SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1996 Commission File Number 0-12927
NATIONAL HOME HEALTH CARE CORP.
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(Exact name of Registrant as specified in its charter)
Delaware 22-2981141
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 WHITE PLAINS ROAD, SCARSDALE, NEW YORK 10583
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 914-722-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that 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 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. [_]
As of October 25, 1996, the aggregate market value of the Common Stock of the
Registrant, its only class of voting securities, held by non-affiliates of the
Registrant was approximately $19,228,699, calculated on the basis of the average
closing bid and asked prices of such stock on the National Association of
Securities Dealers Automated Quotation System on that date, as reported by the
National Association of Securities Dealers, Inc.
The number of shares outstanding of the Registrant's Common Stock on October 25,
1996 was 4,806,907.
Portions of the Registrant's Proxy Statement for its 1996 Annual Meeting of
Stockholders (which Proxy Statement will be filed with the Securities and
Exchange Commission on or before November 28, 1996) are incorporated by
reference in Part III hereof.
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PART I
ITEM 1. BUSINESS
GENERAL
National Home Health Care Corp. (the "Company") is a Delaware
corporation which was incorporated on July 27, 1983 under the name of Family
Treatment Centers of America, Inc. Effective December 14, 1984, the Company
changed its name to National HMO Corp. and effective December 20, 1991, the
Company changed its name to National Home Health Care Corp. The Company
completed its initial public offering in December 1983. The Company is a
provider of home health care services throughout the New York City metropolitan
area and Long Island in the State of New York and in both Fairfield and New
Haven Counties in the State of Connecticut.
The Company has three operating subsidiaries:
* Health Acquisition Corp., formerly Allen Health Care
Services, Inc., a New York corporation, of which Allen
Health Care Services ("Allen Health Care") is the sole
operating division.
* New England Home Care, Inc., a Connecticut corporation
("New England"), which conducts business in the State of
Connecticut.
* Nurse Care, Inc., a Connecticut corporation ("Nurse
Care"), which conducts business in the State of
Connecticut.
In January 1996, the outpatient medical service business of the
Company, formerly known as Brevard Medical Center, Inc. and First Health, Inc.
was reorganized as SunStar Healthcare, Inc. ("SunStar") a newly-formed,
wholly-owned subsidiary of the Company. On May 21, 1996, the initial public
offering of common stock by SunStar was consummated, thus reducing the Company's
ownership percentage of SunStar to approximately 37.6%. As a result, SunStar is
no longer consolidated with the Company for accounting purposes and the Company
accounts for its investment in SunStar using the equity method of accounting.
HEALTH ACQUISITION CORP.
ALLEN HEALTH CARE SERVICES
Allen Health Care maintains its principal administrative office in
Jamaica, New York and has satellite offices in New York City, Farmingdale,
Mineola and Hempstead, New York. The Company provides personal home health care
services, including registered nurses, personal care aides, home health aides
and homemakers in the following counties in the State of New York: Nassau,
Suffolk, Queens, Kings, New York and the Bronx. All personnel are licensed or
are agency certified under a New York State approved program and can be engaged
on a full-time, part-time or live-in basis.
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Allen Health Care is a participating provider in both the Nassau and Suffolk
Counties Department of Social Services Medicaid Programs. The Public Health
Council of the State of New York Department of Health has approved the
application for licensure of Health Acquisition Corp. d/b/a Allen Health Care
with no limited life restrictions.
Allen Health Care was resurveyed during the past fiscal year by the
Joint Commission of Accreditation of Health Care Organizations (JCAHO), the
accrediting body for all health-care providers. JCAHO accreditation is
associated with providing quality services. This status is required by many of
the certified home health care agencies that Allen Health Care currently
services. The resurvey resulted in Allen Health Care extending their accredited
status through the year 1999. Reimbursement for the company's services is
primarily provided by the Department of Social Services of both Nassau and
Suffolk Counties, New York, as well as by certified home health care agencies
and long term health care provider programs which contract with the company. In
addition, services of this subsidiary were expanded in 1995 to include home care
pediatric skilled nursing for medically fragile children and their families.
Allen Health Care provides home health care services to its clients
twenty-four hours per day, seven days per week. Although the company's offices
are open during normal business hours, personnel are available twenty-four hours
per day to respond to emergencies and to provide other service requests. The
registered nurses of Allen Health Care, in accordance with New York State
Department of Health Regulations and Contract Requirements, visit patients
regularly and review the records of service which are completed by the home
health and personal care aides daily. These records are maintained by Allen
Health Care. In addition, the home care coordinator ensures that appropriate
coverage is maintained for all patients and acts as the liaison among family
members, aides and the professional staff.
To a large extent, Allen Health Care's growth potential depends upon
its ability to recruit and maintain qualified personnel. The company's training
programs for home health aides and personal care aides have been approved by the
New York State Department of Health. The company believes that it offers
competitive salaries and fringe benefits and has been able to keep its home
health aides working on a steady basis.
NEW ENGLAND HOME CARE
On August 4, 1995, the Company consummated the acquisition of 100% of
the capital stock of Nurse Care, Inc. ("Nurse Care"), the parent company of New
England Home Care ("New England") for $3,150,000 in cash. In addition, one of
the two former shareholders of Nurse Care entered into a one-year employment
contract as the Administrator of New England with a base salary of $125,000. The
other former shareholder entered into a one-year consulting agreement to provide
certain consulting services with respect to the operations of New England in
consideration of $20,000 in consulting fees. During the fiscal year ended July
31, 1996, Nurse Care contributed all of the outstanding shares of New England to
National Home Health Care Corp., whereby New England as well as Nurse Care,
became a direct, wholly-owned subsidiary of the Company.
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New England is a Medicare certified and licensed home health care
company in the State of Connecticut. In December 1995, New England received
JCAHO accreditation through the year 1998. The company provides a wide variety
of skilled nursing services including physical therapy, speech therapy,
occupational therapy and social work throughout Fairfield and New Haven Counties
in the State of Connecticut. In addition, the Company has recently added mental
health, pediatric and perinatal specialty nursing services. New England
maintains its principal administrative office in Milford, Connecticut, and has
branch offices in Norwalk, Hamden and Waterbury, and satellite offices in
Danbury and Seymour. Reimbursement for New England's services is primarily
provided by the Federal Medicare Program and the State of Connecticut Medicaid
Programs. Additional sources of revenue are from managed care programs and
commercial insurance carriers.
NURSE CARE
Nurse Care is a licensed home health care company providing home
health aide services throughout Fairfield and New Haven Counties, Connecticut.
In December 1995, Nurse Care received JCAHO accreditation through the year 1998.
Similar to the operations of New England, Nurse Care maintains its principal
administrative office in Milford, Connecticut and has satellite offices in
Norwalk, Hamden, Waterbury, Danbury and Seymour. Reimbursement for Nurse Care's
services is primarily provided by New England, which subcontracts all of its
home health aide services from Nurse Care and from hospices and other certified
home care agencies.
NATIONAL HMO (NEW YORK), INC.
On April 30, 1994, Boro Medical P.C. and Boro Health Care of Union,
P.C. (collectively "Boro Medical"), a medical provider to which National HMO
(New York), Inc. ("National New York") and National HMO Corp. of Elizabeth, Inc.
("National Elizabeth") provided non-medical and administrative management
services, terminated its relationship with National New York and National
Elizabeth. In addition, on April 30, 1994, National New York and National
Elizabeth entered into an asset purchase agreement with Boro Medical. Under the
terms of the agreement, as consideration for the sale by National New York and
National Elizabeth of certain assets, Boro Medical agreed to pay a purchase
price of $750,000, as well as all outstanding management fees due to National
New York through April 30, 1994 in the aggregate amount of $500,000. Boro
Medical delivered at closing five-year and three-year promissory notes in the
aggregate amounts of $750,000 and $500,000, respectively, each at an interest
rate of seven percent. In May 1996, the promissory notes were paid in full. The
leases at all of the medical offices subject to the former relationship were
assumed by Boro Medical and National New York and National Elizabeth were
released from any further obligations under the applicable lease agreements. In
addition, National New York, National Elizabeth and certain of its officers and
Boro Medical and certain of its officers delivered mutual releases with respect
to all prior claims that may have existed between them relating to their former
relationship and further agreed not to compete with one another in certain
operations and in specific areas relating to their respective businesses.
