<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number: 0-26938
HOME HEALTH CORPORATION OF AMERICA, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2224800
- --------------------------------------- --------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2200 Renaissance Boulevard
Suite 300
King of Prussia, PA 19406
- --------------------------------------- --------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (610) 272-1717
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 the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date:
Class Outstanding at April 30, 1998
----- -----------------------------
Common stock, no par value 9,856,492
Exhibit index is located on page 26
<PAGE>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Number
------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for the three
and nine months ended March 31, 1998 and 1997 3
Condensed Consolidated Balance Sheets as of June 30, 1997
and March 31, 1998 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended March 31, 1998 and 1997 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
EXHIBIT INDEX 26
2
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HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
------------------------------ ------------------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $42,267 $42,367 $102,352 $135,155
Operating costs and expenses:
Patient care costs 20,683 20,427 49,642 64,030
General and administrative 15,367 18,149 36,594 54,416
Provision for doubtful accounts 1,400 1,636 3,768 4,512
Depreciation 409 630 1,025 1,727
Amortization 678 626 1,498 2,210
Interest expense, net 903 1,878 2,073 5,512
Merger and other nonrecurring expenses 300 - 1,884 4,880
Writedown of goodwill - - - 23,516
------------- ------------- ------------- ------------
Total operating costs and expenses 39,740 43,346 96,484 160,803
------------- ------------- ------------- ------------
Income (loss) before income taxes 2,527 (979) 5,868 (25,648)
Provision (benefit) for income taxes 960 (335) 2,255 (3,177)
------------- ------------- ------------- ------------
Net income (loss) $1,567 $(644) $3,613 $(22,471)
============= ============= ============= ============
Other data, including per share data:
Basic per share data:
Net income (loss) available to common
stockholders $1,567 $(644) $3,607 $(22,471)
============= ============= ============= ============
Net income (loss) per common share $0.18 $(0.07) $0.43 $(2.45)
============= ============= ============= ============
Weighted average shares used in computing
net income (loss) per common share 8,678 9,193 8,378 9,167
============= ============= ============= ============
Diluted per share data:
Net income (loss) available to common
stockholders $1,567 $(644) $3,686 $(22,471)
============= ============= ============= ============
Net income (loss) per common share $0.18 $(0.07) $0.42 $(2.45)
============= ============= ============= ============
Weighted average shares used in computing
net income (loss) per common share 8,826 9,227 8,727 9,167
============= ============= ============= ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
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HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
ASSETS 1997 1998
------ -------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 464 $ 563
Accounts receivable, net of allowance for doubtful accounts of $10,847
and $10,855, respectively 56,410 60,285
Inventories 3,262 2,939
Prepaid expenses and other 2,018 3,697
Income taxes 2,566 5,535
---------- ---------
Total current assets 64,720 73,019
Property and equipment, net 18,261 16,869
Goodwill, net 68,202 47,481
Other assets, net 2,080 2,305
---------- ---------
Total assets $ 153,263 $ 139,674
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt $ 6,263 $ 3,863
Accounts payable 5,705 6,592
Accrued salaries and related employee benefits 4,788 4,750
Restructuring and other nonrecurring liabilities 764 3,796
Other current liabilities 3,996 4,346
---------- ---------
Total current liabilities 21,516 23,347
Long-term debt, net of current portion 78,793 83,370
Restructuring and other nonrecurring liabilities 386 1,851
Other liabilities 1,996 2,636
Commitments and contingencies
Stockholders' equity:
Preferred stock (undesignated), no par value, 10,000 shares
authorized; no shares issued and outstanding - -
Common stock, no par value, 20,000 shares authorized; 9,221 and 9,856
shares issued, 9,129 and 9,764 shares outstanding at June 30 and
March 31, respectively 43,927 44,297
Retained earnings (accumulated deficit) 6,645 (15,827)
---------- ---------
Total stockholders' equity 50,572 28,470
---------- ---------
Total liabilities and stockholders' equity $ 153,263 $ 139,674
========== =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
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HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine months ended March 31,
---------------------------------------
1997 1998
---- ----
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) $ 3,613 $ (22,471)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 4,090 6,496
Provision for doubtful accounts 3,768 4,512
Deferred income taxes 52 -
Writedown of goodwill - 23,516
Write-off of terminated merger costs - 1,202
Write-off of deferred financing fees 300 -
Net changes in certain assets and liabilities, net of acquisitions:
Accounts receivable (14,694) (11,150)
Inventories (939) 323
Prepaid expenses and other (987) (1,678)
Income taxes (810) (2,970)
Restructuring and other nonrecurring liabilities - 2,298
Accounts payable, accrued expenses and other (5,418) 1,199
-------- ---------
Net cash flows provided by (used in) operating activities (11,025) 1,277
-------- ---------
Cash flows used in investing activities:
Purchases of property and equipment (2,768) (1,886)
Cash paid for acquisitions, net of cash acquired (32,382) (514)
Decrease (increase) in other (292) (160)
-------- ---------
Net cash flows used in investing activities (35,442) (2,560)
-------- ---------
Cash flows provided by financing activities:
Proceeds from long-term debt 47,890 6,000
Repayments of long-term debt (2,109) (4,860)
Payment of deferred financing fees (287) (127)
Proceeds from issuance of common stock 13 369
-------- ---------
Net cash flows provided by financing activities 45,507 1,382
-------- ---------
Net (decrease) increase in cash and cash equivalents (960) 99
Cash and cash equivalents, beginning of period 1,695 464
-------- ---------
Cash and cash equivalents, end of period $ 735 $ 563
======== =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE>
Home Health Corporation of America, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Home
Health Corporation of America, Inc. and Subsidiaries (the "Company" or "HHCA")
have been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. Additionally, although the June
30, 1997 condensed consolidated balance sheet was derived from audited financial
statements, it does not include all disclosures required by generally accepted
accounting principles. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and nine months ended March
31, 1998 are not necessarily indicative of the results that may be expected for
the fiscal year ending June 30, 1998. The unaudited condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended June 30, 1997 included
in the Company's Form 10-K/A filed with the Securities and Exchange Commission.
2. Per Share Data
The Company adopted Statement of Financial Accounting Standard No. 128 ("SFAS
128"), "Earnings Per Share," during the quarter ended December 31, 1997. The
adoption of SFAS 128 did not have a material effect on the Company's earnings
per share. Earnings per share and common shares outstanding for the three and
nine months ended March 31, 1997 have been restated for comparative purposes.
Basic earnings per share. Basic earnings per share is calculated by
dividing income available to common stockholders (the basic numerator) by the
weighted-average number of common shares outstanding (the basic denominator)
during the period. Income available to common stockholders is computed by
deducting dividends declared in the period on preferred stock (whether or not
paid) and dividends accumulated for the period on cumulative preferred stock.
Diluted earnings per share. Diluted earnings per share is calculated by
adjusting the basic numerator to add back the after-tax amount of dividends and
interest recognized in the period associated with potentially issuable common
shares and for any other changes in income or loss that would result from the
assumed conversion or exercise of potentially issuable common shares.
Additionally, the basic denominator is increased to include the additional
number of common shares that would have been outstanding if the potentially
issuable common shares had been issued, if dilutive. The treasury stock method
is used to reflect the dilutive effect of outstanding options and warrants.
Under SFAS 128, the computation of diluted EPS does not assume the conversion or
exercise of securities that have an anti-dilutive effect on earnings per share
(i.e., increase the income-per-share amount or decrease the loss-per-share
amount).
6
<PAGE>
A reconciliation of the numerator and denominator used in the calculation of
basic and diluted income (loss) per share follows:
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended March ended March ended March ended March
31, 1998 31, 1997 31, 1998 31, 1997
------------------ ------------------ ------------------ ---------------
<S> <C> <C> <C> <C>
Net income (loss) $(644) $1,567 $(22,471) $3,613
Dividends on preferred stock - - - (6)
------------------ ------------------ ------------------ ---------------
Net income (loss) used for calculation
of basic income (loss) per share (644) 1,567 (22,471) 3,607
Interest and dividends on convertible
securities - - - 79
------------------ ------------------ ------------------ ---------------
Net income (loss) used for calculation
of diluted income (loss) per share $(644) $1,567 $(22,471) $3,686
================== ================== ================== ===============
Weighted average number of common
shares outstanding used for
calculation of basic income (loss)
per share 9,193 8,678 9,167 8,378
Stock options and warrants assumed
outstanding during the period 34 148 - 148
Convertible securities assumed
outstanding during the period - - - 201
------------------ ------------------ ------------------ ---------------
Weighted average number of common
shares used for calculation of
diluted income (loss) per share 9,227 8,826 9,167 8,727
================== ================== ================== ===============
</TABLE>
3. Medicare Reimbursement Reductions and Related Restructuring
In 1997, Congress approved the Balanced Budget Act of 1997 (the "Budget Act").
The Budget Act established an interim payment system (the "IPS") that provided
for the lowering of reimbursement limits for home health nursing visits. For
cost reporting periods beginning on or after October 1, 1997,
Medicare-reimbursed home health agencies will have their cost limits determined
as the lesser of (i) their actual costs, (ii) cost limits based on 105% of
median costs of freestanding home health agencies, or (iii) agency-specific
per-patient cost limits, based on 98% of 1994 costs adjusted for inflation. The
new IPS cost limits will apply to the Company for the cost reporting period
beginning July 1, 1998, except for the Company's Medicare-certified nursing
agency located in Texas, for which the new cost limits applied for the cost
reporting period beginning January 1, 1998. During the second quarter of fiscal
1998, various regulations and interpretations of the Budget Act were published
which enabled the Company to calculate the potential impact on reimbursement of
the new IPS cost limits. Management's analysis, without giving effect to the
restructuring and cost reductions discussed below, estimated the aggregate
impact on reimbursement to exceed $5.0 million for certain of the Company's
Medicare-certified nursing agencies. After giving effect to the restructuring
and cost reductions, management estimates that the aggregate impact will be
between $1.8 to $2.5 million under the currently published Medicare
reimbursement regulations, assuming no additional cost reductions
7
<PAGE>
are made during the remainder of fiscal 1998 or during fiscal 1999 and there are
no further changes in reimbursement regulations.
The Budget Act also provided for a 25% reduction in home oxygen reimbursement
from the 1997 fee schedule, effective January 1, 1998, and a further reduction
of 5% effective January 1, 1999. Compounding these reductions was a freeze on
consumer price index increases in oxygen reimbursement rates until the year
2003. Approximately 5.8% of the Company's net revenues are derived from
reimbursement of oxygen services affected by the reduction in the fee schedule,
which is expected to result in a significant impact on the profitability of
these services.
During the second quarter of fiscal 1998, the Company developed a restructuring
plan to reduce annual operating costs by approximately $3.0 to $4.0 million,
thus proactively and aggressively responding to the above reductions in Medicare
reimbursement by fundamentally reshaping the Company for long-term growth in the
changing reimbursement environment. This plan, as well as management's
assessment of the continuing value of goodwill under the changing reimbursement
environment, resulted in pre-tax accounting charges aggregating $28.4 million
during the second quarter of fiscal 1998 which were comprised of a writedown of
goodwill of $23.5 million, restructuring costs of $3.7 million and the write-off
of deferred costs aggregating $1.2 million related to a terminated acquisition.
