outlook and Risks
The Company faces a number of risks. Also see "Results of Operations" and
"Regulation" previously discussed. Information contained in this section is
forward looking and involves risks and uncertainties that could significantly
impact expected results. The Company's outlook for fiscal 1997 is predominantly
based upon its interpretation of what it considers key economic assumptions.
The federal government is currently examining a number of proposed changes
to the Medicare reimbursement system for nursing services, including changing
nursing reimbursement from a retrospective cost-based system to a prospective
payment system. Currently, Medicare reimburses participating nursing home
health agencies for the reasonable costs incurred to provide covered visits to
eligible beneficiaries, subject to certain cost limits which vary according to
geographic regions of the country. The Company believes that reimbursement
under a prospective payment system would consist of either an established fee
for a specific clinical diagnosis or a fixed per diem amount for providing
service. Implementation of a Medicare prospective payment system for acute
care hospitals in 1984 generally resulted in lower Medicare reimbursement per
patient admission. However, the Medicare reimbursement mechanism was designed
to reward providers with costs below a specific cost per diagnosis per
admission. Similarly, because the Company's current costs per Medicare home
health visits in the aggregate are below existing reimbursement rate ceilings,
management believes the Company may benefit, or the effect may be neutral, from
implementation of a prospective payment system for home nursing services.
However, the impact of such a change, if implemented, on the Company's results
of operations cannot be predicted with any certainty at this time and would
depend, to a large extent, on the reimbursement rates for home nursing
established under the prospective payment system. There can be no assurances
that such reimbursement rates, if enacted, would cover the costs incurred by the
Company to provide home nursing services.
In August 1996, HCFA submitted a proposal to the Secretary of the
Department of Health and Human Services to reduce oxygen reimbursement to
providers by 40%. The Clinton Administration previously had submitted a budget
proposal to Congress proposing oxygen reimbursement reductions of 10%. Industry
observers generally believe that although a budget proposal relating to oxygen
was never adopted, the contradiction between HCFA's recent proposal and the
Administration's proposal decreases the likelihood that the ultimate reduction
will be of the magnitude proposed by HCFA. Further, industry observers generally
believe that any related action by HCFA likely will be delayed until after the
November 1996 elections and possibly until later in 1997. A reduction in oxygen
reimbursement is not expected to have a significant effect on the Company's
results of operations as oxygen therapy services represented less than 5% of net
revenues in fiscal 1996. However, as the Company cannot be certain of the timing
or level of such reductions in Medicare oxygen reimbursement, the effect of such
reductions cannot be predicted with any level of certainty.
In May 1995, the Clinton Administration instituted Operation Restore Trust,
a health care fraud and abuse initiative focusing on nursing homes, home health
care agencies and durable medical equipment companies located in the five states
with the largest Medicare populations. The targeted states include California,
Florida, Illinois, New York and Texas. Operation Restore Trust has been
responsible for millions of dollars in civil and criminal restitution, fines,
recovery of overpayments and the exclusion of a number of individuals and
corporations from the Medicare program. Operation Restore Trust has since been
expanded to cover six states and the Clinton Administration has called for an
expansion of this initiative to all fifty states in fiscal year 1997. While
the Company believes that it is in material compliance with such laws, there can
be no assurance that the practices of the Company, if reviewed, would be found
to be in full compliance with such laws, as such laws ultimately may be
interpreted. It is the Company's policy to monitor its compliance with such
laws and to take appropriate actions to ensure such compliance. Although the
Company does not believe it has violated any regulatory requirements, there can
be no assurance that future related legislation, either health care or
budgetary, related regulatory changes or interpretations of such regulations,
will not have a material adverse effect on the future operations of the Company.
The growth and profitability of the Company depends on its ability to
establish and maintain close working relationships with referral sources,
including payors, hospitals, physicians and other health care professionals.
Managed care organizations, which are exerting an increasing amount of influence
over the health care industry, have been consolidating to enhance their ability
to impact the delivery of health care services. As managed care organizations
have increased and continue to increase their market share in regions in which
the Company operates, these organizations have become and will continue to
become increasingly important to the Company as referral sources. From fiscal
1994 to fiscal 1996, HHCA's net revenues derived from managed care organizations
increased from 7.4% to 15.0%. There can be no assurance that the Company will
be able to successfully maintain existing referral
19
<PAGE>
sources or develop and maintain new referral sources. The loss of any
significant existing referral sources or the failure to develop any new referral
sources could have a material adverse effect on the Company's business, results
of operations or financial condition.
The Company is a leading regional provider of comprehensive home health
care services, delivering nursing and related patient services, respiratory
therapy, infusion therapy and durable medical equipment, from 25 current branch
locations in five states. Since July 1, 1993, the Company has generated
compound annual growth rates in net revenues and net income of 45% and 48%,
respectively, through a combination of internal growth and acquisitions. The
Company has experienced internal growth rates in net revenues of 24%, 29% and
19% in fiscal 1994, 1995 and 1996, respectively. Management has achieved this
internal growth by expanding its branch locations, expanding the range of
services offered and actively seeking to increase patient referrals,
particularly from managed care organizations. Management currently believes
that internal growth shall continue in fiscal 1997 but at a rate of growth less
than experienced in recent years. However, because of matters discussed herein
that may be beyond the control of the Company, there can be no assurance that
the Company can increase or maintain the internal growth rates at levels
experienced in previous years.
The Company seeks to establish and increase market share by acquiring other
home health care businesses in existing, contiguous and new markets. Since July
1, 1992, the Company has completed eleven acquisitions, excluding three
acquisitions currently under definitive agreements. The Company evaluates
potential acquisition candidates that would complement or expand its current
services. In attempting to make acquisitions, the Company competes with other
providers, some of which have greater financial resources than the Company.
Management currently believes that acquisition candidates meeting the criteria
of its acquisition strategy will continue to be identified in fiscal 1997 and
certain of these candidates will be acquired by the Company. In August 1996, the
Company completed the acquisitions of two companies with aggregate annual net
revenues of approximately $4.0 million, one located in Sarasota, Florida
providing infusion therapy services encompassing from the Fort Myers, Florida
market to the Tampa/St. Petersburg, Florida market and one providing durable
medical equipment and respiratory therapy services in the Wilkes Barre/Scranton,
Pennsylvania market. Also, in September 1996, the Company signed definitive
agreements to acquire substantially all of the assets and assume certain
liabilities of a durable medical equipment and respiratory therapy company
located in Bristol, Pennsylvania and a nursing services company located in
Berlin and Salisbury, Maryland. These acquisitions, which are to be recorded
using the purchase method of accounting, are expected to close by September 30,
1996. Additionally, on September 10, 1996, the Company signed a definitive
agreement to merge into the Company the operations of a durable medical
equipment and infusion and respiratory therapy services company providing
services in Mount Laurel, New Jersey, Columbia, Maryland and Chicago, Illinois.
This acquisition, which is to be accounted for as a pooling of interests, is
expected to close within 65 days of signing of the definitive agreement. Because
of matters discussed herein that may be beyond the control of the Company and
the emerging trend of other health care providers, such as long-term care
providers, seeking to acquire home health businesses, there can be no assurance
that suitable acquisitions will continue to be identified or that acquisitions
can be consummated on acceptable terms.
Over the past year, the Company 's stock price has been subject to some
volatility. If net revenues or earnings fail to meet expectations of the
investment community, there could be an immediate and significant adverse impact
on the trading price for the Company's common stock. Regardless of the
Company's performance, broad market fluctuations and general economic or
political conditions as well as health care related market announcements from
time to time may also adversely affect the price of the Company's stock.
Because of such potential circumstances, stock market forces beyond the
Company's control and the nature of the Company's business, such changes can be
sudden and unpredictable.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Home Health Corporation of America, Inc. and Subsidiaries Page
----
[S] [C]
Report of Independent Accountants 22
Financial Statements:
Consolidated Balance Sheets as of June 30, 1995 and 1996 23
Consolidated Statements of Income for the fiscal years ended June
30, 1994, 1995 and 1996 25
Consolidated Statements of Cash Flows for the fiscal years ended
June 30, 1994, 1995 and 1996 26
Consolidated Statements of Stockholders' Equity for the fiscal
years ended June 30, 1994, 1995 and 1996 28
Notes to Consolidated Financial Statements 29
Financial Statement Schedules:
Report of Independent Accountants S-1
Schedule II - Valuation and Qualifying
Accounts for each of the three years
in the period ended June 30, 1996 S-2
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Home Health Corporation of America, Inc.
King of Prussia, Pennsylvania
We have audited the accompanying consolidated balance sheets of Home Health
Corporation of America, Inc. and subsidiaries as of June 30, 1995 and 1996, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Home Health
Corporation of America, Inc. and subsidiaries as of June 30, 1995 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended June 30, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1994.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
August 30, 1996, except for certain information in Note 12,
for which the date is September 17, 1996
22
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, June 30,
ASSETS 1995 1996
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................... $ 258,929 $ 1,330,824
Accounts receivable, net of allowance for doubtful accounts of $1,548,908 and
$2,152,496, respectively................................................................... 17,554,490 25,964,012
Inventories, net............................................................................ 946,602 1,358,915
Prepaid expenses and other current assets................................................... 342,652 657,658
Deferred income taxes....................................................................... 772,462 861,746
----------- -----------
Total current assets................................................................... 19,875,135 30,173,155
Property and equipment, net.................................................................. 4,077,625 8,446,767
Goodwill, net of accumulated amortization of $266,852 and $1,123,255, respectively.......... 5,667,916 26,540,203
Other assets, net............................................................................ 984,592 1,010,330
----------- -----------
Total assets........................................................................... $30,605,268 $66,170,455
=========== ===========
LIABILITIES
-----------
Current liabilities:
Current maturities of long-term debt........................................................ $ 1,921,347 $ 1,801,402
Accounts payable............................................................................ 2,639,794 2,668,116
Accrued salaries and related employee benefits.............................................. 2,543,942 2,160,944
Other accrued expenses and current liabilities.............................................. 1,570,810 3,006,872
Income taxes payable........................................................................ 1,177,322 552,478
----------- -----------
Total current liabilities.............................................................. 9,853,215 10,189,812
Long-term debt, net.......................................................................... 12,587,550 16,137,065
Other non-current liabilities................................................................ 210,677 869,328
Deferred income taxes........................................................................ 98,428 125,792
Series B redeemable preferred stock, cumulative 10% dividend, $10 par value, 200,000 and no
shares authorized, respectively; 60,000 and no shares issued and outstanding, respectively,
plus accrued and unpaid dividends of $60,000 and $0, respectively........................... 660,000 -
Class B common stock, redeemable, 100,000 and no shares issued and outstanding, respectively,
stated at $.10 par value per share plus additional paid-in capital.......................... 500,000 -
Class C common stock, redeemable, 5,000,000 and no shares authorized, respectively; 1,181,259
and no shares issued and outstanding, respectively, stated at $.01 par value per share
plus additional paid-in capital............................................................. 1,217,370 -
Common stock, redeemable, no par value, no shares and 100,000 shares issued and outstanding,
respectively, stated at redemption value of $5 per share.................................... - 500,000
</TABLE>
Continued
23
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
<TABLE>
<CAPTION>
June 30, June 30,
STOCKHOLDERS' EQUITY 1995 1996
--------------------- ----------- -----------
<S> <C> <C>
Stockholders' equity:
Preferred stock (undesignated), no par value, no shares and 10,000,000 shares authorized; no
shares issued and outstanding............................................................ - -
Common stock, Class A, $.10 par value, 5,000,000 and no shares authorized, respectively;
1,098,238 and no shares issued, respectively; 744,238 and no shares outstanding,
respectively............................................................................. 109,824 -
Common stock, Class B, $.10 par value, 5,000,000 and no shares authorized, respectively;
1,536,097 and no shares issued, respectively; 1,345,367 and no shares outstanding,
respectively............................................................................. 153,610 -
Common stock, no par value, no shares and 20,000,000 shares authorized, respectively; no
shares and 7,890,205 shares issued and outstanding, respectively......................... - 33,725,037
Additional paid-in capital.................................................................. 2,289,881 -
Retained earnings........................................................................... 3,252,090 4,641,744
----------- -----------
5,805,405 38,366,781
Common stock, held in treasury, at cost..................................................... (290,730) -
Stock subscriptions receivable.............................................................. (36,647) (18,323)
----------- -----------
Total stockholders' equity................................................................. 5,478,028 38,348,458
----------- -----------
Total liabilities and stockholders' equity............................................... $30,605,268 $66,170,455
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Fiscal year ended June 30,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues................................................................................ $36,103,829 $55,965,245 $87,694,484
Operating costs and expenses:
Patient care costs........................................................................ 16,992,046 28,423,233 42,050,280
General and administrative................................................................ 15,986,929 21,535,504 32,892,646
Provision for doubtful accounts........................................................... 697,572 1,528,034 2,848,490
Depreciation.............................................................................. 295,746 419,316 784,046
Amortization.............................................................................. 125,449 230,793 1,016,257
Interest, net............................................................................. 671,747 1,373,283 1,453,975
Bridge financing.......................................................................... - - 913,121
----------- ----------- -----------
Total costs and expenses............................................................. 34,769,489 53,510,163 81,958,815
----------- ----------- -----------
Income before income taxes, extraordinary item and cumulative effect
of change in accounting principle............................................. 1,334,340 2,455,082 5,735,669
Provision for income taxes.................................................................. 616,815 1,065,584 2,348,159
----------- ----------- -----------
Income before extraordinary item and cumulative effect of change in
accounting principle.............................................................. 717,525 1,389,498 3,387,510
Extraordinary item:
Loss on debt redemption, net.............................................................. - - 1,160,697
----------- ----------- -----------
Income before cumulative effect of change in accounting principle..................... 717,525 1,389,498 2,226,813
Cumulative effect of change in accounting for income taxes.................................. 210,374 - -
----------- ----------- -----------
Net income............................................................................ $ 927,899 $ 1,389,498 $ 2,226,813
=========== =========== ===========
Per share data:
Net income available to common stockholders before extraordinary item and
cumulative effect of change in accounting principle................................... $ 661,125 $ 1,325,898 $ 2,550,351
=========== =========== ===========
Net income per common and common equivalent share before extraordinary
item and cumulative effect of change in accounting principle.......................... $.20 $.38 $.39
==== ==== ====
Net income available to common stockholders............................................... $ 871,499 $ 1,325,898 $ 1,389,654
=========== =========== ===========
Net income per common and common equivalent share......................................... $.26 $.38 $.21
==== ==== ====
Weighted average shares used in computing net income per common and
common equivalent share................................................................ 3,377,232 3,490,748 6,468,009
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal year ended June 30,
----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income........................................................... $ 927,899 $ 1,389,498 $ 2,226,813
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, amortization and other............................... 811,176 1,267,640 2,985,086
Provision for doubtful accounts.................................... 697,572 1,528,034 2,848,490
Write-off of bridge financing note payable discount................ - - 405,290
Write-off of deferred financing fees............................... - - 200,000
Loss on debt redemption, net....................................... - - 1,160,697
Cumulative effect of change in accounting principle............... (210,374) - -
Forgiveness of management loan..................................... 42,999 18,573 18,324
Inventory reserve.................................................. 40,000 10,000 -
Deferred income taxes.............................................. 77,064 (501,444) (61,922)
Distributed (undistributed) earnings from joint ventures........... (109,970) 194,575 -
Other.............................................................. 37,201 - -
Net changes in certain assets and liabilities, net of acquisitions:
Accounts receivable................................................ (4,327,364) (7,139,310) (10,480,368)
Inventories........................................................ (592,292) 287,627 (413,553)
Prepaid expenses and other current assets.......................... (134,520) (21,488) (290,816)
Accounts payable, accrued expenses and other....................... 1,366,824 2,289,744 (664,698)
Income taxes....................................................... (296,346) 1,131,357 35,068
----------- ----------- ------------
Net cash flows (used in) provided by operating activities....... (1,670,131) 454,806 (2,031,589)
----------- ----------- ------------
Cash flows (used in) provided by investing activities:
Purchases of property and equipment.................................. (735,145) (1,635,056) (3,232,668)
Cash paid for acquisitions, net of cash acquired..................... - (4,993,182) (15,692,996)
Increase in other assets............................................. (50,035) 132,320 (385,855)
----------- ----------- ------------
Net cash flows used in investing activities..................... (785,180) (6,495,918) (19,311,519)
----------- ----------- ------------
</TABLE>
Continued
26
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
<TABLE>
<CAPTION>
Fiscal year ended June 30,
--------------------------------------------
1994 1995 1996
-------------- ------------- ------------
<S> <C> <C> <C>
Cash flows provided by (used in) financing activities:
Proceeds from long-term debt......................................... 15,510,000 22,803,778 23,730,000
Repayments of long-term debt......................................... (13,061,363) (16,291,449) (15,302,605)
Proceeds from Bridge financing....................................... - - 13,000,000
Repayment of Bridge financing........................................ - - (13,000,000)
Repayment of debt with offerings net proceeds........................ - - (9,983,778)
Payment of deferred financing costs.................................. - (195,698) (200,000)
Redemption of preferred stock and preferred stock dividends.......... (50,000) (60,000) (606,667)
Repurchase of common stock warrants.................................. (5,000) (200,000) -
Proceeds from issuance of common stock, net.......................... - 2,000 24,778,053
---------- -------------- ------------
Net cash flows provided by financing activities........................ 2,393,637 6,058,631 22,415,003
----------- ------------- ------------
Net (decrease) increase in cash and cash equivalents................... (61,674) 17,519 1,071,895
Cash and cash equivalents, beginning of year........................... 303,084 241,410 258,929
----------- ------------ ------------
Cash and cash equivalents, end of year................................. $ 241,410 $ 258,929 $ 1,330,824
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A Class B Common Stock
Common Stock Common Stock no par
-------------------- -------------------- -----------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1993...... 1,098,238 $109,824 1,453,957 $145,396 - -
Repurchase of Class B
common stock.............. - - - - - -
Issuance of Class B common
stock..................... - - 5,000 500 - -
Series B preferred stock
dividends................. - - - - - -
Net income................. - - - - - -
--------- -------- ---------- --------- --------- -----------
Balance, June 30, 1994..... 1,098,238 109,824 1,458,957 145,896 - -
Series B preferred stock
dividends................. - - - - - -
Issuance of Class B common
stock..................... - - 67,140 6,714 - -
Repurchase of warrants..... - - - - - -
Exercise of stock options.. - - 10,000 1,000 - -
Forgiveness of shareholder
loan...................... - - - - - -
Issuance of warrants in
connection with subordinated
note payable.............. - - - - - -
Net income................. - - - - - -
--------- -------- ---------- --------- --------- -----------
Balance, June 30, 1995..... 1,098,238 109,824 1,536,097 153,610 - -
Exercise of warrants....... - - 193,917 19,392 - -
Issuance of warrants in
connection with Bridge
financing................. - - - - - -
Recapitalization........... (1,098,238) (109,824) (1,730,014) (173,002) 3,464,781 4,713,097
Issuance of common stock
in Offering............... - - - - 3,693,192 24,547,299
Conversion of subordinated
note to common stock...... - - - - 400,000 3,000,000
Write-off of Series C
preferred stock discount.. - - - - - -
Series B and C preferred
stock dividends........... - - - - - -
Exercise of warrants....... - - - - 204,331 124,641
Exercise of stock options.. - - - - 26,500 65,000
Issuance of common stock
for acquisitions.......... - - - - 101,401 1,275,000
Forgiveness of shareholder
loan...................... - - - - - -
Net income................. - - - - - -
--------- -------- ---------- --------- --------- -----------
Balance, June 30, 1996..... - - - - 7,890,205 $33,725,037
========= ======== ========== ========= ========= ===========
<CAPTION>
Additional Stock
Paid-in Retained Treasury Subscriptions
Capital Earnings Stock Receivable Total
------- -------- ----- ---------- -----
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1993...... $1,283,154 $1,054,693 $(285,730) $(143,584) $2,163,753
Repurchase of Class B
common stock.............. - - (5,000) - (5,000)
Issuance of Class B common
stock..................... 4,500 - - 88,364 93,364
Series B preferred stock
dividends................. - (56,400) - - (56,400)
Net income................. - 927,899 - - 927,899
----------- ---------- --------- --------- ----------
Balance, June 30, 1994..... 1,287,654 1,926,192 (290,730) (55,220) 3,123,616
Series B preferred stock
dividends................. - (63,600) - - (63,600)
Issuance of Class B common
stock..................... 266,786 - - - 273,500
Repurchase of warrants..... (200,000) - - - (200,000)
Exercise of stock options.. 1,000 - - - 2,000
Forgiveness of shareholder
loan...................... - - - 18,573 18,573
Issuance of warrants in
connection with subordinated
note payable.............. 934,441 - - - 934,441
Net income................. - 1,389,498 - - 1,389,498
----------- ---------- --------- --------- ----------
Balance, June 30, 1995..... 2,289,881 3,252,090 (290,730) (36,647) 5,478,028
Exercise of warrants....... 21,721 - - - 41,113
Issuance of warrants in
connection with Bridge
financing................. 1,192,029 - - - 1,192,029
Recapitalization........... (3,503,631) - 290,730 - 1,217,370
Issuance of common stock
in Offering............... - - - - 24,547,299
Conversion of subordinated
note to common stock...... - - - - 3,000,000
Write-off of Series C
preferred stock discount.. - (786,739) - - (786,739)
Series B and C preferred
stock dividends........... - (50,420) - - (50,420)
Exercise of warrants....... - - - - 124,641
Exercise of stock options.. - - - - 65,000
Issuance of common stock
for acquisitions.......... - - - - 1,275,000
Forgiveness of shareholder
loan...................... - - - 18,324 18,324
Net income................. - 2,226,813 - - 2,226,813
----------- ---------- --------- --------- ----------
Balance, June 30, 1996..... - $4,641,744 - $ (18,323) $ 38,348,458
=========== ========== ========= ========= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
28
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Home Health
Corporation of America, Inc. and subsidiaries (the Company). All significant
intercompany accounts and transactions have been eliminated. The Company's
financial reporting year represents a fiscal year of twelve calendar months
ending on June 30. Information included in these notes represents fiscal years
unless otherwise noted.
Initial Public Offering
On November 13, 1995, the Company completed the initial public offering
of its stock (the "Offering"), pursuant to which the Company sold 3,500,000
shares of common stock, no par value. The Offering resulted in net proceeds of
$24,412,500 to the Company before deduction of certain expenses payable by the
Company. The Company used the net proceeds to repay the bridge financing
incurred in connection with an acquisition in Tampa, Florida (the "Tampa
Acquisition"), senior subordinated indebtedness, a portion of the Company's
senior credit facilities and to redeem preferred stock. The Company recorded an
extraordinary loss in connection with this early extinguishment of indebtedness
(see Note 5, Senior Subordinated Debt).
On December 12, 1995, the underwriters in the Offering exercised their
option to purchase additional shares of common stock, pursuant to which the
Company sold 193,192 shares of common stock, no par value, resulting in net
proceeds of approximately $1,347,000 to the Company. A portion of these net
proceeds were used for working capital with the remainder currently invested in
a short-term treasury fund.
Net Revenues
The Company is paid for its services primarily by Medicare, managed care
companies, commercial insurance companies, state Medicaid programs and patients.
Revenues are recorded at established rates in the period during which the
services are rendered. Appropriate allowances to give recognition to third-
party payment arrangements are recorded when the services are rendered.
Payments received by the Company under Medicare and Medicaid programs are based
upon reimbursement of reasonable cost or a predetermined specific fee structure.
Reimbursable costs differing from the Company's preliminary authorized payment
rates for nursing services under the Medicare and Medicaid programs are
recognized as receivables or payables in the period in which the costs are
incurred. Adjustments to reimbursable costs resulting from settlements of
third-party payor cost reports are recognized in the period of settlement.
Approximately 75%, 69% and 66% of the Company's net revenues in fiscal 1994,
1995 and 1996, respectively, are from participation in Medicare and state
Medicaid programs.
At June 30, 1995 and 1996, respectively, 16% and 11% of net accounts
receivable was due from Medicare and Medicaid. The ability of payors to meet
their obligations depends upon their financial stability, future legislation and
regulatory actions. The Company does not believe there are any significant
credit risks associated with receivables from Medicare and Medicaid. The
allowance for doubtful accounts principally consists of management's estimate of
amounts that may prove uncollectible from non-governmental payors.
Cash and Cash Equivalents
All investments purchased with original maturities of three months or
less are considered cash equivalents.
Inventories
Inventories are carried at the lower of cost or market, with cost
determined using the average cost method, and is principally comprised of
medical supplies.
Property and Equipment
Property and equipment, which includes equipment held for rental, are
recorded at cost or respective fair market value at
29
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
the time of acquisition and include expenditures for major renewals and
betterments. Equipment under capital leases are stated at net present value of
the minimum lease payments at the inception of the lease. Maintenance and
repairs which do not improve or extend the life of the respective assets are
charged to expense as incurred. Depreciation is computed using the straight-
line method over the estimated useful lives of the related assets or lease terms
for leasehold improvements and equipment under capital leases. Upon retirement
or other disposition, the cost and the related accumulated depreciation are
removed from the accounts and any gain or loss is included in the results of
operations.
Goodwill and Other Assets
Goodwill arises from acquisitions and represents the excess of purchase
price over net identifiable acquired assets, and is amortized on a straight-line
basis over 20 years.
Other assets principally consist of amounts relating to deferred
financing costs, the noncurrent portion of the workers compensation trust
assets, deposits, other intangibles arising from acquisitions and other
investments. Deferred financing costs are amortized on a straight-line basis
over the life of the financing agreement, generally three years. Other
intangibles are amortized on a straight-line basis over 20 years.
At each balance sheet date, management evaluates the recoverability of
intangible assets using certain financial indicators such as historical and
future ability to generate income from operations. The Company's policy is to
record an impairment loss against the net unamortized cost of the asset in the
period when it is determined that the carrying amount of the asset may not be
recoverable. This determination is based on an evaluation of such factors as
the occurrence of a significant event, a significant change in the environment
in which the business operates or if the expected future net cash flows would
become less than the carrying amount of the asset.
Patient Care Costs
Patient care costs are comprised of salaries and related benefits of
patient care personnel, cost of sales of durable medical equipment and supplies
and depreciation on equipment held for rental.
General and Administrative Expenses
General and administrative expenses are comprised of administrative and
support staff salaries and benefits, and occupancy and other operating costs.
Income Taxes
The Company files a consolidated tax return with its subsidiaries for
federal tax purposes and on a separate Company basis for state tax purposes.
Effective July 1, 1993, the Company adopted the asset and liability method of
accounting proscribed by Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" (SFAS No. 109). Under this method, deferred
income taxes are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized. The cumulative effect of this change in
accounting principle increased net income by $210,374 for fiscal 1994. The
effect on fiscal 1994 of adopting SFAS No. 109 was not material to income before
the cumulative effect of the change in accounting principle.
Net Income Per Common and Common Equivalent Share:
Net income available to common stockholders is computed by deducting
preferred dividends from net income to determine net income available to common
stockholders. Additionally, in fiscal 1996, net income available to common
stockholders reflects a reduction for the write-off of the discount on
redeemable preferred stock issued in connection with the Tampa Acquisition (see
Note 2). Net income available to common stockholders is then divided by the
weighted average number of common and common equivalent shares outstanding or
assumed outstanding for all classes of the Company's common stock. Common stock
and common stock equivalents issued by the Company during the 12 month period
immediately preceding the initial filing of the Offering registration statement
at less than fair value at date of issuance, have been included in the
calculation of the weighted average
30
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
number of common and common equivalent shares outstanding for 1994 and 1995,
using the treasury stock method and the Offering price of $7.50 per share.
Pro Forma Earnings Per Share
The following supplementary pro forma earnings per share information has
been included to indicate the dilution on primary earnings per share of the
Company resulting from the Offering.
Pro forma net income used to calculate pro forma net income per common
and common equivalent share reflects adjustments to net income for fiscal 1996
to give effect to the reduction of $1.3 million in interest and bridge financing
expenses resulting from the assumed redemption of certain outstanding
indebtedness with a portion of the net proceeds from the Offering, net of the
corresponding increase in income tax expense of $536,000, as if such
transactions occurred as of July 1, 1995. Additionally, pro forma net income
does not reflect the extraordinary loss, an adjustment for preferred stock
dividends or the write-off of the discount on redeemable preferred stock issued
in connection with the Tampa Acquisition (see Note 2), as the corresponding debt
and preferred stock is assumed to be redeemed as of July 1, 1995.
Pro forma weighted average common and common equivalent shares used in
computing pro forma net income per common and common equivalent share reflects
adjustments to the fiscal 1996 fully-diluted weighted averaged common and common
equivalent shares outstanding to give effect to the issuance of 3,037,000 shares
of common stock, as of July 1, 1995, in connection with the Offering, to redeem
debt assumed outstanding at July 1, 1995 and debt issued on September 29, 1995
in connection with the Tampa Acquisition (see Note 2), respectively.
<TABLE>
<CAPTION>
Fiscal 1996
-----------
<S> <C>
unaudited
Pro forma net income $4,161,761
==========
Pro forma weighted average shares used in computing pro forma
net income per common and common equivalent share 7,582,799
==========
Pro forma net income per common and common equivalent share $ 0.55
==========
</TABLE>
Workers Compensation
During fiscal 1995, the Company adopted a self-insurance trust for
Pennsylvania workers compensation claims. The Company establishes reserves for
claims incurred during the fiscal year but not reported until subsequent fiscal
periods.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the reporting
period. Actual results could differ from these estimates.
Recent Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to Be Disposed of" ("SFAS 121"). SFAS 121 will
be effective for the fiscal year ending June 30, 1997 and establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. SFAS
121 requires that such assets and intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Management does not expect the adoption
of
31
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SFAS 121 for long-lived and intangible assets to have a significant impact on
the Company's results of operations, financial condition or liquidity.
The Company plans to adopt Statement of Financial Accounting Standards
No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," effective
July 1, 1997. SFAS No. 123 allows companies adopting the pronouncement to
either change the actual accounting methods for stock based compensation in the
financial statements or to disclose certain pro forma results of operations as
if the pronouncement had been adopted in the financial statements. The Company
plans to disclose pro forma information in the footnotes to the financial
statements. As a result, the adoption of SFAS 123 will have no effect on the
consolidated financial statements.
2. Acquisitions
The acquisitions described below have been accounted for under the
purchase method. The results of operations for these acquisitions have been
included from their respective acquisition dates. The acquisition purchase
prices have been allocated to identifiable assets, principally accounts
receivable, fixed assets and inventory. The excess of the purchase price over
net assets acquired from these acquisitions is recorded as goodwill. Goodwill
is being amortized on a straight-line basis over 20 years. There were no
acquisitions in fiscal 1994.
Fiscal 1996 Acquisitions:
Tampa Acquisition
On September 29, 1995, the Company acquired substantially all of the
assets and assumed certain liabilities of a company located in Tampa, Florida
(the "Tampa Acquisition") for an aggregate purchase price of $17.5 million. This
acquisition provided the Company with respiratory therapy, durable medical
equipment and mobile diagnostic services. The purchase price was comprised of
$13,000,000 in cash plus $3,000,000 in subordinated convertible notes and
$1,500,000 in seller notes payable. The subordinated convertible notes were
converted into 400,000 shares of common stock upon consummation of the Offering.
The cash paid to effect the Tampa Acquisition was financed through bridge
financing which consisted of (i) a $10,000,000 term loan from the Company's
senior lending institution (the "bridge term loan"), (ii) the issuance of
$2,000,000 of 10% cumulative redeemable Series C preferred stock (the
"redeemable preferred stock"), (iii) a $1,000,000 subordinated note and (iv)
warrants to purchase 155,414 shares of common stock at $0.01 per share. The
redeemable preferred stock and subordinated note were recorded net of a discount
of approximately $1,192,000, representing proceeds ascribed to the warrants.
The bridge term loan, redeemable preferred stock and subordinated note were
redeemed in full on November 15, 1995, with a portion of the net proceeds from
the Offering, and the remaining discount on the redeemable preferred stock and
subordinated note of approximately $787,000 and $405,000, respectively, were
charged to retained earnings and bridge financing expenses, respectively, in the
accompanying 1996 consolidated balance sheet and income statement, respectively.
May 1996 Acquisitions
In May 1996, the Company acquired substantially all of the assets
and assumed certain liabilities of three companies acquired in three separate
transactions for an aggregate purchase price of $5.2 million. Two of these
acquisitions provided the Company with nursing services in the Tampa/St.
Petersburg, Florida market and one provided mobile diagnostic services in the
Tampa and Palm Harbor, Florida markets. The purchase price was comprised of
cash, seller notes and 101,401 shares of the Company's common stock valued at
$1,275,000.
Fiscal 1995 Acquisitions
HPI Acquisition
In July 1994, the Company purchased substantially all of the assets
and assumed certain liabilities of a company, located in Colmar, Pennsylvania
(the "HPI Acquisition") for $1.1 million, comprised of cash and a seller note.
This company specialized in pediatric home care services in the Eastern
Pennsylvania and Southern New Jersey markets.
32
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Delaware Acquisition
In March 1995, the Company acquired substantially all the assets and
assumed certain liabilities of a company in Newark, Delaware (the "Delaware
Acquisition"). This acquisition provided the Company with nursing, respiratory
therapy and durable medical equipment services in Delaware and Maryland. The
aggregate initial purchase price of $5.2 million for this acquisition was
comprised of cash, a seller note and 100,000 shares of the Company's Class B
common stock. Additionally, the Company is making certain earnout payments
aggregating $725,000 to the sellers through June, 1998.
At the option of the holder, the Company is required to repurchase the
stock issued in connection with this acquisition for $5 per share at the
occurrence of certain events. This stock is reflected as redeemable stock in
the accompanying consolidated balance sheet at its redemption value of $500,000.
The redemption provisions expire in April, 1997.
Alpha Acquisition
In May 1995, the Company acquired substantially all the assets and
assumed certain liabilities of a durable medical equipment company located in
New Jersey (the "Alpha Acquisition") for initial consideration of $1.45 million,
comprised of cash, seller notes and 40,000 shares of the Company's Class B
common stock valued at $273,500. Additionally, the Company is making certain
earnout payments aggregating $323,000 to the sellers through May, 1999.
The following unaudited pro forma summary information combines the
consolidated results of operations of the Company and the Fiscal 1996
Acquisitions and Fiscal 1995 Acquisitions, assuming the acquisitions had
occurred at the beginning of each of the following fiscal years:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
(Unaudited)
Net revenues $83,641,294 $97,962,461
Income before income taxes and extraordinary item 2,821,541 6,113,432
Income per share before extraordinary item 0.22 0.43
Net income 1,609,583 2,449,825
Net income per share $ 0.22 $ 0.25
</TABLE>
The pro forma results presented above do not necessarily represent
results which would have occurred if the respective acquisitions had taken place
at the beginning of each period, nor are they indicative of the results of
future combined operations.
3. Property and Equipment
At June 30, 1995 and 1996, property and equipment consisted of:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Equipment held for rental $3,411,395 $7,278,597
Capitalized leases 1,247,965 1,894,792
Furniture, fixtures and equipment 1,629,766 2,808,000
Leasehold improvements 244,201 268,440
---------- ----------
6,533,327 12,249,829
Less accumulated depreciation 2,455,702 3,803,062
---------- ----------
$4,077,625 $8,446,767
========== ==========
</TABLE>
Depreciation on equipment held for rental, which was included in patient
care costs, was $224,667, $336,587, and $1,090,563 for fiscal 1994, 1995 and
1996, respectively.
33
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
4. Other Assets
At June 30, 1995 and 1996, other assets consisted of:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred financing costs $ 490,266 $ 455,680
Other intangibles 359,800 359,800
Workers compensation trust assets 210,677 272,638
Deposits 151,128 206,526
Other investments 1,289 1,289
----------- -----------
1,213,160 1,295,933
Less accumulated amortization 228,568 285,603
----------- -----------
$ 984,592 $ 1,010,330
=========== ===========
</TABLE>
5. Long-term Debt
At June 30, 1995 and 1996, long-term debt consisted of:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Senior Credit Facilities:
Revolving Facility $4,965,000 $9,920,000
Acquisition Facility 3,713,778 2,975,000
13.0% Senior Subordinated Note 1,807,444 -
11.5% Senior Subordinated Note 1,108,034 -
Sellers notes with interest rates of
approximately 8%, principal and interest due
monthly through fiscal year 2000 2,385,928 3,872,130
Other debt (including capitalized leases), rates
generally fixed from 7% to 18% through fiscal
year 2001 528,713 1,171,337
----------- -----------
14,508,897 17,938,467
Less current maturities 1,921,347 1,801,402
----------- -----------
$12,587,550 $16,137,065
=========== ===========
</TABLE>
Senior Credit Facilities
The Company's Senior Credit Facilities consisted of a revolving facility
and an acquisition facility as amended from time to time under the Amended and
Restated Credit Agreement (the "Credit Agreement") with an institutional lender.
The amendments generally were made to accommodate the Company's growth and
reflect favorable changes in the Company's leverage resulting from the Offering.
The amendments resulted in, among other provisions, decreases in applicable
interest rates, increases in total commitment availability, and extensions of
maturities. The weighted average interest rate on borrowings outstanding at
June 30, 1996 was approximately 7%. The amount outstanding under the
Acquisition Facility at June 30, 1995 was repaid in November 1995 with a portion
of the net proceeds from the Offering.
On August 22, 1996, the Company entered into a Second Amended and
Restated Credit Agreement (the "Second Credit Agreement"), maturing August 22,
1999, with a syndicate of lenders to borrow up to $50 million. The Second
Credit Agreement was used to refinance $17.6 million of amounts outstanding
under the Credit Agreement, related accrued interest and transaction fees. See
Note 12 for a discussion of acquisitions financed under the Credit Agreement
subsequent to June 30, 1996 but before August 22, 1996. The Second Credit
Agreement consists of (i) a Revolving facility with a commitment of up to $20
million for general corporate purposes, which includes a commitment to issue up
to $10 million of letters of credit and (ii) an Acquisition facility with a
commitment of up to $30 million for permitted acquisitions, as defined in the
agreement. The Company may exchange available commitments between the
facilities.
Funds advanced under the Second Credit Agreement bear interest on the
outstanding principal at a fluctuating rate based on either (i) the announced
prime rate of the agent bank (the "Prime Rate") or (ii) the London Interbank
Borrowing Rate ("LIBOR") as elected from time to time by the Company. Interest
is payable monthly if a rate based on the Prime Rate is elected or at the end of
the LIBOR period (but in any event not to exceed 90 days) if a rate based on
LIBOR is elected. The Company elected various rates on the initial outstanding
borrowing of the Second Credit Agreement representing a weighted average
interest rate of 6.7% per annum as of August 22, 1996. The Company must pay an
annual commitment fee equal to 0.375% of the unused portion of the facilities.
34
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
The Company is required to make principal repayments on the facilities
under the Second Credit Agreement upon the permitted sale of certain assets. The
Second Credit Agreement limits, under certain circumstances, the Company's
ability to incur additional indebtedness, sell material assets or acquire the
capital stock or assets of another business, and prohibits payment of dividends.
The Second Credit Agreement also requires the Company to meet or exceed certain
coverage, leverage and indebtedness ratios. Indebtedness under the Second
Credit Agreement is collateralized by a pledge of 100% of the stock of all
existing and future subsidiaries of the Company.
Senior Subordinated Debt
In June 1992, the Company entered into an agreement with Summit Ventures
II, L.P. and Summit Investors II, L.P., ("Summit"), whereby the Company received
$2,511,813 in exchange for a $2,500,000 Senior Subordinated Note (the "Summit
Note") and 1,181,259 shares of Class C common stock. The Company recorded a
discount on the Summit Note of $1,205,557, representing proceeds ascribed to the
Class C common stock, which was being amortized using the interest method over
the life of the debt. The unamortized portion of the discount was $692,556 at
June 30, 1995.
In March 1995, the Company entered into an agreement with a financing
institution whereby the Company issued a $2,000,000 senior subordinated note
payable (the "Subordinated Note") and warrants to purchase 180,013 shares of
Class B common stock to finance a portion of the Delaware Acquisition. The
Company issued additional warrants to the financing institution to purchase
2,195 shares of Class B Common Stock, in connection with an unrelated
transaction. The Company recorded a discount on the Subordinated Note of
$934,441, representing value ascribed to the warrants, which was being amortized
using the interest method over the life of the debt. The unamortized portion of
the discount was $891,966 at June 30, 1995.
The Summit Note and the Subordinated Note were repaid in November 1995
with a portion of the net proceeds from the Offering. The Company recorded an
extraordinary loss of $1,160,697, net of estimated income taxes of approximately
$660,000, related to the write-off of deferred financing costs and the remaining
unamortized discounts on these notes.