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In addition, in July 1994, National New York terminated its
management agreement with the dental practitioner to which it also provided
administrative and management services. Accordingly, the Company has
reclassified its financial statements to show separately the results of
discontinued operations. See "Notes to Financial Statements - Discontinued
Operations".
INSURANCE
The Company and its subsidiaries maintain professional malpractice
liability coverage on professionals employed in the rendering of health care
services providing coverage in an amount of up to $1,000,000 per occurrence and
up to $6,000,000 in the aggregate and coverage for the customary risks inherent
in the operation of business in general. Recent market conditions with respect
to liability insurances have caused wide fluctuations in the cost and
availability of coverage. The Company carries directors and officers liability
with a limit of $2,000,000. While the Company believes its insurance policies
are adequate in the amount and coverage for its current operations, there can be
no assurance that coverage will continue to be available in adequate amounts or
at a reasonable cost.
EMPLOYEES AND LABOR RELATIONS
As of October 27, 1996, the Company had approximately 1,600 full and
part-time employees of whom 15 were employed in various management capacities
and 3 were employed in marketing capacities. None of the Company's employees is
represented by a labor organization. The Company believes its relationship with
its employees is satisfactory. The Company has standardized procedures for
recruiting, interviewing and reference checking prospective health care
personnel. All nurses and home health aides must be licensed or certified by the
appropriate authorities.
COMPETITION
The home health care field is highly competitive. The Company is
competing with numerous other licensed as well as certified home health care
agencies. In addition, the Company competes with companies that, in addition to
providing home health aide and skilled nursing services, also, unlike the
Company, provide pharmaceutical products and other home health care services
that generate additional referrals.
The Company's ability to attract a staff of highly trained personnel
is a material element of its business. There currently is intense competition
for qualified personnel and there can be no assurance that the Company will be
successful in maintaining or in securing additional qualified personnel. The
Company recruits personnel principally through referral from existing personnel
and through newspaper advertisements.
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<PAGE>
CUSTOMERS
One or more customers have each accounted for more than 10% of the
Company's revenues. For the fiscal years ended July 31, 1996, 1995 and 1994, VNS
Home Care, a non-profit Medicare certified home health care agency, accounted
for 24%, 40% and 39%, respectively, and the State of New York, Department of
Social Service personal care aide program for the counties of Suffolk and Nassau
accounted for 7%, 13% and 17%, respectively, of the Company's consolidated net
patient revenues from continuing operations. The total loss of any of the
foregoing customers would have a material adverse effect on the Company.
GOVERNMENT REGULATIONS AND LICENSING
The health care industry is highly regulated. The Company's business
is subject to substantial and frequently changing regulations by Federal and
state authorities. The Company must comply with state licensing requirements as
well as state eligibility standards for certification as a Medicare and Medicaid
provider.
In recent years, a number of legislative proposals have been made in
Congress and in state legislatures that could effect major changes in the health
care system. Many of the proposals include cost containment features that could
lower Medicare and Medicaid reimbursement rates and otherwise change the
environment in which the Company operates. The Company cannot predict with any
certainty what impact, if any, these proposals might have on the Company's
business.
The ability of the Company to operate profitably will depend in part
upon the Company obtaining and maintaining all necessary licenses and other
approvals in compliance with applicable health care regulations.
MEDICARE FRAUD AND ABUSE
Provisions of the Social Security Act under Medicare and Medicaid
generally prohibit soliciting, receiving, offering or paying, directly or
indirectly, any form of remuneration in return for the referral of Medicare or
state health care program patients or patient care opportunities, or in return
for the purchase, lease or order of any facility item or service that is covered
by Medicare or a state health care program. In July 1991, the federal government
published regulations that provide exceptions, or "safe harbors," for business
transactions that will be deemed not to violate the anti-kickback statute.
Violations of the statute may result in civil and criminal penalties and
exclusion from participation in the Medicare and Medicaid programs. The Company
believes that its current operations are not in violation of the anti-kickback
statute.
REGULATORY COMPLIANCE
The Company believes that health care regulations will continue to
change and, therefore, regularly monitors developments in health care law. The
Company expects to modify its agreements and operations from time to time as the
business and regulatory environment changes. While the
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<PAGE>
Company believes it will be able to structure all its agreements and operations
in accordance with applicable law, there can be no assurance that its
arrangements will not be successfully challenged.
ITEM 2. PROPERTIES.
The Company, directly or through certain subsidiaries, leases various
office facilities under lease agreements with various expiration dates through
the year 2000. The following sets forth the location, approximate square
footage, use of each office and expiration date of each lease:
Approximate Expiration Date
Location Square Feet Use of Lease
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Scarsdale, NY 2,095 Corporation headquarters July 31, 1997
Queens, NY 5,200 Administrative office January 31, 1998
Farmingdale, NY 3,519 Satellite office April 30, 1997
Hempstead, NY 700 Satellite office Month to Month
Mineola, NY 1,300 Satellite office July 31, 1997
Manhattan, NY 1,265 Satellite office April 30, 1997
Milford, CT 9,600 Administrative office May 31, 1997
Norwalk, CT 2,772 Branch office May 31, 1999
Hamden, CT 2,605 Branch office July 31, 1998
Waterbury, CT 2,000 Branch office July 31, 2000
Seymour, CT 2,000 Satellite office May 31, 1997
Danbury, CT 1,200 Satellite office November 30, 1996
The Company believes that its office facilities are adequate for the
conduct of its existing operations. The Company regularly evaluates the
suitability and the overall adequacy of its various offices. The Company
believes that it will be able to renew or find adequate replacement offices for
all leases which will expire in the current fiscal year.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of business, the Company is subject, from time
to time, to claims and legal actions. No material actions are currently pending
against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted to a vote of stockholders of the Company
during the fourth quarter of the fiscal year ended July 31, 1996.
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<PAGE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS.
(A) Market Information
The Company's Common Stock is quoted on the NASDAQ National Market
under the symbol NHHC. The following table presents the quarterly high and low
bid quotations in the over-the-counter market, as reported by the National
Association of Securities Dealers for the two fiscal years ended July 31, 1995
and July 31, 1996. These quotations reflect the inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
Market Prices
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High Low
Year ended July 31, 1995
1st Quarter $3.75 $2.00
2nd Quarter 3.88 2.13
3rd Quarter 4.00 2.75
4th Quarter 3.75 2.75
Year ended July 31, 1996
1st Quarter $4.38 $3.13
2nd Quarter 7.13 3.88
3rd Quarter 7.00 4.50
4th Quarter 7.75 5.50
(B) Holders
There were approximately 171 holders of record of Common Stock as of
October 25, 1996 excluding shares held by depository companies for certain
beneficial owners.
(C) Dividends
The Company has not declared or paid any cash dividends on its shares
of Common Stock during the last three fiscal years. It anticipates that for the
foreseeable future all earnings will be retained for use in its business, and,
accordingly, it does not intend to pay cash dividends. On October 21, 1996, the
Board of Directors of the Company declared a 6% stock dividend payable December
4, 1996 to stockholders of record on November 8, 1996.
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ITEM 6. SELECTED FINANCIAL DATA.
The following table, which presents selected financial data for the
Company for each of the last five fiscal years, has been derived from the
Consolidated Financial Statements of the Company, which have been audited by
Richard A. Eisner & Company, LLP, independent auditors.
The data set forth below should be read in conjunction with the
Consolidated Financial Statements in Item 8 of this Report.