The writedown of goodwill was required under Statement of Financial Accounting
Standard No. 121 ("SFAS 121), "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to Be Disposed of," based upon management's
estimate of the impact of the announced reductions in Medicare oxygen
reimbursement and the expected impact of the IPS on the Company's continuing
operations. Based upon management's determination of the expected impact of
these changes on the carrying value of goodwill, goodwill was written down by
$23.5 million during the second quarter of fiscal 1998. This writedown was
comprised of $9.0 million related to certain durable medical equipment,
respiratory therapy, and infusion therapy companies and $14.5 million related to
certain Medicare cost-reimbursed nursing agencies. This writedown is reflected
in the accompanying condensed consolidated financial statements as of and for
the nine months ended March 31, 1998.
The restructuring costs of $3.7 million were comprised of (i) the closure and
consolidation of certain branch locations, including the accrual of estimated
facility exit costs and future lease costs, the write-off of leasehold
improvements, and other exit costs aggregating $1.6 million, (ii) estimated
employee severance costs in connection with the related termination of
employees, including certain former owners of businesses acquired, aggregating
$1.7 million and (iii) certain other costs aggregating $370,000 related to the
restructuring. The restructuring plan was substantially implemented by March
1998. The cash portion of the pre-tax accounting charge is estimated to be
approximately $3.7 million. Approximately $517,000 was charged against the
related accruals during the third quarter of fiscal 1998. The restructuring
costs were included in merger and other nonrecurring expenses in the
accompanying condensed consolidated statement of operations for the nine months
ended March 31, 1998.
Additionally, during the fourth quarter of fiscal 1998, the Company will be
implementing cost reduction and office consolidation initiatives which were
identified in addition to the initiatives implemented during the third quarter
of fiscal 1998. These additional initiatives are expected to result in between
$4.0 to $6.0 million in annual cost reductions. Approximately $3.0 to $4.0
million of these cost reductions are expected to result from the consolidation
of the Company's regional operating structure to two large regions
8
<PAGE>
from the five regions the Company currently operates. Approximately $1.0 to $2.0
million of these cost reductions are expected to result from reductions in
caregiver expenses. These additional cost reductions are expected to be
implemented during the fourth quarter of fiscal 1998 and first quarter of fiscal
1999. At least half of these cost reductions are expected to impact the
Company's Medicare cost-reimbursed nursing agencies and reduce the Company's
exposure to the IPS. The Company expects to record charges during the fourth
quarter of fiscal 1998 for employee severance and lease termination costs in
connection with these additional cost reduction and office consolidation
initiatives.
On February 11, 1998, the Company and U.S. HomeCare Corporation ("USHO") agreed
to the termination of the Company's proposed acquisition of USHO. Deferred
acquisition costs of $1.2 million associated with this proposed acquisition were
written-off during the second quarter of fiscal 1998 and included in merger and
other nonrecurring expenses in the accompanying condensed consolidated statement
of operations for the nine months ended March 31, 1998.
4. Supplemental Cash Flow Information
Supplemental disclosure of cash flow information for the nine months ended
March 31:
<TABLE>
<CAPTION>
1997 1998
---- ----
(in thousands)
<S> <C> <C>
Non-cash investing and financing activities:
Acquisitions:
Assets acquired and amounts paid to
former owners $ 53,759 $ 514
Less:
Liabilities assumed and acquisition costs 10,902 -
Issuance of subordinated seller notes 4,925 -
Issuance of common stock 5,550 -
---------------- ---------------
Cash paid, net of cash acquired $ 32,382 $ 514
================ ===============
Capital lease obligations incurred $ 2,256 $ 1,443
================ ===============
Conversion of HHSI convertible notes into the
Company's common stock:
Common stock, no par 2,042 -
Additional paid-in capital (104) -
---------------- ---------------
$ 1,938 -
================ ===============
Exchange of HHSI shares for the Company's Common
stock $ 1,250 -
================ ===============
Reclassification to common stock related to
expiration of redemption requirements $ 500 -
================ ===============
</TABLE>
5. Credit Facility
9
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The Company's senior credit facility (the "Credit Facility") was amended to
limit aggregate borrowings under the Credit Facility, increase the fees on such
borrowings, and waive and amend certain financial covenants. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
6. Commitments and Contingencies
On February 19, 1998, a shareholder commenced litigation against the Company and
certain named officers of the Company. In the lawsuit, entitled Koenig v.
---------
Feldman, et al. which was filed in the United States District Court for the
- --------------
Eastern District of Pennsylvania, the plaintiff alleges that the defendants, in
violation of federal securities laws, engaged in a scheme to artificially
inflate and maintain the market price of the Company's common stock by, among
other things, making false and misleading statements or failing to disclose
material facts in documents filed with the Securities and Exchange Commission or
in press releases issued by the Company, particularly with respect to the
Company's efforts to obtain timely payment for the Company's products and
services and the Company's termination of business with certain managed care
companies. The plaintiff, who filed the lawsuit on behalf of himself and all
others similarly situated, seeks certification of the lawsuit as a class action
on behalf of all persons who purchased the Company's common stock between
September 3, 1997 and February 16, 1998. The Company believes that the lawsuit
is without merit and intends to engage in a vigorous defense.
10
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Outlook and Risks
The Company is subject to significant external factors which could significantly
impact its business, including changes in Medicare reimbursement, government
fraud and abuse initiatives and other such factors which are beyond the control
of the Company. Certain of these factors are discussed herein. Refer to the
Company's Form 10K/A for the year ended June 30, 1997 for a discussion of these
and additional factors which management believes may impact the Company. These
factors, as well as future changes in reimbursement and changes in
interpretations of regulations, could cause future results to differ materially
from historical trends and management's current expectations.
General
The financial condition and results of operations of the Company for the three
and nine months ended March 31, 1998 compared with the three and nine months
ended March 31, 1997 have been affected by both acquisitions and internal
growth.
Acquisitions
The results of operations of the companies acquired during fiscal 1997 are
included in the Company's consolidated results of operations from their
respective acquisition dates, which occurred at various times during fiscal
1997. Accordingly, the operating results for any fiscal quarter are not
necessarily comparable with the results for any past or future fiscal quarter.
During fiscal 1997, the Company entered the Texas and New England regions with
five acquisitions, expanding its operations into Texas, Massachusetts, New
Hampshire, Rhode Island and Maine. Additionally, during fiscal 1997, the Company
expanded its ongoing operations in Pennsylvania, New Jersey, Maryland and the
Tampa/St. Petersburg, Florida market with five acquisitions, and also expanded
into Illinois as a result of a merger transaction. There were no acquisitions
from July 1, 1997 through March 31, 1998. The Company is required to make
certain payments to former owners of businesses acquired in prior periods, as
part of the consideration paid for the acquisitions. During the nine months
ended March 31, 1998, the Company paid $514,000 in additional consideration for
certain acquisitions completed in fiscal 1997. The Company also issued 579,901
shares of common stock on March 30, 1998 to the former owners of Nahatan Drug,
Inc. as additional consideration required under the acquisition agreement. As a
result of the changing reimbursement environment, management expects a slowing
of growth through acquisition. Additionally, the Company is currently restricted
by its senior credit facility from engaging in acquisitions. See "Liquidity and
Capital Resources."
On February 11, 1998, the Company and USHO agreed to the termination of the
Company's proposed acquisition of USHO. Deferred acquisition costs of $1.2
million associated with this proposed acquisition were written-off during the
second quarter of fiscal 1998 and are included in merger and other nonrecurring
expenses in the accompanying condensed consolidated statement of operations for
the nine months ended March 31, 1998.
11
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Internal Growth
Three months ended March 31, 1998 compared to the three months ended March 31,
1997. The Company experienced a decrease of 7.8% in internal growth during the
three months ended March 31, 1998, compared to an 11.5% increase for the
comparable period in fiscal 1997. Significant factors impacting internal growth
in net revenues included the unanticipated early implementation on January 1,
1998 of the IPS for the Company's Texas Medicare cost-reimbursed nursing agency
and the reductions in Medicare oxygen reimbursement which were also effective
January 1, 1998. The decrease in internal growth during the three months ended
March 31, 1998 was comprised of a reduction in same-branch Medicare cost-
reimbursed nursing and related patient service net revenues of 9.1%, or $1.7
million, and a decline in same-branch product net revenues (durable medical
equipment and respiratory and infusion therapy services) of 17.1%, or $2.1
million, offset by an increase in same-branch non-Medicare nursing net revenues
of 8.0%, or $698,000. The decrease in Medicare cost-reimbursed nursing and
related patient service net revenues was primarily a result of early
implementation of the IPS in the Texas Region. The decrease in product net
revenues was due principally to the reductions in Medicare oxygen reimbursement
as well as various other factors including the Company ceasing to provide
services and products to selected managed care companies due to their protracted
payment terms, a reduction in reimbursement rates by certain managed care
companies, and the Company choosing not to renew certain contracts with managed
care companies that were attempting to impose rate reductions. The increase in
non-Medicare nursing services resulted principally from effective cross-selling
of these nursing services to the Company's product patients as well as increased
patient referrals.
Nine months ended March 31, 1998 compared to the nine months ended March 31,
1997. The Company experienced an increase of 10.3% in internal growth during the
nine months ended March 31, 1998, compared to 12.5% for the comparable period in
fiscal 1997. The increase in internal growth for the nine months ended March 31,
1998 was comprised of an increase of 19.5%, or $6.1 million, in same-branch
Medicare cost-reimbursed nursing and related patient services net revenues and
an increase of 16.8%, or $3.6 million, in same-branch net revenues for non-
Medicare nursing services, offset by a decrease in same-branch product net
revenues of 5.0%, or $1.4 million. The increase in net revenues relating to
Medicare cost-reimbursed nursing and related patient services resulted from a 6%
increase in visits at same-branch Medicare cost-reimbursed nursing branches and
increased costs incurred by these branches resulting in additional cost
reimbursement. The increase in non-Medicare nursing services net revenue
resulted from 9% and 30% increases in hourly and visit volume, respectively,
from same-branch non-Medicare nursing branches, primarily a result of effective
cross-selling of these nursing services to the Company's product patients and
increased patient referrals. The decrease in product net revenues was due
principally to the reductions in Medicare oxygen reimbursement, which were
effective January 1, 1998, as well as various other factors such as the Company
ceasing to provide services and products to selected managed care companies due
to their protracted payment terms, a reduction in reimbursement rates by certain
managed care companies, the Company choosing not to renew certain contracts with
managed care companies that were attempting to impose rate reductions and a
decline in cross-selling of these products and services to the Company's nursing
patients during the transition to certain of the Company's regional coordinated
care centers during the second quarter of fiscal 1998.
The Company may continue to experience a decrease in its internal growth rate
related to respiratory therapy services as a result of the reduction on January
1, 1998 in Medicare
12
<PAGE>
reimbursement for oxygen services. Additionally, the Company may also continue
to experience a decrease in the internal growth rate for its Texas Medicare
cost-reimbursed nursing agency as well as the Company's other Medicare cost-
reimbursed nursing agencies when they become subject to the IPS. In addition, if
the Company is unable to negotiate rate increases under certain managed care
contracts and as managed care organizations and other payors continue to exert
pricing pressure on the Company and other home health care providers, the
Company may continue to experience a decrease in its internal growth rate.
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 periods.
Restructuring Initiatives
On February 10, 1998, the Company announced certain proactive steps it was
taking to reduce costs and better position the Company for success under the
changing reimbursement environment. Specifically, the Company closed certain
offices and reduced administrative personnel resulting in approximately $3.0 to
$4.0 million in annual reductions in operating costs. These initiatives were
substantially implemented by March 1998. See "Nine Months Ended March 31, 1998
Compared with the Nine Months Ended March 31, 1997 - Merger and other
nonrecurring expenses" and Note 3 to the accompanying unaudited condensed
consolidated financial statements.
