SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the Fiscal Year Ended May 31, 1996
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 0-3997
GERIATRIC & MEDICAL COMPANIES, INC.
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(Exact name of registrant as specified in the charter)
Delaware 23-1713341
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
5601 Chestnut Street, Philadelphia, Pennsylvania 19139
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (215) 476-2250
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes__X__ No____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes__X__ No____
On August 27, 1996, the aggregate market value of the registrant's Common Stock,
$.10 par value (its only voting stock), held by non-affiliates of the registrant
was $55,851,363.
On August 27, 1996, there were 15,429,746 Shares of the registrant's Common
Stock, $.10 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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Part I
Introduction
GERIATRIC & MEDICAL COMPANIES, INC., a Delaware corporation (hereinafter,
together with its subsidiaries, referred to as the "Company"), is a Mid-Atlantic
health care company providing support services in pharmacy, rehabilitative
therapies, ambulance transportation, contract management, financial, diagnostic
services and home care, which includes infusion, respiratory and equipment
rental to hospitals, HMO's, physician groups and nursing homes. It also is a
major long-term care provider in Pennsylvania and New Jersey.
Item 1. Business
Agreement and Plan Of Merger
On July 11, 1996, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Genesis Health Ventures, Inc., a Pennsylvania
corporation ("Genesis"), and G Acquisition Corporation, a Delaware corporation
and a wholly-owned subsidiary of Genesis ("Newco"). The proposed Merger is the
result of a process that began when the Company commenced consideration of the
outlook for the health care industry and the means by which the Company could
position itself to meet anticipated industry challenges. In connection with this
process, the Company engaged in an evaluation of potential strategic
alternatives, including growing the business of the Company through
acquisitions, having the Company remain as an independent public company serving
the existing market, or merging with a third party. The Company believed that it
would need to increase the scale and scope of its operations to compete
successfully against larger, better capitalized companies that likely would be
entering or expanding in the Mid-Atlantic market and competing with the Company.
Management believed that the Company's competitiveness would depend on such
factors as its ability to have a competitive cost structure and to fund
significant investments, to provide a broad range of products and services to
the managed care market where size is important not only to provide a broad
range of products and services but also to achieve economies of scale to be
better able to compete in the managed care marketplace. The Company concluded
that its existing capitalization was such that funding additional investments
would be difficult.
Under the terms of the Merger Agreement, at the Effective Time (as defined in
the Merger Agreement), Newco will be merged with and into the Company (the
"Merger"). Following the Merger, the separate corporate existence of Newco will
cease and the Company will continue as the surviving corporation (the "Surviving
Corporation"). The certificate of incorporation and by-laws of Newco as in
effect immediately prior to the Effective Time will be the certificate of
incorporation and by-laws, respectively, of the Surviving Corporation. Pursuant
to the Merger Agreement, each issued and outstanding share of the capital stock
of Newco will be converted into and become one fully paid and nonassessable
share of common stock, no par value, of the Surviving Corporation, and each
issued and outstanding share of common stock, $.10 par value of the Company (the
"Shares"), other than Shares owned directly or indirectly by Acquiror, by Newco,
or by the Company, and other than Dissenting Shares (as hereinafter defined),
will be converted into the right to receive Five Dollars Seventy-Five Cents
($5.75) in cash, without interest (the "Merger Consideration"). As of the
Effective Time,
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all such Shares will no longer be outstanding, will automatically be canceled
and retired, and will cease to exist, and each holder of a certificate
representing any Shares will cease to have any rights with respect thereto,
except the right to receive the Merger Consideration, without interest.
As a result of the Merger, the Company will become a wholly-owned subsidiary of
Genesis. At the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and Newco will vest in the Surviving Corporation,
and all debts, liabilities and duties of the Company and Newco will become the
debts, liabilities and duties of the Surviving Corporation.
Any issued and outstanding Shares held by a person who objects to the Merger and
complies with all of the provisions of applicable law concerning the rights of
holders who dissent from the Merger and require appraisal of their Shares
("Dissenting Shares"), will become the right to receive such consideration as
may be determined to be due under the Delaware General Corporation Law
("Delaware Law").
The Merger Agreement provides that the obligations of Genesis and Newco to
effect the Merger are subject to certain conditions, including that (i) all
consents and permits necessary to permit the Merger shall have been received,
(ii) all obligations of the Company required to be performed by it at or prior
to the time of the Merger ("the Closing"), including the delivery of all
required Closing documents, shall have been duly performed or complied with in
all material respects as of the Closing; (iii) all representations and
warranties of the Company contained in the Merger Agreement shall be true and
correct in all material respects as of the Closing; (iv) all applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act ("HSR Act") shall
have expired or terminated; (v) the Merger shall have been duly approved by the
affirmative vote of the holders of a majority of the outstanding Shares in
accordance with Delaware Law; (iv) no proceeding shall have been instituted,
excluding any such action, suit or proceeding initiated by or on behalf of
Genesis or any of its subsidiaries or affiliates), no judgement or order shall
have been issued, and no new law shall have been enacted, on or before the
Closing Date, in any event which seeks damages which would or would be
reasonably expected to result in a Material Adverse Effect (as defined in the
Merger Agreement) on the Surviving Corporation as a result of, or which seeks to
or does prohibit or restrain, the consummation of the Merger or any of the other
transactions contemplated by this Agreement; (vii) there shall not have been any
Material Adverse Change (as defined in the Merger Agreement) on the Surviving
Corporation, or any event or omission that is reasonably likely to have a
Material Adverse Effect on the Surviving Corporation, between April 30, 1996 and
the Closing Date; and (viii) the Company shall have delivered all Closing
Documents requried to be delivered by it at the Closing, including the legal
opinion of its counsel.
The obligations of the Company to effect the Merger are subject to certain
conditions, including that (i) all representations and warranties of Genesis and
Newco contained in the Merger Agreement shall be true and correct in all
material respects as of the Closing; (ii) all applicable waiting periods under
the HSR Act shall have expired or terminated; (iii) the Merger shall have been
duly approved by the affirmative vote of the holders of a majority of the
outstanding Shares in accordance with Delaware Law; (iv) all of the terms and
conditions of the Merger Agreement required to be satisfied or performed by
Genesis or Newco on or before the Closing Date shall
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have been satisfied or performed in all material respects; and (v) Genesis and
Newco shall have delivered all Closing Documents required to be delivered by
them at the Closing, including the legal opinion of their counsel.
The Company intends to convene a Special Meeting of Stockholders for the purpose
of approving and adopting the Merger Agreement as soon as reasonably
practicable. The Effective Time of the Merger is anticipated to occur promptly
after satisfaction of all conditions precedent to Closing.
The Merger Agreement may be terminated and the transactions abandoned at any
time prior to the Closing, whether or not the Merger has been approved by the
Stockholders: (i) by mutual agreement of the parties; (ii) by the Company or by
Genesis, as the case may be, (a) if the Closing shall not have occurred on or
prior to February 1, 1997, for any reason or (b) if it has become reasonably
certain that any condition to the closing obligations of such party will not be
satisfied and such condition has not been waived by such party, unless, in
either case, the failure of the Closing to occur or such condition to be
satisfied is due to the failure of the party seeking to terminate the Merger
Agreement to perform or observe its agreements and conditions set forth therein
to be performed or observed by such party at or before the Closing; (iii) by
either party, if the other shall have materially breached any of its obligations
under the Merger Agreement and shall have failed to remedy such breach within
ten (10) days after written notice from the nonbreaching party specifying the
nature of the breach and requesting that such breach be remedied; (iv) by the
Company, in order to enter into a definitive agreement relating to an
Acquisition Proposal (as defined in the Merger Agreement) with a potential
acquiror with which the Company is permitted to negotiate pursuant to the Merger
Agreement in order for the Board to discharge its fiduciary duties under
Delaware Law, provided that the Company first provides notice to Genesis of its
intent to terminate the Merger Agreement and pays Genesis a termination fee in
the amount of $5,000,000 plus expenses in an amount not to exceed $750,000; or
(v) by Genesis or Newco, if (a) the Board withdraws, modifies or changes its
recommendation of the Merger Agreement or the Merger in a manner adverse to
Genesis or Newco or (b) the Board recommends an Acquisition Proposal to the
Stockholders.
Prior to the execution of the Merger Agreement, there was no material
relationship between the Company and Genesis or Newco or any of the Company's,
Genesis' or Newco's respective affiliates, directors or officers.
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The Company
The Company was founded in 1968 as Geriatric & Medical Centers, Inc. The Company
changed its name to Geriatric & Medical Companies, Inc. in 1993 to more
accurately reflect the scope and nature of the business, which had evolved into
a diversified health care provider from a company that primarily owned and
managed long term care and personal care facilities.
The Company serves as a holding company for seven operating companies. Each
operating company is led by a president who reports to a senior officer of the
Company. The operating companies maintain their own management systems,
employees and sales force, however, the sales and marketing function is
integrated through cross training and cross selling. Support functions are
centrally administered for the operating companies. These functions include:
finance, accounting, treasury management, public relations, government
relations, legal affairs, human resource management and insurance services.
The Company's operating strategy has been to create service distribution centers
that combine long term care and support services as part of each center's
product mix. The Company believes that this configuration of products and
product mix will strategically position the Company as the managed care market
matures and moves to competitive bidding for services on a capitated rate basis.
In such a system, providers will be asked to quote on as many services as
possible. Accordingly, the Company believes it will have opportunities to bid on
a full range of services, including long term care, sub-acute care and support
services.
The Company's structure and marketing approach is designed to provide for (1)
efficient utilization of top management; (2) economies of scale in purchasing,
marketing and resource utilization; (3) stronger corporate image and presence in
the market; and (4) a broader base to support recruiting. At the same time, the
corporate structure has been designed to permit the individual operating
companies to function autonomously within their respective market niche.
Since 1993, the Company has steadily moved to maximize productivity and
re-engineer its business consistent with the goal of targeting the managed care
market. In connection therewith, in the summer of 1994, the Company commenced
consideration of the outlook of the health care industry and the means by which
the Company could position itself to meet anticipated challenges. The Company
has undertaken a number of initiatives including (1) the installation of new
computer technology designed to expedite the processing and collection of
receivables; (2) the elimination of duplicate positions and consolidation of
management functions; (3) the cross training of sales teams; (4) the development
of an executive sales team; and (5) the implementation of a sales development
program.
The Company believes that the concept of providing a one stop, single source
continuum of health care services provides a competitive advantage to the
Company, particularly in the combination of support services with direct care.
The Company recognizes the significant capital and management investments that
must be made in order for it to provide such a continuum of services. It is this
recognition that resulted in the Company's decision to examine strategic
alternatives. See "Item 1--Business--Agreement and Plan of Merger." Most of the
Company's competitors are companies providing single service or "smaller
bundles" of services, or they operate primarily in some facet of long-term care.
The degree of market share that the Company has varies with each line of
business.
The Company competes with a number of national, regional and local companies,
non-profit agencies, hospitals, home health agencies, and other similar
organizations, many of which have greater resources than the Company.
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The degree of success with which the Company competes is dependent on the
quality of its products and services, reputation, responsiveness, clinical
support, and the physical appearance of its facilities. There is limited
competition in price with respect to Medicaid and Medicare patients, since
revenues for services to such patients are strictly controlled and based on
fixed rates and cost reimbursement principles.
Services Provided
The Operating Companies
o Life Support Ambulance
Life Support Ambulance (LSA), provides a full range of ambulance transportation
services to hospitals, nursing homes, rehabilitation centers, and other health
care facilities throughout Pennsylvania and New Jersey. LSA services include
basic life support, advanced life support, critical care transport and
paratransit transportation. LSA has in place a state of the art vehicle tracking
system enabling it to maximize efficiencies. This satellite driven system allows
LSA to provide in excess of 8,000 transports monthly. LSA, which is
headquartered in Philadelphia, PA, serves its patients through its 15 branches
and substations located in Eastern Pennsylvania and New Jersey. LSA is one of
approximately 55 transportation companies in the country fully accredited by the
Commission on Accreditation of Ambulance Services. See "Item 3. Legal
Proceedings" for a description of the status of certain claims by the United
States Attorney and the Health Care Financing Administration with respect to
billings to Medicare by LSA.
o United Health Care Services
United Health Care Services (UHCS), provides a full range of respiratory
therapy, infusion therapy and enteral therapy (delivery of nutrients through
feeding tubes) to adult and pediatric patients primarily in the home care
setting and distributes durable medical equipment and home medical supplies.
UHCS serves its patients through its branches located in Philadelphia, Reading,
Easton, and Pittsburgh, Pennsylvania and Clifton and Pennsauken, New Jersey.
UHCS is accredited by the Joint Commission On The Accreditation of Health Care
Organizations ("JCAHO").
o Innovative Pharmacy Services
Innovative Pharmacy Services (IPS) provides customized pharmacy services for a
variety of health care settings. The services include: prescription, clinical,
infusion therapy, medical supply, and Medicare Part B, and are provided from
both of its locations in Philadelphia, PA and Blackwood, NJ. IPS currently
services approximately 6,000 patients in 48 health care settings.
o Healthcare Hospitality Services
Healthcare Hospitality Services (HCHS), provides contract management services
including dietary, housekeeping, laundry, pest control, plant operations and
facilities management services to nursing homes, personal care facilities, and
retirement communities. HCHS operates with full time, on site management which
are supported by a regional team of specialists. HCHS provides such contract
services to approximately 7,000 long term care and residential beds.
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o Diagnostic & Rehab Technologies
Diagnostic and Rehab Technologies provides diagnostic and rehabilitative
management services including portable x-ray, Holter monitoring, ultra sound,
echocardiograms, and physical, speech and occupational therapy, primarily to
skilled nursing facilities. The Diagnostics division provides portable x-ray,
Holter monitoring, ultra sound and echocardiograms to approximately 6,000 long
term care beds. The Rehab Tech Division provides comprehensive rehabilitation
programs to approximately 4,000 long term care beds which include physical and
occupational therapists, speech pathologists and administrative personnel. The
division also manages five sub-acute medical specialty units, known as Rehab
Tech Units. These units provide rehabilitation, non-acute cardiac care, wound
care, infusion therapy, neurological, oncology, pulmonary and post surgical care
at units located within long term care facilities.
o Healthcare Financial Services and Information Systems
Healthcare Financial Services and Information Services (HCIS) provides
integrated business solutions to the long term care industry. HCIS blends
financial and clinical software systems, financial processing services, software
and industry training/consulting services, and insurance services (i.e.: risk
management, claims management, employee benefits, worker's compensation) to meet
the operational and management reporting needs of its clients.
HCIS currently serves approximately 5,000 long term care and residential beds.
o Geriatric and Medical Services
Geriatric and Medical Services (GMS), provides sub-acute, rehab, long term
skilled care, residential and independent living services to approximately 3,800
beds at 28 locations in Pennsylvania and New Jersey. GMS operates 19 long term
care, 8 residential and 1 independent living facility. Services provided include
the prescribed type of nursing care, room and board, special diets as needed,
occupational, physical and recreational therapy and other services as specified
by the patient's physician.
The Company is focused on further developing its capability to deliver
rehabilitative and sub-acute services at its facilities. GMS operates 19
Medicare certified distinct part units with approximately 415 beds.
The residential and independent living facilities operated by GMS are available
for rental without regard to age; however, substantially all residents are
senior citizens. Services at these facilities include meals, recreation and
housekeeping, but generally only limited nursing care. Each of these facilities
is subject to various state and local licensing requirements and building codes.
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The following table sets forth pertinent information concerning the long-term
care, residential and independent living facilities operated by the Company.
NUMBER OF LICENSED BEDS
FACILITIES OR UNITS AS OF
LONG TERM CARE FACILITIES (1) OPERATED (3) MAY 31, 1996 (4)
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NEW JERSEY 10 1,783
PENNSYLVANIA 9 1,542
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TOTAL 19 3,325
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RESIDENTIAL FACILITIES (1)
NEW JERSEY 5 175
PENNSYLVANIA 3 230
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TOTAL 8 405
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INDEPENDENT LIVING FACILITY (2)
PENNSYLVANIA 1 78
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GRAND TOTAL 28 3,808
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(1) All facilities are owned by the Company except a long term care
facility of 280 beds and a 55 bed licensed residential healthcare
facility which are owned by a company controlled by the Chairman of the
Board, President and Chief Executive Officer of the Company. The
Company provides various services to these facilities.
(2) Facility managed by the Company.
(3) Excludes a 120 bed facility which the Company is currently developing
in Norristown, Pennsylvania (Rittenhouse West Nursing and
Rehabilitation Center) that is anticipated to open by September 1996.
(4) The Company has been approved to add 10 beds each to 7 facilities in
Pennsylvania. These beds are excluded from the licensed beds or units
as of May 31, 1996.
The Company's Market
The Company has defined its target geographic market as the Mid-Atlantic Region.
The Company's present business is principally concentrated in Pennsylvania and
New Jersey, which states contain approximately 20 million people and have an
estimated per capita health care spending of $3,500 which equates to a $70
billion market for health care services. Currently, this market is spread over a
number of service providers which control varying amounts of the market. The
largest segments include hospitals (44%), physician services (23%) and nursing
homes (10%). The balance is spread among a number of other providers.
The nation's population is changing. People are living longer than ever before,
with the fastest growing segment of the population being those aged 85 and over.
This segment of the U.S. population is expected to continue to significantly
increase. In the Pennsylvania/New Jersey region, the 85 and over population is
expected to increase approximately 16.5% from 1990 through the year 2000. This
segment of the population represents the primary consumers of long term care
services, related support services, rehabilitative services and skilled nursing
care.
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The Company perceives that consumers are demanding increasingly higher
levels of clinical quality and assurances that they are receiving the best
possible medical treatment, while these same individuals, their employers,
insurers and governments are demanding that the market provide health care in
the most cost efficient manner. Managed care has evolved as a result of these
competitive pressures.
The Company's experience has been that treatment has shifted to managed care.
The hospital or acute care setting is no longer the focus of service delivery.
What has evolved are cost effective, clinically appropriate alternatives known
as the acute care step down alternatives, including home care, sub-acute care
and skilled nursing. More and more, providers and physicians are turning to
these service areas.
The Company is actively pursuing HMO relationships. The Company's operating
companies presently have contracts or referral arrangements with approximately
50% of the HMO's within its service areas.
Marketing Strategy
The Company's marketing strategy is to capture a greater share of current
markets and to selectively expand into new markets, particularly areas with high
concentrations of the elderly. The Company uses three approaches to further
penetrate existing markets: (1) traditional referral sources, (2) managed care
contracts, and (3) executive sales.
Since its inception, the Company has anticipated the developments in the health
care industry and used the core technology and critical mass of business in its
nursing homes to develop a network of support service companies. The companies
were grown through the expansion of Company-owned beds, non-Company business and
acquisitions. Today these support service companies represent approximately 30%
of overall Company revenue. Nursing homes represent the largest market for the
support services, followed by hospitals, home health care and other smaller
segments.
Nursing care facility marketing is focused at the local level and is conducted
primarily by the facility administrator and its admissions director who call on
referral sources such as doctors, hospitals, hospital discharge planners,
churches and various community organizations. Beside actively soliciting
admissions from these sources, the Company's marketing strategy is to maintain a
public awareness of each care facility and its capabilities. The Company also
markets its subacute program directly to insurance companies, managed care
organizations and other third party payors.
Traditional referral sources include hospital discharge planners, nursing or
social service directors, nursing home administrators, and social workers. These
sources normally do not insure the people they refer, and they are more
concerned with service and clinical quality. In this approach, the Company
highlights its clinical accreditation, expertise, experience, and service
capabilities. The Company takes advantage of its regional concentrations in its
marketing efforts, where appropriate, through consolidated marketing programs
which benefit more than one facility.
HMO's have a dual perspective as insurers: quality and cost. Because of the
rapid growth of HMO's, market access for providers like the Company is
increasingly dependent on being an approved provider of the HMO. In this
approach, the Company promotes the benefits of "one stop shopping" and a
"continuum of care" that offers high clinical quality at competitive rates.
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Third Party Payor Programs
The levels of revenues and profitability of the Company, like those of other
health care companies, are affected by the continuing efforts of third party
payors to contain or reduce the costs of health care by lowering reimbursement
rates, increasing case management review of services and negotiating contract
pricing. The implementation of managed care programs either mandated by
government action or adopted by the industry is expected to continue to bring
additional pressures on pricing. The Company believes that such programs also
favor providers who can efficiently deliver a continuum of products and services
to a large defined population on a capitated basis. Home health, long term care
facilities and other sub-acute care facilities, which are generally less costly
to third party payors than hospital-based care, have benefited from those cost
containment objectives. However, as expenditures in these segments continue to
grow, initiatives aimed at reducing the costs of health care delivery at
non-hospital sites are increasing. Such initiatives have been implemented in the
past and have negatively impacted operating results. A significant change in
coverage or a reduction in payment rates by third party payors could have a
material adverse effect upon the Company's business and financial condition. See
"Item 3. Legal Proceedings" for a description of the status of certain claims by
the United States Attorney and the Health Care Financing Administration with
respect to billings to Medicare by LSA.
The Company derives substantially all its revenues from third party payors,
including Medicare, Medicaid and private insurers. The collection of accounts
receivable from third party payors is critical to the Company's success and
therefore is a high priority for all levels of management. Funds received under
Medicare and Medicaid by all companies in the health care industry are subject
to audit with respect to the proper application of various regulations and
payment formulas. Such audits can result in retroactive adjustments resulting in
amounts due to or from the governmental agency. While the Company believes that
the charges it has submitted are appropriate, no assurance can be given that
such adjustments will not be made, and if made, that they will not be material.
Effective January 1, 1996, Pennsylvania adopted regulations to implement a new
case mix payment system. The revised rates issued by Pennsylvania to the
Company, are lower than the interim rates received under the old system. The
Company is continuing to pursue increases to these rates through various
administrative and legal processes. Similar rate reduction initiatives have
occurred in the New Jersey Medicaid reimbursement program. The Company can not
predict the outcome of these changes or the ultimate effect on the Company
because the Company continues to explore opportunities to shift business to
other payors, thereby decreasing its reliance on Medicaid programs.
The Medicare program consists of two separate insurance programs: "Hospital
Insurance," Part A, provides certain benefits covering inpatient hospital,
nursing facility, home health and hospice services; and "Supplementary Medical
Insurance," Part B of the Social Security Act, provides benefits in the areas of
outpatient hospital visits, physician services, respiratory therapy, infusion
therapy, home medical equipment and prosthetic devices. The Company's 7
operating companies, where appropriate, are authorized suppliers eligible to
receive direct reimbursement under Medicare Part B. Health care providers must
meet "conditions of participation" to receive Medicare payments. The conditions
of participation are Federal requirements intended to insure the quality of the
medical services provided. Part A providers such as hospitals and skilled
nursing facilities are required to sign a provider agreement to participate in
Medicare.
Under Part B, there is an annual deductible of $100 that the beneficiary must
pay before Medicare will make any payments. After the Part B deductible is
satisfied, Medicare will ordinarily pay 80% of the Medicare-approved payment
amount, and the beneficiary or its secondary insurance will be responsible for
paying the remaining 20%.
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All of the Company's long-term care facilities are currently certified and where
appropriate all of the Company's other business units are qualified to receive
payments under the Medicare and Medicaid programs. Both initial and continuing
certification or qualification to participate in such programs is dependent upon
many factors including, among others, accommodations, equipment, services,
patient care, safety, personnel, physical environment, and adequate policies,
procedures and controls.
The Company's services and products are principally provided to and revenues
derived from, billings to private pay, private insurance, Medicare and Medicaid
recipients. Revenue derived from these sources for the year ended May 31, 1996
were 28.8% private pay and private insurance, 19.6% Medicare, and 51.6%
Medicaid.
The Company is affected by the continuing efforts of third-party payors to
contain or reduce the cost of healthcare by lowering reimbursement rates,
increasing case management review of services and negotiating contract pricing.
The Company is dependent upon the continuation of the present reimbursement
system, or something similar thereto, pursuant to which third-party payors
(principally Medicaid and Medicare) pay for the services and products provided
by the Company.
Because of the significance of Medicaid Reimbursement on the Company's
operations, significant increases in costs have an adverse impact on the
Company's operating results. This occurs because the Medicaid reimbursement
rates set by each state, which are applicable throughout the ensuing year, are
established periodically and are based on historical data. Additionally, the
Company tends to build up Medicaid receivables due to differences between
interim payments and final cost report audits and settlements. Although
Pennsylvania Medicaid regulations require audits within one year of the filing
of cost reports and the audit of the Medicare home office cost report, it is the
Company's experience that such audits and settlements thereof may take up to
four years after the costs involved are incurred.
Both the Medicare and Medicaid programs are subject to statutory and regulatory
changes, administrative rulings, interpretations of policy, determinations by
the Medicare carrier and governmental funding restrictions, all of which may
materially increase or decrease the rate of program payments to health care
providers. Congress is attempting to limit the growth of Federal spending on
health care programs, including limitations on payments under the Medicare and
Medicaid programs. The Company can give no assurance that payments under such
programs will in the future remain at a level comparable to the present level.
Government Regulation
The Federal government and each state in which the Company currently operates
regulate various aspects of its business. The Company's operations are subject
to federal laws covering the repackaging and dispensing of drugs and are also
subject to federal laws covering the dispensing of oxygen, environmental
regulations and interstate motor-carrier transportation, as well as state laws
governing pharmacies, nursing services and certain types of home health care
activities.
Operation and development of long term care facilities are subject to various
federal, state and local statutes and regulations. The states in which the
Company operates have statutes which require that prior to the addition or
construction of new beds, the addition of new services or certain capital
expenditures in excess of defined levels, the Company must obtain a certificate
of need ("CON") which certifies that the state has made a determination that a
need exists for such new or additional beds, new services or capital
expenditures. These state determinations of need or CON programs are designed to
comply with certain minimum federal standards and to enable states to
participate in certain federal and state health related programs. The Company
believes that CON requirements may be eliminated or relaxed which may result in
increased competition but may also result in increased expansion possibilities.
Since August 1982, Pennsylvania has refused to reimburse long term care
providers for depreciation and interest on facilities built after that date even
though the Commonwealth issued a CON for the facility. The Company has received
an opinion of counsel that Pennsylvania's position violates various
Page 11 of 72
<PAGE>
provisions of federal law. The Company is negotiating to receive reimbursement
for the beds for periods not previously settled and if it is not successful, the
Company is prepared to litigate the issue. Even if the Company is successful,
there is no assurance that the amount of reimbursement will be sufficient to
cover all costs incurred.
The Company's long term care facilities are also subject to licensure
regulations. Each of the long term care facilities is licensed as a nursing
facility. State and local agencies survey all long term care facilities on a
regular basis to determine whether such facilities are in compliance with
governmental operating and health standards and conditions for participation in
government medical assistance programs. Such surveys include review of patient
utilization of healthcare facilities and standards for patient care.
New survey, certification and enforcement regulations adopted by the Health Care
Financing Administration apply to all surveys of the Company's nursing
facilities effective July 1, 1995. Under these new regulations, state surveyors
utilize a scope and severity rating to determine whether a nursing facility is
in substantial compliance with applicable state and federal regulations. Using a
scope and severity score for each cited deficiency noted during a survey,
surveyors will determine whether there is substandard quality of care and
whether an extended survey process is warranted. The scope and severity score
will also be used to impose remedies, which may include termination of the
provider agreement, denial of payment for new admissions, imposition of
temporary management, and civil monetary penalties of up to $10,000 per day.
Under the new regulations, facilities may appeal a certification of
noncompliance but not the choice of remedy.
The Company endeavors to maintain and operate its facilities in substantial
compliance with all such standards and conditions. However, in the ordinary
course of business the facilities receive notices of deficiencies for failure to
comply with various regulatory requirements. Generally, the facility and the
reviewing agency will agree upon the measures to be taken to bring the facility
into compliance with the regulatory requirements. In some cases or upon repeat
violations, the reviewing agency may take adverse actions against a facility,
including the imposition of fines, temporary suspension of admission of new
patients to the facility ("bed holds"), suspension or decertification from
participation in the Medicare or Medicaid programs, and, in extreme
circumstances, revocation of a facility's license. These adverse actions may
adversely affect the ability of a facility to operate or to provide certain
services and may adversely affect eligibility to participate in the Medicare or
Medicaid programs. Certain of the Company's facilities have in the past received
notices from governmental agencies to the effect that if certain alleged
deficiencies are not rectified, such facilities would be decertified from
participation in Medicare and Medicaid programs. In all such cases, the alleged
deficiencies were rectified before any such facilities were decertified.
Enforcement of these regulations is becoming more stringent. As a result the
Company has in recent years experienced bed holds in certain facilities, and
other administrative activities (including fines and penalties), however, the
Company has not had any of its operating licenses revoked.
In addition, all healthcare facilities are subject to various local building
codes and other ordinances. Because of the expensive nature of the regulatory
schemes affecting the healthcare industry, the Company is unable to predict with
confidence the content or impact of future legislation and regulations affecting
the healthcare industry, or the effect on the Company's operations of any such
legislation or regulations.
As a provider of services under the Medicare and Medicaid programs, the Company
is subject to the Medicare and Medicaid fraud and abuse laws. These laws
prohibit any bribe, kickback or rebate in return for the referral of Medicare or
Medicaid patients. Violations of these provisions may result in civil and
criminal penalties and exclusion from participation in the Medicare and Medicaid
programs. In July 1991, the Office of the Inspector General of the United States
Department of Health and Human Services promulgated regulations setting forth
certain safe harbors under the fraud and abuse laws (the "Safe Harbors"). These
laws and regulations were updated under the Omnibus
Page 12 of 72
<PAGE>
Reconciliation Act ("OBRA") of 1993 and pursuant to clarifying regulations
adopted in July 1994. In addition, certain states in which the Company operates
have laws that prohibit certain direct or indirect payments or fee-splitting
arrangements between health care providers, if such arrangements are designed to
induce or encourage the referral of patients to a particular provider. Possible
sanctions for violation of these state-created restrictions include loss of
licensure, civil and criminal penalties and exclusion from participating in the
Medicare and Medicaid programs.
Such laws and regulations vary from state to state, often are vague and seldom
have been interpreted by the courts or regulatory agencies. Some states enacted
laws which, with some exceptions, have the effect of prohibiting a physician
from referring to an ancillary service in which the physician has either an
ownership interest or a contractual arrangement. As a result of the various
statutes and interpretations, the Company has reviewed its joint venture and
management arrangements and has terminated these arrangements as deemed
appropriate. The Company believes that its operations including joint venture
and management arrangements with other health care providers substantially
comply with applicable laws and regulations; however, there can be no assurance
that judicial or administrative interpretation of existing laws, including the
fraud and abuse laws, or legislative enactment of new laws will not have a
material adverse effect on the Company's business. During fiscal 1994, the
Company's subsidiary, United Health Care Services, Inc. ("UHCS") had been
involved in certain joint ventures, most of which were in place when the Company
purchased UHCS, which were subsequently terminated. In connection with a review
of such arrangements in the industry, the Company was requested by the Office of
the United States Attorney for the Eastern District of Pennsylvania and the
Commonwealth of Pennsylvania, Department of Welfare to provide certain
information concerning such joint venture arrangements. As a result of such
inquiry, the Company has reached a settlement with the Office of the United
States Attorney for the Eastern District of Pennsylvania and is discussing a
settlement with the Commonwealth of Pennsylvania Department of Public Welfare
regarding such joint ventures. The Company believes that such settlement will
not have a material adverse effect on the Company's business and financial
condition. (See Item 3 "Legal Proceedings".)
Each year Congress enacts an OBRA which generally affects the operations of the
Company. OBRA 1987 created six categories for durable medical equipment
reimbursement under the Medicare Part B program. OBRA 1987 also defined whether
products would be paid for on a rental or sale basis and established fixed
payment rates for oxygen service as well as a 15-month rental ceiling on certain
medical equipment. OBRA 1990 made new changes to Medicare Part B reimbursement
that were implemented in 1991. The substantive changes included a national
standardization of Medicare rates for certain equipment categories and
reductions in amounts paid for certain durable medical equipment.
The failure to obtain, renew or maintain any of the required regulatory
approvals or licenses could adversely affect the business conducted by the
Company and could prevent the delivery of one or more products and services.
Quality Assurance
The Company maintains quality assurance programs in all of its operating
entities. The Corporate Compliance and Quality Review Committee of the Board
reviews and oversees these programs and reports to the Board with respect to
these programs, as appropriate. In addition, the Company has agreed to
participate and fund a joint study with the University of Pennsylvania's
Institute on Aging and embark on what the Company believes is a first of its
kind cooperative effort between government, the academic community, and the
private sector, to describe the role of physicians, dietitians, hospitals and
care staff in those cases where nursing home residents are nutritionally at risk
and need acute medical intervention to prevent and/or treat skin breakdowns. As
part of this cooperative effort, data will be collected from various facilities
owned by the Company pertaining to the Company's existing policies and
procedures for identifying, assessing and evaluating those residents who may be
nutritionally at risk.
Page 13 of 72
<PAGE>
Competition
While the Company is unable to determine whether health care reform will be
dominated by third party payors or integrated delivery systems, the Company
believes that its strategy of positioning itself as a provider of a continuum of
care along the lines of long term care and support services will allow the
Company to compete effectively in a changing marketplace, provided that the
Company is able to finance the implementation of its marketing and operations
strategy. In recent years, third party payors have increased their efforts to
contain or reduce health care costs by lowering reimbursement rates, increasing
case management review of services (often resulting in payment delays) and
negotiating contract prices. Moreover, increasing government regulation of the
types of products and services offered by the Company impose additional
management, capital and operating costs on the Company. While the Company has
made steps in developing a single source continuum of health care services, the
Company's progress has been hindered by such third party payors, as well as by
the costs of increasing governmental regulations. A dramatic growth in the
health care market in recent years has attracted a large number of providers,
some of which are national in scope and many of which have greater financial
resources than the Company and a greater number of which, like the Company,
operate only in limited geographic areas. Accordingly, the market for health
care service is highly competitive. Competition is encountered from a variety of
health care organizations including major national chains which are larger than
the Company. Some existing competitors in the home health care business also
manufacture their own products and equipment. Other competitors include health
care organizations, hospital and health maintenance organizations. Some of the
significant competitive factors include reputation, quality and diversity of
services offered, family and physician preferences, referral networks and price.
The Company believes that the changing health care market will afford the
Company opportunities because the Company can provide an array of services to
health care providers which results in increased operating and administrative
efficiencies. In order to take advantage of these opportunities the Company must
have sufficient funds to focus its marketing efforts. The Company's ability to
successfully compete in the delivery of health care services is dependent, among
other things, on its ability to adjust to a changing regulatory environment,
obtain payment from third-party payors, control costs, deliver a consistently
high quality of care, adapt to the changing needs of the population it serves
and position itself to provide a continuum of cost-efficient products and
services to the managed care industry.
The long-term care, residential and independent living facilities operated by
the Company compete with all types of health care facilities, nursing and
convalescent centers, retirement facilities and communities, and similar
institutions. There are a large number of skilled nursing facilities and other
facilities in each of the geographic areas served by the Company's facilities.
The degree of success with which the Company's care facilities compete varies
from location to location and is dependent on a number of factors. The Company
believes that the quality of care provided, reputation and physical appearance
of facilities, and in the case of private patients, charges for services, are
significant competitive factors. There is limited, if any, competition in price
with respect to Medicaid and Medicare patients, since revenues for services to
such patients are strictly controlled and based on fixed rates and cost
reimbursement principles. Provision of quality care by the Company is dependent
in part on its ability to adequately staff its facilities.