<TABLE>
<CAPTION>
Fiscal Years Ended July 31,
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1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Revenues $ 38,830,000 $ 24,556,000 $ 20,115,000 $ 18,059,000 $ 16,230,000
Net income from continuing operations
before gain resulting from subsidiary's
stock offering 2,336,000 1,426,000 1,218,000 1,309,000 1,189,000
Net income from continuing operations
before gain resulting from subsidiary's
stock offering per share 0.46 0.28 0.24 0.25 0.23
Net income resulting from subsidiary's
stock offering 1,021,000 -- -- -- --
Net income resulting from subsidiary's
stock offering per share 0.21 -- -- -- --
Net income from continuing operations 3,357,000 1,426,000 1,218,000 1,309,000 1,189,000
Net income from continuing operations per
share 0.67 0.28 0.24 0.25 0.23
New income (loss) from discontinued
operations -- -- (3,472,000) (461,000) 658,000
Net income (loss) from discontinued
operations per share -- -- (0.68) (0.08) 0.13
Total Assets 24,421,000 18,865,000 17,926,000 20,309,000 19,106,000
Long Term Obligations 524,000 -- 40,000 77,000 146,000
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read in conjunction with the consolidated financial statements and
notes thereto appearing elsewhere herein.
On May 21, 1996, the initial public offering of common stock by
SunStar Healthcare, Inc. ("SunStar") was consummated. Prior to the offering,
SunStar had been a wholly-owned subsidiary of the Company, consisting of its
Florida outpatient medical center operations. As a result of the offering, the
Company currently owns approximately 37.6% of SunStar. The operations of SunStar
prior to the offering are reflected in the Company's financial statements as
continuing operations. See "Notes to Financial Statements - Segment
Information."
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On August 4, 1995, the Company completed the purchase of Nurse Care,
Inc. ("Nurse Care"), and it's wholly-owned subsidiary, New England Home Care,
Inc. ("New England"). During the fiscal year ended July 31, 1996, Nurse Care
contributed all of the outstanding stock of New England to the Company. New
England is a Medicare certified and a licensed home health care company that
provides a wide variety of skilled nursing services in Connecticut while Nurse
Care is a licensed home health care company providing home health aide services
in Connecticut. See "Notes to Financial Statements-Acquisitions."
On April 30, 1994, Boro Medical, a medical provider to which National
New York and National Elizabeth provided non-medical and administrative
services, terminated its relationship with those subsidiaries. In addition, in
July 1994, National New York terminated its relationship with the dental
practice to which it also provided management services. See "Business - National
HMO (New York), Inc." The results of operations for National New York and
National Elizabeth have been reflected in the financial statements as a
discontinued operation. See "Notes to Financial Statements Discontinued
Operations."
RESULTS OF OPERATIONS
YEAR ENDED JULY 31, 1996 COMPARED TO YEAR ENDED JULY 31, 1995
Net patient revenue increased by approximately $14,274,000 or 58%,
from $24,556,000 for the fiscal year ended July 31, 1995 ("fiscal 1995") to
$38,830,000 for the fiscal year ended July 31, 1996 ("fiscal 1996"). Net patient
revenue from home health care services increased approximately $15,781,000 or
81%. Approximately $14,475,000 or 92% of this increase is attributable to the
acquisition of Nurse Care and New England. Health Acquisition Corp., the
licensed home health care company providing home health care services in the New
York metropolitan area had revenue increase by $1,306,000 or 7% from fiscal
1995. Net patient revenue recorded in fiscal 1996 from outpatient medical
operations decreased $1,507,000 or 29% from $5,128,000 in fiscal 1995. This
decrease is attributable to the Company recording only nine months of revenue in
fiscal 1996, due to the change in ownership in the fourth quarter from 100% to
approximately 37.6%.
With the completion of the initial public offering of SunStar, the
Company is now focused in home health care. Revenue from its home care
operations have accounted for the majority of consolidated revenue and has
historically generated the greatest operating margins for the Company. The
Company believes there will be a continued increase in demand for home health
care services as health care payors seek to find cost-effective alternatives to
the rising costs of institutional care. The Company's acquisition of Nurse Care
and New England reflects the Company's commitment to devoting significant
resources to the expansion of its home health care services.
Cost of revenue as a percentage of revenue was 64% for fiscal 1996 as
compared to 61% in fiscal 1995. This increase is attributable to the acquisition
of New England, which has higher cost of revenue as a result of revenue
generated from its Medicare patients being limited to cost reimbursement
principles. General and administrative expenses decreased from 29% of revenue in
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fiscal 1995 to 27% of revenue in fiscal 1996. This decrease is attributable to
the increase in revenues being absorbed by existing general and administrative
costs.
The Company recorded a one-time net gain on the SunStar initial
public offering in the amount of $1,024,000, adjusting its investment in SunStar
to reflect the book value of its current approximate 37.6% interest. The Company
also recorded a loss from equity investee of $10,000, representing its share of
the SunStar loss for the quarter ended July 31, 1996.
Interest income increased a nominal $2,000 to $412,000 in fiscal 1996
from $410,000 in fiscal 1995. Cash equivalents at July 31, 1996 were $8,226,000
as compared to $8,422,000 at July 31, 1995.
The Company's effective tax rate decreased to 36% in fiscal 1996 as
compared to 44% in the previous fiscal year. This decrease is attributable to
the Company utilizing available state net operating loss deductions in the
current fiscal year. The Company does not expect a similar impact from net
operating loss deductions in the future.
As a result of the foregoing, net income for fiscal 1996 increased to
$3,357,000 from $1,426,000 for fiscal 1995, an increase of 135%.
YEAR ENDED JULY 31, 1995 COMPARED TO YEAR ENDED JULY 31, 1994
Net patient revenue increased by approximately $4,440,000, or 22%,
from $20,116,000 for the fiscal year ended July 31, 1994 ("fiscal 1994") to
$24,556,000 for fiscal 1995. Approximately $3,270,000 or 74% of this increase is
attributable to Health Acquisition Corp. During fiscal 1995, Health Acquisition
Corp. was again successful in increasing the volume with existing customers and
securing eight (8) new provider agreements. Services of this subsidiary were
also expanded in April 1995 to include home care pediatric skilled nursing for
medically fragile children and their families. Revenues generated from this
expansion of services approximated $293,000 for the period from April through
July 1995. Revenue from Brevard Medical Center, Inc. ("Brevard"), the subsidiary
that operates outpatient medical centers in Brevard County, Florida, increased
approximately $358,000, or 9% from fiscal 1994. As a result of the health care
industry shifting toward managed care, Brevard was successful in becoming
preferred providers for new managed care plans coming into the county. This
increase in revenue is the direct result of additional capitation business
generated from managed care plans, primarily from health maintenance
organizations (HMO's), offset by a reduction in traditional fee-for-service
business. Revenue from First Health, Inc. ("First Health"), the subsidiary that
operates outpatient medical centers in Volusia County, Florida, increased
approximately $812,000 from the previous fiscal year, as only three months were
included in fiscal July 31, 1994 operations. The major source of revenue is from
a large health maintenance organization, to which First Health is a preferred
provider.
Cost of revenue as a percentage of revenue was 61% for both fiscal
1995 and 1994. In preparation for becoming preferred providers for new managed
care plans in Florida, the Company
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increased its medical provider costs in fiscal 1995 in expectation of securing
additional managed care revenues. The actual increase was less than expected,
resulting in a higher cost of revenue as a percentage of revenue from those
operations. However, this higher percentage was offset by a decline in the cost
of revenue as a percentage of revenues from home health care operations. General
and administrative expenses increased to 29% of revenue in fiscal 1995 from 28%
of revenue in fiscal 1994. This slight increase is primarily attributable to the
added operating costs of the outpatient medical operations.
Interest income increased approximately $249,000 or 155% from the
previous fiscal year. This increase is attributable to interest earned on both
the notes receivable from Boro Medical and the federal income tax refund
received in fiscal 1995 of approximately $2,100,000 as a result of carryback
claims.
The Company's effective tax rate decreased to approximately 44% in
fiscal 1995 as compared to 47% in fiscal 1994. This decrease is primarily
attributable to federal income tax credits utilized in fiscal 1995.