Maturities of long-term debt, including capitalized lease obligations,
for the next five fiscal years are as follows:
<TABLE>
<S> <C>
1997 $ 1,801,402
1998 1,677,275
1999 1,044,061
2000 13,278,389
2001 137,340
-----------
$17,938,467
===========
</TABLE>
6. Capital Stock
Recapitalization
Upon consummation of the Offering in November 1995, the Company
implemented a plan of recapitalization (the "Recapitalization") and amended its
Articles of Incorporation to authorize the issuance of up to 20,000,000 shares
of no par value common stock and up to 10,000,000 shares of preferred stock of
such classes and series and with such voting powers, designations, preferences,
rights and restrictions as may be established by the Board of Directors.
Additionally, each share of the Company's Class A common stock (five
votes per share), Class B common stock (one vote per share) and Class C common
stock (2.36 votes per share) outstanding prior to the Offering was canceled and
exchanged for one share each of the Company's new no par value common stock.
Holders of the no par value common stock are entitled to one vote per share. The
Recapitalization also caused each share of the Company's Series A Preferred
Stock held in the treasury before the Offering to be canceled, and provided for
the redemption and cancellation of the Company's Series B and Series C Preferred
Stock at their par values of $10.00 per share plus accrued and unpaid dividends,
aggregating approximately $2.7 million. The Series C Preferred Stock was issued
in connection with the Tampa Acquisition (see Note 2).
Conversion and Redemption Rights
The Class A and C common shares were convertible, at the option of the
holder, on a share for share basis into Class B
35
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
common stock. Additionally, the Class C common shares could be redeemed by
Summit in the event the Company consummated a qualified public offering or at
any time after June 30, 1999, at the then current fair market value of the
shares. As a result of these shares being redeemable at the option of the
holder, all issued and outstanding shares and related additional paid-in capital
pertaining to such shares were classified outside of stockholders' equity in the
1995 consolidated balance sheet. See "Recapitalization."
Stock Subscriptions Receivable
During fiscal 1993 and 1994, a total of 190,730 shares of Class B common
stock were issued to certain management shareholders for $1.00 a share and were
financed by the Company through notes bearing interest at 8% per annum. These
notes may be forgiven contingent upon a five-year, profit-performance criteria.
The profit-performance criteria were met for each subsequent fiscal year, with
the remaining balance of the notes classified as stock subscriptions receivable
in the accompanying consolidated statements of stockholders' equity.
Preferred Stock Transactions
The following is a summary of the preferred stock transactions for fiscal
1994, 1995 and 1996:
<TABLE>
<CAPTION>
Series B Series C
--------------------- ----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance outstanding, July 1, 1993 60,000 $ 650,000 - -
Payment of preferred dividends - (50,000) - -
Accrued and unpaid dividends - 56,400 - -
-------- --------- -------- -----------
Balance outstanding, June 30, 1994 60,000 656,400 - -
Payment of preferred dividends - (60,000) - -
Accrued dividends - 63,600 - -
-------- --------- -------- -----------
Balance outstanding, June 30, 1995 60,000 660,000 - -
Issuance of Series C preferred stock - - 200,000 2,000,000
Accrued dividends - 24,864 - 25,556
Redemption of preferred shares and dividends (60,000) (684,864) (200,000) (2,025,556)
-------- --------- -------- -----------
Balance outstanding at June 30, 1996 - - - -
======== ========= ======== ===========
</TABLE>
7. Warrants and Options
Warrants
In June 1992, the Company issued 88,567 warrants to a financing
institution to purchase Class B common stock at an exercise price of $.20 per
share. In March 1995, the Company redeemed these warrants for $200,000, in
connection with the signing of the Subordinated Note, and issued warrants to
purchase an aggregate of 182,208 shares of Class B Common Stock at an exercise
price of $.20 per share (see Note 5, Senior Subordinated Debt). These warrants
were exercised during fiscal 1996.
Warrants to purchase 155,414 shares of Class C Common Stock at an
exercise price of $.01 were issued in September 1995, in connection with the
Tampa Acquisition (see Note 2, Tampa Acquisition). These warrants were
exercised during fiscal 1996. Additionally, during fiscal 1996, warrants to
purchase an aggregate of 60,772 shares of Class B Common Stock were exercised.
Warrants remaining outstanding at June 30, 1996 permit the holders to purchase
an aggregate of 25,000 shares of common stock for an exercise price of $2.54 per
share. These warrants expire June 30, 1997.
Stock Option Plan
In September 1995, the Company's stockholders approved the 1995 Employee
and Consultant Equity Plan (the "Option Plan") and authorized the reservation of
up to 600,000 shares of the Company's common stock for issuance under this plan.
The
36
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Option Plan replaced the amended and restated 1985 Incentive Compensation Plan
(the "1985 Plan"). The Option Plan provides for the granting of options to
purchase shares of the Company's common stock to officers, directors, employees
and consultants of the Company. Options issued under the Option Plan may be
qualified or non-qualified grants. The exercise price of qualified option
grants cannot be less than 100% of the fair market value of the shares on the
date of grant. Options generally vest over a three-year period and generally
expire between five to ten years from the date of grant.
The following is a summary of option transactions and exercise prices
during fiscal 1996:
<TABLE>
<CAPTION>
Price per share
-------------------------------------
Options Weighted Average Range
------- ------------------ -----
<S> <C> <C> <C>
Outstanding at
July 1, 1993 18,500 $2.51 $2.15 to $3.00
Granted 30,000 $1.03 $0.20 to $2.75
-------
Outstanding at
June 30, 1994 48,500 $1.59 $0.20 to $3.00
Granted 23,000 $1.08 $1.00 to $2.75
Exercised (10,000) $0.20 $0.20
-------
Outstanding at
July 1, 1995 61,500 $1.63 $1.00 to $3.00
Granted 293,500 $7.84 $7.50 to $10.00
Exercised (26,500) $2.45 $1.00 to $3.00
-------
Outstanding at
June 30, 1996 328,500 $7.11 $1.00 to $10.00
=======
Exercisable at
June 30, 1996 94,167 $6.35 $1.00 to $7.50
=======
</TABLE>
Options outstanding at June 30, 1996 include 35,000 options issued under
the 1985 Plan exercisable at $1.00 per share and which expire from October 1996
through June 1998. The remaining options outstanding at June 30, 1996 are
exercisable at a weighted average price of $7.84 per share and expire from
November 2000 through April 2006.
8. Commitments and Contingencies
The Company leases certain office facilities and other equipment under
noncancelable leases for terms ranging from one to six years with certain
renewal options. Future minimum lease payments under these leases for the next
five years are as follows:
<TABLE>
<CAPTION>
Capital Leases Operating Leases
-------------- ----------------
<S> <C> <C>
1997 $ 446,411 $ 975,569
1998 303,534 750,599
1999 203,682 301,997
2000 189,089 187,385
2001 150,079 82,437
---------- ----------
Total minimum lease payments 1,292,795 $2,297,987
==========
Less amount representing interest 239,258
----------
Present value of net minimum
future capital lease payments $1,053,537
==========
</TABLE>
Total rent expense under operating leases amounted to $1,070,704,
$1,605,639 and $2,902,660 for fiscal 1994, 1995 and 1996, respectively,
including rent expense on equipment which is subleased to patients and included
in patient care costs of $247,663, $563,499 and $1,463,035, respectively.
The Company maintains medical malpractice and general liability
insurance coverage through non-captive insurance companies.
37
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
The Company is a party to certain legal actions arising in the ordinary
course of business. The Company believes it has adequate legal defenses and
insurance coverage for these actions and that the ultimate outcome of these
actions will not have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
9. Employee Benefit Plans
The Company has a profit-sharing plan that covers substantially all
employees who become eligible to participate, upon completion of six months of
continuous service. Vesting occurs over a three- to seven-year schedule.
Benefits become fully vested upon reaching normal retirement age, or the
participants' permanent disability or death. Contributions to the plan are made
at the Company's discretion, not to exceed the maximum amount deductible under
the Internal Revenue Code. Expense under the profit sharing plan amounted to
$450,000 for each of fiscal 1994 and 1995. The Company made no contributions to
this plan in fiscal 1996. The Company also provides a defined contribution
401(k) plan available to substantially all employees who become eligible to
participate in the plan. The Company does not make contributions under this
plan.
10. Income Taxes
The provision (benefit) for income taxes for the following fiscal years
consisted of:
<TABLE>
<CAPTION>
1994 1995 1996
-------- ----------- -----------
<S> <C> <C> <C>
Currently payable:
Federal $355,677 $1,115,081 $2,077,371
State 184,074 451,947 332,710
-------- ---------- ----------
539,751 1,567,028 2,410,081
-------- ---------- ----------
Deferred:
Federal 55,004 (402,010) (102,764)
State 22,060 (99,434) 40,842
-------- ---------- ----------
77,064 (501,444) (61,922)
-------- ---------- ----------
$616,815 $1,065,584 $2,348,159
======== ========== ==========
</TABLE>
A reconciliation of the U.S. Federal income tax rate to the effective tax
rate were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
U.S. Federal income tax rate 34% 34% 34%
State income taxes, net of Federal income tax
benefit 10 9 5
Other 2 - 2
---- ---- ----
Effective income tax rate 46% 43% 41%
==== ==== ====
</TABLE>
38
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Deferred tax assets (liabilities) were comprised of the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Allowance for doubtful accounts $618,634 $ 699,354
Inventory 30,899 30,964
Vacation reserve 172,929 181,428
Other - 19,354
-------- ---------
Gross deferred tax assets 822,462 931,100
-------- ---------
Depreciation and amortization (98,428) (145,146)
-------- ---------
Gross deferred tax liabilities (98,428) (145,146)
-------- ---------
Valuation allowance (50,000) (50,000)
-------- ---------
Net deferred tax asset $674,034 $ 735,954
======== =========
</TABLE>
The Company established a valuation allowance during the year ended June
30, 1994 of $50,000 against net deferred tax assets upon the adoption of SFAS
No. 109, due primarily to the uncertainties as to the ultimate realizability of
certain deferred tax assets.
11. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Supplemental disclosure of
cash flow information
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for:
Interest $484,520 $1,043,487 $ 1,464,237
========= ========== ===========
Income taxes $958,168 $ 409,431 $ 1,429,578
========= ========== ===========
Noncash investing and
financing activities:
Accrued and unpaid
dividends on preferred
stock $ 56,400 $ 60,000 -
========= ========== ===========
Capital lease obligations
incurred $337,290 $ 303,192 $ 744,315
========= ========== ===========
Issuance of warrants in
connection with
subordinated notes payable - $ 934,441 -
========= ========== ===========
Issuance of warrants in
connection with Tampa
Acquisition bridge
financing - - $ 1,192,029
========= ========== ===========
Conversion of
subordinated note to
400,000 shares of
common stock, no par value - - $ 3,000,000
========= ========== ===========
Write-off of Series C
preferred stock
discount - - $ 786,739
========= ========== ===========
Acquisitions:
Assets acquired - $8,775,599 $24,827,922
Less:
Liabilities assumed and
acquisition costs - 378,296 2,390,532
Issuance of subordinated
seller notes and
convertible note - 2,550,000 5,400,000
Issuance of common stock - 773,500 1,275,000
Capital lease obligations
assumed - 80,621 69,394
--------- ---------- -----------
Cash paid, net of cash
acquired - $4,993,182 $15,692,996
========= ========== ===========
</TABLE>
39
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
Recapitalization:
<S> <C> <C> <C>
Class A common stock - - $ (109,824)
Class B common stock - - (173,002)
Class C common stock - - (1,217,370)
Redeemable Class B common
stock - - (500,000)
Additional paid-in capital - - (3,503,631)
Treasury stock - - 290,730
Redeemable common stock, no
par value - - 500,000
Common stock, no par value - - 4,713,097
========= ========== ===========
- - -
========= ========== ===========
</TABLE>
12. Subsequent Events
Acquisitions
In August 1996, the Company acquired substantially all of the
assets and assumed certain liabilities of a durable medical equipment and
respiratory therapy company located in Scranton, Pennsylvania and a home
infusion therapy company located in Sarasota, Florida for an aggregate purchase
price of $4.3 million. The durable medical equipment company provides services
in the Scranton/Wilkes Barre, Pennsylvania market and the infusion therapy
company provides services encompassing from the Ft. Myers, Florida market to the
Tampa/St Petersburg, Florida market. The aggregate purchase price for these
acquisitions was comprised of cash, sellers notes payable, and 61,262 shares of
the Company's common stock valued at $675,000.
On September 10, 1996, the Company signed a definitive agreement to merge
Home Health Systems, Inc. and its subsidiaries (collectively "HHSI") into the
Company. HHSI, headquartered in Phoenixville, Pennsylvania, provides durable
medical equipment and infusion and respiratory therapy services in Mount Laurel,
New Jersey, Columbia, Maryland and Chicago, Illinois. This acquisition, which
is to be accounted for as a pooling of interests, is expected to close within 65
days of the signing of the definitive agreement.
On September 10 and 17, 1996, the Company signed definitive agreements to
acquire substantially all of the assets and assume certain liabilities of a
durable medical equipment and respiratory company located in Bristol,
Pennsylvania and a nursing services company located in Berlin and Salisbury,
Maryland. These acquisitions, which are to be recorded using the purchase
method of accounting, are expected to close by September 30, 1996.
40
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Company had no changes in or disagreements with accountants on
accounting and financial disclosure of the type referred to in Item 304 of
Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated herein by reference
to the Company's proxy statement to be filed with respect to the 1996 annual
meeting of stockholders (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated herein by reference
to the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated herein by reference
to the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated herein by reference
to the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
Page
(1) Financial Statements: Number
------
Report of Independent Accountants 22
Consolidated Balance Sheets
as of June 30, 1995 and 1996 23
Consolidated Statements of Income for the
fiscal years ended June 30, 1994, 1995 and 1996 25
Consolidated Statements of Cash Flows for
the fiscal years ended June 30,
1994, 1995 and 1996 26
Consolidated Statements of Stockholders'
Equity for the fiscal years ended June 30,
1994, 1995 and 1996 28
Notes to Consolidated Financial Statements 29
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts for each of
the three years in the period ended June 30, 1996 S-2
(3) Exhibits:
The exhibits required to be filed are listed in
the exhibit index. 43
(b) Current Reports on Form 8-K:
The Company did not file a report on Form 8-K during the quarter
ended June 30, 1996.
41
<PAGE>
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby
appoint Bruce J. Feldman and Bruce J. Colburn as attorneys-in-fact with full
power of substitution, severally, to execute in the name and on behalf of the
Registrant and each such person, individually, and in each capacity stated
below, one or more amendments to the annual report which amendments may make
such changes in the report as the attorney-in-fact acting in the premises deems
appropriate and to file any such amendment to the report with the Securities and
Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HOME HEALTH CORPORATION OF AMERICA, INC.
By: /s/ Bruce J. Colburn
______________________________________________
(Bruce J. Colburn,
Chief Financial Officer and Chief
Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- -------------------------- --------------------------- ------------------
President, Chief Executive September 20, 1996
/s/ Bruce J. Feldman Officer, Director and
- -------------------------- Chairman of the Board
(Bruce J. Feldman)
/s/ Bruce J. Colburn Chief Financial Officer and
- -------------------------- Chief Accounting Officer September 20, 1996
(Bruce J. Colburn)
/s/ G. Michael Bellenghi
- -------------------------- Director September 20, 1996
(G. Michael Bellenghi)
/s/ Harvey Machaver
- -------------------------- Director September 20, 1996
(Harvey Machaver)
/s/ Joseph Trustey
- -------------------------- Director September 20, 1996
(Joseph Trustey)
42
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
------------ -----------
*3.1 Amended and Restated Articles of Incorporation of the Company.
*3.2 Amended and Restated Bylaws of the Company.
*9.1 Voting Trust Agreement between William Moses and Andra H. Moses
and Bruce J. Feldman.
*9.2 Voting Trust Agreement between Steven R. Altshuler and Jane
Altshuler and Bruce J. Feldman.
*10.1 Registration Rights Agreement among the Company, Summit Ventures
II, L.P., and Summit Investors II, L.P.
*10.2 Additional Investment Agreement among the Company, Summit
Ventures II, L.P., Summit Investors II, L.P., Bruce J. Feldman,
and Andrew J. Bednarski.
*10.3 Asset Acquisition Agreement among Home Care Medical Supply and
Equipment, Inc., Alpha Home Care Services, Inc., Joel Schreiber,
and Joseph J. D'Alessandro, including schedules and exhibits
thereto.
*10.4 Subordination Agreement among CoreStates Bank, N.A., Summit
Ventures II, L.P., Summit Investors II, L.P., CoreStates
Enterprise Fund, and Alpha Home Care Services, Inc.
*10.5 Stock Purchase Agreement by and between Home Health Care
Corporation of Delaware, Inc., William Moses, Milton Altshuler,
Steven R. Altshuler, and Jane Altshuler, relating to Delaware
Acquisition.
*10.6 Asset Acquisition Agreement between HHCDME, Inc., and Master
Medical Supply Co., Inc., relating to Delaware Acquisition.
*10.7 Asset Acquisition Agreement between HHCD, Inc., and Professional
Home Health Care Agency, Inc., relating to Delaware Acquisition.
*10.8 Indemnification Agreement relating to Delaware Acquisition.
*10.9 Agreement among Home Health Care Corporation of Delaware, Inc.,
HHCD, Inc., HHCDME, Inc., Master Medical Supply Co., Inc.,
Professional Home Health Services, Inc., Professional Home Health
Care Agency, Inc., William Moses, Andra H. Moses, Steven R.
Altshuler, and Jane Altshuler, relating to Delaware Acquisition.
*10.10 Full Payment Guaranty of the Company relating to Delaware
Acquisition.
*10.11 Subordination Agreement among CoreStates Bank, N.A., Summit
Ventures II, L.P., Summit Investors II, L.P., CoreStates
Enterprise Fund, and parties to Delaware Acquisition transaction
documents.
10.12 Separation Agreement by and between Home Health Corporation of
America, Inc., Home Health Corporation of Delaware, Inc., HHCD,
Inc., HHCDME, Inc., Steven R. Altshuler, Jane E. Altshuler,
William W. Moses and Andra H. Moses.
*10.13 Asset Purchase Agreement between Pennsylvania Home Care, Inc. and
Healthcare Professionals, Inc.
*10.14 Lease between the Company and Swedeland Road Corporation,
relating to the Company's principal executive offices.
*10.15 Employment Agreement between the Company and Bruce J. Feldman.
*10.16 Employment Agreement between the Company and Fred J. Nicholas.
*10.17 Employment Agreement between the Company and James J. Swiniuch.
*10.18 Employment Agreement between the Company and Joseph Grilli.
*10.19 1995 Employee and Consultant Equity Plan.
*10.20 1984 Employee Stock Option Plan (Qualified and Non-Qualified), as
amended and restated.
*10.21 Consent and Amendment to Note and Stock Purchase Agreement, dated
September 29, 1995, among the Company, certain subsidiaries of
the Company, Summit Ventures II, L.P. and Summit Investors II,
L.P.
*10.22 Subordination Agreement, dated September 29, 1995, among
CoreStates Bank, N.A., Summit Ventures II, L.P., Summit Investors
II, L.P., Summit Subordinated Debt Fund, L.P., CoreStates
Enterprise Fund and Preferred Diagnostic Services, Inc.
*10.23 Asset Acquisition Agreement among the Company, Home Health
Corporation of America, Inc. - Tampa, Preferred Diagnostic &
Medical Services, Inc., Preferred Diagnostic Services, Inc., G&S
Industries, Inc., and Joel M. Grossman, Jeffrey Grossman, Joseph
Sterensis, Barbara Sterensis and Richard Levitt.
43
<PAGE>
*10.24 Registration Rights Agreement, dated September 28, 1995, among
the Company, a subsidiary of the Company, Preferred Diagnostic &
Medical Services, Inc. and Preferred Diagnostic Services, Inc.
10.25 Second Amended and Restated Credit Agreement dated August 22,
1996 among Home Health Corporation of Delaware, Inc. and
CoreStates Bank, N.A. (as Agent)
11.1 Computation of Primary Earnings per Share for each of the three
years in the period ended June 30, 1996
11.2 Computation of Fully-diluted Earnings per Share for each of the
three years in the period ended June 30, 1996
21.1 Subsidiaries of the Company
23.1 Consent of Independent Accountants
27 Financial Data Schedules
* Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 33-96888) dated November 8, 1996, as amended.
44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON THE FINANCIAL STATEMENT SCHEDULE
Our report on the consolidated financial statements of Home Health Corporation
of America, Inc. and subsidiaries is included on page 22 of this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in Item 14.(a)(2) of this Form
10-K.
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 required to be
included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
August 30, 1996
S-1
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
for each of the three fiscal years ended June 30, 1996
<TABLE>
<CAPTION>
Description
---------------------------------------------------------------------------
Balance at
beginning of Charged to costs Balance at end
year and expenses Deductions of year
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
1996
----
Allowance for doubtful accounts $1,548,908 $2,848,490 $2,244,902 $2,152,496
Inventory valuation allowance 40,000 - 40,000 -
Deferred income tax valuation allowance 50,000 - - 50,000
1995
----
Allowance for doubtful accounts 623,119 1,528,034 602,245 1,548,908
Inventory valuation allowance 40,000 50,000 50,000 40,000
Deferred income tax valuation allowance 50,000 - - 50,000
1994
----
Allowance for doubtful accounts 683,406 697,572 757,859 623,119
Inventory valuation allowance 40,000 - - 40,000
Deferred income tax valuation allowance - 50,000 - 50,000
</TABLE>
S-2
<PAGE>
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
AMONG
HOME HEALTH CORPORATION OF DELAWARE, INC.
("Borrower"),
THE BANKS SET FORTH ON SCHEDULE 1 HERETO
("Banks")
AND
CORESTATES BANK, N.A.,
AS AGENT FOR THE BANKS
("Agent")
August 22, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1 - DEFINITIONS..................................................... 1
1.1. Definitions.............................................. 1
1.2. Rules of Construction.................................... 13
SECTION 2 - CREDIT FACILITIES............................................... 14
2.1. The Facilities........................................... 14
2.2. Promissory Notes......................................... 15
2.3. Banks' Participation..................................... 16
2.4. Use of Proceeds.......................................... 16
2.5. Repayment................................................ 17
2.6. Interest................................................. 17
2.7. Advances................................................. 23
2.8. Reduction and Termination of Commitment.................. 26
2.9. Prepayment............................................... 26
2.10. Payments................................................. 27
2.11. Commitment Fee........................................... 27
2.12. Closing Fee.............................................. 28
2.13. Agent's Fees............................................. 28
2.14. Regulatory Changes in Capital Requirements............... 28
SECTION 2A - LETTERS OF CREDIT.............................................. 29
2A.1. Availability of Credits.................................. 29
2A.2. Commitment Availability.................................. 30
2A.3. Approval and Issuance.................................... 30
2A.4. Obligations of the Borrower.............................. 30
2A.5. Payment by Banks on Letters of Credit.................... 32
2A.6. Collateral Security...................................... 32
2A.7. General Terms of Credits................................. 33
SECTION 3 - REPRESENTATIONS AND WARRANTIES.................................. 34
3.1. Organization and Good Standing........................... 34
3.2. Power and Authority; Validity of Agreement............... 34
3.3. No Violation of Laws or Agreements....................... 34
3.4. Material Contracts....................................... 35
3.5. Compliance............................................... 35
3.6. Litigation............................................... 35
3.7. Title to Assets.......................................... 35
3.8. Accuracy of Information; Full Disclosure................. 36
3.9. Taxes and Assessments.................................... 36
3.10. Indebtedness............................................. 36
3.11. Management Agreements.................................... 37
3.12. Investments.............................................. 37
3.13. ERISA.................................................... 37
3.14. Fees and Commissions..................................... 38
3.15. No Extension of Credit for Securities.................... 38
3.16. Perfection of Security Interest.......................... 38
-i-
<PAGE>
Page
----
3.17. Hazardous Wastes, Substances and Petroleum
Products................................................. 38
3.18. Solvency................................................. 39
3.19. Employee Controversies................................... 39
3.20. Inactive Subsidiaries.................................... 40
SECTION 4 - CONDITIONS...................................................... 40
4.1. First Advance............................................ 40
4.2. Advances or Issuances.................................... 42
SECTION 5 - AFFIRMATIVE COVENANTS........................................... 42
5.1. Existence and Good Standing.............................. 42
5.2. Quarterly Financial Statements........................... 42
5.3. Annual Budget and Financial Statements................... 43
5.4. Compliance Certificate................................... 43
5.5. Public Information....................................... 43
5.6. Books and Records........................................ 43
5.7. Insurance................................................ 44
5.8. Litigation; Event of Default............................. 44
5.9. Taxes.................................................... 44
5.10. Costs and Expenses....................................... 44
5.11. Compliance; Notification................................. 44
5.12. ERISA.................................................... 45
5.13. Maximum Funded Debt to Adjusted EBITDA Ratio............. 45
5.14. Fixed Charge Coverage Ratio.............................. 46
5.15. Maximum Leverage Ratio................................... 46
5.16. Current Ratio............................................ 46
5.17. Management Changes....................................... 46
5.18. Transactions Among Affiliates............................ 46
5.19. Joinders................................................. 46
5.20. Subordination Agreements................................. 46
5.21. Other Information........................................ 47
SECTION 6 - NEGATIVE COVENANTS.............................................. 47
6.1. Indebtedness............................................. 47
6.2. Guaranties............................................... 47
6.3. Loans.................................................... 47
6.4. Liens and Encumbrances................................... 48
6.5. Additional Negative Pledge............................... 48
6.6. Restricted Payments...................................... 49
6.7. Transfer of Assets; Liquidation.......................... 49
6.8. Acquisitions and Investments............................. 49
6.9. Payments to Affiliates................................... 50
6.10. Use of Proceeds.......................................... 50
SECTION 7 - ADDITIONAL COLLATERAL AND RIGHT OF SET-OFF...................... 51
7.1. Additional Collateral.................................... 51
7.2. Right of Set-off......................................... 51
SECTION 8 - DEFAULT......................................................... 51
-ii-
<PAGE>
Page
----
8.1. Events of Default.......... 51
8.2. Remedies 54
SECTION 9 - AGENCY PROVISIONS 55
9.1. Application of Payments.... 55
9.2. Set-Off 55
9.3. Modifications and Waivers.. 55
9.4. Obligations Several........ 56
9.5. Banks' Representations..... 56
9.6. Investigation.............. 56
9.7. Powers of Agent............ 56
9.8. General Duties of Agent, Immunity and
Indemnity.................. 56
9.9. No Responsibility for Representations or
Validity, etc.............. 56
9.10. Action on Instruction of Banks; Right to
Indemnity.................. 57
9.11. Employment of Agents....... 57
9.12. Reliance on Documents...... 57
9.13. Agent's Rights as a Bank... 57
9.14. Expenses................... 57
9.15. Resignation of Agent....... 58
9.16. Successor Agent............ 58
9.17. Collateral Security........ 58
9.18. Enforcement by Agent....... 58
SECTION 10 - MISCELLANEOUS 58
10.1. Indemnification and Release Provisions......... 58
10.2. Participations and Assignments................ 59
10.3. Binding and Governing Law.. 60
10.4. Survival................... 60
10.5. No Waiver; Delay........... 60
10.6. Modification............... 60
10.7. Headings................... 60
10.8. Notices.................... 60
10.9. Payment on Non-Business Days....................... 61
10.10. Time of Day................ 61
10.11. Severability............... 61
10.12. Counterparts............... 61
10.13. Consent to Jurisdiction and Service of Process..... 61
10.14. WAIVER OF JURY TRIAL....... 62
10.15. ACKNOWLEDGEMENTS........... 62
-iii-
<PAGE>
LIST OF EXHIBITS
Exhibit A: Advance Request Forms
A-1: Revolving Loan Advances
A-2: Acquisition Loan Advances
Exhibit B: Letter of Credit Forms
B-1: Request Form
B-2: Application
Exhibit C: Form of Notes
C-1: Revolving Note
C-2: Acquisition Note
Exhibit D: Form of Seller Subordination Agreement
Exhibit E: Form of Adjustment Request
Exhibit F: Disclosure Pursuant to Representations and Warranties
Exhibit G: Funding Costs and Loss of Earnings Calculation
Exhibit H: Form of Compliance Certificate
Exhibit I: Form of Permitted Acquisition Report
-iv-
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement")
is made this 22nd day of August, 1996, by and among HOME HEALTH CORPORATION OF
DELAWARE, INC., a Delaware corporation ("Borrower"); CORESTATES BANK, N.A., a
national banking association ("CoreStates") and the other banks identified on
Schedule 1 attached hereto (each individually a "Bank" and individually and
collectively, "Banks"); and CoreStates as agent for the Banks ("Agent").
BACKGROUND
----------
A. Borrower, Home Health Corporation of America, Inc., a Pennsylvania
corporation ("Parent"), and the other subsidiaries of Parent (collectively, with
Borrower and Parent, the "Existing Borrowers") are parties with CoreStates to
that certain Amended and Restated Credit Agreement dated March 3, 1995, as
amended (the "Existing Credit Agreement"); and
B. Existing Borrowers have requested, and CoreStates and the other Banks
have agreed, to amend and restate the Existing Credit Agreement to make Borrower
the borrower hereunder, and the other Existing Borrowers to be guarantors of the
Loan (defined below), to increase the aggregate availability under the Loan to
Fifty Million Dollars ($50,000,000), to add the Banks in addition to CoreStates,
and in certain additional respects, all on the terms and conditions as set forth
herein.
In consideration of the foregoing background and the promises and the
agreements hereinafter set forth, and intending to be legally bound hereby, the
parties hereto amend and restate the Existing Credit Agreement in its entirety
as follows:
SECTION 1
DEFINITIONS
-----------
1.1. Definitions. When used in this Agreement, the following terms
-----------
shall have the respective meanings set forth below.
"Acquisition Commitment" means the aggregate principal amount which
----------------------
Banks have agreed to make available under Paragraph 2.1(b) hereof, being Thirty
Million Dollars ($30,000,000) on the date hereof, subject to adjustment from
time to time in accordance with Paragraphs 2.1(c) and 2.8 hereof.
"Acquisition Commitment Termination Date" means the earlier of (i)
---------------------------------------
August 22, 1999 or (ii) the date on which the Acquisition Commitment is
terminated pursuant to Paragraph 2.8 hereof.
<PAGE>
"Acquisition Loan" means the outstanding principal balance of Advances
----------------
under the Acquisition Commitment, together with interest accrued thereon and
fees and expenses incurred in connection therewith.
"Acquisition Notes" means the notes in the form of Exhibit C-2
-----------------
attached hereto delivered by Borrower to each Bank, as may be amended, modified,
extended, consolidated or restated from time to time.
"Adjusted EBITDA" shall mean EBITDA for the immediately preceding two
---------------
(2) fiscal quarters for Parent and its consolidated Subsidiaries, multiplied by
two (2), provided, that in the event that any Permitted Acquisition has been
consummated during such two-quarter period and Borrower has delivered to Agent
pro forma historical financial statements for such two (2) fiscal quarters in
form and substance satisfactory to Required Banks, then for purposes of
calculating Adjusted EBITDA hereunder, EBITDA for such two (2) fiscal quarters
shall be calculated for Parent and its consolidated Subsidiaries including such
Permitted Acquisition, based on such pro forma historical financial statements.
"Adjusted EBITDAR" shall mean EBITDAR for the immediately preceding
----------------
two (2) fiscal quarters for Parent and its consolidated Subsidiaries, multiplied
by two (2), provided, that in the event that any Permitted Acquisition has been
consummated during such two-quarter period and Borrower has delivered to Agent
pro forma historical financial statements for such two (2) fiscal quarters in
form and substance satisfactory to Required Banks, then for purposes of
calculating Adjusted EBITDAR hereunder, EBITDAR for such two (2) fiscal quarters
shall be calculated for Parent and its consolidated Subsidiaries including such
Permitted Acquisition based on such pro forma historical financial statements.
"Adjusted Fixed Charges" means Fixed Charges for the immediately
----------------------
preceding two (2) fiscal quarters for Parent and its consolidated Subsidiaries,
multiplied by two (2), provided, that in the event that any Permitted
Acquisition has been consummated during such two-quarter period and Borrower has
delivered to Agent pro forma historical financial statements for such two (2)
fiscal quarters in form and substance satisfactory to Required Banks, then for
purposes of calculating Adjusted Fixed Charges hereunder, Fixed Charges for such
two (2) fiscal quarters shall be calculated for Parent and its consolidated
Subsidiaries including such Permitted Acquisition based on such pro forma
historical financial statements.
"Advance" means a borrowing under the Commitment pursuant to Paragraph
-------
2.7 hereof.
-2-
<PAGE>
"Advance Request Form" means, as applicable, the certificate in the
--------------------
form attached hereto as Exhibit A-1 (in connection with Advances under the
Revolving Commitment) or Exhibit A-2 (in connection with Advances under the
Acquisition Commitment) to be delivered by Borrower to Agent as a condition of
each Advance.
"Affiliate" means as to any party: (i) any person who or entity which
---------
directly or indirectly owns, controls or holds five percent (5%) or more of the
outstanding beneficial interests in such party; (ii) any entity of which five
percent (5%) or more of the outstanding beneficial interest is directly or
indirectly owned, controlled, or held by such party; (iii) any entity which
directly or indirectly is under common control with such party; (iv) any
director or general partner of such party or any Affiliate; or (v) any immediate
family member of any person who is an Affiliate. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of an entity,
whether through the ownership of voting securities, by contract, or otherwise.
"Agent" means CoreStates Bank, N.A., in its capacity as agent for the
-----
Banks hereunder and any successor appointed pursuant to Paragraph 9.15 and 9.16
hereof.
"Agreement" means this Second Amended and Restated Credit Agreement
---------
and all exhibits hereto, as each may be amended, modified, extended,
consolidated or restated from time to time.
"Alpha Subordinated Debt" means the subordinated indebtedness of
-----------------------
Parent and Home Care Medical Supply and Equipment, Inc. to Alpha Home Care
Services, Inc., as further described on Exhibit F attached hereto.
"Bank" means individually, and "Banks" means individually and
---- -----
collectively, the institutions identified on Schedule 1 attached hereto and
their respective successors and assigns so long as any such institution retains
any portion of the Commitment or Loan hereunder.
"Base Rate" means the higher of (a) the Federal Funds Rate plus one
---------
half of one percent (1/2%) per annum or (b) the Prime Rate.
"Borrower" means Home Health Corporation of Delaware, Inc., a Delaware
--------
corporation.
"Business Day" means any day not a Saturday, Sunday or a day on which
------------
banks are required or permitted to be closed under the laws of the Commonwealth
of Pennsylvania.
-3-
<PAGE>
"Capital Expenditure" means an expenditure for any fixed asset having
-------------------
a useful life of more than one (1) year and a cost in excess of Five Hundred
Dollars ($500), or any improvements or additions thereto, including direct or
indirect acquisition of such assets which expenditures are capitalized in
accordance with GAAP; provided, that expenditures for Permitted Acquisitions and
expenditures for equipment held for rental shall not constitute Capital
Expenditures.
"Capital Leases" means capital leases and subleases, as defined in
--------------
Statement 13 of the Financial Accounting Standards Board dated November 1976, as
amended and updated from time to time.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
------
and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, as amended from time to time, and all rules and
regulations promulgated in connection therewith.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time, and regulations with respect thereto in effect from time to time.
"Collateral" means the collateral security afforded to Agent, for the
----------
benefit of Banks, under the Pledge Agreements, the Guaranty, and this Agreement.
"Commitment" means at any time the maximum aggregate principal amount
----------
which Banks have agreed to make available at such time under the Acquisition
Commitment and the Revolving Commitment, being Fifty Million Dollars
($50,000,000) in the aggregate on the date hereof.
"Company" means individually, and "Companies" means individually and
------- ---------
collectively, Borrower and each Guarantor.
"Compliance Certificate" means a certificate in the form of Exhibit H
----------------------
attached hereto delivered by Borrower to Banks pursuant to Paragraph 5.4 or
Paragraph 4.1(f) hereof.
"Current Assets" means, as of any date of determination, all assets of
--------------
Parent and its consolidated Subsidiaries which would, in accordance with GAAP,
be classified as current assets, provided that such term shall not include any
Intangible Assets or restricted cash.
"Current Liabilities" means, as of any date of determination, all
-------------------
liabilities of Parent and its consolidated Subsidiaries (including tax and other
proper accruals) which
-4-
<PAGE>
would, in accordance with GAAP, be classified as current liabilities.
"Dailey Resources Subordinated Debt" means indebtedness of Parent and
----------------------------------
Home Care Medical Supply and Equipment, Inc. to Dailey Resources, Ltd., as
further described on Exhibit F attached hereto.
"Default" means an event, condition or circumstance the occurrence of
-------
which would, with the giving of notice or the passage of time or both,
constitute an Event of Default.
"Delaware Subordinated Debt" means the indebtedness of Borrower to
--------------------------
William Moses, Andra H. Moses, Steven R. Altshuler and Jane E. Altshuler, as
further described on Exhibit F attached hereto.
"Dependable Subordinated Debt" means the subordinated indebtedness of
----------------------------
Parent, All Care Health Services, Inc., Home Health Corporation of America, Inc.
- - St. Petersburg and Home Health Corporation of America, Inc. - Tampa Nursing to
Dependable Home Care, Inc., Dependable Nurses, Inc., Dependable Home Care -
District 6, Inc. and Dependable Nurses - District 6, Inc., as further described
on Exhibit F attached hereto.
"Eastern Shore Acquisition" means the acquisition by one or more of
-------------------------
the Companies of substantially all of the assets of Eastern Shore Private Care,
Inc. and Eastern Shore Health Services, Inc.
"Eastern Shore Subordinated Debt" means indebtedness of one or more of
-------------------------------
the Companies to sellers in the Eastern Shore Acquisition in an original
principal amount not to exceed Six Hundred Thousand Dollars ($600,000),
subordinated pursuant to a Subordination Agreement.
"EBITDA" means, for any period, net income for such period as defined
------
in accordance with GAAP, plus interest paid in cash, original issue discount
paid in cash, taxes, depreciation and amortization, charges related to
extinguishment of debt, and charges associated with Permitted Acquisitions
accounted for as a pooling of interests for such period, in each case as defined
in accordance with GAAP and to the extent each has been deducted in determining
net income.
"EBITDAR" means, for any period, EBITDA for such period plus rental
-------
expense for such period as defined in accordance with GAAP, to the extent
deducted in determining net income for such period.
"Effective Date" means the date that this Agreement becomes effective
--------------
in accordance with Paragraph 4.1 hereof.
-5-
<PAGE>
"Environmental Control Statutes" means any federal, state, county,
------------------------------
regional or local laws governing the control, storage, removal, spill, release
or discharge of Hazardous Substances, including without limitation CERCLA, the
Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery
Act of 1976 and the Hazardous and Solid Waste Amendments of 1984, the Federal
Water Pollution Control Act, as amended by the Clean Water Act of 1976, the
Hazardous Materials Transportation Act, the Emergency Planning and Community
Right to Know Act of 1986, the National Environmental Policy Act of 1975, the
Oil Pollution Act of 1990, any similar or implementing state law, and in each
case including all amendments thereto and all rules and regulations promulgated
thereunder and permits issued in connection therewith.
"EPA" means the United States Environmental Protection Agency, or any
---
successor thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, all
-----
amendments thereto and all rules and regulations in effect at any time
thereunder.
"ERISA Affiliate" means, when used with respect to any Plan, ERISA,
---------------
the PBGC or a provision of the Code pertaining to employee benefit plans, any
person or entity that is a member of any group or organization within the
meaning of Code Sections 414(b), (c), (m) or (o) of which Borrower or any
Guarantor is a member.
"Event of Default" means an event described in Paragraph 8.1 hereof.
----------------
"Existing Credit Agreement" means the Amended and Restated Credit
-------------------------
Agreement dated March 3, 1995 among CoreStates and the Companies, as amended.
"Existing Seller Debt" means (i) indebtedness of certain Companies to
--------------------
Healthcare Professionals, Inc., RHS Home Care, Inc. and Respiratory Specialties,
Inc., and (ii) the Mobilsonix Debt, each as further described on Exhibit F
attached hereto.
"Existing Subordinated Debt" means the Delaware Subordinated Debt, the
--------------------------
Alpha Subordinated Debt, the Tampa Subordinated Debt, the Dependable
Subordinated Debt, the Dailey Resources Subordinated Debt, and the Home Infusion
Subordinated Debt.
"Federal Funds Rate" means, for any day, the effective rate of
------------------
interest for such day, as announced from time to time by the Board of Governors
of the Federal Reserve System as shown in publication H.15 as the "Federal Funds
Rate."
-6-
<PAGE>
"First Union Debt" means the indebtedness of certain of the Companies
----------------
to First Union National Bank of Florida assumed in connection with a prior
acquisition and outstanding in the date hereof, as further described on Exhibit
F attached hereto.
"Fixed Charge Coverage Ratio" means, as of the last day of a fiscal
---------------------------
quarter, the ratio of: (a) Adjusted EBITDAR, to (b) Adjusted Fixed Charges.