Additionally, during the fourth quarter of fiscal 1998, the Company will be
implementing cost reduction and office consolidation initiatives which were
identified in addition to the initiatives implemented during the third quarter
of fiscal 1998. These additional initiatives are expected to result in between
$4.0 to $6.0 million in annual cost reductions. Approximately $3.0 to $4.0
million of these cost reductions are expected to result from the consolidation
of the Company's regional operating structure to two large regions from the five
regions the Company currently operates. Approximately $1.0 to $2.0 million of
these cost reductions are expected to result from reductions in caregiver
expenses. These additional cost reductions are expected to be implemented during
the fourth quarter of fiscal 1998 and first quarter of fiscal 1999. At least
half of these cost reductions are expected to impact the Company's Medicare
cost-reimbursed nursing agencies and reduce the Company's exposure to IPS. The
Company expects to record charges during the fourth quarter of fiscal 1998 for
employee severance and lease termination costs in connection with these
additional cost reduction and office consolidation initiatives.
There can be no assurance the Company will be able to achieve the expected cost
savings or synergies from the closing or consolidation of offices and other
restructuring efforts described above or will be able to reduce costs without
negatively impacting operations.
13
<PAGE>
Results of Operations
<TABLE>
<CAPTION>
Percentage of net Percentage of net
revenue for the three revenue for the nine
months ended March 31, months ended March 31,
---------------------------- ---------------------------
1997 1998 1997 1998
---------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Net revenues 100.0 % 100.0 % 100.0 % 100.0 %
Operating costs and expenses:
Patient care costs 48.9 48.2 48.5 47.4
General and administrative 36.4 42.8 35.8 40.3
Provision for doubtful accounts 3.3 3.9 3.7 3.3
Depreciation 1.0 1.5 1.0 1.3
Amortization 1.6 1.5 1.5 1.6
Interest expense, net 2.1 4.4 2.0 4.1
Merger and other nonrecurring
expenses 0.7 - 1.8 3.6
Writedown of goodwill - - - 17.4
---------- ------------- ---------- -----------
Income (loss) before income taxes 6.0 (2.3) 5.7 (19.0)
Provision (benefit) for income taxes 2.3 (0.8) 2.2 (2.4)
---------- ------------- ---------- ------------
Net income (loss) 3.7 % (1.5) % 3.5 % (16.6) %
========== ============= ========== ============
</TABLE>
Three Months Ended March 31, 1998 Compared with the Three Months Ended December
31, 1997
Net revenues. For the three months ended March 31, 1998, net revenues increased
to $42.4 million from $42.3 million for the comparable prior year period. The
increase in net revenues was consistent with management's expectations. The
factors impacting the growth in net revenues included the unanticipated early
implementation on January 1, 1998 of the IPS for the Company's Texas Medicare
cost-reimbursed nursing agency and reductions in Medicare oxygen reimbursement
which were also effective January 1, 1998. Principally as a result of these two
factors, internal growth declined by $3.2 million, or 7.8%, during the three
months ended March 31, 1998 from the comparable prior year period. See "Internal
Growth." Net revenues for the three months ended March 31, 1998 attributable to
operations from acquisitions completed during the prior fiscal year increased
$3.3 million, or 164.8%, compared to the prior year period. Net revenues from
nursing and related patient services increased from $27.9 million for the three
months ended March 31, 1997 to $28.1 million for the three months ended March
31, 1998, a 1% increase. Total Medicare nursing visits decreased 23% to 224,000
visits for the three months ended March 31, 1998. This reduction is principally
a result of the early implementation of the IPS for the Texas Medicare cost-
reimbursed nursing agency. Total non-Medicare nursing hourly and visit volume
increased 2% and 37%, respectively, to 284,000 hours and 61,000 visits,
respectively, for the three months ended March 31, 1998. Acquisitions, effective
cross-selling of these nursing services to the Company's product patients and
increased referrals contributed to these volume increases. Product net revenues
decreased $113,000, or 1%, to $14.3 million for the three months ended March 31,
1998, from $14.4 million for the three months ended March 31, 1997. This
decrease was comprised of an increase of $2.0 million in net revenues for the
three months ended March 31, 1998 attributable to operations from acquisitions
completed during the
14
<PAGE>
prior fiscal year, offset by a decrease of $2.1 million in net revenues for
same-branch operations due to the various factors discussed under "Internal
Growth."
Patient care costs. For the three months ended March 31, 1998, patient care
costs were $20.4 million, a decrease of $256,000, or
1.2%, over the three months ended March 31, 1997. This decrease principally
related to decreases in net revenues. These costs decreased slightly
as a percentage of net revenues from 48.9% to 48.2%. Patient care costs as a
percentage of net revenues are impacted by numerous variables, many of which are
beyond the control of the Company. The Company expects that patient care costs
as a percentage of net revenues may continue to decrease as a result of the cost
reduction initiatives implemented by the Company and the termination or non-
renewal by the Company of contracts with managed care companies that are
marginally profitable, provided the Company's net revenues increase. The ability
of the Company to increase net revenues will be impacted by the reduction in
Medicare oxygen reimbursement which took effect on January 1, 1998, the
continuing pressure by managed care payors to reduce their reimbursement to the
Company for the Company's products and services and the lower IPS cost limits
effective January 1, 1998 for the Company's Texas Medicare cost-reimbursed
nursing agency and July 1, 1998 for the Company's other Medicare cost-reimbursed
nursing agencies. See "Net revenues."
General and administrative expenses. For the three months ended March 31, 1998,
general and administrative expenses increased to $18.1 million. This represented
an increase of $2.8 million, or 18.1%, over the three months ended March 31,
1997. These costs increased as a percentage of net revenues from 36.4% to 42.8%.
Of these increases, costs of $1.1 million were related to acquisitions completed
during the third and fourth quarters of fiscal 1997 and costs of $1.7 million
were related to infrastructure enhancements implemented by the Company prior to
adoption by the Company of its restructuring plan, including costs related to
an increase in staffing in certain departments, costs relating to implementing
the Company's regional coordinated care centers and increased costs for
insurance, telecommunications and other operating expenses. The Company expects
that a decrease in general and administrative expenses as a percentage of net
revenues will result from the cost reduction and office consolidation
initiatives implemented during the third quarter of fiscal 1998 and those
initiatives being implemented beginning the fourth quarter of fiscal 1998. As a
result of the initiatives implemented during the third quarter of fiscal 1998,
general and administrative expenses decreased to $18.1 million for the three
months ended March 31, 1998 from $18.9 million for the three months ended
December 31, 1997.
Provision for doubtful accounts. For the three months ended March 31, 1998,
provision for doubtful accounts increased to $1.6 million. This represented an
increase of $236,000, or 16.9%, over the three months ended March 31, 1997.
Provision for doubtful accounts increased slightly as a percentage of net
revenues from 3.3% to 3.9%. This was due principally to the decrease in Medicare
nursing and related patient services net revenues as a percentage of total net
revenues to 41.0% for the three months ended March 31, 1998 from 45.2% for the
three months ended March 31, 1997, which do not require a provision for doubtful
accounts.
Depreciation. For the three months ended March 31, 1998, depreciation expense
increased to $630,000. This represented an increase of $221,000, or 54.0%, over
the three months ended March 31, 1997. This increase was attributable to fixed
assets acquired in connection with acquisitions and capital expenditures related
to vehicles, management information systems and equipment to support the
Company's growth.
15
<PAGE>
Amortization. For the three months ended March 31, 1998, amortization was
$626,000, a decrease of $52,000, or 7.7%, over the three months ended March 31,
1997. This decrease was attributable principally to the reduction in goodwill as
a result of the writedown recorded during the second quarter of fiscal 1998. See
"Nine Months Ended March 31, 1998 Compared with the Nine Months Ended March 31,
1997 - Writedown of goodwill."
Interest expense, net. Interest expense, net, increased $975,000, or 108.0 %, to
$1.9 million during the three months ended March 31, 1998 compared with the
three months ended March 31, 1997. This increase resulted from increased
borrowings for acquisitions completed during fiscal 1997 and increased
borrowings to finance working capital requirements. The Company may experience
increases in interest expense as a result of increased interest rates imposed
under the Credit Facility and its related amendments. See "Liquidity and Capital
Resources."
Loss before income taxes. The three months ended March 31, 1998 included a pre-
tax operating loss from the Texas Medicare cost-reimbursed nursing agency of
approximately $839,000 as a result of early implementation of the IPS. The
Company expects this loss to continue during the fourth quarter of fiscal 1998
but at a reduced amount as a result of the cost reduction and office
consolidation initiatives currently being implemented. The Company expects this
loss to be significantly reduced during fiscal 1999 after all the cost
reductions are implemented. However, there can be no assurance the Company will
be able to achieve the expected cost savings or synergies from the closing or
consolidation of offices and other restructuring efforts or will be able to
reduce costs without negatively impacting operations.
Provision (benefit) for income taxes. The Company recorded a tax benefit of 34%
of pretax loss for the three months ended March 31, 1998.
Nine Months Ended March 31, 1998 Compared with the Nine Months Ended March 31,
1997
Net revenues. For the nine months ended March 31, 1998, net revenues increased
to $135.2 million. This represented an increase of $32.8 million, or 32.0%, over
the nine months ended March 31, 1997. Of this increase, $24.5 million, or 74.6%,
was attributable to acquisitions completed during fiscal 1997. The balance of
the increase was due to internal growth of 10.3%, or $8.3 million. See "Internal
Growth." Net revenues from nursing and related patient services increased from
$64.9 million for the nine months ended March 31, 1997 to $89.5 million for the
nine months ended March 31, 1998, a 37.9% increase. The increase in Medicare
nursing and related patient services net revenues resulted from increased visits
and increased costs resulting in additional cost reimbursement, offset by the
decrease in net revenues resulting from implementation of the IPS in the Texas
Region. Total Medicare nursing visits increased 29% to 762,000 visits for the
nine months ended March 31, 1998. Total non-Medicare nursing hourly and visit
volume increased 37% and 30%, respectively, to 910,000 hours and 167,000 visits,
respectively, for the nine months ended March 31, 1997. Acquisitions, effective
cross-selling of these nursing services to the Company's product patients and
increased referrals contributed to these volume increases. Product net revenues
increased $8.2 million, or 22.0%, to $45.7 million for the nine months ended
March 31, 1998, from $37.4 million for the nine months ended March 31, 1997 as a
result of acquisitions, increased referrals and effective cross-selling of
infusion therapy services to the Company's nursing patients. This increase was
comprised of an increase of $9.6 million in net revenues for the nine months
ended March 31, 1998 attributable to operations from
16
<PAGE>
acquisitions completed during the prior fiscal year, offset by a decrease of
$1.4 million in net revenues for same-branch operations due to the various
factors discussed under "Internal Growth."
Patient care costs. For the nine months ended March 31, 1998, patient care costs
increased to $64.0 million. This represented an increase of $14.4 million, or
29.0%, over the nine months ended March 31, 1997. This increase principally
related to increases in net revenues. These costs decreased slightly as a
percentage of net revenues from 48.5% to 47.4%. Patient care costs as a
percentage of net revenues are impacted by numerous variables, many of which are
beyond the control of the Company. The Company expects that patient care costs
as a percentage of net revenues may continue to decrease as a result of the cost
reduction initiatives implemented by the Company and the termination or non-
renewal by the Company of contracts with managed care companies that are
marginally profitable, provided the Company's net revenues increase. The ability
of the Company to increase net revenues will be impacted by the reduction in
Medicare oxygen reimbursement which took effect on January 1, 1998, the
continuing pressure by managed care payors to reduce their reimbursement to the
Company for the Company's products and services and the lower IPS cost limits
effective January 1, 1998 for the Company's Texas Medicare cost-reimbursed
nursing agency and July 1, 1998 for the Company's other Medicare cost-reimbursed
nursing agencies. See "Net revenues."