As a result of the foregoing, net income for fiscal 1995 increased to
$1,426,000 from $1,218,000 for fiscal 1994.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1996, the Company had working capital of $16,228,000 as
compared to working capital of $15,292,000 at July 31, 1995. Cash and cash
equivalents at July 31, 1996 was $8,929,000 as compared with $9,237,000 at July
31, 1995.
Net cash provided by operating activities was $1,066,000 in fiscal
1996 as compared with $3,496,000 in fiscal 1995. A reduction in income taxes
receivable as a result of one-time tax carryback claims received in fiscal 1995
and an increase in estimated third party payor settlements substantially
accounted for the decrease from fiscal 1995. The Company expects to generate
sufficient cash flow from operations to meet its working capital requirements.
Investing activities in fiscal 1996 used cash of $2,482,000 as
compared to cash provided from investing activities of $681,000 in fiscal 1995.
The acquisition of Nurse Care and the decrease in proceeds of investments
primarily accounted for the decrease from fiscal 1995.
Cash provided from financing activities in fiscal 1996 was $1,108,000
as compared to $43,000 in fiscal 1995. This increase is attributable to the
increase in cash received on notes receivable and proceeds from the exercise of
stock options in fiscal 1996 over fiscal 1995 and the purchase of treasury
shares in fiscal 1995, offset by the cash surrendered in the subsidiary stock
offering in fiscal 1996.
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The nature of the Company's business requires weekly payments to the
health care personnel at the time services are rendered. The Company typically
receives payment for these services on a basis of 90 to 120 days with respect to
contracted business and 30 days with respect to certain governmental payors,
such as Medicare and Medicaid programs. For the fiscal year ended July 31, 1996
accounts receivable turnover decreased to 73 days from 92 days in the previous
fiscal year. This decrease is attributable to the operations of New England as a
significant amount of its revenue is derived from both Medicare and Medicaid
programs.
The Company has available a $2,000,000 secured line of credit with
its bank. In addition, a subsidiary of the Company has a secured advised line of
credit. The maximum amount that can be borrowed under the secured advised line
of credit shall not exceed the lesser of eligible accounts receivable or
$2,000,000. Both credit facilities bear interest at the alternate base
commercial lending rate of the bank and expire December 31, 1996. At July 31,
1996, there were no outstanding balances under either line of credit.
The Company intends to meet both its short and long term liquidity
needs with its current cash balances, cash flow and available lines of credit.
The Company believes that its current cash balances and available credit will
also allow it to continue to make acquisitions in the home health care field
without affecting its liquidity needs.
The Internal Revenue Services conducted an examination of federal tax
returns for the years ended July 31, 1991 through 1994. The Company received a
refund of approximately $2,100,000 as a result of net operating loss carryback
claims made in fiscal year ended July 31, 1994 and the years affected by the
claims were examined. An immaterial preliminary assessment, subject to review,
has been proposed.
IMPACT OF INFLATION AND SEASONALITY
The impact of inflation on the Company was not material for the year
ended July 31, 1996.
The Company's business is not seasonal.
ECONOMIC OUTLOOK
The home health care industry has become increasingly competitive and
management believes this trend will continue in the future. This competition has
lead to mergers between large well diversified home health care companies over
the past years. Further, such companies have more acquisition and growth
opportunities available to them. Additionally, there is tremendous competition
for qualified personnel in the home health care industry. Management believes
that it offers competitive salaries and benefit packages. There can be no
assurance, however, that the Company will be successful in attracting and
retaining qualified personnel. If unsuccessful, this could have a material
adverse effect on the Company's business.
-13-
<PAGE>
Other than as set forth herein, the Company has no material
commitments for capital expenditures as of July 31, 1996.
In the opinion of management there will be no material impact on the
financial statements of the Company from any recently issued accounting
standards.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Quarterly Results (unaudited)
The following table presents unaudited condensed financial data for
the last eight fiscal quarters. In the opinion of management, all necessary
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The following selected quarterly
information should be read in conjunction with the consolidated financial
statements included elsewhere herein.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------- --------------- ---------------- ---------------
1995
- ----
<S> <C> <C> <C> <C>
Revenues $5,729,000 $6,045,000 $6,296,000 $6,486,000
Earnings from continuing operations 265,000 334,000 401,000 426,000
Earnings per share from continuing operations 0.05 0.07 0.08 0.08
Earnings per share 0.05 0.07 0.08 0.08
1996
- ----
Revenues 10,074,000 9,965,000 9,760,000 9,031,000
Earnings from continuing operations before gain
resulting from subsidiary's stock offering 452,000 471,000 533,000 887,000
Earnings resulting from subsidiary's stock
offering - - - - - - - - - 1,014,000
Earnings from continuing operations before gain
resulting from subsidiary's stock offering per
share 0.09 0.09 0.11 0.17
Earnings resulting from subsidiary's stock
offering per share - - - - - - - - - 0.21
Earnings per share 0.09 0.09 0.11 0.38
</TABLE>
The other information required by this item is set forth in the
Consolidated Financial Statements on pages F-1 through F-22.
-14-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by each of the items of Part III is omitted
from this Report. Pursuant to the General Instruction G(3) to Form 10-K, the
information is included in the Company's Proxy Statement for its 1996 Annual
Meeting of Stockholders to be held on December 9, 1996, and is incorporated
herein by reference. The Company intends to files such Proxy Statement with the
Securities and Exchange Commission not later than 120 days subsequent to July
31, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following represents a listing of all financial statements,
financial statement schedules and exhibits filed as part of this Report.
(1) Financial Statements (see index to the consolidated
financial statements).
(2) Financial Statement Schedules (see index to the
consolidated financial statements).
(3) Exhibits
-15-
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
FILED WITH THE ANNUAL REPORT OF THE COMPANY ON FORM 10-K
PART II ITEM 8:
REPORT OF INDEPENDENT AUDITORS F-2
CONSOLIDATED BALANCE SHEETS AS AT JULY 31, 1996
AND 1995 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED JULY 31, 1996, 1995 AND 1994 F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED JULY 31, 1996, 1995
AND 1994 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED JULY 31, 1996, 1995 AND 1994 F-6
NOTES TO FINANCIAL STATEMENTS F-7
PART IV ITEM 14:
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE F-29
II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS
ENDED JULY 31, 1996, 1995 AND 1994 F-30
Schedules Omitted
Other schedules have been omitted as the conditions requiring their filing are
not present or the information required therein has been included in the notes
to consolidated financial statements.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
National Home Health Care Corp.
Scarsdale, New York
We have audited the accompanying consolidated balance sheets of
National Home Health Care Corp. and subsidiaries as at July 31, 1996 and July
31, 1995, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended July 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the consolidated financial position of
National Home Health Care Corp. and subsidiaries at July 31, 1996 and July 31,
1995, and the consolidated results of their operations and their consolidated
cash flows for each of the years in the three-year period ended July 31, 1996,
in conformity with generally accepted accounting principles.