"Fixed Charges" means, for any period, the sum of principal, interest
-------------
and original issue discount paid on Funded Debt (including payments on Capital
Leases), income taxes paid, Capital Expenditures, and the amount paid for rental
expense for such period, in each case without duplication and as defined in
accordance with GAAP.
"Funded Debt" means, as of the date of determination, the sum of (i)
-----------
the aggregate amount available to be drawn under outstanding Letters of Credit
and the aggregate amount of all unreimbursed draws under Letters of Credit, plus
(ii) the aggregate outstanding principal amount of all Indebtedness for:
(A) borrowed money (other than trade Indebtedness incurred in the
normal and ordinary course of business for value received);
(B) the purchase price for installment purchases of real or
personal property;
(C) the principal portion of Capital Leases; and
(D) guaranties of Funded Debt of others;
in each case without duplication.
"GAAP" means generally accepted accounting principles set forth in the
----
Opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and in statements of the Financial Accounting
Standards Board and in such other statements by such other entity as Agent may
reasonably approve, which are applicable in the circumstances as of the date in
question; and such principles observed in a current period shall be comparable
in all material respects to those applied in a preceding period.
"Guarantor" means individually, and "Guarantors" means individually
--------- ----------
and collectively, Parent and each Subsidiary of Parent other than Borrower and
Inactive Subsidiaries, including any future Subsidiaries of Parent which may
join in the Guaranty pursuant to Paragraph 5.19 hereof.
-7-
<PAGE>
"Guaranty" means the Guaranty Agreement by Guarantors in favor of
--------
Banks, as may be amended, modified or restated from time to time.
"Hazardous Substance" means petroleum products and items defined in
-------------------
the Environmental Control Statutes as "hazardous substances", "hazardous
wastes", "pollutants" or "contaminants" and any other toxic, reactive,
corrosive, carcinogenic, flammable or hazardous substance or other pollutant.
"Home Infusion Acquisition" means the acquisition by one or more of
-------------------------
the Companies of substantially all of the assets of National Home Infusion, Inc.
"Home Infusion Subordinated Debt" means indebtedness of Parent and
-------------------------------
Nutritional Home Health Service, Inc. to National Home Infusion, Inc., as
further described on Exhibit F attached hereto.
"Inactive Subsidiary" means a Subsidiary of Parent so designated by
-------------------
Parent to the Banks pursuant to Exhibit F hereof on the date hereof.
"Indebtedness" of any person means and includes all obligations of
------------
such person which, in accordance with GAAP, shall be classified on a balance
sheet of such person as liabilities of such person and in any event shall
include, without duplication, all (i) obligations of such person for borrowed
money or which have been incurred in connection with acquisition of property or
assets, (ii) obligations secured by any lien upon property or assets owned by
such person, notwithstanding that such person has not assumed or become liable
for the payment of such obligations, (iii) obligations created or arising under
any conditional sale or other title retention agreement with respect to property
acquired by such person, notwithstanding the fact that the rights and remedies
of the seller, lender or lessor under such agreement in the event of default are
limited to repossession or sale of property, (iv) Capital Leases, (v) guarantees
and (vi) letters of credit and letter of credit reimbursement obligations.
"Letter of Credit" shall mean individually, and "Letters of Credit"
---------------- -----------------
shall mean individually and collectively, the letter(s) of credit in the form
agreed upon at the time of issuance thereof participated in by all the Banks
pursuant to the terms and conditions of Section Two-A hereof.
"Letter of Credit Request Form" shall mean the certificate in the form
-----------------------------
attached as Exhibit B-1 to be delivered by Borrower to Agent as a condition of
each issuance of a Letter of Credit pursuant to Paragraph 2A.3 hereof.
-8-
<PAGE>
"Letter of Credit Sublimit" shall mean the portion of the Revolving
-------------------------
Commitment up to which Banks have agreed to participate in the issuance by Agent
of Letters of Credit pursuant to Section Two-A hereof, being on the date hereof
Ten Million Dollars ($10,000,000).
"Loan" means the aggregate outstanding principal balance of
----
Indebtedness advanced under the Acquisition Commitment and the Revolving
Commitment, and without duplication the amount available to be drawn under all
Letters of Credit and the amount of all unreimbursed draws under Letters of
Credit, together with interest accrued thereon and fees and expenses incurred in
connection with any of the foregoing.
"Loan Documents" means the Agreement, the Note, the Pledge Agreements,
--------------
the Guaranty, the Subordination Agreements and the other documents and
agreements executed and delivered in connection with this Agreement.
"Local Authorities" means individually and collectively the state and
-----------------
local governmental authorities and administrative agencies which govern the
business, commercial activities or facilities owned or operated by any Company.
"Material Adverse Effect" means a material adverse effect on the
-----------------------
business, financial condition or prospects of the Parent and its consolidated
Subsidiaries taken as a whole as a result of any condition, circumstance or
contingency; provided, however, that a change (or proposed change) in laws or
regulations affecting the home health care business or related industries
generally, in and of itself, shall not be deemed to constitute a material
adverse effect on the business or prospects of Parent and its consolidated
Subsidiaries in the absence of a material adverse effect on the financial
condition or results of operations of Parent and its consolidated Subsidiaries.
"Maximum Principal Amount" means the maximum principal amount of the
------------------------
Commitment, and the Revolving Commitment and Acquisition Commitment thereunder,
as applicable, up to which the applicable Bank has agreed to lend funds and/or
participate in the issuance of Letters of Credit, as set forth in Schedule 1
attached hereto, as such amounts may be reduced or terminated from time to time
pursuant to Paragraph 2.8 hereof.
"Medical Express Acquisition" means the acquisition by one or more of
---------------------------
the Companies of substantially all of the assets of Medical Express, Inc.
"Medical Express Subordinated Debt" means indebtedness of one or more
---------------------------------
of the Companies to sellers in the Medical Express Acquisition in an original
principal amount not to exceed One
-9-
<PAGE>
Million Dollars ($1,000,000), subordinated pursuant to a Subordination
Agreement.
"Mobilsonix Debt" means the indebtedness of Parent and Home Health
---------------
Corporation of America, Inc. - Tampa Diagnostic Services to Mobilsonix, Inc., as
further described on Exhibit F attached hereto.
"Net Worth" means Total Assets less Total Liabilities.
---------
"Note" means individually and "Notes" means individually and
---- -----
collectively the Acquisition Notes and the Revolving Notes.
"Parent" means Home Health Corporation of America, Inc., a
------
Pennsylvania corporation.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
----
successor thereto.
"Permitted Acquisitions" means (i) the Eastern Shore Acquisition, the
----------------------
Medical Express Acquisition and the Total Care Acquisition; (ii) any acquisition
in which the acquisition target is operating solely in the United States of
America and is engaged in the same or a substantially similar business as the
Companies provided that (A) the aggregate consideration payable by the
applicable Companies (including deferred or contingent obligations accounted for
as liabilities in accordance with GAAP) does not exceed Five Million Dollars
($5,000,000) in any one acquisition or Twenty Million Dollars ($20,000,000) in
the aggregate for all acquisitions consummated pursuant to this clause (ii) in
any fiscal year and (B) not more than twenty-five percent (25%) of the
acquisition price shall be used for the acquisition of real property in such
acquisition; provided further that the Acquisitions described in clause (i)
shall not be included in calculating the foregoing tests; and (iii) any other
acquisition by a Company which is approved in writing by Required Banks.
"Permitted Investments" means (i) investments in commercial paper
---------------------
maturing in 180 days or less from the date of issuance which is rated A1 or
better by Standard & Poor's Corporation or P1 or better by Moody's Investors
Services, Inc.; (ii) investments in direct obligations of the United States of
America or obligations of any agency thereof which are guaranteed by the United
States of America, provided that such obligations mature within twelve (12)
months of the date of acquisition thereof; and (iii) investments in certificates
of deposit maturing within one (1) year from the date of acquisition thereof
issued by a bank or trust company organized under the laws of the United States
or any state thereof, having capital, surplus and undivided profits aggregating
at least $500,000,000 and the long-term deposits of which are rated A1 or better
by Moody's
-10-
<PAGE>
Investors Services, Inc. or equivalent by Standard & Poor's Corporation.
"Plan" means any employee pension benefit or employee welfare benefit
----
plan as defined in Sections 3(1) or (2) of ERISA maintained or sponsored by,
contributed to, or covering employees of, either Borrower or any ERISA
Affiliate.
"Pledge Agreements" means the pledges by Parent and Borrower of all of
-----------------
the issued and outstanding capital stock of each of their respective
Subsidiaries, required to be delivered pursuant to Paragraph 4.1 hereof, and any
additional pledge delivered pursuant to Paragraph 5.19 hereof, each as may be
amended, modified or restated from time to time.
"Prime Rate" means the rate of interest announced by Agent from time
----------
to time as its prime rate.
"Pro Rata Share" shall mean, as to a Bank, the ratio which the
--------------
outstanding principal balance of its portion of the Loan hereunder bears to the
aggregate outstanding principal balance of the Loan at any time; or if no
indebtedness is outstanding hereunder, its percentage share of the Commitment as
set forth in Schedule 1 attached hereto; in each case, either in the aggregate
or as to the Revolving Loan or the Acquisition Loan, as the context shall
specify.
"Release" means any spill, leak, emission, discharge or the pumping,
-------
pouring, emptying, disposing, injecting, escaping, leaching or dumping of a
Hazardous Substance.
"Required Banks" shall mean those Banks (which may include Agent in
--------------
its capacity as a Bank) holding Pro Rata Shares of the Loan aggregating sixty-
six and two-thirds percent (66-2/3%) or more.
"Restricted Payments" means redemptions, repurchases, dividends and
-------------------
distributions of any kind (including redemptions in exchange for real or
tangible personal property held by a Company) in respect of any class of capital
stock of Parent (whether common or preferred, in any class or series) and
payments of principal and interest or other amounts on Subordinated Debt.
"Revolving Commitment" means the maximum aggregate principal amount
--------------------
which Banks have agreed to make available under Paragraph 2.1(a) hereof, being
Twenty Million Dollars ($20,000,000) on the date hereof, subject to adjustment
from time to time in accordance with Paragraphs 2.1(c) and 2.8 hereof.
-11-
<PAGE>
"Revolving Commitment Termination Date" means the earlier of (i)
-------------------------------------
August 22, 1999 or (ii) the date on which the Revolving Commitment is terminated
pursuant to Paragraph 2.8 hereof.
"Revolving Loan" means the outstanding principal balance of Advances
--------------
under the Revolving Commitment, together with interest accrued thereon and fees
and expenses incurred in connection therewith.
"Revolving Notes" means the notes in the form of Exhibit C-1 attached
---------------
hereto delivered by Borrower to each Bank, as it may be amended, modified,
extended or restated from time to time.
"Rolling Period" means a period of four consecutive fiscal quarters.
--------------
"Subordinated Debt" means (i) the Existing Subordinated Debt, (ii) the
-----------------
Eastern Shore Subordinated Debt and the Medical Express Subordinated Debt, and
(iii) additional Indebtedness incurred in favor of sellers in Permitted
Acquisitions evidencing a portion of the purchase price in such Permitted
Acquisitions, in an aggregate principal amount not to exceed Two Million Five
Hundred Thousand Dollars ($2,500,000) in any one transaction or Five Million
Dollars ($5,000,000) for all transactions in any fiscal year, which Indebtedness
has been subordinated to the obligations of the Companies to Banks pursuant to a
Subordination Agreement.
"Subordination Agreement" means individually and "Subordination
----------------------- -------------
Agreements" means individually and collectively (i) the Subordination Agreements
- ----------
in connection with the Existing Subordinated Debt, as confirmed pursuant to the
Confirmations of Subordination Agreement delivered pursuant to Paragraph 4.1
hereof and (ii) the Subordination Agreements delivered from time to time by
sellers in connection with Permitted Acquisitions in favor of Agent on behalf of
Banks pursuant to Paragraph 5.20 hereof, in the form of Exhibit D attached
hereto, with such changes as Required Banks shall approve, as each may be
amended, modified or restated from time to time.
"Subsidiary" means any corporation or partnership of which any
----------
Company, directly or indirectly (including as beneficiary of a business trust),
owns more than fifty percent (50%) of any class or classes of securities or
partnership interests. Unless otherwise specified, references to "Subsidiaries"
herein shall mean direct and indirect Subsidiaries of Parent.
-12-
<PAGE>
"Tampa Subordinated Debt" means the subordinated indebtedness of
-----------------------
Parent and Home Health Corporation of America - Tampa, Inc. to Preferred
Diagnostic & Medical Services, Inc., and Preferred Diagnostic Services, Inc., as
further described on Exhibit F hereto.
"Total Assets" means, at any date of determination, all assets of
------------
Parent and its consolidated Subsidiaries, as defined in accordance with GAAP.
"Total Capitalization" of Parent means, as of any date of
--------------------
determination, the sum of (i) the amounts shown by the books of Parent, in
accordance with GAAP, for issued and outstanding shares of capital stock of
Parent plus additional paid-in capital and retained earnings; (ii) Funded Debt;
and (iii) redeemable common stock of Parent not to exceed One Hundred Thousand
(100,000) shares issued and outstanding on the date hereof.
"Total Care Acquisition" means the merger of Home Health Systems, Inc.
----------------------
with a Subsidiary of Parent.
"Total Liabilities" means, at any date of determination, all
-----------------
liabilities and deferred items of Parent and its consolidated Subsidiaries, as
defined in accordance with GAAP, less obligations to redeem the common stock of
Parent not to exceed One Hundred Thousand (100,000) shares issued and
outstanding on the date hereof.
1.2. Rules of Construction.
---------------------
(a) GAAP. Except as otherwise provided herein, financial and
----
accounting terms used in the foregoing definitions or elsewhere in this
Agreement, shall be defined in accordance with GAAP. If Borrower or Required
Banks determine that a change in GAAP from that in effect on the date hereof has
altered the treatment of certain financial data to its detriment under this
Agreement, such party may, by written notice to the other within ten (10) days
after the effective date of such change in GAAP, request renegotiation of the
financial covenants affected by such change. If Borrower and Banks have not
agreed on revised covenants within thirty (30) days after the delivery of such
notice, then, for purposes of this Agreement, GAAP will mean generally accepted
accounting principles on the date just prior to the date on which the change
occurred that gave rise to the notice.
(b) Use of term "consolidated". Any term defined in Paragraph 1.1
--------------------------
hereof, when modified by the word "consolidated," shall have the meaning given
to such term herein as to Parent and all entities whose accounts, financial
results
-13-
<PAGE>
or position, for financial accounting purposes, are consolidated with
those of Parent in accordance with GAAP.
SECTION 2
CREDIT FACILITIES
-----------------
2.1. The Facilities.
--------------
(a) Revolving Credit Facility. From time to time prior to the
-------------------------
Revolving Commitment Termination Date, subject to the provisions below, each
Bank severally agrees to make Advances to Borrower up to its respective Maximum
Principal Amount with respect to the Revolving Commitment, which Borrower may
repay and reborrow prior to the Revolving Commitment Termination Date, for
purposes specified in Paragraph 2.4(a) hereof; provided, however, that the
aggregate outstanding principal amount of such Advances, together with the
aggregate amount of all outstanding Letters of Credit and all unreimbursed draws
under Letters of Credit, shall not exceed at any time the Revolving Commitment.
(b) Acquisition Facility. From time to time prior to the Acquisition
--------------------
Commitment Termination Date, subject to the provisions below, each Bank
severally agrees to make Advances to Borrower up to its respective Maximum
Principal Amount with respect to the Acquisition Commitment, which Borrower may
repay and reborrow prior to the Acquisition Commitment Termination Date, for
purposes specified in Paragraph 2.4(b) below; provided, however, that the
aggregate outstanding principal amount of such Advances shall not exceed at any
time the Acquisition Commitment.
(c) Adjustments to Commitment Amounts.
---------------------------------
(i) At any time, but not more than four times in any annual period
following the Effective Date, Borrower may request an adjustment in the
respective amounts of the Revolving Commitment and Acquisition Commitment by
sending to Agent an Adjustment Request in the form of Exhibit E attached hereto
in accordance with the terms and conditions of this Paragraph 2.1(c). Agent
shall promptly forward such Adjustment Request to Banks, and provided that such
Adjustment Request conforms to the terms and conditions of this Paragraph 2.1(c)
and there is no Event of Default or Default hereunder Banks shall execute such
Adjustment Request and return it to Agent, for delivery to Borrower. Upon
execution of the Adjustment Request by Banks, this Agreement shall be deemed
amended to adjust the amounts of the Revolving Commitment and Acquisition
Commitment in accordance with such Adjustment Request.
(ii) Any Adjustment Request hereunder shall be subject to the
following terms and conditions:
-14-
<PAGE>
(A) the aggregate amount of the Revolving Commitment and
Acquisition Commitment shall equal the amount of the Commitment as then in
effect;
(B) the aggregate outstanding principal balance of the
Acquisition Loan shall be less than or equal to the Acquisition Commitment as so
adjusted;
(C) the aggregate outstanding principal balance of the
Revolving Loan, together with the aggregate available amount of all outstanding
Letters of Credit and all unreimbursed draws under Letters of Credit shall be
less than or equal to the Revolving Commitment as so adjusted; and
(D) on the effective date of any adjustment the Borrower shall
make any payments which arise pursuant to Paragraph 2.6(g) in connection with
such Adjustment Request.
(d) Amendment and Restatement. This Agreement amends and restates,
-------------------------
replaces and supersedes the Existing Credit Agreement; provided, that the
execution and delivery of this Agreement shall not in any circumstance be deemed
to have terminated, extinguished or discharged the Companies' Indebtedness under
the Existing Credit Agreement, all of which Indebtedness and the Collateral
therefor (except as released pursuant to Paragraph 4.1(k) hereof) shall continue
under and be governed by this Agreement and the other Loan Documents. This
Agreement is NOT A NOVATION. Nothing herein is intended to modify or in any way
affect the priority of the Collateral which secures the Loan (except as
expressly provided in this Agreement).
2.2. Promissory Notes. The Indebtedness of the Borrower to each Bank
----------------
under the Revolving Loan will be evidenced by a Revolving Note executed by
Borrower in favor of such Bank, and the Indebtedness of Borrower to each Bank
under the Acquisition Loan will be evidenced by an Acquisition Note executed by
Borrower in favor of such Bank. The original principal amount of each Bank's
Revolving Note and Acquisition Note will each be in the amount identified in
Schedule 1 attached hereto as its Total Maximum Principal Amount; provided,
however, that notwithstanding the face amount of each such Revolving Note and
Acquisition Note, Borrower's liability thereunder shall be limited at all times
to the actual indebtedness, principal, interest, fees and expenses then
outstanding to such Bank under the Revolving Loan and the Acquisition Loan,
respectively.
The Revolving Notes shall collectively replace and supersede the Fifth
Amended and Restated Revolving Note dated April 24, 1996 by the Companies in
favor of CoreStates (the "Existing Revolving Note"), provided, that the
execution and
-15-
<PAGE>
delivery of such Revolving Notes shall not in any circumstance be deemed to have
terminated, extinguished or discharged the Companies' Indebtedness under the
Existing Revolving Note, all of which Indebtedness and the Collateral therefor
(except as released pursuant to Paragraph 4.1(k) hereof) shall continue under
and be governed by the Revolving Notes, this Agreement and the other Loan
Documents. The Revolving Notes collectively are a replacement, consolidation,
amendment and restatement of the Existing Revolving Note and are NOT A NOVATION.
Nothing herein is intended to modify or in any way affect the priority of the
Collateral which secures the Revolving Loan (except as expressly provided in
this Agreement).
The Acquisition Notes shall collectively replace and supersede the
Acquisition Note dated April 24, 1996 by the Companies in favor of CoreStates
(the "Existing Acquisition Note"), provided, that the execution and delivery of
such Acquisition Notes shall not in any circumstances be deemed to have
terminated, extinguished or discharged the Companies' Indebtedness under the
Existing Acquisition Note, all of which Indebtedness and the Collateral therefor
(except as released pursuant to Paragraph 4.1(k) hereof) shall continue under
and be governed by the Acquisition Notes, this Agreement and the other Loan
Documents. The Acquisition Notes collectively are a replacement, consolidation,
amendment and restatement of the Existing Acquisition Note and are NOT A
NOVATION. Nothing herein is intended to modify or in any way affect the
priority of the Collateral which secures the Acquisition Loan (except as
expressly provided in this Agreement).
2.3. Banks' Participation. Banks shall be lenders in the Revolving
--------------------
Loan and Acquisition Loan in the Maximum Principal Amounts and Pro Rata Shares
set forth in Schedule 1 attached hereto.
2.4. Use of Proceeds.
---------------
(a) Funds advanced under the Revolving Loan shall be used solely (i)
to refinance indebtedness under the Revolving Loan under the Existing Credit
Agreement, (ii) for reimbursement of draws under Letters of Credit in accordance
with Section Two-A hereof, and (iii) for the working capital needs of the
Companies. Upon the satisfaction of the conditions set forth in Paragraph 4.1
hereof, all Indebtedness of the Companies outstanding under the Revolving Loan
under the Existing Credit Agreement shall be governed by and remain outstanding
under the Revolving Loan hereunder and be evidenced by the Revolving Notes.
(b) Funds advanced under the Acquisition Loan shall be used solely (i)
to fund the purchase price and costs payable by a Company in connection with
Permitted Acquisitions and (ii) to refinance indebtedness under the Acquisition
Loan
-16-
<PAGE>
under the Existing Credit Agreement. Upon the satisfaction of the conditions set
forth in Paragraph 4.1 hereof, all Indebtedness of the Companies under the
Acquisition Loan under the Existing Credit Agreement shall be governed by and
remain outstanding under the Acquisition Loan hereunder and be evidenced by the
Acquisition Notes.
2.5. Repayment.
---------
(a) Revolving Loan. The aggregate outstanding principal balance under
--------------
the Revolving Loan on the Revolving Commitment Termination Date, together with
all interest, fees and costs due hereunder, shall be due and payable in full on
the Revolving Commitment Termination Date. Notwithstanding the immediately
preceding sentence, the aggregate outstanding balance of the Revolving Note
shall be due and payable immediately upon acceleration of the Revolving Loan in
accordance with Paragraph 8.2 hereof.
(b) Acquisition Loan. The aggregate outstanding principal balance
----------------
under the Acquisition Loan on the Acquisition Commitment Termination Date shall
be immediately due and payable on the Acquisition Commitment Termination Date.
Notwithstanding the immediately preceding sentence, the aggregate outstanding
balance of the Acquisition Loan shall be due and payable immediately upon
acceleration of the Acquisition Loan in accordance with Paragraph 8.2 hereof.
2.6. Interest. Portions of the Loan shall bear interest on the
--------
outstanding principal amount thereof in accordance with the following
provisions:
(a) Definitions. As used in this Paragraph 2.6, the following words
-----------
and terms shall have the meanings specified below:
"Adjusted Libor Rate" shall mean, for any Interest Period, as applied
-------------------
to a Portion, the rate per annum (rounded upwards, if necessary to the next 1/16
of 1%) determined pursuant to the following formula:
Libor Rate
Adjusted Libor Rate = ------------------------
[1 - Reserve Percentage]
For purposes hereof, "Libor Rate" shall mean, as applied to a Portion, the rate
which appears on the Telerate Page 3750 at approximately 9:00 a.m. Philadelphia
time two London Business Days prior to the commencement of such Interest Period
for the offering to leading banks in the London Interbank Market of deposits in
United States dollars ("Eurodollars") or, if such rate does not appear on the
Telerate page 3750, the rate which appears (or, if two or more such rates
appear, the average
-17-
<PAGE>
rounded up to the nearest 1/16 of 1% of the rates which appear) on the Reuters
Screen LIBO Page as of 9:00 a.m. Philadelphia time two London Business Days
prior to the commencement of the Interest Period, in either case for an amount
substantially equal to such Portion as to which Borrower may elect the Adjusted
Libor Rate to be applicable with a maturity of comparable duration to the
Interest Period selected by Borrower for such Portion, as may be adjusted from
time to time in accordance with Paragraph 2.6(f) hereof.
"Applicable Margin" means the percentage per annum set forth in the
-----------------
appropriate column below that corresponds to the ratio of Funded Debt to
Adjusted EBITDA for Parent and its Consolidated Subsidiaries (the Applicable
Margin being the lowest applicable percentage per annum as to which the ratio
requirement has been attained):
<TABLE>
<CAPTION>
Applicable Margin
---------------------
Ratio of Funded Base Rate Libor
Debt to Adjusted EBITDA Portions Portions
- ------------------------- ---------- ---------
<S> <C> <C>
less than 1.0 to 1 0.00% 0.75%
less than 1.5 to 1 0.00% 1.00%
but greater than or
equal to 1.0 to 1
less than 2.0 to 1 0.00% 1.50%
but greater than or
equal to 1.5 to 1
greater than or 0.50% 2.00%
equal to 2.0 to 1
</TABLE>
The initial Applicable Margin shall be based on the initial Compliance
Certificate delivered pursuant to Paragraph 4.1 hereof; thereafter the
Applicable Margin shall adjust automatically, as appropriate, on the day
following delivery of a quarterly Compliance Certificate in accordance with
Paragraph 5.4 hereof, provided, that in the event that a quarterly compliance
certificate has not been delivered within ten (10) days of the date required by
Paragraph 5.4 then the Applicable Margin shall adjust to the highest margin
provided above as of the date of required delivery; provided further, however,
that the Applicable Margin shall readjust on the day after delivery of such
delinquent Compliance Certificate based on the ratio set forth in such
Compliance Certificate.
"Interest Period" shall mean, with respect to the Adjusted Libor Rate,
---------------
a period of one (1), two (2), three (3) or six (6) months' duration, as Borrower
may elect, during which the
-18-
<PAGE>
Adjusted Libor Rate is applicable; provided, however, that (a) if any Interest
Period would otherwise end on a day which shall not be a London Business Day,
such Interest Period shall be extended to the next succeeding London Business
Day, unless such London Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding London Business Day,
subject to clause (c) below; (b) interest shall accrue from and including the
first day of each Interest Period to, but excluding, the day on which any
Interest period expires; and (c) with respect to an Interest Period which begins
on the last London Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of such
Interest Period), the Interest Period shall end on the last London Business Day
of a calendar month.
"London Business Day" shall mean any Business Day on which banks in
-------------------
London, England are open for business.
"Portion" shall mean a portion of the Loan as to which a specific
-------
interest rate and, in the case of a Portion bearing interest based upon the
Adjusted Libor Rate, an Interest Period, has been elected by Borrower.
"Regulation D" shall mean Regulation D of the Board of Governors of
------------
the Federal Reserve System, comprising Part 204 of Title 12 Code of Federal
Regulations, as amended, and any successor thereto.
"Reserve" shall mean, for any day, that reserve (expressed as a
-------
decimal) which is in effect (whether or not actually incurred) with respect to a
Bank (or any bank Affiliate of such Bank) on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor or any other
banking authority to which a Bank (or any bank Affiliate of such Bank) is
subject including any board or governmental or administrative agency of the
United States or any other jurisdiction to which a Bank (or any bank Affiliate
of such Bank) is subject) for determining the maximum reserve requirement
(including without limitation any basic, supplemental, marginal or emergency
reserves) for Eurocurrency liabilities as defined in Regulation D.
"Reserve Percentage" shall mean, for a Bank (or any bank Affiliate of
------------------
such Bank) on any day, that percentage (expressed as a decimal) prescribed by
the Board of Governors of the Federal Reserve System (or any successor or any
other banking authority to which a Bank (or any bank Affiliate of such Bank) is
subject, including any board or governmental or administrative agency of the
United States or any other jurisdiction to which a Bank is subject), for
determining the reserve requirement (including without limitation any basic,
supplemental, marginal or emergency reserves) for (i) deposits of United States
Dollars
-19-
<PAGE>
or (ii) Eurocurrency liabilities as defined in Regulation D, in each case used
to fund a Portion subject to an Adjusted Libor Rate or any Loan made with the
proceeds of such deposit. The Adjusted Libor Rate shall be adjusted on and as of
the effective day of any change in the Reserve Percentage.
(b) Interest on Loan.
----------------
(i) At the Borrower's election in accordance with the provisions of
Paragraph 2.6(c) below, in the absence of an Event of Default hereunder and
prior to maturity or judgment, and subject to clause (ii) below, any Portion of
the Loan shall bear interest at either of the following rates:
(A) Base Rate. The Base Rate plus the Applicable Margin.
---------
(B) Adjusted Libor Rate. The Adjusted Libor Rate plus the
-------------------
Applicable Margin.
(ii) Notwithstanding the foregoing, upon the occurrence and during
the continuance of an Event of Default hereunder, including after maturity and
upon judgment, Borrower hereby agrees to pay to Banks interest (A) on any
outstanding Libor Portion, at the rate which is two percent (2.0%) per annum in
excess of the Adjusted Libor Rate plus the Applicable Margin for each such
Portion through the end of the applicable Interest Period, and thereafter, at
the rate of two percent (2%) per annum in excess of the Base Rate plus the
Applicable Margin, and (B) on any Portion bearing interest based on the Base
Rate, at the rate of two percent (2%) per annum in excess of the Base Rate plus
the Applicable Margin.
(iii) Prior to the Effective Date, Borrower shall select the interest
rates and Interest Periods as provided in this Paragraph 2.6 which will apply to
all outstanding balances under the Existing Credit Agreement from and after the
Effective Date, as provided in Paragraph 4.1(f) hereof; and Borrower shall pay
to CoreStates on the Effective Date all accrued and unpaid interest to and
including the Effective Date in accordance with the Existing Credit Agreement
together with all funding costs and loss of earnings associated with the
termination of outstanding Libor Portions as of the Effective Date, calculated
in accordance with the Existing Agreement.
(c) Procedure for Determining Interest Periods and Rates of Interest.
----------------------------------------------------------------
(i) If Borrower elects the rate based on the Base Rate to be
applicable to a Portion, Borrower must notify Agent of such election in writing
prior to eleven o'clock (11:00) a.m. Philadelphia time one (1) Business Day
prior to the proposed
-20-
<PAGE>
application of such rate. If Borrower elects the rate based on the Adjusted
Libor Rate to be applicable to a Portion, Borrower must notify Agent of such
election and the Interest Period selected prior to eleven o'clock (11:00) a.m.
Philadelphia time at least three (3) London Business Days prior to the
commencement of the proposed Interest Period. If Borrower does not provide
notice for the rate based on the Adjusted Libor Rate, then Borrower shall be
deemed to have requested that the rate based on the Base Rate shall apply to any
Portion as to which the Interest Period is expiring and to any new Advance of
the Loan until Borrower shall have given proper notice of a change in or
determination of the rate of interest in accordance with this Paragraph 2.6(c).
(ii) Borrower shall not elect more than five (5) different Libor
Portions to be applicable to the Loan at one time, and any Libor Portion shall
be in an amount equal to One Million Dollars ($1,000,000) or an even multiple of
Two Hundred Fifty Thousand Dollars ($250,000) in excess thereof.
(d) Payment and Calculation of Interest. With respect to Portions
-----------------------------------
which bear interest at the rate based on the Adjusted Libor Rate, interest shall
be due and payable on the last day of each Interest Period for each such
Portion, and, in the case of a Libor Portion with an Interest Period of six (6)
months, on the ninetieth (90) day after the commencement of such Interest Period
and on the last day of the Interest Period. With respect to Portions which bear
interest at the rate based on the Base Rate, interest shall be due and payable
on the last Business Day of each month commencing on the first such date after
the first Advance which bears interest at the rate based on the Base Rate.
Interest shall be calculated in accordance with the provisions of Paragraph
2.6(b) hereof; all interest shall be calculated on the basis of the actual
number of days elapsed over a year of three hundred sixty (360) days.
(e) Reserves. If at any time when a Portion is subject to the rate
--------
based on the Adjusted Libor Rate, a Bank (or a bank Affiliate of such Bank) is
subject to and incurs a Reserve, other than a Reserve Percentage provided in the
calculation of the applicable Adjusted Libor Rate, Borrower hereby agrees to pay
within five (5) Business Days of demand thereof from time to time, as billed by
Agent on behalf of itself or any other Bank, such additional amount as is
necessary to reimburse such Bank (or such Bank's bank Affiliate) for its costs
in maintaining such Reserve. Such amount shall be computed by taking into
account the cost incurred by such Bank (or such Bank's bank Affiliate) in
maintaining such Reserve in an amount equal to such Bank's ratable share of the
Portion on which such Reserve is incurred, which computation shall be set forth
in any such demand by Agent on behalf of itself or any other Bank. The
determination by Agent or any Bank of such costs incurred and the
-21-
<PAGE>
allocation of such costs among Borrower and other customers which have similar
arrangements with such Bank (or such Bank's bank Affiliate) shall be prima facie
evidence of the correctness of the fact and the amount of such additional costs,
if calculated in a manner consistent with similar charges made by such Bank (or
such Bank's Affiliates) to its other customers having similar arrangements with
such Bank. Each Bank acknowledges that on the date of this Agreement it is not
subject to any Reserve. Upon notification to Borrower of any payment required
pursuant to this Paragraph 2.6(e), Borrower (A) shall make such payment in
accordance with the provisions hereof and (B) may repay the Portion of the Loan
with respect to which such payment is required, subject to the requirements of
Paragraph 2.9 and 2.6(g) hereof.
(f) Special Provisions Applicable to Adjusted Libor Rate. The
----------------------------------------------------
following special provisions shall apply to the Adjusted Libor Rate:
(i) Change of Adjusted Libor Rate. The Adjusted Libor Rate may be
-----------------------------
automatically adjusted by Agent on a prospective basis to take into account the
additional or increased cost of maintaining any necessary reserves for
Eurodollar deposits or increased costs due to changes in applicable law or
regulation or the interpretation thereof occurring subsequent to the
commencement of the then applicable Interest Period, including but not limited
to changes in tax laws (except changes of general applicability in corporate
income tax laws) and changes in the reserve requirements imposed by the Board of
Governors of the Federal Reserve System (or any successor), excluding the
Reserve Percentage and any Reserve which has resulted in a payment pursuant to
subparagraph (e) above, that increase the cost to Banks of funding the Loan or a
portion thereof bearing interest based on the Adjusted Libor Rate. Agent shall
give Borrower notice of such a determination and adjustment, which determination
shall be prima facie evidence of the correctness of the fact and the amount of
such adjustment. Borrower may, by notice to Agent, (A) request Agent to furnish
to Borrower a statement setting forth the basis for adjusting such Adjusted
Libor Rate and the method for determining the amount of such adjustment; and/or
(B) repay the Portion of the Loan with respect to which such adjustment is made,
subject to the requirements of Paragraph 2.9 and 2.6(g) hereof.
(ii) Unavailability of Eurodollar Funds. In the event that Borrower
----------------------------------
shall have requested the rate based on the Adjusted Libor Rate in accordance
with Paragraph 2.6(c) and any Bank (or such Bank's bank Affiliate) shall have
reasonably determined that Eurodollar deposits equal to the amount of the
principal of the Portion and for the Interest Period specified are unavailable,
or that the rate based on the Adjusted Libor Rate will not adequately and fairly
reflect the cost of making or
-22-
<PAGE>
maintaining the principal amount of the Portion specified by Borrower during the
Interest Period specified, or that by reason of circumstances affecting
Eurodollar markets, adequate and reasonable means do not exist for ascertaining
the rate based on the Adjusted Libor Rate applicable to the specified Interest
Period, such Bank shall give notice to Agent and Agent shall promptly give
notice of such determination to Borrower that the rate based on the Adjusted
Libor Rate is not available. A determination by such Bank (or such Bank's bank
Affiliate) hereunder shall be prima facie evidence of the correctness of the
fact and amount of such additional costs or unavailability. Upon such a
determination, (i) the obligation to advance or maintain Portions at the rate
based on the Adjusted Libor Rate shall be suspended until Agent shall have
notified Borrower and Banks that such conditions shall have ceased to exist, and
(ii) the rate based on the Base Rate shall be applicable to all such Portions.
(iii) Illegality. In the event that it becomes unlawful for
----------
a Bank (or such Bank's bank Affiliate) to maintain Eurodollar liabilities
sufficient to fund any Portion of the Loan subject to the rate based on the
Adjusted Libor Rate, then such Bank shall immediately notify Borrower thereof
(with a copy to Agent) and such Bank's obligations hereunder to advance or
maintain advances at the rate based on the Adjusted Libor Rate shall be
suspended until such time as such Bank (or such Bank's bank Affiliate) may again
cause the rate based on the Adjusted Libor Rate to be applicable to any Portion
of the outstanding principal balance of the Loan and any such Bank's share of
any Portion shall then be subject to the rate based on the Base Rate.
(g) Funding Costs and Loss of Earnings. In the event that Borrower
----------------------------------
shall have requested the Adjusted Libor Rate to be applicable to a Portion to be
Advanced and Borrower shall revoke the request for such Advance or shall fail to
meet the conditions to such Advance as set forth in Section Four hereof, and in
connection with any prepayment or repayment of a Portion bearing interest at the
rate based on the Adjusted Libor Rate made on other than the last day of the
applicable Interest Period, whether such prepayment or repayment is voluntary,
mandatory, by demand, acceleration or otherwise, Borrower shall pay to Banks all
reasonable funding costs and loss of earnings which may arise in connection with
such revocation of request for or failure to meet the conditions to such Advance
or such prepayment or repayment, as calculated by Agent in accordance with
Exhibit G hereto.
2.7. Advances.
--------
(a) Revolving Loan Advance Request. Borrower shall give Agent written
------------------------------
notice, not later than eleven o'clock (11:00) a.m. Philadelphia time and (1)
Business Day prior to the proposed Advance, of each requested Advance under the
Revolving
-23-
<PAGE>
Commitment, specifying the date, amount and purpose thereof. Such notice shall
be in the form of the Advance Request Form attached hereto as Exhibit A-1, shall
be certified by the chief executive or chief financial officer of Borrower, and
shall contain the following information and representations, which shall be
deemed affirmed and true and correct as of and upon receipt of the date of and
upon receipt of the requested Advance:
(i) the aggregate amount of the requested Advance, which shall be
no less than $1,000,000 and in multiples of $250,000 in excess thereof, or be
the unborrowed balance of the applicable Commitment;
(ii) confirmation of Borrower's compliance with Paragraphs 5.13
through 5.16 as of the most recently ended fiscal quarter for which a Compliance
Certificate has been (or is required to have been) delivered, and taking into
account any Advances, including the requested Advance, and payments since such
date; and
(iii) statements that the representations and warranties set
forth in Section Three hereof are true and correct as of the date thereof,
except those made only as of a specific date; no Event of Default or Default
hereunder has occurred and is then continuing; and there has been no material
adverse change in Borrower's financial condition, operations or business since
the date of the quarterly and audited annual financial statements most recently
delivered by Borrower to Bank pursuant to Paragraphs 3.8, 5.2 and 5.3 of this
Agreement.
(b) Acquisition Advance Request. At least ten (10) Business Days
---------------------------
prior to a requested Advance under the Acquisition Commitment, the Borrower
shall give Agent written notice of such requested Advance, specifying the
amount, purpose and estimated date thereof. Such notice shall be in the form of
the Advance Request Form attached hereto as Exhibit A-2, shall be certified by
the chief executive or chief financial officer of Borrower and shall contain the
following information and representations, which shall be deemed affirmed and
true and correct as of the date of and upon receipt of the requested Advance:
(i) the statement that the Advance will be used for the
purposes permitted by Paragraph 2.4(b) hereof;
(ii) the matters required to be made or confirmed pursuant to
subparagraph 2.7(a) hereof, in connection with Revolving Loan Advances;
(iii) the information with respect to the proposed Permitted
Acquisition required pursuant to Paragraph 6.8 hereof;
-24-
<PAGE>
(iv) statements that based on the pro forma historical and projected
--- -----
financial statements delivered pursuant to clause (iii) above, there would be no
Default or Event of Default as of the most recent fiscal quarter end for which a
Compliance Certificate has been (or is required to have been) delivered and for
each fiscal quarter through the Acquisition Commitment Termination Date.
(c) Procedures.
----------
(i) Upon receiving a request for an Advance in accordance with
subparagraph (a) or (b) above, Agent shall request by prompt notice to Banks
that each Bank advance funds to Agent so that each Bank participates in the
requested Advance in the same percentage as it participates in the applicable
Commitment. In the case of a request for an Advance under the Acquisition
Commitment, Agent shall promptly provide copies of the Advance Request Form and
all attachments and information provided therewith to the Banks. Each Bank
shall advance its applicable percentage of the requested Advance to Agent by
delivering federal funds immediately available at Agent's offices prior to
twelve o'clock (12:00) noon on the date of the Advance. Subject to the
satisfaction of the terms and conditions hereof, Agent shall make the requested
Advance available to Borrower by crediting such amount to Borrower's deposit
account with Agent not later than two o'clock (2:00) p.m. on the day of the
requested Advance; provided, however, that in the event Agent does not receive a
Bank's share of the requested Advance by such time as provided above, Agent
shall not be obligated to advance such Bank's share.