General and administrative expenses. For the nine months ended March 31, 1998,
general and administrative expenses increased to $54.4 million. This represented
an increase of $17.8 million, or 48.7%, over the nine months ended March 31,
1997. These costs increased as a percentage of net revenues from 35.8% to 40.3%.
Of these increases, costs of $8.8 million were related to acquisitions completed
during the third and fourth quarters of fiscal 1997 and costs of $9.0 million
were related to infrastructure enhancements implemented by the Company prior to
adoption by the Company of its restructuring plan, including costs related to
an increase in staffing in certain departments, costs relating to implementing
the Company's regional coordinated care centers and increased costs for
insurance, telecommunications and other operating expenses. The Company expects
that a decrease in general and administrative expenses as a percentage of net
revenues will result from the cost reduction and office consolidation
initiatives identified during the second quarter of fiscal 1998 and implemented
during the third quarter of fiscal 1998, as well as those initiatives being
implemented beginning the fourth quarter of fiscal 1998. See "Restructuring
Initiatives" and Note 3 to the unaudited condensed consolidated financial
statements. During the second quarter of fiscal 1998, the Company recorded a
restructuring charge in connection with the initiatives identified during the
second quarter. See "Merger and other nonrecurring expenses."
Provision for doubtful accounts. For the nine months ended March 31, 1998,
provision for doubtful accounts increased to $4.5 million. This represented an
increase of $744,000, or 19.7%, over the nine months ended March 31, 1997. This
increase was due to increases in net revenues for the nine months ended March
31, 1998. Provision for doubtful accounts decreased slightly as a percentage of
net revenues from 3.7% to 3.3%. This was due principally to the increase in
Medicare cost-reimbursed nursing and related patient services net revenues as a
percentage of total net revenues to 42.6% for the nine months ended March 31,
1998 from 40.5% for the nine months ended March 31, 1997, which do not require a
provision for doubtful accounts.
Depreciation. For the nine months ended March 31, 1998, depreciation expense
increased to $1.7 million. This represented an increase of $702,000, or 68.5%,
over the nine months ended
17
<PAGE>
March 31, 1997. This increase was attributable to fixed assets acquired in
connection with acquisitions and capital expenditures related to vehicles,
management information systems and equipment to support the Company's growth.
Amortization. For the nine months ended March 31, 1998, amortization increased
to $2.2 million. This represented an increase of $712,000, or 47.5%, over the
nine months ended March 31, 1997. This increase was attributable to amortization
of goodwill arising from acquisitions in fiscal 1997, offset by the reduction in
amortization as a result of the writedown of goodwill during the second quarter
of fiscal year 1998. See "Writedown of goodwill."
Interest expense, net. Interest expense, net, increased $3.4 million, or 165.9%,
to $5.5 million during the nine months ended March 31, 1998 compared with the
nine months ended March 31, 1997. This increase resulted from increased
borrowings for acquisitions completed during fiscal 1997 and increased
borrowings to finance working capital requirements. The Company may experience
increases in interest expense as a result of increased interest rates imposed
under the Credit Facility and its related amendments. See "Liquidity and Capital
Resources."
Merger and other nonrecurring expenses. During the second quarter of fiscal
1998, the Company recorded a charge in connection with a restructuring of the
Company's operations. The Company evaluated the impact of reductions in
reimbursement for Medicare oxygen services and the IPS and, where appropriate,
closed certain offices and reduced administrative personnel resulting in an
expected annual reduction in operating costs aggregating approximately $3.0 to
$4.0 million. As a result of these restructuring activities, the Company
recorded a pre-tax charge of $3.7 million in connection with (i) the closure and
consolidation of certain branch locations, including the accrual of estimated
facility exit costs and future lease costs, the write-off of leasehold
improvements, and other exit costs aggregating $1.6 million, (ii) estimated
employee severance costs in connection with the related termination of
employees, including certain former owners of businesses acquired, aggregating
$1.7 million, (iii) and certain other costs aggregating $370,000 related to the
restructuring. Management believes that the restructuring plan, which was
substantially implemented by the end of March 1998, will position the Company as
a lower cost provider under the Medicare prospective payment system that is
scheduled to be implemented October 1, 1999, as well as reduce the impact on the
Company of the reduction in Medicare reimbursement for oxygen services and the
IPS limits. During the fourth quarter of fiscal 1998, the Company will be
implementing cost reduction and office consolidation initiatives which were
identified in addition to the initiatives identified during the second quarter
of fiscal 1998. See "Restructuring Initiatives" and Note 3 to the accompanying
unaudited condensed consolidated financial statements.
Additionally, deferred acquisition costs aggregating $1.2 million associated
with the termination of the Company's proposed acquisition of USHO were written
off during the second quarter of fiscal 1998.
The Company recorded certain nonrecurring expenses of $1.6 million during the
second quarter of fiscal 1997 as a result of a merger which occurred in November
1996. Such costs were comprised of transaction fees, legal and accounting costs
and other nonrecurring expenses associated with the merger. Additionally, during
the third quarter of fiscal 1997, the Company wrote-off deferred costs
aggregating $300,000 relating to an offering to sell shares of the Company's
common stock through a Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on November 1, 1996 and withdrawn on December
30,
18
<PAGE>
1996. The write-off was recorded based upon management's judgment that a similar
offering would not likely occur prior to June 30, 1997 due to market conditions.
Such costs were comprised principally of legal, accounting and printing costs.
Writedown of goodwill. During the second quarter of fiscal 1998, the Company
recorded a writedown of goodwill previously recorded in connection with certain
acquisitions. The Company determined the writedown of goodwill was required
under SFAS 121 based upon management's estimate of the impact of the announced
reductions in Medicare reimbursement for oxygen services and the expected impact
of the IPS on the Company's continuing operations. Based upon management's
determination of the expected impact of these changes on the carrying value of
goodwill, goodwill was written down by $23.5 million during the three months
ended December 31, 1997. This writedown was comprised of $9.0 million related to
certain durable medical equipment and respiratory and infusion therapy companies
and $14.5 million related to certain Medicare cost-reimbursed nursing agencies.
The Company will continue to evaluate the continuing value of goodwill in
accordance with SFAS 121. There can be no assurance that the remaining balance
of goodwill of $47.5 million at March 31, 1998 will not be reduced for possible
impairments which may occur in the future as a result of changes in
reimbursement or other issues. Additionally, reimbursement regulations have been
issued related to reimbursement for certain mobile diagnostic services. These
regulations could eliminate payment for mobile diagnostic services to the
Company. Goodwill associated with mobile diagnostic services acquisitions
aggregates approximately $1.0 million at March 31, 1998. Mobile diagnostic
services represent less than 3% of the Company's current net revenues.
Loss before income taxes. Significant factors which affected the loss before
income taxes for the nine months ended March 31, 1998 included a pre-tax
operating loss from the Texas Medicare cost-reimbursed nursing agency of
approximately $839,000 as a result of early implementation of the IPS in the
Texas Region effective January 1, 1998 and pretax charges aggregating $28.4
million related to the nonrecurring writedown of goodwill and merger and other
nonrecurring costs recorded during the second quarter of fiscal 1998. The
Company expects the Texas Medicare IPS related loss to continue during the
fourth quarter of fiscal 1998 but at a reduced amount as a result of the cost
reduction and office consolidation initiatives currently being implemented. The
Company expects this loss to be significantly reduced during fiscal 1999 after
all the cost reductions are implemented. However, there can be no assurance the
Company will be able to achieve the expected cost savings or synergies from the
closing or consolidation of offices and other restructuring efforts or will be
able to reduce costs without negatively impacting operations.
Provision (benefit) for income taxes. The Company recorded a tax benefit of 12%
of pretax loss for the nine months ended March 31, 1998, principally as a
result of the merger and restructuring charges and the writedown of goodwill
recorded during the second quarter of fiscal 1998. The writedown of goodwill
included approximately $15.6 million of nondeductible goodwill recorded in
connection with certain acquisitions, for which the Company receives no income
tax benefit.
Liquidity and Capital Resources
19
<PAGE>
Working capital increased to $49.7 million at March 31, 1998 from $43.2 million
at June 30, 1997, an increase of $6.5 million. The increase primarily resulted
from an increase in current assets of $8.3 million offset by an increase in
current liabilities of $1.8 million. The increase in current assets was
comprised principally of an increase in accounts receivable of $3.9 million and
an increase in income taxes receivable of $2.6 million. The increase in current
liabilities was comprised principally of the change in the current portion of
restructuring and other nonrecurring liabilities of $3.0 million at March 31,
1998, offset by a decrease of $2.4 million in the current portion of long-term
debt. The increase in accounts receivable was principally due to internal growth
and certain managed care payors continuing to subject the Company to protracted
payment terms and increasing attempts by these and other third-party payors to
deny payments for appropriate products and services furnished to their
subscribers. The increase in accounts receivable resulted in an increase in days
net revenues outstanding from 92 to 118 for this period. The increase in days
net revenues outstanding resulted from a decrease in net revenues of $5.5
million from the three months ended June 30, 1997 to the three months ended
March 31, 1998, as well as the increase of $3.9 million in net accounts
receivable from June 30, 1997 to March 31, 1998. Cash flow provided by
operations was $1.3 million for the nine months ended March 31, 1998 compared
with $11.0 million used in operations in the nine months ended March 31, 1997.
Cash expenditures for acquisitions were $32.4 million for the nine months ended
March 31, 1997. There were no acquisitions consummated during the nine months
ended March 31, 1998. During the nine months ended March 31, 1998, the Company
paid $514,000 in additional consideration for acquisitions completed during
fiscal 1997. The Company also issued 579,901 shares of common stock on March 30,
1998 to the former owners of Nahatan Drug, Inc. as additional consideration
required under the acquisition agreement. Additionally, the Company is currently
restricted by its senior credit facility from engaging in acquisitions. As a
result of the changing reimbursement environment, management expects a slowing
of growth through acquisition.
Goodwill was $47.5 million at March 31, 1998, after a $23.5 million writedown
recorded during the second quarter of fiscal 1998. The Company will continue to
evaluate the continuing value of goodwill in accordance with SFAS 121. There can
be no assurance that the remaining balance of goodwill at March 31, 1998 will
not be reduced for possible impairments which may occur in the future as a
result of changes in reimbursement or other issues. Additionally, reimbursement
regulations have been issued related to reimbursement for certain mobile
diagnostic services. These regulations could eliminate payment for mobile
diagnostic services to the Company. Goodwill associated with mobile diagnostic
services acquisitions aggregates approximately $1.0 million at March 31, 1998.
Mobile diagnostic services represent less than 3% of the Company's current net
revenues.
Expenditures for purchases of capital equipment were $3.3 million and $5.1
million for the nine months ended March 31, 1998 and 1997, respectively,
including $1.4 million and $2.3 million of purchases in fiscal 1998 and fiscal
1997, respectively, funded through a master lease agreement. The Company expects
to spend approximately $1.0 million for capital expenditures for the remainder
of fiscal 1998. The Company typically funds a significant portion of its capital
expenditures through a master lease arrangement which is collateralized by the
value of the underlying equipment. As of March 31, 1998 the Company has fully
utilized its available borrowings under the master lease arrangement and is
reviewing additional financing sources.