Liability Insurance
In recent years, participants in the health care market have become subject to
an increasing number of lawsuits alleging malpractice, product liability or
related legal theories, many of which involve large claims and significant
defense costs. The Company is from time to time subject to such suits as a
result of the nature of its business. The Company currently maintains liability
insurance intended to cover
Page 14 of 72
<PAGE>
such claims. While the Company has been able to obtain liability insurance in
the past, such insurance varies in cost, is difficult to obtain and may not be
available in the future on acceptable terms or at all. A successful claim
against the Company in excess of the Company's insurance coverage could have a
material adverse effect upon the Company and its financial condition.
The Company currently has in force general liability insurance, including
professional liability, with an aggregate annual limit of $11,000,000 covering
operations at all of its owned long-term care and residential health care
facilities and the other operations of the Company other than the ambulance
services for which the limit of coverage is $3,000,000. In addition, the
ambulance services has in force automobile insurance coverage with an aggregate
annual limit of $1,000,000. The Company also currently has in force two general
liability policies, with aggregate annual limits of $6,000,000 each, covering
the operations of UHCS and IPS, respectively. These insurance policies have no
deductibles, are subject to annual renewal, and provide coverage on a claims
made basis for professional liability. All other policies provide coverage on an
occurrence basis. However, there can be no assurance that the coverage limits of
the Company's insurance policies will be adequate.
The Company makes available health plan coverage to certain of its employees
under a fully insured program. The Company also maintains workers' compensation
insurance with an A+ rated insurance carrier in all states of operation, subject
to a $500,000 deductible per incident and an aggregate loss of $8,000,000. The
Company has implemented and continues to maintain programs to minimize the
number and severity of occurrences and to control the costs of existing and
future claims. The Company's ultimate liability is limited under the terms of
the worker's compensation insurance contracts and by state statute.
Employees
As of May 31, 1996, the Company employed approximately 5,100 full and part time
employees. Approximately 1,969 of the employees, primarily the service worker
employees of GMS, are represented by labor unions. The Company believes that its
employee relations are generally satisfactory. However, it cannot predict the
effect of organizational activities on its future operations. In the present
labor market, the prospect of demands for higher wages or strikes is a
possibility.
The health care industry is labor intensive and dependent upon skilled
personnel. On occasion, a shortage of skilled and entry level healthcare
personnel may occur which could adversely affect the operating results of the
Company.
In the conduct of its business, the Company does not discriminate against any
individual on account of his/her race, color, religion, sex, national origin or
physical disability.
Item 2. Properties
Reference is made to Item 1 of this Report for a description of the long-term
care, residential and independent living facilities operated by the Company. All
owned facilities listed in Item 1 are subject to mortgages. See Note 2 of the
Notes to Consolidated Financial Statements. In addition, the Company owns and
occupies a 175,000 square foot building in West Philadelphia which houses its
management and administrative activities as well as the operations of its
pharmacy and durable medical equipment businesses. The Company believes that all
of the properties are adequately maintained and are suitable for the purposes
intended.
The Company also holds various improved and unimproved properties for
development which, in the aggregate, are not material.
Page 15 of 72
<PAGE>
Item 3. Legal Proceedings
Life Support Ambulance, Inc. (LSA), a subsidiary of the Company, received notice
of suspension of payments relating to Medicare billing submitted to its Medicare
intermediary, effective April 6, 1995. The intermediary has alleged that
overpayments have occurred in connection with LSA billings. In connection
therewith, the Office of the Inspector General has seized certain records and is
conducting an investigation of this matter.
In August, 1995, the intermediary partially lifted the suspension and has since
paid LSA 75% of all subsequent approved billings. In connection with this
agreement, the Company has agreed to guarantee the payment by LSA of up to
$5,000,000 of any finally determined overpayments. As of May 31, 1996, the
intermediary had withheld approximately $4,565,000 in escrow pending resolution
of this matter.
LSA has received notices of the results of the intermediary's audits, including
a calculated overpayment of approximately $6,800,000 through March 31, 1996. LSA
is reviewing the intermediary's results and believes there are errors in, among
other things, (i) the sampling techniques used; (ii) the conclusions reached
relative to the appropriateness of payments for claims in the audit sample, and
(iii) the projection technique of the ultimate overpayment calculation. LSA
intends to vigorously defend its position and utilize all available
administrative and legal processes to protect its rights in this matter. It is
not possible at the present time to determine the length of the suspension or
whether such suspension will have a material effect on the operations or the
financial condition of the Company.
LSA believes that it has operated at all times in substantial compliance with
all provisions required by Medicare relating to payment for services. The
Company is not able, at this time, to predict the ultimate outcome of this
matter.
The Company was named a defendant, together with GMS Management, Inc., and
various current and former officers of the Company, in a class action suit which
was filed in September, 1992, in the United States District Court for the
Eastern District of Pennsylvania in Philadelphia. On July 15, 1996, the Company
entered into an agreement to settle the claims of the plaintiff class. The
agreement received provisional approval by the court on July 23, 1996, and is
subject to a hearing to be held on October 7, 1996. Under the terms of the
agreement, a payment up to a maximum of $1,900,000 will be made to a claims
settlement fund, of which 50% will be paid by the Company's insurance carrier.
The fund will be used to resolve all claims of the members of the plaintiff
class on a claims made basis and to pay the attorneys' fees and costs incurred
by the plaintiff class. The ultimate amount of this settlement cannot be
determined at this time. The Company's maximum share of the claim is $950,000.
On February 21, 1996, HCHS, a subsidiary of the Company reached an agreement
with the U.S. Attorney to settle a matter involving reimbursement for certain
nutritional services provided at a nursing facility (the "Facility") previously
managed by that subsidiary. The Company entered into this settlement, without
admitting any wrongdoing, in order to avoid the substantial expense and
Page 16 of 72
<PAGE>
management disruption of litigation. The settlement resulted in a charge of
$429,000, before taxes, included in the accompanying Consolidated Statements of
Operations for the fiscal year ended May 31, 1996. The Company's management
agreement with the Facility provides that the Facility indemnify and hold the
Company harmless with respect to claims such as that alleged by the U.S.
Attorney. However, it is unclear whether the Facility has, or would have, the
funds necessary to provide such indemnification.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is traded in the over-the-counter market and listed
on the Automated Quotations System of the National Association of Securities
Dealers, Inc. (NASDAQ symbol: GEMC). The following table sets forth, for the
fiscal periods indicated, the high and low sale prices of the Company's Common
Stock as reported by the National Quotation Bureau, Inc., together with
information concerning cash dividends paid per share during those periods. The
following quotations represent prices between dealers and do not include retail
markup, markdown, or commissions. They do not necessarily represent actual
transactions. The high and low sale prices for each quarterly period for the two
most recent fiscal years are:
High Low Dividends Per Share
---- --- -------------------
Fiscal 1997
- -----------
First Quarter 5 5/8 2 1/16 -
Fiscal 1996
- -----------
Fourth Quarter 2 3/8 1 3/4 -
Third Quarter 2 5/8 2 -
Second Quarter 3 2 1/8 -
First Quarter 3 1/16 2 -
Fiscal 1995
- -----------
Fourth Quarter 2 13/16 1 13/16 -
Third Quarter 3 1/8 2 3/8 -
Second Quarter 3 1 5/8 -
First Quarter 3 1/16 2 -
On August 27, 1996, the last sale price for the Company's Common Stock was
$5.4375. As of May 31, 1996, the Company had 1,174 stockholders of record of its
Common Stock.
Page 17 of 72
<PAGE>
The Company did not declare or pay cash dividends in fiscal year 1995 and future
dividends will depend, among other things, upon the earnings of the Company, its
working capital needs, capital requirements, debt service requirements, its
general financial condition and other factors. Pursuant to a guaranty in
connection with the issuance of certain 1992 tax-exempt bonds, the Company has
agreed not to pay any dividends or make any distribution which could have the
effect of reducing the Company's consolidated tangible net worth and
subordinated indebtedness, if the Company's consolidated tangible net worth and
subordinated indebtedness is at such time or would be reduced to less than
$9,000,000. No assurance can be given that the Company will declare or pay
dividends in the future. However, the Company has, in the past, declared and
paid stock dividends in the form of stock splits.
Page 18 of 72
<PAGE>
Item 6. Selected Financial Data
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
========================================================================================
<S> <C> <C> <C> <C> <C>
Operating Revenues, Net $164,551,000 $164,364,000 $177,957,000 $192,234,000 $195,196,000
Income before Interest
and Taxes (a) $ 10,986,000 $ 14,623,000 $ 9,152,000 $ 16,143,000 $ 15,188,000
Interest Expense, Net $ (9,463,000) $(11,377,000) $(10,889,000) $(11,078,000) $(12,295,000)
Pre-Tax Income (Loss) $ 1,523,000 $ 3,246,000 $ (1,737,000) $ 5,065,000 $ 2,893,000
Income Tax Provision (Benefit) $ 380,000 $ 812,000 $ (299,000) $ 1,012,000 $ (1,260,000)
Extraordinary Items:
Utilization of Net
Operating Loss Carryforwards $ 66,000 $ -- $ -- $ -- $ --
Extinguishment of Debt - net of
tax benefit $ (650,000) $ -- $ -- $ -- $ --
Net Income (Loss) $ 559,000 $ 2,434,000 $ (1,438,000) $ 4,053,000 $ 4,153,000
Per Common Share:
Net Income (Loss) before
Extraordinary Item(s) $ .08 $ .16 $ (.09) $ .27 $ .27
Extraordinary Item(s) $ (.04) $ -- $ -- $ -- $ --
Net Income $ .04 $ .16 $ (.09) $ .27 $ .27
Cash Dividends Declared
Per Common Share -- -- -- -- --
========================================================================================
1992 1993 1994 1995 1996
========================================================================================
Total Assets $163,479,000 $169,619,000 $162,724,000 $176,717,000 $191,684,000
Long-Term Debt and $115,834,000 $122,582,000 $119,343,000 $121,660,000 $130,775,000
Subordinated Debentures (b)
Shareholders' Equity $ 9,382,000 $ 11,951,000 $ 10,545,000 $ 14,648,000 $ 18,880,000
Patient Days (c) 1,039,403 1,039,204 983,671 992,146 1,004,075
Average Occupancy Based
on Beds in Service (c) 95% 94% 93% 92% 92%
Revenues From Government Programs (c) 78% 83% 86% 86% 83%
Number of Company Employees 4,018 3,887 4,150 5,300 5,100
Number of Beds - Operated 5,530 4,942 3,904 3,989 3,808
</TABLE>
- ------------------------
(a) Includes recognition of deferred and current gains on facilities sold:
1992 $3,175,000
1993 $6,365,000
1994 $1,576,000
1995 $ -
1996 $ -
(b) Excludes current portion of long-term debt and subordinated debentures.
(c) Pertains to owned long-term care facilities only.
Page 19 of 72
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The Company is a Mid-Atlantic health care company providing support services in
pharmacy, rehabilitative therapies, ambulance transportation, contract
management, financial, diagnostic services and home care, which includes
infusion, respiratory and equipment rental to hospitals, HMO's, physician groups
and nursing homes. It also is a major long-term care provider in Pennsylvania
and New Jersey.
Liquidity and Capital Resources
The Company has a $25 million accounts receivable sale agreement, with recourse,
which expires in May 1997. Under this agreement program costs are charged at
9.84% of the outstanding receivables sold. In May 1994, the Company entered into
an additional agreement to sell certain receivables due from third party payors.
This agreement expires in May 1997. The program cost charged is 9.75% of
outstanding amounts sold. The maximum amount to be sold at any time under this
agreement will be $5,000,000. The amount outstanding at May 31, 1996 under these
agreements was $18,572,000. The Company has accounted for these transactions as
a sale of receivables (See Note 4 to the Notes to Consolidated Financial
Statements).
The Company has a $5,000,000 line of credit agreement with a commercial bank.
The line of credit is secured by certain real estate and receivables not sold
under the accounts receivable financing agreement discussed above. Interest on
the line is at prime plus 1%. The line is renewable annually and may, at the
Company's option, be converted to a three (3) year term loan. At May 31, 1996,
the Company had $2,580,000 outstanding under this line and also had $1,574,000
of letters of credit outstanding under this agreement. In August 1996, the
Company received a commitment to increase the credit line to $7,500,000.
In June 1996, the Company entered into a $2,500,000 loan agreement with FINOVA
Capital principally secured by the durable medical equipment of one of its
subsidiaries. The loan is repayable over 60 months with interest at prime plus
3% (11.25% as of May 31, 1996).
A substantial part of the Company's revenues consists of reimbursements under
the Pennsylvania Medicaid Program. Historically this was a retrospective cost
based program that typically resulted in the generation of large receivables
which were periodically settled. Effective January 1, 1996, Pennsylvania adopted
regulations to implement a new case mix payment system. The revised rates issued
by Pennsylvania to the Company, are lower than the interim rates received under
the old system. The Company is continuing to pursue increases to these rates
through various administrative and legal processes. The Company continues to
reduce costs and pursue its aggressive program to reduce its concentration on
Medicaid programs and shift to other payor programs and opportunities. The
Company believes that the results of these activities will be to mitigate what
could otherwise be a substantial adverse effect on the Company's results from
the implementation of the new system.
The Company was named a defendant, together with GMS Management, Inc., and
various current and former officers of the Company, in a class action suit which
was filed in September, 1992, in the United States District Court for the
Eastern District of Pennsylvania in Philadelphia. On July 15, 1996, the Company
entered into an agreement to settle the claims of the plaintiff class. The
agreement received provisional approval by the court on July 23, 1996, and is
subject to a hearing to be held on October 7, 1996. Under the terms of the
agreement, a payment up to a maximum of $1,900,000 will be made to a claims
settlement fund, of which 50% will be paid by the Company's insurance carrier.
The fund will be used to resolve all claims of the members of the plaintiff
Page 20 of 72
<PAGE>
class on a claims made basis and to pay the attorneys' fees and costs incurred
by the plaintiff class. The ultimate amount of this settlement cannot be
determined at this time. The Company's maximum share of the claim is $950,000.
The Company reached a settlement in fiscal 1994, with the Office of the United
States Attorney for the Eastern District of Pennsylvania, regarding the joint
venture and management arrangements of its subsidiary UHCS, whereby the Company
is paying $30,000 per month for the next 16 months.
On February 21, 1996, a Company subsidiary reached an agreement with the U.S.
Attorney to settle the previously reported matter involving reimbursement for
certain nutritional services provided at a nursing facility (the "Facility")
previously managed by the subsidiary. The Company entered into this settlement,
without admitting any wrongdoing, in order to avoid the substantial expenses and
management disruption of litigation. The settlement resulted in a charge of
$429,000, before taxes, included in the accompanying Consolidated Statements of
Operations for the fiscal year ended May 31, 1996. Beginning in February 1996,
the Company has agreed to pay $10,000 per month through October 1997 with a
final payment of the remaining balance due in November 1997. The Company's
management agreement with the Facility provides that the Facility indemnify and
hold the Company harmless with respect to claims such as that alleged by the
U.S. Attorney. However, it is unclear whether the Facility has, or would have,
the funds necessary to provide such indemnification.
LSA received notice of suspension of payments relating to Medicare billing
submitted to its Medicare intermediary, effective April 6, 1995. The
intermediary has alleged that overpayments have occurred to prior LSA billings.
In August 1995, the intermediary partially lifted the suspension and has since
paid LSA 75% of all subsequent approved billings. As of May 31, 1996, the
intermediary had withheld approximately $4,565,000 in escrow pending resolution
of this matter. LSA has received notices of the results of the intermediary's
audits, including a calculated overpayment of approximately $6,800,000 through
March 31, 1996. LSA is reviewing the intermediary's results and believes there
are errors in, among other things, (i) the sampling techniques used; (ii) the
conclusions reached relative to the appropriateness of payments for claims in
the audit sample, and (iii) the projection technique of the ultimate overpayment
calculation. LSA intends to vigorously defend its position and utilize all
available administrative and legal processes to protect its rights in this
matter. It is not possible at the present time to determine the length of the
suspension or whether such suspension will have a material effect on the
operations or the financial condition of the Company. LSA believes that it has
operated at all times in substantial compliance with all provisions required by
Medicare relating to reimbursement for services. The Company is not able, at
this time, to predict the ultimate outcome of this matter.
The Company's net trade receivables have increased $6,247,000 for the year ended
May 31, 1996 primarily as a result of the suspension and a slowdown of payments
to LSA, discussed above, and a slow down in payment for services provided to
outside long term care facilities. The Company's receivable due from third party
payors, net increased $7,965,000 in fiscal 1996 as a result of the continued
delay of audits and settlements of cost reports under government reimbursement
programs. All of the foregoing have had an adverse effect on the Company's
liquidity.
Page 21 of 72
<PAGE>
In December, 1994, the Company arranged financing under section 232 of the
National Housing Act, of a 60 bed nursing home and 60 bed residential health
care facility in Cape May, New Jersey. The construction of the facility was
completed in January 1996 at a total construction cost of $7,062,000, of which
$5,636,000 is to be financed. During fiscal 1996, construction costs incurred
totaled $4,857,000, of which $4,577,000 was financed.
On May 31, 1995, the Company completed an agreement to finance a 120 bed long
term care facility in Norristown, PA (Rittenhouse West Nursing & Rehabilitation
Center) with Meditrust Mortgage Investments, Inc. (Meditrust) for $6,939,000.
During fiscal 1996 construction costs incurred totaled $4,557,000, of which
$4,541,000 was financed.
As more fully discussed in Note 14 (a) and (b), to the Notes to Consolidated
Financial Statements, the Company is a party to various legal and other matters
asserted against the Company. The ultimate liability resulting from the
foregoing matters cannot presently be determined. Accordingly, no provision for
any liability in excess of the amount recorded by the Company has been made to
the accompanying consolidated financial statements.
The Company intends to meet its capital commitments and working capital
requirements in fiscal, 1997 from operations, existing financing arrangements,
or the sale or refinancing of other assets.
Comparison of Consolidated Results of Operations for Fiscal 1996 and Fiscal 1995
The following table derived from the Company's consolidated statements of
operations sets forth for the items listed the respective changes when compared
between the fiscal years ended May 31:
<TABLE>
<CAPTION>
Increase %
1996 1995 (Decrease) Change
---- ---- ---------- ------
<S> <C> <C> <C> <C>
(In 000's except percentages)
Operating revenues, net $195,196 $192,234 $ 2,962 1.5%
Other Revenues - - - -
-------- -------- -------
195,196 192,234 2,962 1.5%
-------- -------- -------
Operating expenses 167,060 163,769 3,291 2.0%
Depreciation and amortization 8,778 8,734 44 .5%
Interest expense, net 12,295 11,078 1,217 11.0%
Provision for costs on
sale of accounts receivable 4,170 3,588 582 16.2%
-------- -------- -------
192,303 187,169 5,134 2.7%
-------- -------- -------
Income before taxes 2,893 5,065 (2,172) NM
Tax provision (1,260) 1,012 (2,272) NM
-------- -------- -------
Net income $ 4,153 $ 4,053 $ 100 2.5%
======== ======== =======
</TABLE>
NM = Not Measurable
Net income was $4,153,000 for the twelve months ended May 31, 1996 compared to
net income of $4,053,000 in 1995.
Operating revenues, net are $2,962,000 higher in 1996 when compared to 1995. Of
this increase, $4,603,000 relates to the Company's long term care operations
which resulted from revenues generated from Medicare certified and sub-acute
units ($1,078,000), net bed additions ($1,846,000) and rate increases partially
offset by a reduction in census ($1,679,000). The increases in the long term
care revenues were offset by a net decrease in the ambulance, pharmaceutical
and hospitality services revenues related to a decrease in government
reimbursement and a decrease in volume of business ($1,641,000).
Page 22 of 72
<PAGE>
Operating expenses increased $3,291,000 in 1996 compared to 1995. This includes
non-recurring charges of $429,000 recorded in the third quarter related to a
settlement of a matter relating to reimbursement for nutritional services
provided at a nursing facility previously managed by a subsidiary and an amount
recorded in the fourth quarter relating to the class action suit (see Note 14 to
the Notes of Consolidated Financial Statements). After giving effect to the
non-recurring charges totalling $829,000, operating expenses have remained
constant as a percentage of revenues due to continued cost containment and
operating efficiencies.
Interest expense, net, for the year ended May 31, 1996 increased approximately
$1,217,000 over 1995. This increase is principally attributable to the
following: additional interest of $621,000 incurred under the Company's credit
facility with Meditrust Mortgage Investments, Inc.; a $500,000 discount on a
note receivable; and debt related to a new long term care facility opened in
January 1996. The increase in interest expense is offset by an increase in
interest income as the result of interest associated with term notes.
Provision for costs on sale of accounts receivable increased $582,000 over 1995
primarily as the result of an increase in the sale of accounts receivables
during fiscal 1996.
The tax provision decreased $2,272,000 primarily due to the recognition of
deferred tax assets. A net deferred tax asset of $1,925,000 was recorded during
fiscal 1996 as the Company believes it is more likely than not that the results
of future operations will generate sufficient taxable income to realize such net
deferred tax assets.
Comparison of Consolidated Results of Operations for Fiscal 1995 and Fiscal 1994
The following table derived from the Company's consolidated statements of
operations sets forth for the items listed the respective changes when compared
between the fiscal years ended May 31:
<TABLE>
<CAPTION>
Increase %
1995 1994 (Decrease) Change
---- ---- ---------- ------
<S> <C> <C> <C> <C>
(In 000's except percentages)
Operating revenues, net $192,234 $177,957 $14,277 8.0%
Other revenues - 1,576 (1,576) (100.0)%
-------- -------- -------
192,234 179,533 12,701 7.1%
-------- -------- -------
Operating expenses 163,769 157,612 6,157 3.9%
Depreciation and amortization 8,734 9,238 (504) (5.5)%
Interest expense, net 11,078 10,889 189 1.7%
Provision for costs on
sale of accounts receivable 3,588 3,531 57 1.6%
-------- -------- -------
187,169 181,270 5,899 3.3%
-------- -------- -------
Income (loss) before taxes 5,065 (1,737) 6,802 NM
Tax provision (benefit) 1,012 (299) 1,311 NM
-------- -------- -------
Net income (loss) $ 4,053 $ (1,438) $ 5,491 NM
====== ======== =======
</TABLE>
NM= not measurable
Page 23 of 72
<PAGE>
Net income was $4,053,000 for the twelve months ended May 31, 1995 compared to a
net loss of $1,438,000 in 1994. Income before income taxes was $5,065,000 in
1995 compared to a net loss of $1,737,000 in 1994 which includes $1,576,000
related to a gain on facilities sold and recognition of deferred income.
Operating revenues are $14,277,000 higher in 1995 when compared to 1994. Of this
increase, $8,842,000 relates to the Company's long term care operations which
resulted from growth in its Medicare census ($5,920,000), addition of new beds
in 1995 ($1,480,000), improved rates from government and private payors
($1,719,000) offset principally by a decrease in management fees from external
facilities ($277,000). The remaining increases are related to higher volume in
the ambulance and hospitality businesses.
Operating expenses increased $6,157,000 in 1995 compared to 1994. This relates
to increased costs associated with the acquisition of three ambulance companies,
higher volume including new beds, new customers, salary and other inflationary
factors offset by a reduction in the provision for uncollectible accounts of
approximately $700,000, the elimination of nonrecurring charges in workers
compensation in 1994 of approximately $700,000 and continued operating
efficiencies and cost reductions.
Depreciation and amortization decreased $504,000 in 1995 principally as a result
of the completion in fiscal 1994 of the amortization of certain deferred
financing costs.
Interest expense, net, for the year ended May 31, 1995 increased approximately
$189,000 over 1994. This increase is principally attributable to the debt
related to new beds opened in 1994 and 1995.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company for the years ended May 31,
1996, 1995 and 1994, and the reports of the Company's independent certified
public accountants with respect thereto, are included in this report beginning
on the following page.
Page 24 of 72
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and
Board of Directors
Geriatric & Medical Companies, Inc.
and Subsidiaries
We have audited the consolidated balance sheets of Geriatric & Medical
Companies, Inc. and Subsidiaries as of May 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. We have also audited the 1996 and 1995 schedule II. These
consolidated financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and schedule.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the fianncial statements and schedule. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Geriatric &
Medical Companies, Inc. and Subsidiaries as of May 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for the years
ended May 31, 1996 and 1995 in conformity with generally accepted accounting
principles.
Also, in our opinion, Schedule II presents fairly, in all material respects, the
information set forth therein.
BDO Seidman, LLP
Philadelphia, Pennsylvania
August 20, 1996
Page 25 of 72
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors
Geriatric & Medical Companies, Inc.
and Subsidiaries
We have audited the consolidated financial statements and the financial
statement schedule of Geriatric & Medical Companies, Inc. and Subsidiaries for
the year ended May 31, 1994 as listed in Item 14(a) of this form 10-K. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations, cash flows and
stockholders' equity (deficit) of Geriatric & Medical Companies, Inc. and
Subsidiaries for the year ended May 31, 1994 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
As more fully discussed in Note 14, a class action shareholder lawsuit has been
brought against the Company. The ultimate outcome of the foregoing cannot
presently be determined. Accordingly, no provision for any liability has been
made to the accompanying consolidated financial statements.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103
October 11, 1994
Page 26 of 72
<PAGE>
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except par values and shares)
May 31,
ASSETS 1996 1995
---- ----
Current Assets:
Cash $ 2,224 $ 3,368
Restricted cash 4,923 715
Patients' funds 1,529 1,388
Accounts receivable, net of allowance
of $7,720 and $7,733 at May 31, 1996
and 1995, respectively 30,392 24,145
Other receivables, net of allowance
of $975 at May 31, 1996 and 1995 5,501 5,919
Prepaids and other assets 4,403 6,622
Inventories 4,949 5,154
Due from third-party payors, net of
allowance of $4,649 and $3,391 at
May 31, 1996 and 1995, respectively 21,913 13,948
-------- --------
Total current assets 75,834 61,259
-------- --------
Property and equipment:
Land 4,094 3,702
Building and improvements 106,686 99,971
Equipment and fixtures 37,911 38,299
Construction-in-progress 7,256 5,259
-------- --------
155,947 147,231
Less accumulated depreciation 62,905 59,293
-------- --------
93,042 87,938
-------- --------
Other noncurrent assets:
Restricted cash 2,980 3,021
Goodwill net of accumulated amortization
of $476 and $359 at May 31, 1996
and 1995, respectively 3,222 2,567
Notes and other receivables 6,049 11,132
Deferred charges and other, net of
amortization of $3,850 and $2,891
at May 31, 1996 and 1995, respectively 10,557 10,800
-------- --------
22,808 27,520
-------- --------
$191,684 $176,717
======== ========
May 31,
LIABILITIES 1996 1995
---- ----
Current Liabilities:
Current portion of long-term debt and
subordinated debenture $ 4,820 $ 2,906
Accounts payable 22,132 23,770
Accrued expenses 10,999 10,151
-------- --------
Total current liabilities 37,951 36,827
-------- --------
Other long-term liabilities 3,586 3,090
-------- --------
Long-term debt 130,775 120,660
-------- --------
Subordinated debenture -- 1,000
-------- --------
Deferred gain 492 492
-------- --------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred Stock, $.10 par, authorized
15,000,000 shares; none were issued
or outstanding -- --
Common Stock, $.10 par, authorized
30,000,000 shares in 1996 and 1995
issued and outstanding 15,429,746
and 15,244,261 in 1996 and 1995,
respectively 1,543 1,524
Capital in excess of par value 14,703 14,643
Accumulated earnings (deficit) 2,634 (1,519)
-------- --------
18,880 14,648
-------- --------
$191,684 $176,717
======== ========
See accompanying notes to consolidated financial statements
Page 27 of 72
<PAGE>
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($'s in thousands except per common share)
-----------------------------------------------------------------
Years Ended May 31,
1996 1995 1994
---- ---- ----
Operating revenues, net $ 195,196 $ 192,234 $ 177,957
Other revenues -- -- 1,576
--------- --------- ---------
195,196 192,234 179,533
--------- --------- ---------
Cost and Expenses:
Operating expenses 167,060 163,769 157,612
Depreciation and amortization 8,778 8,734 9,238
Interest expense, net 12,295 11,078 10,889
Provision for costs on sale
of accounts receivable 4,170 3,588 3,531
--------- --------- ---------
192,303 187,169 181,270
--------- --------- ---------
Income (loss) before
income taxes 2,893 5,065 (1,737)
Income taxes (1,260) 1,012 (299)
--------- --------- ---------
Net Income (Loss) $ 4,153 $ 4,053 $ (1,438)
========= ========= =========
Earnings (Loss) per common share $ 0.27 $ 0.27 $ (0.09)
========= ========= =========
Average common shares outstanding 15,372 15,209 15,314
========= ========= =========
See accompanying notes to consolidated financial statements.
Page 28 of 72
<PAGE>
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($'s in thousands)
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,153 $ 4,053 $ (1,438)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Provision for uncollectible accounts 4,496 6,388 7,102
Depreciation and amortization 8,778 8,734 9,238
Gain on sale of facilities and other assets, net and
recognition of deferred income -- -- (115)
Recognition of deferred tax asset 1,925 -- --
Non-cash change in worker's compensation expense -- -- (405)
Other items 83 332 547
Changes in assets and liabilities, net of effects from acquisitions:
Increase in patients' funds and other, net (141) (1,077) (40)
Increase in accounts receivable (10,743) (10,506) (8,587)
(Increase) decrease in other receivables 418 (364) (814)
(Increase) decrease in prepaids and other assets and inventories 499 (3,533) 701
(Increase) decrease in net amounts due from third-party payors (7,965) (4,634) 321
Increase (decrease) in accounts payable and accrued expenses (790) 8,297 (1,098)
Increase (decrease) in other long-term liabilities (10) (348) 815
-------- -------- --------
Net cash provided by operating activities 703 7,342 6,227
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,859) (3,251) (4,092)
Capital expenditures financed by construction
and property improvement funds (9,118) (2,786) (4,450)
(Increase) decrease in notes and other receivables 5,083 (700) 1,027
Acquisitions of ambulance companies, net of cash acquired -- (553) --
Other investing activities, net 90 31 115
-------- -------- --------
Net cash used in investing activities (6,804) (7,259) (7,400)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 15,747 2,238 6,570
Repayment of debt and subordinated debentures (6,111) (2,933) (11,351)
(Increase) decrease in restricted cash (4,167) 4,191 5,625
Expenditures for deferred charges (522) (1,197) (1,621)
Proceeds from issuance of common stock 10 59 32
-------- -------- --------
Net cash provided by (used in) financing activities 4,957 2,358 (745)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,144) 2,441 (1,918)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,368 927 2,845
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,224 $ 3,368 $ 927
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 16,659 $ 16,200 $ 16,123
Income taxes $ 471 $ 157 $ 179
SUPPLEMENTAL SCHEDULE OF NONCASH ITEMS:
Assets acquired under capital leases $ 1,393 $ 1,938 $ 975
Acquisitions of ambulance companies:
Fair value of assets acquired $ -- $ 2,809 $ 782
Cash paid and debt issued -- (2,282) --
-------- -------- --------
Liabilities assumed $ -- $ 527 $ 782
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 29 of 72
<PAGE>
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended May 31, 1996, 1995, and 1994
(In thousands)
<TABLE>
<CAPTION>
Common Stock
--------------------- Capital in
Excess of Accumulated
Shares Amount Par Value Earnings(Deficit)
------ ------ ---------- -----------------
<S> <C> <C> <C> <C>
Balance, May 31, 1993 15,274 $ 1,527 $ 14,558 $ (4,134)
Net Loss -- -- -- (1,438)
Restricted shares cancelled net of
issued shares to key employees (153) (15) -- --
Stock options exercised 39 4 43 --
------ -------- -------- --------
Balance, May 31, 1994 15,160 1,516 14,601 (5,572)
Net Income 4,053
Restricted shares
issued to Directors 9 1 10 --
Stock options exercised 75 7 32 --
------ -------- -------- --------
Balance, May 31, 1995 15,244 1,524 14,643 (1,519)
Net Income 4,153
Restricted shares issued
to Directors 9 1 22 --
Unregistered shares issued 162 16 65 --
Stock options exercised 15 2 (27) --
------ -------- -------- --------
Balance, May 31, 1996 15,430 $ 1,543 $ 14,703 $ 2,634
====== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 30 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
(a) Principles of Consolidation and Presentation:
The consolidated financial statements include the accounts of Geriatric &
Medical Companies, Inc. and its Subsidiaries and its investments in majority
owned joint ventures hereafter referred to as the "Company". The Company uses
the equity method to account for its ownership interest in other joint ventures.
Under the equity method, the Company recognizes its proportionate share of the
net income or loss of joint ventures currently rather than when realized through
dividends or disposals. All material intercompany transactions and accounts have
been eliminated in consolidation.
(b) Net Patient Service Revenue:
The Company's operations and cash flows are dependent upon the payments for
patient services by third-party payors and, in particular, Federal and State
administered programs. Reimbursement under these programs is limited to certain
expenditures in accordance with Federal and State regulations and is subject to
retroactive adjustment upon audit by Federal and State agencies. Accordingly,
net patient service revenue is recorded at the estimated realizable amounts due
from third-party payors and others.
Differences between the amounts accrued and subsequent settlements will be
recorded in operations in the year of settlement. Management maintains an
allowance that it considers adequate to provide for potential disallowances on
its recorded revenues under Federal and State administered programs. This
allowance is based on the estimated net realizable value of the Company's
revenues. Management periodically evaluates specific past experience and the
results of the most recent regulatory examinations, as well as other relevant
factors. While management uses the best information available to make such
evaluations, no assurance can be given that future adjustments to the allowance
may not be necessary if regulatory agencies interpret the Company's claims for
reimbursement on a basis different than the Company's historical experience with
regulatory examinations.
Although receivables due from third-party payors may be outstanding in excess of
one year, in accordance with industry practices, such amounts are classified as
current.
Page 31 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(c) Cash and Cash Equivalents:
For purposes of the statements of cash flows, the Company considers cash and
cash equivalents to be cash on hand, cash in banks and overnight investments.
(d) Restricted Cash:
Restricted cash represents funds held in trust to be used to repay debt
obligations and funds being held by a Medicare intermediary (See Note 14).
(e) Patients' Funds:
Patients' funds represent cash balances which have been deposited by the Company
into a separate bank account and are restricted for the use of patients. The
related liability is included in accounts payable.
(f) Inventories:
Inventories, principally consisting of durable medical and respiratory therapy
equipment, medical supplies and pharmaceuticals, are stated at the lower of cost
or market. Cost is determined principally on the first-in, first-out basis
(FIFO).
(g) Property, Equipment and Related Depreciation:
Property and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the respective assets using the straight-line method.
The annual depreciation rates range from 2.5% to 10% for buildings and
improvements and 5% to 33% for equipment and fixtures. Normal maintenance and
repair costs are charged to expense as incurred. Major expenditures for renewals
and betterments which extend useful lives are capitalized. Upon sale or
retirement the costs and related accumulated depreciation are eliminated from
the respective accounts and the resulting gain or loss is included in income.
(h) Other Noncurrent Assets:
Goodwill represents the excess of the cost of purchased businesses over the fair
value of their net assets. Goodwill arising after October 31, 1970 is being
amortized by the straight-line method over periods ranging from 15 to 40 years.