(ii) Unless Agent shall have been notified by a Bank prior to the date
such Bank's share of any such Advance is to be made by such Bank that such Bank
does not intend to make its share of such requested Advance available to Agent,
Agent may assume that such Bank has made such proceeds available to Agent on
such date, and Agent may, in reliance upon such assumption (but shall not be
obligated to), make available to Borrower a corresponding amount. If such
corresponding amount is not in fact made available to Agent by such Bank on the
date the Advance is made, Agent shall be entitled to recover such amount on
demand from such Bank (or, if such Bank fails to pay such amount forthwith upon
such demand, from Borrower) together with interest thereon in respect of each
day during the period commencing on the date such amount was made available to
Borrower and ending on (but excluding) the date Agent recovers such amount, from
such Bank, at a rate per annum equal to the effective rate for overnight federal
funds in New York as reported by the Federal Reserve Bank of New York for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
and from
-25-
<PAGE>
Borrower, at a rate per annum as provided in Paragraph 2.6(b)(i)(A) hereof.
(d) Requests Irrevocable. Each request for an Advance pursuant to
--------------------
this Paragraph 2.7 shall be irrevocable and binding on Borrower. In the case of
any Advance bearing interest at the rate based upon the Adjusted Libor Rate,
Borrower shall indemnify Banks against any loss, cost or expense incurred by
Bank as a result of not borrowing such funds on the requested Advance date,
including as a result of any failure to fulfill on or before the date specified
in such request for an Advance the applicable conditions set forth in Section
Four hereof, including, without limitation, any loss, cost or expense incurred
by reason of the liquidation or redeployment of deposits or other funds acquired
by Banks to fund the Advance to be made by Banks when such Advance, as a result
of such failure, is not made on such date, as calculated by Agent in accordance
with Exhibit G attached hereto.
2.8. Reduction and Termination of Commitment.
---------------------------------------
(a) Borrower. Borrower shall have the right at any time and from
--------
time to time, upon three (3) Business Days' prior written notice to Agent, to
reduce the Revolving Commitment and/or the Acquisition Commitment in whole or in
part in increments aggregating $1,000,000 or multiples thereof without penalty
or premium, provided that on the effective date of such reduction Borrower shall
make a prepayment of the Revolving Loan, the Acquisition Loan or both in an
amount, if any, by which the aggregate outstanding principal balance of the
applicable Loan exceeds the amount of the applicable Commitment as then so
reduced, together with accrued interest on the amount so prepaid and any amounts
due pursuant to Paragraph 2.6(g) hereof.
(b) Banks. Required Banks shall have the right to terminate the
-----
Revolving Commitment, the Acquisition Commitment or both at any time, in their
discretion and upon notice to Borrower, upon the occurrence of any Event of
Default hereunder (except if an Event of Default described in Paragraph 8.1(i)
shall occur, in which case termination of the Commitment shall occur
automatically).
(c) Restoration Only With Consent. Except as provided in Paragraph
-----------------------------
2.1(c) hereof, any termination or reduction of the Revolving Commitment, the
Acquisition Commitment or both pursuant to subparagraphs 2.8(a) and (b) shall be
permanent, and such Commitment cannot thereafter be restored or increased
without the written consent of Banks.
2.9. Prepayment.
----------
-26-
<PAGE>
(a) Upon one (1) Business Day's prior written notice by Borrower to
Agent, Borrower may repay all or any portion of the outstanding principal
balance under the Revolving Loan or the Acquisition Loan without premium or
penalty, provided that any such payment shall include all accrued interest on
the amount prepaid plus any amounts which may be due pursuant to Paragraph
2.6(g) hereof.
(b) Upon any sale of assets pursuant to the proviso to Paragraph
6.7(a), Borrower shall pay to Agent, for application first to the principal
balance of the Acquisition Loan and then, if applicable, to the Revolving Loan,
an amount equal to the full amount of cash proceeds received in connection with
such sale of assets, together with accrued and unpaid interest on the amount so
repaid and all amounts due pursuant to Paragraph 2.6(g) hereof.
(c) Payments made pursuant to Paragraph 2.9(a) or (b) prior to the
Revolving Commitment Termination Date or Acquisition Termination Date, as the
case may be, shall not reduce the Commitment and may be reborrowed in accordance
with this Agreement.
2.10. Payments. All payments of principal, interest, fees and other
--------
amounts due hereunder, including any prepayments thereof, shall be made by
Borrower to Agent for the account of Banks in immediately available funds before
twelve o'clock (12:00) noon, Philadelphia time, on any Business Day at the
office of Agent set forth on Schedule 1 hereto. Borrower hereby authorizes
Agent to charge Borrower's account with Agent for all payments of principal,
interest and fees when due hereunder.
2.11. Commitment Fee. Borrower shall pay to Agent, for the benefit
--------------
of Banks in accordance with their Pro Rata Shares, a non-refundable commitment
fee at the rate of three-eighths of one percent (3/8%) per annum on the
unborrowed portion of the Revolving Commitment from the date hereof through the
Revolving Commitment Termination Date, and on the unborrowed portion of the
Acquisition Commitment from the date hereof through the Acquisition Commitment
Termination Date, which fees shall be payable at the offices of Agent quarterly
in arrears on the first day of each June, September, December and March and on
the applicable Termination Date. The commitment fee shall be calculated on the
basis of the actual number of days elapsed over a year of three hundred sixty
(360) days.
Borrower and Banks hereby agree that for purposes of calculating the
commitment fee to be paid from time to time under this Paragraph 2.11, the
unborrowed portion of the Revolving Commitment (on which such fee is calculated)
shall be reduced by the amount available to be drawn under outstanding Letters
of
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<PAGE>
Credit and the amount of any unreimbursed draws on any Letters of Credit.
The commitment fees provided in this Paragraph 2.11 shall apply from
and after the Effective Date, and Borrower shall pay to CoreStates on the
Effective Date all accrued and unpaid commitment fees to and including the
Effective Date in accordance with the Existing Credit Agreement.
2.12. Closing Fee. On the date of execution of this Agreement,
-----------
Borrower shall pay to Agent, for the benefit of Banks based on their Pro Rata
Shares, a closing fee equal to One Hundred Twenty-Five Thousand Dollars
($125,000).
2.13. Agent's Fees. Borrower shall pay to Agent fees as agreed
------------
between Borrower and Agent pursuant to the Summary Terms and Conditions dated
June 6, 1996 and accepted by Borrower June 7, 1996.
2.14. Regulatory Changes in Capital Requirements. If any Bank shall
------------------------------------------
have determined that the adoption or the effectiveness after the date hereof of
any law, rule, regulation or guideline regarding capital adequacy, or any change
in any of the foregoing or in the interpretation or administration of any of the
foregoing by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by such
Bank (or any lending office of such Bank) or such Bank's holding company with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such Bank's capital or
on the capital of such Bank's holding company, as a consequence of this
Agreement, the Commitment, Advances or the Loan made by such Bank pursuant
hereto to a level below that which such Bank or its holding company could have
achieved but for such adoption, change or compliance (taking into consideration
such Bank's policies and the policies of such Bank's holding company with
respect to capital adequacy) by an amount deemed by such Bank to be material,
then from time to time Borrower shall pay to such Bank such additional amount or
amounts as will compensate such Bank or its holding company for any such
reduction suffered together with interest on each such amount from the date
demanded until payment in full thereof at the rate provided in Paragraph
2.6(b)(ii) hereof with respect to amounts not paid when due. Such Bank will
notify Borrower of any event occurring after the date of this Agreement that
will entitle such Bank to compensation pursuant to this Paragraph 2.14 as
promptly as practicable after it obtains knowledge thereof and determines to
request such compensation, and such compensation shall not be charged for any
period more than three (3) months prior to the date of such notice.
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A certificate of such Bank setting forth such amount or amounts as
shall be necessary to compensate such Bank or its holding company as specified
above shall be delivered to Borrower and shall be conclusive absent manifest
error, if calculated and charged in a manner consistent with similar charges
made by such Bank to its other customers having similar arrangements with such
Bank. Borrower shall pay such Bank the amount shown as due on any such
certificate delivered by such Bank within ten (10) days after its receipt of the
same.
Failure on the part of any Bank to demand compensation for increased
costs or reduction in amounts received or receivable or reductions in return on
capital with respect to any period shall not constitute a waiver of such Bank's
right to demand compensation with respect to any other period except as
otherwise limited by the terms of this Paragraph 2.14.
SECTION 2A
LETTERS OF CREDIT
-----------------
2A.1. Availability of Credits. Subject to the terms and conditions
-----------------------
set forth herein, Banks shall from time to time prior to the Revolving
Commitment Termination Date participate in the issuance by Agent of Letters of
Credit for the account of Borrower on the following terms and conditions:
(a) at the time of issuance of the Letter of Credit, the unborrowed
portion of the Revolving Commitment shall equal or exceed the sum of the amount
available to be drawn under such Letter of Credit and the amount available to be
drawn under and any unreimbursed draws under all other Letters of Credit;
(b) at the time of issuance of the Letter of Credit, the amount
available to be drawn under such Letter of Credit and all other Letters of
Credit then outstanding hereunder plus any unreimbursed draws under all other
Letters of Credit shall not exceed, in the aggregate, the Letter of Credit
Sublimit;
(c) the final expiration date of each Letter of Credit shall be on
or before the earlier of (i) one year from the date of issuance thereof or (ii)
the Revolving Commitment Termination Date;
(d) there shall not exist at the time of issuance of the Letter of
Credit, and as a result thereof, any Default or Event of Default; and
(e) each Letter of Credit issued under this Section Two-A shall be
required by a Company in the ordinary
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course of its business or in connection with a Permitted Acquisition.
Upon issuance of each Letter of Credit, each Bank shall have a
participation interest therein based on its percentage share of the Revolving
Commitment as set forth in Schedule 1 attached to the Credit Agreement.
2A.2. Commitment Availability. The amount available under the
-----------------------
Revolving Commitment as from time to time in effect shall be reduced by the
amount available to be drawn under all outstanding Letters of Credit and
unreimbursed amounts of any draws under Letters of Credit. The amount by which
the Revolving Commitment is so reduced shall not be available for advances
under Paragraph 2.7 hereof, except advances thereunder which are made to
reimburse Agent for draws under the Letters of Credit as permitted pursuant to
Paragraph 2A.4(b) hereof.
2A.3. Approval and Issuance.
---------------------
(a) Borrower shall provide Agent not less than three (3) Business
Days' prior written notice of each request for the issuance of a Letter of
Credit by delivery of a Letter of Credit Request Form and Agent's Letter of
Credit Application in the form attached as Exhibit B-2 hereto. Each Letter of
Credit Request Form submitted by Borrower to Agent requesting the issuance of a
Letter of Credit shall be certified by the chief financial officer or chief
executive officer of Borrower, on behalf of Borrower and the applicable Company
for whose benefit the Letter of Credit is to be issued, and shall, in addition
to the matters described in Paragraph 2.7(a) hereof, list all Letters of Credit
outstanding for the account of Borrower at that time and, for each Letter of
Credit so listed, its face amount, outstanding undrawn balance and expiration
date. It shall be a condition to the issuance of any Letter of Credit that
Agent shall have received a Letter of Credit Request Form as described above and
that the conditions set forth in Paragraph 4.2 shall be satisfied.
(b) Agent will promptly provide to Banks written or telephonic
notification of Agent's receipt of the Letter of Credit Request Form and the
Letter of Credit Application which shall state (i) the amount of the Letter of
Credit requested and (ii) the expiration date of the requested Letter of Credit.
2A.4. Obligations of the Borrower.
---------------------------
(a) Borrower agrees to pay to Agent in connection with each Letter
of Credit issued hereunder: (i) immediately upon the demand of Agent on behalf
of all Banks, the amount paid by Agent or any Bank with respect to such Letter
of Credit; (ii) immediately upon demand of Agent, the amount of any draft
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<PAGE>
presented purporting to be drawn under such Letter of Credit provided that the
draft and accompanying documents conform to the terms of the Letter of Credit
but subject to the terms of Paragraph 2A.7 (whether or not Agent has at such
time honored such draft) and any other amounts paid thereunder (it being
understood that Agent is not required to make demand upon or proceed against any
Bank or other party or to resort to any Collateral before obtaining payment from
Borrower); (iii) on the date of issuance of each Letter of Credit and on the
effective date of any renewal of any Letter of Credit a non-refundable fee for
the benefit of Banks in accordance with each Bank's Pro Rata Share of the
Revolving Commitment, calculated on the outstanding face amount and term of such
Letter of Credit at a rate per annum equal to the Applicable Margin for a
Portion bearing interest based on the Adjusted Libor Rate, as set forth in
Paragraph 2.6 hereof; (iv) on the date of issuance of each Letter of Credit and
on the effective date of any renewal or extension of any Letter of Credit a fee
of one-eighth of one percent (0.125%) per annum on the outstanding face amount
of such Letter of Credit, payable to Agent for its own account, and (v) interest
on any indebtedness outstanding with respect to such Letter of Credit, whether
for funds paid on drafts on such Letter of Credit, or otherwise (but such
indebtedness shall not include undrawn balances of such Letter of Credit issued
hereunder) at the rate set forth in Paragraph 2.6(b)(i)(A) hereof from the date
of payment by Agent (if not reimbursed by Borrower on the same day) to the date
one (1) Business Day after notice to Borrower of such payment, and thereafter at
the rate applicable to Portions bearing interest based on the Base Rate under
Paragraph 2.6(b)(ii) hereof. Interest under the preceding clause (v) shall be
paid at the times and in the manner set forth in Paragraph 2.6 hereof, and shall
accrue on amounts paid on a Letter of Credit (if not reimbursed by Borrower on
the same day) from the date of payment by Agent, whether or not demand is made,
until such amounts are reimbursed by Borrower whether before, at or after
demand.
(b) On or before the Revolving Commitment Termination Date, in the
absence of a Default or Event of Default, and subject to the provisions of
Paragraph 2.7 hereof, Banks severally hereby agree to advance funds to Borrower
under the Revolving Loan to make the payments required under Paragraphs
2A.4(a)(i) and (ii) hereof. If any payment by the Agent of a draft drawn under
a Letter of Credit is for any reason (including without limitation the
occurrence or continuation of a Default or Event of Default hereunder) not
reimbursed prior to or on the date of such payment, the amount of such payment
shall thereupon be deemed for purposes hereof an advance under Paragraph 2.7
hereof. Such reimbursement obligation shall be repayable, prepayable, and
otherwise subject to all the terms and conditions thereof as if advanced by
Banks pursuant to Paragraph 2.7 hereof (but without duplication).
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<PAGE>
2A.5. Payment by Banks on Letters of Credit.
-------------------------------------
(a) With respect to each Letter of Credit issued hereunder, each
Bank agrees that it is irrevocably obligated to pay to Agent, for each such
Letter of Credit, such Bank's Pro Rata Share of each and every payment made or
to be made by Agent under such Letter of Credit (each such payment to be made, a
"LOC Contribution"). Each Bank's LOC Contribution shall be due from such Bank
immediately upon, and in any event no later than the same day as, receipt of
written notice (which may be sent by telex or telecopier) from Agent (except
that if such notice is received after 3:00 p.m. on any Business Day, payment may
be made on the following Business Day, together with interest equal to the
effective rate for overnight funds in New York as reported by the Federal
Reserve Bank of New York for such day (or, if such day is not a Business Day,
for the next preceding Business Day)) that (i) it has made a payment or (ii) a
draft has been presented purporting to be drawn on a Letter of Credit issued
hereunder. Such payment shall be made at Agent's offices in immediately
available federal funds.
(b) The obligation of each Bank to make its LOC Contribution
hereunder is absolute, continuing and unconditional, and Agent shall not be
required first to make demand upon or proceed against Borrower or any guarantor
or surety, or any others liable with respect to the applicable Letter of Credit
and shall not be required first to resort to any Collateral. LOC Contributions
shall be made without regard to termination of this Agreement or the
Commitments, the existence of an Event of Default or Default hereunder, the
acceleration of indebtedness hereunder or any other event or circumstance.
2A.6. Collateral Security.
-------------------
(a) The indebtedness, liabilities and obligations of Borrower under
this Section Two-A, however created or incurred, whether now existing or
hereafter arising, due or to become due, absolute or contingent, direct or
indirect, secured or unsecured, are among the obligations secured by the
security interests, liens and encumbrances created by the Collateral, and Agent
and the Banks are entitled to the benefit of the Collateral granted thereunder
with respect to such indebtedness.
(b) Notwithstanding the payment in full of the Loan, the termination
of the Commitments or the occurrence of the Termination Date, the Collateral
shall continue to secure the indebtedness, liabilities and obligations of
Borrower under this Section Two-A until all Letters of Credit shall have expired
and all indebtedness, liabilities and obligations under this Section Two-A shall
have been paid in full.
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<PAGE>
(c) On the termination of the Revolving Commitment or the occurrence
of an Event of Default, Required Banks may require (and in the case of an Event
of Default occurring under Paragraph 8.1(i) it shall be required automatically)
that Borrower deliver to Agent cash or U.S. Treasury Bills with maturities of
not more than 90 days from the date of delivery (discounted in accordance with
customary banking practice to present value to determine amount) in an amount
equal at all times to one hundred ten percent (110%) of the outstanding undrawn
amount of all Letters of Credit, such cash or U.S. Treasury Bills and all
interest earned thereon to constitute cash collateral for all such Letters of
Credit. At such time as such collateral is required to be and has not been
deposited, Agent on behalf of Banks shall be entitled to liquidate such of the
other collateral for the Loan (if any) as is necessary or appropriate in its
sole judgment so as to create such cash collateral.
(d) Any cash collateral deposited under subparagraph (c) above, and
all interest earned thereon, shall be held by Agent and invested and reinvested
at the expense and the written direction of Borrower, in U.S. Treasury Bills
with maturities of no more than ninety (90) days from the date of investment.
2A.7. General Terms of Credits. The following terms and conditions
------------------------
apply with respect to each Letter of Credit (a "Credit") notwithstanding
anything to the contrary contained herein:
(a) Borrower assumes all risks of the acts or omissions of the
beneficiary of each Credit with respect to the use of the Credit or with respect
to the beneficiary's obligations to Borrower. None of the Banks nor any of
their officers or directors shall be liable or responsible for, and the Banks
hereby agree to indemnify and hold Agent and any issuer of a Credit harmless
(except for the issuer's gross negligence or willful misconduct) with respect
to: (i) the use which may be made of the Credit or for any acts or omissions of
the beneficiary in connection therewith; (ii) the accuracy, truth, validity,
sufficiency or genuineness of documents, or of any endorsement thereon, even if
such documents should in fact prove to be in any or all respects false,
misleading, inaccurate, invalid, insufficient, fraudulent, or forged; (iii) the
payment by Agent against presentation of documents which do not comply with the
terms of the Credit, including failure of any documents to bear any reference or
adequate reference to a Credit; (iv) any other circumstances whatsoever in
making or failing to make payment under a Credit; or (v) any inaccuracy,
interruption, error or delay in transmission or delivery of correspondence or
documents by post, telegraph or otherwise. In furtherance and not in limitation
of the foregoing, Agent may accept documents that appear on their face to be in
order, without responsibility
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<PAGE>
for further investigation, regardless of any notice or information to the
contrary.
(b) Notwithstanding the foregoing, with respect to any Credit,
Borrower shall have a claim against Agent, and Agent shall be liable to
Borrower, to the extent, but only to the extent, of any direct, as opposed to
indirect or consequential, damages suffered by Borrower caused by the Agent's
willful misconduct or gross negligence.
(c) To the extent not inconsistent with this Agreement, the Uniform
Customs and Practices for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500, are hereby made a part of this
Agreement with respect to obligations in connection with each Credit.
SECTION 3
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants to Banks as follows:
3.1. Organization and Good Standing. Each of the Companies is a
------------------------------
corporation, duly formed and validly existing under the laws of its state of
incorporation, and has the power and authority to carry on its business as now
conducted and, except as to failures to qualify which do not, either singly or
in the aggregate, have a Material Adverse Effect, each of the Companies is
qualified to do business in all other states in which the nature of its business
or the ownership of its properties requires such qualification.
3.2. Power and Authority; Validity of Agreement. Each of the
------------------------------------------
Companies has the power and authority under applicable law and under its
certificate or articles of incorporation and by-laws, to enter into and perform
the Loan Documents to the extent that each is a party thereto; and all actions
necessary or appropriate for the execution and performance by the Companies of
the Loan Documents have been taken, and, upon their execution, the same will
constitute the valid and binding obligations of the Companies to the extent each
is a party thereto, enforceable in accordance with their terms, except as such
enforceability may be limited by bankruptcy or equitable principles applicable
to the enforcement of creditors' rights generally.
3.3. No Violation of Laws or Agreements. The making and performance
----------------------------------
of the Loan Documents will not violate any provisions of any law or regulation,
federal, state or local, or the respective certificates or articles of
incorporation or by-laws of the Companies or result in any breach or violation
of, or constitute a default under, any material agreement or instruments
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<PAGE>
by which any of the Companies or its respective property may be bound.
3.4. Material Contracts. Exhibit F hereto sets forth all contracts
------------------
material to the respective businesses of the Companies as of the date of this
Agreement, including all material third party payor agreements, and there exists
no material default under any of such agreements.
3.5. Compliance.
----------
(a) Each of the Companies is in compliance with all applicable laws
and regulations, federal, state and local (including without limitation those
administered by the Local Authorities), except for such failure to comply as
would not, either singly or in the aggregate, have a Material Adverse Effect;
(b) The Companies possess all the franchises, permits, licenses,
certificates of compliance and approval and grants of authority, necessary or
required in the conduct of the Companies' respective businesses as of the date
hereof; and except as identified on Exhibit F attached hereto, as of the date
hereof all such franchises, permits, licenses, certificates and grants are
valid, binding, enforceable and subsisting without any defaults thereunder or
enforceable adverse limitations thereon and are not subject to any proceedings
or claims opposing the issuance, development or use thereof or contesting the
validity thereof, except to the extent that the failure to obtain or maintain
any of the foregoing would not, either singly or in the aggregate, have a
Material Adverse Effect; and
(c) No authorization, consent, approval, waiver, license or formal
exemptions from, nor any filing, declaration or registration with, any court,
governmental agency or regulatory authority (federal, state or local) or non-
governmental entity, under the terms of contracts or otherwise, is required by
reason of or in connection with the Companies' execution and performance of the
Loan Documents, except those which have been obtained.
3.6. Litigation. There are no actions, suits, proceedings or claims
----------
which are pending or, to the best of the Companies' knowledge or information,
threatened against any Company which, if adversely resolved, would have a
Material Adverse Effect.
3.7. Title to Assets. Each of the Companies has good and marketable
---------------
title to all of its properties and assets material to the conduct of its
business, free and clear of any liens and encumbrances except the security
interests granted under the Pledge Agreement, liens and encumbrances permitted
pursuant to Paragraph 6.4 hereof and the liens and security interests
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<PAGE>
identified on Exhibit F attached hereto. All such assets are fully covered by
the insurance required under Paragraph 5.7 hereof.
3.8. Accuracy of Information; Full Disclosure.
----------------------------------------
(a) All information furnished to Banks concerning the financial
condition of the Companies including Parent's annual consolidated financial
statement for the period ending June 30, 1995 and Parent's interim consolidated
financial statements dated March 31, 1996, copies of which have been furnished
to Banks, has been prepared in accordance with GAAP and fairly present in all
material respects the financial condition of the Companies as of the dates and
for the periods covered and discloses all liabilities of the Companies required
to be disclosed in accordance with GAAP, except that interim statements do not
have footnotes and are subject to year-end adjustments, and there has been no
material adverse change in the financial condition or business of the Companies
from the date of such statements to the date hereof; and
(b) All financial statements and other documents furnished by the
Companies to Banks pursuant to this Agreement and the other Loan Documents do
not and will not contain any untrue statement of material fact or omit to state
a material fact necessary in order to make the statements contained herein and
therein not misleading. The Companies have disclosed to the Banks in writing
any and all facts which materially and adversely affect the business,
properties, operations or condition, financial or otherwise, of any Company or
of the Companies considered as a whole, or the Companies' ability to perform
their obligations under this Agreement and the other Loan Documents.
3.9. Taxes and Assessments. Each of the Companies has filed all
---------------------
required tax returns or has filed for extensions of time for the filing thereof,
and has paid all applicable federal, state and local taxes, other than (a) taxes
not yet due or which may be paid hereafter without penalty and no Company has
knowledge of any deficiency or additional assessment in connection therewith not
provided for in the financial statements required hereunder and (b) such state
and local tax matters as would not, either singly or in the aggregate, have a
Material Adverse Effect.
3.10. Indebtedness. The Companies have no presently outstanding
------------
Indebtedness or obligations, including contingent obligations and obligations
under leases of property from others, except the Indebtedness and obligations
described in Exhibit F hereto or in the Companies' financial statements which
have been furnished to Banks prior to the date hereof pursuant to Paragraph 3.8
hereof, and indebtedness permitted pursuant to Paragraph 6.1 hereof.
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<PAGE>
3.11. Management Agreements. No Company is a party to any management
---------------------
or consulting agreements for the provision of senior executive services to such
Company except as described on Exhibit F hereto.
3.12. Investments. Each direct and indirect Subsidiary of Parent
-----------
(including Inactive Subsidiaries) is identified on Exhibit F attached hereto,
which indicates the number of shares and classes of the capital stock of Parent
and each such Subsidiary, and, with respect to each Subsidiary, the ownership
thereof. No Company has any other Subsidiaries or any investments in or loans
to any other individuals or business entities except for loans and investments
permitted pursuant to Paragraphs 6.3 or 6.8 hereof.
3.13. ERISA. Each of the Companies and each ERISA Affiliate is in
-----
compliance in all material respects with all applicable provisions of ERISA and
the regulations promulgated thereunder; and,
(a) No Company nor any ERISA Affiliate maintains or contributes to
or has maintained or contributed to any multiemployer plan (as defined in
section 4001 of ERISA) under which any Company or any ERISA affiliate could have
any withdrawal liability which is reasonably likely to have a Material Adverse
Effect;
(b) No Company nor any ERISA Affiliate, sponsors or maintains any
Plan under which there is an accumulated funding deficiency within the meaning
of (S)412 of the Code, whether or not waived which is reasonably likely to have
a Material Adverse Effect;
(c) The aggregate liability for accrued benefits and other ancillary
benefits under each defined benefit pension Plan that is sponsored or maintained
by any Company or any ERISA Affiliate (determined on the basis of the actuarial
assumptions prescribed for valuing benefits under terminating single-employer
defined benefit plans under Title IV of ERISA) does not exceed the aggregate
fair market value of the assets under each such defined benefit pension Plan by
an amount which is reasonably likely to have a Material Adverse Effect;
(d) The aggregate liability of each Company, and each ERISA
Affiliate arising out of or relating to a failure of any Plan to comply with the
provisions of ERISA or the Code, is not an amount which is reasonably likely to
have a Material Adverse Effect on any Company; and
(e) There does not exist any unfunded liability (determined on the
basis of actuarial assumptions utilized by the actuary for the Plan in preparing
the most recent Annual Report)
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<PAGE>
of any Company or ERISA Affiliate under any Plan providing post-retirement life
or health benefits which is reasonably likely to have a Material Adverse Effect.
3.14. Fees and Commissions. The Companies owe no brokers' or
--------------------
finders' fees or commissions of any kind, and know of no claim for any brokers'
or finders' fees or commissions, in connection with the Companies' obtaining the
Commitment or the Loan from Banks, except those provided herein.
3.15. No Extension of Credit for Securities. The Companies are not
-------------------------------------
now, nor at any time have they been engaged principally, or as one of their
respective important activities, in the business of extending or arranging for
the extension of credit, for the purpose of purchasing or carrying any margin
stock or margin securities; nor will the proceeds of the Loan be used by any
Company directly or indirectly, for such purposes.
3.16. Perfection of Security Interest. Upon the delivery into the
-------------------------------
possession of Agent, for the benefit of Banks, of stock certificates
representing all of the outstanding shares of capital stock of the Subsidiaries
pursuant to the Pledge Agreements, no further action, including any filing or
recording of any document, is necessary in order to establish, perfect and
maintain Agent's security interests, for the benefit of Banks, in the assets
created by the Pledge Agreement.
3.17. Hazardous Wastes, Substances and Petroleum Products. Except as
---------------------------------------------------
otherwise set forth on Exhibit F attached hereto:
(a) Except for such matters as would not have a Material Adverse
Effect, each Company (i) has received all permits and filed all notifications
required by the Environmental Control Statutes to carry on its respective
business(es); and (ii) is in compliance with all Environmental Control Statutes.
(b) Each Company has given any written or oral notice to the EPA or
any state or local agency with regard to any actual or imminently threatened
Release of Hazardous Substances on properties owned, leased or operated by such
Company or used in connection with the conduct of its business and operations
which is reasonably likely to have a Material Adverse Effect.
(c) No Company has received notice that it is potentially
responsible for clean-up, remediation, costs of clean-up or remediation, fines
or penalties with respect to any actual or imminently threatened Release of
Hazardous Substances pursuant to any Environmental Control Statute which is
reasonably likely to have a Material Adverse Effect.
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<PAGE>
3.18. Solvency. To the best of each Company's knowledge, excluding
--------
intercompany indebtedness, each Company is, and after receipt and application of
the first Advance under this Agreement will be, solvent such that (i) the fair
value of its assets (including without limitation the fair salable value of the
goodwill and other intangible property of such Company) is greater than the
total amount of its liabilities, including without limitation, contingent
liabilities, (ii) the present fair salable value of its assets (including
without limitation the fair salable value of the goodwill and other intangible
property of such Company) is not less than the amount that will be required to
pay the probable liability on their debts as they become absolute and matured,
and (iii) they are able to realize upon their assets and pay their debts and
other liabilities, contingent obligations and other commitments as they mature
in the normal course of business. No Company intends to, nor believes that it
will, incur debts or liabilities beyond its ability to pay as such debts and
liabilities mature, and no Company is engaged in a business or transaction, or
about to engage in a business or transaction, for which its property would
constitute unreasonably small capital after giving due consideration to the
prevailing practice and industry in which it is engaged. For purposes of this
Paragraph 3.18, in computing the amount of contingent liabilities at any time,
it is intended that such liabilities will be computed at the amount which, in
light of all the facts and circumstances existing at such time, represents the
amount that reasonably can be expected to become an actual matured liability of
the applicable Company.
Each Company hereby agrees that to the extent a Company shall have
paid more than its proportionate share of any payment made hereunder or under
the Guaranty, such Company shall be entitled to seek and receive contribution
from and against any other Company who has not paid its proportionate share of
such payment; provided however such Company shall not seek any such contribution
from any other Company until the Loans have been paid in full and all
Commitments of the Banks hereunder have been terminated. The provisions of this
paragraph shall in no respect limit the obligations and liabilities of any
Company to the Agent and the Banks and each Company shall remain liable to the
Agent and the Banks for the full amount of its obligations hereunder and under
the Guaranty.
3.19. Employee Controversies. There are no material controversies
----------------------
pending or, to the knowledge of the Companies, threatened or anticipated between
any Company and any of its respective employees, and there are no labor
disputes, grievances, arbitration proceedings or any strikes, work stoppages or
slowdowns pending, or to the Companies' knowledge, threatened between any
Company and its respective employees and representatives, which in either event
could impair the ability of the Company to perform their obligations under the
Loan
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<PAGE>
Documents, or which might reasonably be expected to have a Material Adverse
Effect.
3.20. Inactive Subsidiaries. There does not exist, by virtue of
---------------------
statute, common law, contract or otherwise, any liability of, or any activity or
condition relating to, any Inactive Subsidiary, including, without limitation,
with respect to any environmental condition, taxes, employee benefit plan,
program or statutory obligation, tort claim or contract dispute, which may
survive the liquidation of any such Inactive Subsidiary (whether by operation of
law, express assumption or otherwise), except for those liabilities which (a)
are reserved for or otherwise reflected in the financial statements of Parent
and its consolidated Subsidiaries or (b) do not in the aggregate as to all
Inactive Subsidiaries exceed Fifty Thousand Dollars ($50,000).
SECTION 4
CONDITIONS
----------
4.1. First Advance. The effectiveness of this Agreement and the
-------------
obligation of Banks to make the first Advance or issue the first Letter of
Credit under this Agreement shall be subject to Agent's receipt of the following
documents and satisfaction of the following conditions, each in form and
substance satisfactory to Banks:
(a) Promissory Notes. The Notes duly executed by Borrower.
----------------
(b) Guaranty. A Guaranty Agreement executed by each Guarantor in
--------
favor of Banks.
(c) Authorization Documents. A certificate of the secretary of
-----------------------
each Company attaching and certifying as to (i) the certificate or articles of
incorporation and bylaws of such Borrower; (ii) resolutions or other and
evidence of authorization by the board of directors of such Borrower,
authorizing its execution and full performance of this Agreement, the Notes, the
Guaranty, the Pledge Agreement and all other documents and actions required
hereunder; and (iii) incumbency certificates setting forth the name, title and
specimen signature of each officer of such Company who is authorized to execute
the Loan Documents on behalf of such Company.
(d) Opinions of Counsel. Opinion letters from corporate and
-------------------
regulatory counsel for the Companies, as may be reasonably satisfactory to
Agent.
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<PAGE>
(e) Financial Information. Projected balance sheets and income
---------------------
statements for the Companies on a consolidated basis, for the period from June
30, 1996 through the Termination Date, reasonably satisfactory to Banks and
certified as being based on reasonable assumptions by the chief financial
officer of Parent (such cash flow projections having taken into account the
transactions contemplated by this Agreement and identified the sources of cash
the Companies intend to use to meet their cash needs during such period).
(f) Compliance Certificate; Rate Selection. A Compliance Certificate
--------------------------------------
in the form of Exhibit H attached hereto calculated as of the end of the most
recent fiscal quarter of the Companies, and selection of the interest rates and
Interest Periods to apply to outstanding Portions from and after the Effective
Date in accordance with Paragraph 2.6 hereof.
(g) Fees and Expenses. Payment of all interest and fees due under the
-----------------
Existing Credit Agreement through and including the Effective Date, and payment
of the fees required by Paragraphs 2.12 and 2.13 hereof, and audit expenses
pursuant to subparagraph (l) below.
(h) Searches. Uniform Commercial Code, tax and judgment searches
--------
against the Companies in those offices and jurisdictions as Agent shall
reasonably request.
(i) Pledge Agreement. A Pledge Agreement executed by Parent and Home
----------------
Health Corporation of Delaware, Inc. in favor of Agent, for the benefit of
Banks, pledging all of the issued and outstanding shares of capital stock of
each of their respective Subsidiaries as security for the Loan, together with
stock certificates representing all such shares, and stock powers signed in
blank.
(j) Subordination Agreements. Confirmation of the Subordination
------------------------
Agreements with respect to the Existing Subordinated Debt other than the
Dependable Subordinated Debt.
(k) Terminations. Termination of the Security Agreement executed and
------------
delivered pursuant to the Existing Credit Agreement, and UCC-3 termination
statements with respect thereto.
(l) Audit. A completed lending audit of the Companies by an auditor
-----
acceptable to Agent, at the expense of Borrower (not to exceed $13,000).
(m) Other Documents. Such additional documents as Agent reasonably
---------------
may request, including without limitation any Medicare/Medicaid or applicable
industry accreditation.
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<PAGE>
4.2. Advances or Issuances. The obligation of Banks to make
---------------------
additional Advances under the Commitment shall be subject to Borrower's
compliance with Paragraph 2.7 hereof and it shall be a condition to Banks' and
Agent's obligation hereunder to make any such Advance or issue any Letter of
Credit that the representations and warranties set forth herein and in the other
Loan Documents, other than those made only as of a specific date, shall be true
and correct as if made on the date of such Advance or Letter of Credit issuance,
that no Event of Default or Default shall have occurred and be continuing on the
date of such Advance or Letter of Credit issuance or be caused by such Advance
or Letter of Credit issuance, that all fees required pursuant to Paragraphs
2.11, 2.12 and 2.13 hereof have been paid as and when due, and that there shall
have been no event or circumstance which had or is reasonably likely to have a
Material Adverse Effect.
SECTION 5
AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that so long as the Commitment of Banks
to Borrower or any Indebtedness of Borrower to Banks is outstanding, unless
Required Banks have otherwise agreed in writing, each of the Companies will (and
with respect to Paragraph 5.12, will cause each ERISA Affiliate) to:
5.1. Existence and Good Standing. Preserve and maintain (a) its
---------------------------
existence as a corporation and its good standing in all states in which it
conducts business and (b) the effectiveness and validity of all its franchises,
licenses, permits, certificates of compliance or grants of authority required in
the conduct of its business, except for such instances of ineffectiveness or
invalidity as would not, either singly or in the aggregate, have a Material
Adverse Effect.
5.2. Quarterly Financial Statements. Furnish to Agent within forty-
------------------------------
five (45) days of the end of each of the first three quarterly periods in each
fiscal year of Parent unaudited quarterly consolidated financial statements, in
form and substance as reasonably required by Agent, including (i) a consolidated
balance sheet, (ii) a consolidated statement of income, (iii) a statement of
cash flows, and (iv) a comparison to the budgeted statement of income, prepared
in accordance with GAAP consistently applied (except that such interim
statements need not contain footnotes and may be subject to year-end
adjustments), together with a certificate executed by the chief executive or
chief financial officers of Parent stating that the financial statements fairly
present in all material respects the financial condition of the Parent and its
consolidated Subsidiaries as of the date and for the periods covered and that
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as of the date of such certificate there exists no violation of any provision of
this Agreement or the happening of any Event of Default or Default, or
describing any such violation, Default or Event of Default, and the measures
being taken to address it.
5.3. Annual Budget and Financial Statements.
--------------------------------------
(a) Furnish to Agent within forty-five (45) days after the
commencement of each fiscal year a management-prepared budget for such fiscal
year.
(b) Furnish to Agent within ninety (90) days after the close of each
fiscal year audited consolidated annual financial statements, including the
financial statements, information and compliance certificate required under
Paragraph 5.2 hereof, which consolidated financial statements shall be prepared
in accordance with GAAP and shall be certified without qualification (except
with respect to changes in GAAP as to which the Companies' independent certified
public accountants have concurred) by an independent certified public accounting
firm reasonably satisfactory to Agent; and cause Agent to be furnished, at the
time of the completion of the annual audit, with copies of any management
letters prepared by such accountants and with a certificate signed by such
accountants to the effect that to the best of their knowledge there exists no
Event of Default or Default hereunder.
5.4. Compliance Certificate. At the time of delivery of financial
----------------------
statements pursuant to Paragraph 5.2 and 5.3 hereof, deliver to Agent a
certificate in the form of Exhibit H attached hereto executed by the chief
executive officer or chief financial officer of Parent, showing the calculation
of the covenants set forth in Paragraph 5.13 through 5.16 hereof.
5.5. Public Information. Deliver to Agent (with sufficient copies
------------------
for each Bank) promptly upon transmission thereof, copies of all financial
statements, proxy statements, notices and reports as Parent shall send to its
shareholders or to the holders of Subordinated Debt, and copies of any
registration statement or annual or quarterly reports, if any, filed with the
Securities and Exchange Commission (or successor entity).
5.6. Books and Records. Keep and maintain satisfactory and adequate
-----------------
books and records of account in accordance with GAAP and make or cause the same
to be made available to Agent or is agents or nominees at any reasonable time
upon reasonable notice for inspection and to make extracts thereof and permit
Agent to discuss contents of same with senior officers of Parent and also with
outside auditors and accountants of Parent.
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<PAGE>
5.7. Insurance. Keep and maintain all of its property and assets in
---------
good order and repair and fully covered by insurance with reputable and
financially sound insurance companies against such hazards and in such amounts
as is customary in the industry, under policies requiring the insurer to furnish
reasonable notice to Agent and opportunity to cure any non-payment of premiums
prior to termination of coverage.
5.8. Litigation; Event of Default. Notify Agent in writing
----------------------------
immediately of the institution of any litigation, the commencement of any
administrative proceedings, the happening of any event or the assertion or
threat of any claim, to the extent that any of the foregoing, could have a
Material Adverse Effect or the occurrence of any Event of Default or Default
hereunder.
5.9. Taxes. Pay and discharge all taxes, assessments or other
-----
governmental charges or levies imposed on it or any of its property or assets
prior to the date on which any penalty for non-payment or late payment is
incurred, unless the same are currently being contested in good faith by
appropriate proceedings, diligently prosecuted and covered by appropriate
reserves maintained in accordance with GAAP.
5.10. Costs and Expenses. Pay or reimburse Agent for all reasonable
------------------
out-of-pocket costs and reasonable expenses (including but not limited to
reasonable attorneys' fees and disbursements) Agent may reasonably pay or incur
in connection with the preparation and review of this Agreement and all waivers,
consents and amendments in connection therewith and all other documentation
related thereto, and the making of the Loan hereunder, and pay or reimburse
Banks for all costs, liabilities and expenses associated with the collection,
administration or enforcement of the same, including without limitation any fees
and disbursements incurred in defense of or to retain amounts of principal,
interest or fees paid. All obligations provided for in this Paragraph 5.10
shall survive any termination of this Agreement or the Commitment and the
repayment of the Loan.