20
<PAGE>
The Company's Medicare cost-reimbursed nursing agencies are subject to the
Medicare surety bond requirements imposed by the Budget Act, which require the
Company to obtain surety bonds for each agency in the amount of the greater of
$50,000 or 15% of the Medicare net revenues for the previous year. The Company
was required to have surety bonds in place no later than February 27, 1998 for
these agencies, and complied with these requirements. Since complying with these
requirements, the Health Care Financing Administration ("HCFA") has extended the
deadline for compliance to 60 days after the publication of the final
regulations. To date the final regulations have not been issued. The aggregate
cost of the surety bonds to the Company was less than $100,000 for coverage from
January 1, 1998 to June 30, 1998. A date has not been established for surety
bond coverage for durable medical equipment providers as the proposed rules for
such providers have not yet been finalized. Due to the nature of the surety
bonds serving as a Medicare fraud and abuse deterrent and the potential for
insurers to have significant risk under the bonds, many insurers are unwilling
to provide surety bond coverage that complies with all the specifications of the
regulation. As a result, although the Company was able to obtain surety bond
coverage that complies with the regulations, there can be no assurance that such
coverage will be adequate or available to the Company in the future on
satisfactory terms, if at all. Additionally, there can be no assurance that any
judgments, settlements or costs relating to future claims under these surety
bonds will not have a material adverse effect on the Company's results of
operations or financial condition.
The Company had a $100 million senior credit facility (the "Credit Facility")
available for acquisitions, working capital and other general corporate
purposes. On February 17, 1998, the Credit Facility was amended to waive and
amend certain covenants under the Credit Facility, limit aggregate borrowings
for working capital purposes to $48.0 million and no longer permit the Company
to borrow for acquisition purposes until it meets certain criteria as defined by
the Credit Facility. Additionally, the interest rates available to the Company
on borrowings under the Credit Facility were increased by 0.5% per annum. On May
15, 1998, the Company and its lenders entered into an amendment to the Credit
Facility (the "Amendment") which, among other things, waived the failure by the
Company to be in compliance on March 31, 1998 with certain covenants set forth
in the Credit Facility, limited the aggregate amount that the Company could
borrow under the Credit Facility through July 31, 1998 to $84.8 million and
required the Company to grant to the lenders under the Credit Facility, subject
to certain permitted liens and exceptions, a collateral interest in all of the
assets of the Company. The Amendment also requires the Company to pay certain
additional monthly fees based upon amounts outstanding under the Credit
Facility. These fees are expected to result in an increase in the effective
interest rate on borrowings under the Credit Facility of between 0.5% to 1% per
annum. On April 30, 1998, the Company had $82.1 million outstanding under the
Credit Facility bearing interest at a weighted average interest rate of 8.3% and
$2.7 million of unused commitment available for working capital purposes through
July 31, 1998.
The Company has provided to its lenders under the Credit Facility information
which reflects that the Company expects not to be in compliance as of September
30, 1998 and thereafter with certain covenants set forth in the Credit Facility.
In the Amendment, the lenders and the Company have agreed to negotiate in good
faith by August 15, 1998 an additional amendment to the Credit Facility,
including amendments to the financial covenants of the Credit Facility as
applicable after June 30, 1998 and thereafter and such other amendments that the
lenders require.
If the Company fails to be in compliance with the covenants set forth in the
Amendment and the Company and the lenders fail to enter into the additional
amendment to the Credit Facility which
21
<PAGE>
amends the covenants in a manner satisfactory to the Company and the lenders, or
if the lenders otherwise fail to waive the Company's noncompliance with the
covenants, the Company will be in default under the Credit Facility. If an event
of default should occur under the Credit Facility, the lenders could elect to
declare all amounts of principal outstanding under the Credit Facility, together
with all accrued interest, to be immediately due and payable.
If the Company and lenders enter into an additional amendment to the Credit
Facility on terms satisfactory to the Company, the Company anticipates that the
available lines of credit as of that time and cash flow generated from
operations should be adequate to enable the Company to fund its operations,
capital expenditures and anticipated internal growth for at least the next
twelve months.
22
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
On February 19, 1998, a shareholder commenced litigation against the Company and
certain named officers of the Company. In the lawsuit, entitled Koenig v.
---------
Feldman, et al. which was filed in the United States District Court for the
- ---------------
Eastern District of Pennsylvania, the plaintiff alleges that the defendants, in
violation of federal securities laws, engaged in a scheme to artificially
inflate and maintain the market price of the Company's common stock by, among
other things, making false and misleading statements or failing to disclose
material facts in documents filed with the Securities and Exchange Commission or
in press releases issued by the Company, particularly with respect to the
Company's efforts to obtain timely payment for the Company's products and
services and the Company's termination of business with certain managed care
companies. The plaintiff, who filed the lawsuit on behalf of himself and all
others similarly situated, seeks certification of the lawsuit as a class action
on behalf of all persons who purchased the Company's common stock between
September 3, 1997 and February 16, 1998. The Company believes that the lawsuit
is without merit and intends to engage in a vigorous defense.
Item 2. Changes in Securities and Use of Proceeds
On March 30, 1998, the Company issued 579,901 shares of common stock to the
former owners of Nahatan Drug, Inc., a company acquired in March 1997, as
additional consideration required under the acquisition agreement. These shares
were not registered under the Securities Act of 1933 (the "Act"), as amended, in
reliance upon the exemption from such registration provided by Section 4(2) of
the Act.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on February 16, 1998. At the
meeting, shareholders elected directors and approved an amendment to the
Company's 1995 Employee and Consultant Equity Plan (the "1995 Plan").
The following nominee for director, who was elected as a Class B director to
serve for a three year term and until his successor is duly elected and
qualified, received the following votes at the meeting.
For Withhold Authority
------------------ ------------------------
G. Michael Bellenghi 6,851,759 154,960
The term of office of each of the following directors continued after the
meeting: Bruce J. Feldman, Harvey Machaver and Joseph F. Trustey.
The following sets forth the number of votes cast for or against the amendment
to the 1995 Plan, as well as the number of abstentions and broker non-votes:
For Against Abstentions Broker Non-votes
----------- ------------- --------------- --------------------
4,805,650 1,166,046 13,182 1,021,841
23
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits filed with this report are listed in the index on page 26.
(b) Reports on Form 8-K
The registrant filed a report on Form 8-K on March 3, 1998 to disclose
under Item 5 therein information with respect to certain litigation
filed against the Company on February 19, 1998.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOME HEALTH CORPORATION OF AMERICA, INC.
Date: June 3, 1998 /s/ Bruce J. Feldman
----------------------------------------
President and Chief Executive Officer
(Duly Authorized Officer and Principal
Financial Officer)
25
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
(a) 3.1 Amended and Restated Articles of Incorporation of the Company.
(a) 3.2 Amended and Restated Bylaws of the Company.
(b) 10.1 Stock Purchase Agreement among HHCA, Home Health Corporation of
New Hampshire, Randy DiSalvo, R.S.D. Management Services, Inc.,
Nursing Services Home Care, Inc. and Nursing Services Home
Care, Ltd.
(c) 10.2 Asset Acquisition Agreement Among Home Health Corporation of
America, Inc. and its Nominees, LHS Holdings, Inc., Liberty
Health Services, Inc., Nurses Today M/C, Inc. and Mark H.
O'Brien.
(c) 10.3 Asset Acquisition Agreement Among Home Health Corporation of
America, Inc. and its Nominees, PDN, Inc., Medical I.V., Inc.
and Mark H. O'Brien.
(c) 10.4 Indemnification Agreement Among Home Health Corporation of
America, Inc. and its Nominees, LHS Holdings, Inc., Liberty
Health Services, Inc., Nurses Today M/C, Inc., PDN, Inc.,
Medical I.V., Inc. and Mark H. O'Brien.
(a) 10.5 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.
(a) 10.6 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.
(a) 10.7 Stock Purchase Agreement by and between Home Health Corporation
of Delaware, Inc., William Moses, Milton Altshuler, Steven R.
Altshuler, and Jane Altshuler, relating to Delaware
Acquisition.
(a) 10.8 Asset Acquisition Agreement between HHCDME, Inc., and Master
Medical Supply Co., Inc., relating to Delaware Acquisition.
(a) 10.9 Asset Acquisition Agreement between HHCD, Inc., and Professional
Home Health Care Agency, Inc., relating to Delaware
Acquisition.
(a) 10.10 Indemnification Agreement relating to Delaware Acquisition.
(a) 10.11 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.
(a) 10.12 Full Payment Guaranty of the Company relating to Delaware
Acquisition.
(a) 10.13 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.
(a) 10.14 Separation Agreement among 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
(a) 10.15 Asset Purchase Agreement between Pennsylvania Home Care, Inc. and
Healthcare Professionals, Inc.
(d) 10.16 Third Amended and Restated Credit Agreement.
(e) 10.17 Amendment No. 1 to the Third Amended and Restated Credit
Agreement.
(a) 10.18 Lease between the Company and Swedeland Road Corporation,
relating to the Company's principal executive offices.
(a) 10.19 Employment Agreement between the Company and Bruce J. Feldman.*
26
<PAGE>
(a) 10.20 Employment Agreement between the Company and Fred J. Nicholas.*
(a) 10.21 Employment Agreement between the Company and Joseph Grilli.*
(a) 10.22 1995 Employee and Consultant Equity Plan. *
(a) 10.23 1984 Employee Stock Option Plan (Qualified and Non-Qualified),
as amended and restated.*
(a) 10.24 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., Summit
Investors II, L.P.
(a) 10.25 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.
(a) 10.26 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.
(a) 10.27 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.
(f) 10.28 Amended and Restated Agreement and Plan of Merger among Home
Health Corporation of America, Inc., HHCA Acquisition
Corporation, Inc. and U.S. HomeCare Corporation.
(g) 10.29 Termination of Amended and Restated Agreement and Plan of Merger
among Home Health Corporation of America, Inc., HHCA
Acquisition Corporation, Inc. and U.S. HomeCare Corporation.
(g) 10.30 Amendment No. 3 to Third Amended and Restated Credit Agreement.
10.31 Amendment No. 4 Third Amended and Restated Credit Agreement.
(h) 11.1 Computation of basic and diluted loss per share for the three
and nine months ended March 31, 1998.
(h) 11.2 Computation of basic and diluted earnings per share for the
three and nine months ended March 31, 1997.
(h) 27.1 Financial data schedule for the nine month period ended
March 31, 1998.
(h) 27.2 Financial data schedule for the nine month period ended
March 31, 1997.
(h) 27.3 Financial data schedule for the six month period ended
December 31, 1996.
- -----------------
(a) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 33-96888) dated November 8, 1995, as amended.
(b) Incorporated by reference to the Company's Form 10-Q dated September 30,
1996 and filed November 14, 1996.
(c) Incorporated by reference to the Company's Form 8-K dated January 10,
1997 and filed January 24, 1997.
(d) Incorporated by reference to the Company's Form 10-Q dated March 31, 1997
and filed May 14, 1997.
(e) Incorporated by reference to the Company's Form 10-K/A dated June 30,
1997 and filed October 28, 1997.
(f) Incorporated by reference to the Company's Form 8-K dated September 26,
1997 and filed October 7, 1997.
(g) Incorporated by reference to the Company's Form 10-Q dated December 31,
1997 and filed February 17, 1998.
(h) Incorporated by reference to the Company's Form 10-Q dated March 31, 1998
and filed May 15, 1998.
* Represents management contract or compensatory plan
27
<PAGE>
Exhibit 10.31
AMENDMENT NO. 4 TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT NO. 4 TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment No. 4") is made as of the 15th day of May, 1998 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 the signature pages hereto (each individually a "Bank"
and individually and collectively, "Banks"); and CoreStates as agent for the
Banks ("Agent").