Goodwill in the amount of $565,000 relating to acquisitions prior to November 1,
1970 is not being amortized. The Company assesses the recoverability of the
intangibles based on undiscounted estimated future operating cash flows. As of
May 31, 1996, the carrying value of the intangibles has been determined not to
be impaired.
Page 32 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Notes and other receivables consist primarily of term loans related to facility
sales. The term loans are primarily secured by second mortgages on the
facilities.
Costs incurred in obtaining long-term borrowings are amortized on a
straight-line basis, which approximates the interest method over the term of the
loan. Pre-opening costs incurred in connection with the expansion of existing or
with the construction of new long-term care facilities, are capitalized until
the facility nursing units admit the initial patient or are substantially
completed and then amortized using the straight-line method over a five-year
period which coincides with the amortization period required by government
reimbursement regulations.
(i) Recoverability of Long-Lived Assets:
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed Of", the Company evaluates the recoverability of all long-lived
assets annually, or more frequently whenever events and circumstances warrant
revised estimates, and considers whether the long-lived assets should be
completely or partially written off or if the depreciation/amortization period
should be accelerated. As of May 31, 1996, in the opinion of Management, the
carrying value of the long-lived assets has not been impaired.
(j) Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(k) Income Taxes:
In fiscal 1994, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes, which required a change from the
deferred method to the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized by applying enacted statutory tax rates, applicable to future years,
to temporary differences between the tax basis and financial statement carrying
values of the Company's assets and liabilities. The adoption of SFAS No. 109 did
not have a material effect on the Company's consolidated financial statements.
Page 33 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(l) Workers' Compensation Insurance:
The Company self-insures for certain levels of Workers' Compensation Insurance
and estimated costs for the workers' compensation programs are accrued at
present values based upon actuarially projected claims. Related workers'
compensation expense for 1996, 1995, and 1994 amount to $4,334,000, $4,757,000,
and $4,928,000 respectively. During 1994, the Company refined its estimate of
its workers' compensation expense which resulted in an additional charge of
$700,000. Included in other assets at May 31, 1996 and 1995 is $4,069,000 and
$3,563,000, respectively, relating to the future revenue associated with the
difference in accounting for workers' compensation expense under third party
payor programs which is different than the method used for financial reporting
purposes. The accrued workers' compensation expense amounting to $3,035,000 and
$2,529,000 at May 31, 1996 and in 1995, respectively, is included in other long
term liabilities in the accompanying consolidated financial statements.
(m) Fair Value of Financial Instruments:
The fair value of financial instruments is determined by reference to various
market data and other valuation considerations. The fair value of financial
instruments approximates their recorded values.
(n) Earnings (Loss) Per Common Share:
Earnings (loss) per common share is based on the weighted average number of
Shares of common stock outstanding. Potential dilution from common stock
equivalents is not material.
Page 34 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Long-Term Debt and Subordinated Debenture:
A summary of long-term debt and subordinated debenture follows:
<TABLE>
<CAPTION>
Fiscal Year Fiscal
($'s in thousands) of Maturity May 31,
----------- ---------------------------
1996 1995
---- ----
<S> <C> <C> <C>
Credit Line (a) 2000 $ 2,580 $ -
Mortgages:
Mortgages (b) 2002,2007 88,228 84,580
Other {HUD Insured} (c) 2033,2036 13,295 8,738
Bonds Payable:
PA County IDA's, NJ EDA's (d) 2000 16,795 17,020
Other NJ EDA's (e) 2004-2022 8,580 8,705
Notes and Leases (f) Various 5,117 4,523
-------- --------
134,595 123,566
Less amounts due within one year 3,820 2,906
-------- --------
$130,775 $120,660
======== ========
Subordinated debenture (g) 1997 $ 1,000 $ 1,000
Less amounts due within one year 1,000 -
-------- --------
$ - $ 1,000
======== ========
</TABLE>
Page 35 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(a) In December 1995, the Company entered into a $5,000,000 secured Line of
Credit Agreement ("Credit Line") with Commerce Bank, NA. The Credit Line
is secured by certain real estate and private receivables not sold under
the accounts receivable financing agreement (see Note 4). Interest on
the Credit Line is at prime plus 1% (9.25% as of May 31, 1996). The line
is renewable annually and may, at the Company's option, be converted to
a three year term loan. The outstanding loan balance under the Credit
Line at May 31, 1996 was $2,580,000.
Three Letters of Credit were issued and outstanding under the Credit
Line totaling $1,574,000. These Letters of Credit were issued in
connection with a Company insurance program and construction project.
At May 31, 1996, the Credit Line availability was $846,000. The maximum
outstanding credit line balance and the average credit line balance
during fiscal 1996 was $2,580,000 and $280,000, respectively. In August
1996, the Company received a commitment to increase the Credit Line to
$7,500,000.
(b) In April, 1992, the Company completed an agreement with Meditrust
Mortgage Investments, Inc. ("Meditrust"), pursuant to which the Company
received $86,003,000 under a credit facility collateralized by mortgages
on various nursing home facilities located in Pennsylvania and New
Jersey (the "Mortgaged Facilities"). The credit facility was used to pay
off or refinance debt, capital improvements and additions to mortgaged
facilities, debt service reserve and working capital.
The credit facility is payable over ten years based upon a twenty-five
year amortization schedule, at an initial interest rate of 11.5% annum
("Based Rate"), which may increase prospectively (based upon revenues)
and is annually capped at the sum of .25% of the initial mortgage amount
and a prior year interest factor. At the end of five years, the Base
Rate will be reset prospectively at either the higher of 11.5% or the
five-year treasury note interest rate plus 4%, or the rate in effect at
the end of the initial five-year period. At the Company's election, such
credit facility may be prepaid at 103.5% of the outstanding principal at
the end of the fifth year. The loan had a balance of approximately
$83,079,000 and bears interest at an effective rate of 12.23% as of May
31, 1996.
In connection with this agreement, the Company may not pay dividends
under certain circumstances and is required to comply with certain
financial convenants, the most restrictive of which is the debt service
coverage ratio, at May 31, 1996. The Company has complied with the
provisions of the agreement or in instances of non compliance has
received waivers.
Page 36 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
On May 31, 1995, the Company completed an agreement to finance a 120 bed
long term care facility (Rittenhouse West Nursing & Rehabilitation
Center) with Meditrust for $6,939,000 at a rate of prime plus 2 percent
(10.25% as of May 31, 1996). Construction costs incurred as of May 31,
1996 totaled $5,262,000. Also, as of May 31, 1996 and 1995, the
construction loan had a balance of approximately $5,149,000 and
$608,000, respectively. In connection with this project, a $74,000
Letter of Credit was issued which expires in February 1997.
(c) The Company has two mortgage loans insured under Section 232 of the
National Housing Act by the United States Department of Housing and
Urban Development, Federal Housing Administration. The first loan is
with Northwest Total Care Associates, Limited Partnership ("LP"), which
is owned by subsidiaries of the Company. Construction of the facility
("Care Center of Brakeley Park") was completed during fiscal 1993. The
loan had a balance of approximately $8,089,000 as of May 31, 1996 and
bears interest at 10.35% per annum. The loan is financed by Quaker
Capital, L.P. and is payable in equal monthly payments over forty years.
The obligation is collateralized by the assets of the Limited
Partnership without recourse to the partners.
The second HUD loan is with North Cape Convalescent Center Associates,
L.P., which is owned by subsidiaries of the Company. Construction of the
facility was completed in January 1996 at a total construction cost of
$7,062,000, of which $5,636,000 is to be financed by GMAC Commercial
Mortgage Corporation at 9.5% over 40 years. The obligation is
collateralized by the assets of the Limited Partnership without recourse
to the partners. The loan balance at May 31, 1996 was approximately
$5,206,000, with the loan's final endorsement occurring in June 1996. In
connection with this loan, a $500,000 letter of credit was issued which
expires in December 1996.
(d) The Company's facilities are owned and subject to mortgages. Mortgage
Revenue Refunding Bonds (Series 1992 and 1993), which are secured by
mortgages on facilities, were issued through Pennsylvania County
Industrial Development Authorities (Bucks, Chester, Montgomery and
Lancaster) and the New Jersey Economic Development Authority. These
bonds were issued under a Master Trust Indenture with First Union
National Bank, and bear interest at fixed rates of 7.5% to 9.0%, payable
semi-annually. At May 31, 1996, outstanding bonds were $16,795,000,
which is comprised of $6,035,000 of EDA and $10,760,000 of PA IDA bonds.
Under the Master Trust Indenture, the Company has agreed not to pay any
dividends or make any distribution which could have the effect of
reducing consolidated tangible net worth and subordinated indebtedness,
if consolidated tangible net worth and subordinated indebtedness is at
such time or would thereby be reduced to less than $9,000,000.
Page 37 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(e) The Company also has two bond series issued through the New Jersey
Economic Development Authority, each secured by a skilled nursing
facility mortgage.
Principal on the $2,025,000 and $660,000 Revenue and Revenue Refunding
Bonds is payable quarterly beginning July 15, 2004 and July 15, 1992,
respectively. These bonds bear interest at a fixed rate of 9.625%
payable quarterly. Additionally, at May 31, 1996, the Company had
$5,895,000 Economic Development Refunding Bonds outstanding. Interest on
these bonds is at a fixed rate of 10.5% payable semi-annually over a
thirty year period.
(f) Notes and leases consist primarily of capitalized leases and promissory
notes bearing interest at 6% to 13.39%.
(g) In November 1994, the Company issued a $1,000,000 subordinated debenture
to Tomahawk Capital Investments, Inc. ("Tomahawk") which is controlled
by an executive officer of the Company. The interest is payable on a
quarterly basis, at a rate of 12% per annum, and the debenture is due on
December 1, 1996.
Amounts due on long-term debt in each of the next five fiscal years are
as follows:
($'s in thousands)
- ------------------
1997 $ 4,820
1998 2,879
1999 2,590
2000 20,523
2001 1,984
Thereafter 102,799
--------
Total $135,595
========
Substantially all of the Company's properties related to its long term care
facilities and headquarters location are pledged as collateral on borrowings.
Substantially all other assets of the Company (excluding property under capital
leases and certain accounts receivable) are unencumbered.
3. Acquisitions and Disposals:
Concurrent with the sale of nursing or residential facilities in prior years,
the Company entered into long-term agreements to provide management and other
services in operating these facilities. All of these management agreements have
expired or been terminated as of May 31, 1994.
Page 38 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Under the terms of these sales of nursing and residential facilities, the
Company was required to lend the purchaser amounts to cover certain issuance
costs of bond offerings and to enter into operating deficits agreements under
which the Company lends the purchaser, if needed, funds for working capital
requirements. These working capital advances, plus related interest, were not
payable to the Company until certain conditions were achieved or over a
five-year period upon termination or expiration of the management agreements. In
conjunction with the expiration or termination of these agreements, the Company
has converted the operating deficits advances as well as certain subordinated
management fees, as appropriate, into term loans at an interest rate range of
10% to 13%.
As of May 31, 1996 and 1995, with respect to the aforementioned facility sales,
the Company was owed the following:
May 31,
-----------------------------
($'s in thousands) 1996 1995
------------------ ---- ----
Operating deficits advances $ 390 $ 390
Issuance cost loans 918 925
Term loans and accrued interest 5,259 5,728
Management and other fees 5,049 4,503
----- -------
Total $11,616 $11,546
======= =======
Included in noncurrent notes and other receivables are $3,820,000 and $5,693,000
of receivables related to the aforementioned transactions at May 31, 1996 and
1995, respectively.
The Company has deferred the recognition of gain on sale of facilities related
to guarantees under an operating deficit agreement. As of May 31, 1996, the
Company may ultimately recognize as additional gain on sale of facilities
$492,000 if certain minimum operating cash flow requirements and other factors
are achieved. In fiscal 1994, the Company recognized $1,576,000 of deferred gain
on facilities sold in prior years.
Page 39 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
On May 31, 1993 the Company sold its Mt. Laurel, New Jersey facilities to
Tomahawk for $8.5 million, consisting of cash of $2.5 million and a 9% interest
bearing note for $6 million. This note was payable based on a 25 year
amortization, with a balloon payment due June of 2005. Tomahawk prepaid
approximately $1,500,000 from inception through May 31, 1995. As of May 31,
1996, Tomahawk prepaid $3,000,000 and as an inducement received a discount of
$500,000 which has been recorded in the accompanying financial statements. The
Company also restructured this note requiring that the remaining balance of
principal and interest as of May 31, 1996 (totaling $1,622,000) be paid over 35
quarters, commencing September 1, 1996 with interest on the principal due at
6.75%.
On May 20, 1994, the Company acquired all of the outstanding stock of an
ambulance transportation company in exchange for the assumption of $782,000 in
liabilities. Goodwill of $683,000, was recorded in connection with the
acquisition. The transaction has been accounted for as a purchase for financial
reporting purposes. The operating results of the acquired company are included
in the Company's consolidated results of operations from the date of acquisition
and do not have a material effect on the Company's consolidated financial
statements.
During fiscal 1995, the Company acquired three ambulance transportation
companies for $2,282,000. Two of the acquisitions were asset purchases while the
third was a stock purchase. Goodwill of $365,000 was recorded in connection with
these acquisitions. The transactions have been accounted for as purchases for
financial reporting purposes. The dated results of operations from the
respective dates of acquisition and do not have a material effect on the
Company's consolidated financial statements.
4. Accounts Receivable:
The Company is a party to a $25 million accounts receivable sale agreement with
recourse with a financial institution, which expires on May 31, 1997. The
Company may sell, on a continuing basis, up to $25,000,000 of certain qualifying
accounts receivable. The Company receives, net of reserves, approximately 80% of
accounts receivable submitted. This transaction has been accounted for as a sale
under Financial Accounting Standards Board Statement No. 77 guidelines but may
be treated as a financing (borrowing) transaction for Medicare/Medicaid
purposes. As permitted by Statement of Accountant Standards No. 125 "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", the Company will adopt the recording of any transfers and
servicing of financial assets and extinguishments of liabilities as of January
1, 1997, which is in accordance with this statement. The subsequent adoption of
this statement will not have a material effect on the Consolidated Financial
Statements.
Page 40 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Under the terms of the agreement, the Company will pay program costs at 9.84% on
the outstanding receivables submitted. During fiscal 1996 and 1995, the Company
sold approximately $109,288,000 and $110,297,000 respectively, of certain
qualifying accounts receivables. As of May 31, 1996 and 1995, the balance of the
receivables submitted for sale was approximately $15,656,000 and $20,774,000 of
which approximately $13,074,000 and $16,619,000 were funded, respectively. The
unfunded portion is included in other receivables on the balance sheet.
The Company entered into an agreement to sell certain receivables due from
third-party payors. The program costs charged are 9.75% of the outstanding
receivables sold. The maximum amount of receivables to be sold is $5,000,000.
The Company receives, net of reserves, approximately 80% of third-party payor
receivables sold. The unfunded portion is included in other receivables on the
balance sheet. As of May 31, 1996 and 1995 the amount of the receivables sold
was $2,916,000 and $150,000, of which approximately $2,435,000 and $150,000 was
funded respectively.
As of May 31, 1996, 1995 and 1994, the Company has recognized a provision for
costs on sale of accounts receivable of $4,170,000, $3,588,000, and $3,531,000
respectively. The provision for costs on sale of accounts receivable consists
of: (A) program and other costs incurred on receivables sold and (B) servicing
costs relating to the collection of receivables sold. Under the sale agreement,
the Company continues and is required to service the accounts receivable sold.
5. Inventories:
The components of inventories are as follows:
May 31,
---------------------
($'s in thousands) 1996 1995
------ ------
Durable medical equipment $3,584 $3,595
Institutional pharmacy
drugs and supplies 564 895
Other 801 664
------ ------
Total $4,949 $5,154
====== ======
6. Capitalized Interest:
The Company capitalized interest expense of approximately $1,027,000, $879,000,
and $1,388,000 in fiscal 1996, 1995 and 1994, respectively, relating to the cost
of additions to existing nursing home facilities and construction of new
facilities.
Page 41 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. Deferred Charges and Other:
The components of deferred charges and other are as follows:
May 31,
----------------------------
($'s in thousands) 1996 1995
---- ----
Deferred financing costs $ 7,707 $ 6,345
Deferred pre-opening costs 1,310 951
Accumulated amortization (3,850) (2,891)
------- -------
5,167 4,405
Deferred reimbursement-
workers' compensation 4,069 3,563
Deposits 316 219
Prepaid bedding and linen and other
miscellaneous costs 1,005 2,613
------- -------
$10,557 $10,800
======= =======
8. Incentive Plans and Option Arrangements:
The Company's 401(k) profit sharing plan covers substantially all full-time
employees not covered by collective bargaining agreements. Contributions under
the plan are at the discretion of the Board. No contributions were made in
fiscal 1996, 1995 and 1994.
Effective November 1989, the Company adopted a 1989 stock option and restricted
stock plan, for certain key employees, whereby eligible employees may be issued
up to an aggregate of 281,250 Shares of the Company's common stock, subject to
certain restrictions, and up to an additional 343,750 Shares upon the exercise
of incentive and/or non-qualified stock options granted pursuant to the plan.
The restricted share portion of this plan expired as of May 31, 1994. As of May
31, 1996, there were 240,471 Shares under option under this plan, of which
165,655 Shares were exercisable at an average price of $2.27. During fiscal
1996, no Shares under option under this plan were granted. During fiscal 1996,
7,875 Shares were exercised at an average price of $1.65 per share and 8,125
options expired. As of May 31,1995, there were 260,221 Shares under option,
under this plan, of which 119,346 Shares were exercisable at
Page 42 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
an average price of $2.18. During fiscal 1995, 137,000 Shares under option under
this plan were granted at exercise prices ranging from $2.0625 to $2.6875.
During fiscal 1995, 2,000 Shares were exercised at an average exercise price of
$1.41 per share and 10,344 options expired.
The Company has a 1982 incentive stock option plan for key executive and
management personnel. At May 31, 1996, there were 184,376 Shares under option
and exercisable under this plan at exercise prices ranging from $0.80 to $2.50
with an average exercise price of $1.91. During fiscal 1996, 1995, and 1994,
7,813, 79,062, and 46,484 options were exercised, respectively, at an average
price of $1.36, $1.09, and $1.14, respectively. Effective January 28, 1992
additional options cannot be granted under this plan.
In April 1985, a stock option plan was approved under which options to purchase
23,438 Shares may be granted to nonemployees. In fiscal 1995, such plan expired.
Effective November 17, 1994, the Company adopted the 1994 Stock Option and
Restricted Stock Plan for Directors whereby Directors of the Company, who are
not employees of the Company or its subsidiaries, may be issued up to an
aggregate of 250,000 Shares of the Company's common stock. In January 1996 and
January 1995, 9,000 restricted Shares were granted at a price of $2.125 and
$2.875 respectively, and vest over a one year period. During fiscal 1996, 12,000
Shares under option under this plan were granted at an exercise price of $2.375,
and no Shares under option expired.
The Company has a 1990 stock option plan for directors under which options to
purchase up to a total of 120,313 Shares may be granted to outside directors.
Under this plan, a total of 90,283 options have been granted to outside
directors at exercise prices ranging from $.96 to $2.6875 per share. During
fiscal 1996, 10,156 Shares were exercised at an exercise price of $.96. During
fiscal 1995, 10,157 Shares were exercised at an average price of $1.45 and 7,813
Shares under option expired. At May 31, 1996 and 1995, 44,907 and 49,063 Shares
under this plan were exercisable, respectively. Effective December 31, 1994,
additional options cannot be granted under this plan.
In fiscal 1996, the Company adopted the 1995 Equity Incentive Plan in which a
maximum of 525,000 Shares of the Company's common stock could be granted to the
Company's officers and key executives. Awards under the plan may be earned by
achieving certain economic, company wide and individual management goals.
Under all stock option plans maintained by the Company, the exercise price of
options issued is the same as the market price at the date of grant.
Page 43 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As permitted by Statement of Accounting Standards No. 123 "Accounting for
Stock-Based Compensation", the Company has not adopted a fair value based method
of accounting for stock-based compensation as of December 31, 1995. The
subsequent adoption of a fair value based method of Accounting for stock-based
compensation will not have a material effect on the financial statements.
Effective June 1, 1993, the Company entered into an employment agreement with
the Chairman of the Board of Geriatric & Medical Companies, Inc. The term of the
agreement is for an initial five year period with a provision for annual
extensions. The employment agreement provides for a short-term and long-term
incentive plan in addition to a base compensation package. The short-term
incentive plan provides for an incentive bonus contingent upon the Company's
annual operating results.
A short-term incentive bonus of $103,000 and $107,000 was accrued for the fiscal
years ended May 31, 1996 and 1995, respectively. The long-term incentive plan
provides for long-term compensation based upon the increase in market value of
the Company's stock to the shareholders. As of May 31, 1996 and 1995, the
Company has an accrued liability of $14,582 and $13,000, respectively, relating
to this plan. The employment agreement, while in effect, also provides for a
death benefit of $1,000,000 payable in forty equal quarterly installments. See
Note 16 of the Notes to Consolidated Financial Statements.
9. Medicare and Medicaid Revenue:
The Company's long-term care facilities, which are located in Pennsylvania and
New Jersey, receive reimbursement under the Medicare and Medicaid programs,
which is subject to adjustment upon audit by Federal and State agencies (see
Note 1b). Revenue from these programs related to the Company's long-term care
facilities totaled approximately $112,000,000, $105,900,000, and $98,200,000,
for the years ended May 31, 1996, 1995 and 1994, respectively. At May 31, 1996
and 1995 the Company had a net third-party receivable of approximately
$21,913,000, and $13,948,000, respectively. The total amounts due from
third-party payors generally are not paid in full until audit issues are
resolved. The Company is continually negotiating to resolve the audit findings
and accelerate interim payments due under the reimbursement system.
For the fiscal years 1990 through 1996, the Company has receivables of
approximately $10,824,000 for open issues with the Pennsylvania Department of
Public Welfare (DPW). Management believes that any reduction of the amount
recorded that results from final settlement of these open issues will not have a
material adverse effect on the financial position of the Company.
Page 44 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. Income Taxes:
A summary of the components of the tax provision for fiscal years 1996, 1995,
and 1994 is as follows:
<TABLE>
<CAPTION>
($'s in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current Federal $ 1,132 $ 551 $ -
Current State and Local 442 296 165
Federal & State Over/Under
Accrual Net of Credits (909) 165 (464)
Deferred Tax Benefit (1,925) - -
------- ------ ------
$(1,260) $1,012 $(299)
======== ====== ======
</TABLE>
The effective net income tax rates before the utilization of the Company's
operating loss carryforwards are different than the statutory federal income tax
rates of 34% in Fiscal years 1996, 1995, and 1994 as indicated below:
<TABLE>
<CAPTION>
($'s in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory Federal Income Tax $ 983 $1,722 $(591)
Permanent Differences 46 52 25
State and Local Taxes, Net of
Federal Benefit 292 195 109
Investment and Other Tax Credits (75) (293) -
Net Operating Loss Carryforward - (489) -
Deferred Tax Benefit (1,925) - -
Other (581) (175) 158
------- ------ -----
$(1,260) $1,012 $(299)
======= ====== =====
</TABLE>
Page 45 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of May 31,1996 and 1995 determined in
accordance with the provisions of SFAS No. 109:
<TABLE>
<CAPTION>
($'s in thousands) 1996 1995
---- ----
<S> <C> <C>
Deferred Tax Assets:
Deferred Gain on Sale of Facilities
in Prior Years $ 436 $1,779
Net Tax Operating Loss Carryforwards - 988
Bad Debts 2,905 2,905
Tax Credits 3,193 2,461
Inventories (Uniform Capitalization) 93 84
Deferred Vacation 484 -
Accrued Legal Costs 176 -
------ ------
Total Deferred Tax Assets $7,287 $8,217
====== ======
Deferred Tax Liabilities:
Accelerated Depreciation $3,940 $4,236
Deferred Income 289 1,183
Deferred Costs 404 333
------ ------
Total Deferred Tax Liabilities $4,633 $5,752
====== ======
Deferred Tax Assets in Excess of Deferred Tax
Liabilities before Valuation Allowance $2,654 $2,465
Valuation Allowance (729) (2,465)
------ ------
Net Deferred Tax Assets $1,925 $ -
====== ======
</TABLE>
The net deferred tax asset of $1,925,000 was recorded, as the Company believes
it is more likely than not, that the results of future operations will generate
sufficient taxable income to realize such deferred tax assets.
Page 46 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
For tax purposes, the Company has unused State net operating loss carryovers of
approximately $6,031,000, and Federal tax credit carryovers of approximately
$1,780,000 which will expire in varying amounts through the year 2010 (excluding
$1,413,000 of Alternative Minimum Tax Credits).
11. Revenues:
Operating revenues are presented net of contractual allowances of $48,897,000,
$38,555,000 and $36,997,000 for the years ended May 31, 1996, 1995, and 1994
respectively. Included in other revenue are deferred and current gains
recognized on facilities sold of $1,576,000 for the year ended May 31, 1994.
12. Interest Expense:
Interest expense is reflected net of approximately $2,130,000, $1,576,000, and
$1,405,000, of interest income for the years ended May 31, 1996, 1995, and 1994,
respectively. The interest income is principally related to overnight
investments, restricted cash and notes receivables.
13. Quarterly Results (Unaudited):
The following table summarizes the Company's quarterly results of operations for
the fiscal years ending May 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996
($'s in thousands except Per Share Data)
<S> <C> <C> <C> <C> <C>
1st 2nd 3rd 4th (a) Total
------- ------- ------- ------- --------
Operating revenues, net $49,409 $49,506 $49,186 $47,095 $195,196
======= ======= ======= ======= ========
Net income $ 1,157 $ 1,248 $ 1,252 $ 496 $ 4,153
======= ======= ======= ======= ========
Net income per share of
common stock $ .08 $ .08 $ .08 $ .03 $ .27
======= ======= ======= ======= ========
Common stock price range:
High 3 1/16 3 2 5/8 2 3/8 3 1/16
Low 2 2 1/8 2 1 3/4 1 3/4
</TABLE>
(a) Fourth quarter results reflect the recording of an unusual charge pertaining
to the class action suit (see Note 14 (b)), additional interest expense of
$621,000 relating to the Company's credit facility (see Note 2-b);
a $500,000 discount on a note receivable (see Note 3); an additional
provision for bad debt of $1,750,000; and the recognition of a deferred
tax asset of $1,925,000.
Page 47 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
<TABLE>
<CAPTION>
1995
<S> <C> <C> <C> <C> <C>
1st 2nd 3rd 4th Total
------- ------- ------- ------- --------
Operating revenues, net $45,975 $47,782 $48,565 $49,912 $192,234
======= ======= ======= ======= ========
Net income $ 740 $ 1,025 $ 1,208 $ 1,080 $ 4,053
======= ======= ======= ======= ========
Net income per share of
common stock $ .05 $ .07 $ .08 $ .07 $ .27
======= ======= ======= ======= ========
Common Stock price range:
High 3 1/16 3 3 1/8 2 13/16 3 1/8
Low 2 1 5/8 2 3/8 1 13/16 1 5/8
</TABLE>
Primary earnings per share were used to calculate net income per share of common
stock.
Price range of Common Stock: The Company's common stock is listed on the
Automated Quotation System of the National Association of Securities Dealers,
Inc. (NASDAQ symbol: GEMC). On August 27, 1996, the last sale price for the
Company's Common Stock was $5.4375. There were 1,174 stockholders of record of
its Common Stock as of May 31, 1996. The table above sets forth, for the periods
indicated, the range of high and low sale prices of the common stock as reported
by The Wall Street Journal.
14. Commitments and Contingencies
(a) Life Support Ambulance, Inc. (LSA) a subsidiary of the Company, received
notice of suspension of payments relating to Medicare billing submitted to its
Medicare intermediary, effective April 6, 1995. The intermediary has alleged
that overpayments have occurred in connection with LSA billings. In connection
therewith, the Office of the Inspector General has seized certain records and is
conducting an investigation of this matter.
In August, 1995, the intermediary partially lift the suspension and has since
paid LSA 75% of all subsequent approved billings. In connection with this
agreement, the Company has agreed to guarantee the payment by LSA of up to
$5,000,000 of any finally determined overpayments. As of May 31, 1996, the
intermediary had withheld approximately $4,565,000 in escrow pending resolution
of this matter. The amount is included in restricted cash in the accompanying
balance sheets.
Page 48 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
LSA has received notices of the results of the intermediary's audits, including
a calculated overpayment of approximately $6,800,000 through March 31, 1996. LSA
is reviewing the intermediary's results and believes there are errors in, among
other things, (i) the sampling techniques used; (ii) the conclusions reached
relative to the appropriateness of payments for claims in the audit sample, and
(iii) the projection technique of the ultimate overpayment calculation. LSA
intends to vigorously defend its position and utilize all available
administrative and legal processes to protect its rights in this matter.
LSA believes that it has operated at all times in substantial compliance with
all provisions required by Medicare relating to reimbursement for services. The
Company is not able, at this time, to predict the ultimate outcome of this
matter.
(b) The Company was named a defendant, together with GMS Management, Inc., and
various current and former officers of the Company, in a class action suit which
was filed in September, 1992, in the United States District Court for the
Eastern District of Pennsylvania in Philadelphia. On July 15, 1996, the Company
signed an agreement to settle the claims of the plaintiff class. This agreement
received provisional approval by the court on July 23, 1996, and is subject to a
hearing on October 7, 1996. Under the terms of the agreement, a payment up to a
maximum of $1,900,000 will be made to a claims settlement fund, of which 50%
will be paid by the Company's insurance carrier. The fund will be used to
resolve all claims of the members of the plaintiff class on a claims made basis
and to pay the attorneys' fees and costs incurred by the plaintiff class. The
ultimate amount of this settlement cannot be determined at this time. The
Company's maximum share of the claim is $950,000. The Company has recorded at
May 31, 1996, its estimate of the ultimate payment to be made in connection with
its settlement. The amount recorded is less than the $950,000 maximum.
(c) On February 21, 1996, a Company subsidiary reached an agreement with the
U.S. Attorney to settle a matter involving reimbursement for certain nutritional
services provided at a nursing facility (the "Facility") previously managed by
that subsidiary. The Company entered into this settlement, without admitting any
wrongdoing, in order to avoid the substantial expense and management disruption
of litigation. The settlement resulted in a charge of $429,000, before taxes,
shown in the accompanying Consolidated Statements of Operations for the fiscal
year ended May 31, 1996. The Company's management agreement with the Facility
provides that the Facility indemnify and hold the Company harmless with respect
to claims such as that alleged by the U.S. Attorney. However, it is unclear
whether the Facility has, or would have, the funds necessary to provide such
indemnification.
Page 49 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. Other Transactions:
Dedicated Staffing Services, Inc. ("DSI"), a Pennsylvania non-profit
corporation, previously provided registered nurses, licensed practical nurses,
nursing assistants and other personnel to the Company on a temporary employment
basis. Certain officers of the Company are members of Dedicated Staffing's Board
of Directors. The Company paid Dedicated Staffing Services, Inc. approximately
$184,000 and $1,659,000 for these services in fiscal 1996 and 1995,
respectively. On May 31, 1996, the Company purchased from DSI certain fixed
assets as well as a list of nursing assistants for approximately $137,000. The
Company has agreed to pay such amount over 30 months, with interest at 9%.
The Company provides certain services which are priced at or above projected
cost, and include staffing services, dietary, environmental, financial, and
other services, to Mount Laurel Convalescent Center and Laurelview Manor which
are owned by Tomahawk. The total services rendered during fiscal 1996 and 1995
were $8,179,000 and $7,194,000. At May 31, 1996 and 1995, the Company had a
receivable of $4,732,000 and $3,235,000 due from Tomahawk for these services,
respectively.
During fiscal 1996 and 1995, the Company received additional revenues of
approximately $1,084,000 and $1,000,000 related to its provision of ancillary
services at the Tomahawk facilities. These services, including provision of
ambulance transportation, diagnostics, rehabilitation, pharmacy and medical
supplies are provided at market rates.
As of May 31, 1996, the Company granted a prepayment discount of $500,000 to
Tomahawk with respect to its note payable to the Company. The discount was
granted as an inducement for Tomahawk to prepay $3,000,000 of its note to the
Company.
16. Subsequent Events:
On July 11, 1996, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Genesis Health Ventures, Inc. ("Acquiror"), and its
wholly owned subsidiary G Acquisition Corporation ("NEWCO").
Under the terms of the Merger Agreement, NEWCO will pay $5.75 in cash for each
share of the Company's common stock, and NEWCO will be merged into the Company.
The consummation of the Merger is subject to various conditions including, but
not limited to, approval by the
Page 50 of 72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Company's shareholders and receipt of applicable regulatory approvals and may be
terminated if certain conditions are not satisfied, or if the Merger does not
close prior to February 1, 1997. In connection with the Merger, the Company
engaged CS First Boston as a financial advisor and has agreed to pay CS First
Boston for its services, an aggregate financial advisory fee equal to 1% of the
total consideration payable (including liabilities assumed). Also, in connection
with the Merger, the Company and Daniel Veloric, Chairman ("Veloric") have
entered into a Termination Agreement dated as of July 11, 1996, pursuant to
which the Company and Veloric have agreed that, at the Effective Time, certain
Employment Agreement effective June 1, 1993 (the "Veloric Employment Agreement")
will terminate. The Veloric Employment Agreement currently expires on May 31,
2001. The Veloric Employment Agreement provides for annual base compensation of
$500,000 per year. The Veloric Employment Agreement also provides for a bonus
equal to five percent (5%) of the Company's annual increase in profits, the
award of phantom stock based on the annual incremental increase in the average
price of Company Common Stock, and a death benefit of $1,000,000. In
consideration of the termination of the Veloric Employment Agreement, the
Company will pay Veloric the sum of $1,000,000, payable $200,000 at the
Effective Time and $200,000 on each of the first four anniversaries of the
Effective Time.
The Company and Veloric have also entered into that certain Restrictive
Covenants Agreement dated July 11, 1996 by which Veloric agreed that, among
other things, for a period of ten years after the Effective Time of the Merger,
he will not, directly or indirectly, for his own account, or the benefit of any
other person, without the prior written consent of Acquiror, (a) engage in any
business competitive with the businesses of the Company or Acquiror in its
respective geographic markets, or (b) hire any employee of the Company or
Acquiror, or solicit, induce, or divert any of them to work for him or any other
person. In consideration of the foregoing, the Company has agreed to pay Veloric
the sum of $475,000 at the Effective Time of the Merger.
In addition, Acquiror and Veloric have reached an agreement in principle
pursuant to which Veloric will provide consulting services to Acquiror after the
Effective Time of the Merger. While the definitive form of the consulting
agreement is still being negotiated, it is expected that the term of such
consulting agreement will be for a period of four years. During the first year
of the consulting agreement, it is expected that Acquiror will pay Veloric a
consulting fee of $100,000. After the expiration of the first year of such
consulting agreement any further consulting fees shall be in an amount
determined by Acquiror in its sole discretion. It is also expected that Veloric
will be granted an option to purchase 25,000 Shares of the common stock of
Acquiror at a price equal to the fair market value of Acquiror's common stock at
the Effective Time of the Merger. Veloric will also be provided with an office,
car and health insurance for the entire term of the consulting agreement.