5.11. Compliance; Notification.
------------------------
(a) Comply in all material respects with all local, state and
federal laws and regulations applicable to its business (and in all respects
with the Environmental Control Statutes), including without limitation all laws
and regulations of the Local Authorities, and with the provisions and
requirements of all franchises, permits, certificates of compliance, approval
and need issued by regulatory authorities and with other like grants of
authority held by any Company; and notify Agent immediately in detail of any
actual or alleged failure to comply with or perform, breach, violation or
default under any such laws or regulations or under the terms of any of such
franchises, licenses or grants of authority, or of the
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<PAGE>
occurrence or existence of any facts or circumstances which with the passage of
time, the giving of notice or otherwise could create such a breach, violation or
default or could occasion the termination of any of such franchises, licenses or
grants of authority, to the extent that any of the foregoing could have a
Material Adverse Effect.
(b) With respect to the Environmental Control Statutes, immediately
notify Agent when, in connection with the conduct of the Companies' business(es)
or operations, any person (including, without limitation, EPA or any state or
local agency) provides oral or written notification to any Company, or any
Company otherwise becomes aware, of a condition with regard to an actual or
imminently threatened Release of Hazardous Substances which could reasonably be
expected to have a Material Adverse Effect; and notify Agent in detail
immediately upon the receipt by a Company of an assertion of liability under the
Environmental Control Statutes, of any actual or alleged failure to comply with,
failure to perform, breach, violation or default under any such statutes or
regulations which could reasonably be expected to have a Material Adverse Effect
or of the occurrence or existence of any facts, events or circumstances which
with the passage of time, the giving of notice, or both, could create such a
failure to breach, violation or default.
5.12. ERISA. (a) Comply in all material respects with the provisions
-----
of ERISA to the extent applicable to any Plan maintained for the employees of
any Company or any ERISA Affiliate; (b) do or cause to be done all such acts and
things that are required to maintain the qualified status of each Plan and tax
exempt status of each trust forming part of such Plan; (c) not incur any
material accumulated funding deficiency (within the meaning of ERISA and the
regulations promulgated thereunder), or any material liability to the PBGC (as
established by ERISA); (d) not permit any event to occur with respect to any
Plan sponsored by any Company or any ERISA Affiliate (i) as described in Section
4042 of ERISA or (ii) which may result in the imposition of a lien on its
properties or assets; and (e) notify Agent in writing promptly after it has come
to the attention of senior management of any Company of the written assertion or
threat of any event described in Section 4042 of ERISA (relating to the
soundness of a Plan) (including any "reportable event" described in Section
4042(a)(3) of ERISA) or the PBGC's ability to assert a material liability
against it or impose a lien on any Company's, or any ERISA Affiliate's
properties or assets; and (f) refrain from engaging in any prohibited
transactions or actions causing possible liability under Section 502 of ERISA.
5.13. Maximum Funded Debt to Adjusted EBITDA Ratio. Maintain as of
--------------------------------------------
the end of each fiscal quarter a ratio of (a) Funded Debt of Parent and its
consolidated Subsidiaries to (b) Adjusted EBITDA of not greater than 2.50 to 1.
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<PAGE>
5.14. Fixed Charge Coverage Ratio. Maintain as of the end of each
---------------------------
fiscal quarter during the periods set forth in the left hand column a
consolidated Fixed Charge Coverage Ratio of not less than the ratio set forth in
the right hand column:
Period Ratio
------ -----
Date hereof
through 6/30/97 1.00 to 1
7/1/97 and at all times
thereafter 1.25 to 1
5.15. Maximum Leverage Ratio. Maintain as of the end of the fiscal
----------------------
quarter a ratio of consolidated Funded Debt to consolidated Total Capitalization
of not greater than 0.45 to 1.
5.16. Current Ratio. Maintain as of the end of the fiscal quarter a
-------------
ratio of Current Assets to Current Liabilities of not less than 2.00 to 1.
5.17. Management Changes. Notify Agent in writing within ten (10)
------------------
Business Days after any change of its senior officers.
5.18. Transactions Among Affiliates. Cause all transactions between
-----------------------------
and among Affiliates, other than transactions among the Companies, to be on an
arms-length basis and on such terms and conditions as are customary in the
applicable industry between and among unrelated entities.
5.19. Joinders. If any Inactive Subsidiary becomes active or if a
--------
new Subsidiary is formed or acquired (other than a joint venture Subsidiary as
authorized pursuant to Paragraph 6.8 (iii) hereof), cause such Subsidiary to
execute a joinder to the Guaranty and other documents as Agent may reasonably
require, and deliver to Agent, for the benefit of Banks, a Pledge Agreement or
amendment to Pledge Agreement to pledge the shares of such Subsidiary to Agent
for the benefit of Banks, together with all share certificates for such
Subsidiary to Agent together with stock powers signed in blank.
5.20. Subordination Agreements.
------------------------
(a) On or before September 13, 1996, deliver a confirmation of the
Subordination Agreement with respect to the Dependable Subordinated Debt.
(b) On the date that any Indebtedness is incurred by a Company in
favor of a seller in connection with a Permitted Acquisition, as permitted by
clause (vi) of Paragraph 6.1 hereof, cause the holder of such Indebtedness to
execute and deliver a
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<PAGE>
Subordination Agreement in favor of Agent on behalf of Banks in substantially
the form attached hereto as Exhibit D.
5.21. Other Information. Provide any Bank with any other documents
-----------------
and information, financial or otherwise, reasonably requested by such Bank from
time to time.
SECTION 6
NEGATIVE COVENANTS
------------------
So long as any Commitment or any Indebtedness of Borrower to Banks
remains outstanding hereunder, Borrower covenants and agrees that without
Required Bank's prior written consent, each Company will not:
6.1. Indebtedness. Borrow any monies or create any Indebtedness
------------
except: (i) borrowings from Banks hereunder; (ii) trade Indebtedness in the
normal and ordinary course of business for value received; (iii) Indebtedness
and obligations incurred to purchase or lease fixed or capital assets; provided,
however, that the aggregate outstanding principal amount of such indebtedness
and obligations shall not exceed in the aggregate Six Million Dollars
($6,000,000) (including the First Union Debt) outstanding at any time; (iv)
Indebtedness of a Company to another Company; (v) Indebtedness under the
Existing Seller Debt not to exceed the amount outstanding on the date hereof, as
reduced from time to time; (vi) Subordinated Debt; (vii) accrued expenses
arising in the ordinary cause of business, and (viii) guaranties permitted
pursuant to Paragraph 6.2 hereof.
6.2. Guaranties. Guarantee or assume or agree to become liable in
----------
any way, either directly or indirectly, for any additional indebtedness or
liability of others except: (i) to endorse checks or drafts in the ordinary
course of business, (ii) guarantees by Parent of Indebtedness permitted pursuant
to clause (vi) of Paragraph 6.1 hereof, provided that any such guaranty shall be
subordinated to the same extent as such Subordinated Debt; (iii) guaranties by
any Company of the Indebtedness of another Company if such Indebtedness is
permitted pursuant to Paragraph 6.1(i), (ii), (iii), (iv), (v) or (vii) hereof;
and (iv) guaranties issued on behalf of joint venture Subsidiaries, which
together with loans and advances permitted pursuant to Paragraph 6.3(v) hereof
and investments made pursuant to Paragraph 6.8(iii) hereof shall not exceed
after the date hereof Three Million Five Hundred Thousand Dollars ($3,500,000)
for all such joint venture Subsidiaries.
6.3. Loans. Make any loans or advances to others; provided, however,
-----
that: (i) the Companies may make loans and advances to employees in the
ordinary course of business;
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<PAGE>
(ii) Parent may maintain its outstanding loan to Bruce Feldman, without increase
in the amount thereof; (iii) the Companies may make loans and advances to other
Companies; (iv) the Companies may make other loans and advances in an aggregate
principal amount not to exceed One Million Dollars ($1,000,000) outstanding at
any time; and (v) loans or advances to joint venture Subsidiaries which together
with guaranties issued pursuant to Paragraph 6.2(iv) hereof and investments made
pursuant to Paragraph 6.8(iii) hereof shall not exceed Three Million Five
Hundred Thousand Dollars ($3,500,000) for all such joint venture Subsidiaries.
6.4. Liens and Encumbrances. Create, permit or suffer the creation
----------------------
of any liens, security interests, or any other encumbrances on (including any
conditional sales arrangement with respect to) any of its property, real or
personal, including, without limitation, liens and security interests in favor
of holders of any class or designation of interests in a Company, except the
pledge of shares of the Companies (other than Parent) in favor of Agent on
behalf of Banks as security for the Loan, and except (i) liens arising in favor
of sellers or lessors for indebtedness and obligations incurred to purchase or
lease fixed or capital assets permitted under Paragraph 6.1(iii) hereof,
provided, however, that such liens secure only the indebtedness and obligations
created thereunder and are limited to the assets purchased or leased pursuant
thereto and the proceeds thereof; (ii) mechanic's and workman's liens, liens for
taxes, assessments or other governmental charges, federal, state or local, which
are then being currently contested in good faith by appropriate proceedings and
are covered by appropriate reserves maintained in cash or cash equivalents and
in accordance with GAAP; (iii) pledges or deposits to secure obligations under
workmen's compensation, unemployment insurance or social security laws or
similar legislation; (iv) deposits to secure performance or payment bonds, bids,
tenders, contracts, leases, franchises or public and statutory obligations
required in the ordinary course of business; (v) deposits to secure surety,
appeal or custom bonds required in the ordinary course of business; and (vi)
statutory landlord liens provided that the applicable landlords have not sought
to exercise distraint.
6.5. Additional Negative Pledge. Agree or covenant with or promise
--------------------------
any person or entity other than the Banks that it will not pledge its assets or
properties or otherwise grant any liens, security interests or encumbrances on
its property; provided, that a Company may agree that it will not pledge or
otherwise grant a security interest or encumbrance on its interest in any joint
venture Subsidiary permitted pursuant to Paragraph 6.8(iii) hereof or on any
assets acquired with purchase money indebtedness permitted pursuant to Paragraph
6.1(iii) hereof.
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<PAGE>
6.6. Restricted Payments. Make any Restricted Payments; provided,
-------------------
however, that in the absence of a Default or Event of Default hereunder, and if
such payment will not create a Default or an Event of Default, Parent may (a)
pay regularly scheduled principal and interest on Subordinated Debt to the
extent permitted by and in accordance with the applicable Subordination
Agreement; and (b) make additional Restricted Payments in an aggregate amount
not to exceed One Million Dollars ($1,000,000) from and after the Effective
Date; provided, however that the foregoing shall not authorize the Parent to
make dividends or distributions of any kind in respect of any class of its
capital stock or to purchase Parent's stock in any open market transaction.
6.7. Transfer of Assets; Liquidation.
-------------------------------
(a) Sell, lease, transfer or otherwise dispose of all or any
portion of its assets, real or personal, other than such transactions in the
normal and ordinary course of business for value received; provided, however,
that the Companies may sell for cash assets not to exceed, in the aggregate for
all such sales, five percent (5%) of total assets of the Parent and its
consolidated Subsidiaries as of the date of the financial statements most
recently delivered pursuant to Paragraph 5.3(b) hereof, subject to the
requirements of Paragraph 2.9(b) hereof; or
(b) discontinue, liquidate, or change in any material respect
any substantial part of its operations or business(es).
6.8. Acquisitions and Investments. Purchase or otherwise acquire
----------------------------
(including without limitation by way of share exchange) any part or amount of
the capital stock, partnership interests, or assets of, or make any investments
in, any other firm or corporation; or enter into any new business activities or
ventures not directly related to its present business; or merge or consolidate
with or into any other firm or corporation; or create any Subsidiary; provided,
however that in the absence of a Default or an Event of Default and if such
transaction will not give rise to a Default or an Event of Default, the
Companies may: (i) make Permitted Investments, (ii) form new wholly-owned
Subsidiaries, subject to Paragraph 5.19 hereof, (iii) invest in joint-venture
Subsidiaries operating solely in the United States of America with less than
100% ownership, provided that the aggregate fair market amount contributed to
such Subsidiaries (including without limitation guaranties issued on behalf of
or loans or advances to such Subsidiaries) shall not exceed after the date
hereof Three Million Five Hundred Thousand Dollars ($3,500,000) in the aggregate
for all such joint-venture Subsidiaries, and (iv) make Permitted Acquisitions,
provided, however, that without regard to whether such Permitted
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<PAGE>
Acquisition is being funded by an Advance under the Acquisition Commitment,
Borrower shall provide to Banks the following information no later than fifteen
(15) Business Days prior to a Permitted Acquisition requiring the approval of
Required Banks as provided in clause (iii) of the definition thereof and no
later than ten (10) Business Days prior to any other Permitted Acquisition:
(A) a narrative description of the proposed acquisition
which demonstrates it to be a Permitted Acquisition, and describes the business
to be acquired, the legal structure for the acquisition, the acquisition price
to be paid, and other material features of the proposed acquisition;
(B) a report with respect to the Permitted Acquisition
and all other Permitted Acquisitions completed in the same fiscal year in the
form of Exhibit I attached hereto;
(C) copies of the financial statements, if available, or
federal income tax returns if not, dated as of the three (3) most recently ended
fiscal years of such business or the seller of such assets;
(D) an amendment or supplement to Exhibit F hereto, to
include the required disclosure hereunder as applicable to such business or
assets;
(E) pro forma financial statements of the business or
--- -----
assets and Parent and its consolidated Subsidiaries giving effect to the
proposed acquisition on an historical basis for the two most recent fiscal
quarters for which a Compliance Certificate has been delivered and on a
projected basis for the period ending on the Acquisition Commitment Termination
Date, including the information required pursuant to Paragraph 5.2(i), (ii) and
(iii) and demonstrating compliance with the covenants set forth in Paragraph
5.13 through 5.16 as of the end of each fiscal quarter; and
(F) such additional documents as Agent may reasonably
request, each of the foregoing to be in form and substance reasonably
satisfactory to Agent.
6.9. Payments to Affiliates. Except as set forth in Paragraph
----------------------
6.3(iv), pay any salaries, compensation, management fees, consulting fees,
service fees, licensing fees, or other similar payments to Affiliates of any
Company other than on an arms-length basis for value, and on terms and
conditions as are customary in the industry between and among unrelated
entities.
6.10. Use of Proceeds. Use any of the proceeds of the Loan, directly
---------------
or indirectly, to purchase or carry margin
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<PAGE>
securities within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System; or engage as its principal business in the extension of
credit for purchasing or carrying such securities.
SECTION 7
ADDITIONAL COLLATERAL AND RIGHT OF SET-OFF
------------------------------------------
7.1. Additional Collateral. As additional collateral for the payment
---------------------
of any and all of Borrower's indebtedness and obligations to Banks, whether
matured or unmatured, now existing or hereafter incurred or created hereunder or
otherwise, Borrower hereby grants to Banks a security interest in and lien upon
all funds, balances or other property of any kind of Borrower, or in which
Borrower has an interest, limited to the interest of Borrower therein, whether
now or hereafter in the possession, custody or control of any Bank.
7.2. Right of Set-off. Each Bank is hereby authorized at any time
----------------
and from time to time following the occurrence and during the continuation of an
Event of Default hereunder, to the fullest extent permitted by law, to set-off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such Bank
to or for the credit or the account of Borrower against any and all of the
obligations of Borrower now or hereafter existing under this Agreement and the
Notes, irrespective of whether such Bank shall have made any demand under this
Agreement or such Notes and although such obligations may be unmatured. Each
Bank agrees promptly to notify Borrower after any such set-off and application
made by such Bank; provided, however, that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of Banks
under this Section Seven are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which Banks may have.
SECTION 8
DEFAULT
-------
8.1. Events of Default. Each of the following events shall be an
-----------------
Event of Default hereunder:
(a) If Borrower shall fail to pay (i) when due any installment of
principal, (ii) within five (5) days of when due any interest, fees, costs,
expenses or any other sum payable to Banks or Agent hereunder, or (iii) within
ten (10) days of
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notice thereof by Agent to Borrower any fees, costs or expenses due to third
parties pursuant to this Agreement; or
(b) If any representation or warranty made herein or in connection
herewith or in any statement, certificate or other document furnished hereunder
is false or misleading in any material respect when made; or
(c) If any Company shall default (after expiration of any applicable
cure or grace periods) in the payment or performance of any obligation or
Indebtedness to another either singly or in the aggregate in excess of Five
Hundred Thousand Dollars ($500,000), whether now or hereafter incurred, other
than intercompany indebtedness; or
(d) If Borrower shall default in or fail to observe at any test date
the covenants set forth in Paragraphs 5.13 through 5.16 hereof or in Section 6
hereof; or
(e) If any Company shall default in the performance of any other
agreement or covenant contained herein (other than as provided in subparagraphs
(a), (b) or (d) above) or in any document executed or delivered in connection
herewith, including without limitation with respect to any Collateral, and such
default shall continue uncured for thirty (30) days after notice thereof to
Borrower given by Agent; or
(f) If: (i) (A) any person or group within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "1934 Act") and
the rules and regulations promulgated thereunder shall have beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act), directly or indirectly, of
securities of Parent (or other securities convertible into such securities)
other than (1) Bruce Feldman or (2) any person described in Rule 13d-1(b)(i) (D)
or (E) which is eligible to file a Schedule 13G in lieu of a Schedule 13D (only
for so long as such person is so eligible) representing twenty percent (20%) of
the combined voting power of all securities of Parent entitled to vote in the
election of directors (hereinafter called a "Controlling Person"); or (B) a
majority of the Board of Directors of Parent shall cease for any reason to
consist of (1) individuals who on the date hereof were serving as directors of
Borrower or (2) individuals who subsequently become members of the Board if such
individuals' nomination for election or election to the board is recommended or
approved by a majority of the Board of Directors of Parent. For purposes of
clause (A) above, a person or group shall not be a Controlling Person if such
person or group holds voting power in good faith and not for the purpose of
circumventing this Paragraph 8.1(f)(i) as an agent, bank, broker, nominee,
trustee, or holder of revocable proxies given in response to a solicitation
pursuant to the 1934 Act, for one or more beneficial owners who do not
individually,
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<PAGE>
or, if they are a group acting in concert, as a group, have the voting power
specified in clause (A) above; or
(ii) the Parent ceases to own, either directly or indirectly, one
hundred percent (100%) of the issued and outstanding capital stock of each
Company unless such cessation of ownership is due to a sale or transfer of
assets permitted pursuant to Paragraph 6.7 hereof or an investment permitted
pursuant to Paragraph 6.8 hereof; or
(g) If Bruce Feldman ceases to have the authority to cause the
direction of the day-to-day management and day-to-day policies of the Companies,
unless within ninety (90) days Agent is notified in writing of the identity and
qualifications of a person with experience in the home health business given
such authority and such new management is not objected to in writing by Required
Banks within sixty (60) days of such notice, or if objected to, then within
ninety (90) days after such objection Agent is notified in writing of another
such person given such authority and such management is not objected to within
sixty (60) days of such subsequent notice; or
(h) If custody or control of any substantial part of the property of
any Company representing ten percent (10%) or more of Parent's consolidated net
revenues for the most recent fiscal quarter for which financial statements have
been delivered pursuant to Paragraph 5.2 or 5.3 hereof shall be assumed by any
governmental agency or any court of competent jurisdiction at the instance of
any governmental agency; if any license or franchise of a Company shall be
suspended, revoked, not renewed or otherwise terminated the loss of which would
reasonably be expected to have a Material Adverse Effect; if third party payor
agreements (public or private) representing, either individually or in the
aggregate, fifteen percent (15%) or more of Parent's consolidated net revenues
for the most recent fiscal quarter for which financial statements have been
delivered pursuant to Paragraph 5.2 or 5.3 hereof are revoked, terminated or not
renewed, other than in connection with the execution of a new or replacement
agreement with the existing or another third party payor; if any Company
representing, either individually or in the aggregate fifteen percent (15%) of
Parent's consolidated net revenues for the most recent fiscal quarter for which
financial statements have been delivered pursuant to Paragraph 5.2 or 5.3
hereof, shall lose accreditation by the Joint Commission on Accreditation of
Health Organizations; or if any governmental regulatory authority or judicial
body shall make any other final non-appealable determination the effect of which
would have Material Adverse Effect; or
(i) If any Company becomes insolvent (excluding intercompany
indebtedness in the case of any Company other than Parent and Borrower),
bankrupt or generally fails to pay its
-53-
<PAGE>
debts as such debts become due; is adjudicated insolvent or bankrupt; admits in
writing its inability to pay its debts; or shall suffer a custodian, receiver or
trustee for it or substantially all of its property to be appointed and if
appointed without its consent, not be discharged within thirty (30) days; makes
a general assignment for the benefit of creditors; or suffers proceedings under
any law related to bankruptcy, insolvency, liquidation or the reorganization,
readjustment or the release of debtors to be instituted against it and if
contested by it not dismissed or stayed within thirty (30) days; if proceedings
under any law related to bankruptcy, insolvency, liquidation, or the
reorganization, readjustment or the release of debtors is instituted or
commenced by any Company; if any order for relief is entered relating to any of
the foregoing proceedings; if any Company shall call a meeting of its creditors
with a view to arranging a composition or adjustment of its debts; or if any
Company shall by any act or failure to act indicate its consent to, approval of
or acquiescence in any of the foregoing; or
(j) any event or condition shall occur or exist with respect to any
activity or substance regulated under the Environmental Control Statutes and as
a result of such event or condition, the Companies have incurred or in the
opinion of Required Banks are reasonably likely to incur liabilities in the
aggregate in excess of One Million Dollars ($1,000,000); or
(k) if any judgment, writ, warrant or attachment or execution or
similar process which calls for payment or presents liability in excess of Five
Hundred Thousand Dollars ($500,000) shall be rendered, issued or levied against
any Company or its respective property and such process shall not be paid,
waived, stayed, vacated, discharged, settled, satisfied or fully bonded within
sixty (60) days after its issuance or levy unless such judgment is covered by
insurance and the insurer has acknowledged coverage in writing with respect
thereto.
8.2. Remedies. Upon the happening of any Event of Default and at any
--------
time thereafter, and by notice by Agent on behalf of Required Banks to Borrower
(except if an Event of Default described in Paragraph 8.1(i) shall occur in
which case acceleration of the Loan and termination of the Commitment shall
occur automatically without notice), Required Banks may (i) terminate the
Revolving Commitment, the Acquisition Commitment or both and (ii) declare the
entire unpaid balance, principal, interest, fees, and other amounts of all
indebtedness of Borrower to Banks, hereunder or otherwise, to be immediately due
and payable. Upon such declaration, Agent and Banks shall have the immediate
right to enforce or realize on any Collateral granted therefor in any manner or
order it deems expedient without regard to any equitable principles of
marshalling or otherwise. In addition to any rights granted hereunder or in any
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<PAGE>
of the Loan Documents delivered in connection herewith, Agent and Banks shall
have all the rights and remedies granted by any applicable law, all of which
shall be cumulative in nature.
SECTION 9
AGENCY PROVISIONS
-----------------
This Section sets forth the relative rights and duties of Agent and
Banks respecting the Loan and, with the exception of Paragraphs 9.3 and 9.15
hereof, does not confer any enforceable rights on Borrower against Banks or
create on the part of Banks any duties or obligations to Borrower.
9.1. Application of Payments. Agent shall apply all payments of
-----------------------
principal, interest, commitment fee or other amounts hereunder made to Agent by
or on behalf of Borrower with respect to the Revolving Loan, Acquisition Loan
and Letters of Credit, as applicable, to Banks on the basis of their Pro Rata
Shares of the outstanding principal balance of the applicable Loan being paid
hereunder, except the fees payable under Paragraphs 2.13 and 2A.4(a)(iv) hereof,
which shall be paid solely to Agent. Such distribution of payments shall be
made promptly in federal funds immediately available at the office of each Bank
set forth above.
9.2. Set-Off. In the event a Bank, by exercise of its right of set-
-------
off, or otherwise, receives any payment of principal or interest, in an amount
greater than its Pro Rata Share of such payment based upon the Banks' respective
shares of principal Indebtedness outstanding hereunder immediately before such
payment, such Bank shall purchase a portion of the Indebtedness hereunder owing
to each other Bank so that after such purchase each Bank shall hold its Pro Rata
Share of all the Indebtedness then outstanding hereunder, provided that if all
or any portion of such excess payment is thereafter recovered from such Bank,
such purchase shall be rescinded and the purchase price restored to the extent
of any such recovery, but without interest.
9.3. Modifications and Waivers. No modification or amendment hereof,
-------------------------
consent hereunder or waiver of any Event of Default shall be effective except by
written consent of the Required Banks; provided, however, that the written
consent of all Banks shall be required to (i) modify, amend, waive, discharge,
terminate or suspend compliance with (A) any rate of interest applicable to the
Revolving Loan or Acquisition Loan, to the extent it is proposed to be
decreased, (B) the amount of the Commitment to the extent it is proposed to be
increased, or the Banks' respective shares thereof; (C) the date or amounts of
payment of the Revolving Loan or Acquisition Loan, (D) the commitment fee set
forth in Paragraph 2.11 hereof or other amounts payable by Borrower hereunder
except if payable solely to
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<PAGE>
the Agent, to the extent any such amount is proposed to be decreased, (E) the
definition of Required Banks, or (F) this Paragraph 9.3; (ii) release any
Collateral; or (iii) release any Guarantor.
9.4. Obligations Several. The obligations of the Banks hereunder are
-------------------
several, and each Bank hereunder shall not be responsible for the obligations of
the other Banks hereunder, nor will the failure of one Bank to perform any of
its obligations hereunder relieve the other Banks from the performance of their
respective obligations hereunder.
9.5. Banks' Representations. Each Bank represents and warrants to
----------------------
the other Banks that (i) it has been furnished all information it has requested
for the purpose of evaluating its proposed participation under this Agreement;
and (ii) it has decided to enter into this Agreement on the basis of its
independent review and credit analysis of Borrower, this Agreement and the
documentation in connection therewith and has not relied for such analysis on
any information or analysis provided by any other Bank.
9.6. Investigation. No Bank shall have any obligation to the others
-------------
to investigate the condition of Borrower or any of the Collateral or any other
matter concerning the Loan.
9.7. Powers of Agent. Agent shall have and may exercise those powers
---------------
specifically delegated to Agent herein, together with such powers as are
reasonably incidental thereto.
9.8. General Duties of Agent, Immunity and Indemnity. Upon receipt
-----------------------------------------------
of notices and reports delivered by Borrower to the Agent under this Agreement,
the Agent shall promptly deliver the same in the form received to the Banks. In
performing its duties as Agent hereunder, Agent will take the same care as it
takes in connection with loans in which it alone is interested, subject to the
limitations on liabilities contained herein; provided that Agent shall not be
obligated to ascertain or inquire as to the performance of any of the terms,
covenants or conditions hereof by Borrower. Neither Agent nor any of its
directors, officers, agents or employees shall be liable for any action or
omission by any of them hereunder or in connection herewith except for gross
negligence or willful misconduct. Subject to such exception, each of the Banks
hereby indemnifies Agent (in its capacity as Agent) on the basis of such Bank's
Pro Rata Share, against any liability, claim, loss or expense arising from or
relating to any action taken or omitted to be taken with respect to this
Agreement, any other Loan Document or the transactions contemplated thereby or
Borrower, to the extent that the Agent has not been reimbursed therefor by
Borrower, without affecting any obligation of Borrower to reimburse.
-56-
<PAGE>
9.9. No Responsibility for Representations or Validity, etc. Each
------------------------------------------------------
Bank agrees that Agent shall not be responsible to any Bank for any
representations, statements, or warranties of Borrower herein. Neither Agent
nor any of its directors, officers, employees or agents shall be responsible for
the validity, effectiveness, sufficiency, perfection or enforceability of this
Agreement and any Collateral, or any documents relating thereto or for the
priority of any of Banks' security interests in any such Collateral.
9.10. Action on Instruction of Banks; Right to Indemnity. Agent
--------------------------------------------------
shall act upon written instruction of Banks or Required Banks, as appropriate,
and in all cases Agent shall be fully protected in acting or refraining from
acting hereunder in accordance with such written instructions to it signed by
Required Banks unless the consent of all the Banks is expressly required
hereunder in which case Agent shall be so protected when acting in accordance
with such instructions from all the Banks. Such instructions and any action
taken or failure to act pursuant thereto shall be binding on all the Banks,
provided that except as otherwise provided herein, Agent may act hereunder in
its own discretion without requesting such instructions.
9.11. Employment of Agents. In connection with its activities
--------------------
hereunder, Agent may employ agents and attorneys-in-fact and shall not be
answerable, except as to money or securities received by it or its authorized
agents, for the default or misconduct of agents or attorneys-in-fact selected
with reasonable care.
9.12. Reliance on Documents. Agent shall be entitled to rely upon
---------------------
(a) any paper or document believed by it to be genuine and correct and to have
been signed or sent by the proper person or persons and (b) upon the opinion of
its counsel with respect to legal matters.
9.13. Agent's Rights as a Bank. With respect to its share of the
------------------------
indebtedness hereunder, Agent shall have the same rights and powers hereunder as
any other Bank and may exercise the same as though it were not Agent. Each of
the Banks may accept deposits from and generally engage in other banking or
trust business with Borrower as if it were not Agent or a Bank hereunder.
9.14. Expenses. Each of the Banks shall reimburse Agent, from time
--------
to time at the request of Agent, for its Pro Rata Share of any expenses incurred
by Agent in connection with the performance of its functions hereunder without
affecting any obligation of Borrower to reimburse, provided however that in the
event Banks shall reimburse Agent for expenses for which Borrower subsequently
reimburses Agent, Agent shall remit to each Bank the respective amount received
from such Bank against such expenses.
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<PAGE>
9.15. Resignation of Agent. Agent may at any time resign its
--------------------
position as Agent, without affecting its position as a Bank, by giving written
notice to Banks and Borrower. Such resignation shall take effect upon the
appointment of a successor agent in accordance with this Paragraph 9.15. In the
event Agent shall resign, Required Banks with the consent of Borrower, which
consent will not be unreasonably withheld, shall appoint a Bank as successor
agent. If within thirty (30) days of the Agent's notice of resignation no
successor agent shall have been appointed by Banks and accepted such
appointment, then Agent, in its discretion may appoint any other Bank with
banking powers as a successor agent.
9.16. Successor Agent. The successor Agent appointed pursuant to
---------------
Paragraph 9.15 shall execute and deliver to its predecessor and Banks an
instrument in writing accepting such appointment, and thereupon such successor,
without any further act, deed or conveyance, shall become fully vested with all
the properties, rights, duties and obligations of its predecessor Agent. The
predecessor Agent shall deliver to its successor Agent forthwith all Collateral,
documents and moneys held by it as Agent, if any, whereupon such predecessor
Agent shall be discharged from its duties and obligations as Agent under this
Agreement.
9.17. Collateral Security. Agent will hold, administer and manage
-------------------
any Collateral pledged from time to time hereunder either in its own name or as
Agent, but each Bank shall hold a direct, undivided pro-rata beneficial interest
therein, on the basis of its Pro Rata Share, by reason of and as evidenced by
this Agreement.
9.18. Enforcement by Agent. All rights of action under this
--------------------
Agreement and under the Notes and all rights to the Collateral hereunder may be
enforced by Agent and any suit or proceeding instituted by Agent in furtherance
of such enforcement shall be brought in its name as Agent without the necessity
of joining as plaintiffs or defendants any other Banks, and the recovery of any
judgment shall be for the benefit of Banks subject to the expenses of Agent.
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<PAGE>
SECTION 10
MISCELLANEOUS
-------------
10.1. Indemnification and Release Provisions. Borrower hereby agrees
--------------------------------------
to defend Agent and each Bank and their directors, officers, agents, employees
and counsel from, and hold each of them harmless against, any and all losses,
liabilities (including without limitation settlement costs and amounts, transfer
taxes, documentary taxes, or assessments or charges made by any governmental
authority), claims, damages, interest judgments, costs, or expenses, including
without limitation reasonable fees and disbursements of counsel, incurred by any
of them arising out of or in connection with or by reason of this Agreement, the
Commitment, the making of the Loan or any Collateral therefor, other than those
resulting primarily from any such party's own wilful misconduct or gross
negligence, including without limitation, any and all losses, liabilities,
claims, damages, interests, judgments, costs or expenses relating to or arising
under any Environmental Control Statute or the application of any such Statute
to any of the Companies' properties or assets. Borrower hereby releases Agent
and each Bank and their directors, officers, agents, employees and counsel from
any and all claims for loss, damages, costs or expenses caused or alleged to be
caused by any act or omission on the part of any of them other than those
resulting primarily from any such party's own wilful misconduct or gross
negligence. All obligations provided for in this Paragraph 10.1 shall survive
any termination of this Agreement or the Commitment and the repayment of the
Loan.
10.2. Participations and Assignments. Borrower hereby acknowledges
------------------------------
and agrees that a Bank may at any time: (a) grant participations in all or any
portion of its Maximum Principal Amount of the Loan or of its right, title and
interest therein or in or to this Agreement (collectively, "Participations") to
any other lending office or to any other bank or lending institution
("Participants"); provided, however, that: (i) all amounts payable by Borrower
hereunder shall be determined as if such Bank had not granted such
Participation; and (ii) any agreement pursuant to which any Bank may grant a
Participation: (x) shall provide that such Bank shall retain the sole right and
responsibility to enforce the obligations of Borrower hereunder including,
without limitation, the right to approve any amendment, modification or waiver
of any provisions of this Agreement; (y) may provide that such Bank will not
agree to any modification, amendment or waiver of this Agreement without the
consent of the Participant if such modification, amendment or waiver would
require approval of all Banks pursuant to Paragraph 9.3 hereof; and (z) shall
not relieve such Bank from its obligations, which shall remain absolute, to make
Advances hereunder; and (b) assign its rights and obligations under the
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<PAGE>
Commitment and the Loan with notice to Borrower and Agent together with the
payment to Agent of a $2,500 transfer fee, provided, that in the absence of an
Event of Default hereunder no Bank shall assign more than fifty percent (50%) of
its rights and obligations hereunder. Any grant of a participation or
assignment pursuant to this Paragraph 10.2 shall be pro rata as to the
Acquisition Loan and the Revolving Loan. Borrower may not assign or otherwise
its rights or obligation under this Agreement without the prior written consent
of Banks.
10.3. Binding and Governing Law. This Agreement and all documents
-------------------------
executed hereunder shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns and, except as may be
required by mandatory provisions of applicable law, shall be governed as to
their validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania.
10.4. Survival. All agreements, representations, warranties and
--------
covenants of Borrower contained herein or in any documentation required
hereunder shall survive the execution of this Agreement and the making of the
Loan hereunder, and except for Paragraphs 5.10 and 10.1 which provide otherwise
will continue in full force and effect as long as any indebtedness or other
obligation of Borrower to Banks remains outstanding.
10.5. No Waiver; Delay. If Banks shall waive any power, right or
----------------
remedy arising hereunder or under any applicable law, such waiver shall not be
deemed to be a waiver upon the later occurrence or recurrence of any of said
events with respect to Banks. No delay by Banks in the exercise of any power,
right or remedy shall, under any circumstances, constitute or be deemed to be a
waiver, express or implied, of the same and no course of dealing between the
parties hereto shall constitute a waiver of Banks' powers, rights or remedies.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
10.6. Modification; Waiver. Except as otherwise provided in this
--------------------
Agreement, no modification or amendment hereof, or waiver or consent hereunder,
shall be effective unless made in a writing signed by appropriate officers of
the parties hereto.
10.7. Headings. The various headings in this Agreement are inserted
--------
for convenience only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
10.8. Notices. Any notice, request or consent required hereunder or
-------
in connection herewith shall be deemed satisfactorily given if in writing and
delivered by hand, mailed (registered or certified mail) or sent by facsimile
transmission to Agent or Borrower at their respective addresses or telecopier
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<PAGE>
number set forth below, or to Banks at their respective addresses or telecopier
numbers set forth on Schedule 1 attached hereto, or to any party at such other
addresses or telecopier numbers as may be given by any party to the others in
writing:
if to Borrower:
Home Health Corporation of Delaware, Inc.
2200 Renaissance Boulevard
Suite 300
King of Prussia, PA 19406
Attention: Bruce J. Feldman
Telecopier: 610-272-3131
if to Agent:
CoreStates Bank, N.A.
1339 Chestnut Street
Philadelphia, PA 19101
Attention: Jennifer W. Leibowitz
Telecopier: 215-973-2738
10.9. Payment on Non-Business Days. Whenever any payment to be made
----------------------------
hereunder shall be stated to be due on a day other than a Business Day, such
payment may be made on the next succeeding Business Day, provided however that
such extension of time shall be included in the computation of interest due in
conjunction with such payment or other fees due hereunder, as the case may be.
10.10. Time of Day. All time of day restrictions imposed herein shall
-----------
be calculated using Agent's local time.
10.11. Severability. If any provision of this Agreement or the
------------
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
10.12. Counterparts. This Agreement may be executed in any number of
------------
counterparts with the same effect as if all the signatures on such counterparts
appeared on one document, and each such counterpart shall be deemed to be an
original.
10.13. Consent to Jurisdiction and Service of Process. Borrower
----------------------------------------------
irrevocably appoints each officer of Parent as its attorney upon whom may be
served any notice, process or pleading in any action or proceeding against it
arising out of or in connection with this Agreement, the Notes, the Loan
Documents or any of the Collateral; Borrower hereby consents that any action
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<PAGE>
or proceeding against it be commenced and maintained in any court within the
Commonwealth of Pennsylvania or in the United States District Court for the
Eastern District of Pennsylvania by service of process on any officer of Parent;
and Borrower agrees that the courts of the Commonwealth of Pennsylvania and the
United States District Court for the Eastern District of Pennsylvania shall have
jurisdiction with respect to the subject matter hereof and the person of
Borrower and the Collateral. Notwithstanding the foregoing, Agent, in its
absolute discretion may also initiate proceedings in the courts of any other
jurisdiction in which any Company may be found or in which any of its properties
or Collateral may be located.
10.14. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
--------------------
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR THE NOTES OR OTHER LOAN DOCUMENTS OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF AGENT OR BANKS. THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANKS'
ENTERING INTO THIS AGREEMENT.
10.15. ACKNOWLEDGEMENTS. BORROWER ACKNOWLEDGES THAT IT HAS HAD THE
----------------
ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS AGREEMENT AND,
SPECIFICALLY, PARAGRAPH 10.14 HEREOF, AND FURTHER ACKNOWLEDGES THAT THE MEANING
AND EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL HAVE BEEN FULLY EXPLAINED TO
BORROWER BY SUCH COUNSEL.
IN WITNESS WHEREOF, the undersigned, by their duly authorized
officers, as applicable, have executed this Agreement the day and year first
above written.
HOME HEALTH CORPORATION OF
Attest: DELAWARE, INC.
By:/s/James J. Swiniuch By:/s/Bruce J. Colburn
----------------------- --------------------------
Name: James J. Swiniuch Name: Bruce J. Colburn
Title: Vice President Title: Chief Financial Officer
Home Health Corp.
of America, Inc.
CORESTATES BANK, N.A., for itself
and as Agent
By:/s/Jennifer W. Leibowitz
-----------------------------
Name: Jennifer W. Leibowitz
Title: Asst. Vice President
[EXECUTIONS CONTINUED]
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<PAGE>
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:/s/ Joseph H. Towell
-----------------------------
Name: Joseph H. Towell
Title: Sr. Vice President
PNC BANK, NATIONAL ASSOCIATION
By:/s/ Gabrielle Wanamaker
-----------------------------
Name: Gabrielle Wanamaker
Title: Vice President
SUNTRUST BANK, CENTRAL FLORIDA,
N.A.
By:/s/ Anne E. Lane
-----------------------------
Name: Anne E. Lane
Title: Vice President
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<PAGE>
SCHEDULE 1
BANKS
Maximum Principal Amount
------------------------
<TABLE>
<CAPTION>
Maximum Maximum Total
Principal Amount Principal Amount Maximum Pro
of Revolving of Acquisition Principal Rata
Bank Commitment Commitment Amount Share
- ------ ---------------- ---------------- --------- -----
<S> <C> <C> <C> <C>
CoreStates Bank, N.A. $ 8,000,000 $ 12,000,000 $ 20,000,000 40.00%
1339 Chestnut Street
Philadelphia, PA 19107
Attention: Jennifer Leibowitz,
Assistant Vice
President
Tel: (215) 786-3972
Fax: (215) 973-2738
First Union National Bank 4,500,000 6,750,000 11,250,000 22.50%
of North Carolina
One First Union Center
301 College Street
Charlotte, NC 28288-0735
Attention: David F. Grams,
Vice President
Tel: (704) 383-6249
Fax: (704) 383-9144
PNC Bank, National 4,500,000 6,750,000 11,250,000 22.50%
Association
100 South Broad Street
6th Floor
M.S. F5-F012-07-1
Philadelphia, PA 19110
Attention: Gabrielle Wanamaker,
Vice President
Tel: (215) 585-6389
Fax: (215) 585-6987
SunTrust Bank, Central 3,000,000 4,500,000 7,500,000 15.00%
Florida, N.A.