WITNESSETH:
----------
WHEREAS, Borrower, Banks and Agent are parties to that certain Third
Amended and Restated Credit Agreement dated March 13, 1997, as amended (as
amended from time to time, including by this Amendment No. 4, the "Credit
Agreement"); and
WHEREAS, Home Health Corporation of America, Inc. ("Parent") and
certain of its subsidiaries other than Borrower have executed (or joined in)
that certain Amended and Restated Guaranty dated March 13, 1997 (as amended from
time to time, the "Guaranty") in favor of Banks in connection with the Credit
Agreement; and
WHEREAS, Borrower has provided Banks with information that it is in
default under the financial covenants set forth in Paragraphs 5.15 and 5.16 of
the Credit Agreement as of March 31, 1998 and anticipates that it will be in
default under such financial covenants as of June 30, 1998;
WHEREAS, Borrower has requested, and the Banks have agreed to, subject
to the terms and conditions hereof, certain amendments and waivers under the
Credit Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and the agreements
herein set forth and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Definitions.
-----------
a. General Rule. Unless otherwise defined herein, terms used
------------
herein which are defined in the Credit Agreement shall have the meanings
assigned to them in the Credit Agreement.
b. Additional Definitions. The following definitions are hereby
----------------------
added to Section 1 of the Credit Agreement to read in their entirety as follows:
<PAGE>
"Additional Fee Termination Date" means the earlier of (i) March
-------------------------------
31, 2000, (ii) the date on which the Additional Restructuring (as
defined in Amendment No. 4) becomes effective, or (iii) for any time
period following June 30, 1998, the date on which the Borrower
delivers to the Agent a Compliance Certificate showing that the ratio
of Funded Debt to Adjusted EBITDA for the Parent and its consolidated
Subsidiaries is equal to or less than 2.75 to 1.
"Amendment No. 4" means the Amendment No. 4 to Credit
---------------
Agreement by and among Borrower, Agent and Banks.
"Professional Fees" means fees and disbursements of: counsel to
-----------------
the Company, counsel to the Banks, the consultants required to be
retained by the Company pursuant to Paragraph 21(b) of Amendment No.
4, the consulting arm of Coopers & Lybrand, and the consultants
retained by the Banks pursuant to Paragraph 16(d) of Amendment No. 4,
as to which the Companies have submitted to Agent invoices, and
evidence of payment thereof or a request for an advance under the
Revolving Loan to pay such invoice, not to exceed in the aggregate
Five Hundred Thousand Dollars ($500,000).
"Security Agreement" means the Security Agreement executed and
------------------
delivered by Borrower and Guarantors in favor of Agent, for the
benefit of Banks, pursuant to Paragraph 20(b) of Amendment No. 4.
"Temporary Additional Fee" means the Temporary Additional Fee
------------------------
required pursuant to Paragraph 4 of Amendment No. 4.
c. Amended Definitions. The following definitions set forth in
-------------------
Section 1 of the Credit Agreement are hereby amended and restated to read in
their entirety as follows:
"Loan Documents" means the Agreement, the Note, the Pledge
--------------
Agreements, the Guaranty, the Subordination Agreements, the Security
Agreement and the other documents and agreements executed and
delivered in connection with the Agreement, including all amendments
and modifications thereto and all schedules and exhibits thereto as in
effect from time to time.
"EBITDA" means, for any period, the sum of net income for such
------
period as defined in accordance with GAAP, plus (i) interest paid in
cash, (ii) original issue discount paid in cash, (iii) taxes, (iv)
depreciation and amortization, (v) charges related to extinguishment
of debt, (vi) write-off
-2-
<PAGE>
of expenses associated with the registration statement filed in
November 1996 (not to exceed $300,000), (vii) charges associated with
Permitted Acquisitions accounted for as a pooling of interests for
such period, (viii) for any calculation thereof which includes the
fiscal quarter ended June 30, 1997, the amount of non-recurring
charges taken during that quarter and deducted in calculating net
income (i.e., a $3.0 million charge to reflect an increase in bad debt
reserves and a $1.1 million restructuring charge), (ix) for any
calculation thereof which includes the fiscal quarter ended December
31, 1997, the write-off of goodwill and the non-recurring
restructuring and merger charges taken during that quarter as
reflected in the 10-Q for the Parent, (x) for any calculation thereof
which includes the fiscal quarter ended June 30, 1998, the non-
recurring restructuring charges taken during that quarter, not to
exceed $1,500,000, and (xi) for any calculation thereof from the date
of Amendment No. 4 through July 31, 1998, the amount of Professional
Fees paid in such period in, each case as defined in accordance with
GAAP and to the extent each has been deducted in determining net
income.
"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), provided, that Funded Debt shall not include the
amount of Indebtedness under the Loan which has been advanced to pay
Professional Fees after the date of Amendment No. 4 through July 31,
1998; (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.
2. Restructuring. Banks and the Borrower acknowledge and agree that
-------------
Banks will consider an additional amendment to the Credit Agreement, which
amendment shall include amendments to the financial covenants as applicable
after June 30, 1998 and such terms and conditions in connection therewith as
Required Banks and Borrower shall mutually agree (the "Additional
Restructuring"). Borrower and Banks will negotiate in good faith to execute
such Additional Restructuring by August 15, 1998, however, Borrower understands
and agrees that, except with respect to the permitted additional borrowing as
expressly set forth in Paragraph 17(b) hereof, Banks have not made any
determination whether they are willing to continue to lend to the Borrower, or
on what terms they might be willing to lend to Borrower or enter into the
Additional Restructuring, and there is no obligation of any nature on the part
of the Banks or any of them to enter into an Additional Restructuring, to waive
any Defaults or Events of Default that may arise after the date hereof, or to
permit any additional advances under the Credit
-3-
<PAGE>
Agreement prior to entering into such Additional Restructuring.
3. Interest Periods. Notwithstanding the definition of "Interest
----------------
Period" set forth in Paragraph 2.6 of the Credit Agreement, the Interest Period
with respect to any Libor Portion commencing after the date of this Amendment
No. 4 shall be one month.
4. Temporary Additional Fee. Commencing on the date that Amendment
------------------------
No. 4 becomes effective and continuing through the Additional Fee Termination
Date, the Borrower shall pay to the Agent for the benefit of the Banks the
Temporary Additional Fee. The Temporary Additional Fee shall be calculated on a
monthly basis on the average daily outstanding balance of the Loan during such
month and shall be payable, in arrears, on the first day of each calendar month,
commencing on June 1, 1998. With respect to periods through August 15, 1998,
the Temporary Additional Fee shall be calculated at a rate of .0416% per
month. Notwithstanding the foregoing, in the event that the Additional Fee
Termination Date has not occurred on or prior to August 15, 1998, then from and
after August 16, 1998 through September 15, 1998 the Temporary Additional Fee
shall be calculated at a rate of .0625% per month. In the event that the
Additional Fee Termination Date has not occurred on or prior to September 15,
1998, then from and after September 16, 1998 through the Additional Fee
Termination Date the Temporary Additional Fee shall be calculated at a rate of
.0834% per month, it being understood and agreed that from and after the
Additional Fee Termination Date, the obligation of the Borrower to pay the
Temporary Additional Fee (except for the amount thereof that is accrued but
unpaid as of such Additional Fee Termination Date) automatically expires. The
amount of the Temporary Additional Fee shall be pro rated for any portion of a
month for which it is due. The Agent shall distribute the amount received by
it from the Borrower on account of the Temporary Additional Fee to the Banks in
accordance with each Bank's Pro Rata Share.
5. Amendment to Paragraph 2.7(a) (Revolving Loan, RSD Loan or LHS
--------------------------------------------------------------
Loan Advance Request). Subparagraph (i) of Paragraph 2.7(a) of the Credit
- ---------------------
Agreement is hereby amended and restated to read in its entirety as follows:
(i) the aggregate amount of the requested Advance, which shall be
in the amount of $250,000 or a multiple of $50,000 in excess thereof;
6. Amendment to Paragraph 5.9 (Insurance). Paragraph 5.9 of the
--------------------------------------
Credit Agreement is hereby amended and restated to read in its entirety as
follows:
5.9 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
-4-
<PAGE>
non-payment of premiums prior to termination of coverage, and cause
Agent, on behalf of Banks, to be named as lender loss payee
thereunder; and provide to Agent upon its request copies of all
insurance binders and policies with respect thereto.
7. Amendment to Paragraph 5.15 (Maximum Funded Debt to Adjusted
------------------------------------------------------------
EBITDA Ratio). Paragraph 5.15 of the Credit Agreement is hereby amended and
- -------------
restated to read in its entirety as follows:
5.15. Maximum Funded Debt to Adjusted EBITDA Ratio. Maintain as
--------------------------------------------
of the end of each fiscal quarter set forth in the left hand column
below a ratio of (i) Funded Debt of Parent and its consolidated
Subsidiaries to (ii) Adjusted EBITDA, of not greater than the ratio
set forth in the right hand column below:
<TABLE>
<CAPTION>
Fiscal Quarters Ended Ratio
--------------------- -----
<S> <C>
6/30/98 7.64 to 1
9/30/98 and 12/31/98 2.75 to 1
3/31/99 and thereafter 2.50 to 1
</TABLE>
8. Amendment to Paragraph 5.16 (Fixed Charge Coverage Ratio).
---------------------------------------------------------
Paragraph 5.16 of the Credit Agreement is hereby amended and restated to read in
its entirety as follows:
5.16. Fixed Charge Coverage Ratio. Maintain as of the end of
---------------------------
each fiscal quarter set forth in the left hand column below a
consolidated Fixed Charge Coverage Ratio of not less than the ratio
set forth in the right hand column below:
Fiscal Quarters Ended Ratio
--------------------- -----
6/30/98 0.78 to 1
9/30/98 and thereafter 1.00 to 1
9. Amendment to Paragraph 5.20 (Joinders). Paragraph 5.20 of the
--------------------------------------
Credit Agreement is hereby amended and restated to read in its entirety as
follows:
5.20 Joinders. If any Inactive Subsidiary becomes active or if
--------
a new Subsidiary is formed or acquired, the Companies shall (a) cause
such Subsidiary to execute and deliver a joinder to the Guaranty and
the Security Agreement and such other documents as Agent may
reasonably
-5-
<PAGE>
require, and (b) execute and deliver or cause to be executed and
delivered to Agent, for the benefit of Banks, a Pledge Agreement or
amendment to Pledge Agreement to pledge the shares or partnership
interests, as applicable, of such Subsidiary to Agent for the benefit
of Banks, together with UCC financing statements, secretary's
certificates, all share certificates together with stock powers signed
in blank, opinions of counsel, and such other documents, instruments
and agreements as Agent, on behalf of Banks, shall reasonably request
in connection therewith.
10. Additional Paragraph 5.23 (Additional Collateral). A new
-------------------------------------------------
Paragraph 5.23 is hereby added to the Credit Agreement to read in its entirety
as follows:
5.23 Additional Collateral. In addition to the grant of a lien
---------------------
in the accounts receivable and other assets of the Companies under the
Security Agreement required pursuant to Paragraph 20(b) of Amendment
No. 4, execute, deliver and record, at any time upon Agent's request
and in form and substance satisfactory to Agent, any of the following
instruments as additional Collateral for the Loan or to perfect
security interests in previously granted collateral, subject (in the
case of clauses (i) to (iv) below) to receipt of any required consents
and approvals in connection therewith, which the Companies shall use
commercially reasonable efforts to obtain: (i) mortgages on any of
the Companies' real estate and certificates of title encumbrances
against any of their vehicles, (ii) assignments of leases of real or
personal property leased by any of the Companies from or to others,
(iii) specific assignments of easements, licenses, permits,
certificates of compliance and certificates of approval issued by
regulatory authorities, franchises or like grants of authority or
service agreements, and (iv) any other assignments or agreements
specifically covering any of the Companies' properties or assets.