Page 51 of 72
<PAGE>
The Company and Esther Ponnocks, Senior Executive Vice President of the Company
("Ponnocks"), have entered into a Termination Agreement dated as of July 11,
1996, pursuant to which the Company and Ponnocks have agreed that, at the
Effective Time that certain Employment Agreement dated as of June 1, 1992 (the
"Ponnocks Employment Agreement") will terminate. The Ponnocks Employment
Agreement provides for annual base compensation of $200,000 per year and a term
of three years, with annual extensions through not later than May 31, 2002, plus
severance compensation equal to two times her annual base compensation.
In consideration of the termination of the Ponnocks Employment Agreement, the
Company will pay Ponnocks $200,000 at the Effective Time and up to $600,000 to
fund Ponnocks' secured supplemental pension plan provided in the Ponnocks
Employment Agreement, to provide an annuity for Ponnocks' lifetime, commencing
on the first day of the month following the first anniversary of the Effective
Time, in the amount of $75,000 per annum. In addition, the Company will pay to
Ponnocks up to $250,000, representing income taxes to be incurred by Ponnocks in
connection with such funding.
In addition, Acquiror and Ponnocks have reached an agreement in principle
pursuant to which Ponnocks will provide consulting services to Acquiror after
the Effective Time of the Merger. While the definitive form of the consulting
agreement is still being negotiated, it is expected that the term of such
consulting agreement will be for a period of two years. During the first year of
the consulting agreement, it is expected that Acquiror will pay Ponnocks a
consulting fee of $60,000. After the expiration of the first year of such
consulting agreement any further consulting fees shall be in an amount
determined by Acquiror in its sole discretion. Ponnocks will also be provided
with an office, car and health insurance for the term of the consulting
agreement.
In June, 1996, the Company entered into a $2,500,000 loan agreement with FINOVA
Capital principally secured by the durable medial equipment, of one of its
subsidiaries. The loan is repayable over 60 months with interest at prime plus
3% (11.25% as of May 31, 1996).
Page 52 of 72
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None
Part III
Item 10. Directors and Executive Officers of the Registrant
Set forth below is certain information regarding the executive
officers of the Company as of May 31, 1996.
Name Age Position
Daniel Veloric 68 Chairman of the Board, President and
Chief Executive Officer
Esther Ponnocks 64 Senior Executive Vice President
Arthur A. Carr, Jr. 46 Executive Vice President and
Secretary
Michael Veloric 39 Vice President and Assistant Secretary
James J. O'Malley 44 Vice President and Chief Financial Officer
James J. Wankmiller 42 Vice President - Legal & Human Resources
and Assistant Secretary
Francis J. McCauley 51 Vice President
Each executive officer of the Company is elected or appointed by the Board of
the Company and holds office until his or her successor is elected or until the
earlier of his or her death, resignation or removal.
Daniel Veloric (the father of Michael Veloric) is a founder of the Company and
has been a Director and Executive Officer for more than twenty-five years. Mr.
Veloric has been personally named in the class action suit (See Item 3 - "Legal
Proceedings").
Page 53 of 72
<PAGE>
Esther Ponnocks has been Senior Executive Vice President since October 1991,
Executive Vice President - Long Term Care Operations of the Company (April 1990
until October 1991), Senior Vice President - Operations of the Company (1985
until April 1990) and has been a member of the Company's Management for over
twenty-five years. Ms. Ponnocks was elected a Director in 1985.
Arthur A. Carr, Jr. joined the Company in March 1989 as Assistant to the
President and was appointed Executive Vice President in July 1989 and Secretary
in August 1992.
Michael Veloric (the son of Daniel Veloric) has been a Vice President of the
Company since June 1987 and has held the position of Assistant Secretary since
October 1984. Mr. Veloric has been a member of the Company's Management for over
ten years. Mr. Veloric was elected a Director in August 1992.
James J. O'Malley joined the Company in April 1989 as the Chief Financial
Officer of its Life Support Group and has held various positions with the
Company since that time. Mr. O'Malley was appointed Vice President and Chief
Financial Officer in August 1992.
James J. Wankmiller joined the Company in March 1987 and was elected Vice
President of Human Resources in February 1989. He was appointed as Legal
Administrator in May 1991 and promoted to Vice President - Legal & Human
Resources and Assistant Secretary in 1992. Mr. Wankmiller has been personally
named in the class action suit (see Item 3 - "Legal Proceedings").
Francis J. McCauley joined the Company in January 1988 as President of Life
Support Ambulance, Inc. and was appointed as President of Life Support Medical,
Inc. in December 1993. Mr. McCauley was elected as a Vice President in November
1994 and Executive Officer of the Company in November 1995.
Item 11. Executive Compensation
Compensation Committee Interlocks and Insider Participation
No compensation committee interlocks nor insider participation exist on the
Incentive Stock Option and Compensation Committee.
Page 54 of 72
<PAGE>
SUMMARY COMPENSATION TABLE
The Summary Compensation Table includes compensation information on the
Chief Executive Officer and the four most highly paid executive officers of the
Company whose salary and bonus exceeded $100,000, for services rendered in all
capacities during the fiscal years ended May 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
<S> <C> <C> <C> <C>
Name and Fiscal Other Annual
Principal Position Year Salary Bonus Compensation (1)
- ------------------ ---- ------ ----- ----------------
Daniel Veloric 1996 $500,000 $103,000 $ 12,472
Chairman, President and 1995 $450,008 $107,000 $ 11,179
Chief Executive Officer 1994 $450,008 $ - $ 12,359
Esther Ponnocks 1996 $200,000 $ - $ 79,317
Senior Executive 1995 $180,965 $ - $138,817
Vice President 1994 $166,425 $ 20,000 $ 46,902
Arthur A. Carr, Jr. 1996 $184,508 $ - $ 14,617
Executive Vice President 1995 $170,738 $ - $ 14,062
and Secretary 1994 $156,600 $ 17,500 $ 14,519
James J. O'Malley 1996 $136,338 $ - $ 13,237
Vice President and 1995 $131,169 $ - $ 12,962
Chief Financial Officer 1994 $115,050 $ 15,000 $ 12,966
James J. Wankmiller, Esquire 1996 $131,881 $ - $ 8,177
Vice President - Legal and 1995 $121,554 $ - $ 8,252
Assistant Secretary 1994 $110,951 $ 15,000 $ 8,925
LONG-TERM COMPENSATION AWARDS
-----------------------------
<S> <C> <C> <C>
Name and Restricted (*) Options All Other
Principal Position Stock Awards (In Shares) Compensation
- ------------------ ------------ ----------- ------------
Daniel Veloric $ - - $ -
Chairman, President and $ - - $16,005(3)
Chief Executive Officer ($115,126)(5) - $14,495(3)
Esther Ponnocks $ - - $24,327(6)
Senior Executive $ - 20,000 -
Vice President ($ 50,437)(5) - $ 9,375(4)
Arthur A. Carr, Jr. $ - - $37,598(6)
Executive Vice President $ - 15,000 $16,999(2)
and Secretary ($ 32,437)(5) - $ 8,100(2)
James J. O'Malley $ - - $22,197(6)
Vice President and $ - 10,000 $12,390(2)
Chief Financial Officer ($ 8,725)(5) - $ 6,000(2)
James J. Wankmiller, Esquire $ - - $22,446(6)
Vice President - Legal and $ - 10,000 $12,040(2)
Assistant Secretary ($ 12,787)(5) 3,906 $ 5,750(2)
</TABLE>
(1) Includes all other compensation reported on IRS Form W-2.
(2) Includes Company contribution relating to the Incentive Deferred
Compensation Plan.
(3) Represents the value of 6,500 phantom Shares issued under his Long Term Care
Incentive Plan for the respective years.
(4) Represents the value of 25,000 unregistered Shares issued on December 16,
1993 in recognition of 25 years of service.
(5) Amount represents the forfeiture as of May 31, 1994 of restricted Shares
previously reported.
(6) Includes Company contribution relating to the Incentive Deferred
Compensation Plan and value of unregistered Shares issued on August 17,
1995 in recognition of performance.
NOTE: During fiscal 1996, no executive officer received personal benefits from
the Company valued at more than 10% of total Annual Compensation or
$50,000, whichever is less.
Page 55 of 72
<PAGE>
Executive Officer Employment Agreements
Effective June 1, 1993, the Company entered into an Employment Agreement with
Daniel Veloric, Chairman, President and Chief Executive Officer of the Company,
which provides for an annual base compensation, which increased from $450,000
per year to $500,000 per year effective June 1, 1995, and an original term of
five years (which, until terminated, extends one additional year each year). The
Agreement also provides for a death benefit of $1,000,000 as well as benefits
under the short term incentive plan and long term incentive plan for Daniel
Veloric.
Effective June 1, 1992, the Company entered into an Employment Agreement with
Esther Ponnocks, Senior Executive Vice President, which provides for an annual
base compensation, which increased from $188,000 per year to $200,000 per year
effective June 1, 1995, and an original term of three years, with annual
extensions through not later than May 31, 2002. If a person acquires more than
20% of the outstanding Shares without the prior approval of the Board, or if the
Company materially breaches the Employment Agreement or under certain other
circumstances, the Company will owe Ms. Ponnocks the remainder of the
compensation due under the agreement through as long as May 31, 2002.
See Item 13 for a description of the Termination Agreements which have been
entered into with respect to each of the Employment Agreements referred to
above.
Compensation Pursuant to Plans
The Company's Profit Sharing Plan was merged into a 401(k) Profit Sharing Plan
effective June 1, 1989. Under the 401(k) Plan, eligible employees may contribute
up to 15% of their total compensation on a tax-deferred basis subject to maximum
annual limitations. Pursuant to the terms of the plan, the Company, may make
matching contributions at a percentage or amount determined at the sole
discretion of the Company. During the fiscal year ended May 31, 1996, no
contribution was made by the Company to the Plan.
The Company's 1989 Stock Option and Restricted Stock Plan ("the 1989 Plan")
provides that incentive and non-qualified stock options may be granted to key
employees of the Company and its subsidiaries. The 1989 plan is administered by
the Compensation Committee which has the discretion to determine those key
employees who will receive options and the amount of options to be granted to
said employees; to determine when options can be granted and the exercise price
of each option, which price cannot, however, be less than the fair market value
of the Common Stock on the date of grant; and to determine when each option can
be exercised and the term (up to ten years) of each option granted. All options
will expire within ten years from the date of
Page 56 of 72
<PAGE>
grant and no options may be granted after November 9, 1999. If an optionee is
terminated other than for wrongful conduct, the optionee may exercise his/her
options within three months (one year for an optionee who ceases to be employed
because of permanent and total disability) provided that his/her right to
exercise said options has vested at the date of termination and provided that
the exercise of the option is within ten years from the date it was granted
(five years for an incentive stock option granted to a 10% Stockholder). If an
optionee dies while in the employ of the Company or within three months (one
year in the case of disability) after the termination of employment, and
provided that his/her options have vested at the time of his/her death and the
exercise of the options are within ten years form the date of grant (five years
for an incentive stock option granted to a 10% Stockholder), then the optionee's
personal representative may exercise said options within one year after the
optionee's death.
In 1992, the Company implemented an Incentive Deferred Compensation Plan for
selected key employees. Under this Plan, the Company makes discretionary awards
to such executives, which amount, if any, can vary annually and by participant,
and is generally expressed as a percentage of salary. The amounts are credited
to a book-entry account established in such participant's name. Such account is
also credited with the equivalent of interest and such interest rate is
determined annually by the Company. Participants become vested in the amounts
credited to the deferred compensation account on a graduated basis. However,
full vesting cannot occur prior to attainment of age 65 while actively employed
by the Company, except upon a change of control of the Company. Upon retirement
at age 65 or later, the vested deferred compensation account is paid out as a 15
year annuity. Participants who terminate employment prior to age 65 will receive
a 10 year annuity at retirement based on the vested account balance. In the
event of the death of a participant while actively employed, the plan provides
to the participant's survivor a continuation of 50% of the final salary for one
year, followed by 25% of final salary until the participant would have attained
age 65, subject to a minimum of 10 years of total payments. All benefits under
the Incentive Deferred Compensation Plan are unfunded, unsecured general
obligations of the Company. The Company has purchased corporate owned life
insurance on the participants estimated to be sufficient to recover the
distribution to be made under this Plan.
Page 57 of 72
<PAGE>
Aggregated Option Exercise in Last Fiscal Year
and Fiscal Year-End Option Values
The following table provides information, with respect to the named executive
officers, concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the fiscal year, May 31, 1996. There
are no outstanding stock appreciation rights.
<TABLE>
<CAPTION>
Value of
Unexercised
Number of Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Year-End Year-End
---------------------------- -----------------------------
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel Veloric - - - - - -
Esther Ponnocks - - 88,438 10,000 $67,232 -
Arthur A. Carr, Jr. - - 30,625 23,125 $ 473 -
James J. O'Malley - - 18,125 5,000 $ 630 -
James J. Wankmiller - - 27,906 5,000 $ 9,506 -
</TABLE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of August 14, 1996, with respect
to the beneficial ownership of Shares by all persons known to the Company to be
the beneficial owner of more than five percent of the Company's outstanding
Shares, by each director of the Company, by each executive officer of the
Company, and by all directors and executive officers as a group. Except as
shown, each person's respective address is 5601 Chestnut Street, Philadelphia,
PA 19139. Unless otherwise indicated, each such person has sole voting and
dispositive power with respect to the Shares listed opposite such person's name.
<TABLE>
<CAPTION>
Name of Number of Shares Approximate Percentage
Beneficial Owner Beneficially Owned of Class
---------------- ------------------ ----------------------
<S> <C> <C>
Daniel Veloric 3,753,178 24.0%
Genesis Health Ventures, Inc. 3,748,178 (1) 23.9%
Thomas J. Gorman 1,068,125 (2) (3) 6.8%
Robert P. Krauss 1,000,000 (3) 6.4%
Esther Ponnocks 152,751 (4) *
Gerald E. Bisbee, Jr. 22,219 (5) *
Anthony C. Salvo 131,464 (6) *
Michael Veloric 99,206 (7) *
Arthur A. Carr, Jr. 75,343 (8) *
James J. Wankmiller 45,925 (9) *
James J. O'Malley 34,396 (10) *
Francis J. McCauley 29,750 (11) *
All Directors and Executive
Officers as a group
(10 persons) 5,415,482 (12) 34.6%
</TABLE>
Page 58 of 72
(1) Shares are subject to the Stockholder Option and Proxy Agreement
granted in connection with Merger Agreement. The address for Genesis
is 148 State Street, Kennett Square, PA 19348.
(2) Includes 16,219 Shares which may be purchased pursuant to options that
are immediately exercisable or will become exercisable within 60 days
under the 1990 Stock Option Plan for Directors. Also includes 3,000
Restricted Shares issued under the 1994 Stock Option and Restricted
Stock Plan for Directors.
(3) Includes 1,000,000 Shares held in Trusts of which Mr. Gorman and Mr.
Krauss are co-Trustees. Mr. Krauss' address is: 1735 Market Street,
Philadelphia, PA 19103.
(4) Includes 88,438 Shares which may be purchased pursuant to options that
are immediately exercisable or will become exercisable within 60 days
under the Company's 1982 and 1989 Stock Option Plans.
(5) Includes 16,219 Shares which may be purchased pursuant to options that
are immediately exercisable or will become exercisable within 60 days
under the 1990 Stock Option Plan for Directors. Also includes 3,000
Restricted Shares issued under the 1994 Stock Option and Restricted
Stock Plan for Directors.
(6) Includes 16,219 Shares which may be purchased pursuant to options that
are immediately exercisable or will become exercisable within 60 days
under the 1990 Stock Option Plan for Directors. Also includes 3,000
Restricted Shares issued under the 1984 Stock Option and Restricted
Stock Plan for Directors.
(7) Includes 10,625 Shares which may be purchased pursuant to options that
are immediately exercisable or will become exercisable within 60 days
under the Company's 1982 and 1989 Stock Option Plans.
(8) Includes 30,625 Shares which may be purchased pursuant to options that
are immediately exercisable or will become exercisable within 60 days
under the Company's 1982 and 1989 Stock Option Plans. Does not include
1000 Shares owned by Mr. Carr's wife, the beneficial ownership of
which he disclaims.
(9) Includes 27,906 Shares which may be purchased pursuant to options that
are immediately exercisable or will become exercisable within 60 days
under the Company's 1982 and 1989 Stock Option Plans.
(10) Includes 18,125 Shares which may be purchased pursuant to options that
are immediately exercisable or will become exercisable within 60 days
under the Company's 1982 and 1989 Stock Option Plans.
Page 59 of 72
<PAGE>
(11) Includes 14,750 Shares which may be purchased pursuant to options that
are immediately exercisable or will become exercisable within 60 days
under the Company's 1982 and 1989 Stock Options Plans.
(12) Includes 239,126 Shares which may be purchased pursuant to options
that are immediately exercisable or will become exercisable within 60
days under the Company's Stock Option Plans. Also includes 1,000,000
Shares held in Trusts as noted in (3) above and includes restricted
Shares issued under the 1994 Stock Option and Restricted Stock Plan
for Directors. Does not include 9,000 restricted Shares which may be
issued before the Special Meeting pursuant to the 1994 Stock Option
and Restricted Stock Plan for Directors.
* Less than one percent
Item 13. Certain Relationships and Related Transactions.
On May 31, 1993 the Company sold its Mt. Laurel, New Jersey facilities to
Tomahawk for $8.5 million, consisting of cash of $2.5 million and a 9% interest
bearing note for $6 million. This note was payable based on a 25 year
amortization, with a balloon payment due June of 2005. Tomahawk prepaid
approximately $1,500,000 from inception through May 31, 1995. As of May 31,
1996, Tomahawk prepaid $3,000,000 and as an inducement received a discount of
$500,000 which has been recorded in the accompanying financial statements. The
Company also restructured this note requiring that the remaining balance of
principal and interest as of May 31, 1996 (totaling $1,622,000) be paid over 35
quarters, commencing September 1, 1996 with interest on the principal due at
6.75%.
The Company provides certain services which are priced at or above projected
cost, and include staffing services, dietary, environmental, financial, and
other services, to Mount Laurel Convalescent Center and Laurelview Manor which
are owned by Tomahawk. The total services rendered during fiscal 1996 and 1995
were $8,179,000 and $7,194,000. At May 31, 1996 and 1995 the Company had a
receivable of $4,732,000 and $3,235,000 due from Tomahawk for these services,
respectively.
During fiscal 1996 and 1995, the Company received additional revenues of
approximately $1,084,000 and $1,000,000 related to its provision of ancillary
services at the Tomahawk facilities. These services, including provision of
ambulance transportation, diagnostics, rehabilitation, pharmacy and medical
supplies are provided at market rates.
Page 60 of 72
<PAGE>
During the fiscal year ended May 31, 1996, the Company leased-back certain
properties previously sold at fair market value to Community Care and
Development Corporation ("CCDC") which is a Pennsylvania non-profit corporation.
The Board of Directors and officers of CCDC include: Daniel Veloric, Esther
Ponnocks, and Michael Veloric, who are also directors and officers of the
Company. No payments were made to Daniel Veloric, Esther Ponnocks or Michael
Veloric in fiscal 1996. The Company paid rent to CCDC of approximately $221,000
for the fiscal year ended May 31, 1996.
Dedicated Staffing Services, Inc. ("DSI"), a Pennsylvania non-profit
corporation, previously provided registered nurses, licensed practical nurses,
nursing assistants and other personnel to the Company on a temporary employment
basis. Certain officers of the Company were members of Dedicated Staffing's
Board of Directors. The Company paid Dedicated Staffing Services, Inc.
approximately $184,000 and $1,659,000 for these services in fiscal 1996 and
1995, respectively.
During fiscal 1996, the Company purchased from DSI certain fixed assets as well
as a list of nursing assistants for approximately $137,000. The Company has
agreed to pay such amount over 30 months, with interest at 9%.
The Company believes its transactions with CCDC and DSI have been on terms at
least as favorable to the Company as those which would have been available in
the general market.
Page 61 of 72
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Exhibits and Financial Statement Schedules.
1. Financial Statements (Covered by Report of
Independent Certified Public Accountants
Auditors' Report
Consolidated Financial Statements
Balance Sheets - May 31, 1996 and 1995
Consolidated Statements of Operations for the Years
Ended May 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the Years
Ended May 31, 1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity
for the Years Ended May 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedule (Covered by Report of
Independent Certified Public Accountants)
II. Valuation and Qualifying Accounts
Schedules other than the schedule listed above have been
omitted because they are not applicable or the required
information is shown in or can be derived from the financial
statements and notes thereto.
Page 62 of 72
<PAGE>
SCHEDULE II
GERIATRIC & MEDICAL COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended May 31, 1996, 1995, and 1994
($'s in thousands)
------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
-----------------------------
Balance at Charged to Charged to Additions Balance at
Beginning Costs and Other (Deductions) End of
Description of Period Expenses Accounts (a) (Describe) Period
<S> <C> <C> <C> <C> <C>
Year ended May 31, 1996:
Allowance for
doubtful accounts $8,708 $ 4,496 $ - $(4,509)(b) $8,695
====== ======= ====== ======= ======
Allowance for third-party
receivables $3,391 $ - $1,198 $ 60(b) $4,649
====== ======= ====== ======= ======
Year ended May 31, 1995:
Allowance for
doubtful accounts $7,751 $ 6,388 $ - $(5,431)(b) $8,708
====== ======= ====== ======= =====
Allowance for third-party
receivables $3,877 $ - $ 694 $(1,180)(b) $3,391
====== ======= ====== ======= ======
Year ended May 31, 1994:
Allowance for
doubtful accounts $7,570 $ 7,102 $ - $(6,921)(b) $7,751
====== ======= ====== ======= ======
Allowance for third-party
receivables $4,090 $ - $1,546 $(1,759)(b) $3,877
====== ======= ====== ======= ======
</TABLE>
(a) Amounts reflected as a reduction of revenues.
(b) Amounts written off, net of recoveries.
Page 63 of 72
<PAGE>
3. Exhibits
3(a). Articles of Incorporation of the Registrant, as amended. -
Incorporated by reference to Exhibit 3(a) to the Registrant's Registration
Statement on Form S-1 (File No. 2-94822) (the "1984 Registration Statement") and
as amended in the Registrant's Current Report on Form 8-K dated December 31,
1992.
3(b). By-Laws of the Registrant, as amended. Incorporated by reference
to Exhibit 3 (b) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended May 31, 1990.
4(b). Loan Agreement, dated as of November 1, 1986 between New Jersey
Economic Development Authority and Geriatric and Medical Services, Inc. relating
to $2,025,000 principal amount New Jersey Economic Development Authority Demand
Revenue Bonds and related Trust Indenture. Incorporated by reference to Exhibit
4(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended
May 31, 1987.
4(c). Amended and Restated Reimbursement Agreement, dated as of
November 1, 1986 by and among Geriatric and Medical Services, Inc., First
Pennsylvania Bank N.A. and Mellon Bank, N.A. Incorporated by reference to
Exhibit 4(c) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended May 31, 1987.
4(d). Loan Agreement, dated as of November 1, 1986 between New Jersey
Economic Development Authority and Geriatric and Medical Services, Inc. relating
to $850,000 principal amount New Jersey Economic Development Authority Demand
Revenue Refunding Bonds and related Trust Indenture. Incorporated by reference
to Exhibit 4(f) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended May 31, 1987.
4(e). Amended and Restated Reimbursement Agreement, dated as of
November 1, 1986 by and among Geriatric and Medical Services, Inc., First
Pennsylvania Bank N.A. and Mellon Bank, N.A. Incorporated by reference to
Exhibit 4(g) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended May 31, 1987.
4(f). Loan Agreement, dated as of May 1, 1990 between New Jersey
Economic Development Authority and Geriatric and Medical Services, Inc. relating
to $5,000,000 and $1,175,000 of Demand Revenue Bonds and Demand Revenue
Refunding Bonds, respectively. Incorporated by reference to Exhibit 4(t) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1990.
10(a). 1982 Incentive Stock Option Plan as amended. Incorporated by
reference to Exhibit 10(a) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended May 31, 1989.
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10(b). 1984 Stock Option Plan Incorporated by reference to Exhibit
10(b) to the 1984 Registration Statement.
10(c). 1990 Stock Option Plan for Directors. Incorporated by reference
to Exhibit 10(c) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended May 31, 1990.
10(d). 1989 Stock Option and Restricted Stock Plan. Incorporated by
reference to Exhibit 4(a) to the Registrant's Registration Statement on Form S-8
(File No. 33-34803).
10(e)(i). Operating Deficits Agreement, dated February 1, 1988 among
the Company and Resource Housing of America, Inc. Incorporated by reference to
exhibit 10(c)(iii) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended February 29, 1988.
10(e)(ii). Revolving Credit and Term Loan Agreement, dated February 1,
1988 by and among the Company and Resource Housing of America, Inc. Incorporated
by reference to exhibit 10(c)(v) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended February 29, 1988.
10(f)(i). $175,000 Purchase Money Note, dated November 30, 1988, given
by RHA/Philadelphia Nursing Homes, Inc. to Geriatric and Medical Services, Inc.
Incorporated by reference to exhibit 10(c) to the Registrant's Current Report on
Form 8-K, dated November 30, 1988.
10(f)(ii). Revolving Credit and Term Loan Agreement, dated as of
November 1, 1988, by and between RHA/Philadelphia Nursing Homes, Inc. and
Geriatric & Medical Centers, Inc. Incorporated by reference to exhibit 10(f) to
the Registrant's Current Report on Form 8-K, dated November 30, 1988.
10(f)(iii). $2,455,000 Promissory Note dated as of November 1, 1988,
given by RHA/Philadelphia Nursing Homes, Inc. to Geriatric & Medical Centers,
Inc. Incorporated by reference to exhibit 10(g) to the Registrant's Current
Report on Form 8-K, dated November 30, 1988.
10(f)(iv). Operating Deficits Agreement, dated as of November 1, 1988,
by and between RHA/Philadelphia Nursing Homes, Inc. and Geriatric & Medical
Centers, Inc. Incorporated by reference to exhibit 10(h) to the Registrant's
Current Report on Form 8-K, dated November 30, 1988.
10(f)(v). Second Mortgage and Security Agreement, dated as of November
30, 1988, between RHA/Philadelphia Nursing Homes, Inc., Geriatric & Medical
Centers, Inc., Geriatric and Medical Services, Inc. and Total Care Development
Corporation Incorporated by reference to exhibit 10(i) to the Registrant's
Current Report on Form 8-K, dated November 30, 1988.
10(f)(vi). Subordination Agreement, dated as of November 1, 1988,
between and among Geriatric & Medical Centers, Inc., Total Care Development
Corporation, Geriatric and Medical Services, Inc. and RHA/Philadelphia Nursing
Homes, Inc. Incorporated by reference to exhibit 10(j) to the Registrant's
Current Report on Form 8-K, dated November 30, 1988.
Page 65 of 72
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10(g)(i). Term Loan Agreement, dated as of August 1, 1989, by and
between RHA/Pennsylvania Nursing Homes, Inc. and Geriatric & Medical Centers,
Inc. Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated August 31, 1989.
10(g)(ii). $724,500 Promissory Note dated as of August 1, 1989 given by
RHA/Pennsylvania Nursing Homes, Inc. to Geriatric & Medical Centers, Inc.
Incorporated by reference to the Registrant's Current Report on Form 8-K, dated
August 31, 1989.
10(g)(iii). Operating Deficits Agreement, dated as of August 1, 1989 by
and between RHA/Pennsylvania Nursing Homes, Inc. and Geriatric & Medical
Centers, Inc. Incorporated by reference to the Registrant's Current Report on
Form 8-K, dated August 31, 1989.
10(g)(iv). Second Mortgage and Security Agreement, dated as of August
31, 1989, by and among RHA/ Pennsylvania Nursing Homes, Inc., Geriatric &
Medical Centers, Inc., GMS Management, Inc., GMC Financial Services, Inc., Total
Care Insurance Corporation, d/b/a Rite Care Resources and Total Care Management
Inc. Incorporated by reference to the Registrant's Current Report on Form 8-K,
dated August 31, 1989.
10(g)(v). Subordination Agreement, dated as of August 1, 1989, between
and among Geriatric & Medical Centers, Inc., GMS Management, Inc., GMC Financial
Services, Inc., Total Care Inn Corporation, d/b/a Rite Care Resources,
RHA/Pennsylvania Nursing Homes, Inc., and RHA/Home Office, Inc. Incorporated by
reference to the Registrant's Current Report on Form 8-K, dated August 31, 1989.
10(h)(i). Operating Deficits Agreement, dated as of October 1, 1988 by
and among Walnut Park Plaza Associates, Villas Realty & Investments, Inc. and
Maryland National Bank, exclusive of exhibits thereto. Incorporated by reference
to Exhibit 10(e)(ii) to the Registrant's report on Form 8 dated September 26,
1989.
10(i)(i). Operating Deficits and Term Loan Agreement, dated as of
September 1, 1990, between AHF/Montgomery, Inc. and Geriatric & Medical Centers,
Inc. Incorporated by reference to Exhibit 10(b) to the Registrant's Current
Report on Form 8-K dated October 26, 1990.
10(i)(ii). Subordination Agreement, dated as of September 1, 1990,
between and among Montgomery County Higher Education and Health Authority (the
"Authority"), Geriatric & Medical Centers, Inc., GMS Management, Inc., GMC
Financial Services, Inc., AHF/Montgomery, Inc., and AHF/Home Office, Inc.
Incorporated by reference to Exhibit 10(c) to the Registrant's Current Report on
Form 8-K dated October 26, 1990.
10(i)(iii). Loan and Security Agreement, dated as of September 1, 1990,
between the Authority, AHF/Montgomery, Inc., and Assignment of the Authority's
Interest to Geriatric & Medical Centers, Inc. as Bondholder. Incorporated by
reference to Exhibit 10(d) to the Registrant's Current Report on Form 8-K dated
October 26, 1990.
Page 66 of 72
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10(j). Management Incentive Bonus Program. Incorporated by reference to
Exhibit 10(i) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended May 31, 1990.
10(l)(i). Supplemental Loan Agreement, dated as of April 15, 1992
between New Jersey Economic Development Authority and Geriatric and Medical
Services, Inc. relating to $2,025,000 and $850,000 of Revenue Bonds and Revenue
Refunding Bonds, respectively. Incorporated by reference to Exhibit 10(l)(i) to
the Registrant's Current Report on Form 8-K dated May 14, 1992.
10(l)(ii). Loan Agreement, dated as of April 23, 1992, by and among
Meditrust Mortgage Investments, Inc. and Geriatric and Medical Services, Inc.,
Crestview Convalescent Home, Inc., Burlington Woods Convalescent Center, Inc.,
Geriatric & Medical Centers, Inc. and Crestview North, Inc. relating to a loan
in the amount of $86,003,000. Incorporated by reference to Exhibit 10(l)(ii) to
the Registrant's Current Report on Form 8-K dated May 14, 1992.
10(l)(iii). Loan Agreement, dated as of April 23, 1992, between
Geriatric and Medical Services, Inc. and Geriatric & Medical Centers, Inc. and
CoreStates Enterprise Fund relating to a loan in the amount of $5,000,000.
Incorporated by reference to Exhibit 10(l)(iv) to the Registrant's Current
Report on Form 8-K dated May 14, 1992.
10(m)(i) Loan Agreement, dated as of May 1, 1992 between New Jersey
Economic Development Authority and Geriatric and Medical Services, Inc. relating
to $6,215,000 of Mortgage Revenue Refunding Bonds.
10(m)(ii) Loan Agreement, dated as of May 1, 1992 between Montgomery
County (Pennsylvania) Industrial Development Authority and Geriatric and Medical
Services, Inc., relating to $2,105,000 of Mortgage Revenue Refunding Bonds.
10(o) Master Trust Indenture, dated May 1, 1992, by and between
Geriatric and Medical Services, Inc. and Fidelity Bank, National Association.
10(p)(i) Loan Agreement, dated as of June 1, 1992 between Chester
County (Pennsylvania) Industrial Development Authority and Geriatric and Medical
Services, Inc., relating to $2,285,000 of Mortgage Revenue Refunding Bonds.
10(p)(ii) Loan Agreement, dated as of June 1, 1992, between Bucks
County (Pennsylvania) Industrial Development Authority and Geriatric and Medical
Services, Inc., relating to $2,370,000 of Mortgage Revenue Refunding Bonds.
10(q) Loan Agreement, dated as of December 1, 1992, between Lancaster
(Pennsylvania) Industrial Development Authority and Geriatric and Medical
Services, Inc., relating to $855,000 of Mortgage Revenue Refunding Bonds and
Loan Agreement, dated as of December 1, 1992, between Montgomery County
(Pennsylvania) Industrial Development Authority and Geriatric and Medical
Services, Inc., relating to $1,195,000 of Mortgage Revenue Refund
Page 67 of 72
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10(r)(i) Assignment Agreement, dated February 26, 1993, by and between
Geriatric & Medical Companies, Inc., and Robert P. Krauss, Esquire, as agent,
regarding the assignment of $1,200,000 Subordinated Revenue Bond
(AHF/Montgomery, Inc., Project) - Series 1990B to agent.
10(r)(ii) Agency Agreement, dated February 26, 1993, by, between and
among the Daniel Veloric Individual Retirement Account, Transcorp, Inc.,
Custodian; Tomahawk Capital Investments, Inc.; and Robert P. Krauss, Esquire, as
agent.
10(s)(i) Agreement of Sale, dated as of May 31, 1993, by and between
Geriatric and Medical Services, Inc., and Tomahawk Capital Investments, Inc.
10(s)(ii) Mortgage Note, dated as of May 31, 1993, given by Tomahawk
Capital Investments, Inc., to Geriatric and Medical Services, Inc.
10(s)(iii) Mortgage and Security Agreement, dated as of May 31, 1993,
by and between Tomahawk Capital Investments, Inc., and Geriatric and Medical
Services, Inc.
10(t) Sale and Subservicing Agreement, dated as of November 4, 1993, by
and among certain subsidiaries of Geriatric & Medical Companies, Inc. as Seller
and Subservicer, NPF-PW, Inc. as Purchaser and National Premier Financial
Services, Inc., as Servicer.
10(u) Sale and Subservicing Agreement, dated as of May 19, 1994, by and
among certain subsidiaries of Geriatric & Medical Companies, Inc. as Seller and
Subservicer, NPF-PW, Inc. as Purchaser and National Premier Financial Services,
Inc., as Servicer.
10(v) Employment Agreement dated March 4, 1993, effective June 1, 1993
by and between Geriatric & Medical Companies, Inc. and Daniel Veloric - Chairman
of the Board, Chief Executive Officer and President.
10(v)(i) Employment Agreement, effective June 1, 1992, by and between
Geriatric & Medical Companies, Inc. and Esther Ponnocks, Senior Executive Vice
President.
10(w) Subordinated debenture, dated as of November 30, 1994, by and
between Tomahawk Securities, Inc. and Geriatric & Medical Companies, Inc. for
$1,000,000.
10(y) Agreements dated as of May 31, 1995 ("effective date"), by and
between Meditrust Mortgage Investments, Inc. and Norristown Nursing and
Rehabilitation Center Associates. L.P. for $6,939,000 in connection with the
financing of a nursing facility located in Norristown, Pennsylvania.