Mail Code 0-1106
200 South Orange Avenue
Tower Ten
Orlando, FL 32801
Attention: Anne E. Lane,
Vice President
Tel: (407) 237-5739
Fax: (407) 237-2491
------------ ------------ ------------ ------
$ 20,000,000 $ 30,000,000 $ 50,000,000 100.00%
</TABLE>
<PAGE>
EXHIBIT A-1
REVOLVING LOAN ADVANCE REQUEST FORM
-----------------------------------
In accordance with Paragraph 2.7(a) of the Second Amended and Restated
Credit Agreement (as amended from time to time, the "Agreement") dated ______
__, 1996, by and among HOME HEALTH CORPORATION OF DELAWARE, INC. ("Borrower"),
the banks signatory thereto ("Banks"), and CORESTATES BANK, N.A., as Agent for
Banks ("Agent"), Borrower hereby requests an Advance under the Revolving
Commitment. Capitalized terms used and not otherwise defined herein shall have
the meanings ascribed thereto in the Agreement.
Borrower hereby requests, represents and certifies that as of the date
hereof and the date of the requested Advance (receipt of such Advance being
deemed an affirmation of paragraphs (a) through (g) below):
(a) The aggregate amount of the requested Advance is
$________________./1/
(b) The interest rate selected is ___ Base Rate for a Portion of
$__________ and ____ Adjusted Libor Rate for a Portion of $__________ with an
Interest Period of __________.
(c) The Advance is to be used for purposes permitted by Paragraph
2.4(a) of the Agreement.
(d) The date on which the requested Advance is to be made is
_________________.
(e) The Companies are in compliance with Paragraphs 5.13 through
5.16 of the Agreement (i) as of the end of the most-recent fiscal quarter for
which a Compliance Certificate has been (or is required to have been) delivered,
and (ii) taking into account all Advances (including the requested Advance),
Letter of Credit issuances and payments since such date.
(f) No Event of Default or Default under the Agreement has
occurred and is continuing or will be caused by the requested Advance.
(g) There has been no material adverse change in the financial
condition, operations or business of the Companies since the date of the
financial statements most recently
- --------------
1. Advances must be at least $1,000,000 and in multiples of $250,000 in excess
thereof, or be the unborrowed balance of the Commitment.
<PAGE>
delivered by Borrower to Banks pursuant to Paragraphs 3.8, 5.2 and 5.3 of the
Agreement.
(h) The representations and warranties set forth in Section Three
of the Agreement, other than those made as of a specific date, are true and
correct.
IN WITNESS WHEREOF, the undersigned, being the Chief __________
Officer of Borrower has executed this Certificate this __ day of ________, 199_.
HOME HEALTH CORPORATION OF DELAWARE, INC.
By:
-------------------------------
Name:
Title: Chief _________ Officer
-2-
<PAGE>
EXHIBIT A-2
ACQUISITION ADVANCE REQUEST FORM
--------------------------------
In accordance with Paragraph 2.7(b) of the Second Amended and Restated
Credit Agreement (as amended from time to time, the "Agreement") dated ________,
1996, by and among HOME HEALTH CORPORATION OF DELAWARE, INC. ("Borrower"), the
banks signatory thereto ("Banks"), and CORESTATES BANK, N.A., as Agent for Banks
("Agent"), Borrower hereby requests an Advance under the Acquisition Commitment.
Capitalized terms used and not otherwise defined herein shall have the meanings
ascribed thereto in the Agreement.
Borrower hereby requests, represents and certifies that as of the date
hereof and the date of the requested Advance (receipt of such Advance being
deemed an affirmation of paragraphs (a) through (i) below):
(a) The aggregate amount of the requested Advance is
$________________./1/
(b) The interest rate selected is ___ Base Rate for a Portion of
$__________ and ____ Adjusted Libor Rate for a Portion of $__________ with an
Interest Period of __________.
(c) The Advance is to be used for purposes permitted by Paragraph
2.4(b) of the Agreement.
(d) The date on which the requested Advance is to be made is
_________________./2/
(e) The Companies are in compliance with Paragraphs 5.13 through
5.16 of the Agreement (i) as of the end of the most-recent fiscal quarter for
which a Compliance Certificate has been (or is required to have been) delivered,
and (ii) taking into account all Advances (including the requested Advance) and
payments since such date.
(f) No Event of Default or Default under the Agreement has
occurred and is continuing or will be caused by the requested Advance.
(g) There has been no material adverse change in the financial
condition, operations or business of Borrowers since the date of the financial
statements most recently
- -------------------
1. Advances must be at least $1,000,000 and in multiples of $250,000 in excess
thereof, or be the unborrowed balance of the Commitment.
2. Date of Advance must be no sooner than 10 Business Days after the date of
this request.
<PAGE>
delivered by Borrowers to Bank pursuant to Paragraphs 3.8, 5.2 and 5.3 of the
Agreement.
(h) The representations and warranties set forth in Section Three
of the Agreement, other than those made as of specific date, are true and
correct.
(i) Enclosed herewith or previously delivered to Banks are the
following documents (indicate enclosure herewith by check mark, or indicate date
of prior delivery)/3/:
_______ a narrative description of the proposed acquisition
which demonstrates it to be a Permitted Acquisition, and describes the business
to be acquired, the legal structure for the acquisition, the acquisition price
to be paid, and other material features of the proposed acquisition;
_______ a report with respect to the Permitted Acquisition and
all other Permitted Acquisitions completed in the same fiscal year in the form
of Exhibit I attached to the Credit Agreement;
_______ copies of the financial statements, if available, or
federal income tax returns if not, dated as of the three (3) most recently ended
fiscal years of such business or the seller of such assets;
_______ an amendment or supplement to Exhibit F hereto, to
include the required disclosure hereunder as applicable to such business or
assets;
_______ pro forma financial statements of the business or assets
--- -----
and Parent and its consolidated Subsidiaries giving effect to the proposed
acquisition on an historical basis for the two most recent fiscal quarters for
which a Compliance Certificate has been delivered and on a projected basis for
the period ending on the Acquisition Commitment Termination Date, including the
information required pursuant to Paragraph 5.2 and demonstrating compliance with
the covenants set forth in Paragraph 5.13 through 5.16 as of the end of each
fiscal quarter.
(j) Based on the pro forma financial statements referred to
--- -----
above, there would be no Event of Default or Default as of the most recent
fiscal quarter end for which a Compliance
- ---------------------
3. For acquisitions requiring approval of Banks, the listed information must be
provided not later than fifteen (15) Business Days prior to consummation of the
acquisition.
-2-
<PAGE>
Certificate has been (or is required to have been) delivered and for each fiscal
quarter through the Acquisition Commitment Termination Date.
IN WITNESS WHEREOF, the undersigned, being the Chief _________ Officer
of Parent has executed this Certificate this __ day of __________, 199_.
HOME HEALTH CORPORATION OF DELAWARE, INC.
By:
-------------------------------
Name:
Title: Chief Officer
---------
-3-
<PAGE>
EXHIBIT B-1
LETTER OF CREDIT REQUEST FORM
-----------------------------
In accordance with Paragraph 2A.3 of the Second Amended and Restated
Credit Agreement (as amended from time to time, the "Agreement") dated ______
__, 1996, by and among HOME HEALTH CORPORATION OF DELAWARE, INC. ("Borrower"),
the banks signatory thereto ("Banks"), and CORESTATES BANK, N.A., as Agent for
Banks ("Agent"), Borrower hereby requests the issuance of a Letter of Credit.
Capitalized terms used and not otherwise defined herein shall have the meanings
ascribed thereto in the Agreement.
Borrower hereby requests, represents and certifies that as of the date
hereof and the date of the requested issuance (receipt of such Letter of Credit
being deemed an affirmation of paragraphs (a) through (g) below):
a. The amount of the requested Letter of Credit is $___________.
b. The proposed date of issuance of the requested Letter of
Credit is ___________.
c. The expiration date for the requested Letter of Credit
shall be _____________.
d. Attached hereto is a completed Letter of Credit Application
indicating the terms of the requested Letter of Credit.
e. The following Letters of Credit are outstanding on the date
hereof:
L/C No. Expiration Face Amount Undrawn Balance
------- ---------- ----------- ---------------
===============
TOTAL:
f. The unborrowed portion of the Revolving Commitment is
$__________________, which equals or exceeds the sum of (i) the face amount of
the requested Letter of Credit, plus (ii) the amount available to be drawn under
and any unreimbursed draws under all other Letters of Credit.
g. The sum of (i) the face amount of the requested Letter of
Credit, plus (ii) the amount available to be drawn under and any unreimbursed
draws under all other
<PAGE>
outstanding Letters of Credit, does not exceed the Letter of Credit Sublimit.
h. The Companies are in compliance with Paragraphs 5.13 through
5.16 of the Agreement (i) as of the end of the most-recent fiscal quarter for
which a Compliance Certificate has been (or is required to have been) delivered,
and (ii) taking into account all Advances, Letter of Credit issuances (including
the requested Letter of Credit) and payments since such date.
i. No Event of Default or Default under the Agreement has
occurred and is continuing or will be caused by the requested Letter of Credit
issuance.
j. There has been no material adverse change in the financial
condition, operations or business of the Companies since the date of the
financial statements most recently delivered by Borrower to Banks pursuant to
Paragraph 4.1(e), 5.2 and 5.3 of the Agreement.
k. The representations and warranties set forth in Section Three
of the Agreement, other than those made as of a specific date, are true and
correct.
IN WITNESS WHEREOF, the undersigned, being the Chief __________
Officer of Borrower has executed this Certificate this __ day of ________, 199_.
HOME HEALTH CORPORATION OF DELAWARE, INC.
By:_______________________________
Name:
Title: Chief _________ Officer
-2-
<PAGE>
EXHIBIT C-1
FORM OF REVOLVING NOTE
----------------------
$_____________ ________ __, 1996
FOR VALUE RECEIVED, the undersigned, HOME HEALTH CORPORATION OF
DELAWARE, INC., a Delaware corporation with an office at 2200 Renaissance
Boulevard, Suite 300, King of Prussia, Pennsylvania 19406-2755 ("Borrower")
hereby promises to pay to the order of __________________ (herein "Bank") at the
offices of Agent designated below, the principal sum of ____________________
DOLLARS ($_________) in full on the Revolving Commitment Termination Date (as
defined in the Credit Agreement referred to below). Borrower also promises to
pay interest on the outstanding balance hereunder in accordance with the
provisions set forth in Paragraph 2.6 of the Credit Agreement referenced below.
This Revolving Note (this "Note") arises out of a certain Second
Amended and Restated Credit Agreement dated _____ __, 1996 among Borrower, Bank,
the other banks signatory thereto, and CoreStates Bank, N.A., as agent for the
Banks ("Agent") (as amended from time to time, the "Credit Agreement").
Reference is made to the Credit Agreement for a statement of the collateral
security for the Revolving Loan, the respective rights and obligations of the
parties and the terms and conditions therein provided under which additional
principal payments hereunder may be required and under which all or a part of
the principal hereof, accrued interest thereon, and other amounts payable under
the Credit Agreement may become immediately due and payable. Notwithstanding
the face amount of this Note, the Borrower's liability to Bank hereunder shall
not exceed, at any time, the actual outstanding indebtedness of the Borrower to
Bank, including principal, interest, fees and expenses, under the Revolving Loan
pursuant to the Credit Agreement. Capitalized terms used, but not otherwise
defined, in this Note shall have the meanings given to them in the Credit
Agreement.
This Note is one of the Revolving Notes referred to in the Credit
Agreement which collectively replace and supersede the Fifth Amended and
Restated Revolving Credit Note dated April 24, 1996 by Borrower and certain
affiliates of Borrower in favor of CoreStates Bank, N.A. (the "Prior Note"),
provided, however, that the execution and delivery of the Revolving Notes shall
not in any circumstance be deemed to have terminated, extinguished or discharged
Borrower's indebtedness under such Prior Note, all of which indebtedness shall
continue under and be governed by the Revolving Notes and the Credit Agreement.
The Revolving Notes
<PAGE>
are a replacement and amendment and restatement of the Prior Note and are NOT A
NOVATION. Nothing herein or therein is intended to modify or in any way affect
the priority of the liens and security interests which secure the Revolving
Loan, except as expressly provided in the Credit Agreement.
All principal and interest shall be payable in lawful money of the
United States of America in immediately available funds at the office of
CoreStates Bank, N.A., as Agent, 1339 Chestnut Street, Philadelphia,
Pennsylvania 19101.
The occurrence of an Event of Default under the Credit Agreement
constitutes an Event of Default under the Revolving Notes and entitles Required
Banks, in accordance with the Credit Agreement, to declare the Revolving Notes
immediately due and payable.
Borrower hereby waives presentment, demand for payment, notice of
dishonor or acceleration, protest and notice of protest, and any and all other
notices or demands in connection with the delivery, acceptance, performance,
default or enforcement of this Note, except any notice requirements set forth in
the Credit Agreement.
This Note shall be binding upon Borrower and its successors and
permitted assigns and shall inure to the benefit of the Bank and its successors
and permitted assigns. This Note shall be governed as to validity,
interpretation and effect by the laws of the Commonwealth of Pennsylvania.
In the event any interest rate applicable hereto is in excess of the
highest rate allowable under applicable law, then the rate of such interest will
be reduced to the highest rate not in excess of such maximum allowable interest
and any excess previously paid by Borrower shall be deemed to have been applied
against the principal.
BORROWER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY
RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR THE CREDIT
AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF BANK. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR BANK'S ENTERING INTO THE CREDIT AGREEMENT.
-2-
<PAGE>
BORROWER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN THE
REVIEW AND EXECUTION OF THIS NOTE AND THAT THE MEANING AND EFFECT OF THE
FOREGOING WAIVER OF JURY TRIAL HAVE BEEN FULLY EXPLAINED TO BORROWER BY SUCH
COUNSEL.
IN WITNESS WHEREOF, the undersigned, being the authorized officers of
Borrower, have executed this Revolving Note under seal the day and year first
above written.
Attest: HOME HEALTH CORPORATION OF
DELAWARE, INC.
By:____________________ By:_________________________
Name: Name:
Title:
Title:
-3-
<PAGE>
EXHIBIT C-2
FORM OF ACQUISITION NOTE
------------------------
$_____________ ________ __, 1996
FOR VALUE RECEIVED, the undersigned, HOME HEALTH CORPORATION OF
DELAWARE, INC., a Delaware corporation with an office at 2200 Renaissance
Boulevard, Suite 300, King of Prussia, Pennsylvania 19406-2755 ("Borrower")
hereby promises to pay to the order of __________________ (herein "Bank") at the
offices of Agent designated below, the principal sum of ____________________
DOLLARS ($_________) in full on the Acquisition Commitment Termination Date (as
defined in the Credit Agreement referred to below). Borrower also promises to
pay interest outstanding balance hereunder in accordance with the provisions set
forth in Paragraph 2.6 of the Credit Agreement referenced below.
This Acquisition Note (this "Note") arises out of a certain Second
Amended and Restated Credit Agreement dated _____ __, 1996 among Borrower, Bank,
the other banks signatory thereto, and CoreStates Bank, N.A., as agent for the
Banks ("Agent") (as amended from time to time, the "Credit Agreement").
Reference is made to the Credit Agreement for a statement of the collateral
security for the Acquisition Loan, the respective rights and obligations of the
parties and the terms and conditions therein provided under which additional
principal payments hereunder may be required and under which all or a part of
the principal hereof, accrued interest thereon, and other amounts payable under
the Credit Agreement may become immediately due and payable. Notwithstanding
the face amount of this Note, the Borrower's liability to Bank hereunder shall
not exceed, at any time, the actual outstanding indebtedness of the Borrower to
Bank, including principal, interest, fees and expenses, under the Acquisition
Loan pursuant to the Credit Agreement. Capitalized terms used, but not
otherwise defined, in this Note shall have the meanings given to them in the
Credit Agreement.
This Note is one of the Acquisition Notes referred to in the Credit
Agreement which collectively replace and supersede the Amended and Restated
Acquisition Note dated August 5, 1996 by Borrower and certain affiliates of
Borrower in favor of CoreStates Bank, N.A. (the "Prior Note"), provided,
however, that the execution and delivery of the Acquisition Notes shall not in
any circumstance be deemed to have terminated, extinguished or discharged
Borrower's indebtedness under such Prior Note, all of which indebtedness shall
continue under and be governed by the Acquisition Notes and the Credit
Agreement. The Acquisition Notes are a replacement, amendment and restatement
of the Prior
<PAGE>
Note and are NOT A NOVATION. Nothing herein or therein is intended to modify or
in any way affect the priority of the liens and security interests which secure
the Acquisition Loan, except as expressly provided in the Credit Agreement.
All principal and interest shall be payable in lawful money of the
United States of America in immediately available funds at the office of
CoreStates Bank, N.A., as Agent, 1339 Chestnut Street, Philadelphia,
Pennsylvania 19101.
The occurrence of an Event of Default under the Credit Agreement
constitutes an Event of Default under the Acquisition Notes and entitles
Required Banks, in accordance with the Credit Agreement, to declare the
Acquisition Notes immediately due and payable.
Borrower hereby waives presentment, demand for payment, notice of
dishonor or acceleration, protest and notice of protest, and any and all other
notices or demands in connection with the delivery, acceptance, performance,
default or enforcement of this Note, except any notice requirements set forth in
the Credit Agreement.
This Note shall be binding upon Borrower and its successors and
permitted assigns and shall inure to the benefit of the Bank and its successors
and permitted assigns. This Note shall be governed as to validity,
interpretation and effect by the laws of the Commonwealth of Pennsylvania.
In the event any interest rate applicable hereto is in excess of the
highest rate allowable under applicable law, then the rate of such interest will
be reduced to the highest rate not in excess of such maximum allowable interest
and any excess previously paid by Borrower shall be deemed to have been applied
against the principal.
BORROWER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY
RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR THE CREDIT
AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF BANK. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR BANK'S ENTERING INTO THE CREDIT AGREEMENT.
-2-
<PAGE>
BORROWER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN THE
REVIEW AND EXECUTION OF THIS NOTE AND THAT THE MEANING AND EFFECT OF THE
FOREGOING WAIVER OF JURY TRIAL HAVE BEEN FULLY EXPLAINED TO BORROWER BY SUCH
COUNSEL.
IN WITNESS WHEREOF, the undersigned, being the authorized officers of
Borrower, have executed this Acquisition Note under seal the day and year first
above written.
Attest: HOME HEALTH CORPORATION OF
DELAWARE, INC.
By:____________________ By:_________________________
Name: Name:
Title:
Title:
-3-
<PAGE>
EXHIBIT D
FORM OF
SELLER SUBORDINATION AGREEMENT
------------------------------
THIS SUBORDINATION AGREEMENT made this __ day of ___, 1996, by
___________, a ____________ corporation and ____________, a ___________
corporation (individually and collectively, "Subordinated Creditor") in favor of
the Banks under the Credit Agreement described below and CoreStates Bank, N.A.,
as Agent for the Banks ("Agent"), and any additional Senior Creditor, as defined
below.
In order to induce the Senior Creditors to consent to the Subordinated
Debt described below, and in consideration therefor, and for other good and
valuable consideration, the parties hereto hereby agree as follows:
1. Definitions.
-----------
a. "Borrowers" shall mean Home Health Corporation of America,
Inc. and its subsidiaries now or hereafter indebted to Senior Creditors.
b. "Senior Creditors" shall mean individually and collectively
the lenders from time to time under the Senior Debt.
c. "Senior Debt" shall mean, all of the indebtedness,
liabilities and obligations of Borrowers to Senior Creditors, or any senior
creditor, whether now existing or hereafter arising, including, without
limitation, the indebtedness, liabilities and obligations arising under the
Second Amended and Restated Credit Agreement dated _________ ___, 1996 among
CoreStates, for itself and as Agent, the lenders thereunder, and Home Health
Corporation of Delaware, Inc. ("HHCD"), (as such Credit Agreement is amended,
modified or restated from time to time, the "Credit Agreement") and the guaranty
thereof by the other Borrowers and all principal and interest under and
evidenced by the Notes executed by HHCD pursuant to the Credit Agreement (as
amended, modified or restated from time to time, collectively, the "Notes"), as
such indebtedness, Credit Agreement, Notes and Guaranty may be amended,
extended, renewed, refinanced, replaced, increased, supplemented or assigned
from time to time hereafter, including without limitation any interest accruing
after commencement of bankruptcy proceedings, whether or not allowed as a claim
in such proceedings; as any such indebtedness, liabilities and obligations may
be amended, extended, renewed, refinanced, replaced, increased, supplemented or
assigned from time to time hereafter.
<PAGE>
d. "Subordinated Creditor" shall mean individually and
collectively _____________________________.
e. "Subordinated Debt" shall mean all indebtedness, liabilities
and obligations of Borrowers or any of them to the Subordinated Creditor,
whether now existing or hereafter arising.
2. Subordination of Payment. The payment of any and all
------------------------
Subordinated Debt is hereby expressly subordinated to the payment in full of all
Senior Debt; provided, however, that in the absence of a default or an event of
default under any Senior Debt and if no default or event of default under any
Senior Debt would result therefrom, the Subordinated Creditor may receive
regularly scheduled payments of principal and interest on the $_________
Promissory Note dated ____________, ____ in favor of Subordinated Creditor.
3. Acceleration. If the Senior Debt becomes due and payable in
------------
full, whether at scheduled maturity, by acceleration or otherwise, then,
notwithstanding Section 2 above, no payment shall be made on any Subordinated
Debt until all principal of and interest on all such matured or accelerated
Senior Debt shall have been paid in full. Subordinated Creditor, however, may
accelerate the Subordinated Debt following the commencement of (i) a voluntary
case under the Bankruptcy Code by Parent or (ii) an involuntary case under the
Bankruptcy Code which is not dismissed within sixty (60) days of being filed or
with respect to which Parent consents to an order for relief.
4. Moratorium on Remedies. Subordinated Creditor shall not
----------------------
accelerate, demand, sue for, commence any collection or enforcement action or
proceeding, take, receive, accept or retain any payment or distribution of any
character, whether in cash, securities or other property, in respect of the
principal of, premium on, or interest on or any fees or other amounts in respect
of, the Subordinated Debt or any collateral security therefor, until all Senior
Debt shall have been paid in full with interest, including interest during any
bankruptcy or similar proceeding involving any Borrower from the date of the
filing thereof to the date of distribution (notwithstanding any statute,
including without limitation the Federal Bankruptcy Code, any rule of law or
bankruptcy procedures to the contrary). Notwithstanding the foregoing:
a. Subordinated Creditor may receive payments to the extent
permitted by Section 2 above; and
b. Subordinated Creditor may accelerate the Subordinated Debt
to the extent permitted by Section 3 above; and
-2-
<PAGE>
c. Subordinated Creditor may receive distributions in
bankruptcy to the extent permitted by the proviso to Section 5(b) hereof.
-------
5. Bankruptcy, Insolvency. In the event of the institution of and
----------------------
in connection with any insolvency, bankruptcy, receivership, liquidation,
reorganization or other similar proceedings relative to any Borrower, or its
property, or any proceeding for the voluntary liquidation, dissolution or other
winding-up of any Borrower and whether or not involving insolvency or bankruptcy
proceedings:
a. all Senior Debt shall first be paid in full in cash before
any payment or distribution of any character, whether in cash, securities or
other property, shall be made in respect of any Subordinated Debt except as set
forth in the proviso to subsection (b) below;
-------
b. any payment or distribution of any character, whether in
cash, securities or other property, which would otherwise (but for the terms
hereof) be payable or deliverable in respect of any Subordinated Debt shall be
paid or delivered directly to Senior Creditors, until all Senior Debt shall have
been paid in full in cash, and Subordinated Creditor irrevocably authorizes,
empowers and directs all receivers, trustees, liquidators, conservators and
others having authority to effect all such payments and deliveries; provided,
however, that if a payment or distribution in respect of any Subordinated Debt
is in the form of securities or obligations which by their terms are subordinate
or junior, at least to the extent provided in this Agreement, to the payment of
all Senior Debt then outstanding, then such payment or distribution may be made
to the holder of the Subordinated Debt if pursuant to a plan of reorganization
approved by Banks; and
c. Subordinated Creditor shall execute and deliver to Senior
Creditors all such further instruments confirming the authorization referred to
in the foregoing clause (b) and all such powers of attorney, proofs of claim,
assignments of claim and other instruments and shall take all such other actions
as may be requested by Senior Creditors in order to enable Senior Creditors to
enforce all its rights hereunder and all claims of Senior Creditors upon or in
respect of the Subordinated Debt, and failing execution of such instruments or
taking of such actions by Subordinated Creditor, Senior Creditors are hereby
authorized and empowered to execute and perform the same on behalf of
Subordinated Creditor.
6. Payments Held in Trust. In the event any payment or distribution
----------------------
of any character in connection with the Subordinated Debt, whether in cash,
securities or other property, is received by Subordinated Creditor other than
pursuant to the
-3-
<PAGE>
terms of Section 2 or Section 5(b) of this Agreement, and before all Senior Debt
shall have been paid in full in cash, such payment or distribution shall be held
by Subordinated Creditor, as trustee of an express trust, in trust for the
benefit of, and shall be paid over or delivered and transferred to Senior
Creditors for application to all Senior Debt remaining unpaid until such Senior
Debt shall have been paid in full in cash. Subordinated Creditor hereby assigns
to Senior Creditors all rights of Subordinated Creditor to any such payments or
distributions, which Senior Creditors may exercise in Senior Creditors' name or
in the name of Subordinated Creditor, and agrees to execute such instruments as
may be required by Senior Creditors to enable Senior Creditors to enforce such
claims. Any payments or distributions received in excess of the amount
sufficient to pay all Senior Debt in full in cash shall be returned by Senior
Creditors to the applicable Subordinated Creditor.
7. Evidence of Subordination. If the Subordinated Debt is evidenced
-------------------------
in whole or part by any promissory note or other instruments, Subordinated
Creditor agrees, at Senior Creditors' request, to endorse and deliver such notes
and instruments to Senior Creditors to be held by Senior Creditors subject to
the provisions of this Agreement, or to note on the face thereof that the same
is subject to this Agreement.
8. Collateral. Notwithstanding anything to the contrary contained
----------
in any other instrument or document delivered in connection with any
Subordinated Debt, all Subordinated Debt shall remain unsecured for so long as
the Senior Debt remains outstanding. If, in violation of this prohibition, any
Subordinated Debt is at any time secured by any security interest or lien, all
such security interests or liens held by any Subordinated Creditor in any
collateral security shall be held for the benefit of Senior Creditors to secure
the Senior Debt, and shall be junior and subordinated to any security interests
or liens now or hereafter held by Senior Creditors in the same collateral. So
long as the Senior Debt shall remain outstanding, Senior Creditors may at all
times in their sole discretion exercise any and all powers and rights which it
now has or may hereafter acquire with respect to any of the collateral securing
the Senior Debt, all without the necessity of obtaining any consent or approval
of Subordinated Creditor.
9. Representations. Subordinated Creditor represents and warrants
---------------
that it is duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization and has the power and authority under the
laws of such jurisdiction and under its articles of incorporation and by-laws,
and other organizational documents to enter into this Agreement; all actions
necessary or appropriate for its execution and performance of this Agreement
have been taken and upon its
-4-
<PAGE>
execution, this Agreement will constitute its valid and binding obligation
enforceable in accordance with its terms; the making and performance of this
Agreement will not violate any law or regulation, federal, state or local, or
its articles of incorporation or by-laws, partnership agreement or other
organizational documents or result in any violation of or constitute a default
under any agreement by which it or any of its property is bound.
10. Continuing Agreement. This Agreement is a continuing agreement
--------------------
of subordination and Senior Creditors may continue to make loans to or otherwise
accept the obligations of Borrowers in reliance hereon, without notice to
Subordinated Creditor. Senior Creditors may make any increases, renewals,
extensions or other modifications of any kind relating to the terms and
conditions of any Senior Debt or any collateral security or guaranty therefor,
and may release or exchange or otherwise deal with any collateral security or
guaranty or may release any balance of funds on deposit or otherwise held by a
Senior Creditor without notice to or consent of Subordinated Creditor and
without impairing or affecting Senior Creditors' rights under this Agreement.
11. Modifications. While this Agreement remains in effect,
-------------
Subordinated Creditor covenants and agrees that it will not modify or amend or
permit modification or amendment of the terms and conditions of its respective
Subordinated Debt without obtaining Senior Creditors' prior written consent
thereto.
12. Waivers. No waiver of Senior Creditors' rights hereunder shall
-------
be effective unless in a writing signed by such Senior Creditors and each waiver
shall extend only to the specific instance involved and shall not impair or
affect any Senior Creditors' rights in any other respect at any other time.
Subordinated Creditor hereby waives all notices with respect to the subject
matter hereof, including, but not limited to, notice of acceptance of this
Agreement, of the making of loans or advances to the Borrowers or any
extensions, renewals or modifications thereof, releases of collateral security
or guarantors or other indulgences of any character, or of the occurrence or
declaration of any default or the taking of any collection or enforcement
action. This Agreement shall be binding upon the successors and assigns of
Subordinated Creditor, may not be amended except by a writing signed by the
parties hereto, and shall be construed according to the laws of the Commonwealth
of Pennsylvania.
13. No Impairment. Subject to the provisions of this Agreement and
-------------
the rights of Senior Creditors, hereunder, as between Borrowers and Subordinated
Creditor, nothing herein contained shall impair the obligation of Borrowers to
pay the Subordinated Debt as and when the same shall become due and
-5-
<PAGE>
payable in accordance with the terms thereof, or prevent Subordinated Creditor
upon default with respect to the Subordinated Debt, from exercising all rights,
powers and remedies otherwise provided therein or by applicable law.
14. Notices. Any notice given hereunder or in connection herewith
-------
shall be deemed to be satisfactorily given if in writing and delivered by hand,
mailed by registered or certified mail or sent by facsimile transmission to the
parties at their respective addresses set forth in the first paragraph hereof or
to the facsimile number as given by any party to the others.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
CORESTATES BANK, N.A., as Agent for Senior
Creditors
By:___________________________
Name:
Title:
[SUBORDINATED CREDITOR]
By:__________________________
Name:
Title:
-6-
<PAGE>
The undersigned Borrowers hereby:
(a) acknowledge and confirm that they have received an executed
copy of this Subordination Agreement and approve of and consent to it in all
respects; and,
(b) agree to be bound by and to observe all of the terms and
conditions of this Subordination Agreement.
HOME HEALTH CORPORATION OF AMERICA, INC.,
PENNSYLVANIA HOME HEALTH SERVICES/
PHILADELPHIA, INC.,
PENNSYLVANIA HOME HEALTH
SERVICES/NORTHEAST, INC.,
PENNSYLVANIA HOME CARE, INC.,
HOME CARE MEDICAL SUPPLY & EQUIPMENT, INC.,
NUTRITIONAL HOME HEALTH SERVICES, INC.,
ALL CARE HEALTH SERVICES, INC.,
ALL-CARE HOME HEALTH SERVICES, INC.
HOME HEALTH CORPORATION OF AMERICA, INC./
FT. PIERCE HOME HEALTH SERVICES,
HOME HEALTH CORPORATION OF DELAWARE, INC.
HHCD, INC.
HHCDME, INC.
PROFESSIONAL HOME HEALTH SERVICES, INC.
HOME HEALTH CORPORATION OF AMERICA, INC. -
TAMPA
HOME HEALTH CORPORATION OF AMERICA, INC. -
TAMPA DIAGNOSTIC SERVICES
HOME HEALTH CORPORATION OF AMERICA, INC. -
PINELLAS
HOME HEALTH CORPORATION OF AMERICA, INC. -
ST. PETERSBURG
HOME HEALTH CORPORATION OF AMERICA, INC. -
TAMPA NURSING
PENNSYLVANIA HOME HEALTH SERVICES/SUBURBAN,
INC.
HHCA, INC. - DELAWARE
HHCA - SERVICE CO.
ATTEST:
By: By:
-------------------- ------------------------
Name: Name:
Title: Title:
-7-
<PAGE>
EXHIBIT E
FORM OF ADJUSTMENT REQUEST
_____________ ___, 19__
To: CoreStates Bank, N.A., as Agent
for the Banks under the Credit
Agreement referred to below
1339 Chestnut Street
Philadelphia, PA 19101
Reference is made to the Credit Agreement dated ________ ___, 1996 (as
amended from time to time, the "Credit Agreement") by and among Home Health
Corporation of Delaware, Inc. ("Borrower"), the Banks signatory thereto, and
CoreStates Bank, N.A., as agent for the Banks ("Agent"). Capitalized terms used
and not defined herein shall have the meanings ascribed thereto in the Credit
Agreement.
In accordance with Paragraph 2.1(c) of the Credit Agreement, Borrower
hereby requests an adjustment to the respective amounts of the Revolving
Commitment and Acquisition Commitment under the Credit Agreement, as follows:
1. Upon execution of this Adjustment Request by Banks, the Credit
Agreement shall be deemed amended such that:
a. the Revolving Commitment shall be: $___________
and
b. the Acquisition Commitment shall be: $___________
-----------
TOTAL: $ 50,000,000
============
2. In support of this Adjustment Request, the undersigned hereby
represents and certifies as follows:
a. The aggregate outstanding principal balance of the Revolving Loan is
$______________, which is less than or equal to the amount of the adjusted
Revolving Commitment as set forth above.
b. The aggregate outstanding principal balance of the Acquisition
Commitment is $___________, which is less than or equal to the amount of the
adjusted Acquisition Commitment as set forth above.
<PAGE>
c. No Event of Default or Default under the Credit Agreement has occurred
and is continuing or will be caused by the requested adjustment in the
respective amounts of the Revolving Commitment and Acquisition Commitment.
d. There has been no material adverse change in the financial condition,
operations or business of the Companies since the date of the financial
statements most recently delivered by Borrower to Banks pursuant to Paragraph
4.1(e), 5.2 and 5.3 of the Credit Agreement.
e. The representations and warranties set forth in Section Three of the
Credit Agreement, other than those made as of a specific date, are true and
correct.
IN WITNESS WHEREOF, the undersigned has executed this Adjustment
Request as of the date and year first above written.
HOME HEALTH CORPORATION OF
DELAWARE, INC.
By:_________________________
Name:
Title:
ACKNOWLEDGED AND AGREED TO
THIS ___ DAY OF __________,
_________:/1/
CORESTATES BANK, N.A., for itself and
as Agent
By:_________________________
Name:
Title:
[_______________________]
By:_________________________
Name:
Title:
[_______________________]
By:_________________________
Name:
Title:
- ----------------------------
1. Insert date that signatures of all Bank have been received.
<PAGE>
EXHIBIT G
FUNDING COSTS AND LOSS OF EARNINGS CALCULATION
If Borrower is liable to Banks for funding costs or loss of earnings
pursuant to the Credit Agreement, then on (i) the date of revocation of the
request for or failure to meet the conditions to an advance or (ii) the
repayment or prepayment date, as the case may be, Borrower shall pay Agent, for
the benefit of Banks, an amount, not less than zero, as calculated by Bank in
accordance with the following formula:
(Adjusted Libor Rate plus the Applicable Margin, as then applicable to the
Portion not funded or being repaid or prepaid) - (the Applicable Libor Rate as
defined herein)
X
(the principal amount of the Portion not funded or being repaid or prepaid)
X
(the number of days in the Interest Period selected for any Portion not
funded or remaining in the Interest Period for any Portion being repaid or
prepaid) divided by (360)
The "Applicable Libor Rate" shall mean the rate which appears on the
Telerate Page 3750, at approximately 9:00 a.m. Philadelphia time on the date of
failure to fund or date of repayment or prepayment, for the offering to leading
banks in the London Interbank Market of deposits in United States dollars
("Eurodollars") or, if such rate does not appear on the Telerate page 3750, the
rate which appears (or, if two or more such rates appear, the average rounded up
to the nearest 1/16 of 1% of the rates which appear) on the Reuters Screen LIBO
Page as of 9:00 a.m. Philadelphia time on such date, in either case in amount or
amounts substantially equal in the aggregate to the amount not funded or being
repaid or prepaid and with a maturity or maturities substantially equal to the
period or periods of time between the date of failure to fund or date of
repayment or prepayment and the date or dates such amount would otherwise have
matured and become repayable under the Credit Agreement.
In addition, Borrower shall reimburse Banks and Agent for any additional
costs incurred in connection with such requested advance that is revoked or for
which the conditions are not satisfied, or in connection with such repayment or
prepayment of a Libor Portion, which shall include by not be limited to broker
commissions or other charges, or reasonable administrative costs and expenses,
incurred by the applicable Bank or Agent.
<PAGE>
Terms used herein and not otherwise defined shall have the meanings set
forth in the Credit Agreement.
<PAGE>
EXHIBIT H
COMPLIANCE CERTIFICATE
----------------------
In accordance with Paragraph 5.4 of the Second Amended and Restated
Credit Agreement (as amended from time to time, the "Credit Agreement") dated
______ __, 1996, by and among HOME HEALTH CORPORATION OF DELAWARE, INC.
("Borrower"), the banks signatory thereto ("Banks"), and CORESTATES BANK, N.A.,
as Agent for Banks ("Agent"), the undersigned hereby certifies to Banks as
follows:
1. Enclosed herewith are the financial statements for Parent and its
consolidated Subsidiaries indicated below, which financial statements were
prepared in accordance with GAAP (except that interim statements do not have
footnotes and are subject to year-end adjustments) consistently applied and
fairly present in all material respects the financial condition and results of
operations of Parent and its consolidated Subsidiaries as of the dates and for
the periods covered.
___ Quarterly Financial Statements as required pursuant to Paragraph
5.2 of the Credit Agreement for the period ended ___________,
____.
___ Audited Annual Financial Statement as required pursuant to
Paragraph 5.3 of the Credit Agreement for the fiscal year ended
__________, ____.
2. Also enclosed herewith are pro forma historical financial
--- -----
statements for the two (2) fiscal quarters ending on the date of the financial
statements referred to in Paragraph 1 above, reflecting the following Permitted
Acquisitions which were consummated during such two-quarter period:
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
3. There exists no violation of any provision of the Credit
Agreement and there has not been an Event of Default or Default, except as
described in Item 4 below.
4. The following event or circumstance, is, or with the passage of
time or giving of notice will be, a Default or an Event of Default under the
Credit Agreement:_____________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
_____________________________________________________________________________.
<PAGE>
4. The following actions are being taken with respect to the
matter(s) identified in Item 4 above:__________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
______________________________________________________________________________.
5. Attached hereto as Schedule 1 are the undersigned's calculations
of the covenants set forth in Paragraphs 5.13, 5.14, 5.15 and 5.16 of the Credit
Agreement.
Capitalized terms used and not otherwise defined herein shall have the
meanings ascribed thereto in the Credit Agreement.
IN WITNESS WHEREOF, the undersigned, being the Chief __________
Officer of Borrower has executed this Certificate this __ day of ________, 199_.
HOME HEALTH CORPORATION OF
DELAWARE, INC.