New York, New York
October 21, 1996
F-2
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31,
A S S E T S 1996 1995
----------- ------------ ------------
<S> <C> <C>
Current assets:
Cash (including cash equivalents of $8,226,000 and
$8,422,000) (Note 10) ....................................... $ 8,929,000 $ 9,237,000
Investments - available for sale ............................... 528,000 813,000
Accounts receivable (less allowance for doubtful
accounts of $414,000 and $99,000) (Note 10) ................. 8,499,000 5,338,000
Notes receivable (Note 3) ..................................... 349,000
Income taxes receivable ........................................ 203,000 72,000
Prepaid expenses and other assets .............................. 218,000 354,000
Deferred taxes ................................................. 304,000 80,000
------------ ------------
Total current assets .................................... 18,681,000 16,243,000
Furniture, equipment and leasehold improvements, net
(Notes 1 and 2) ............................................... 319,000 445,000
Notes receivable - noncurrent (Note 3) ........................... 690,000
Excess of cost over fair value of net assets of
businesses acquired (Notes 1 and 4) ........................... 2,557,000 1,036,000
Other intangible assets (Note 5) ................................. 132,000 342,000
Deposits and other assets ......................................... 110,000 109,000
Investment in unconsolidated investee (Note 6) ................... 2,622,000
------------ ------------
T O T A L ............................................... $ 24,421,000 $ 18,865,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .......................... $ 1,315,000 $ 951,000
Estimated third-party payor settlements ........................ 1,078,000
------------ ------------
Total current liabilities ............................... 2,393,000 951,000
Deferred tax liability - noncurrent (Note 9) ..................... 524,000
------------ ------------
Total liabilities ....................................... 2,917,000 951,000
------------ ------------
Commitments, contingencies and other matters
(Notes 9 and 12)
Stockholders' equity (Note 11):
Common stock, $.001 par value; authorized 20,000,000
shares, issued 6,050,321 and 5,673,075 shares ................ 6,000 6,000
Additional paid-in capital ..................................... 17,660,000 15,552,000
Retained earnings .............................................. 4,789,000 3,307,000
------------ ------------
22,455,000 18,865,000
Less treasury stock (955,000 shares) - at cost ................. (951,000) (951,000)
------------ ------------
Total stockholders' equity .............................. 21,504,000 17,914,000
------------ ------------
T O T A L ............................................... $ 24,421,000 $ 18,865,000
============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended July 31,
-------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net patient revenue (Note 10) ....................... $ 38,830,000 $ 24,556,000 $ 20,116,000
------------ ------------ ------------
Operating expenses:
Cost of revenue .................................. 24,798,000 15,032,000 12,178,000
General and administrative ....................... 10,472,000 7,213,000 5,618,000
Amortization of intangibles ...................... 294,000 169,000 186,000
------------ ------------ ------------
Total operating
expenses ................................ 35,564,000 22,414,000 17,982,000
------------ ------------ ------------
Income from operations .............................. 3,266,000 2,142,000 2,134,000
Other income:
Gain resulting from
subsidiary's stock
offering (Note 6) ............................. 1,548,000
Interest income .................................. 412,000 410,000 161,000
(Loss) from equity investee ...................... (10,000)
------------ ------------ ------------
Income from continuing
operations before taxes .......................... 5,216,000 2,552,000 2,295,000
Provision for income taxes
(Note 9) ......................................... 1,859,000 1,126,000 1,077,000
------------ ------------ ------------
Income from continuing
operations ....................................... 3,357,000 1,426,000 1,218,000
------------ ------------ ------------
Discontinued operations (Note 7):
(Loss) from operations
(net of income taxes
of $40,000) ................................. (32,000)
(Loss) on disposals (net
of income tax benefit of
$2,734,000) ................................. (3,440,000)
------------ ------------ ------------
T o t a l ................................. (3,472,000)
------------ ------------ ------------
NET INCOME (LOSS) ................................... $ 3,357,000 $ 1,426,000 $ (2,254,000)
============ ============ ============
Net income (loss) per share of common stock (Note 1):
Continuing operations .......................... $ .67 $ .28 $ .24
Discontinued operations ........................ (.68)
------------ ------------ ------------
Net income (loss) per
share ........................................ $ .67 $ .28 $ (.44)
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Treasury Stock
----------------------------- Additional -------------------------
Number of Paid-In Retained Number of
Shares Amount Capital Earnings Shares Cost
------------ ------------ ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1993 ................. 5,670,075 $ 6,000 $ 15,544,000 $ 4,135,000 891,000 $ (743,000)
Net (loss) ............................... (2,254,000)
------------ ------------ ------------ ------------ --------- ------------
Balance at July 31, 1994 ................. 5,670,075 6,000 15,544,000 1,881,000 891,000 (743,000)
Net income ................................ 1,426,000
Acquisition of treasury shares, $3.25
per share .............................. 64,000 (208,000)
Exercise of common stock options .......... 3,000 8,000
------------ ------------ ------------ ------------ --------- ------------
Balance at July 31, 1995 ................. 5,673,075 6,000 15,552,000 3,307,000 955,000 (951,000)
Net income ................................ 3,357,000
Stock dividend declared on October 21, 1996 288,414 1,875,000 (1,875,000)
Exercise of common stock options .......... 88,832 233,000
------------ ------------ ------------ ------------ --------- ------------
BALANCE AT JULY 31, 1996 ................. 6,050,321 $ 6,000 $ 17,660,000 $ 4,789,000 955,000 $ (951,000)
============ ============ ============ ============ ========= ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations ........................................ $ 3,357,000 $ 1,426,000 $ 1,218,000
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities:
Depreciation and amortization ........................................ 454,000 329,000 327,000
(Settlement) provision for state income taxes ........................ (300,000) 50,000
Provision for doubtful accounts ...................................... 123,000 173,000 141,000
Deferred tax ......................................................... 410,000 120,000 (20,000)
(Gain) on subsidiary's stock offering ................................ (1,548,000)
Loss from equity investee ............................................ 10,000
Changes in operating assets and liabilities:
(Increase) in management fee receivable ............................ (52,000)
(Increase) in accounts receivable .................................. (544,000) (688,000) (323,000)
(Increase) in prepaid expenses and other assets .................... (65,000) (130,000) (146,000)
(Decrease) increase in accounts payable, accrued expenses and
other liabilities ................................................ (337,000) 13,000 190,000
Decrease in income taxes receivable/payable ........................ 207,000 2,553,000 445,000
(Decrease) in estimated third party payor settlements .............. (1,001,000)
Cash provided by discontinued operations ........................... 985,000
----------- ----------- -----------
Net cash provided by operating activities ........................ 1,066,000 3,496,000 2,815,000
----------- ----------- -----------
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements .............. (172,000) (94,000) (76,000)
Proceeds (purchase) of investments ....................................... 285,000 1,000,000 (865,000)
Purchase of assets of businesses ......................................... (225,000) (147,000)
Purchase of Nurse Care, Inc., net of cash acquired ....................... (2,595,000)
Cash (used in) discontinued operations ................................... (174,000)
----------- ----------- -----------
Net cash provided by (used in) investing activities .............. (2,482,000) 681,000 (1,262,000)
----------- ----------- -----------
Cash flows from financing activities:
Decrease in notes receivable ............................................. 1,039,000 243,000
Purchase of treasury shares .............................................. (208,000)
Proceeds from exercise of stock options .................................. 233,000 8,000
Cash of subsidiary at date of stock offering (Note 6) ................... (164,000)
----------- -----------
Net cash provided by financing activities ........................ 1,108,000 43,000
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ........................ (308,000) 4,220,000 1,553,000
Cash and cash equivalents - beginning of year * ............................. 9,237,000 5,017,000 3,464,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR ..................................... $ 8,929,000 $ 9,237,000 $ 5,017,000
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ............................................................... $ 14,000 $ 13,000 $ 12,000
Taxes .................................................................. 1,677,000 618,000 651,000
</TABLE>
Supplemental disclosure of noncash investing and financing activities - see
Notes 1[n], 6 and 8.
* Includes cash of discontinued operations in 1994.
See accompanying notes to financial statements.
F-6
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 1) - Nature of Business and Summary of Significant Accounting
Policies and Acquisition:
[a] Nature of business:
National Home Health Care Corp. and subsidiaries (the "Company") is a
provider of home health care services, including nursing care, personal care and
other specialized therapies. Up until May 1996, the Company was also engaged as
a provider of outpatient medical services, see Note 6.
[b] Principles of consolidation:
The consolidated financial statements include the accounts of
National Home Health Care Corp. and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in the
consolidated financial statements. During the fourth quarter of fiscal 1996, the
Company's interest in its previously wholly-owned subsidiary, which provided
outpatient medical services, was reduced to 37.6%. Accordingly, the Company
began accounting for this entity using the equity method.
[c] Revenue recognition:
Net patient revenue represents the estimated net realizable amounts
from third party payors and patients. Approximately 39%, 13% and 17% of net
patient revenue for the fiscal years ended July 31, 1996, 1995 and 1994,
respectively, were derived under federal and state third-party reimbursement
programs. These revenues are based, in part, on cost reimbursement principles
and are subject to examination and retroactive adjustment by agencies
administering the programs. Management continuously evaluates the outcome of
these reimbursement examinations and provides allowances for any potential
adjustments. In the opinion of management, retroactive adjustments, if any,
would not be material to the financial position or results of operations of the
Company.