10(y) (1) Promissory Note dated as of the effective date by Norristown
payable to Meditrust;
Page 68 of 72
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10(y) (2) Construction Loan Agreement dated as of the effective date,
by and between Norristown and Meditrust;
10(y) (3) Third Agreement Amending Loan Documents dated as of the
effective date by and between, Geriatric and Medical Services, Inc., et al and
Meditrust;
10(y) (4) Form of Deposit Pledge Agreement dated as of the effective
date by and between Norristown and Meditrust;
10(y) (5) Form of Pledge Agreement dated as of the effective date by
and between Geriatric and Medical Services, Inc., et al and Meditrust;
10(y) (6) Form of Agreement of Leases and Rents as of the effective
date by and between Norristown and Meditrust;
10(y) (7) Form of Environmental Indemnity Agreement dated as of the
effective date by and between Norristown et al and Meditrust;
10(y) (8) Form of Collateral Assignment of Permits, Licenses, Approvals
and Contracts dated as of the effective date by and between Norristown,
Geriatric & Medical Services, Inc. and Meditrust;
10(y) (9) Form of Guaranty dated as of the effective date by and
between Geriatric & Medical Companies, Inc., Geriatric and Medical Services,
Inc. and Meditrust;
10(y) (10) Form of Mortgage and Security Agreement dated as of the
effective date by and between Norristown and Meditrust;
10(y) (11) Form of Affiliated Party Subordination and Cross-Default /
Cross-Collateralization Agreement dated as of the effective date by and between
Norristown et al and Meditrust;
10(y) (12) Form of Collateral Assignment of Design / Build Contract
dated as of the effective date by and between Norristown and Meditrust;
10(y) (13) Form of Collateral Assignment of Management Contract dated
as of the effective date by and between Norristown and Meditrust.
10(z) Interim Funding Agreement and Guaranty, dated as of August 4,
1995, by and between Pennsylvania Blue Shield d/b/a Xact Medicare Services and
Life Support Ambulance, Inc.
10(aa) Agreement and Plan of Merger dated July 11, 1996, by and among
Genesis Health Ventures, Inc., Geriatric & Medical Companies, Inc. and G
Acquisition Corporation.
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10(bb) Termination Agreement dated July 1996 by and between Geriatric &
Medical Companies, Inc. and Daniel Veloric.
10(cc) Termination Agreement dated July 11, 1996 by and between
Geriatric & Medical Companies, Inc. and Esther Ponnocks.
10(dd) Restrictive Covenants Agreement dated July 11, 1996 by and
between Geriatric & Medical Companies, Inc. and Daniel Veloric.
10(ee) First Amended and Restated Sale and Subservicing Agreement,
dated as of May 12, 1994 by and among certain subsidiaries of Geriatric &
Medical Companies, Inc. as Seller and Subservicer, NPF V, Inc. as Purchaser and
National Premier Financial Services, Inc.
10(ff) Consent Order by and between the United States of America and
GMS Management Tucker, Inc., and Tucker House II, Inc. dated March 6, 1996.
22. Subsidiaries of the Registrant.
28(a). Stipulation and Settlement Agreement (City of Philadelphia).
Incorporated by reference to Exhibit 28(a) to the Registrant's Annual Report on
form 10-K for the fiscal year May 31, 1990.
28(b). Stipulation of Settlement in Whole and In Part (Commonwealth of
Pennsylvania - Department of Public Welfare). Incorporated by reference to
Exhibit 28(b) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended May 31, 1990.
(b) Reports on Form 8-K
The Company filed with the Securities and Exchange Commission the
following Current Reports on Form 8-K, dated February 12, 1996, with respect to
Item 5, updating legal proceedings and dated June 28, 1996, with respect to Item
5, reporting on Agreement and Plan of Merger.
Page 70 of 72
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SIGNATURES
Pursuant to requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GERIATRIC & MEDICAL COMPANIES, INC.
(Registrant)
Dated: August 29, 1996 By: /s/James J. O'Malley
--------------------------------
James J. O'Malley
Vice President - Finance
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ Daniel Veloric Chairman of the Board, August 29, 1996
- -------------------------- President and Director
Daniel Veloric (Chief Executive
Officer)
/s/ James J. O'Malley Vice President- August 29, 1996
- -------------------------- Finance and Chief
James J. O'Malley Financial Officer
/s/ Gerald E. Bisbee, Jr. Director August 29, 1996
- --------------------------
Gerald E. Bisbee, Jr.
/s/ Thomas J. Gorman Director August 29, 1996
- --------------------------
Thomas J. Gorman
/s/ Anthony C. Salvo Director August 29, 1996
- --------------------------
Anthony C. Salvo
/s/ Michael Veloric Director August 29, 1996
- --------------------------
Michael Veloric
/s/ Esther Ponnocks Director August 29, 1996
- --------------------------
Esther Ponnocks
/s/ Gregory S. Bronczyk Corporate Controller August 29, 1996
- --------------------------
Gregory S. Bronczyk
Page 71 of 72
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GERIATRIC & MEDICAL COMPANIES, INC.
Annual Report on Form 10-K for Year Ended May 31, 1996
Exhibit Index
10(v)(i) Employment Agreement, effective June 1, 1992, by and between
Geriatric & Medical Companies, Inc. and Esther Ponnocks, Senior Executive Vice
President.
10(aa) Agreement and Plan of Merger dated July 11, 1996, by and among
Genesis Health Ventures, Inc., Geriatric & Medical Companies, Inc. and G
Acquisition Corporation.
10(bb) Termination Agreement dated July 1996 by and between Geriatric &
Medical Companies, Inc. and Daniel Veloric.
10(cc) Termination Agreement dated July 11, 1996 by and between
Geriatric & Medical Companies, Inc. and Esther Ponnocks.
10(dd) Restrictive Covenants Agreement dated July 11, 1996 by and
between Geriatric & Medical Companies, Inc. and Daniel Veloric.
10(ee) First Amended and Restated Sale and Subservicing Agreement,
dated as of May 12, 1994 by and among certain subsidiaries of Geriatric &
Medical Companies, Inc. as Seller and Subservicer, NPF V, Inc. as Purchaser and
National Premier Financial Services, Inc.
10(ff) Consent Order based between the United States of America and GMS
Management Tucker, Inc., and Tucker House II, Inc., dated March 6, 1996.
27 Article 5 FDS - Financial Data Summary for the fiscal year ended May
31, 1996.
Page 72 of 72
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EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as
of this first day of June, 1992, by and between GERIATRIC & MEDICAL CENTERS,
INC., a Delaware Corporation, (hereinafter the "Company") and ESTHER PONNOCKS
(hereinafter "Employee").
BACKGROUND
Company deems it to be in its best interests to secure and retain the
services of Employee and Employee desires to work for Company upon the terms and
under the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and
undertakings contained herein and intending to be legally bound hereby, the
parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs Employee and Employee hereby
accepts such employment, on the terms and under the conditions hereinafter set
forth.
2. TERM. The original term of this Agreement shall begin as of the date
hereof, and shall continue for three years. At the end of each year during the
term hereof, this Agreement shall automatically be extended for an additional
year, until such time as Employee determines not to extend this Agreement or
until this Agreement otherwise terminates in accordance with its terms.
Notwithstanding anything to the contrary in this Agreement, this Agreement shall
terminate on May 31, 2002.
3. DUTIES. Employee is engaged hereunder as Senior Executive Vice
President of Company (the "Position"), and she agrees to perform the duties of
the Position, or such other or further duties and services of a similar nature
as may be reasonably required of her by the Chairman or Board of Directors of
the Company (the "Board"). Employee shall have such power and authority as shall
reasonably be required to enable her to perform her duties hereunder in an
efficient manner; provided that, in exercising such power and authority and
performing such duties, Employee shall at all times be subject to the authority
and control of the Chairman and the Board. Employee shall perform her duties and
services hereunder based at the Company's Philadelphia, Pennsylvania location.
Employee shall devote her
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full business time, attention, energies and best efforts to the performance of
all of the duties required of the Position, and while employed by the Company,
Employee shall not be employed by, or render services for remuneration to, any
for profit person or business other than the Company or an affiliate of the
Company, without the prior express written consent of the Chairman of the
Company, or of a majority of the Board.
4. COMPENSATION. For all services rendered by Employee during the term
of this Agreement, and any renewal hereof, Company agrees to pay Employee a
salary of One Hundred Fifty Thousand Dollars ($150,000) per annum ("Base
Compensation"), which shall be paid in equal installments every two weeks, plus
such additional compensation and bonuses as may be awarded from time to time to
the Employee by the Board or its Compensation Committee.
5. FRINGE BENEFITS AND PENSION PLAN. During the term of this Agreement,
or so long as compensation is required to be paid by Company to Employee
hereunder, Employee shall be entitled to participate in (or to continue her
participation in) all the fringe benefit programs provided for executive
employees of the Company, including, without limitation, all medical,
disability, and life insurance programs and incentive compensation plans now in
existence or hereinafter adopted by the Company; provided, however, that the
Employee shall be entitled to and shall receive the benefits provided for in the
plan described on Schedule "A" attached hereto (the "Retirement Plan"), in lieu
of, and not in addition to, any other retirement program provided for executive
employees of Company.
6. CAR ALLOWANCE. Company agrees to provide Employee with a Company
owned and maintained vehicle substantially similar to the vehicle Company
presently provides to Employee.
7. VACATIONS. Employee shall be entitled each year to vacation time of
four weeks, during which time her Base Compensation shall continue to be paid to
her. Each vacation shall be taken by Employee at such time or times as agreed
upon by Company and Employee.
8. REIMBURSEMENT OF EXPENSES. Company shall reimburse Employee for all
reasonable expenses incurred by Employee in connection with her employment
hereunder in accordance with procedures established by Company, from time to
time.
9. DISABILITY OF EMPLOYEE. If Employee is unable to perform her
services by reason of incapacity, either physical or mental, for a period of
ninety consecutive days, Company shall have the option of reducing, in whole or
in part, the Base
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Compensation or other compensation thereafter payable to Employee pursuant to
this Agreement during the continued period of illness or incapacity, or of
declaring at any time thereafter during the continuation of such disability,
upon thirty days notice, that Employee's employment hereunder is terminated.
In the event this Agreement is terminated due to disability of
Employee, Company shall pay to Employee all sums owed to her as Base
Compensation, and all earned and accrued bonuses which would otherwise be
payable to Employee up to the end of the month in which Employee's employment is
terminated hereunder (the "Disability Payment"). The Disability Payment shall be
made within thirty days of the date of termination. In addition, Company shall
pay Employee, as a further Disability Payment, an amount equal to 50% of her
Base Compensation at the time any such disability commences each year such
disability continues (or having commenced, she does not again become an Employee
of the Company) that she does not receive payments under the Company's
Disability Policy until age 70. Company shall have no obligation to Employee
upon termination due to disability of Employee, except as expressly provided for
in this Paragraph 9.
10. DEATH. If Employee dies during the term of this Agreement,
including any renewals hereof, this Agreement shall terminate immediately and
Company shall pay to Employee's Estate, all sums owed to Employee as Base
Compensation, and all earned and accrued but unpaid bonuses, which would
otherwise be payable to Employee up to the end of the month in which Employee's
death occurs. Company shall have no obligation to Employee upon termination due
to death of Employee, except as expressly provided for in this Paragraph 10.
11. TERMINATION.
11.1. Company may terminate this Agreement only (a) with Cause (as
hereinafter defined); (b) upon the disability of Employee pursuant to Paragraph
9 hereof; or (c) upon the death of Employee pursuant to Paragraph 10 hereof.
Furthermore, this Agreement shall terminate automatically on May 31, 2002. Any
termination pursuant to (a) or (b) of this Paragraph 11.1 must be preceded by
not less than thirty days written notice to Employee.
11.2. Employee may terminate this Agreement by giving written notice to
Company thirty days prior to the expiration of the term of this Agreement or any
extension(s) hereof, or pursuant to the terms of Paragraph 13.2 hereof.
12. EFFECT OF TERMINATION OTHER THAN FOR CAUSE.
Upon termination of Employee's employment by Company for any reason
whatsoever other than for Cause or the death or disability of Employee, Company
shall pay to Employee an
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<PAGE>
amount equal to her then Base Compensation for the balance of the term and a
severance pay (the "Severance Payment") for two years thereafter. The Severance
Payment shall be paid in equal installments every two weeks.
In addition, if such termination occurs at any time within the first
eight years of this Agreement, unless the termination is due to Cause, or the
death or disability of Employee, Employee shall serve as a Consultant to the
Chairman and Board of Directors from the date of such termination until May 31,
2002. The Company shall pay Employee not less than her then Base Compensation
for the first two years of such consulting and 50% of her then Base Compensation
for each year thereafter for such consulting services, which shall be paid in
equal installments every two weeks, except such payment shall not be paid while
Employee is receiving the Severance Payment.
13. EFFECT OF TERMINATION AFTER TRIGGERING EVENT.
13.1 Upon any termination without Cause following a Triggering Event
(or if Employee is deemed to have been so terminated pursuant to Paragraph 13.2
hereof), Company shall immediately fully fund the benefits due Employee pursuant
to the Retirement Plan.
13.2 If, following a Triggering Event, Employee (a) suffers a material
reduction in the duties and responsibilities of her Position, (b) is required to
relocate her principal place of work more than 15 miles from either her
residence or the location where she performs her duties under this Agreement, or
(c) determines in good faith that she is unable to carry out the duties,
responsibilities, authorities or powers attached to her Position as a direct,
indirect or consequential result of the Triggering Event, Employee may terminate
her employment, and such termination shall be and hereby is deemed to be a
termination of Employee by Company without Cause. Employee shall give fifteen
days written notice of her termination of her employment pursuant to this
Paragraph 13.2
14. CAUSE.
14.1. Cause, as the term is used herein, shall include only the
following: engagement by Employee in willful misconduct, fraud, embezzlement,
theft constituting a felony, an act intentionally against the interests of the
Company which causes Company material harm, or a final determination by a court
of competent jurisdiction that Employee has committed a material breach of the
provisions of Paragraph 3 of this Agreement.
4
<PAGE>
14.2. For the purpose of this Agreement, Company's exercise of its
right to terminate Employee shall require a vote of two-thirds of the Board.
14.3. If Employee is terminated hereunder for Cause, Company shall not
be obligated to provide to Employee any compensation or benefits whatsoever,
which Employee might otherwise be entitled to hereunder, except for those under
the Retirement Plan.
15. TRIGGERING EVENTS. Each of the following shall be a Triggering
Event:
15.1 if any person (other than Employee) or any group acquires, offers
to acquire, or, directly or indirectly, causes to be disclosed his or their
intention to acquire, voting power or ownership of 20% or more of the voting
securities of Company, or to acquire equivalent control of Company through any
means, and such acquisition or intention to acquire is not approved by the Board
within 25 days of the time the Board first became or should have become aware of
such acquisition;
15.2 if three or more new directors are elected to the Board and each
of these new directors has not received the affirmative approval of a majority
of the other members of the Board;
15.3 if Company or any successor to Company is involved in a merger,
the result of which is that the shareholders of Company own less than 50% of the
voting securities of the surviving entity;
15.4 if Company sells all or substantially all of its assets;
15.5 if Company is dissolved; or
15.6 if Company materially breaches this Agreement.
16. NON-COMPETITION AND CONFIDENTIALITY. In consideration of the
employment of Employee as herein provided, Employee agrees to execute Company's
Non-Competition and Confidentiality Agreement and any Reaffirmations as from
time-to-time are requested. Employee understands and acknowledges that such
covenants are required for the fair and reasonable protection of Company and
that said covenants shall be construed as an agreement independent of any other
provisions of Employee's employment and that they shall survive termination of
this Agreement.
5
<PAGE>
17. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient, if delivered in person or if delivered by any
nationally recognized overnight delivery service.
18. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of Company and Employee and their respective successors, assigns and
legal representatives; provided, however, that neither party shall have the
right to assign or otherwise transfer (by operation of law or otherwise) its or
her rights or obligations under this Agreement (other than as referred to
herein) except with the prior written consent of the other.
19. GOVERNING LAW. This Agreement shall be deemed to be a contract made
and performed under the laws of the Commonwealth of Pennsylvania, and for all
purposes it shall be construed in accordance with and governed by the laws of
the Commonwealth of Pennsylvania.
20. SPECIFIC PERFORMANCE. The parties to this Agreement, in addition to
all other remedies allowed by law for its enforcement, expressly consent to the
enforcement of this Agreement by specific performance or by injunction in any
court having competent jurisdiction.
21. ENFORCEMENT. If Employee seeks to enforce her rights under this
Agreement, and Employee prevails, Company shall pay all actual attorneys' fees
and attorneys' costs which were reasonably incurred by Employee in enforcing her
rights hereunder.
22. ARBITRATION. In any dispute regarding this Agreement, including its
applicability, and the applicability of this Paragraph 22, Employee may require
Company to submit the dispute to binding arbitration for resolution
("Arbitration"). If Employee requests Arbitration, Employee and Company shall
each choose one arbitrator, and the two arbitrators so chosen shall choose a
third arbitrator. The Arbitration shall be according to the rules of the
American Arbitration Association, and any final decision reached by the
arbitrators shall be final and unappealable. Company agrees to and shall pay all
costs of the Arbitration, including all costs incurred in enforcing Employee's
rights, if any, pursuant to a final decision of the arbitrators. If Company
files an action in any court regarding a matter which the Company was required
to submit to arbitration, or if the Company attempts to or does appeal to any
court any decision of the arbitrators, Company shall pay all costs of such
subsequent action, including those of Employee, regardless of whether or not
Company prevails.
6
<PAGE>
23. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
24. MODIFICATION. This Agreement shall not be and shall not be deemed
or construed to have been modified, amended, rescinded, canceled, or waived in
whole or in part, except by a written instrument signed by the parties hereto.
25. ENTIRE AGREEMENT. This Agreement constitutes and expresses the
entire agreement and understanding between the parties hereto in reference to
all the matters referred to herein, and any previous discussions, promises,
representations, and understanding relative thereto are merged into the terms of
this Agreement and shall have no further force and effect.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the date first set forth above.
GERIATRIC & MEDICAL CENTERS, INC.
By: /s/ Daniel Veloric
-----------------------------
DANIEL VELORIC, Chairman
WITNESS EMPLOYEE
___________________ By: /s/ Esther Ponnocks
-----------------------------
ESTHER PONNOCKS
7
<PAGE>
FIRST AMENDED AND RESTATED
SALE AND SUBSERVICING AGREEMENT
This First Amended and Restated Sale and Subservicing Agreement (the
"Sale and Subservicing Agreement"), dated as of May 12, 1994 by and among those
corporations identified and set forth on Schedule 5 attached hereto, each of
which is incorporated in the state adjacent to its name set forth on Schedule 5
attached hereto, individually and collectively as Seller (individually and
collectively as such, together with its successors and permitted assigns, the
"Seller") and as Subservicer hereunder (as such, together with its successors
and permitted assigns, the "Subservicer"), NPF V, Inc., an Ohio corporation, as
Purchaser (as such, together with its successors and permitted assigns, the
"Purchaser"), and National Premier Financial Services, Inc., an Ohio
corporation, as Servicer (as such, together with its successors and permitted
assigns, the "Servicer").
WITNESSETH:
WHEREAS, the Seller, the Servicer and NPF-PW, Inc., an Ohio
corporation, entered into that certain Sale and Subservicing Agreement dated as
of November 4, 1993 (the "Original Sale and Subservicing Agreement") pursuant to
which the Seller sold and was obligated to sell certain healthcare accounts
receivable to NPF-PW, Inc. among other obligations and pursuant to which the
Servicer provides certain servicing obligations with respect to such healthcare
accounts receivable;
WHEREAS, NPF-PW, Inc., the Purchaser, and the Servicer entered into
that certain Assignment and Assumption Agreement dated as of May 11, 1994 (the
"Assignment Agreement") pursuant to which NPF-PW, Inc. assigned, transferred,
conveyed and set over to the Purchaser all of its right, title and interest in
and to the Original Sale and Subservicing Agreement, all ancillary agreements
executed with respect thereto and all healthcare accounts receivable previously
purchased by NPF-PW, Inc. from the Seller, subject to all the conditions and
terms set forth in the Assignment Agreement, the terms and conditions set forth
in the Original Sale and Subservicing Agreement and all ancillary agreements
executed with respect thereto.
WHEREAS, the Purchaser, as Assignee, the Seller and the Servicer each
now desire to amend the Original Sale and Subservicing Agreement in its entirety
by entering into this Sale and Subservicing Agreement.
NOW THEREFORE, intended to be legally bound, the parties hereby agree as
follows:
Section 1. Recitals. The recitals set forth above are hereby
incorporated herein as terms and provisions of this Sale and
Subservicing Agreement.
Section 2. Statement of Agreement. The parties to this Sale and
Subservicing Agreement, each in consideration of the acts and premises
of the other, agree that the Original Sale and Subservicing Agreement is
hereby amended in its entirety and restated, from and after the date
hereof, to provide as follows:
i
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[ PAGE INTENTIONALLY LEFT BLANK ]
ii
<PAGE>
SALE AND SUBSERVICING AGREEMENT
Dated as of
by and among
THOSE PARTIES LISTED ON SCHEDULE 5 ATTACHED HERETO,
as Seller and as Subservicer,
NPF V, INC.,
as Purchaser,
and
NATIONAL PREMIER FINANCIAL SERVICES, INC.,
as Servicer
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................................
Section 1.1 Certain Defined Terms ........................................................................ 2
Section 1.2 Other Terms .................................................................................. 11
ARTICLE II PURCHASE AND SALE; ESTABLISHMENT OF ACCOUNTS ................................................. 12
Section 2.1 Purchase and Sale ............................................................................ 12
Section 2.2 Conveyance of Receivables .................................................................... 12
Section 2.3 Establishment of Accounts; Conveyance of Interests Therein; Investment ....................... 13
Section 2.4 Grant of Security Interest ................................................................... 14
Section 2.5 Further Action Evidencing Purchases .......................................................... 15
Section 2.6 Eligible Receivables ......................................................................... 15
Section 2.7 Medicare and Medicaid Offsets ................................................................ 15
Section 2.8 Subservicing Reserve ......................................................................... 16
ARTICLE III CONDITIONS OF PURCHASES ...................................................................... 16
Section 3.1 Conditions Precedent to Effectiveness of Agreement ........................................... 16
Section 3.2 Conditions Precedent to All Purchases ........................................................ 18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLER ................................................. 18
Section 4.1 Representations and Warranties as to the Seller .............................................. 18
Section 4.2 Representations and Warranties of the Seller as to Purchased Receivables ..................... 23
Section 4.3 Repurchase Obligations ....................................................................... 25
ARTICLE V GENERAL COVENANTS OF THE SELLER .............................................................. 26
Section 5.1 Affirmative Covenants of the Seller .......................................................... 26
Section 5.2 Reporting Requirements of the Seller ......................................................... 26
Section 5.3 Negative Covenants of the Seller ............................................................. 27
ARTICLE VI ACCOUNTS ADMINISTRATION ...................................................................... 28
Section 6.1 Collection Account ........................................................................... 28
Section 6.2 Determinations of the Servicer ............................................................... 28
Section 6.3 Distributions from Accounts .................................................................. 29
Section 6.4 Allocation of Moneys following Termination Date .............................................. 29
Section 6.5 Accounting ................................................................................... 30
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VII APPOINTMENT OF THE SUBSERVICER AND SUCCESSOR SERVICER ....................................... 30
Section 7.1 Appointment of the Subservicer .............................................................. 30
Section 7.2 Additional Subservicers ..................................................................... 30
Section 7.3 Duties and Responsibilities of the Subservicer .............................................. 31
Section 7.4 Authorization of the Servicer ............................................................... 33
Section 7.5 Subservicing Fee; Subservicing Expenses ..................................................... 34
Section 7.6 Annual Statement as to Compliance ........................................................... 34
Section 7.7 Transfer of Servicing Between Subservicer and Servicer ...................................... 34
Section 7.8 Subservicer Not to Resign ................................................................... 35
Section 7.9 Appointment of the Successor Subservicer .................................................... 35
Section 7.10 Duties of the Subservicer to the Successor Servicer ......................................... 35
Section 7.11 Effect of Termination or Resignation ........................................................ 36
ARTICLE VIII EVENTS OF SELLER DEFAULT .................................................................... 36
Section 8.1 Events of Seller Default .................................................................... 36
ARTICLE IX INDEMNIFICATION ............................................................................. 38
Section 9.1 Indemnities by the Seller ................................................................... 38
ARTICLE X MISCELLANEOUS ............................................................................... 39
Section 10.1 Notices, Etc ................................................................................ 39
Section 10.2 Remedies .................................................................................... 39
Section 10.3 Binding Effect; Assignability ............................................................... 39
Section 10.4 Costs, Expenses and Taxes ................................................................... 40
Section 10.5 No Proceedings .............................................................................. 40
Section 10.6 Amendments; Waivers; Consents ............................................................... 40
Section 10.7 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL................................. 41
Section 10.8 Execution in Counterparts; Severability ..................................................... 42
</TABLE>
SCHEDULE 1 INELIGIBLE MEDICAID STATES
SCHEDULE 2 INELIGIBLE BLUE CROSS/BLUE SHIELD PLANS
SCHEDULE 3 SELLER'S PAYOR AND PROVIDER NUMBERS
SCHEDULE 4 LIST OF NAMES UNDER WHICH SELLER IS DOING BUSINESS AND ADDRESSES
AT WHICH SELLER IS DOING BUSINESS
SCHEDULE 5 LIST OF SELLER NAMES, STATE IN WHICH SELLER IS INCORPORATED AND
STATES IN WHICH SELLER IS QUALIFIED TO DO BUSINESS
SCHEDULE 6 PURCHASE COMMITMENTS
SCHEDULE 7 DATES OF MEDICARE AND MEDICAID COST REPORTS FOR EACH SELLER
SCHEDULE 8 PURCHASE DATES
v
<PAGE>
SCHEDULE 9 DISCLOSURES BY THE SELLER
EXHIBIT A FORM OF NOTICE TO PAYORS
EXHIBIT B FORM OF LOCKBOX ACCOUNT AGREEMENT
EXHIBIT C FORM OF PURCHASE ASSIGNMENT
EXHIBIT D FORM OF OFFICER'S CERTIFICATE FOR THE SELLER
EXHIBIT E FORM OF OPINION OF COUNSEL FOR THE SELLER
EXHIBIT F FORM OF REPURCHASE ASSIGNMENT
EXHIBIT G FORM OF SECTION DETERMINATION OF THE SERVICER
vi
<PAGE>
SALE AND SUBSERVICING AGREEMENT (the "Agreement"), dated as of ,
by and among those corporations identified and set forth on Schedule 5 attached
hereto, each of which is incorporated in the state adjacent to its name set
forth on Schedule 5 attached hereto, as Seller (as such, together with its
successors and permitted assigns, the "Seller") and as Subservicer hereunder (as
such, together with its successors and permitted assigns, the "Subservicer"),
NPF V, INC., an Ohio corporation, as Purchaser (as such, together with its
successors and permitted assigns, the "Purchaser"), and NATIONAL PREMIER
FINANCIAL SERVICES, INC., an Ohio corporation, as Servicer (as such, together
with its successors and permitted assigns, the "Servicer").
WITNESSETH:
WHEREAS, each Seller desires to sell to the Purchaser certain health
care receivables originated by such Seller and, unless otherwise specifically
provided herein to the contrary, each Seller constitutes a separate party to
this Agreement with respect to each Seller's duties, responsibilities,
obligations, representations, warranties and covenants set forth in this
Agreement;
WHEREAS, the Seller desires to sell certain health care receivables
originated by the Seller;
WHEREAS, the Purchaser is a special purpose corporation formed for the
purpose of purchasing certain health care receivables and funding such purchases
with the proceeds from the issuance of promissory notes;
WHEREAS, the Seller and the Purchaser intend that the Purchaser will
purchase certain health care receivables from the Seller from time to time;
WHEREAS, the Purchaser has appointed the Servicer to perform certain
servicing, administrative and collection functions in respect of the receivables
purchased by the Purchaser under this Agreement (the "Purchased Receivables");
WHEREAS, in order to effectuate the purposes of this Agreement, the
Purchaser and the Servicer desire that the Subservicer be appointed to perform
certain servicing, administrative and collection functions in respect of the
Purchased Receivables;
WHEREAS, the Seller has been requested and is willing to act as the
Subservicer;
WHEREAS, the Purchaser intends to assign to an Affiliate all of its
right, title, interest and obligations with respect to this Agreement; and
WHEREAS, each Seller acknowledges and consents to the Purchaser's
anticipated assignment to an Affiliate of all its right, title, interest and
obligations with respect to this Agreement.
NOW, THEREFORE, the parties agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 2.1 Certain Defined Terms.
As used in this Agreement, the following terms shall have the following
meanings:
"Accreditation" means certification by the JCAHO that a facility fully
complies with the standards set by the JCAHO for operation of such facility.
"Additional Subservicer" has the meaning specified in Section 8.2.
"Additional Subservicing Agreement" has the meaning specified in Section
8.2.
"Adverse Claim" means any claim of ownership or any lien, security
interest or other charge or encumbrance, or other type of preferential
arrangement having the effect of a lien or security interest.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person within the meaning of control under Section 15 of the Securities Act
of 1933.
"Base Rate" means, as of any Purchase Date a percentage equal to per
annum.
"Billed Amount" means, with respect to any Receivable the amount billed
to the related Payor with respect thereto prior to the application of any
Contractual Allowance.
"Billing Date" means the date on which the claim with respect to a
Receivable was submitted to the related Payor.
"Blue Cross/Blue Shield Contract" means any and all agreements currently
in force between the Seller and any Blue Cross/Blue Shield plan.
"Business Day" means any day of the year other than a Saturday, Sunday
or any day on which banks are required, or authorized, by law to close in the
State of Ohio or the State of New York.
"CHAMPUS" means the Civilian Health and Medical Program of the Uniformed
Service, a program of medical benefits covering retirees and dependents of a
member or a former member of a uniformed service, provided, financed and
supervised by the United States Department of Defense established by 10 USC
ss.ss. 1071 et seq.
<PAGE>
"CHAMPUS Receivable" means a Receivable payable pursuant to CHAMPUS.
"CHAMPUS Regulations" means collectively, all regulation of the Civilian
Health and Medical Program of the Uniformed Services including (a) all federal
statutes (whether set forth in 10 USC 1071 or elsewhere) affecting CHAMPUS; and
(b) all applicable provisions of all rules, regulations (including 32 CFR 199),
manuals, orders, and administrative, reimbursement and other guidelines of all
Governmental Authorities (including, without limitation, HHS, the Department of
Defense, the Department of Transportation, the Assistant Secretary of Defense
(Health Affairs), and the Office of CHAMPUS, or any Person or entity succeeding
to the functions of any of the foregoing) promulgated pursuant to or in
connection with any of the foregoing (whether or not having the force of law),
in each case as may be amended, supplemented or otherwise modified from time to
time.
"Closing Date" means May 12, 1994.
"Collection Account" means the trust account maintained with the Trustee
described in Section 3.3(c).
"Collections" means, with respect to any Receivable, all cash
collections and other cash proceeds of such Receivable.
"Commercial Lockbox Account" has the meaning specified in Section
3.3(a).
"Concentration Limit" means: the following expressed as a percentage of
the aggregate Net Value of the total outstanding Purchased Receivables:
(a) Receivables payable by Blue Cross and Blue Shield plans- 20%;
(b) Receivables for which any one commercial insurer or HMO/PPO is Payor
during the time such Payor has a long-term rating of A or better but less than
AA from S&P - 8%; and
(c) Receivables payable by all commercial insurance Payors and HMO/PPO
Payors which are unrated or which have a long-term rating of below A from
S&P -1%.
"Contract" means an agreement (or agreements), pursuant to, or under
which, a Payor shall be obligated to pay for services rendered or merchandise
sold to patients of the Seller from time to time.
"Contractual Allowance" means an amount verified by the Servicer in
accordance with historical liquidation experience (actual collections received
on the Billed Amount within 180 days of the Discharge Date) and current
reimbursement schedules by Payor Class by which the amount of charges incurred
are to be adjusted to reflect the entitled reimbursement pursuant to any
contract or other arrangement between a Payor and the Seller.
"Credit Deficiency" has the meaning specified in Section 7.2(d).
<PAGE>
"Current Net Value Amount" has the meaning specified in Section 7.2(c).
"Debt" of any Person means (a) indebtedness of such Person for borrowed
money, (b) obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments, (c) obligations of such Person to pay the deferred
purchase price of property or services, (d) obligations of such Person as lessee
under leases which have been or should be, in accordance with generally accepted
accounting principles, recorded as capital leases, (e) obligations secured by
any lien or other charge upon property or assets owned by such Person, even
though such Person has not assumed or become liable for the payment of such
obligations, (f) obligations of such Person under direct or indirect guaranties
in respect of, and obligations (contingent or otherwise) to purchase or
otherwise acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in clauses
(a) through (e) above, and (g) liabilities in respect of unfunded vested
benefits under plans covered by Title IV of the Employee Retirement Income
Security Act of 1974, as amended.
"Defaulted Receivable" means a Receivable as to which, on any
Determination Date (a) any part of the Net Value thereof remains unpaid for more
than 180 days from the Discharge Date for such Receivable; or (b) the Payor
thereof has taken any action, or suffered any event to occur, of the type
described in Section (); or (c) the Servicer or the Subservicer otherwise deems
any part of the Net Value thereof to be uncollectible.
"Determination Date" means the Business Day preceding the Purchase Date
of each week.
"Discharge Date" means, with respect to any Receivable, the date of
discharge by a Seller of the related patient, in the case of an in-patient and
the date of the provision of services or merchandise to the related patient in
the case of an out-patient, or the date of the provision of laboratory testing
services in the case of an in-patient and an out-patient; provided that in the
case of a Receivable originated by a nursing home, the Discharge Date shall be
the Billing Date for such Receivable.
"Dollar" and "$" means lawful money of the United States of America.
"DRG Code" means the Diagnosis Related Group code assigned by HCFA.
"Eligible Payor" means a Payor which is (a) (i) a commercial insurance
company, organized under the laws of any jurisdiction in the United
States, having its principal office in the United States, (ii) a
Blue Cross/Blue Shield plan other than those listed on Schedule 2,
(iii) during such time as the Seller is the Subservicer hereunder,
(A) Medicare, (B) Medicaid plans other than those administered by
the states listed on Schedule 1, or (C) CHAMPUS or (iv) a HMO or
PPO, organized under the laws of any jurisdiction in the United
States; not an Affiliate of any of the parties hereto;
(c) in receipt of a letter substantially in the form of Exhibit A
hereto; and
<PAGE>
(d) not subject to bankruptcy or insolvency proceedings at the time of
sale of the Receivable to the Purchaser.
"Eligible Receivable" means, at any time, a Receivable as to which the
representations and warranties of Section 5.2 are true and correct in all
respects at the time of Purchase.
"Eligible Receivable Amount" means, with respect to any Eligible
Receivable, an amount equal to its Billed Amount after giving effect to any
Contractual Allowance with respect to such Eligible Receivable.
"Equity Account" means the trust account of the Purchaser maintained
with the Trustee titled "Equity Account".
"Event of Seller Default" has the meaning specified in Section 9.1.
"Governmental Authority" means the United States of America, federal,
any state, local or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions thereof or pertaining thereto.
"Governmental Consents" has the meaning specified in Section 5.1.