By:
-------------------------------
Name:
Title: Chief _________ Officer
-2-
<PAGE>
SCHEDULE 1
I. Calculation of Adjusted EBITDA, Adjusted EBITDAR and Adjusted Fixed
Charges:
(check as applicable):
____ No Permitted Acquisition has been consummated during the two fiscal
quarters preceding the date of the Compliance Certificate, and
Adjusted EBITDA, Adjusted EBITDAR and Adjusted Fixed Charges are based
on the actual results of operations of Parent and its consolidated
Subsidiaries set forth in the enclosed financial statements
____ One or more Permitted Acquisitions has been consummated during the two
fiscal quarters preceding the date of the Compliance Certificate, and
Adjusted EBITDA, Adjusted EBITDAR and Adjusted Fixed Charges are based
on the pro forma results of operations of Parent and its consolidated
--- -----
Subsidiaries including the acquired operations as set forth in the
enclosed pro forma financial statements
--- -----
A. Adjusted EBITDA and Adjusted EBITDAR - the sum of the following items,
in each case for the most recently ended two fiscal quarters multiplied by two:
Net income: $________ x 2 = $_________
Interest paid in cash: $________ x 2 = $_________
Original issue discount paid
in cash: $________ x 2 = $_________
Taxes: $________ x 2 = $_________
Depreciation and amortization: $________ x 2 = $_________
Charges related to extinguish-
ment of debt: $________ x 2 = $_________
Charges associated with Permitted
Acquisitions accounted for as
a pooling of interests: $________ x 2 = $_________
ADJUSTED EBITDA: $
==========
Rental expense: $________ x 2 = $_________
ADJUSTED EBITDAR: $
==========
<PAGE>
B. Adjusted Fixed Charges - the sum of the following items, in each case
for the most recently ended two fiscal quarters multiplied by two:
Principal paid on Funded
Debt: $________ x 2 = $_________
Interest paid on Funded
Debt: $________ x 2 = $_________
Original issue discount paid
on Funded Debt: $________ x 2 = $_________
Income taxes paid: $________ x 2 = $_________
Capital Expenditures: $________ x 2 = $_________
Rental expense: $________ x 2 = $_________
ADJUSTED FIXED CHARGES: $
==========
-2-
<PAGE>
II. Calculation of Funded Debt to Adjusted EBITDA Ratio (Paragraph 5.13 of
Credit Agreement):
Funded Debt: (A) $________________
Adjusted EBITDA: (B) $________________
Ratio of Funded Debt to Adjusted
EBITDA (A divided by B): _________________
Compliance: ____ YES ____ NO
Circle the Applicable Margins based on the following matrix:
<TABLE>
<CAPTION>
Applicable Margin
-----------------
Ratio of Funded Base Rate Libor
Debt to Adjusted EBITDA Portions Portions
----------------------- --------- ---------
<S> <C> <C>
less than 1.0 to 1 0.00% 0.75%
less than 1.5 to 1 0.00% 1.00%
but greater than or
equal to 1.0 to 1
less than 2.0 to 1 0.00% 1.50%
but greater than or
equal to 1.5 to 1
greater than or 0.50% 2.00%
equal to 2.0 to 1
</TABLE>
III. Calculation of Fixed Charge Coverage Ratio (Paragraph 5.14 of the Credit
Agreement):
Adjusted EBITDAR: (A) $________________
Adjusted Fixed Charges: (B) $________________
Fixed Charge Coverage Ratio
(A divided by B): _________________
Compliance: ____ YES ____ NO
-3-
<PAGE>
IV. Calculation of Leverage Ratio (Paragraph 5.15 of the Credit Agreement):
Funded Debt: (A) $________________
Total Capitalization:
Capital stock: $__________
Retained Earnings: $__________
Additional paid-
in capital: $__________
Redeemable common
stock: $__________
Funded Debt: $__________
$__________ (B) $________________
Leverage ratio (A divided
by B): _________________
Compliance: ___ YES ___ NO
V. Calculation of Current Ratio (Paragraph 5.16 of the Credit Agreement):
Current Assets: (A) $________________
Current Liabilities: (B) $________________
Current Ratio (A divided by B): _________________
Compliance: ___ YES ___ NO
-4-
<PAGE>
EXHIBIT I
FORM OF
PERMITTED ACQUISITIONS REPORT
<TABLE>
<CAPTION>
Purchase Price
----------------------------------------------
Acquisition Other Def. Assumed
Date Company Business State Type Cash Notes Obligations Debt Stock TOTAL
- ---- ------- -------- ----- ----------- ---- ----- ----------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
____ ____ ___________ _______ _____ _____
Subtotal:
____ ____ ___________ _______ _____ _____
TOTAL:
==== ==== =========== ======= ===== =====
</TABLE>
<PAGE>
GUARANTY
--------
THIS GUARANTY is made this 22 day of August, 1996 by HOME HEALTH
CORPORATION OF AMERICA, INC. ("Parent") and the subsidiaries of Parent signatory
hereto (Parent and such subsidiaries, including any subsidiaries that may join
in this Guaranty hereafter, each individually a "Guarantor" and individually and
collectively, "Guarantors"), in favor of CORESTATES BANK, N.A., as Agent
("Agent") for the Banks under the Credit Agreement described below.
W I T N E S S E T H :
WHEREAS, Home Health Corporation of Delaware, Inc. ("Borrower") is
party to that certain Second Amended and Restated Credit Agreement dated of even
date herewith (as amended from time to time, the "Credit Agreement") with the
banks signatory thereto ("Banks") and Agent; and
WHEREAS, Borrower is a wholly-owned subsidiary of Parent, and funds
advanced under the Credit Agreement will be used in the business and operations
of Guarantors; and
WHEREAS, it is a condition precedent to the making of advances by Banks
under the Credit Agreement that Guarantors shall have executed and delivered
this Guaranty.
NOW, THEREFORE, in consideration of the foregoing premises, and for
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, Guarantors do hereby
covenant and agree as follows:
1. Definitions and Construction. Reference is hereby made to the
----------------------------
Credit Agreement for a statement of the terms thereof. All terms used in this
Guaranty which are defined in the Credit Agreement and not defined herein shall
have the respective meanings ascribed to such terms in the Credit Agreement.
2. Guaranty. Guarantors hereby jointly and severally, absolutely and
--------
unconditionally guarantee and become surety for the full, prompt and punctual
payment to Banks and Agent, as and when due, whether at maturity, by
acceleration or otherwise, of any and all indebtedness, and performance of any
and all liabilities and obligations of Borrower to Banks or Agent created at any
time under, or pursuant to the terms of the Credit Agreement and of the
promissory notes issued by Borrower to Banks evidencing the same (herein, as may
be amended from time to time, the "Notes"), whether for principal, interest,
premiums, fees, expenses or otherwise (all such indebtedness, liabilities and
obligations being herein called collectively the "Obligations"), together with
any and all reasonable expenses, including without limitation attorneys' fees
and disbursements, which may be
<PAGE>
incurred by Banks or Agent in collecting any or all of the Obligations or
enforcing any and all rights against Guarantors under this Guaranty (herein the
"Expenses"). Without limiting Guarantors' obligations hereunder and
notwithstanding any purported termination of this Guaranty, if any bankruptcy,
insolvency, reorganization, arrangement, readjustment, composition, liquidation,
dissolution, assignment for the benefit of creditors, or similar event with
respect to Borrower or any co-guarantor or endorser of all or any of the
Obligations shall occur, and such occurrence shall result in the return of (or
in such event Banks or Agent shall be requested to return) of any payment or
performance of any of the Obligations or Expenses, then (a) without further
notice, demand or other action, the obligations of Guarantors hereunder shall be
reinstated with respect to (i) such payment or performance returned (or
requested to be returned) and (ii) with respect to all further obligations
arising as a result of such return or request, and (b) Guarantors shall
thereupon be liable therefor, without any obligation on the part of Banks or
Agent to contest or resist any such return.
3. Nature and Term of Guaranty.
---------------------------
(a) The obligations and liability of Guarantors under this Guaranty
shall be independent, joint and several, absolute, primary and direct,
irrevocable and unconditional, regardless of: any non-perfection of any
collateral security for the Obligations; any lack of validity or enforceability
of the Credit Agreement, the Notes or any of the Obligations or Expenses; the
voluntary or involuntary liquidation, dissolution, sale or other disposition of
all, or substantially all of the assets, marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition with creditors or readjustment of, or
other similar proceedings affecting Borrower or Guarantors or any co-guarantor
or endorser of, any or all of the Obligations and Expenses or any of the assets
of any of them, or any contest of the validity of this Guaranty in any such
proceeding; or any law, regulation or decree now or hereafter in effect in any
jurisdiction which might in any manner affect any of such terms or provisions or
any of the rights of Banks or Agent with respect thereto or which might cause or
permit Borrower or any co-guarantor or endorser of the Obligations and Expenses
to invoke any defense to, or any alteration in the time, amount or manner of
payment of any or all of the Obligations and Expenses or performance of this
Guaranty.
(b) This Guaranty is a continuing guaranty and shall remain in full
force and effect until the Obligations, the Expenses and any and all other
amounts payable hereunder shall have been paid in full and no further loans or
advances are available under the Credit Agreement and the period during which
any payment by Borrower or Guarantors is or may be subject to
-2-
<PAGE>
rescission, avoidance or refund under the United States Bankruptcy Code (or any
similar state statute) shall have expired.
4. Payment in Accordance with Note and Loan Agreement.
--------------------------------------------------
(a) Guarantors hereby guarantee that the Obligations and Expenses shall
be paid and performed strictly in accordance with the terms of the Notes and the
Credit Agreement.
(b) If any Obligation or Expense is not paid or performed by the
Borrower punctually, subject to any applicable grace period, including without
limitation any Obligation due by acceleration of the maturity thereof,
Guarantors will, upon the Agent's demand on behalf of Banks, immediately pay or
perform such Obligation or Expense or cause the same to be paid or performed.
Guarantors will pay to Agent, upon demand, all reasonable costs and expenses,
including the Expenses, which may be incurred by Banks or Agent in the
collection or enforcement of Guarantors' obligations under this Guaranty.
5. Rights and Remedies of Agent. Agent, in its sole discretion, may
----------------------------
proceed to exercise any right or remedy which it may have under this Guaranty
against any Guarantor without first pursuing or exhausting any rights or
remedies which it may have against Borrower, any other guarantor or against any
other person or entity or any collateral security, and may proceed to exercise
any right or remedy which it may have under this Guaranty without regard to any
actions or omissions of any other person or entity, in any manner or order,
without any obligation to marshal in favor of Guarantors or other persons or
entities and without releasing any of Guarantors' obligations hereunder with
respect to any unpaid Obligations and Expenses. No remedy herein conferred upon
or reserved to Banks or Agent is intended to be exclusive of any other available
remedy or remedies, but each and every such remedy shall be cumulative and shall
be in addition to every other remedy given under this Guaranty or now or
hereafter existing at law or in equity.
6. Actions Not Affecting Guaranty. Banks and Agent may, at any time
------------------------------
or from time to time, in such manner and upon such terms as it may deem proper,
extend or change the time of payment or the manner or place of payment of, or
otherwise modify or waive any of the terms of, or release, exchange, settle or
compromise any or all of the Obligations and Expenses or any collateral security
therefor, or subordinate payment of the same, or any part thereof, to the
payment of any other indebtedness, liabilities or obligations of Borrower which
may at any time be due or owing to Banks or Agent or anyone, or elect not to
enforce any of Banks or Agent's rights with respect to any or all of the
Obligations and Expenses or any collateral security therefor, all
-3-
<PAGE>
without notice to, or further assent of Guarantors and without releasing or
affecting Guarantors' obligations hereunder. In furtherance and not in
limitation of the foregoing, Guarantors hereby acknowledge and agree that
pursuant to Paragraph 2.1(c) of the Credit Agreement the allocation of the Loan
under the Credit Agreement between the Acquisition Commitment and the Revolving
Commitment may be changed from time to time at the request of the Borrower, upon
the terms and conditions set forth in Paragraph 2.1(c) of the Credit Agreement,
in any case without the consent, approval or acknowledgment of, or notice to,
the Guarantors and without releasing or affecting their respective obligations
with respect to the Obligations and Expenses or otherwise under this Guaranty.
7. Payments Under Guaranty. All payments by Guarantors hereunder
-----------------------
shall be made in immediately available funds and in lawful money of the United
States of America to the Agent at its office at 1339 Chestnut Street,
Philadelphia, PA 19101 or at such other location as Agent shall specify by
notice to Guarantors. All payments by Guarantors under this Guaranty shall be
made by Guarantors solely from Guarantors' own funds and not from any funds of
Borrowers.
9. Modifications and Waivers. No failure or delay on the part of
-------------------------
Banks or Agent in exercising any power or right under this Guaranty shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power preclude any other or further exercise thereof or the
exercise of any other right or power under this Guaranty. No modification or
waiver of any provision of this Guaranty nor consent to any departure therefrom
shall, in any event, be effective unless the same is in writing signed by Banks
and Agent and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to, or demand
on Guarantors, in any case, shall entitle Guarantors to any other or further
notice or demand in similar or other circumstances.
10. Guarantors' Waiver. Guarantors hereby waive promptness,
------------------
diligence, presentment, demand, notice of acceptance and any other notice with
respect to any of the Obligations, the Expenses and this Guaranty.
11. Subordination of Subrogation. Guarantors hereby expressly agree
----------------------------
that they shall not exercise, against Borrower, any other guarantor, maker,
endorser or person (a) any right which Guarantors may now have or hereafter
acquire by way of subrogation under this Guaranty, by law or otherwise or by way
of reimbursement, indemnity, exoneration, or contribution; or (b) any right to
assert defenses as the primary obligor of the Obligations; or (c) any other
claim which it now has or may hereafter acquire against Borrower or any other
person or against or with respect to Borrower's property (including, without
-4-
<PAGE>
limitation, any property which has been pledged to secure the Obligations); or
(d) any right to enforce any remedy which Banks or Agent may now have or
hereafter acquire against Borrower or any other guarantor, maker or endorser; in
any case, whether any of the foregoing claims, remedies and rights may arise in
equity, under contract, by payment, statute, common law or otherwise, until all
Obligations and Expenses have been indefeasibly paid in full. If in violation
of the foregoing any amount shall be paid to Guarantors on account of any such
rights at any time, such amount shall be held in trust for the benefit of Banks
and Agent and shall forthwith be paid to Agent to be credited and applied
against the Obligations and Expenses, whether matured or unmatured, in
accordance with the terms of the Notes and the Credit Agreement.
12. No Setoff by Guarantor. No setoff, counterclaim, deduction,
----------------------
reduction, or diminution of any obligation, or any defense of any kind or nature
which Guarantors have or may have against Borrower or Banks or Agent shall be
available hereunder to Guarantors.
14. Representations and Covenants. Each Guarantor hereby makes and
-----------------------------
affirms each of the representations and warranties set forth in Section 3 of the
Credit Agreement as to it, and agrees that it shall comply with and be bound by
the covenants set forth in Sections 4 and 5 of the Credit Agreement, on a
several basis or together with Borrower and Parent, on a consolidated basis with
respect to Parent and its consolidated Subsidiaries, as set forth in the Credit
Agreement as fully as if set forth herein in their entirety.
16. Appointment of Agent for Service of Process. If for any reason
-------------------------------------------
any Guarantor not be subject to service of process in the Commonwealth of
Pennsylvania during the term of this Guaranty, each Guarantor hereby appoints,
without power of revocation, each officer of Parent as the agent of such
Guarantor upon whom may be served all process, pleadings, notices or other
documents which may be served upon such Guarantor under this Guaranty.
17. Addresses for Notices. All requests, consents, notices and other
---------------------
communications required or permitted hereunder or in connection herewith shall
be deemed satisfactorily given if in writing and delivered personally or by
registered or certified mail, postage pre-paid, by reliable overnight courier,
or by telecopier to the parties at their respective addresses set forth below or
at such other address as may be given by any party to the other in writing in
accordance with this Section 17:
-5-
<PAGE>
If to any Guarantor, addressed to such Guarantor at:
2200 Renaissance Boulevard
Suite 300
King of Prussia, PA 19406
Attention: Bruce J. Feldman
Telecopier: (610) 272-3131
If to Borrower:
Home Health Corporation of Delaware, Inc.
2200 Renaissance Boulevard
Suite 300
King of Prussia, PA 19406
Attention: Bruce J. Feldman
Telecopier: (610) 272-3131
If to Banks or Agent:
CoreStates Bank, N.A., Agent
1339 Chestnut Street
Philadelphia, PA 19101
Attention: Jennifer W. Leibowitz
Telecopier: (215) 973-2738
18. Continuing Guaranty; Transfer of Note. This Guaranty is a
-------------------------------------
continuing guaranty and shall (i) remain in full force and effect until the
Obligations, the Expenses and all other amounts payable under this Guaranty
shall have been paid in full and the period during which any payment by Borrower
or Guarantors is or may be subject to avoidance or refund under the United
States Bankruptcy Code (or any similar statute) shall have expired, (ii) be
binding upon Guarantors and the personal representatives, heirs, successors and
assigns of Guarantors, and (iii) inure to the benefit of, and be enforceable by
Banks and Agent and their successors, transferees and assigns. Without limiting
the generality of the foregoing clause (iii), Banks may endorse, assign or
otherwise transfer the Notes to any other person or entity, and such other
person or entity shall thereupon become vested with all the rights in respect
thereof granted to Banks herein or otherwise.
19. Entire Agreement. This Guaranty constitutes the entire agreement,
----------------
and supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
20. Severability. The invalidity or unenforceability of any one or
------------
more portions of this Guaranty shall not affect the validity or enforceability
of the remaining portions of this Guaranty.
-6-
<PAGE>
21. Counterparts. This Guaranty may be executed by Guarantors in
------------
several separate counterparts, each of which shall be an original and all of
which taken together shall constitute one and the same instrument.
22. Governing Law. This Guaranty shall be deemed to be a contract
-------------
under the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed in accordance with such laws.
23. Jurisdiction, Venue, Trial By Jury. Guarantors hereby (a) agree
----------------------------------
that any litigation, action or proceeding arising out of or relating to this
Guaranty shall be instituted in the courts of the Commonwealth of Pennsylvania
or the United States District Courts for the Districts of Pennsylvania; (b)
waive any objection which Guarantors might have now or hereafter to the venue in
such courts of any such litigation, action or proceeding; (c) irrevocably submit
to the venue and exclusive jurisdiction of such courts in any such litigation,
action or proceeding; (d) irrevocably consent to personal jurisdiction in such
courts; (e) agree that service of process upon Guarantors may be effected by
certified mail to the address provided in Section 17 of this Guaranty or by any
other means permitted by law; (f) waive any claim or defense of inconvenient
forum; and (g) waives any right to trial by jury. The foregoing shall not
preclude Banks or Agent from seeking to enforce this Guaranty in any other court
of competent jurisdiction.
-7-
<PAGE>
IN WITNESS WHEREOF, for good and valuable consideration and intending
to be legally bound hereby, this Guaranty has been executed on behalf of
Guarantors as of the date hereof.
HOME HEALTH CORPORATION OF HHCD, INC.
AMERICA, INC. HHCDME, INC.
PENNSYLVANIA HOME HEALTH PROFESSIONAL HOME HEALTH
SERVICES/PHILADELPHIA, INC. SERVICES, INC.
PENNSYLVANIA HOME HEALTH HOME HEALTH CORPORATION OF
SERVICES/NORTHEAST, INC. AMERICA, INC.-TAMPA
PENNSYLVANIA HOME CARE, INC. HOME HEALTH CORPORATION OF
HOME CARE MEDICAL SUPPLY AND AMERICA, INC.-TAMPA
EQUIPMENT, INC. DIAGNOSTIC SERVICES
NUTRITIONAL HOME HEALTH HOME HEALTH CORPORATION OF
SERVICES, INC. AMERICA, INC. - PINELLAS
ALL CARE HEALTH SERVICES, INC. HOME HEALTH CORPORATION OF
ALL-CARE HOME HEALTH AMERICA, INC.- ST. PETERSBURG
SERVICES, INC. HOME HEALTH CORPORATION OF
HOME HEALTH CORPORATION OF AMERICA, INC. - TAMPA NURSING
AMERICA, INC./FT. PIERCE HOME PENNSYLVANIA HOME HEALTH
HEALTH SERVICES SERVICES/SUBURBAN, INC.
HHCA, INC. - DELAWARE
(Continued in next column) HHCA - SERVICE CO.
By:/s/James J. Swiniuch By:/s/Bruce J. Colburn
--------------------- --------------------
Name: James J. Swiniuch Name: Bruce J. Colburn
Title: Vice President Title: Chief Financial Officer
-8-
<PAGE>
AMENDED AND RESTATED PLEDGE AGREEMENT
-------------------------------------
THIS AMENDED AND RESTATED PLEDGE AGREEMENT (this "Agreement") is made
this 22 day of August, 1996 by HOME HEALTH CORPORATION OF AMERICA, INC., a
Pennsylvania corporation ("Parent"), and HOME HEALTH CORPORATION OF DELAWARE,
INC., a Delaware corporation ("Delaware"), each with an office at 2200
Renaissance Boulevard, Suite 300, King of Prussia, Pennsylvania 19406-2755
(Parent and Delaware each individually a "Pledgor" and individually and
collectively "Pledgors") in favor of CORESTATES BANK, N.A. ("CoreStates"), as
agent for the Banks under the Credit Agreement referred to below ("Pledgee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Pledgors have executed that certain Pledge Agreement dated
March 3, 1995, as amended (the "Existing Pledge Agreement") in favor of
CoreStates pursuant to that certain Amended and Restated Credit Agreement dated
March 3, 1995, as amended (the "Existing Credit Agreement"); and
WHEREAS, the Existing Credit Agreement has been amended and restated in
its entirety pursuant to the Second Amended and Restated Credit Agreement dated
of even date herewith among Delaware, the Banks signatory thereto and CoreStates
as Agent for the Banks (as amended from time to time, the "Credit Agreement");
and
WHEREAS, this Agreement amends and restates the Existing Pledge
Agreement in its entirety in order to reflect the amendment of the Existing
Credit Agreement pursuant to the Credit Agreement, provided, however, that the
execution and delivery of this Agreement shall not constitute a novation and
shall not be deemed to have extinguished or discharged the collateral granted
pursuant to the Existing Pledge Agreement, all of which shall continue under and
be governed by this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, Pledgors hereby agree as
follows:
A. Pledgors each hereby assign and pledge to Pledgee, for the benefit of
Banks, and grant to Pledgee, for the benefit of Banks, a security interest in,
all shares of capital stock and/or other securities of their respective
subsidiaries (other than inactive Subsidiaries), now owned or hereafter acquired
by each such Pledgor or in which a Pledgor at any time has a legal or beneficial
interest (hereinafter referred to as the "Securities," which Securities together
with all additions thereto, substitutions or exchanges therefor, proceeds
thereof and distributions thereon shall be referred to collectively herein as
the "Collateral"), all of which Securities are described on Schedule A attached
hereto and made a part hereof (as the same
<PAGE>
may from time to time be amended in writing by the parties hereto), as
collateral security for the payment and performance of all indebtedness,
liability and obligations of the Companies (as defined below) to Pledgee or
Banks, including without limitation all indebtedness and obligations, whether
for principal, interest, fees, expenses or otherwise, now existing or hereafter
created or arising under the Credit Agreement, the Guaranty dated of even date
herewith by Parent and its subsidiaries other than Delaware (and other than
inactive subsidiaries) (Parent, Delaware and such other subsidiaries, each
individually a "Company" and individually and collectively the "Companies"), and
any other documents, agreements and instruments now or hereafter executed
thereunder or in connection therewith including this Agreement, each as may be
amended, modified, restated or supplemented from time to time (herein
collectively the "Obligations," with such agreements, documents and instruments
evidencing and documenting the Obligations being herein referred to collectively
as the "Documents").
B. Each Pledgor represents and warrants that:
1. Such Pledgor has good title to its respective Securities free and
clear of all liens and encumbrances except the security interest created hereby;
and such Securities constitute one hundred percent (100%) of the issued and
outstanding shares of capital stock of each Company other than Parent.
2. The Securities are validly issued, fully paid and nonassessable
and are not subject to any charter, bylaw, statutory, contractual or other
restrictions governing their issuance, transfer, ownership or control.
3. Such Pledgor has delivered to Pledgee all stock certificates,
promissory notes, bonds, debentures or other instruments or documents
representing or evidencing the Securities, together with corresponding
assignment or transfer powers duly executed in blank by such Pledgor, and this
Agreement and such powers have been duly and validly executed and are binding
and enforceable against Pledgors in accordance with their terms; and the pledge
of the Securities in accordance with the terms hereof creates a valid and
perfected first priority security interest in the Securities securing payment of
the Obligations.
4. No authorization, approval, or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required either
(i) for the pledge by such Pledgor of the Securities pursuant to this Agreement
or for the
-2-
<PAGE>
execution, delivery or performance of this Agreement by such Pledgor or (ii) for
the exercise by Pledgee, on behalf of Banks, of the voting or other rights
provided for in this Agreement or the remedies in respect of the Collateral
pursuant to this Agreement (except (A) as may be required in connection with
such disposition by laws affecting the offering and sale of securities generally
and (B) laws affecting or regulating the transfer or control of licences or
authorities with respect to the provision of health care services).
C. Each Pledgor agrees not to (i) sell or otherwise dispose of, or grant
any option with respect to, any of the Collateral, or (ii) create or permit to
exist any lien, security interest, or other charge or encumbrance upon or with
respect to any of the Collateral, except the security interest under this
Agreement. Each Pledgor agrees to pledge hereunder, immediately upon
acquisition (directly or indirectly) thereof, any and all additional shares of
stock or other securities of any Company.
D. Prior to the full payment and performance of the Obligations, Pledgee
shall be entitled to receive, as additional Collateral for the benefit of Banks
and Pledgee, any and all additional shares of stock or any other property of any
kind distributable on or by reason of the Securities pledged hereunder, whether
in the form of or by way of stock dividends, warrants, partial liquidation,
conversion, prepayments or redemptions (in whole or in part), liquidation, or
otherwise with the sole exception of normal, regularly declared cash dividends
to the extent permitted by the Documents. If any such property, other than such
permitted cash dividends, shall come into the possession or control of a
Pledgor, such Pledgor shall hold or control and forthwith transfer and deliver
the same to Pledgee subject to the provisions hereof.
E. So long as no Event of Default under Credit Agreement has occurred:
1. Pledgors shall be entitled to receive and retain any normal,
regularly declared cash dividends or interest payments (as the case may be) paid
on the Securities pledged hereunder to the extent permitted under the Documents.
2. Pledgors may exercise all voting rights, if any, pertaining to the
Securities for any purpose not inconsistent with the terms hereof or of the
Obligations or Documents. In the event the Securities have been transferred
into the name of Pledgee or a nominee or nominees of Pledgee prior to default,
Pledgee or its nominee will execute and deliver upon request of a
-3-
<PAGE>
Pledgor an appropriate proxy in order to permit such Pledgor to vote, if
applicable, the same.
F. Each Pledgor shall take all actions (and execute and deliver from time
to time all instruments and documents) necessary or appropriate or reasonably
requested by Pledgee, to continue the validity, enforceability and perfected
status of the pledge of Securities hereunder.
G. Pledgee shall be under no obligation to take any actions and shall have
no liability (except for gross negligence or willful misconduct) with respect to
the preservation or protection of the pledged Securities or any underlying
interests represented thereby as against any prior or other parties. In the
event a Pledgor requests that Pledgee take or omit to take action(s) with
respect to the Collateral, Pledgee may refuse so to do with impunity if Pledgors
do not, upon request of Pledgee, post sufficient, creditworthy indemnities with
Pledgee which, in Pledgee's sole discretion, are sufficient to hold it harmless
from any possible liability of any kind in connection therewith.
H. Each Pledgor agrees that Pledgee and Banks, at any time and without
affecting Pledgee's rights in the pledged Securities and without notice to
Pledgors, may grant any extensions, releases or other modifications of any kind
respecting the Documents, Obligations and any collateral security therefor and
Pledgors, except as otherwise provided herein or in the Documents, waive all
notices of any kind in connection with the Obligations, the Documents and any
changes therein or defaults or enforcement proceedings thereunder, whether
against Pledgors or any other party. Each Pledgor hereby waives any rights it
has at equity or in law to require Pledgee to apply any rights of marshalling or
other equitable doctrines in the circumstances. In furtherance and not in
limitation of the foregoing, Pledgors hereby acknowledge and agree that pursuant
to Paragraph 2.1(c) of the Credit Agreement the allocation of the Loan under the
Credit Agreement between the Acquisition Commitment and the Revolving Commitment
may be changed from time to time at the request of Borrower, upon the terms and
conditions set forth in Paragraph 2.1(c) of the Credit Agreement, in any case
without the consent, approval or acknowledgment of, or notice to, the Pledgors
and without releasing or affecting the pledge hereunder.
I. After the occurrence of an Event of Default under the Credit Agreement:
1. Pledgee, on behalf of Banks, may transfer or cause to be
transferred any of the pledged Securities into its own or a nominee's or
nominees' names.
-4-
<PAGE>
2. Pledgee, on behalf of Banks, shall be entitled to receive and apply
in payment of the Obligations any cash dividends, interest or other payment on
the pledged Securities.
3. Pledgee shall be entitled to exercise in Pledgee's discretion, on
behalf of Banks, all voting rights, if any, pertaining thereto and in connection
therewith and at the written request of Pledgee, each Pledgor shall execute any
appropriate dividend, payment or brokerage orders or proxies.
4. Each Pledgor shall take any action necessary or required or
requested by Pledgee, in order to allow Pledgee fully to enforce the pledge of
the Securities hereunder and realize thereon to the fullest possible extent,
including but not limited to the filing of any claims with any court, liquidator
or trustee, custodian, receiver or other like person or party.
5. Pledgee, on behalf of Banks, shall have all the rights and
remedies granted or available to it hereunder, under the Uniform Commercial Code
as in effect from time to time in Pennsylvania, under any other statute or the
common law, or under any of the Documents, including the right to sell the
pledged Securities or any portion thereof at one or more public or private sales
upon ten (10) days' written notice and to bid thereat or purchase any part or
all thereof in its own or a nominee's or nominees' names, free and clear of any
equity of redemption; and to apply the net proceeds of the sale, after deduction
for any expenses of sale, including the payment of all Pledgee's reasonable
attorneys' fees in connection with the Obligations and the sale, to the payment
of the Obligations in any manner or order which Pledgee in its sole discretion
may elect, without further notice to or consent of Pledgor and without regard to
any equitable principles of marshalling or other like equitable doctrines.
6. Pledgee may increase, in its sole discretion, but shall not be
required to do so, the Obligations by making additional advances or incurring
expenses for the account of Pledgor deemed appropriate or desirable by Pledgee
in order to protect, enhance, preserve or otherwise further the sale or
disposition of the Collateral or any other property it holds as security for the
Obligations.
J. Each Pledgor recognizes that Pledgee may be unable to effect a sale to
the public of all or part of the Securities by reason of certain prohibitions or
restrictions in the federal or state securities laws and regulations (herein
collectively called the "Securities Laws"), or the provisions of other federal
and state laws, regulations or rulings, but may be compelled to
-5-
<PAGE>
resort to one or more sales to a restricted group of purchasers who will be
required to agree to acquire the Securities for their own account, for
investment and not with a view to the further distribution or resale thereof
without restriction. Pledgor agrees that any sale(s) so made may be at prices
and on other terms less favorable to Pledgors than if the Securities were sold
to the public, and that Pledgee has no obligation to delay sale of the
Securities for period(s) of time necessary to permit the issuer thereof to
register the Securities for sale to the public under any of the Securities Laws.
Each Pledgor agrees that negotiated sales whether for cash or credit made under
the foregoing circumstances shall not be deemed for that reason not to have been
made in a commercially reasonable manner. Each Pledgor shall cooperate with
Pledgee and shall satisfy any requirements under the Securities Laws applicable
to the sale or transfer of the Securities by Pledgee.
In connection with any sale or disposition of the Collateral, Pledgee
is authorized to comply with any limitation or restriction as it may be advised
by its counsel is necessary or desirable in order to avoid any violation of
applicable law or to obtain any required approval of the purchaser(s) by any
governmental regulatory body or officer and it is agreed that such compliance
shall not result in such sale being considered not to have been made in a
commercially reasonable manner nor shall Pledgee be liable or accountable by
reason of the fact that the proceeds obtained at such sale(s) are less than
might otherwise have been obtained.
Pledgee may elect to obtain the advice of any independent nationally-
known investment banking firm, which is a member firm of the New York Stock
Exchange, with respect to the method and manner of sale or other disposition of
any of the Collateral, the best price reasonably obtainable therefor, the
consideration of cash and/or credit terms, or any other details concerning such
sale or disposition. Pledgee, in its sole discretion, may elect to sell on such
credit terms which it deems reasonable.
K. Pledgors will, jointly and severally, pay Pledgee the amount of any
reasonable expenses including counsel fees and expenses incurred by Pledgee in
connection with (i) the administration of this Pledge Agreement, (ii) the
custody,
-6-
<PAGE>
preservation, sale or collection or realization of the Collateral, (iii) the
exercise or enforcement of Pledgee's rights hereunder, or (iv) the failure of a
Pledgor to perform hereunder.
L. This Pledge Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns and shall be governed as to its
validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania; and any terms used herein which are defined in the Uniform
Commercial Code as enacted in Pennsylvania shall have the meanings therein set
forth.
M. If Pledgee or Banks shall waive any rights or remedies arising
hereunder or under any applicable law, such waiver shall not be deemed to be a
waiver upon the later occurrence or recurrence of any of said events. No delay
by Pledgee or Banks in the exercise of any right or remedy shall under any
circumstances constitute or be deemed to be a waiver, express or implied, of the
same and no course of dealing between the parties hereto shall constitute a
waiver of Pledgee's or Banks' rights or remedies.
N. Each Pledgor hereby irrevocably appoints Pledgee as its attorney-in-
fact upon the occurrence and during the continuation of an Event of Default to
execute, deliver and record, if appropriate, from time to time any instruments
or documents in connection with the Collateral, in such Pledgor's or Pledgee's
names.
O. This Pledge Agreement represents the entire understanding of the
parties with respect to the subject matter and no modification or change herein
shall be effective unless contained in a writing signed by the parties hereto.
IN WITNESS WHEREOF, the Pledgors have executed this Pledge Agreement as
of the 22 day of August, 1996.
ATTEST: HOME HEALTH CORPORATION OF
AMERICA, INC.
By:/s/ James J Swinivch By:/s/ Bruce J. Colburn
-------------------- --------------------
Name:James J. Swinivch Name:Bruce J. Colburn
Title:Vice President Title:Chief Financial Officer
-7-
<PAGE>
[EXECUTIONS CONTINUED]
ATTEST: HOME HEALTH CORPORATION OF
DELAWARE, INC.
By:/s/James J. Swiniuch By:/s/Bruce J. Colburn
-------------------- _____________________
Name:James J. Swiniuch Name:Bruce J. Colburn
Title:Vice President, Title:Chief Financial Officer
Home Health Corp
of America, Inc.
-8-
<PAGE>
SCHEDULE A
Pledged Securities
------------------
OWNER: HOME HEALTH CORPORATION OF AMERICA, INC.
<TABLE>
<CAPTION>
Certificate Number of
Description of Securities Number Shares
- ------------------------- ----------- ---------
<S> <C> <C>
Pennsylvania Home Health 3 1,000
Services/Philadelphia, Inc.
Pennsylvania Home Health 2 1,000
Services/Northeast, Inc.
Pennsylvania Home Care, Inc. 5 1,000
All Care Health Services, Inc. 4 7,500
Home Health corporation of 2 1,000
America, Inc./Ft. Pierce
Home Health Services
Home Health Services of 1 1,000
Delaware, Inc.
Nutritional Home Health 2 1,000
Services, Inc.
Home Care Medical Supply 2 1,000
and Equipment, Inc.
All-Care Home Health Services, Inc. 4 1,000
Home Health Corporation of 1 1,000
America, Inc. - Tampa
Home Health Corporation of America, 1 1,000
Inc. - Tampa Diagnostic Service
Home Health Corporation of America, 1 100
Inc. - Pinellas
Home Health Corporation of America, 1 100
Inc. - Tampa Nursing
</TABLE>
-1-
<PAGE>
OWNER: HOME HEALTH CORPORATION OF AMERICA, INC.
<TABLE>
<CAPTION>
Certificate Number of
Description of Securities Number Shares
- ------------------------------- ----------- ---------
<S> <C> <C>
Home Health Corporation of 1 100
America, Inc. St. Petersburg
Pennsylvania Home Health 2 1,000
Services/Suburban, Inc.
HHCA - Service Co. 1 100
</TABLE>
-2-
<PAGE>
OWNER: HOME HEALTH CORPORATION OF DELAWARE, INC.
<TABLE>
<CAPTION>
Certificate Number of
Description of Securities Number Shares
- --------------------------- ----------- ---------
<S> <C> <C>
Professional Home Health 5 100
Services, Inc.
HHCDME, Inc. 1 1,000
HHCD, Inc. 1 1,000
HHCA, Inc. - Delaware 1 100
</TABLE>
-3-
<PAGE>
SEPARATION AGREEMENT
--------------------
THIS SEPARATION AGREEMENT dated as of June 30, 1996 by and among HOME
HEALTH CORPORATION OF AMERICA, INC. ("HHCA"), a Pennsylvania corporation, HOME
----
HEALTH CORPORATION OF DELAWARE, INC. ("HHCOD"), a Delaware corporation, HHCD,
-----
INC. ("HHCD"), a Delaware corporation, HHCDME, INC. ("HHCDME"), a Delaware
---- ------
corporation (HHCA, HHCOD, HHCD, and HHCDME are each sometimes individually
referred to herein as a "Company" and are sometimes collectively referred to
-------
herein as the "Companies"), STEVEN R. ALTSHULER ("Mr. Altshuler"), an adult
--------- -------------
individual, JANE E. ALTSHULER ("Ms. Altshuler"), an adult individual, WILLIAM W.
-------------
MOSES ("Mr. Moses"), an adult individual, and ANDRA H. MOSES ("Ms. Moses"), an
--------- ---------
adult individual (Mr. Altshuler, Ms. Altshuler, Mr. Moses, and Ms. Moses are
each sometimes individually referred to herein as an "Employee" and are
--------
sometimes collectively referred to herein as the "Employees").
---------
BACKGROUND
----------
A. The Employees are employed by HHCOD and have served as officers of
HHCOD since March 3, 1995 pursuant to those certain Employment Agreements dated
March 3, 1995 between HHCOD and each of the Employees (each being individually
referred to herein as an "Employment Agreement" and all such Employment
--------------------
Agreements being collectively referred to herein as the "Employment
----------
Agreements").
- ------------
B. The Employees and the Companies have agreed that it is in their
mutual best interests for the Employees to resign as officers and employees of
HHCOD and to settle any and all claims which they may have against one another
under the Employment Agreements and the Incentive Compensation Plan (as
hereinafter defined), on the terms and subject to the conditions of this
Agreement.
C. In connection with such settlement, the Employees and the
Companies have agreed to modify and amend certain agreements, documents, and
instruments to which they are a party with one another which were entered into
concurrently with the execution of the Employment Agreements, on the terms and
subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
and agreements contained herein and intending to be legally bound hereby, the
parties hereto covenant and agree as set forth below.
1
<PAGE>
Section 1. Defined Terms. As used herein, the following terms shall
-------------
have the meanings indicated in this Section 1, unless the context otherwise
requires.
"Act" shall mean the Securities Act of 1933, as amended, and any
---
and all rules and regulations promulgated thereunder.
"Agency" shall mean Professional Home Health Care Agency, Inc., a
------
Delaware non-profit corporation now known as Professional Transaction
Processing, Inc.
"Agreement" shall mean this Separation Agreement and any
---------
amendments and modifications hereto.
"Altshulers" shall mean, collectively, Ms. Altshuler and Mr.
----------
Altshuler.
"Claims" shall mean, collectively and with respect to any
------
applicable matter, any and all actions, causes of action, suits, debts,
claims, and demands arising from or relating to such matter.
"Closing Date" shall mean March 3, 1995, the date on which the
------------
Purchase and Sale Transactions were completed.
"Company" and "Companies" shall each have the meaning given to
------- ---------
those terms in the heading of this Agreement.
"Companies' Affiliates" shall have the meaning given to that term
---------------------
in Section 12 hereof.
"Consulting Period" shall mean the twenty-four (24) month period
-----------------
commencing on July 1, 1996 and ending on June 30, 1998.
"Default" shall mean, (i) with respect to any party hereto, such
-------
party's breach or violation of any term, condition, covenant, agreement,
representation, or warranty contained in this Agreement which is not cured
within twenty (20) days after such party's receipt of written notice of
such breach or violation from the non-defaulting party, except as otherwise
provided under clause (ii) hereof, or (ii) with respect to any Company, a
breach or violation of the payment obligations under Sections 3(c) or 4(c)
hereof which is not cured within twenty (20) days after (A) its receipt of
written notice of such breach or violation from the Employees if the
Employees are required to provide such notice as hereinafter set forth, or
(B) such breach or violation if the Employees are not required to provide
such notice as hereinafter set forth; it being understood and agreed that
the Employees shall not be required to provide the Companies with written
notice of any breach or violation
2
<PAGE>
by the Companies under Sections 3(c) or 4(c) hereof on more than two (2)
occasions during any calendar year.
"Effective Date" shall mean June 30, 1996.
--------------
"Employee" and "Employees" shall each have the meaning given to
-------- ---------
those terms in the Background provisions of this Agreement.
"Employee Affiliates" shall have the meaning given to that term
-------------------
in Section 12 hereof.
"Employment Agreements" and "Employment Agreement" shall each
--------------------- --------------------
have the meaning given to those terms in the heading of this Agreement.
"Excluded Claims" shall mean, collectively, the Claims of any
---------------
party hereto arising out of another party's Default.
"Guaranty" shall mean the Full Payment Guaranty dated the Closing
--------
Date executed and delivered by HHCA to and in favor of the Employees, M.
Altshuler, Master Supply, and Agency.
"HHCA," "HHCOD," "HHCD," and "HHCDME" shall each have the meaning
---- ----- ---- ------
given to those terms in the heading of this Agreement.
"Incentive Compensation Plan" shall mean the Executive Employee
---------------------------
Incentive Compensation Plan dated the Closing Date by and among HHCOD and
the Employees.