[d] Cash equivalents:
(continued)
F-7
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
For the purposes of the statements of cash flows, the Company
considers all highly liquid investment instruments purchased with a maturity of
three months or less to be cash equivalents.
[e] Furniture, equipment and leasehold improvements:
Furniture, equipment and leasehold improvements are stated at cost.
Depreciation is being provided on the straight-line method over the estimated
useful lives of the assets (generally five to ten years). Amortization of
leasehold improvements is being provided on the straight-line method over the
various lease terms or estimated useful lives, if shorter.
(continued)
F-8
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 1) - Nature of Business and Summary of Significant Accounting
Policies: (continued)
[f] Excess of cost over fair value of net assets of
business acquired:
The excess of cost over the fair value of net assets acquired
(goodwill) is principally being amortized over a period of 40 years on a
straight-line basis. Goodwill is evaluated periodically and adjusted if
necessary, if events and circumstances indicate that a permanent decline in
value below the current unamortized historical cost has occurred.
[g] Earnings (loss) per common share:
Earnings (loss) per common share are computed using the weighted
average number of common shares and dilutive common stock equivalents (options)
outstanding during each period after giving retroactive effect to the stock
dividend declared in October 1996. During the three years ended July 31, 1996,
the options were not materially dilutive. The number of shares used in the
calculation of earnings (loss) per share are 5,033,960 for the year ended July
31, 1996, 5,049,119 for the year ended July 31, 1995 and 5,067,489 for the year
ended July 31, 1994.
(continued)
F-9
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[h] Investments:
The Company's investments are accounted for in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" which requires that, except for debt
securities classified as "held-to maturity securities", investments in debt and
equity securities be reported at fair value.
Investment securities available for sale at July 31, 1996 and 1995
are summarized as follows:
1996 1995
Amortized Amortized
Cost (1) Cost (1)
--------- --------
Certificate of deposit, maturing within one year. . . . . $260,000
Floating rate debentures issued by New York State,
maturing in one to five years. . . . . . . . . . . . . $160,000 160,000
Floating rate debentures issued by New York State,
maturing in five to ten years. . . . . . . . . . . . . 170,000 180,000
Floating rate debentures issued by New York State,
maturity after ten years . . . . . . . . . . . . . . . 180,000 195,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000 18,000
--------- --------
$528,000 $813,000
======== ========
(1) Amortized cost approximates market value. Accordingly, there is no
unrealized holding gain or loss.
(continued)
F-10
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 1) - Nature of Business and Summary of Significant Accounting
Policies: (continued)
[i] Reclassifications:
Certain items in the 1994 and 1995 financial statements have been
reclassified to conform to the 1996 presentation.
[j] Fair value of financial instruments:
The carrying amount reported in the consolidated balance sheets for
cash, accounts receivable, accounts payable and accrued liabilities approximates
fair value because of the immediate or short-term maturity of the financial
instruments.
[k] Recently issued accounting pronouncements:
In March 1995 and October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long Lived Assets and for the Long Lived
Assets to be Disposed of", and Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock-Based Compensation", respectively. SFAS
121 is effective for the Company's fiscal year ended July 31, 1997 and SFAS 123
has various effective and transition dates. The Company believes adoption of
SFAS 121 and SFAS 123 will not have a material impact on its financial
statements. The Company expects to continue to account for employee stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" using intrinsic values with
appropriate disclosures in conformity with the fair values based method of SFAS
123.
[l] 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 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. Such estimates relate
(continued)
F-11
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
primarily to goodwill, depreciable assets and valuation reserves for accounts
receivable and deferred tax assets.
[m] Workers compensation:
The Company self-insures up to specified limits certain risks related
to workers' compensation liability. The estimated costs of existing and future
claims under the insurance program are accrued as incidents occur based upon
historical loss development trends and may be subsequently revised based on
developments relating to such claims.
(continued)
F-12
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 1) - Nature of Business and Summary of Significant Accounting
Policies: (continued)
[n] Stock dividend:
On October 21, 1996 a 6% stock dividend was declared by the Board of
Directors for shareholders of record on November 8, 1996. The stock dividend is
payable on December 4, 1996 and all stock related data in the consolidated
financial statements reflect the stock dividend for all periods presented.
(NOTE 2) - Furniture, Equipment and Leasehold Improvements:
Furniture, equipment and leasehold improvements are stated at cost
and are summarized as follows:
July 31,
1996 1995
---- ----
Equipment, furniture
and fixtures. . . . . $604,000 $1,562,000
Leasehold improvements . 140,000 368,000
744,000 1,930,000
Less accumulated
depreciation and
amortization. . . . . 425,000 1,485,000
--------- ----------
B a l a n c e. $319,000 $ 445,000
========= ==========
The net book value of furniture and equipment held under capital leases was
$20,000 and $79,000 at July 31, 1996 and July 31, 1995, respectively.
Depreciation expense includes depreciation on assets held under capital leases.
(NOTE 3) - Notes Receivable:
In April 1994, as a result of the sale of assets discussed in Note 7,
the Company received promissory notes aggregating $750,000. The Company also
received a promissory note for $500,000 for the balance of
(continued)
F-13
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
management fees previously due it. In May 1996, the promissory notes were paid
in full.
(continued)
F-14
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 4) - Excess of Cost Over Fair Value:
Changes in the excess of cost over fair value of net assets of
businesses acquired and discontinued during the three years ended July 31, 1996
are as follows:
Year Ended July 31,
------------------------------
1996 1995 1994
---- ---- ----
Balance - beginning of
year. . . . . . . . . . . $1,036,000 $1,073,000 $ 6,868,000
Consideration for
acquisition . . . . . . . 2,049,000 5,000
Reduction from subsidiary
stock offering (Note 6) . (392,000)
Write-off due to
discontinued operations . (5,671,000)
Amortization . . . . . . . . (136,000) (37,000) (129,000)
---------- ---------- -----------
Balance - end of year. . . . $ 2,557,000 $ 1,036,000 $ 1,073,000
=========== =========== ===========
(NOTE 5) - Other Intangible Assets:
Other intangible assets are as follows:
July 31,
---------------
1996 1995
---- ----
Covenants not to compete. . . . . . . $400,000 $485,000
Personnel files . . . . . . . . . . . 478,000 478,000
Other . . . . . . . . . . . . . . . . 2,000 2,000
-------- --------
880,000 965,000
Less accumulated amortization . . . . 748,000 623,000
-------- --------
$132,000 $342,000
======== ========
Other intangible assets decreased during fiscal 1996 as a result of
the subsidiary stock offering, see Note 6. Other intangible assets are being
amortized using the straight-line method over a period of 3 to 5 years.
(continued)
F-15
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 6) - Subsidiary Stock Offering:
In January 1996, the outpatient medical service business of the
Company was reorganized as SunStar Healthcare, Inc. ("SunStar"), a newly-formed,
wholly-owned subsidiary of the Company. The Company reduced its ownership
percentage of SunStar to 37.6% through a public offering of 1,495,000 shares at
a price of $5.00 per share, aggregating approximately $6,083,000, net of
expenses. Subsequent to the offering, the Company is accounting for its
investment in SunStar
(continued)
F-16
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 6) - Subsidiary Stock Offering: (continued)
using the equity method of accounting. In connection with SunStar's public stock
offering, the Company recorded a gain before tax of $1,548,000 representing the
net increase in book value of the Company's investment in SunStar at that date.
Deferred income taxes of $524,000 have been provided on the gain.