Agent is hereby irrevocably appointed as each Company's attorney-in-
fact to execute any such documents and instruments in such Company's
name and on such Company's behalf, and to do all such acts and things
which Agent may deem necessary to effectuate the foregoing. The
Companies acknowledge and agree that the foregoing power is coupled
with an interest and is irrevocable.
11. Additional Paragraph 5.24 (Minimum EBITDA). A new Paragraph 5.24
------------------------------------------
is hereby added to the Credit Agreement to read in its entirety as follows:
5.24. Minimum EBITDA. Maintain EBITDA for the month of June,
--------------
1998 and each month thereafter through August, 1998 (determined based
on the unaudited Company prepared profit and loss statements delivered
pursuant to Paragraph 5 of Amendment No. 3 and Paragraph
-6-
<PAGE>
16(c) of Amendment No. 4) in an amount not less than the greater of
(A) ninety-five percent (95%) of the projected EBITDA as set forth in
the financial projections delivered pursuant to Paragraph 16(a) of
Amendment No. 4, and (B) the amount set forth below with respect to
such month:
<TABLE>
<CAPTION>
Month Amount
----- ------
<S> <C>
June $1,108,000
July $ 554,000
August $ 775,600
</TABLE>
12. Amendment to Paragraph 6.4 (Liens). Paragraph 6.4 of the Credit
----------------------------------
Agreement is hereby amended to include an exception for the liens in favor of
Agent or Banks pursuant to the Security Agreement or any other Loan Document.
13. Amendment to Paragraph 6.6 (Restricted Payments).
------------------------------------------------
Notwithstanding the amendments and waivers set forth in this Amendment No. 4,
and as an express condition thereto, the Companies shall not be permitted to
make any Restricted Payments from and after April 30, 1998, and in furtherance
thereof Paragraph 6.6 of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:
6.6. Restricted Payments. Make any Restricted Payments.
-------------------
14. Amendment to Paragraph 6.7 (Transfer of Assets; Liquidation).
------------------------------------------------------------
Paragraph 6.7 of the Credit Agreement is hereby amended and restated to read in
its entirety as follows:
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; or
(b) discontinue, liquidate, or change in any material
respect any substantial part of the operations or business(es) of the
Companies, taken as whole.
15. Amendment to Paragraph 6.8 (Acquisitions and Investments).
---------------------------------------------------------
Paragraph 6.8 of the Credit Agreement is hereby amended and restated to read in
its entirety as follows:
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 any
instruments or
-7-
<PAGE>
securities thereof, including without limitation any Permitted
Investments; 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 at such time and if such transaction will not give rise to a
Default or an Event of Default, the Companies may, upon not less than
ten (10) Business Days' prior written notice to Agent describing such
transactions in reasonable detail, engage in mergers or consolidations
of wholly-owned Subsidiaries of Parent with other wholly-owned
Subsidiaries of Parent, and form wholly-owned Subsidiaries for
purposes of such corporate reorganization, subject in all cases to
compliance with the requirements of Paragraph 5.20 of the Credit
Agreement.
16. Additional Reporting; Audits, etc.
----------------------------------
a. Prior to June 1, 1998, Borrower shall deliver to Agent a
business plan, including financial projections of Parent and its consolidated
Subsidiaries, to include income statements, balance sheets, statements of cash
flows and accounts receivable on a net basis, covering each month from June,
1998 through September, 1998 and each quarterly period thereafter through the
Revolving Commitment Termination Date, certified by the President of Borrower as
representing a good faith, reasonable projection of the financial condition and
operations of Parent and its consolidated Subsidiaries as of the dates and for
the periods covered thereby. Prior to June 15, 1998, Borrower shall deliver to
Agent income statements, balance sheets, statements of cash flows and accounts
receivable on a net basis for each of the months of October through December,
1998.
b. In addition to any other information and reports required
pursuant to the Credit Agreement, the Companies shall furnish to Agent the
following reports from and after the date of this Amendment No. 4, in form and
substance satisfactory to Agent:
(1) prior to the close of business on Monday of each week,
cash flow projections for such week and the three following weeks; and
(2) prior to the close of business on Wednesday of each week,
a cash collection report and reconciliation of actual to projected cash flows
with respect to the previous week.
(3) prior to the close of business on Wednesday of each week,
an accounts payable aging report as of the end of the prior week.
Any report that is due pursuant to the foregoing provisions on a day that is not
a Business Day may be delivered by the close of business on the next succeeding
Business Day.
-8-
<PAGE>
c. The requirements of Paragraph 5 of Amendment No. 3 are hereby
amended as follows:
(1) The monthly visit trend report and cash collection report
shall be delivered within 45 days after month end with respect to any month end
that is also a fiscal quarter or fiscal year end.
(2) Simultaneously with the delivery of the monthly profit
and loss statements and accounts receivable aging, the Companies shall deliver a
balance sheet for such month. The monthly profit and loss statement, balance
sheet and accounts receivable aging shall be delivered within 45 days after
month end with respect to any month end that is also a fiscal quarter or fiscal
year end. Each monthly balance sheet, and each profit and loss statement with
respect to a month end that is also the fiscal year end, may be a draft prepared
in good faith by the Companies.
d. Borrower acknowledges and agrees that Agent shall engage,
itself and/or through its counsel, in each case at the expense of Borrower, one
or more independent consultants and/or auditors (which, in the case of items (3)
and (4) below shall be BDO Seidman or a regional firm (excluding firms with
their chief office in New York)), to undertake reviews of the Companies on
behalf of the Banks, with respect to the following:
(1) To review and evaluate the Companies' business plan
delivered by the Companies pursuant to Paragraph 16(a) hereof.
(2) To audit and verify the cost cuts implemented by the
Companies as described by the Companies to the Banks and as reflected in
financial projections provided by the Companies.
(3) To review and analyze the reserve and write-off policies
with respect to receivables prepared by the Companies, and audit the receivables
of the Companies.
(4) To audit the Companies' assumptions and calculations with
respect to reimbursement rates, including without limitation with respect to the
Medicare Interim Payment System as applicable to the Companies.
The Companies shall afford such consultants and/or auditors access at
any reasonable time upon reasonable notice to the books and records of the
Companies, and permit such consultants and/or auditors to make extracts thereof
and to discuss contents of same and any of the matters described above with
senior officers of Parent and also with outside auditors,
-9-
<PAGE>
accountants and consultants of Parent, including without limitation the
consultants hired by the Companies pursuant to Paragraph 21(b) hereof.
17. Waivers; Restrictions on Advances; Additional Conditions.
--------------------------------------------------------
a. Waiver. Banks hereby waive the defaults by Borrower as of
------
March 31, 1998 under Paragraph 5.15 (Maximum Funded Debt to Adjusted EBITDA
Ratio) and Paragraph 5.16 (Maximum Fixed Charge Coverage Ratio) as in effect
prior to the date hereof; provided, that nothing herein shall be construed as a
waiver of any defaults existing on the date hereof and arising after March 31,
1998, or any future defaults, under Paragraph 5.15 or Paragraph 5.16 or any
other provisions of the Credit Agreement.
b. Restriction on Advances. From and after the date of this
-----------------------
Amendment No. 4, (i) no Advance shall be made under the Acquisition Commitment,
(ii) Borrower may not make any adjustment in the commitment amounts under
Paragraph 2.1(e) of the Credit Agreement, and (iii) no additional advances shall
be made under the Revolving Credit Commitment, provided, however, that prior to
July 31, 1998, in the absence of an Event of Default or Default under the Credit
Agreement (as amended hereby) and subject to the terms of the Credit Agreement,
additional advances may be made under the Revolving Credit Commitment up to an
aggregate amount outstanding at any time under the Revolving Credit Commitment
not to exceed $84,775,956.56 plus the amount of Professional Fees (as reduced
from time to time pursuant to Paragraph 17(c) below, the "Availability Cap"),
provided further, however, that no such advances may be used to make any
Restricted Payments, or earn-out payments or other payments to sellers in
connection with acquisitions. The Companies hereby represent and warrant to the
Banks that no Restricted Payments, or earn-out payments or other payments to
sellers in connection with acquisitions, have been made after April 30, 1998 or
will be made hereafter without the consent of Required Banks. Each request for
an Advance under the Credit Agreement shall constitute a reaffirmation of the
foregoing representations and warranties. The Companies acknowledge and agree
that Banks are relying on the foregoing representations and warranties as a
material condition to their agreement to this Amendment No. 4 and to each
Advance under the Credit Agreement.
c. Mandatory Prepayments. Immediately upon receipt thereof,
---------------------
Borrower shall pay to Agent, for application to the Loan, any lump-sum payments,
cost report adjustments or proceeds of sales of assets other than in the
ordinary course of business consented to by Required Banks pursuant to Paragraph
6.7 of the Credit Agreement, and any other payments received by the Companies
not reflected in the projected cash flows of the Companies attached hereto as
Exhibit A, together with accrued and unpaid interest on the amount so repaid and
all amounts due pursuant to Paragraph 2.6(g) of the Credit Agreement.
Notwithstanding Paragraph 2.9 of the Credit Agreement, any such payment shall be
applied to the Revolving Loan, and shall reduce the Availability Cap by the
principal amount of such payment and may be reborrowed only with the approval of
Required Banks.
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<PAGE>
18. Amendment Fee. Borrower shall pay to each Bank that executes
-------------
this Amendment No. 4 an amendment fee in the amount of 15 basis points on such
Bank's Maximum Principal Amount.
19. Representations and Warranties. Borrower and Guarantors hereby
------------------------------
represent and warrant to Banks as follows:
a. Representations. The representations and warranties set
---------------
forth in Section Three of the Credit Agreement (other than those made only as of
a specific date) and in the other Loan Documents are true and correct in all
material respects as of the date hereof; no Event of Default or Default under
the Credit Agreement is in existence except as expressly waived pursuant to
Paragraph 17(a) hereof; and there has been no event or circumstance since March
13, 1997, which has caused or is reasonably likely to cause a Material Adverse
Effect.
b. Power and Authority; Enforceability. Each Company has the
-----------------------------------
power and authority under the laws of its state of organization and its
organizational documents to enter into and perform, to the extent applicable to
it, this Amendment No. 4 and all documents and agreements required in connection
herewith, including without limitation the Security Agreement (collectively, the
"Amendment Documents"); all actions necessary or appropriate for the execution
and performance by the Companies of the Amendment Documents have been taken; and
such Amendment Documents, and the Credit Agreement as amended hereby, and the
other Loan Documents, constitute the legal, valid and binding obligations of the
Companies, to the extent each is a party thereto, enforceable in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency
and other similar laws affecting the rights of creditors generally.
c. No Violation of Laws or Agreements. The making and
----------------------------------
performance of the Amendment Documents and actions required of the Companies
hereunder will not violate any provisions of any federal, state or local law or
regulation, or result in any breach or violation of, or constitute a default
under, any agreement by which any Company or its property may be bound.
d. Perfection of Security Interest. Upon the filing of the
-------------------------------
financing statements in all jurisdictions identified in Exhibit A to the
Security Agreement, no further action, including any filing or recording of any
document, is necessary in order to establish, perfect and maintain Banks" first
priority security interests in the assets covered by the Security Agreement,
except for the periodic filing of continuation statements with respect to
financing statements filed under the Uniform Commercial Code of applicable
jurisdiction.