"Indemnification Agreement" shall mean the Indemnification
-------------------------
Agreement dated the Closing Date by and among the Companies, Master Supply,
Agency, and the Employees.
"Insurance Coverage" shall have the meaning given to that term in
------------------
Section 2(c)(i) hereof.
"Master Supply" shall mean Master Medical Supply Co., Inc., a
-------------
Delaware corporation now known as Master Management Services, Inc.
"M. Altshuler" shall mean Milton Altshuler, an adult individual.
------------
"Mr. Altshuler", "Ms. Altshuler", "Mr. Moses", and "Ms. Moses"
------------- ------------- --------- ---------
shall each having the meaning given to those terms in the heading of this
Agreement.
3
<PAGE>
"Non-Competition Period" shall mean, for the purposes of Section
----------------------
2(e)(i) hereof, the period commencing on the Effective Date and ending on
March 1, 2000.
"Obligations" shall mean, collectively, all liabilities, duties,
-----------
and obligations of the Companies to the Employees under this Agreement
(including, without limitation, amounts due and owing to the Employees
under Sections 2, 3, 4, 5, and 6 hereof) and the Promissory Note (as
modified hereby).
"Professional Services" shall mean Professional Home Health
---------------------
Services, Inc., a Delaware corporation and wholly-owned subsidiary of
HHCOD.
"Professional Services Sale" shall mean the Purchase and Sale
--------------------------
Transaction completed under and pursuant to that certain Stock Purchase
Agreement dated March 3, 1995, by and among HHCOD, Mr. Moses, M. Altshuler,
and the Altshulers, whereby HHCOD purchased all of the issued and
outstanding capital stock of Professional Services.
"Promissory Note" shall mean the Promissory Note dated the
---------------
Closing Date in the original principal amount of One Million Four Hundred
Seventy-Five Thousand Dollars ($1,475,000) executed and delivered by HHCOD
and Professional Services, as co-makers, in favor of the Employees in
accordance with Schedule "A" thereto.
------------
"Purchase and Sale Transactions" shall mean, collectively, the
------------------------------
purchase and sale transactions described in the recitals to the
Indemnification Agreement, pursuant to which, among other things, (i)
Master Supply sold substantially all of its assets to HHCDME, (ii) Agency
sold substantially all of its assets to HHCD, and (iii) HHCOD acquired all
of the issued and outstanding capital stock of Professional Services, on
the terms and subject to the conditions of the Transaction Documents
related thereto.
"Securities Laws" shall mean, collectively, (i) the Act, and (ii)
---------------
any and all applicable state securities laws, rules, and regulations.
"Shares" shall mean, collectively, the 100,000 shares of HHCA's
------
Class B Common Stock, par value $.10 per share heretofore issued by HHCA to
the Employees in connection with the Purchase and Sale Transactions and
pursuant to the Subscription Agreement, which shares of Class B Common
Stock of HHCA were subsequently converted into 100,000 shares of HHCA's
Common Stock, no par value, pursuant to a Plan of Recapitalization adopted
by HHCA's Board of Directors on September 6, 1995.
4
<PAGE>
"Subscription Agreement" shall mean the Subscription Agreement
----------------------
dated the Closing Date by and among HHCA and the Employees.
"Transaction Documents" shall mean, collectively, those
---------------------
agreements, documents, and instruments executed by the parties hereto in
connection with the Purchase and Sale Transactions (including, without
limitation, the Employment Agreements, the Incentive Compensation Plan, the
Promissory Note, the Indemnification Agreement, the Guaranty, and the
Subscription Agreement),
"Transition Period" shall mean the three (3) month period
-----------------
beginning on July 1, 1996 and ending on September 30, 1996.
2. Employment Agreements.
---------------------
(a) Termination. Subject to the provisions of this Section 2
-----------
and the other provisions hereof, the Companies and the Employees agree that, as
of the Effective Date, the Employment Agreements shall be terminated, cancelled,
null, void, and of no further force or effect.
(b) Resignations. By reason of Section 2(a) hereof, on the
------------
Effective Date, each Employee shall execute and deliver to HHCOD such Employee's
formal resignation as an officer and employee of HHCOD. Subject to those duties
required to be performed by Mr. Altshuler and Mr. Moses during the Transition
Period pursuant to Section 7 hereof and those actions that may be required to be
taken by the Employees pursuant to Section 21 hereof, (i) the Employees shall
have no further duty or obligation to perform services for or on behalf of the
Companies under the Employment Agreements after the Effective Date, and (ii) the
Employees shall no longer be authorized to represent, enter into contracts or
agreements, to incur any expenses or liabilities, or to take any other action,
on behalf of any Company after the Effective Date.
(c) Benefits. As an inducement for the Employees to terminate
--------
and cancel the Employment Agreements in accordance herewith, the Companies shall
pay or provide, as appropriate, the following:
(i) During the twenty-four (24) month period subsequent
to the Effective Date, the Companies shall provide, at their cost and
expense, as the sole benefit to be provided to the Employees in
consideration of the termination and cancellation of the Employment
Agreements, that family health, insurance coverage that is currently made
available to the Employees pursuant to Section 2.3(e) of each Employment
Agreement in accordance with the existing terms thereof (collectively, the
"Insurance Coverage").
------------------
5
<PAGE>
(ii) Subsequent to the twenty-four (24) month period
referred to in Section 2(c)(i) hereof, the Employees shall be eligible to
continue the Insurance Coverage under the Companies' group health plan(s)
to the extent required by the Consolidated Omnibus Budget Reconciliation
Act of 1986, as amended.
(iii) In addition to the benefits described above, (A)
each Employee shall be entitled to receive, to the extent consistent with
past practice, those benefits described in Section 2.3 of the Employment
Agreement to which such Employee is a party for the period of time through
and including the Effective Date, (B) each Employee shall be entitled to
any benefits under the 401(k) Plan provided to such Employee under Section
2.3(b) of the Employment Agreement to which such Employee is a party, to
the extent that such benefits have vested in accordance with the terms and
conditions of such plan(s) as of the Effective Date, and (C) each Employee
shall be entitled to any vested benefits under the pension and similar
plans provided to such Employee under Section 2.3(b) of the Employment
Agreement to which such Employee is a party, to the extent that such
benefits have vested in accordance with the terms and conditions of such
plan(s) as of the Effective Date.
(d) Return of Proprietary Materials. In connection with the
-------------------------------
transactions contemplated hereby, the Employees will return to HHCOD any and all
notes, memoranda, drawings, computer disks, specifications, programs, data or
other materials in their possession that contain, incorporate, or embody, to
their knowledge, Confidential Information (as such term is defined in the
Employment Agreements).
(e) Covenant Not to Compete; Nondisclosure. Notwithstanding
--------------------------------------
the termination and cancellation of the Employment Agreements:
(i) Each Employee agrees to remain bound by the covenant
not to compete set forth in Section 6 of the Employment Agreement to which
such Employee is a party for and during the Non-Competition Period (as
herein defined); provided, however, the Employees' duties and obligations
to comply with such covenant not to compete shall be conditioned upon the
Companies' full and complete compliance with the terms and conditions of
this Agreement (it being understood and agreed that the Companies' payment
of amounts payable hereunder to the Escrow Agent (as hereinafter defined)
in accordance with the provisions of Section 11(b) hereof shall not, for
purposes of this clause (i), constitute a failure by the Companies to be in
full and complete compliance with this Agreement); and
(ii) Each Employee agrees to remain bound by the
nondisclosure covenant set forth in Section 7 of the
6
<PAGE>
Employment Agreement to which such Employee is a party for the period
referred to therein.
3. Consulting Arrangement.
----------------------
(a) Engagement. Notwithstanding the termination and
----------
cancellation of the Employment Agreements to which the Altshulers are a party,
the Companies have determined that it is in their best interests to engage the
Altshulers as consultants to the Companies during the Consulting Period in light
of their knowledge, experience, and expertise in the home health care business.
By reason thereof, the Companies hereby engage the Altshulers to provide those
limited consulting services set forth below and the Altshulers accept such
engagement, on the terms and subject to the conditions set forth in this Section
3.
(b) Consulting Duties. Subject to the limitations set forth
-----------------
herein, during the Consulting Period, the Altshulers shall, as and when
requested by a designated officer of HHCA, provide consulting services to the
Companies relating and pertaining to the management and operation of the
Companies' home health care operations in Delaware (including, in particular,
Medicare, reimbursement, and related matters). Notwithstanding anything
contained herein to the contrary, (i) the nature and extent of consulting duties
required to be performed by the Altshulers hereunder shall be reasonably
satisfactory to both the Altshulers and the Companies, and (ii) the Altshulers
shall be permitted to discharge all such consulting duties from their residence
and shall not be required to be present at the Companies' facilities in
connection therewith.
(c) Consulting Fee. In consideration of the Altshulers
--------------
agreement to provide consulting services hereunder during the Consulting Period,
the Companies shall pay to the Altshulers a consulting fee in the aggregate
amount of Four Hundred Thousand Dollars ($400,000), which consulting fee shall
be due and payable in twenty-four (24) equal successive monthly installments of
Sixteen Thousand Six Hundred Sixty-Six Dollars and Sixty-Seven Cents
($16,666.67) each commencing on July 1, 1996 and continuing on the same day of
each month thereafter through and including June 1, 1998 until the entire
consulting fee has been paid in full. The duty and obligation of the Companies
to pay the consulting fee described herein to the Altshulers shall be unaffected
by the death or disability of either or both of the Altshulers.
4. Termination of Incentive Compensation Plan; Additional
------------------------------------------------------
Consideration for Professional Services Sale.
- --------------------------------------------
(a) Background of Incentive Compensation Plan. The parties
-----------------------------------------
hereto recognize, acknowledge, and agree that payments due and owing by HHCOD
under the Incentive Compensation Plan represented additional consideration for
the Professional
7
<PAGE>
Services Sale notwithstanding any contrary characterization therein set forth.
In connection with the transactions described herein, (i) the Companies have
required the Incentive Compensation Plan to be terminated and for the Employees
to waive their right to all payments thereunder, and (ii) as an inducement
therefor, the Companies have agreed to increase the consideration due and
payable by the Companies for the Professional Services business purchased in
connection with the Professional Services Sale on the terms and conditions
hereinafter set forth.
(b) Termination. Subject to the provisions of this Section 4
-----------
and the other provisions of this Agreement, the Companies and the Employees
agree that, as of the Effective Date, the Incentive Compensation Plan shall be
terminated, cancelled, null, void, and of no further force or effect.
(c) Additional Consideration. The Companies agree to pay to
------------------------
the Employees, as additional consideration for the Professional Services
business purchased in connection with the Professional Services Sale, the sum of
Seven Hundred Twenty-Five Thousand Dollars ($725,000). Such additional
consideration shall be due and payable by the Companies in twenty-four (24)
equal successive monthly installments of Thirty Thousand Two Hundred Eight
Dollars and Thirty-Three Cents ($30,208.33) each commencing on July 1, 1996 and
continuing on the same day of each month thereafter through and including June
1, 1998 until all such additional consideration has been paid in full. The
amount to be paid pursuant to this Section 4(c) shall be allocated among the
Employees and M. Altshuler as the Employees may determine and set forth in a
written notice to the Companies and each of the Employees hereby agrees to
indemnify and hold the Companies harmless from and against any liability or
expense (including reasonable attorneys' fees) incurred by any of the Companies
in connection with any Claim brought by any of the Employees or by M. Altshuler
disputing the allocation of any amount which has been paid by the Companies
under this Section 4(c) and in accordance with the allocation described herein.
5. Modifications to Promissory Note.
--------------------------------
(a) Elimination of Principal Adjustments. The adjustment
------------------------------------
provisions contained in Section 5 of the Promissory Note are hereby deleted in
their entirety.
(b) Modification to Default Provisions. The provisions of
----------------------------------
clause (iii) of Section 5 of the Promissory Note are hereby modified, amended,
and restated to read in its entirety as follows:
"(iii) Failure by HHCOD, HHCA, HHCDME, or HHCD, Inc. to pay any
sum due under that certain Separation Agreement dated June 30, 1996,
by and among HHCOD, HHCA, HHCDME, HHCD,
8
<PAGE>
Inc. and the Payees (other than Milton Altshuler), which failure
continues beyond any cure period provided in such Separation
Agreement,"
6. Subscription Agreement; Transferability of Shares.
-------------------------------------------------
(a) Elimination of Transferability Restriction. The
------------------------------------------
Subscription Agreement is modified and amended to delete the transferability
provisions contained in Section 5 thereof. The Employees shall be permitted to
transfer any and all Shares free of any restriction contained in the
Subscription Agreement so long as such transfer is made pursuant to and in
compliance with the Securities Laws including, without limitation, any transfer
made in accordance with Rule 144 promulgated under and pursuant to the Act.
(b) Replacement Certificates. If the share certificates
------------------------
evidencing the Shares currently refer to any of the restrictions in the
Subscription Agreement being eliminated hereby, HHCA shall cause its transfer
agent to issue to the Employees on the Effective Date share certificates in
replacement thereof consistent with the intent and purposes of Section 6(a)
hereof, but which will contain the following legend thereon: "THIS SECURITY HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT
HAS BEEN REGISTERED UNDER SUCH ACT AND ALL SUCH APPLICABLE LAWS OR AN EXEMPTION
FROM REGISTRATION IS AVAILABLE".
(c) Cooperation; Assistance. The Companies covenant and
-----------------------
agree to take any and all action reasonably requested by the Employees to
facilitate any transfer of the Shares desired by the Employees in accordance
with Section 6(a) hereof including, without limitation, causing the issuance of
an opinion from its counsel to the extent the issuance of such an opinion
required by HHCA's stock transfer agent; provided, however, that the Employees
shall reimburse the Companies for any reasonable out-of-pocket expenses that
they may incur in connection with any such action requested by the Employees
pursuant to this Section 6(c), other than the fees and expenses of the
Companies' counsel in connection with the issuance of such opinion, the cost of
which shall be equally shared by the Companies and the Employees (provided that
the Employees' share shall not exceed One Thousand Dollars ($1,000)).
(d) Modification to Repurchase Option. Notwithstanding the
---------------------------------
provisions of Section 2 of the Subscription Agreement, the Employees shall have
the right to cause HHCA to repurchase all, or any portion of, the Shares at the
repurchase price set forth in Section 2 of the Subscription Agreement at any
time commencing on the Effective Date, which repurchase option shall expire one
(1) month subsequent to the date on which any such Shares could be transferred
without restriction pursuant to
9
<PAGE>
Rule 144 promulgated under the Act (regardless of whether such transfer has
occurred) but only with respect to that number of Shares which could be so
transferred.
7. No Duty to Mitigate. Notwithstanding anything contained herein
-------------------
to the contrary and notwithstanding any law, rule, or regulation requiring
otherwise, any amount received by the Employees after the Effective Date,
regardless of the source thereof, shall not serve to reduce any amount due and
payable by the Companies to any of the Employees under this Agreement and the
Transaction Documents (as modified or amended by this Agreement); provided,
however, notwithstanding the foregoing, any amount received by any Employee in
respect of unemployment compensation payable to and received by such Employee by
reason of such Employee's separation of employment with HHCOD shall reduce,
dollar for dollar, those amounts due and payable by the Companies under Sections
3(c) and 4(c) hereof.
8. Modification of Indemnification Agreement.
-----------------------------------------
(a) Indemnity Statute. As an inducement for the Employees to
-----------------
enter into this Agreement, references to the "eighteen (18) month period
immediately following the Closing Date" in Section 9.6 of the Indemnification
Agreement are hereby substituted and replaced with the "fifteen (15) month
period immediately following the Closing Date."
(b) Set-off Rights. Any and all references in Section 9.10
--------------
of the Indemnification Agreement to the Promissory Note, the Subscription
Agreement, the Employment Agreements, the Reconciliation Agreement, and the
Incentive Compensation Plan shall take into account the modifications thereto
described herein and the Companies shall have no rights to set-off and/or
reduce, from amounts due and owing hereunder, any amounts due from the Employees
under the Indemnification Agreement unless and to the extent expressly permitted
by the provisions of Section 9.10 of the Indemnification Agreement; provided,
however, in no event shall the Companies be entitled to set-off against amounts
due and owing under Section 4(c) hereof.
9. Transition Period Duties. During the Transition Period, (i) Mr.
------------------------
Altshuler and Mr. Moses shall assist and cooperate with a designated HHCA
officer in connection with and in order to assure a smooth and orderly
transition of the management and supervision of HHCA's Delaware businesses from
the Employees to HHCA management, all in a manner which is reasonably
satisfactory to both (A) Mr. Altshuler and Mr. Moses, and (B) such HHCA officer,
(ii) regardless of whether Mr. Altshuler or Mr. Moses are required to be present
at HHCA's Delaware facilities pursuant to the provisions of this Section 9, Mr.
Altshuler and Mr. Moses shall use their reasonable efforts to be accessible (by
telephone or pager) to such HHCA officer at all reasonable times during normal
business hours for the purposes set forth herein, and (iii) neither Ms.
Altshuler nor Ms. Moses
10
<PAGE>
shall be required to render any services on behalf of the Companies, other than
(A) those being provided by their spouses described in clauses (i) and (ii)
above, and (B) the duties of Ms. Altshuler under Section 3(b) hereof.
10. Representations and Warranties.
------------------------------
(a) By Companies. The Companies represent and warrant
------------
to the Employees as follows:
(i) The Companies are corporations duly organized,
validly existing and in good standing under the laws of their respective
jurisdiction of incorporation.
(ii) The Companies have the corporate power to
execute, deliver, and perform under this Agreement, and have taken all
necessary corporate and other actions to authorize such execution,
delivery, and performance.
(iii) This Agreement constitutes a valid obligation
of the Companies legally binding upon and enforceable against them in
accordance with its terms.
(iv) The execution and delivery of, and performance
under, this Agreement will not violate or contravene any existing decree of
any court, governmental authority, bureau or agency having jurisdiction
over the Companies or the articles of incorporation, certificate of
incorporation, by-laws, or similar organizational document of the Companies
or of any mortgage, indenture, security agreement, contract, undertaking or
other agreement to which any Company is a party or which purports to be
binding upon any Company or any of such Company's properties or assets
(including, without limitation, subordination agreements to which any
Company is a party with its lenders and/or investors), and will not result
in the creation or imposition of any lien, charge, encumbrance on, or
security interest in, any of such Company's properties or assets pursuant
to the provisions of any such mortgage, indenture, security agreement,
contract, undertaking, or other agreement.
(v) Since the Closing Date, no modifications or
amendments have been made, adopted, or proposed to the provisions of any
Company's by-laws relating to indemnification of such Company's directors,
officers, employees, and other representatives, except that HHCA's by-laws
were amended and restated effective upon the consummation of HHCA's public
offering in November of 1995 and a copy of such amended and restated by-
laws were previously provided to the Employees.
11
<PAGE>
(b) By Employees. The Employees represent and warrant
to the Companies as follows:
(i) The Employees have the power and capacity to
execute, deliver, and perform under, this Agreement.
(ii) This Agreement constitutes a valid obligation
of the Employees legally binding upon and enforceable against them in
accordance with their respective terms.
(iii) The execution and delivery of, and
performance under, this Agreement will not violate or contravene any
existing decree of any court, governmental authority, bureau or agency
having jurisdiction over the Employees or any mortgage, indenture, security
agreement, contract, undertaking or other agreement to which any of the
Employees is a party or which purports to be binding upon any Employee or
any of such Employee's properties or assets.
11. Default; Acceleration; Remedies.
-------------------------------
(a) Default by Companies. Upon the occurrence of any Default
--------------------
by the Companies or the occurrence of any Default under and as defined in the
Promissory Note, the Employees may, by written notice to the Companies, declare
all of the Obligations to be due and payable, whereupon the aggregate amount of
all of the Obligations, together with accrued interest thereon and all other
amounts payable thereunder, shall become immediately and automatically due and
payable, anything contained herein or in any other agreement, document, or
instrument evidencing the same to the contrary notwithstanding. Upon
acceleration of the outstanding Obligations, (i) such Obligations shall, until
paid, bear interest at the annual interest rate set forth in the Promissory
Note, which interest rate shall remain in effect following the entry of any
judgment against the Companies, and (ii) the Employees may exercise any and all
rights and remedies available at law or in equity against the Companies to
enforce and collect the outstanding Obligations.
(b) Default by Employees. Upon the occurrence of any Default
--------------------
by any of the Employees, the Companies may, at their option, (i) exercise any
and all rights and remedies available to the Companies under the Transaction
Documents (as modified by this Agreement); (ii) exercise any and all rights and
remedies available at law or in equity against the Employees to enforce the
terms of this Agreement and the Transaction Documents; and (iii) only upon the
occurrence of any Default under Section 2(e)(i) and Section 2(e)(ii) hereof,
discontinue making the payments due and owing pursuant to the Promissory Note
and seventy-two percent (72%) of those payments due and owing pursuant to
Sections 3(c) and 4(c) hereof directly to the Employees (collectively, the
"Payments"); provided, however, that
-------- -----------------
12
<PAGE>
in connection with exercising rights under this clause (iii), the Companies
shall: (A) before taking action under paragraph (C) of this clause (iii),
provide written notice to the Employees of such Default as soon as practicable
after learning thereof (the "Employee Default Notice"), which Employee Default
-----------------------
Notice shall describe the alleged Default(s) and actions the Companies believe
are required to cure the Default; (B) before taking action under paragraph (C)
of this clause (iii), provide the Employees with ten (10) days following their
receipt of the Employee Default Notice within which to cure the Default; and (C)
if the Employees fail to cure such Default to the reasonable satisfaction of the
Companies within the aforesaid ten (10) day period, begin to make the Payments
on their respective due dates to the law firms of Kleinbard, Bell & Brecker, and
Stevens & Lee, as joint escrow agents (the "Escrow Agent"), which Escrow Agent
------------
shall retain the Payments until it receives written instructions from the
Companies that the Default has been cured or, in the case of Defaults that are
disputed by the Employees, that the Companies and the Employees have reached
agreement (either through negotiation or arbitration) with respect to such
Default. In the event that the Companies exercise their right to remit Payments
to the Escrow Agent pursuant to this Section 11(b)(iii), the parties shall meet
in person and negotiate in good faith during the then (10) calendar day period
(the "Negotiation Period") after the Employees' receipt of the Employee Default
------------------
Notice and the ten (10) day cure period referred to herein. If the parties are
unable to resolve all such disputes within the Negotiation Period, then within
five (5) business days after the expiration of the Negotiation Period, all
disputes shall be submitted to arbitration in accordance with Section 9.11 of
the Indemnification Agreement. All Payments shall be released from escrow and
paid to the Employees when all disputes with respect to the Default giving rise
to such escrow have been settled (either through negotiation or arbitration);
provided, however, notwithstanding the foregoing, any amount determined (either
through (i) negotiation and the joint written instructions of the Companies and
the Employees, or (ii) arbitration pursuant to an arbitration award) to be owing
by the Employees to the Companies by reason of such Default may be paid by the
Escrow Agent to the Companies from amounts held in escrow. Notwithstanding
anything contained herein to the contrary, it is understood and agreed that: (i)
the Escrow Agent shall have no liability to any party hereto in connection with
its performance of any duties or obligations under this Section 11(b), except
that each of the law firms of Kleinbard, Bell & Brecker and Stevens & Lee shall
be liable for their own respective gross negligence and willful misconduct; and
(ii) if any dispute or difference arises between the parties hereto or if any
conflicting demand shall be made upon the Escrow Agent, the Escrow Agent shall
not be required to determine the same or take any action thereon, but rather may
(A) await settlement of the controversy by appropriate legal proceedings, (B) by
written notice to the parties hereto, require the parties to enter into binding
arbitration of the dispute to determine to whom the funds held by the Escrow
Agent pursuant
13
<PAGE>
hereto shall be delivered, or (C) may file suit in interpleader with the proper
court in Philadelphia County, Pennsylvania, for the purpose of having the
respective rights of the parties adjudicated.
12. Limited Waiver and Release of Claims by the Companies. The
-----------------------------------------------------
Companies, on behalf of themselves and their respective predecessors,
successors, controlling or related entities, affiliates, divisions,
subsidiaries, and joint venturers, and all of their respective past, present and
future representatives, agents, assigns, attorneys, directors, officers,
partners, shareholders and employees, and all persons, corporations, and other
entities connected therewith that might claim by, through or under them
(collectively, the "Companies' Affiliates"), for and in consideration of the
---------------------
obligations, covenants and agreements of the Employees herein set forth, the
sufficiency of which is hereby acknowledged by Companies, do hereby waive,
remise, release and forever discharge the Employees and their respective
executors, administrators, predecessors, successors, heirs, assigns, and all
persons, corporations and other entities connected therewith that might claim
by, through or under them (collectively, the "Employee Affiliates"), of and from
-------------------
all, and all manner of, all Claims whatsoever in law or in equity, which the
Companies or the Companies' Affiliates, directly or indirectly, ever had, now
have, or hereafter may have, in any capacity whatsoever, against the Employees
or the Employee Affiliates under the Employment Agreements, whether such Claims
are now known or unknown by Companies; provided, however, the provisions of this
Section 12 shall not be applicable to or operate to release Employees from any
of the Excluded Claims arising by reason of any Default by the Employees.
13. Limited Waiver and Release of Claims by Employees. The
-------------------------------------------------
Employees, on behalf of themselves and the Employee Affiliates, for and in
consideration of the obligations, covenants and agreements of Companies herein
set forth, the sufficiency of which is hereby acknowledged by Employees, do
hereby waive, remise, release and forever discharge the Companies and the
Companies' Affiliates of and from all, and all manner of, all Claims whatsoever
in law or in equity, which the Employees or the Employee Affiliates, directly or
indirectly, ever had, now have, or hereafter may have, against the Companies or
the Companies' Affiliates under the Employment Agreements, the Reconciliation
Agreement, and the Incentive Compensation Plan, whether such Claims are now
known or unknown by the Employees; provided, however, the provisions of this
Section 13 shall not be applicable to or operate as a release with respect to
any of the Excluded Claims arising by reason of any Default by the Companies.
14. Effect of Releases. The parties agree that the provisions of
------------------
Sections 12 and 13 hereof and the settlement and termination of the Claims
therein described is not and shall not be construed to be an admission by any
party hereto of any
14
<PAGE>
violation of any federal, state or local statute or regulation, or of any duty
owed by one party to the other under the documents to which such releases
pertain and that the provisions thereof, in addition to all other covenants and
agreements herein set forth, are being made to amicably settle all such claims
in accordance with the terms and conditions of this Agreement.
15. Non-Disparagement. The Employees agree not to, directly or
-----------------
indirectly, disparage or criticize the Companies or the Companies' officers or
directors in any manner or respect to any person or entity. The Companies
similarly agree not to, directly or indirectly, disparage or criticize the
Employees in any manner or respect to any person or entity.
16. Indemnification. To the extent required by the by-laws or
---------------
certificate of incorporation of any Company, the Companies agree to defend,
indemnify, and hold the Employees harmless against any threatened or pending
actions or proceedings, whether brought by a third party or as a derivative
action, by reason of the fact that the Employees were officers and/or
representatives of the Companies acting within the scope of their employment.
17. Non-Disclosure of Agreement. Neither the Companies nor the
---------------------------
Employees shall disclose, directly or indirectly, the existence of this
Agreement and/or the terms and conditions of this Agreement to any Person except
(i) to such party's legal counsel, (ii) with respect to Employees, to members of
their immediate family, (iii) to the extent legally necessary to enforce the
Excluded Claims in a court of law or equity, (iv) as may be required by
applicable law after giving prior written notice of such required disclosure to
the other parties hereto, or (v) to such party's accountants, lenders, insurers
or any person or party with whom such party has dealings or relationships which
would make such disclosure reasonably necessary or appropriate.
18. Access to Records; Mail Delivery. After the Effective Date, the
--------------------------------
Companies shall, for any reasonable business purpose, permit the Employees and
their agents and representatives to have access to, and make copies of excerpts
from, the books, records, financial statements, tax returns, and other
information relating or pertaining to HHCA and/or its subsidiaries (including,
without limitation, billing and patient information, records, and files),
regardless of the medium by which any of the foregoing is stored or maintained,
so long as (i) reasonable advance written notice is provided by the Employees to
HHCA, (ii) such notice states with reasonable specificity the information which
the Employees desire to review and/or copy and the purpose thereof, and (iii) an
HHCA officer supervises and is present while the Employees are reviewing and/or
copying such information. Any and all mail, correspondence, and/or inquiries
addressed or directed to the Employees or pertaining to matters with respect to
which the
15
<PAGE>
Employees are or may be responsible and/or relating to business activities
conducted by Agency, Master Supply, or Professional Services prior to the
Closing Date (including, without limitation, desk settlement notices relating to
Agency) shall be promptly opened when received and made available for receipt by
the Employees after the Effective Date at HHCA's existing Delaware facilities
during normal business hours.
19. Agency Accounts, Etc. Any and all amounts received by the
---------------------
Companies in respect of assets of Agency which were not sold by Agency as a
result of the Purchase and Sale Transactions (including, without limitation,
accounts receivable) shall be held in trust by the Companies for the benefit of
Agency and shall be promptly remitted to the Agency c/o the Employees at the
address set forth in Section 21 hereof in the form so received.
20. Ratification of Guaranty. Without limiting the generality of the
------------------------
provisions of Section 29 hereof, HHCA hereby ratifies and affirms all of its
duties, obligations, and liabilities under the Guaranty; provided, however,
HHCA's obligations hereunder are in addition to and not in substitution of its
obligations under the Guaranty and other Purchase and Sale Documents.
21. Notices. All notices, requests, demands, claims, and other
-------
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered three (3)
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one (1) business day after it is sent via a
reputable nationwide overnight courier service, in each case to the intended
recipient as set forth below:
If to Companies: Home Health Corporation of
America, Inc.
2200 Renaissance Boulevard
Suite 300
King of Prussia, PA 19406-2755
Attention: Mr. Bruce J. Feldman,
President
If to the Employees: Steven R. and Jane E. Altshuler
15 Lakewood Circle
Newark, DE 19711
William W. and Andra H. Moses
4 Shannon Place
Newark, DE 19711
22. Expenses. Each party hereto shall bear such party's own costs
--------
and expenses, including legal fees and
16
<PAGE>
expenses, incurred in connection with this Agreement and the transactions
contemplated hereby.
23. Further Assurances. From time to time after the Effective Date,
------------------
each of the parties hereto hereby agrees to use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper, and advisable under applicable laws, rules, and regulations
to complete and make effective the transactions contemplated by this Agreement.
24. Waivers. No provision of this Agreement may be modified, waived,
-------
or discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by the Employees and the Companies. No waiver by any party
hereto at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement or the other Transaction
Documents to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions of conditions at the same or at any prior or
subsequent time.
25. Validity and Severability. If, for any reason, any provision of
-------------------------
this Agreement is held invalid, such invalidity shall not affect any other
provision of this Agreement not held to be invalid, and each such other
provision shall continue in full force and effect to the full extent consistent
with law. If any provision of this Agreement is held to be invalid in part,
such invalidity shall in no way affect the remainder of such provision, and the
remainder of such provision, together with all other provisions of this
Agreement, shall continue in full force and effect to the full extent consistent
with law.
26. Governing Law; Jurisdiction. This Agreement shall be governed by
---------------------------
and construed in accordance with the laws of the Commonwealth of Pennsylvania,
without giving effect to the principles of conflicts of law thereof. In order
to enforce the provisions hereof, each of the parties hereto: (i) submits and
consents to the personal jurisdiction of the Court of Common Pleas of
Philadelphia County, Pennsylvania or the United States District Court for the
Eastern District of Pennsylvania with respect to any suit, action or proceeding
relating to this Agreement or any of the transactions contemplated hereby; (ii)
waives any objection that such party may now or hereafter have to the laying of
venue of any such suit, action or proceeding brought in any such court, and
waives any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum; (iii) waives the right to
object that any such court does not have personal jurisdiction over such party;
and (iv) consents to the service of process in any such suit, action or
proceeding upon the receipt through the United States mail of copies of such
process to such party by certified mail to the addresses indicated in Section 19
hereof or at such other addresses of which the other parties shall be received
written notice. Nothing herein shall preclude any party
17
<PAGE>
from bringing suit or taking other legal action in any other jurisdiction or
from serving legal process in any other manner permitted by law or in equity.
27. Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of the parties hereto and their respective heirs, personal
representatives, successors, and assigns. Upon the death of any Employee,
payments due and owing by the Companies to such Employee shall continue to be
made to the estate, personal representative, or designated beneficiary of the
deceased Employee.
28. Entire Agreement. This Agreement and the Transaction Documents
----------------
constitute the entire Agreement among the parties hereto with regard to the
subject matter hereof and there are no other agreements, whether verbal or
written, among the parties hereto and/or any of the Companies that are in any
way related to any of the Transactions.
29. Transaction Documents. Except as expressly modified and amended
---------------------
herein, the Transaction Documents are ratified and confirmed in all respects.
The Subordination Agreement to which the Employees, M. Altshuler, HHCA, Master
Supply, and certain of HHCA's lenders are a party, as modified through the date
hereof, is not amended hereby.
30. Obligations of Companies. The duties, obligations, and
------------------------
liabilities of the Companies hereunder shall be joint and several.
31. Counterparts. This Agreement may be executed in any number of
------------
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument, but all of such counterparts taken together shall be
deemed to constitute one and the same instrument.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
HOME HEALTH CORPORATION OF AMERICA, INC.
By /s/ Bruce J. Feldman
---------------------------------
Bruce J. Feldman,
President
Attest: /s/ James J. Swiniuch
----------------------------
Secretary
HOME HEALTH CORPORATION OF DELAWARE, INC.
By /s/ Bruce J. Feldman
---------------------------------
President
Attest: /s/ James J. Swiniuch
----------------------------
Secretary
HHCD, INC.
By /s/ Bruce J. Feldman
---------------------------------
President
Attest: /s/ James J. Swiniuch
----------------------------
Secretary
HHCDME, INC.
By /s/ Bruce J. Feldman
---------------------------------
President
Attest: /s/ James J. Swiniuch
----------------------------
Secretary
/s/ Steven R. Altshuler (SEAL)
-----------------------------
Steven R. Altshuler
/s/ Jane E. Altshuler (SEAL)
-----------------------------
Jane E. Altshuler
/s/ William W. Moses (SEAL)
-----------------------------
William W. Moses
/s/ Andra H. Moses (SEAL)
-----------------------------
Andra H. Moses
19
<PAGE>
CONSENT
-------
The undersigned, intending to be legally bound, hereby consents to and
approves of the foregoing Separation Agreement and the modification to the
Promissory Note referred to therein.
Dated: June 30, 1996 /s/ Milton Altshuler (SEAL)
------------------------
Milton Altshuler
20
<PAGE>
Exhibit 11.1
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
Computation of Primary Earnings Per Share
for each of the three years in the period ended June 30, 1996
The following calculation is submitted in accordance with the Securities
Act of 1934:
<TABLE>
<CAPTION>
1994 (1) 1994 1995 1996 (2) 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income $ 717,525 $ 927,899 $1,389,498 $3,387,510 $2,226,813
Write-off of discount on preferred stock - - - 786,739 786,739
Dividends on preferred stock 56,400 56,400 63,600 50,420 50,420
---------- ---------- ---------- ---------- ----------
Net income available to common
stockholders $ 661,125 $ 871,499 $1,325,898 $2,550,351 $1,389,654
========== ========== ========== ========== ==========
Weighted average number of maximum
shares outstanding during year 3,193,724 3,193,724 3,266,727 6,349,644 6,349,644
Weighted average number of maximum
shares subject to exercise under
outstanding stock options and warrants 222,702 222,702 266,130 225,230 225,230
Less treasury shares assumed repurchased
from assumed exercise of
outstanding options and warrants (39,194) (39,194) (42,109) (106,865) (106,865)
---------- ---------- ---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding
after assumed exercise of stock options
and warrants 3,377,232 3,377,232 3,490,748 6,468,009 6,468,009
========== ========== ========== ========== ==========
Net income per share $.20 $.26 $.38 $0.39 $0.21
========== ========== ========== ========== ==========
</TABLE>
(1) Reflects net income and net income per share before cumulative effect of
change in accounting principle.
(2) Reflects net income and net income per share before extraordinary loss on
early extinguishment of indebtedness.
<PAGE>
Exhibit 11.2
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
Computation of Fully-diluted Earnings Per Share
for each of the three years in the period ended June 30, 1996
The following calculation is submitted in accordance with the Securities
Act of 1934 although not required by Opinion No. 15 of the Accounting Principles
Board as it results in dilution of less than 3%, or is anti-dilutive:
<TABLE>
<CAPTION>
1994 (1) 1994 1995 1996 (2) 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income $ 717,525 $ 927,899 $1,389,498 $3,387,510 $2,226,813
Write-off of discount on preferred stock - - - 786,739 786,739
Dividends on preferred stock 56,400 56,400 63,600 50,420 50,420
---------- ---------- ---------- ---------- ----------
Net income available to common
stockholders $ 661,125 $ 871,499 $1,325,898 $2,550,351 $1,389,654
========== ========== ========== ========== ==========
Weighted average number of maximum
shares outstanding during year 3,193,724 3,193,724 3,266,727 6,349,644 6,349,644
Weighted average number of maximum
shares subject to exercise under
outstanding stock options and warrants 222,702 222,702 266,130 225,230 225,230
Less treasury shares assumed repurchased
from assumed exercise of
outstanding options and warrants (39,194) (39,194) (42,109) (101,330) (101,330)
---------- ---------- ---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding
after assumed exercise of stock options
and warrants 3,377,232 3,377,232 3,490,748 6,473,544 6,473,544
========== ========== ========== ========== ==========
Net income per share $.20 $.26 $.38 $0.39 $0.21
========== ========== ========== ========== ==========
</TABLE>
(1) Reflects net income and net income per share before cumulative effect of
change in accounting principle.
(2) Reflects net income and net income per share before extraordinary loss on
early extinguishment of indebtedness.
<PAGE>
Exhibit 21.1
HOME HEALTH CORPORATION OF AMERICA, INC.
Subsidiaries of the Registrant
------------------------------
<TABLE>
<CAPTION>
State or Jurisdiction in
Name which Incorporated
---- ------------------
<S> <C>
Home Care Medical Supply & Equipment, Inc. Pennsylvania
Nutritional Home Health Services, Inc. Pennsylvania
Pennsylvania Home Care, Inc. Pennsylvania
All Care Health Services, Inc. Florida
Pennsylvania Home Health Services/Philadelphia, Inc. Pennsylvania
Pennsylvania Home Health Services/Northeast, Inc. Pennsylvania
All Care Home Health Services, Inc. Florida
Home Health Corporation of America, Inc./Ft. Pierce
Home Health Services, Inc. Florida
Home Health Corporation of Delaware, Inc. Delaware
HHCD, Inc. Delaware
HHCDME, Inc. Delaware
HHCA, Inc. - Delaware Delaware
Professional Home Health Services, Inc. Delaware
Home Health Corporation of America, Inc.-Tampa Florida
Home Health Corporation of America, Inc.-Tampa
Diagnostic Services Florida
Pennsylvania Home Health Services/Suburban, Inc. Pennsylvania
Home Health Corporation of America, Inc. - Pinellas Florida
Home Health Corporation of America,
Inc. - St. Petersburg Florida
Home Health Corporation of America,
Inc. - Tampa Nursing Florida
HHCA - Service Co. Pennsylvania
HHSI Acquisition, Inc. Delaware
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Home Health Corporation of America, Inc. (the "Company") on Form S-8 of our
report dated August 30, 1996, except for certain information in Note 12, for
which the date is September 17, 1996, on our audits of the consolidated
financial statements and financial statement schedule of the Company as of June
30, 1995 and 1996, and for each of the three years in the period ended June 30,
1996, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 20, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1996 AND THE RELATED STATEMENT OF INCOME FOR THE YEAR ENDED
JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,331
<SECURITIES> 0
<RECEIVABLES> 28,117
<ALLOWANCES> 2,152
<INVENTORY> 1,359
<CURRENT-ASSETS> 30,173
<PP&E> 12,250
<DEPRECIATION> 3,803
<TOTAL-ASSETS> 66,170
<CURRENT-LIABILITIES> 10,190
<BONDS> 0
500
0
<COMMON> 33,725
<OTHER-SE> 4,623
<TOTAL-LIABILITY-AND-EQUITY> 66,170
<SALES> 87,694
<TOTAL-REVENUES> 87,694
<CGS> 42,050
<TOTAL-COSTS> 80,505
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,454
<INCOME-PRETAX> 5,736
<INCOME-TAX> 2,348
<INCOME-CONTINUING> 3,388
<DISCONTINUED> 0
<EXTRAORDINARY> (1,161)<F1>
<CHANGES> 0
<NET-INCOME> 2,227
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
<FN>
<F1>EXTRAORDINARY ITEM REPRESENTS LOSS ON EARLY EXTINGUISHMENT OF DEBT.
</FN>
</TABLE>