"HCFA" means the Health Care Financing Administration, an agency of the
HHS charged with administering and regulating, inter alia, certain aspects of
Medicaid and Medicare.
"Health Facility License" means a license issued by a state health
agency or similar agency or body certifying that the facility has been inspected
and found to comply with applicable laws for operating such a health facility.
"HHS" means the Department of Health and Human Services, an agency of
the Federal Government of the United States.
"HMO" means a health maintenance organization.
"Indemnified Amounts" has the meaning specified in Section 10.1(a).
"Indemnified Party" has the meaning specified in Section 10.1(a).
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"Investment Income" means income on Permitted Investments.
"JCAHO" means the Joint Commission for Accreditation of Health Care
Organizations.
"Lockbox Account" has the meaning specified in Section 3.3(a).
<PAGE>
"Lockbox Account Agreement" means an agreement between the Servicer and
a depository institution satisfactory to the Purchaser with respect to the
Commercial Lockbox Account and among the Seller, the Servicer and a depository
institution satisfactory to the Purchaser with respect to the Medicare Lockbox
Account, in each case (a) providing that all Collections therein shall be
remitted directly by such depository institution to the Collection Account
within one Business Day of receipt and (b) otherwise satisfactory to the
Purchaser.
"Medicaid" means the medical assistance program established by Title XIX
of the Social Security Act (42 USC ss.ss.1396 et seq.) and any statutes
succeeding thereto.
"Medicaid Certification" means certification of a facility by HCFA or a
state agency or entity under contract with HCFA that the facility fully complies
with all the conditions of participation set forth in Medicaid Regulations.
"Medicaid Provider Agreement" means an agreement entered into between a
federal or state agency or other such entity administering the Medicaid program
and a health care facility under which the health care facility agrees to
provide services or merchandise for Medicaid patients in accordance with the
terms of the agreement and Medicaid Regulations.
"Medicaid Receivable" means a Receivable payable pursuant to a Medicaid
Provider Agreement.
"Medicaid Regulations" means, collectively, (a) all federal statutes
(whether set forth in Title XIX of the Social Security Act or elsewhere)
affecting Medicaid; (b) all state statutes and plans for medical assistance
enacted in connection with such statutes and federal rules and regulations
promulgated pursuant to or in connection with such statutes; and (c) all
applicable provisions of all rules, regulations, manuals, orders and
administrative, reimbursement and other guidelines of all Governmental
Authorities (including, without limitation, HHS, HCFA, the office of the
Inspector General for HHS, or any Person succeeding to the functions of any of
the foregoing) promulgated pursuant to or in connection with any of the
foregoing (whether or not having the force of law), in each case as may be
amended, supplemented or otherwise modified from time to time.
"Medicare" means the health insurance program for the aged and disabled
established by Title XVIII of the Social Security Act (42 USC ss.ss. 1395
et seq.) and any statutes succeeding thereto.
"Medicare Certification" means certification of a facility by HCFA or a
state agency or entity under contract with HCFA that the facility fully complies
with all the conditions of participation set forth in Medicare Regulations.
"Medicare Lockbox Account" has the meaning specified in Section 3.3(a).
"Medicare/Medicaid Offset" has the meaning specified in Section 3.7.
<PAGE>
"Medicare/Medicaid Offset Reserve Account" means the trust account
maintained with the Trustee as specified in Section 3.3(b).
"Medicare Provider Agreement" means an agreement entered into between a
state agency or other such entity administering the Medicare program and a
health care facility under which the health care facility agrees to provide
services or merchandise for Medicare patients in accordance with the terms of
the agreement and Medicare Regulations.
"Medicare Receivable" means a Receivable payable pursuant to a Medicare
Provider Agreement.
"Medicare Regulations" means, collectively, (a) all federal statutes
(whether set forth in Title XVIII of the Social Security Act or elsewhere)
affecting Medicare; and (b) all applicable provisions of all rules, regulations,
manuals, orders and administrative, reimbursement and other guidelines of all
Governmental Authorities (including, without limitation, HHS, HCFA, the Office
of the Inspector General for HHS, or any Person succeeding to the functions of
any of the foregoing) promulgated pursuant to or in connection with the
foregoing (whether or not having the force of law), as each may be amended,
supplemented or otherwise modified from time to time.
"Net Subservicing Fee" means, as of any Purchase Date, an amount equal
to the Subservicing Fee minus the Subservicing Reserve for such Purchase Date
(but not less than zero).
"Net Subservicing Reserve" means, as of any Purchase Date, an amount
equal to the Subservicing Reserve minus the Subservicing Fee for such Purchase
Date (but not less than zero).
"Net Value" of any Receivable at any time means an amount (not less than
zero) equal to (a)(i) the Eligible Receivable Amount multiplied by (ii) 0.97;
minus (b) all payments received from the Payor with respect thereto; provided,
that if the Servicer makes a determination that all payments by the Payor with
respect to such Receivable have been made, the Net Value shall be zero, and
provided, further, that for purposes of calculations under , the Net Value of a
Defaulted Receivable shall be zero and no deductions in Net Value will be made
until such time as the Servicer has received Collections with respect to a
Purchased Receivable and processed the related Remittance Advice.
"Officers' Certificate" means a certificate signed by two persons, one
of whom shall (a) hold the office of the Chairman of the Board, President, Vice
President or Treasurer and (b) the second of whom shall hold (i) any of the
offices described in the preceding clause (a) or (ii) the office of Assistant
Treasurer, Secretary or Assistant Secretary.
"Other Sellers" has the meaning specified in Section 3.7.
"Paid Receivable" means, as of any Determination Date, a Purchased
Receivable as to which a payment by the Payor with respect to such Receivable
has been received.
"Paid Receivables Amount" has the meaning specified in Section 7.2(b).
<PAGE>
"Payor" means, with respect to any Receivable, the Person primarily
obligated to make payments in respect thereto.
"Payor Class" means, with respect to any Payor, one of the following:
(a) commercial insurance Payors; (b) Medicare Payors; (c) Medicaid Payors; (d)
Blue Cross/Blue Shield Payors; (e) CHAMPUS Payors; and (f) HMO and PPO Payors.
"Permitted Investments" means (a) U.S. Government Obligations having a
maturity of not more than 180 days from the date of acquisition; (b) marketable
obligations directly and fully guaranteed by the United States having a maturity
of not more than 180 days from the date of acquisition; (c) repurchase
agreements on obligations specified in clause (a) maturing not more than two
months from the date of acquisition thereof, provided that the long-term
unsecured obligations of the party agreeing to repurchase are at the time rated
at least AA by S&P; (d) federal funds, certificates of deposit and time deposits
of any depository institution or trust company incorporated under the laws of
the United States or any state, provided that the long-term unsecured
obligations of the obligor are at the time rated at least AA by S&P or the
short-term unsecured obligations of the obligor are at the time rated at least
A-1+ by S&P; (e) commercial paper of any corporation incorporated under the laws
of the United States or any state thereof which on the date of acquisition is
rated at least A-1+ by S&P and (f) securities of money market funds rated at
least AAm or AAm-G by S&P.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, voluntary association, joint
venture, a government or any agency or political subdivision thereof, or any
other entity of whatever nature.
"PPO" means a preferred provider organization.
"Principal Amortization Event" means an event under any loan agreement
or indenture following which the funding of the Purchaser to be utilized in
purchasing Receivables hereunder may be terminated.
"Prior Net Value Amount" has the meaning specified in Section 7.2(a).
"Program Fee" means, (a) as of the first Purchase Date in any month, an
amount determined by the Servicer, equal to (i) 1/12 of the annualized Base Rate
multiplied by (ii) the aggregate Net Value of all Purchased Receivables
(including those to be purchased on such Purchase Date) other than Defaulted
Receivables; and (b) as of any subsequent Purchase Date in any month, an amount
determined by the Servicer, equal to (i) 7/360 of the annualized Base Rate
multiplied by (ii) any increase in the aggregate Net Value of all Purchased
Receivables (including those to be purchased on such Purchase Date) other than
Defaulted Receivables since such first Purchase Date.
"Purchase" means a purchase by the Purchaser of Eligible Receivables
from the Seller pursuant to Section 3.2.
<PAGE>
"Purchase Account" means the trust account of the Purchaser maintained
with the Trustee titled "NPF V - Purchase Account."
"Purchase Assignment" means the assignment of Purchased Receivables
entered into between the Seller and the Purchaser on any Purchase Date
substantially in the form of Exhibit C.
"Purchase Commitment" means the dollar amount adjacent to each Seller's
name as set forth on Schedule 6 attached hereto.
"Purchase Date" means the Closing Date and thereafter, the day of each
week adjacent to each Seller's name set forth on Schedule 8 attached hereto for
the preceding Business Day if such day is not a Business Day.
"Purchase Notice" means a notice in a form acceptable to the Purchaser,
which enables the Purchaser to identify all Eligible Receivables owned on such
date by the Seller, and the Required Information with respect thereto,
segregated by Payor Class.
"Purchase Price" has the meaning specified in Section 3.2(b).
"Purchased Receivable" means any Receivable which has been purchased by
the Purchaser hereunder, including a Rejected Receivable prior to its
repurchase. Notwithstanding anything to the contrary herein, Purchased
Receivable shall only refer to a Receivable (or part thereof) payable by the
primary Payor thereof.
"Purchaser" means NPF V, Inc., an Ohio corporation, together with its
successors and assigns.
"Receivable" means (a) an account receivable billed to a Payor arising
from the provision of health care services (and any services or sales ancillary
thereto) by the Seller including the right to payment of any interest or finance
charges and other obligations of such Payor with respect thereto;
(b) all security interests or liens and property subject thereto from
time to time purporting to secure payment by the Payor;
(c) all guarantees, indemnities and warranties and proceeds thereof,
proceeds of insurance policies, UCC financing statements and other agreements or
arrangements of whatever character from time to time supporting or securing
payment of such Receivable;
(d) all Collections with respect to any of the foregoing;
(e) all Records with respect to any of the foregoing; and
(f) all proceeds of any of the foregoing.
<PAGE>
"Records" means all Contracts and other documents, books, records and
other information (including, without limitation, computer programs, tapes,
disks, punch cards, data processing software and related property and rights)
prepared and maintained by the Seller or the Subservicer with respect to
Receivables (including Purchased Receivables) and the related Payors.
"Rejected Amount" has the meaning specified in Section 7.2(e).
"Rejected Receivable" has the meaning specified in Section 5.3.
"Related Documents" means each Purchase Assignment, the Lockbox Account
Agreement and all documents required to be delivered thereunder and under this
Agreement.
"Remittance Advice" means, in respect of a Receivable, written
confirmation received by the Servicer from the Subservicer or the related Payor
of the amount paid on a patient specific Receivable.
"Required Information" means, with respect to a Receivable, (a) the
Payor, (b) the DRG Code, if applicable, (c) the Eligible Receivable Amount, (d)
the Billing Date, (e) the patient account number and (f) the Discharge Date, if
applicable.
"S & P" means Standard & Poor's Corporation, and its successors and
assigns.
"Seller" means each of those corporations identified and set forth on
Schedule 5 attached hereto, together with its successors and permitted assigns.
"Seller Credit Reserve Account" means the trust account maintained with
the Trustee as specified in Section 3.3(b).
"Servicer" means National Premier Financial Services, Inc., an Ohio
corporation, or any Person designated as the successor Servicer, and its
successors and assigns, from time to time.
"Servicing Officer" means any officer of the Subservicer involved in, or
responsible for, the administration and servicing of the Purchased Receivables
whose name appears on an Officer's Certificate listing servicing officers
furnished to the Purchaser and the Servicer by the Subservicer, as amended, from
time to time.
"Servicing Records" means all documents, books, records and other
information (including, without limitation, computer programs, tapes, disks,
punch cards, data processing software and related property and rights) prepared
and maintained by the Subservicer or the Servicer with respect to the Purchased
Receivables and the related Payors.
"Specified Credit Reserve Balance" means, as of any Purchase Date, with
respect to the Seller in the Seller Credit Reserve Account an amount equal to
6.5% of the Net Value of Purchased Receivables (including Receivables to be
purchased as of such Purchase Date) other than Defaulted Receivables.
<PAGE>
"Specified Medicare/Medicaid Offset Reserve Balance" means, as of any
Purchase Date, with respect to the Seller in the Medicare/Medicaid Offset
Reserve Account an amount equal to the greater of (a) 0.15% of the Net Value of
Purchased Receivables (including Receivables to be purchased as of such Purchase
Date) other than Defaulted Receivables or (b) 1.5 multiplied by the most recent
year's aggregate audited Medicare and Medicaid cost report liabilities for the
Seller.
"Subservicer" means the Seller, or any Person designated as Subservicer,
from time to time, hereunder.
"Subservicing Fee" has the meaning specified in Section 8.5.
"Subservicing Officer" means any officer of the Subservicer involved in,
or responsible for, the administration and servicing of the Purchased
Receivables whose name appears on an Officer's Certificate listing servicing
officers furnished to the Servicer by the Subservicer, as amended, from time to
time.
"Subservicing Reserve" means, as of any Purchase Date, an amount equal
to 10.35% of the Net Value of Purchased Receivables purchased on such Purchase
Date, deposited, for subservicing expenses, with the Servicer, reimbursable,
from time to time, in whole or in part, to the Seller in its capacity as
Subservicer by payment of the Subservicing Fee.
"Subsidiary" means, as to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Termination Date" means the earlier of (a) May 31, 1997 or (b) the date
of declaration or automatic occurrence of the Termination Date pursuant to
Section 9.1.
"Trustee" means Bankers Trust Company, a national banking association,
or any successor Trustee appointed by the Purchaser.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the state of the location of the Seller's chief executive office.
Section 2.2 Other Terms.
All accounting terms not specifically defined herein shall be construed
in accordance with generally accepted accounting principles. All terms used in
Article 9 of the UCC, and not specifically defined herein, are used herein as
defined in such Article 9.
<PAGE>
ARTICLE I
PURCHASE AND SALE; ESTABLISHMENT OF ACCOUNTS
Section 3.1 Purchase and Sale.
The Seller does hereby agree to sell, transfer, assign, set over and
convey to the Purchaser, without recourse, all right, title and interest of the
Seller in and to the Purchased Receivables sold pursuant to this Agreement and
the Purchaser does hereby agree to purchase Eligible Receivables pursuant to the
terms of this Agreement; provided, that with respect to each Purchased
Receivable which is a Medicare Receivable, a Medicaid Receivable or a CHAMPUS
Receivable, the Seller, as Subservicer hereunder, shall retain all rights of
collection with respect to such Receivable.
Section 3.2 Conveyance of Receivables.
(a) No later than 2:00 p.m. on the fifth Business Day prior to each
Purchase Date, the Seller will deliver, or cause to be delivered, to the
Servicer a Purchase Notice. In the event that the Seller does not provide such
notification, the Purchaser will have no obligation to purchase any Eligible
Receivable on such Purchase Date. Upon receipt of a Purchase Notice, the
Servicer, in its sole discretion, as agent for the Purchaser, shall determine
which, if any, of the Eligible Receivables specified therein the Purchaser shall
purchase. In the event the Servicer determines (the determination of the
Servicer being conclusive in this regard) that any Receivables identified on
such notice are not Eligible Receivables, such Receivables shall not be eligible
for sale on such Purchase Date. On each Purchase Date, following its selection,
if any, of Eligible Receivables, the Servicer will complete, execute and deliver
a Purchase Assignment to the Purchaser and the Seller. The Purchaser and the
Seller shall thereupon execute such Purchase Assignment and deliver executed
copies thereof to each other and to the Servicer. Notwithstanding the foregoing,
the Purchaser shall have no obligation to purchase Receivables from the Seller
to the extent the aggregate Net Value of all Purchased Receivables (other than
Defaulted Receivables) is in excess of the Purchase Commitment.
(b) The Purchase Price with respect to Purchased Receivables purchased
on any Purchase Date shall be an amount (not less than zero) equal to (i) the
aggregate Net Values of such Purchased Receivables; minus (ii) the sum of (A)
the Program Fee as of such Purchase Date; (B) the amount, if any, by which the
amount in the Seller Credit Reserve Account deposited hereunder (net of
withdrawals required hereunder) is less than the Specified Credit Reserve
Balance as of such Purchase Date (which amount will be the full Specified Credit
Reserve Balance on the initial Purchase Date); and (C) the amount, if any, by
which the amount in the Medicare/Medicaid Offset Reserve Account deposited
hereunder (net of withdrawals required hereunder) is less than the Specified
Medicare/Medicaid Offset Reserve Balance as of such Purchase Date (which amount
will be the full Specified Medicare/Medicaid Offset Reserve Balance on the
initial Purchase Date). Following delivery of a duly executed Purchase
Assignment, subject to the satisfaction of the conditions set forth in Section
4.2, the Purchaser shall, by withdrawal from the Purchase Account, (w) pay to
the Seller the Purchase Price for all
<PAGE>
Purchased Receivables purchased on such Purchase Date, (x) deposit the
Program Fee in the Equity Account, (y) make a deposit in the amount set forth in
(B) above, if any, in the Seller Credit Reserve Account, and (z) make a deposit
in the amount set forth in (C) above, if any, in the Medicare/Medicaid Offset
Reserve Account. Payment of such Purchase Price shall be made by the Servicer,
as agent for the Purchaser, causing the Trustee to effect such payment. In the
event the Purchase Price is zero on any Purchase Date, the Purchaser shall only
be required to make deposits specified in (w), (x), (y), and (z) above in an
amount equal to the Net Value of such Purchased Receivables as of such Purchase
Date, with priority being given in the foregoing order. In the event the Net
Value of such Purchased Receivables purchased on that Purchase Date is less than
the Program Fee (including where no Receivables are purchased on the relevant
Purchase Date), to the extent funds deposited hereunder (net of withdrawals
required hereunder) are sufficient, the Servicer shall cause the Trustee to
withdraw the difference from the Seller Credit Reserve Account to the extent of
amounts in excess of the Specified Credit Reserve Balance on such Purchase Date
and deposit it in the Equity Account.
(c) Following payment of the Purchase Price on any Purchase Date,
ownership of each Purchased Receivable will be vested in the Purchaser. The
Seller shall not take any action inconsistent with such ownership and shall not
claim any ownership interest in any Purchased Receivable. The Seller shall
indicate in its Records that ownership of each Purchased Receivable is held by
the Purchaser. In addition, the Seller shall respond to any inquiries with
respect to ownership of a Purchased Receivable by stating that it is no longer
the owner of such Purchased Receivable and that ownership of such Purchased
Receivable is held by the Purchaser. Documents (other than medical records,
which shall be retained by the Seller) relating to the Purchased Receivables
shall be held in trust by the Seller and the Subservicer, for the benefit of the
Purchaser as the owner thereof, and possession of any Required Information or
incident relating to the Purchased Receivables so retained is for the sole
purpose of facilitating the servicing of the Purchased Receivables. Such
retention and possession is at the will of the Purchaser and in a custodial
capacity for the benefit of the Purchaser only. To further evidence such sale,
at the request of the Purchaser, the Seller shall (i) mark conspicuously each
invoice evidencing each Purchased Receivable with a legend, acceptable to the
Purchaser, evidencing that the Purchaser has purchased all right and title
thereto and interest therein as provided in this Agreement; (ii) mark its master
data processing records evidencing such Purchased Receivables with such legend;
and (iii) send notification to Payors as to the transfer of such interest in the
Purchased Receivables.
Section 3.3 Establishment of Accounts; Conveyance of Interests Therein;
Investment.
(a) Lockbox Account. Prior to the execution and delivery of this
Agreement, the Seller shall (i) establish and maintain at the Seller's expense
(A) an account in the name of the Seller with a depository institution
satisfactory to the Purchaser (the "Medicare Lockbox Account") into which all
Collections in respect of Medicaid, Medicare and CHAMPUS Receivables shall be
deposited and (B) an account in the name of the Servicer into which all
Collections from Eligible Payors in respect of other Receivables shall be
deposited (the "Commercial Lockbox Account"; provided that neither the Seller
nor the Servicer shall be permitted to withdraw any amounts from the Commercial
Lockbox Account or change the
<PAGE>
procedures under the Lockbox Account Agreement except in the case of an
assignment by the Purchaser of its interests herein under Section . The Medicare
Lockbox Account and the Commercial Lockbox Account are referred to collectively
in this Agreement as the "Lockbox Account") and (ii) enter into the Lockbox
Account Agreement. The provisions of the Lockbox Account Agreement described in
the definition thereof may not be amended without the consent of the Trustee.
(b) Seller Credit Reserve Account; Medicare/Medicaid Offset Reserve
Account. The Purchaser has established and shall maintain trust accounts with
the corporate trust department of the Trustee titled "NPF V - Seller Credit
Reserve Account" (the "Seller Credit Reserve Account") and "NPF V - Medicare/
Medicaid Offset Reserve Account" (the "Medicare/Medicaid Offset Reserve
Account").
(c) Collection Account. The Purchaser has established and shall maintain
a trust account with the corporate trust department of the Trustee titled "NPF V
- - Collection Account" (the "Collection Account").
(d) The Seller does hereby sell, transfer, assign, set over and convey
to the Purchaser all right, title and interest of the Seller in and to (i) all
amounts deposited, from time to time, in the Seller Credit Reserve Account and
the Medicare/Medicaid Offset Reserve Account and (ii) subject to the provisions
of hereunder, all amounts deposited, from time to time, in the Lockbox Account
and the Collection Account. Any Collections in respect of Purchased Receivables
held by the Seller or the Subservicer pending transfer to the Collection Account
as provided in this Agreement, shall be held by the Seller in trust for the
benefit of the Purchaser until such amounts are deposited into the Collection
Account or the Lockbox Account. In the event Collections in respect of Purchased
Receivables held by the Seller (whether in the Lockbox Account or otherwise)
shall not be remitted to the Collection Account on the day of receipt or the
following Business Day if the day of receipt is not a Business Day in addition
to its other remedies hereunder, the Purchaser shall be entitled to receive a
late charge (which shall be in addition to the Program Fee) equal to 12% per
annum or the maximum rate legally permitted if less than such rate, calculated
as of the first Business Day of such delinquency.
(e) Notwithstanding anything to the contrary herein, the Seller may, but
shall not be obligated to, make a deposit at any time in the Seller Credit
Reserve Account or the Medicare/Medicaid Offset Reserve Account.
Section 3.4 Grant of Security Interest.
It is the intention of the parties hereto that each payment by the
Purchaser to the Seller with respect to Purchased Receivables to be made
hereunder shall constitute part of the purchase and sale of such Purchased
Receivables and not a loan. In the event, however, that a court of competent
jurisdiction were to hold that the transaction evidenced hereby constitutes a
loan and not a purchase and sale, it is the intention of the parties hereto that
this Agreement shall constitute a security agreement under the UCC and any other
applicable law, and that the Seller shall be deemed to have granted to the
Purchaser a first priority perfected security interest in all of the Seller's
right, title and interest in, to and under the Purchased Receivables; all
payments of
<PAGE>
principal of or interest on such Purchased Receivables; all amounts on deposit
from time to time in the Seller Credit Reserve Account, the Medicare/Medicaid
Offset Reserve Account; and all amounts on deposit with respect to Purchased
Receivables from time to time in the Lockbox Account and the Collection
Account, all other rights relating to and payments made in respect of this
Agreement, and all proceeds of any of the foregoing.
Section 3.5 Further Action Evidencing Purchases.
(a) The Seller agrees that, from time to time, at its expense, it will
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary or appropriate, or that the Purchaser may
reasonably request, in order to perfect, protect or more fully evidence the
transfer of ownership of the Purchased Receivables or to enable the Purchaser to
exercise or enforce any of its rights hereunder or under any Purchase
Assignment. Without limiting the generality of the foregoing, the Seller will,
upon the request of the Purchaser, execute and file such financing or
continuation statements, or amendments thereto or assignments thereof, and such
other instruments or notices, as may be necessary or appropriate, or as the
Purchaser may request.
(b) The Seller hereby authorizes the Purchaser to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relating to all or any of the Purchased Receivables and Collections
with respect thereto without the signature of the Seller.
Section 3.6 Eligible Receivables.
All determinations of the Servicer under this Agreement including,
without limitation, whether Receivables are Eligible Receivables and the
Eligible Receivable Amounts, shall be conclusive.
Section 3.7 Medicare and Medicaid Offsets.
The parties acknowledge that the Purchaser and the Servicer have entered
into a series of agreements in substantially the form as this Agreement with
other sellers of Receivables ("Other Sellers") and that the Medicare/Medicaid
Offset Reserve Account has been established to provide liquidity to the
Purchaser with respect to Medicare Receivables and Medicaid Receivables as to
which an offset against payment thereof has occurred due to a Medicare or
Medicaid settlement not made directly by a Seller (a "Medicare/Medicaid
Offset"), whether such Receivables were sold to the Purchaser by the Seller or
by Other Sellers. In the event of a Medicare/Medicaid Offset with respect to a
Receivable purchased by the Purchaser from the Seller or an Other Seller, the
Servicer will cause the Trustee to withdraw the amount of such Medicare/Medicaid
Offset from the Medicare/Medicaid Offset Reserve Account and deposit it in the
Purchase Account. If such Receivable was sold to the Purchaser by the Seller,
the Seller shall repurchase such Medicare Receivable or Medicaid Receivable in
the same manner as set forth in Section 5.3. The amount of the Medicare/Medicaid
Offset shall be deposited by the Seller with the Servicer for deposit in the
Medicare/Medicaid Offset Reserve Account. The remaining amount of the Net Value
of the Receivable shall be deposited by the Seller with the Servicer for
<PAGE>
deposit in the Purchase Account. In the event such Receivable was sold
to the Purchaser by an Other Seller, the Purchaser agrees to enforce the Other
Seller's obligation to repurchase such Receivable under the terms of its
agreement with such Other Seller and to cause the amount of such repurchase by
the Other Seller to be deposited in the Medicare/Medicaid Offset Reserve
Account. The Servicer will maintain a detailed accounting record of all deposits
and withdrawals from the Medicare/Medicaid Offset Reserve Account including
whether a withdrawal was made with respect to a Medicare/Medicaid Offset on a
Receivable sold to the Purchaser by the Seller or an Other Seller. For purposes
of calculating whether the amount in the Medicare/Medicaid Offset Reserve
Account deposited by the Servicer on behalf of the Seller (net of withdrawals
required hereunder with respect to the Seller) is equal to the Specified
Medicare/Medicaid Offset Reserve Balance, only withdrawals with respect to a
Medicare/Medicaid Offset on a Receivable sold to the Purchaser by the Seller
will be deemed to be with respect to the Seller.
Section 3.8 Subservicing Reserve.
On each Purchase Date, the Seller shall deposit with the Servicer an
amount equal to the Subservicing Reserve. The Subservicer acknowledges that such
amount may be offset by the Subservicing Fee pursuant to Section 8.5. Payment of
the Net Subservicing Reserve may be made by application of amounts otherwise
payable to the Seller (including the Purchase Price to the extent allocable to
the Seller).
ARTICLE II
CONDITIONS OF PURCHASES
Section 4.1 Conditions Precedent to Effectiveness of Agreement.
The effectiveness of this Agreement is subject to the condition
precedent that the Purchaser and the Servicer shall have received on or before
the Closing Date the following, in form and substance satisfactory to the
Purchaser and the Servicer:
(a) With respect to the Seller:
(i) the certificate or articles of incorporation of the Seller
certified, as of a date no more than ten days prior to the Closing Date, by
the Secretary of State of its state of incorporation;
(ii) a Good Standing Certificate, dated no more than ten days prior to
the Closing Date, from the respective Secretary of State of its state of
incorporation and each state in which the Seller is required to qualify to
do business;
(iii) a certificate of the Secretary or Assistant Secretary of the
Seller (on which certificate the Servicer and the Purchaser may conclusively
rely until such time as the Servicer shall receive from the Seller a revised
certificate meeting the requirements of this subsection) certifying as of
the Closing Date: (A) the names and true signatures of the
<PAGE>
officers authorized on its behalf to sign this Agreement and the Related
Documents, (B) a copy of the Seller's by-laws or code of regulations, and
(C) a copy of the resolutions of the board of directors of the Seller
approving this Agreement, the Related Documents and the transactions
contemplated thereby;
(iv) an Officer's Certificate in the form of Exhibit D hereto;
(v) certified copies of Requests for Information or Copies (Form UCC-11)
(or a similar search report certified by a party acceptable to the
Purchaser), dated a date no more than ten days prior to the Closing Date
listing all effective financing statements which name the Seller (under its
present name and any previous name) as debtor, together with copies of such
financing statements, and searches of applicable federal and state court and
agency dockets and lien records showing all judgment liens affecting the
Seller or the Eligible Receivables and tax liens; and
(vi) acknowledgment copies of proper financing statements (Form UCC-3),
if any, necessary to release all security interests and other rights of any
Person in Purchased Receivables previously granted by the Seller including,
without limitation, all such releases specified by the Seller prior to the
date hereof;
(b) Consents required by, or of, any Person or Governmental Authority,
if any, to the closing of the transactions contemplated hereby, in form and
substance satisfactory to the Purchaser;
(c) Acknowledgment copies of proper financing statements (Form UCC-1),
duly filed, in respect of Purchased Receivables, naming the Seller as the
assignor and the Purchaser as the assignee or other, similar instruments or
documents, as may be necessary or, in the opinion of the Purchaser or the
Servicer, desirable under the UCC of all appropriate jurisdictions or any
comparable law to perfect the Purchaser's ownership interests in all Purchased
Receivables in which an interest may be assigned hereunder;
(d) Fully executed copies of the Lockbox Account Agreement;
(e) The favorable opinion of counsel to the Seller substantially in the
form attached hereto as Exhibit E;
(f) Such other approvals, opinions, documents and instruments, as the
Purchaser or the Servicer may reasonably request;
(g) The Seller shall have paid such closing costs as have previously
been agreed with the Purchaser; and
(h) The Seller shall have sent each Eligible Payor a notice
substantially in the form of Exhibit A.
<PAGE>
Section 4.2 Conditions Precedent to All Purchases.
Each Purchase (including the initial Purchase) from the Seller by the
Purchaser shall be subject to the further conditions precedent that:
(a) The representations and warranties of the Seller set forth in
Sections 5.1 and 5.2 are true and correct on and as of such date, before and
after giving effect to such Purchase and to the application of the proceeds
therefrom, as though made on and as of such date;
(b) No event has occurred, or would result from such Purchase or from
the application of the proceeds therefrom, which constitutes an Event of Seller
Default or would constitute an Event of Seller Default, but for the requirement
that notice be given or time elapse or both;
(c) The Seller is in compliance with each of its covenants set forth
herein;
(d) The Termination Date shall not have occurred;
(e) Each Receivable submitted by the Seller for purchase is an Eligible
Receivable; and
(f) The Seller shall have taken such other action, including delivery of
approvals, opinions or documents to the Purchaser, as the Purchaser may
reasonably request.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Section 5.1 Representations and Warranties as to the Seller.