Summarized financial data of SunStar for the year ended July 31, 1996
is as follows:
Total current assets. . . . . . . . $6,403,000
Total assets. . . . . . . . . . . . $7,499,000
Total current liabilities . . . . . $ 505,000
Total liabilities . . . . . . . . . $ 522,000
Total revenues. . . . . . . . . . . $5,080,000
Net (loss). . . . . . . . . . . . . $ (222,000)
(Loss) per share. . . . . . . . . . $(.15)
Market value of the Company's
investment . . . . . . . . . . . $4,233,000
(NOTE 7) - Discontinued Operations:
[a] The Company's National HMO (New York), Inc. ("HMO") subsidiary
provided administrative and nonmedical management services for a medical group
and a dental group. In March 1994 the medical group informed the Company that it
was terminating the management arrangement between the parties. As a result, in
April 1994, the Company sold to the medical provider, the assets related to the
management business for notes receivable aggregating $750,000 (see Note 3). The
parties mutually agreed not to compete with one another for a period of two
years. Subsequently, the Company made a determination to discontinue all of its
management operation. The loss on disposal consists primarily of a write-off of
goodwill of approximately $5,700,000 net of a federal income tax benefit of
approximately $2,550,000.
Results from discontinued operations related to HMO for the
year ended July 31, 1994 are as follows:
Net revenue . . . . . . . . . . . . . . . $ 3,521,000
===========
(continued)
F-17
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Income from operations before taxes . . . $ 8,000
Income tax provision. . . . . . . . . . . 40,000
-----------
(Loss) from operations. . . . . . . . . . (32,000)
(Loss) on disposal. . . . . . . . . . . . (6,174,000)
Income tax benefit. . . . . . . . . . . . 2,550,000
Deferred income tax benefit . . . . . . . 80,000
-----------
(Loss) from discontinued operations . . . $(3,576,000)
===========
(NOTE 7) - Discontinued Operations: (continued)
[b] In May 1992, the Company purchased certain assets and assumed
certain liabilities of Hitech Registered Nurses of New Jersey, Inc., ("Hitech")
for $250,000. In July 1993, the Company made a determination to discontinue
these operations, after concluding that the time and financial commitment needed
to turn around Hitech's operations (skilled nursing and home intravenous
therapy) would be too great for it to pursue. During the year ended July 31,
1993, in connection with the decision to discontinue the operation, the Company
recorded a charge of $514,000 (net of a deferred tax benefit of $319,000),
consisting of a provision for estimated loss on disposition of Hitech's assets
and a provision for estimated operating losses through the expected time of
disposition.
Results from discontinued operations related to Hitech for the year
ended July 31, 1994 relate to certain adjustments of tax accounts as follows:
Income tax benefit. . . . . . . $ 423,000
Deferred income tax . . . . . . (319,000)
Income from discontinued
operations . . . . . . . . . $ 104,000
(NOTE 8) - Acquisitions:
On August 4, 1995, the Company acquired all of the outstanding common
shares of Nurse Care, Inc., the parent company of New England Home Care, Inc.
("New England"). New England is a licensed and Medicare certified home health
care agency providing services in Fairfield and
(continued)
F-18
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
New Haven counties in the State of Connecticut. The purchase price of $3,150,000
was generated from internal funds. The acquisition was accounted for as a
purchase and the excess of the purchase price over the fair value of the assets
acquired, $2,049,000, was allocated to goodwill.
The following unaudited pro forma consolidated statement of
operations information gives effect to the acquisition described above as though
it had occurred on August 1, 1994, after giving effect to certain adjustments,
including amortization of goodwill of $102,000, decrease in interest income of
$189,000, elimination of former shareholder compensation of $250,000, benefit
from additional third-party reimbursement of $200,000 and income taxes of
$104,000. The unaudited pro forma financial information may not necessarily
reflect
(continued)
F-19
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 8) - Acquisitions: (continued)
the results of operations that would have occurred had the acquisition occurred
on August 1, 1994:
Net patient revenue. . . . . . . . $ 40,547,000
Operating expenses . . . . . . . . (37,777,000)
Income from operations . . . . . . $ 2,770,000
============
Net income . . . . . . . . . . . . $ 1,632,000
============
Net income per share . . . . . . . $.34
====
In March 1995, the Company purchased certain assets of a company
engaged in home health care services for an aggregate purchase price of
$250,000. The acquisition was accounted for as a purchase; $25,000 was allocated
to furniture and equipment, $200,000 to a covenant not to compete and $25,000 to
personnel files.
Had the operations of the company been acquired as of August 1, 1993,
there would have been no material effect on the consolidated operations of the
Company for the years ended July 31, 1995 and July 31, 1994.
(NOTE 9) - Income Taxes:
The provision for income taxes for 1996, 1995 and 1994 applicable to
continuing operations is summarized as follows:
Year Ended July 31,
------------------------------
1996 1995 1994
---- ---- ----
Current:
Federal . . . . . $1,340,000 $ 515,000 $ 688,000
State and local . 109,000 491,000 409,000
---------- ---------- ----------
1,449,000 1,006,000 1,097,000
Deferred . . . . . . 410,000 120,000 (20,000)
---------- ---------- ----------
T o t a l. $1,859,000 $1,126,000 $1,077,000
========== ========== ==========
(continued)
F-20
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 9) - Income Taxes: (continued)
Deferred income taxes reflect the tax impact of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations. The principal items
making up the deferred income tax expenses (benefit) are as follows:
Year Ended July 31,
---------------------------
1996 1995 1994
---- ---- ----
State tax and net operating
loss carryforwards . . . . $(114,000) $120,000 $(20,000)
Tax on gain from sale of
subsidiary stock . . . . . 524,000
$ 410,000 $120,000 $(20,000)
========== ========= =========
The deferred tax assets and liabilities as of July 31, 1996, are as
follows:
Assets Liabilities
Accrued liability and
reserves . . . . . . . . . $190,000
State net operating loss
carryforwards. . . . . . . 114,000
Investment in unconsolidated
subsidiary . . . . . . . . $524,000
-------- --------
304,000 $524,000
========
Valuation allowance . . . . . -0-
--------
$304,000
========
The Company and two subsidiaries have incurred losses which can be
used to offset state taxable income through 2012. Total net operating losses
applicable to New York State and Connecticut amount to approximately $3,300,000
and $300,000, respectively.
(continued)
F-21
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 9) - Income Taxes: (continued)
The reconciliation of the statutory tax rate to the effective tax
rate for the three years ended July 31, 1996 is as follows:
Year Ended July 31,
------------------
1996 1995 1994
---- ---- ----
Statutory rate . . . . . . . . 34% 34% 34%
State and local taxes (net of
federal tax effect) . . . . 1 12 12
Federal tax credit . . . . . . (5)
Other. . . . . . . . . . . . . 1 3 1
--- --- --
Effective rate . . . . . . . . 36% 44% 47%
=== === ===
In 1995, the Company and the New York State Department of Taxation
and Finance entered into a Stipulation of Discontinuance regarding all open
taxable years for which the Company previously had been assessed. In
consideration for a payment of approximately $333,000, this matter was settled.
The Company previously established a provision to cover the payment and
interest.
The Internal Revenue Service conducted an examination of federal tax
returns for the years ended July 31, 1991 through July 31, 1994. The Company
received a refund of approximately $2,100,000 as a result of net operating loss
carryback claims made in fiscal year ended July 31, 1994 and the years affected
by the claims were examined. An immaterial preliminary assessment, subject to
review, has been proposed.
(NOTE 10) - Concentrations of Credit Risk and Major Customers:
Most of the Company's business is with customers and governmental
agencies who are in the health care industry.
The Company provides temporary health care personnel to in-home
patients in the New York City metropolitan area and State of
(continued)
F-22
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Connecticut. Credit losses relating to customers historically have been
minimal and within management's expectations.
At July 31, 1996, the Company maintained approximately 49% of its
cash and cash equivalents with one financial institution.
(continued)
F-23
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 10) - Concentrations of Credit Risk and Major Customers:
(continued)
Under certain federal and state third-party reimbursement programs,
the Company received net patient revenues approximating $15,211,000, $3,125,000
and $3,427,000 for the years ended July 31, 1996, July 31, 1995 and July 31,
1994, respectively. The Company also received net patient revenues of
approximately $9,275,000, $9,933,000 and $7,842,000 July 31, 1996, July 31, 1995
and July 31, 1994, respectively, from a private company. At July 31, 1996, the
Company had an aggregate outstanding receivable from the federal and state
reimbursement programs of $2,799,000 and an outstanding receivable of $2,199,000
from the private company.