20. Conditions Precedent to Effectiveness of Amendment. This
--------------------------------------------------
Amendment No. 4 shall be effective upon Agent's receipt of the following
documents and satisfaction of the following conditions, each in form
satisfactory to Banks:
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<PAGE>
a. Amendment No. 4. This Amendment No. 4, duly executed by
---------------
Borrower, Guarantors, Banks and Agent.
b. Security Agreement. A Security Agreement by Borrower and
------------------
Guarantors granting to Agent, for the benefit of Banks, a first priority
security interest in and lien upon all of the assets of Borrower and Guarantors,
subject only to those liens permitted pursuant to Paragraph 6.4 of the Credit
Agreement and to such exceptions as shall be permitted by Agent in writing,
together with UCC financing statements against the Companies in all
jurisdictions identified in Exhibit A to the Security Agreement or otherwise
reasonably requested by Agent.
c. Secretary's Certificates. A certificate of the secretary or
------------------------
assistant secretary of each Company (i) attaching the governing documents of
such Company, certificates of good standing and appropriate authorizing
resolutions relating to this Amendment No. 4 and the other Amendment Documents,
and (ii) certifying as to the incumbency and true and correct signature of the
authorized officers of such Company.
d. Opinion. An opinion of counsel to the Companies in form and
-------
substance satisfactory to Agent and its counsel, covering the matters set forth
in Paragraph 19 (b), (c) and (d) above, subject to such qualifications and
exceptions as shall be acceptable to Agent and its counsel.
e. Certificates of Insurance. Certificates of insurance
-------------------------
evidencing the insurance required pursuant to Paragraph 5.9 of the Credit
Agreement and naming Agent, on behalf of Banks, as lender loss payee thereunder.
f. List of Creditors. A complete and accurate list of
-----------------
creditors of the Company other than trade creditors, including all outstanding
sellers in acquisitions which include earn-out provisions or deferred payments,
subordinated creditors, and other creditors, with the name, address and
telephone number of each such creditor.
21. Additional Covenants.
--------------------
a. Third Party Agreements. The Companies shall use commercially
----------------------
reasonable efforts to:
(1) Renegotiation of Earn-Outs and Other Seller Payments.
----------------------------------------------------
Negotiate agreements satisfactory to Agent with respect to the subordination,
restructuring, forgiveness or conversion to equity of earn-out payments and
other payments due by the Companies to Sellers in connection with acquisitions
consummated by the Companies.
(2) Collateral Documents. Obtain landlord and mortgagee
--------------------
consents and waivers and such other documents and instruments as shall be
reasonably requested
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<PAGE>
by Agent in order to establish, perfect or protect the interests of Agent and
Banks.
(3) Confirmations of Subordination. Obtain a confirmation
------------------------------
from each subordinated creditor under Subordinated Debt of the Companies as to
the subordination of such Subordinated Debt under the terms reflected in this
Amendment No. 4.
b. Financial Consultants. The Companies shall retain
---------------------
consultants from an independent Big 6 accounting firm (which shall not be
Coopers & Lybrand or Price Waterhouse) acceptable to Agent to provide the
functions of a chief financial officer and related functions, to be available on
a daily basis, including to coordinate and manage the flow and communication of
financial information, and to assist in the implementation of the restructuring
of the Companies and other aspects of the Companies' business plan. Such
consultant shall be engaged by June 1, 1998, to commence work not later than
five (5) Business Days after being engaged. Such consultant may be terminated
after commencement of work by a Chief Financial Officer for the Companies, with
the approval of the Board of Directors and five (5) Business Days' prior written
notice to Agent. Coopers & Lybrand shall continue to perform its engagement to
assist in the preparation of financial projections and business plans for the
Companies, including review and testing of underlying assumptions.
c. Good Standing. Take all such steps as shall necessary for
-------------
all of the Companies to be in good standing in their jurisdiction of formation
by June 15, 1998; provided, that it shall not be a violation of this subsection
(c) if the Companies have taken all such actions by June 15, 1998 but the
applicable state has not placed the Company in good standing
22. Affirmation. Borrower and Guarantors hereby affirm all of the
-----------
provisions of the Credit Agreement, as amended (including by this Amendment No.
4) and the other Loan Documents and agree that the terms and conditions of the
Credit Agreement as amended (including by this Amendment No. 4) and the other
Loan Documents shall continue in full force and effect as supplemented and
amended hereby. The Companies acknowledge and agree that they shall perform all
of their obligations under the Loan Documents and this Amendment No. 4, and that
the Companies do not have, shall not assert and hereby voluntarily waive any
claim, right, defense, setoff, cause of action or counterclaim that would permit
any of the Companies to avoid or reduce, in whole or in part, any of such
obligations. The Companies further acknowledge and agree that, in addition to
any other Defaults or Events of Default as defined under the Credit Agreement,
any failure on their part to perform any of the obligations under this Amendment
No. 4 or any failure to satisfy any of the conditions of this Amendment No. 4
shall, without notice to any person or entity, constitute a Default and Event of
Default under the Credit Agreement.
23. Release. Each of the Companies does hereby forever and finally
-------
release, relieve, acquit, remise and discharge Agent and each of the Banks, and
their respective subsidiaries, affiliates, successors, predecessors, and
assigns, and respective past and present employees, officers, directors, agents,
representatives, attorneys, accountants and shareholders,
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<PAGE>
each in its individual and representative capacities (collectively, the
"Releasees"), from any and all losses, claims, debts, liabilities, demands,
obligations, promises, acts, omissions, agreements, costs and expenses, damages,
injuries, suits, actions and causes of action, of whatever kind or nature,
whether known or unknown, suspected or unsuspected, contingent or fixed, that
any such Company may have against any such Releasee, whether arising before or
after the date of this Amendment No. 4, relating to all things up to and
including the date hereof. The Companies hereby acknowledge and agree that it is
their intention through this Paragraph 23 to fully, finally and forever release
each of such Releasees described herein from all those matters released herein,
and all claims related thereto, which do now exist, may exist or heretofore have
existed, relating to all things up to and including the date hereof. The
Companies expressly intend that this Paragraph 23, and the releases contained
herein, shall be binding on any assigns and/or successors-in-interest to the
parties hereto.
24. Miscellaneous.
-------------
a. This Amendment No. 4 shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
b. Borrower agrees to reimburse Agent for all reasonable costs
and expenses (including but not limited to, reasonable attorneys' fees and
reasonable disbursements, including without limitation the cost of searches and
filing fees) which Agent may pay or incur in connection with the preparation of
this Amendment No. 4 and the preparation or review of other documents executed
or delivered in connection herewith.
c. All terms and provisions of this Amendment No. 4 shall be for
the benefit of and be binding upon and enforceable by the respective successors
and assigns of the parties hereto.
d. This Amendment No. 4 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 an original.
e. Except as expressly set forth in Paragraph 17(a) above, the
execution, delivery and performance of this Amendment No. 4 shall not effect a
waiver of any right, power or remedy of Agent or Banks under applicable law or
under the Credit Agreement, any other Loan Document and the agreements and
documents executed in connection therewith or constitute a waiver of any
provision thereof.
IN WITNESS WHEREOF, the undersigned by their duly authorized officers,
have executed this Amendment No. 4, effective as of the day and year first
written above.
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<PAGE>
HOME HEALTH CORPORATION OF
Attest: DELAWARE, INC.
By: /s/ Fred J. Nicholas By: /s/ Bruce J. Feldman
---------------------- ----------------------
Name: Fred J. Nicholas Name: Bruce Feldman
Title:Chief Operating Officer Title: President
CORESTATES BANK, N.A., for itself and as
Agent
By: /s/ Elizabeth D. Morris
--------------------------
Name: Elizabeth D. Morris
Title:Vice President
FIRST UNION NATIONAL BANK
By: /s/ Ann M. Dodd
------------------
Name: Ann M. Dodd
Title:Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Susan J. Karakantas
---------------------------
Name: Susan J. Karakantas
Title:Vice President
SUNTRUST BANK, CENTRAL FLORIDA,
N.A.
By: /s/ Ivy L. Bidler
---------------------
Name: Ivy L. Bidler
Title:First Vice President
TORONTO DOMINION (NEW YORK), INC.
By: /s/ Jorge A. Garcia
--------------------
Name: Jorge A. Garcia
Title:Vice President
FLEET NATIONAL BANK
By:___________________________
Name:
Title:
-15-
<PAGE>
The undersigned Guarantors hereby acknowledge that they have read and
agree that they shall be bound by the foregoing Amendment No. 4, including
without limitation Paragraphs 22 and 23 thereof, affirm the representations set
forth in Paragraph 19 thereof, and agree that the Guaranty and the Pledge
Agreements continue in full force and effect, and guarantee and secure all
obligations under the Credit Agreement, as amended thereby:
HOME HEALTH CORPORATION OF HOME HEALTH CORPORATION OF
AMERICA, INC. AMERICA, INC. - TAMPA NURSING
PENNSYLVANIA HOME HEALTH PENNSYLVANIA HOME HEALTH
SERVICES/PHILADELPHIA, INC. SERVICES/SUBURBAN, INC.
PENNSYLVANIA HOME HEALTH HHCA, INC. - DELAWARE
SERVICES/NORTHEAST, INC. HHCA - SERVICE CO.
PENNSYLVANIA HOME CARE, INC. HOME HEALTH CORPORATION OF
HOME CARE MEDICAL SUPPLY AND AMERICA, INC. - EASTERN SHORE
EQUIPMENT, INC. HOME HEALTH SYSTEMS, INC.
NUTRITIONAL HOME HEALTH HHCA TEXAS HOLDINGS, INC.
SERVICES, INC. HHCA TEXAS GP, INC.
ALL CARE HEALTH SERVICES, INC. HHCA TEXAS HEALTH SERVICES,
ALL-CARE HOME HEALTH L.P., by HHCA TEXAS GP, INC.,
SERVICES, INC. its general partner
HOME HEALTH CORPORATION OF HHCA TEXAS INFUSION SERVICES,
AMERICA, INC./FT. PIERCE HOME L.P., by HHCA TEXAS GP, INC.,
HEALTH SERVICES its general partner
HHCD, INC. HHCA TEXAS PRIVATE NURSING
HHCDME, INC. SERVICES, L.P., by HHCA TEXAS GP, INC.,
PROFESSIONAL HOME HEALTH its general partner
SERVICES, INC. HHCA TEXAS MEDICAL EQUIPMENT,
HOME HEALTH CORPORATION OF L.P., by HHCA TEXAS GP, INC.,
AMERICA, INC. - TAMPA its general partner
HOME HEALTH CORPORATION OF R.S.D. MANAGEMENT, INC.
AMERICA, INC. - TAMPA NURSING SERVICES HOME CARE,
DIAGNOSTIC SERVICES INC.
HOME HEALTH CORPORATION OF NURSING SERVICES HOME CARE,
AMERICA, INC. - PINELLAS LTD.
HOME HEALTH CORPORATION OF NURSING SERVICES STAFFING OF
AMERICA, INC. - ST. PETERSBURG N.H., INC.
(continued in next column) NURSING SERVICES, INC.
NAHATAN DRUG, INC.
By: /s/ Fred J. Nicholas By: /s/ Bruce J. Feldman
--------------------------------- ---------------------------------
Name: Fred J. Nicholas Name: Bruce Feldman
Title: Chief Operating Officer Title: President
-16-