The Seller (in its capacities as Seller and Subservicer hereunder)
represents and warrants to the Purchaser and the Servicer, as of the date hereof
and on each subsequent Purchase Date, as follows:
(a) The Seller is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation and is duly qualified
to do business, and is in good standing in each jurisdiction in which the nature
of its business requires it to be so qualified;
(b) The Seller has the power and authority to own and convey all of its
properties and assets and to execute and deliver, this Agreement and the Related
Documents and to perform the transactions contemplated hereby and thereby;
(c) The execution, delivery and performance by the Seller of this
Agreement and the Related Documents, and the transactions contemplated thereby,
(i) have been duly
<PAGE>
authorized by all necessary corporate or other action on the part of the
Seller, (ii) do not contravene or cause the Seller to be in default under (A)
the Seller's certificate or articles of incorporation or by-laws or code of
regulations, (B) any contractual restriction contained in any indenture, loan or
credit agreement, lease, mortgage, security agreement, bond, note, or other
agreement or instrument binding on or affecting the Seller or its property or
(C) any law, rule, regulation, order, writ, judgment, award, injunction, or
decree applicable to, binding on or affecting the Seller or its property and
(iii) do not result in or require the creation of any Adverse Claim upon or with
respect to any of the property of the Seller (other than in favor of the
Purchaser as contemplated hereunder);
(d) This Agreement and the Related Documents have each been duly
executed and delivered on behalf of the Seller and each is the legal, valid and
binding obligation of the Seller enforceable against the Seller in accordance
with its terms;
(e) No consent of, or other action by, and no notice to or filing with,
any Governmental Authority or any other party, is required for the due
execution, delivery and performance by the Seller of this Agreement or any of
the Related Documents or for the perfection of or the exercise by the Purchaser
or the Servicer of any of their rights or remedies thereunder;
(f) Except as disclosed by the Seller on Schedule 9 attached hereto,
there is no pending or threatened action, suit or proceeding, of a material
nature against or affecting the Seller, its officers or directors, or the
property of the Seller, in any court or tribunal, or before any arbitrator of
any kind or before or by any Governmental Authority (i) asserting the invalidity
of this Agreement or any of the Related Documents, (ii) seeking to prevent the
sale and assignment of any Receivable or the consummation of any of the
transactions contemplated thereby, (iii) seeking any determination or ruling
that might materially and adversely affect (A) the performance by the Seller or
the Subservicer of its obligations under this Agreement or any of the Related
Documents, (B) the validity or enforceability of this Agreement or any of the
Related Documents, (C) the Receivables or the Contracts or (D) the federal
income tax attributes of the Purchases, or (iv) asserting a claim for payment of
money in excess of $100,000 (other than such judgments or orders in respect of
which adequate insurance is maintained by the Seller for the payment thereof);
(g) No injunction, bankruptcy petition, writ, restraining order or other
order of any material nature adverse to the Seller or the conduct of its
business or which is inconsistent with the due consummation of the transactions
contemplated by this Agreement has been issued by or filed with a Governmental
Authority;
(h) The Seller has complied in all material respects with all applicable
laws, rules, regulations, and orders with respect to it, its business and
properties and all Receivables and related Contracts (including without
limitation, all applicable environmental, health and safety requirements) and
all restrictions contained in any indenture, loan or credit agreement, mortgage,
security agreement, bond, note, or other agreement or instrument binding on or
affecting the Seller or its property, and has and maintains all permits,
licenses, authorizations, registrations, approvals and consents of Governmental
Authorities, and all certificates of need for the
<PAGE>
construction or expansion of or investment in health care facilities,
all Health Facility Licenses, Accreditations, Medicaid Certifications and
Medicare Certifications necessary for the activities and business of the Seller
and each of its Subsidiaries as currently conducted and as proposed to be
conducted, the ownership, use, operation and maintenance by each of them of its
properties, facilities and assets and the performance by the Seller of this
Agreement and the related Documents (hereinafter referred to collectively as
"Governmental Consents");
(i) Without limiting the generality of the prior representation: (A)
each Health Facility License, Medicaid Certification, Medicare Certification,
Medicaid Provider Agreement, Medicare Provider Agreement and each of the Blue
Cross/Blue Shield Contracts of the Seller and each of its Subsidiaries as
previously delivered to the Purchaser is in full force and effect and has not
subsequently been amended or otherwise modified, rescinded or revoked or
assigned, (B) the Seller and each Subsidiary as previously delivered to the
Purchaser is in compliance with the requirements of Medicaid, Medicare, CHAMPUS
and related programs, and the Blue Cross/Blue Shield Contracts, and (C) no
condition exists or event has occurred which, in itself or with the giving of
notice or lapse of time or both, would result in the suspension, revocation,
impairment, forfeiture, non-renewal of any Governmental Consent applicable to
the Seller or any other health care facility owned or operated by the Seller or
any of its Subsidiaries, or such facility's participation in any Medicaid,
Medicare, CHAMPUS or other similar program, or of any Blue Cross/Blue Shield
Contracts and there is no claim that any such Governmental Consent,
participation or contract is not in full force and effect;
(j) The Seller has filed on a timely basis all tax returns (federal,
state, and local) required to be filed and has paid or made adequate provisions
for the payment of all taxes, assessments, and other governmental charges due
from the Seller;
(k) The primary business of the Seller is the provision of health care
services and/or equipment. The Payors' related provider numbers set forth on
Schedule 3 have been issued to the Seller and Schedule 3 is a true and complete
list of all provider numbers assigned by Payors to the Seller or its
Subsidiaries;
(l) Except as set forth on Schedule 7 hereto, the Medicaid and Medicare
cost reports of each facility and of the home office of the Seller have been
examined and audited by (A) as to Medicaid, the state agency, or other
HCFA-designated agents or agents of such state agency, charged with such
responsibility or (B) as to Medicare, the Medicare intermediary or other
HCFA-designated agents charged with such responsibility;
(m) All information heretofore or hereafter furnished by or on behalf of
the Seller to the Servicer or the Purchaser in connection with this Agreement or
any transaction contemplated hereby is and will be true and complete in all
material respects and does not and will not omit to state a material fact
necessary to make the statements contained therein not misleading;
(n) With respect to the Seller or any of its Subsidiaries, there has
occurred no event which has or is reasonably likely to have a material adverse
effect on the Seller's financial
<PAGE>
condition, business or operations, including its ability to perform its
obligations under this Agreement;
(o) The Seller is solvent and will not become insolvent after giving
effect to the transactions contemplated by this Agreement; the Seller has not
incurred Debts beyond its ability to pay; the Seller, after giving effect to the
transactions contemplated by this Agreement, will have an adequate amount of
capital to conduct its business in the foreseeable future; and the sales of
Purchased Receivables hereunder are made in good faith and without intent to
hinder, delay or defraud present or future creditors of the Seller;
(p) The consolidated balance sheets of Geriatric & Medical Companies,
Inc. and its consolidated Subsidiaries, as at February 28, 1994, and the related
statements of income and shareholders' equity of Geriatric & Medical Companies,
Inc. and its consolidated Subsidiaries for the nine month period then ended,
prepared internally by Geriatric & Medical Companies, Inc., copies of which have
been furnished to the Purchaser and Servicer, fairly present the consolidated
financial condition, business and operations of Geriatric & Medical Companies,
Inc. and its consolidated Subsidiaries as at such date and the consolidated
results of the operations of Geriatric & Medical Companies, Inc. and its
consolidated Subsidiaries for the period ended on such date, all in accordance
with generally accepted accounting principles consistently applied, and since
February 28, 1994 there has been no material adverse change in any such
condition, business or operations;
(q) The Medicare Lockbox Account and the Commercial Lockbox Account are
the only lockbox accounts maintained by the Seller and each Payor of an Eligible
Receivable has been directed upon its receipt of the notice attached as Exhibit
A hereto, which notice was mailed on the Closing Date, and is required to, remit
all payments with respect to such Receivable for deposit in the Commercial
Lockbox Account (other than the Payors of Medicaid, Medicare and CHAMPUS
Receivables which have been directed to remit all payments with respect to such
Receivables for deposit in the Medicare Lockbox Account);
(r) The principal place of business and chief executive office of the
Seller are located at the address of the Seller set forth under its signature
below and there are now no, and during the past four months there have not been,
any other locations where the Seller is located (as that term is used in the
UCC) or keeps Records except as set forth in the designated space beneath its
signature line in this Agreement;
(s) The legal name of the Seller is as set forth at the beginning of
this Agreement and except as set forth in the designated space beneath its
signature line in this Agreement the Seller has not changed its name in the last
six years, and during such period, the Seller did not use, nor does the Seller
now use any tradenames, fictitious names, assumed names or "doing business as"
names;
(t) The Receivables of the Seller have been and will continue to be
adjusted to reflect reimbursement policies of the Payors with respect thereto;
in particular, the Eligible Receivable Amounts of Receivables relating to such
Payors do not and shall not exceed amounts
<PAGE>
the Seller is entitled to receive under any capitation arrangement, fee
schedule, discount formula, cost-based reimbursement, or other adjustment or
limitation to the usual charges of the Seller;
(u) No Payor of an Eligible Receivable being sold on any Purchase Date
has any claim of a material nature against or affecting the Seller or the
property of the Seller;
(v) The Seller has not done and shall not do anything to impede or
interfere with the collection by the Purchaser of the Purchased Receivables and
shall not amend, waive or otherwise permit or agree to any deviation from the
terms or conditions of any Purchased Receivable or any related Contract;
(w) The Seller has made and will continue to make all payments to Payors
necessary to prevent any Payor from offsetting any earlier overpayment to the
Seller against any amounts such Payor owes on a Purchased Receivable;
(x) Each Purchase Notice contains a complete and accurate list of all
Eligible Receivables of the Seller as of its date;
(y) For federal income tax reporting and accounting purposes, the Seller
will treat the sale of each Purchased Receivable pursuant to this Agreement as a
sale of, or absolute assignment of its full right, title and ownership interest
in, such Purchased Receivable to the Purchaser and the Seller has not in any
other manner accounted for or treated the transactions in Purchased Receivables
by the Seller contemplated hereby;
(z) This Agreement and each Purchase Assignment constitutes a valid
transfer, assignment, set-over and conveyance to the Purchaser of all right,
title and interest of the Seller in and to the Purchased Receivables now
existing and hereafter created;
(aa) The Seller has valid business reasons for selling its interests in
the Purchased Receivables rather than obtaining a loan with the Purchased
Receivables as collateral; and
(bb) As of the date first above written, the Seller operates the
facilities included on Schedule 4 hereto. The Seller is not doing business
under any name other than those listed on Schedule 4 hereto. Further, one or
more but no more than those names listed on Schedule 4 hereto are payees on
the checks received from Eligible Payors.
Section 5.2 Representations and Warranties of the Seller as to Purchased
Receivables.
With respect to each Purchased Receivable sold pursuant to this
Agreement (including, without limitation, claims which may be satisfied by
set-off of any amounts due under any Receivable), the Seller represents and
warrants, as of the date hereof and on each subsequent Purchase Date, as
follows:
(a) Such Receivable is the primary liability of an Eligible Payor and is
recognized by the Eligible Payor as its primary liability;
(b) The Required Information contained in the Purchase Notice is true
and correct;
(c) Such Receivable is not a Defaulted Receivable and has not become a
Paid Receivable;
(d) The Seller has submitted all necessary documentation and supplied
all necessary information for payment of such Receivable to the Payor and has
fulfilled all its other obligations, in respect thereof, including verification
of the eligibility of the Receivable for payment by such Payor;
(e) Neither the Receivable nor the related Contract has been satisfied,
subordinated or rescinded, or except as disclosed in writing to the Purchaser,
amended in any manner;
(f) The Net Value of such Receivable is net of any Contractual Allowance
or other modifications and neither the Receivable nor the related Contract has
or will be compromised, adjusted, extended, satisfied, subordinated, rescinded,
set-off or modified by the Seller, and is not nor will be subject to compromise,
adjustment, extension, satisfaction, subordination, rescission, set-off,
counterclaim, defense or modification, whether arising out of transactions
concerning the Contract or otherwise;
(g) Such Receivable is an account receivable created through the
provision of medically necessary services or merchandise supplied by the Seller
in the ordinary course of its business and the sales prices of such services or
merchandise were usual, customary and reasonable in the Seller's community for
such services;
(h) Such Receivable is an "account" within the meaning of the UCC and is
not evidenced by an "instrument" within the meaning of the UCC;
(i) Such Receivable has a Net Value which, when added to the Net Value
of all other Receivables in such Payor Class and which constitute Purchased
Receivables hereunder, does not exceed the Concentration Limit;
(j) Such Receivable (A) has a Purchase Date no later than 150 days from
its Billing Date, and (B) with respect to all Purchases following the initial
Purchase, has a Billing Date no later than 30 days after the Discharge Date of
the patient to whom the health care services giving rise to the Receivable were
rendered;
(k) The related Contract is, and was at the time of the services giving
rise to the Receivable, in full force and effect and constitutes the legal,
valid and binding obligation of the Payor enforceable against such Payor in
accordance with its terms, such Receivable was created in accordance with the
requirements of the Contract and applicable law, including, without limitation,
to the extent the Receivable is subject to limitations imposed by workers'
compensation law or a related Contract and is entitled to be paid pursuant to
the terms of the related Contract, and a copy of any related Contract to which
the Seller is a party has been delivered to the Purchaser, the amount of the
Eligible Receivable does not exceed the limitations so imposed, and
<PAGE>
each Receivable to which the fees are so restricted has been clearly
identified as being subject to such restrictions;
(l) Such Receivable is denominated and payable in Dollars in the United
States;
(m) Such Receivable is owned by the Seller free and clear of any Adverse
Claim, and the Seller has the right to sell, assign and transfer the same and
interests therein as contemplated under this Agreement and, upon such sale, the
Purchaser has acquired a valid ownership interest in such Receivable, free and
clear of any Adverse Claim;
(n) No consent from the Payor or any other Person shall be required to
effect the sale of any Purchased Receivables;
(o) The Payor of such Receivable has not been the Payor of any Defaulted
Receivables in the past 12 months (other than, for the purpose of this clause,
for good faith disputes);
(p) There are no procedures or investigations pending or threatened
before any Governmental Authority (i) asserting the invalidity of such
Receivable or such Contract, (ii) asserting the bankruptcy or insolvency of the
related Payor, (iii) seeking the payment of such Receivable or payment and
performance of such Contract or (iv) seeking any determination or ruling that
might materially and adversely affect the validity or enforceability of such
Receivable or such Contract;
(q) Neither such Receivable nor the related Contract contravenes in any
material respect any laws, rules or regulations applicable thereto (including,
without limitation, laws, rules and regulations relating to usury, consumer
protection, truth in lending, fair credit billing, fair credit reporting, equal
credit opportunity, fair debt collection practices and privacy) and no party to
such related Contract is in violation of any such law, rule or regulation in any
material respect;
(r) Such Receivable complies with such additional criteria and
requirements (other than those relating to the collectibility of such
Receivables) as the Purchaser may from time to time specify to the Seller
following 30 days' notice;
(s) The Eligible Receivable Amount of such Receivable is not in excess
of $150,000; and
(t) The Seller has no knowledge of any fact which should have led it to
expect at the time of sale of such Receivable to the Purchaser that the Net
Value of such Receivable would not be paid in full.
The parties acknowledge that some of the foregoing representations and
warranties may have been made only to the best of the Seller's knowledge.
Nevertheless, notwithstanding the Seller's lack of knowledge with respect to an
inaccuracy of a representation and warranty, the parties
<PAGE>
agree that any such inaccuracy shall be deemed a breach of the applicable
representation or warranty.
Section 5.3 Repurchase Obligations.
Upon discovery by any party hereto of a breach of any representation or
warranty in this which materially and adversely affects the value of a Purchased
Receivable or the interests of the Purchaser therein, the party discovering such
breach shall give prompt written notice to the other parties hereto. Thereafter,
on the next Purchase Date, the Purchase Price for new Purchased Receivables, to
the extent sufficient, shall be offset by the Net Value of such Receivable or
the Seller shall, prior to the succeeding Determination Date, remit to the
Purchaser the Net Value of such Receivable or the Purchaser shall offset the Net
Value of such Receivable from other amounts due to the Seller hereunder. Such
amount shall be deemed to be Collections of such Receivable (each such
Receivable, a "Rejected Receivable") received and shall be deposited in the
Collection Account. It is understood and agreed that the obligation of the
Seller with respect to any Rejected Receivable pursuant to this Section 5.3
shall constitute the sole remedy for the breach of any representation or
warranty in respect of such Receivable; provided, that the foregoing limitation
shall not be construed to limit in any manner the Purchaser's right to (a) in
the event the Seller fails to effect a repurchase as set forth hereinabove
offset against any amounts it owes the Seller under this Agreement (including
any Purchase Price), the Net Value of such Rejected Receivable; or (b) declare
the Termination Date to have occurred or to terminate the responsibilities of
the Servicer hereunder to the extent that such breaches also constitute an Event
of Seller Default. Except as set forth in this Section 5.3, the Seller shall
have no right to repurchase or remit funds with respect to any Purchased
Receivable.
ARTICLE IV
GENERAL COVENANTS OF THE SELLER
Section 6.1 Affirmative Covenants of the Seller.
The Seller shall, unless the Purchaser shall otherwise consent
in writing:
(a) Comply in all material respects with all applicable laws, rules,
regulations and orders with respect to it, its business and properties and all
Receivables, related Contracts and Collections with respect thereto;
(b) Preserve and maintain its corporate existence, rights, franchises
and privileges in the jurisdiction of its incorporation and continue to operate
its business in the manner set forth in Section 5.1(a);
(c) Cause to be delivered to the Purchaser on or before September 30 of
each year beginning with September 30, 1996, (i) an Officer's Certificate of the
Seller in the form of Exhibit D, dated the date of such delivery; and (ii) an
opinion of counsel, in form and substance
<PAGE>
satisfactory to the Purchaser, reaffirming as of the date of its
delivery of the opinion of counsel which the Seller delivered to the Purchaser
and the Servicer on the Closing Date pursuant to Section 4.1(e);
(d) Deposit all Collections received in respect of Purchased Receivables
into the appropriate Lockbox Account within one Business Day of receipt; and
(e) Make all payments to any Payors necessary to prevent the Payor from
offsetting a prior overpayment to the Seller against any amount the Payor owes
on a Purchased Receivable.
Section 6.2 Reporting Requirements of the Seller.
The Seller shall furnish, or cause to be furnished, to the Purchaser:
(a) As soon as available and in any event within 45 days after the end
of each of the first three quarters of its fiscal year a consolidated and
consolidating balance sheet of the Geriatric & Medical Companies, Inc. and its
consolidated Subsidiaries, if any, as of the end of such quarter, for the period
commencing at the end of the previous fiscal year and ending with the end of
such quarter, certified by the chief financial officer or chief accounting
officer of the Geriatric & Medical Companies, Inc.;
(b) As soon as available and in any event within 120 days after the end
of its fiscal year, a copy of the consolidated and consolidating financial
statement of the Geriatric & Medical Companies, Inc. and its consolidated
Subsidiaries, if any, as of the end of such year and the related consolidated
statements of income and retained earnings, and of cash flow, of the Geriatric &
Medical Companies, Inc. and its consolidated Subsidiaries, if any, for such
year, in each case reviewed by a firm of independent public accountants as is
acceptable to the Purchaser and the Servicer;
(c) Promptly after the sending or filing thereof, copies of all reports
which the Seller files with any Governmental Authority as they relate to the
Seller's Receivables or sends to any of its security holders and a copy of the
annual report (if any) of the Seller;
(d) As soon as possible and in any event within five days after the
occurrence of an Event of Seller Default (including without limitation a
material adverse change in the financial condition of the Seller as determined
by the Servicer) or each event which, with the giving of notice or lapse of time
or both, would constitute an Event of Seller Default, the statement of the chief
executive officer of the Seller setting forth complete details of such Event of
Seller Default and the action which the Seller has taken, is taking and proposes
to take with respect thereto; and
(e) Promptly, from time to time, such other information, documents,
records or reports respecting the Receivables or the Contracts or the condition
or operations, financial or otherwise, of the Seller, or the Seller or any of
its Subsidiaries, if any, as the Purchaser may, from time to time, reasonably
request.
<PAGE>
Section 6.3 Negative Covenants of the Seller.
The Seller shall not, without the written consent of the Purchaser and
the Servicer:
(a) Sell, assign (by operation of law or otherwise) or otherwise dispose
of, or create or suffer to exist any Adverse Claim upon or with respect to, any
Receivable or related Contract with respect thereto, or, upon or with respect to
the Lockbox Account, the Seller Credit Reserve Account, the Medicare/Medicaid
Offset Reserve Account, the Collection Account, or any other account in which
any Collections of any Receivable are deposited, or assign any right to receive
income in respect of any Purchased Receivable;
(b) Extend, amend or otherwise modify the terms of any Purchased
Receivable, or amend, modify or waive any term or condition of any Contract
related thereto or in any manner impede or interfere with the collection of such
Purchased Receivable;
(c) Make any material change in the character of its business;
(d) Make any change in its instructions to Payors regarding payments
with respect to Eligible Receivables to be made to the Seller or payments to be
deposited to the Lockbox Account;
(e) To the extent it has a material adverse effect on its business,
merge with or into or consolidate with or into, or convey, transfer, lease or
otherwise dispose of all or substantially all of its assets (whether now owned
or hereafter acquired), or acquire all or substantially all of the assets or
capital stock or other ownership interest of, any Person;
(f) Make any change to (i) the location of its chief executive office or
the location of the office where Records are kept absent 30 days prior written
notice to the Purchaser or (ii) its corporate name or use any tradenames,
fictitious names, assumed names or "doing business as" names absent 30 days
prior written notice to the Purchaser; or
(g) Prepare any financial statements which shall account for the
transactions contemplated hereby in any manner other than as a sale of the
Purchased Receivables by the Seller to the Purchaser, and will not in any other
respect account for or treat the transactions contemplated hereby (including but
not limited to, for accounting, tax and reporting purposes) in any manner other
than as a sale of the Purchased Receivables by the Seller to the Purchaser. It
is understood and agreed that the obligation of the Seller to comply with the
covenants set forth in this Section 6.3 shall be subject to the Seller's
obligation to comply with any order or directive of a Governmental Authority of
competent jurisdiction and that compliance with such order or directive shall
not constitute a breach of such covenant; provided, that the foregoing shall not
be construed to limit in any manner the Purchaser's right to declare the
Termination Date to have occurred to the extent that such noncompliance with
such covenant (whether or not resulting from such an order or directive) shall
constitute, or contribute to the determination of, an Event of Seller Default.
<PAGE>
ARTICLE V
ACCOUNTS ADMINISTRATION
Section 7.1 Collection Account.
The Purchaser and the Servicer acknowledge that certain amounts
deposited in the Collection Account may relate to Receivables other than
Purchased Receivables and that such amounts continue to be owned by the Seller.
All such amounts shall be returned to the Seller in accordance with Section 7.3.
Section 7.2 Determinations of the Servicer.
On each Determination Date, the Servicer will determine:
(a) the Net Value of all Purchased Receivables as of the prior
Determination Date plus the Net Value of all Purchased Receivables purchased on
the prior Purchase Date (the "Prior Net Value Amount");
(b) the amount of Collections on all Purchased Receivables received
since the prior Determination Date (the "Paid Receivables Amount");
(c) the Net Value of all Purchased Receivables as of the current
Determination Date (the "Current Net Value Amount");
(d) an amount equal to (i) the Prior Net Value Amount minus (ii) the
Paid Receivables Amount minus (iii) the Current Net Value Amount (but not less
than zero) (the "Credit Deficiency"); and
(e) the Net Value of Purchased Receivables which became Rejected
Receivables since the prior Determination Date and which have not been
repurchased or offset in the manner set forth in Section 5.3 (the "Rejected
Amount").
The Servicer's determinations of the foregoing amounts shall be conclusive in
the absence of manifest error. The Servicer shall notify the Seller and the
Purchaser of such determinations.
Section 7.3 Distributions from Accounts.
(a) No later than 11:00 a.m. on each Determination Date, following the
determinations set forth in Section 7.2, the Servicer will notify the Trustee of
such determinations and will cause the Trustee to withdraw in the following
priority:
(i) the Paid Receivables Amount from the Collection Account and deposit
such amount in the Purchase Account;
<PAGE>
(ii) the Credit Deficiency, if any, from the Seller Credit Reserve
Account and deposit such amount in the Purchase Account;
(iii) the Rejected Amount, if any, from the Collection Account and
deposit it in the Purchase Account; and
(iv) the remaining amount from the Collection Account and pay such
amount by wire transfer to the Seller.
(b) Until the Termination Date on each Purchase Date following the
Purchase on such date, the Servicer shall cause the Trustee to withdraw (i) all
amounts deposited hereunder (net of withdrawals required hereunder) from the
Seller Credit Reserve Account in excess of the Specified Credit Reserve Balance
and (ii) all amounts deposited hereunder (net of withdrawals required hereunder)
from the Medicare/Medicaid Offset Reserve Account in excess of the Specified
Medicare/Medicaid Offset Reserve Balance and shall pay such amounts by wire
transfer to the Seller.
Section 7.4 Allocation of Moneys following Termination Date.
(a) Following the Termination Date, the Servicer shall cause the Trustee
to the extent funds deposited hereunder (net of withdrawals required hereunder)
are sufficient, to withdraw an amount equal to the Program Fee from the
Medicare/Medicaid Offset Reserve Account on each Purchase Date and deposit it in
the Equity Account.
(b) On the first Determination Date on which the aggregate Net Value of
all Purchased Receivables (other than Defaulted Receivables) (i) is less than
10% of the aggregate Net Value of Purchased Receivables (other than Defaulted
Receivables) on the Termination Date and (ii) is less than the aggregate amounts
deposited hereunder (net of withdrawals required hereunder) and remaining in the
Seller Credit Reserve Account and the Medicare/Medicaid Offset Reserve Account,
the Servicer shall cause the Trustee to withdraw an amount equal to such
aggregate Net Value from such accounts and deposit it in the Purchase Account.
Thereupon the Servicer shall cause the Trustee to disburse all remaining amounts
held in the Collection Account, the Seller Credit Reserve Account and the
Medicare/Medicaid Offset Reserve Account to the Seller and all interests of the
Purchaser in all Purchased Receivables owned by the Purchaser shall be
reconveyed by the Purchaser to the Seller. Following such disbursement and
reconveyance, this Agreement shall be deemed terminated.
Section 7.5 Accounting.
The Servicer shall make all determinations of actual and required
amounts in each of the accounts established pursuant to this Agreement, maintain
detailed accounting records of all deposits and withdrawals for each such
account, including the Seller and the Receivables with respect to which such
deposits and withdrawals were made and notify the Trustee as to such
determinations.
<PAGE>
ARTICLE VI
APPOINTMENT OF THE SUBSERVICER
AND SUCCESSOR SERVICER
Section 8.1 Appointment of the Subservicer.
The Servicer and the Purchaser hereby appoint the Seller to act as
Subservicer hereunder. The Subservicer shall service the Purchased Receivables
and enforce the Purchaser's respective rights and interests in and under each
Purchased Receivable and each related Contract and shall serve in such capacity,
including in the event the Servicer has resigned or been terminated, until the
termination of its responsibilities pursuant to Section 8.9, 8.11 or 9.1. The
Subservicer hereby agrees to perform the duties and obligations with respect
thereto set forth herein. Notwithstanding any term or provision hereof to the
contrary, the Seller, the Subservicer and the Purchaser hereby acknowledge and
agree that the Servicer acts as agent hereunder for the Purchaser and has no
duties or obligations to, will incur no liabilities or obligations to, and does
not act as an agent in any capacity for, the Seller or the Subservicer.
Section 8.2 Additional Subservicers.
The Subservicer may, with the prior consent of the Purchaser and the
Servicer, which consent shall not be unreasonably withheld, subcontract with a
Subservicer (each such servicer, an "Additional Subservicer") for collection,
servicing or administration of the Receivables, provided, that (a) the
Subservicer shall continue to perform its obligations with respect to
collections of Medicaid Receivables, Medicare Receivables and CHAMPUS
Receivables, (b) the Subservicer shall remain liable for the performance of the
duties and obligations of the Additional Subservicer pursuant to the terms
hereof and (c) any subservicing agreement that may be entered into and any other
transactions or services relating to the Purchased Receivables involving an
Additional Subservicer (each such agreement, an "Additional Subservicing
Agreement") shall be deemed to be between the Additional Subservicer and the
Subservicer alone and the Purchaser and Servicer shall not be deemed parties
thereto and shall have no obligations, duties or liabilities with respect to the
Additional Subservicer.
Section 8.3 Duties and Responsibilities of the Subservicer.
(a) The Subservicer shall conduct the servicing, administration and
collection of the Purchased Receivables and shall take, or cause to be taken,
all such actions as may be necessary or advisable to service, administer and
collect each Purchased Receivable, from time to time, all in accordance with
(i) customary and prudent servicing procedures for health care receivables of a
similar type, and (ii) applicable laws, rules and regulations.
(b) The duties of the Subservicer shall include, without limitation:
(i) preparation and submission of claims to, and post-billing liaison
with, Eligible Payors;
<PAGE>
(ii) arranging for the direct remittance of all Collections on Purchased
Receivables to the Commercial Lockbox Account (other than Collections with
respect to Medicaid Receivables, Medicare Receivables and CHAMPUS
Receivables, in respect of which it shall arrange for the direct remittance
of such Collections to the Medicare Lockbox Account);
(iii) remitting any Collections with respect to Medicaid Receivables,
Medicare Receivables and CHAMPUS Receivables it may receive directly for
deposit in the Medicare Lockbox Account and remitting any Collections on
other Purchased Receivables it may receive directly for deposit in the
Commercial Lockbox Account, in each case no later than by the end of the day
of receipt or the following Business Day if the day of receipt is not a
Business Day;
(iv) maintaining all necessary Servicing Records with respect to the
Purchased Receivables and promptly delivering such reports to the Purchaser
or the Servicer in respect of the servicing of the Purchased Receivables
(including information relating to its performance under this Agreement) as
may be required hereunder or as the Purchaser or the Servicer may reasonably
request;
(v) maintaining and implementing administrative and operating procedures
(including, without limitation, an ability to recreate Servicing Records
evidencing the Purchased Receivables in the event of the destruction of the
originals thereof) and keeping and maintaining all documents, books, records
and other information reasonably necessary or advisable for the collection
of the Purchased Receivables (including, without limitation, records
adequate to permit the identification of each new Purchased Receivable and
all Collections of and adjustments to each existing Purchased Receivable);
(vi) identifying each Purchased Receivable clearly and unambiguously in
its Servicing Records to reflect that such Purchased Receivable is owned by
the Purchaser;
(vii) complying in all material respects with all applicable laws,
rules, regulations and orders with respect to it, its business and
properties and all Purchased Receivables and related Contracts and
Collections with respect thereto;
(viii) preserving and maintaining its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation, and
qualifying and remaining qualified in good standing as a foreign corporation
and qualifying to and remaining authorized to perform obligations as
Subservicer (including enforcement of collection of Purchased Receivables on
behalf of the Purchaser) in each jurisdiction where the failure to preserve
and maintain such existence, rights, franchises, privileges and
qualification would materially adversely affect (A) the rights or interests
of the Purchaser in the Purchased Receivables, (B) the collectibility of any
Purchased Receivable or (C) the ability of the Subservicer to perform its
obligations hereunder or under the Contracts;
(ix) any time and from time to time at reasonable intervals upon notice
to the Subservicer and during regular business hours, permitting the
Purchaser, the Servicer or
<PAGE>
any of their agents or representatives, (A) to examine and make copies of
and abstracts from all Servicing Records, and (B) to visit the offices and
properties of the Subservicer for the purpose of examining such Servicing
Records, and to discuss matters relating to the Receivables or the
Subservicer's performance under this Agreement with any officer or employee
of the Subservicer having knowledge of such matters;
(x) at the request of the Servicer, maintaining at its own expense, a
blanket fidelity bond with broad coverage, with responsible companies
acceptable to the Servicer, on all officers, employees or other persons
acting on behalf of the Subservicer in any capacity with regard to the
Purchased Receivables, including those handling funds, money, documents and
papers relating to the Purchased Receivables. Any such fidelity bond shall
protect and insure the Subservicer (and through the Subservicer, the
Servicer and the Purchaser) against losses commonly protected against by
bonds of a similar type, including forgery, theft, embezzlement, fraud, and
negligent acts of such persons and shall be maintained at a level acceptable
to the Servicer. No provision of this Section requiring such fidelity bond
shall diminish or relieve the Subservicer from its duties and obligations as
set forth in this Agreement. Any amounts received under any such bond with
respect to Purchased Receivables shall be deposited by the Subservicer in
the Collection Account and treated in the same manner as Collections with
respect to such Purchased Receivables. Upon request of the Purchaser or the
Servicer, the Subservicer shall cause to be delivered to the Purchaser and
the Servicer a certification evidencing coverage under such fidelity bond.
Promptly upon receipt of any notice from the surety or the insurer that such
fidelity bond has been terminated or modified in a materially adverse
manner, the Subservicer shall notify the Servicer of any such termination or
modification;
(xi) notifying the Purchaser and the Servicer of any action, suit,
proceeding, dispute, offset, deduction, defense or counterclaim that is or
may be asserted by a Payor with respect to any Purchased Receivable; and
(xii) providing the Purchaser and the Servicer with a report on each
Determination Date in the form of Exhibit G.
(c) Notwithstanding anything herein to the contrary, all collection
functions in respect of Medicaid Receivables, Medicare Receivables and CHAMPUS
Receivables shall be performed in accordance with Medicaid Regulations, Medicare
Regulations and CHAMPUS Regulations.
(d) The Purchaser shall not have any obligation or liability with
respect to any Purchased Receivables or related Contracts, nor shall it be
obligated to perform any of the obligations of the Subservicer hereunder.
Section 8.4 Authorization of the Servicer.
The Seller hereby authorizes the Servicer (including any successors
thereto) to take any and all reasonable steps in its name and on its behalf
necessary or desirable and not inconsistent with the sale of the Purchased
Receivables to the Purchaser, in the determination of
<PAGE>
the Servicer as the case may be, to collect all amounts due under any and all
Purchased Receivables and process all Collections and related Remittance
Advices within five Business Days of receipt thereof. Further, the Servicer is
authorized, to the extent permitted under and in compliance with applicable law
and regulations, to commence proceedings with respect to enforcing payment of
such Purchased Receivables and the related Contracts, and adjusting, settling or
compromising the account or payment thereof, to the same extent as the Seller
could have done if it had continued to own such Receivable. The Seller shall
furnish the Servicer (and any successors thereto) with any powers of attorney
and other documents necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties hereunder, and shall cooperate with the
Servicer to the fullest extent in order to ensure the collectibility of the
Purchased Receivables. Notwithstanding anything to the contrary contained
herein, the Servicer shall have the absolute and unlimited right to direct the
Subservicer to commence or settle any legal action to enforce collection of any
Purchased Receivable or to foreclose upon, repossess or take any other action
which the Servicer deems necessary or advisable with respect thereto. In no
event shall the Subservicer be entitled to make the Purchaser or the Servicer a
party to any litigation without such party's express prior written consent.
Section 8.5 Subservicing Fee; Subservicing Expenses.
On each Purchase Date, the Subservicer shall be paid a subservicing fee
by the Servicer for its performance as Subservicer hereunder (the "Subservicing
Fee") from the Servicer's own funds in an amount equal to 6.5% of the
Collections, if any, with respect to Purchased Receivables that were received by
the Servicer during the period from the prior Determination Date to such
Determination Date; provided that, if the Seller ceases to be Subservicer
hereunder, the Servicer's obligation to pay the Subservicing Fee shall
terminate. The Servicer shall offset the Subservicing Fee from the Subservicing
Reserve to be deposited with the Servicer on such Purchase Date. In the event
the Subservicing Fee is greater than the Subservicing Reserve to be deposited on
such Purchase Date, the Servicer shall pay to the Subservicer an amount equal to
the Net Subservicing Fee for such Purchase Date. The Subservicer shall be
required to pay for all expenses incurred by the Subservicer in connection with
its activities hereunder (including any payments to accountants, counsel or any
other Person) and shall not be entitled to any payment or reimbursement
therefor.
Section 8.6 Annual Statement as to Compliance.
The Subservicer shall deliver to the Purchaser and the Servicer on or
before September 30 of each year beginning with September 30, 1996, an Officer's
Certificate stating, as to each signer thereof, that (a) a review of the
activities of the Subservicer during the preceding calendar year and of
performance under this Agreement has been made under such officer's supervision;
(b) to the best of such officer's knowledge, based on such review, the
Subservicer has fulfilled all its obligations as Subservicer under this
Agreement throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof.
<PAGE>
Section 8.7 Transfer of Servicing Between Subservicer and Servicer.
(a) Upon determination by the Servicer, with respect to any Purchased
Receivable, that payment in full of such Purchased Receivable has not been
received from the Payor within 150 days of the Discharge Date, the Servicer may
and if the aggregate Net Value of such Receivables is greater than 10% of all
outstanding Purchased Receivables, the Servicer shall, immediately give notice
to the Subservicer that the Servicer will assume servicing of such Purchased
Receivables. Thereupon, the Servicer shall assume the servicing responsibilities
of Subservicer in respect of such Purchased Receivables. The Subservicer shall
thereupon provide the Servicer with all information, documents and records
(including original copies of documents), to the extent required by the Servicer
to perform its duties (including such records stored electronically on computer
tapes, magnetic discs and the like as may be reasonably requested by the
Servicer).
(b) Notwithstanding the provisions of the preceding clause (a), the
Subservicer shall maintain ongoing payment records with respect to each
Purchased Receivable serviced by the Servicer.
(c) The Subservicer shall pay all fees and costs of the Servicer in
connection with its duties under this Section 8.7.
Section 8.8 Subservicer Not to Resign.
The Subservicer shall not resign from the obligations and duties hereby
imposed on it except upon determination that (a) the performance of its duties
hereunder has become impermissible under applicable law and (b) there is no
reasonable action which the Subservicer could take to make the performance of
its duties hereunder permissible under applicable law. Any such determination
permitting the resignation of the Subservicer shall be evidenced as to clause
(a) above by an opinion of counsel to such effect delivered to the Purchaser and
the Servicer. No such resignation shall become effective until the Servicer
shall have assumed the responsibilities and obligations of the Subservicer in
accordance with Section 8.9.
Section 8.9 Appointment of the Successor Subservicer.
In connection with the termination of the Subservicer's responsibilities
under this Agreement pursuant to Section 9.1, the Servicer may, in its
discretion, except with respect to Section 9.1 in which case the Servicer shall,
(a) succeed to and assume all of the Subservicer's responsibilities, rights,
duties and obligations as Servicer (but not in any other capacity) under this
Agreement except with respect to Medicaid Receivables, Medicare Receivables and
CHAMPUS Receivables or (b) require the Seller to continue to act as Subservicer
for all of its outstanding Purchased Receivables at the time of the Event of
Seller Default.
Section 8.10 Duties of the Subservicer to the Successor Servicer.
At any time following the succession of the Servicer to the
responsibilities of Subservicer under Section 8.9(a):
<PAGE>
(a) The Subservicer agrees that it will terminate its activities as
Subservicer hereunder, except its collection functions in respect of Medicaid,
Medicare and CHAMPUS Receivables, in a manner acceptable to the Servicer so as
to facilitate the transfer of servicing to the Servicer including, without
limitation, timely delivery (i) to the Servicer of any funds that were required
to be remitted to the Servicer for deposit in the Collection Account, and (ii)
to the Servicer, at a place selected by the Servicer, of all information,
documents and records (including original copies of documents), to the extent
required by the Servicer to perform its duties under the Agreement (including
such records stored electronically on computer tapes, magnetic discs and the
like as may be reasonably requested by the Servicer). The Subservicer shall
account for all funds and shall execute and deliver such instruments and do such
other things as may reasonably be required to more fully and definitely vest and
confirm in the Servicer all rights, powers, duties, responsibilities,
obligations and liabilities of the Subservicer.
(b) The Subservicer shall terminate each Additional Subservicing
Agreement that may have been entered into and the Servicer shall not be deemed
to have assumed any of the Subservicer's interest therein or to have replaced
the Subservicer as a party to any such Additional Subservicing Agreement.
(c) Notwithstanding any termination of the Seller as Subservicer
hereunder, the Seller agrees that it will continue to follow the procedures set
forth in Section 8.3(b)(iii) with respect to Collections on Purchased
Receivables.
Section 8.11 Effect of Termination or Resignation.
Any termination or resignation of the Subservicer under this Agreement
shall not affect any claims that the Purchaser or the Servicer may have against
the Subservicer for events or actions taken or not taken by the Subservicer
arising prior to any such termination or resignation.
ARTICLE VII
EVENTS OF SELLER DEFAULT
Section 9.1 Events of Seller Default.
If any of the following events (each, an "Event of Seller Default")
shall occur and be continuing:
(a) The Seller (either as Seller or Subservicer) shall materially fail
to perform or observe any term, covenant or agreement contained in this
Agreement;
(b) A default shall have occurred and be continuing under any instrument
or agreement evidencing, securing or providing for the issuance of Debt of the
Seller resulting in a demand or call (automatic or otherwise) for the
satisfaction of such Debt;
<PAGE>
(c) The Seller shall generally not pay any of its respective Debts as
such Debts become due, or shall admit in writing its inability to pay its Debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against the Seller seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or any of its Debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property, or any of the actions sought
in such proceeding (including, without limitation, the entry of an order for
relief against, or the appointment of a receiver, trustee, custodian or other
similar official for, it or for any substantial part of its property) shall
occur; or the Seller shall take any corporate action to authorize any of the
actions set forth in this subsection;
(d) Judgments or orders for the payment of money (other than such
judgments or orders in respect of which adequate insurance is maintained for the
payment thereof) in excess of $100,000 in the aggregate against the Seller or
any of its Affiliates shall remain unpaid, unstayed on appeal, undischarged,
unbonded or undismissed for a period of 30 days or more;
(e) There is a material breach of any of the representations and
warranties of the Seller set forth in Sections 5.1 or 5.2 that has remained
uncured for a period of 30 days after delivery of written notice thereof to
Seller;
(f) Any Governmental Authority (including the Internal Revenue Service
or the Pension Benefit Guaranty Corporation) shall file notice of a lien with
regard to any of the assets of the Seller or with regard to the Seller other
than a lien that does not materially adversely affect the financial condition of
the Seller or the Seller's ability to perform as Subservicer and that (1) is
limited by its terms to assets other than Receivables or (2) remains
undischarged for a period of 30 days;
(g) As of the first day of any month, the aggregate Net Value of
Purchased Receivables which became Defaulted Receivables or Rejected Receivables
(other than those with respect to which a withdrawal has previously been made
from the Medicare/Medicaid Offset Reserve Account) during the prior three-month
period shall exceed 8% of the average aggregate Net Values of all Purchased
Receivables then owned by the Purchaser (other than Defaulted Receivables) at
the end of each of such three months;
(h) The Servicer shall have reasonably determined that any event which
materially adversely affects the collectibility of the Receivables has occurred,
or that any other event which materially adversely affects the financial
condition of the Seller, the ability of the Seller to collect Purchased
Receivables in its capacity as Subservicer or the ability of the Seller (either
as Seller or Subservicer) to perform hereunder has occurred;
(i) A deterioration has taken place in the quality of servicing of
Purchased Receivables or other Receivables serviced by the Seller (in its
capacity as Subservicer) which the Servicer, in its sole discretion, determines
to be material;
<PAGE>
(j) This Agreement shall for any reason cease to evidence the transfer
to the Purchaser (or its assignees or transferees) of the legal and equitable
title to, and ownership of, the Purchased Receivables;
(k) The Lockbox Account Agreement shall have been amended or terminated
without the written consent of the Purchaser and the Servicer;
(l) The amount deposited hereunder (net of withdrawals required
hereunder) in the Seller Credit Reserve Account has remained at less than the
Specified Credit Reserve Balance for more than 30 days;
(m) The amount deposited hereunder (net of withdrawals required
hereunder) in the Medicare/Medicaid Offset Reserve Account has remained at less
than the Specified Medicare/Medicaid Offset Reserve Balance for more than 30
days; or
(n) Principal Amortization Event shall have been declared;
then and in any such event, the Servicer shall, by notice to the Seller and the
Purchaser declare that an Event of Seller Default shall have occurred and, the
Termination Date shall forthwith occur, without demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Seller and
the Purchaser shall make no further Purchases from the Seller. Upon any such
declaration or automatic occurrence, the Purchaser and the Servicer shall have,
in addition to all other rights and remedies under this Agreement, all other
rights and remedies provided under the UCC and other applicable law, which
rights shall be cumulative.
ARTICLE VIII
INDEMNIFICATION
Section 10.1 Indemnities by the Seller.
(a) Without limiting any other rights that the Purchaser, the Servicer,
or any director, officer, employee or agent of either such party (each an
"Indemnified Party") may have hereunder or under applicable law, the Seller
hereby agrees to indemnify each Indemnified Party from and against any and all
claims, losses, liabilities, obligations, damages, penalties, actions,
judgments, suits, and related costs and expenses of any nature whatsoever,
including reasonable attorneys' fees and disbursements (all of the foregoing
being collectively referred to as "Indemnified Amounts") which may be imposed
on, incurred by or asserted against an Indemnified Party in any way arising out
of or relating to any breach of the Seller's obligations (including its
obligations as Subservicer) under this Agreement or the ownership of the
Purchased Receivables or in respect of any Receivable or any Contract,
excluding, however, (i) Indemnified Amounts to the extent resulting from gross
negligence or willful misconduct on the part of such Indemnified Party or (ii)
recourse for unpaid Purchased Receivables. Without limiting or being limited by
the foregoing, the Seller shall pay on demand to each Indemnified Party any and
all
<PAGE>
amounts necessary to indemnify such Indemnified Party from and against
any and all Indemnified Amounts relating to or resulting from:
(A) reliance on any representation or warranty made or deemed made by
the Seller (or any of its officers) under or in connection with this
Agreement (except with respect to a Purchased Receivable, as to which the
Purchaser's remedies are set forth in Section 5.3, any report or any other
information delivered by the Seller pursuant hereto, which shall have been
incorrect in any material respect when made or deemed made or delivered;
(B) the failure by the Seller to comply with any term, provision or
covenant contained in this Agreement, or any agreement executed by it in
connection with this Agreement or with any applicable law, rule or
regulation with respect to any Purchased Receivable, the related Contract,
or the nonconformity of any Purchased Receivable or the related Contract
with any such applicable law, rule or regulation; or
(C) the failure to vest and maintain vested in the Purchaser, or to
transfer to the Purchaser, legal and equitable title to and ownership of the
Receivables which are, or are purported to be, Purchased Receivables,
together with all Collections in respect thereof, free and clear of any
Adverse Claim (except as permitted hereunder) whether existing at the time
of the Purchase of such Receivable or at any time thereafter.
(b) Any Indemnified Amounts subject to the indemnification provisions of
this Section shall be paid to the Indemnified Party within five Business Days
following demand therefor, together with interest at the lesser of 12% per annum
or the highest rate permitted by law from the date of demand for such
Indemnified Amount.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices, Etc.
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, shall be in writing and mailed or
telecommunicated, or delivered as to each party hereto, at its address set forth
under its name on the signature pages hereof or at such other address as shall
be designated by such party in a written notice to the other parties hereto. All
such notices and communications shall not be effective until received by the
party to whom such notice or communication is addressed.
Section 11.2 Remedies.
No failure on the part of the Purchaser or the Servicer to exercise, and
no delay in exercising, any right hereunder or under any Purchase Assignment
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or
<PAGE>
further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
Section 11.3 Binding Effect; Assignability.
This Agreement shall be binding upon and inure to the benefit of the
Seller, the Subservicer, the Purchaser, the Servicer and their respective
successors and permitted assigns. Neither the Seller nor the Subservicer may
assign any of their rights and obligations hereunder or any interest herein
without the prior written consent of the Purchaser and the Servicer. The
Purchaser may, at any time, without the consent of the Seller or the
Subservicer, assign any of its rights and obligations hereunder or interest
herein to any Person. Any such assignee may further assign at any time its
rights and obligations hereunder or interests herein without the consent of the
Seller or the Subservicer. Without limiting the generality of the foregoing, the
Seller acknowledges that the Purchaser has assigned its rights hereunder to the
Trustee for the benefit of third parties. This Agreement shall create and
constitute the continuing obligations of the parties hereto in accordance with
its terms, and shall remain in full force and effect until its termination;
provided, that the rights and remedies with respect to any breach of any
representation and warranty made by the Seller or the Servicer pursuant to
Article III and the indemnification and payment provisions of Article VIII shall
be continuing and shall survive any termination of this Agreement.
Section 11.4 Costs, Expenses and Taxes.
(a) In addition to the rights of indemnification under , the Seller
agrees to pay upon demand, all reasonable costs and expenses in connection with
the administration (including periodic auditing, modification and amendment) of
this Agreement, and the other documents to be delivered hereunder, including,
without limitation: (i) the reasonable fees and out-of-pocket expenses of
counsel for the Purchaser or the Servicer with respect to (A) advising the
Purchaser as to its rights and remedies under this Agreement or (B) the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement, the Purchase Assignment or the other documents to be delivered
hereunder; and (ii) any and all stamp, sales, excise and other taxes and fees
payable or determined to be payable in connection with the execution, delivery,
filing or recording of this Agreement, each Purchase Assignment or the other
agreements and documents to be delivered hereunder, and agrees to indemnify and
save each Indemnified Party from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes
and fees.
(b) If the Seller or the Subservicer fails to perform any agreement or
obligation contained herein, the Purchaser may, or may direct the Servicer to,
(but shall not be required to) itself perform, or cause performance of, such
agreement or obligation, and the expenses of the Purchaser or the Servicer
incurred in connection therewith shall be payable by the party which has failed
to so perform upon the Purchaser's or the Servicer's demand therefor.
<PAGE>
Section 11.5 No Proceedings.
The Seller and the Subservicer each hereby agree that it will not,
directly or indirectly, institute, or cause to be instituted, against the
Purchaser any proceeding of the type referred to in Section 9.1(c) so long as
there shall not have elapsed one year plus one day since the latest maturing
Note has been paid in full in cash.
Section 11.6 Amendments; Waivers; Consents.
No modification, amendment or waiver of, or with respect to, any
provision of this Agreement, and all other agreements, instruments and documents
delivered pursuant hereto or thereto, nor consent to any departure by the Seller
or the Subservicer from any of the terms or conditions thereof, shall be
effective unless it shall be in writing and signed by each of the parties
hereto. Any waiver or consent shall be effective only in the specific instance
and for the purpose for which given. No consent to or demand on the Seller or
the Subservicer in any case shall, in itself, entitle it to any other consent or
further notice or demand in similar or other circumstances. This Agreement, the
Related Documents and the documents referred to therein embody the entire
agreement among the Seller, the Subservicer, the Purchaser and the Servicer, and
supersede all prior agreements and understandings relating to the subject
hereof, whether written or oral.
Section 11.7 GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE
OF OHIO, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE INTERESTS
OF THE PURCHASER IN THE PURCHASED RECEIVABLES OR REMEDIES HEREUNDER OR
THEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF OHIO.
(b) THE SELLER AND THE SUBSERVICER HEREBY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF OHIO AND THE UNITED STATES DISTRICT
COURT LOCATED IN THE SOUTHERN DISTRICT OF OHIO, AND EACH WAIVES PERSONAL SERVICE
OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE
MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET FORTH ON THE SIGNATURE PAGE
HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER THE
SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. THE SELLER,
AND THE SUBSERVICER EACH HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON
CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE
PURCHASER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT
THE RIGHT OF THE PURCHASER TO BRING ANY ACTION OR
<PAGE>
PROCEEDING AGAINST THE SELLER OR ITS PROPERTY, OR THE SUBSERVICER OR ITS
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. THE SELLER AND THE SUBSERVICER
EACH HEREBY AGREE THAT THE EXCLUSIVE AND APPROPRIATE FORUMS FOR ANY DISPUTE
HEREUNDER ARE THE COURTS OF THE STATE OF OHIO AND THE UNITED STATES DISTRICT
COURT LOCATED IN THE SOUTHERN DISTRICT OF OHIO AND AGREE NOT TO INSTITUTE ANY
ACTION IN ANY OTHER FORUM.
(c) THE SELLER, AND THE SUBSERVICER EACH HEREBY WAIVES ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION WITH
THIS PURCHASER AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE
RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
Section 11.8 Execution in Counterparts; Severability.
This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and all of which when
taken together shall constitute one and the same agreement. In case any
provision in or obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BURLINGTON WOODS CONVALESCENT
CENTER, INC., as Seller and as
Subservicer
By:
-------------------------------
Name: James J. O'Malley
Title: Vice President
Address at which the chief executive
office is located:
Address: 5601 Chestnut Street
Philadelphia, PA 19139
Attention: Arthur A. Carr, Jr.
Phone number: (215) 476-2250
Telecopier number: (215) 748-8118
Additional locations at which Records
are maintained:
------------------------------------
------------------------------------
------------------------------------
Additional names under which, and
locations at which, Seller does
business:
115 Sunset Road
Burlington, NJ 08016
CRESTVIEW CONVALESCENT HOME, INC.,
as Seller and as Subservicer
By:
-------------------------------
Name: James J. O'Malley
Title: Vice President
Address at which the chief executive
office is located:
Address: 5601 Chestnut Street
Philadelphia, PA 19139
Attention: Arthur A. Carr, Jr.
Phone number: (215) 476-2250
Telecopier number: (215) 748-8118
Additional locations at which Records
are maintained:
------------------------------------
------------------------------------
------------------------------------
Additional names under which, and
locations at which, Seller does
business:
Crestview Wyncote Convalescent Center
Church Road
Wyncote, PA 19095
<PAGE>
CRESTVIEW NORTH, INC., as Seller
and as Subservicer
By:
-------------------------------
Name: James J. O'Malley
Title: Vice President
Address at which the chief executive
office is located:
Address: 5601 Chestnut Street
Philadelphia, PA 19139
Attention: Arthur A. Carr, Jr.
Phone number: (215) 476-2250
Telecopier number: (215) 748-8118
Additional locations at which Records
are maintained:
------------------------------------
------------------------------------
------------------------------------
Additional names under which, and
locations at which, Seller does
business:
Crestview North Nursing and
Rehabilitation Center
202 Toll Gate Road
Langhorne, PA 19047
DIVERSIFIED DIAGNOSTICS INCORPORATED,
as Seller and as Subservicer
By:
-------------------------------
Name: James J. O'Malley
Title: Vice President
<PAGE>
Address at which the chief executive
office is located:
Address: 5601 Chestnut Street
Philadelphia, PA 19139
Attention: Arthur A. Carr, Jr.
Phone number: (215) 471-4077
Telecopier number: (215) 748-8168
Additional locations at which Records
are maintained:
------------------------------------
------------------------------------
------------------------------------
Additional names under which, and
locations at which, Seller does
business:
------------------------------------
------------------------------------
------------------------------------
GERIATRIC AND MEDICAL SERVICES, INC.
(NJ), as Seller and as Subservicer
By:
-------------------------------
Name: James J. O'Malley
Title: Vice President
Address at which the chief executive
office is located:
Address: 5601 Chestnut Street
Philadelphia, PA 19139
Attention: Arthur A. Carr, Jr.
Phone number: (215) 476-2250
Telecopier number: (215) 748-8118
<PAGE>
Additional locations at which Records
are maintained:
------------------------------------
------------------------------------
------------------------------------
Additional names under which, and
locations at which, Seller does
business:
Cooper River East Convalescent Center
5101 North Park Drive
Pennsauken, NJ 08109
Cooper River West Convalescent Center
5101 North Park Drive
Pennsauken, NJ 08109
Care Center of Lopatcong
Red School Lane & Coventry Drive
Phillipsburg, NJ 08865
Care Center of Phillipsburg
843 Wilbur Avenue
Phillipsburg, NJ 08865
Lacey Nursing and Rehabilitation Center
916 Lacey Road
Forked River, NJ 08731
GERIATRIC AND MEDICAL SERVICES, INC.
(PA), as Seller and as Subservicer
By:
-------------------------------
Name: James J. O'Malley
Title: Vice President
<PAGE>
Address at which the chief executive
office is located:
Address: 5601 Chestnut Street
Philadelphia, PA 19139
Attention: Arthur A. Carr, Jr.
Phone number: (215) 476-2250
Telecopier number: (215) 748-8118
Additional locations at which Records
are maintained:
------------------------------------
------------------------------------
------------------------------------
Additional names under which, and
locations at which, Seller does
business:
Brandywine Hall Care Center
800 West Miner Street
West Chester, PA 19382
Fairview Care Center of Paper Mill Road
850 Paper Mill Road
Philadelphia, PA 19118
Mayo Nursing and Convalescent Center
650 Edison Avenue
Philadelphia, PA 19116
Silver Stream Nursing and
Rehabilitation Center
905 Penllyn Pike
Spring House, PA 19477
Fairview Care Center of Bethlehem Pike
184 Bethlehem Pike
Philadelphia, PA 19118
Rittenhouse Care Center
1526 Lombard Street
Philadelphia, PA 19146
<PAGE>
Hamilton Arms Nursing & Rehabilitation
Center
336 West End Avenue
Lancaster, PA 17603
GMC MEDICAL CONSULTING SERVICES, INC.,
as Seller and as Subservicer
By:
-------------------------------
Name: James J. O'Malley
Title: Vice President
Address at which the chief executive
office is located:
Address: 5601 Chestnut Street
Philadelphia, PA 19139
Attention: Arthur A. Carr, Jr.
Phone number: (215) 748-8836
Telecopier number: (215) 748-8118
Additional locations at which Records
are maintained:
------------------------------------
------------------------------------
------------------------------------
Additional names under which, and
locations at which, Seller does
business:
Rehab Technologies
HCHS, Inc., as Seller and as Subservicer
By:
-------------------------------
Name: James J. O'Malley
Title: Vice President
<PAGE>
Address at which the chief executive
office is located:
Address: 5601 Chestnut Street
Philadelphia, PA 19139
Attention: Arthur A. Carr, Jr.
Phone number: (215) 748-8802
Telecopier number: (215) 748-8118
Additional locations at which Records
are maintained:
------------------------------------
------------------------------------
------------------------------------
Additional names under which, and
locations at which, Seller does
business:
HealthCare Hospitality Services
HSS-PARA TRANSIT, INC., as Seller and
as Subservicer
By:
-------------------------------
Name: James J. O'Malley
Title: Vice President
Address at which the chief executive
office is located:
Address: 4730 Market Street
Philadelphia, PA 19139
Attention: Arthur A. Carr, Jr.
Phone number: (215) 476-3800
Telecopier number: (215) 471-8187
Additional locations at which Records
are maintained:
------------------------------------
------------------------------------
------------------------------------
<PAGE>
Additional names under which, and
locations at which, Seller does
business:
------------------------------------
------------------------------------
------------------------------------
INNOVATIVE PHARMACY SERVICES, INC.,
as Seller and as Subservicer
By:
-------------------------------
Name: James J. O'Malley
Title: Vice President
Address at which the chief executive
office is located:
Address: 5601 Chestnut Street
Philadelphia, PA 19139
Attention: Arthur A. Carr, Jr.
Phone number: (215) 476-8412
Telecopier number: (215) 748-8898
Additional locations at which Records
are maintained:
1001 Lower Landing Road
Blackwood, NJ 08801
Additional names under which, and
locations at which, Seller does
business:
Nursing Home Support Services
f/k/a Kings Highway Pharmacy Services,
Inc.
<PAGE>
LIFE SUPPORT AMBULANCE, INC.,
as Seller and as Subservicer
By:
-------------------------------
Name: James J. O'Malley
Title: Vice President
Address at which the chief executive
office is located:
Address: 4730 Market Street
Philadelphia, PA 19139
Attention: Arthur A. Carr, Jr.
Phone number: (215) 471-7170
Telecopier number: (215) 471-8187
Additional locations at which Records
are maintained:
------------------------------------
------------------------------------
------------------------------------
Additional names under which, and
locations at which, Seller does
business:
Valley Medical Services
22 Sixth Street
Easton, PA 18042
2009 Darby Road
Havertown, PA 19083
UNITED HEALTH CARE SERVICES, INC.,
as Seller and as Subservicer
By:
-------------------------------
Name: James J. O'Malley
Title: Vice President
<PAGE>
Address at which the chief executive
office is located:
Address: 5601 Chestnut Street
Philadelphia, PA 19139
Attention: Arthur A. Carr, Jr.
Phone number: (215) 474-2432
Telecopier number: (215) 748-8117
Additional locations at which Records
are maintained:
207 Clifton Boulevard
Clifton, NJ 07011
RD 9, P. O. Box 9384
Reading, PA 19005
201 Parkway View Drive
Pittsburgh, PA 19605
Additional names under which, and
locations at which, Seller does
business:
207 Clifton Boulevard
Clifton, NJ 07011
RD 9, P.O. Box 9384
Reading, PA 19005
201 Parkway View Drive
Pittsburgh, PA 19605
Jeanes Medical Equipment Co.
GHC Home Health Care
Suburban Home Health Care
Lower Bucks Home Medical Equipment Co.
West Philadelphia Health Partners
Doylestown Medical Equipment Co.
MCP Home Health Care
Osteopathic Medical Equipment Co.
Roxborough Medical Equipment Co.
<PAGE>
NPF V, INC.
By:
--------------------------------
Name: Lance K. Poulsen
Title: Chairman
Address: 6125 Memorial Drive
Dublin, OH 43017
Attention: Donald H. Ayers
Phone number: (614) 764-9944
Telecopier number: (614) 764-0602
NATIONAL PREMIER FINANCIAL
SERVICES, INC.
By:
--------------------------------
Name: Lance K. Poulsen
Title: President
Address: 6125 Memorial Drive
Dublin, OH 43017
Attention: Lance K. Poulsen
Phone number: (614) 764-9944
Telecopier number: (614) 764-0602
<PAGE>
SCHEDULE 1
INELIGIBLE MEDICAID STATES
None. This Schedule 1 may be unilaterally amended from time to time by
the Servicer without the consent of any of the other parties hereto.
1-1
<PAGE>
SCHEDULE 2
INELIGIBLE BLUE CROSS/BLUE SHIELD PLANS
None. This Schedule 2 may be unilaterally amended from time to time by
the Servicer without the consent of any of the other parties hereto.
2-1
<PAGE>
SCHEDULE 3
SELLER'S PAYOR AND PROVIDER NUMBERS
Name of Seller Provider Numbers
-------------- ----------------
Burlington Woods Convalescent Center, Inc. Medicare: 31-5050
Medicaid: 4465806
Blue Cross: 5908
Crestview Convalescent Home, Inc. Medicare: 39-5481
Crestview Wyncote Convalescent Center Medicaid: 0810495
Blue Cross: 5831
Crestview North, Inc. Medicare: 39-5459
Crestview North Nursing and Rehabilitation Center Medicaid: 0833284
Blue Cross: 5817
Diversified Diagnostics Incorporated Medicare: 309085
Medicare: 307336
Medicaid: PA 1147830
Geriatric and Medical Services, Inc. (NJ)
Cooper River East Convalescent Center Medicare: 31-5296
Medicaid: 4469305
Blue Cross: 5758
Cooper River West Convalescent Center Medicare: 31-5225
Medicaid: 4470109
Blue Cross: 5758
Care Center of Lopatcong Medicare: 31-5202
Medicaid: 4506502
Blue Cross: 6875
Care Center of Phillipsburg Medicare: 31-5311
Medicaid: 4506600
Blue Cross: N/A
Lacey Nursing and Rehabilitation Center Medicare: 31-5258
Medicaid: 44905209
Blue Cross: N/A
3-1
<PAGE>
Geriatric and Medical Services, Inc. (PA)
Brandywine Hall Care Center Medicare: 39-5740
Medicaid: 0987164
Blue Cross: 5898
Fairview Care Center of Paper Mill Road Medicare: 39-5545B
Medicaid: 0987173
Blue Cross: 5847
Mayo Nursing and Convalescent Center Medicare: 39-5084
Medicaid: 0969504
Blue Cross: 5921
Silver Stream Nursing and Rehabilitation Center Medicare: 39-5354
Medicaid: 0969513
Blue Cross: 5932
Fairview Care Center of Bethlehem Pike Medicare: 39-5782
Medicaid: 0987155
Blue Cross: 5957
Rittenhouse Care Center Medicare: 39-5485
Medicaid: 0969999
Blue Cross: 5819
Hamilton Arms Nursing & Rehabilitation Center Medicare: 39-5224
Medicaid: 0969489
Blue Cross: 5829
GMC Medical Consulting Services, Inc. N/A
Rehab Technologies
HCHS, Inc. N/A
HealthCare Hospitality Services
HSS-Para Transit, Inc. N/A
Innovative Pharmacy Services, Inc. Medicare: N/A
f/k/a Kings Highway Pharmacy Services, Inc. Medicaid: NJ 4389000
Medicaid: PA 239628
Blue Cross: N/A
3-2
<PAGE>
Nursing Home Support Services Medicare: P184920001
P184930002
216346
216342
Medicaid: N/A
Life Support Ambulance, Inc. Medicare: 208295
Medicaid: PA 1174560
Medicaid: NJ 3569306
Blue Cross: N/A
United Health Care Services, Inc.
Philadelphia, PA Medicare: 281670
214541
Medicaid: 1097380
Clifton, NJ Medicare: 214542
214543
Medicaid: 3563502
Reading, PA Medicare: 218321
Medicaid: 723513
Pittsburgh, PA Medicare: 214540
Medicaid: 1407240
Jeanes Medical Equipment Co. Medicare: 203344
Medicaid: 1137252
GHC Home Health Care Medicare: 201777
Medicaid: 1137243
Suburban Home Health Care Medicare: 207780
Medicaid: 1067210
Lower Bucks Home Medical Equipment Co. Medicare: 208103
Medicaid: N/A
West Philadelphia Health Partners Medicare: 212891
Medicaid: 1097380
3-3
<PAGE>
Doylestown Medical Equipment Co. Medicare: 216347
Medicaid: N/A
MCP Home Health Care Medicare: 206112
Medicaid: 1137270
Osteopathic Medical Equipment Co. Medicare: 209133
Medicaid: N/A
Roxborough Medical Equipment Co. Medicare: 207993
Medicaid: 1137243
3-4
<PAGE>
SCHEDULE 4
LIST OF NAMES UNDER WHICH SELLER IS DOING BUSINESS
AND ADDRESSES AT WHICH SELLER IS DOING BUSINESS
Names Under Which Seller Is Addresses At Which
Doing Business and Payee Names Seller Is Doing Business
------------------------------ ------------------------
Burlington Woods Convalescent Center, Inc. 5601 Chestnut Street
Philadelphia, PA 19139
115 Sunset Road
Burlington, NJ 08016
Crestview Convalescent Home, Inc. 5601 Chestnut Street
Philadelphia, PA 19139
Crestview Wyncote Convalescent Center Church Road
Wyncote, PA 19095
Crestview North, Inc. 5601 Chestnut Street
Philadelphia, PA 19139
Crestview North Nursing and 202 Toll Gate Road
Rehabilitation Center Langhorne, PA 19047
Diversified Diagnostics Incorporated 5601 Chestnut Street
Philadelphia, PA 19139
Geriatric and Medical Services, 5601 Chestnut Street
Inc. (NJ) Philadelphia, PA 19139
Cooper River East Convalescent Center 5101 North Park Drive
Cooper River West Convalescent Center Pennsauken, NJ 08109
Care Center of Lopatcong Red School Lane &
Coventry Drive
Phillipsburg, NJ 08865
Care Center of Phillipsburg 843 Wilbur Avenue
Phillipsburg, NJ 08865
4-1
<PAGE>
Lacey Nursing and Rehabilitation Center 916 Lacey Road
Forked River, NJ 08731
Geriatric and Medical Services, 5601 Chestnut Street
Inc. (PA) Philadelphia, PA 19139
Brandywine Hall Care Center 800 West Miner Street
West Chester, PA 19382
Fairview Care Center of Paper Mill Road 850 Paper Mill Road
Philadelphia, PA 19118
Mayo Nursing and Convalescent Center 650 Edison Avenue
Philadelphia, PA 19116
Silver Stream Nursing and 905 Penllyn Pike
Rehabilitation Center Spring House, PA 19477
Fairview Care Center of Bethlehem Pike 184 Bethlehem Pike
Philadelphia, PA 19118
Rittenhouse Care Center 1526 Lombard Street
Philadelphia, PA 19146
Hamilton Arms Nursing & 336 West End Avenue
Rehabilitation Center Lancaster, PA 17603
GMC Medical Consulting Services, 5601 Chestnut Street
Inc. Rehab Technologies Philadelphia, PA 19139
HCHS, Inc. 5601 Chestnut Street
HealthCare Hospitality Services Philadelphia, PA 19139
HSS-Para Transit, Inc. 4730 Market Street
Philadelphia, PA 19139
Innovative Pharmacy Services, Inc. 5601 Chestnut Street
f/k/a Kings Highway Pharmacy Services, Inc. Philadelphia, PA 19139
1001 Lower Landing Road
Blackwood, NJ 08801
4-2
<PAGE>
Nursing Home Support Services 5601 Chestnut Street
Philadelphia, PA 19139
Life Support Ambulance, Inc. 4730 Market Street
Philadelphia, PA 19139
2009 Darby Road
Havertown, PA 19083
Valley Medical Services 22 Sixth Street
Easton, PA 18042
United Health Care Services, Inc. 5601 Chestnut Street
Philadelphia, PA 19139
207 Clifton Boulevard
Clifton, NJ 07011
RD 9, P. O. Box 9384
Reading, PA 19005
201 Parkway View Drive
Pittsburgh, PA 19605
Jeanes Medical Equipment Co. 5601 Chestnut Street
Philadelphia, PA 19139
GHC Home Health Care 5601 Chestnut Street
Philadelphia, PA 19139
Suburban Home Health Care 5601 Chestnut Street
Philadelphia, PA 19139
Lower Bucks Home Medical Equipment Co. 5601 Chestnut Street
Philadelphia, PA 19139
West Philadelphia Health Partners 5601 Chestnut Street
Philadelphia, PA 19139
Doylestown Medical Equipment Co. 5601 Chestnut Street
Philadelphia, PA 19139
4-3
<PAGE>
MCP Home Health Care 5601 Chestnut Street
Philadelphia, PA 19139
Osteopathic Medical Equipment Co. 5601 Chestnut Street
Philadelphia, PA 19139
Roxborough Medical Equipment Co. 5601 Chestnut Street
Philadelphia, PA 19139
4-4
<PAGE>
SCHEDULE 5
LIST OF SELLER NAMES, STATE IN WHICH SELLER IS INCORPORATED
AND STATE IN WHICH SELLER IS QUALIFIED TO DO BUSINESS
<TABLE>
<CAPTION>
State of State Qualified
Names of Sellers Incorporation To Do Business
---------------- ------------- --------------
<S> <C> <C>
Burlington Woods Convalescent Center, Inc. New Jersey New Jersey
Crestview Convalescent Home, Inc. Pennsylvania Pennsylvania
Crestview North, Inc. Pennsylvania Pennsylvania
Diversified Diagnostics Incorporated Pennsylvania Pennsylvania
New Jersey
Geriatric and Medical Services, Inc. (NJ) New Jersey New Jersey
Pennsylvania
Geriatric and Medical Services, Inc. (PA) New Jersey New Jersey
Pennsylvania
GMC Medical Consulting Services, Inc. Pennsylvania Pennsylvania
New Jersey
HCHS, Inc. Pennsylvania Pennsylvania
New Jersey
HSS-Para Transit, Inc. Pennsylvania Pennsylvania
Innovative Pharmacy Services, Inc. f/k/a New Jersey New Jersey
Kings Highway Pharmacy Services, Inc. Pennsylvania
Life Support Ambulance, Inc. Pennsylvania Pennsylvania
New Jersey
United Health Care Services, Inc. Pennsylvania Pennsylvania
New Jersey
California
Maryland
</TABLE>
5-1
<PAGE>
SCHEDULE 6
PURCHASE COMMITMENTS
Names of Sellers Purchase Commitment
- ---------------- -------------------
Burlington Woods Convalescent Center, Inc. $ 900,000
Crestview Convalescent Home, Inc. 600,000
Crestview North, Inc. 700,000
Diversified Diagnostics Incorporated 1,300,000
Geriatric and Medical Services, Inc. (NJ) 3,200,000
Geriatric and Medical Services, Inc. (PA) 4,400,000
GMC Medical Consulting Services, Inc. 600,000
HCHS, Inc. 1,250,000
HSS-Para Transit, Inc. 150,000
Innovative Pharmacy Services, Inc. f/k/a 4,000,000
Kings Highway Pharmacy Services, Inc.
Life Support Ambulance, Inc. 2,800,000
United Health Care Services, Inc. 5,100,000
6-1
<PAGE>
SCHEDULE 7
DATE OF MEDICARE AND MEDICAID COST REPORTS FOR EACH SELLER
7-1
<PAGE>
SCHEDULE 8
PURCHASE DATES
Names of Sellers Purchase Date
- ---------------- -------------
Burlington Woods Convalescent Center, Inc. Monday
Crestview Convalescent Home, Inc. Monday
Crestview North, Inc. Monday
Diversified Diagnostics Incorporated Tuesday
Geriatric and Medical Services, Inc. (NJ) Wednesday
Geriatric and Medical Services, Inc. (PA) Wednesday
GMC Medical Consulting Services, Inc. Wednesday
HCHS, Inc. Wednesday
HSS-Para Transit, Inc. Tuesday
Innovative Pharmacy Services, Inc. f/k/a Monday
Kings Highway Pharmacy Services, Inc.
Life Support Ambulance, Inc. Tuesday
United Health Care Services, Inc. Friday
8-1
<PAGE>
SCHEDULE 9
DISCLOSURES BY THE SELLER
9-1
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000041147
<NAME> Geriatric & Medical Companies, Inc.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 2,234,000
<SECURITIES> 0
<RECEIVABLES> 71,150,000
<ALLOWANCES> 13,344,000
<INVENTORY> 4,949,000
<CURRENT-ASSETS> 75,834,000
<PP&E> 155,947,000
<DEPRECIATION> 62,905,000
<TOTAL-ASSETS> 191,684,000
<CURRENT-LIABILITIES> 37,951,000
<BONDS> 0
0
0
<COMMON> 1,543,000
<OTHER-SE> 17,337,000
<TOTAL-LIABILITY-AND-EQUITY> 191,684,000
<SALES> 195,196,000
<TOTAL-REVENUES> 195,196,000
<CGS> 0
<TOTAL-COSTS> 171,342,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8,666,000
<INTEREST-EXPENSE> 12,295,000
<INCOME-PRETAX> 2,893,000
<INCOME-TAX> (1,260,000)
<INCOME-CONTINUING> 4,153,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,153,000
<EPS-PRIMARY> .27
<EPS-DILUTED> 0
</TABLE>