(NOTE 11) - Stock Option Plan:
In 1992, the stockholders approved the 1992 Stock Option Plan (the
"1992 Plan") designed to provide an incentive to key employees (including
directors and officers who are key employees) and to Directors who are not
employees of the Company. The 1992 Plan authorizes the granting of both
incentive and nonqualified stock options to purchase up to 500,000 shares of the
Company's common stock.
The 1992 Plan is administered by the Compensation Committee which has
the authority to determine when options are granted, the term during which an
option may be exercised (provided no option has a term exceeding ten years), the
exercise price and the exercise period. The exercise price shall generally not
be less than the fair market value on the date of grant. No option may be
granted under the 1992 Plan after August 16, 2002.
During 1995, 283,502 options previously granted under another stock
option plan were cancelled upon termination of that plan and replaced with
283,502 options granted under the 1992 Plan.
At July 31, 1996, 408,168 shares of the Company's common stock have
been reserved for future issuance pursuant to the 1992 Plan.
(continued)
F-24
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 11) - Stock Option Plan: (continued)
Listed below is a summary of stock option activity for the three
years ended July 31, 1996:
Number of Shares Exercise
1996 1995 1994 Price
-------- --------- -------- ----------
Outstanding -
beginning of
period . . . . 295,502 300,502 313,502 $2.63 - $4.75
Options granted . 12,000 286,502 2.63 - 6.25
Options exercised (88,832) (3,000) 2.63
Options forfeited (26,234) (288,502) (13,000) 2.63 - 4.75
-------- --------- --------
Options
outstanding. . 192,436 295,502 300,502 2.63 - 4.75
======== ========= ========
Options
exercisable. . 192,436 295,502 300,502
======== ========= ========
(NOTE 12) - Commitments, Contingencies and Other Matters:
[a] The Company has an Employee Savings and Stock Investment Plan
organized under Section 401(k) of the Internal Revenue Code. Under the plan,
employees may contribute up to 10% of their salary into the plan, limited to the
maximum amount allowable under federal tax regulations. The Company will match
employee contributions invested in Company common stock up to 5% of the
employee's salary and may also make additional contributions at its discretion.
In addition to investing in Company stock, an employee may invest in several
mutual funds. The Company's contribution for each of the years ended July 31,
1996, July 31, 1995 and July 31, 1994 was $122,000, $59,000 and $74,000,
respectively.
[b] The Company and its subsidiaries have employment agreements with
five officers which provide for aggregate annual salaries of $796,000. The
employment agreements expire through April 1998. One of the agreements provides
for additional compensation of up to $150,000 based on 5% of pre-tax income, as
defined, in excess of $3,000,000.
[c] The Company rents various office facilities through 2000 under
the terms of several lease agreements which include escalation clauses.
(continued)
F-25
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 12) - Commitments, Contingencies and Other Matters: (continued)
[c] (continued)
At July 31, 1996, minimum annual rental commitments under
noncancellable operating leases are as follows:
Year Ending
July 31,
1997. . . . . . . . . . . . . $380,000
1998. . . . . . . . . . . . . 143,000
1999. . . . . . . . . . . . . 54,000
2000. . . . . . . . . . . . . 27,000
--------
T o t a l . . . . . $604,000
========
Rent expense (including discontinued operations) for the years ended
July 31, 1996, July 31, 1995 and July 31, 1994 was approximately $655,000,
$584,000 and $859,000, respectively.
One lease is with a company controlled by the Company's Chief
Executive Officer. Rent expense under such lease approximates $120,000 per year.
[d] The Company has a line of credit with its bank totalling
$2,000,000. Advances against the line are to be collateralized by the assets of
the Company. In addition, a subsidiary of the Company has a secured advised line
of credit. The maximum amount that can be borrowed under the secured advised
line of credit shall not exceed the lesser of eligible accounts receivable or
$2,000,000. Both credit facilities bear interest at the alternate base
commercial lending rate of the bank and expire December 31, 1996. At July 31,
1996, there were no outstanding balances under either line of credit.
(NOTE 13) - Segment Information:
The Company's operations are in home health care services and,
through May 1996, outpatient medical services. Home health care services are
performed in the New York metropolitan area and in the
(continued)
F-26
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
State of Connecticut. Outpatient medical services were performed in Brevard and
Volusia County, Florida. Subsequent to the Company's sale of its majority
ownership in SunStar Healthcare, Inc., during the fourth quarter of fiscal 1996,
such operations are not consolidated and, accordingly, are not included in the
following segment information.
(continued)
F-27
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 13) - Segment Information: (continued)
Revenue, operating expenses and income from operations pertaining to
the Company's operations are as follows:
Year Ended July 31,
------------------------------
1996 1995 1994
---- ---- ----
Net patient revenue:
Home health care services . $35,209,000 $19,428,000 $16,233,000
Outpatient medical services 3,621,000 5,128,000 3,883,000
----------- ----------- -----------
38,830,000 24,556,000 20,116,000
----------- ----------- -----------
Operating expenses:
Home health care services . 31,968,000 17,379,000 14,314,000
Outpatient medical services 3,596,000 5,035,000 3,668,000
----------- ----------- -----------
35,564,000 22,414,000 17,982,000
----------- ----------- -----------
Income from operations:
Home health care services . 3,241,000 2,049,000 1,919,000
Outpatient medical services 25,000 93,000 215,000
----------- ----------- -----------
$ 3,266,000 $ 2,142,000 $ 2,134,000
=========== =========== ===========
F-28
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
Board of Directors and Stockholders
National Home Health Care Corp.
New York, New York
The audits referred to in our report dated October 21, 1996 on the
consolidated financial statements of National Home Health Care Corp. and
subsidiaries, which appears in Part II, includes Schedule II for each of the
years in the three-year period ended July 31, 1996. In our opinion, such
schedule presents fairly the information set forth therein in compliance with
the applicable accounting regulation of the Securities and Exchange Commission.
New York, New York
October 21, 1996
F-29
<PAGE>
SCHEDULE II
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 1996, JULY 31, 1995 AND JULY 31, 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance (1) (2)
at Charged to Balance
beginning Charged to other at
of costs and accounts - Deductions - end of
Description period expenses describe describe period
----------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Year ended July 31, 1996:
Reserve and allowance deducted
from asset account and allowance
for uncollectible accounts ..... $ 439,000 (2) $ 123,000 $(148,000) (1) $ 414,000
========= ========= ========= =========
Year ended July 31, 1995:
Reserve and allowance deducted
from asset account and allowance
for uncollectible accounts ..... $ 84,000 $ 173,000 $(158,000) (1) $ 99,000
========= ========= ========= =========
Year ended July 31, 1994:
Reserve and allowance deducted
from asset account and allowance
for uncollectible accounts ..... $ 54,000 $ 141,000 $(111,000) (1) $ 84,000
========= ========= ========= =========
</TABLE>
(1) Represents actual write-offs.
(2) Includes $340,000 acquired in acquisition of Nurse Care, Inc.
See accompanying notes to financial statements.
F-30
<PAGE>
EXHIBIT
NUMBER DOCUMENT
- ------ --------
3.1 Certificate of Incorporation (1)
3.2 Certificate of Amendment to Certificate of Incorporation (2)
3.3 By-laws (1)
10.1 1992 Stock Option Plan (3)
10.2 Incentive Stock Option Plan (3)
10.3 Agreement dated January 1, 1994 between Allen Health Care Services and
VNS Home Care (4)
10.4 Employment Agreement dated August 1993 between the Registrant and
Steven Fialkow (3)
10.5 First Amendment dated as of July 1, 1996 to Employment Agreement dated
August 1993 between the Registrant and Steven Fialkow
10.6 Employment Agreement dated as of July 1, 1996 between the Registrant
and Robert P. Heller
10.7 Employment Agreement dated August 1993 between the Registrant and
Richard Garofalo (3)
10.8 First Amendment dated as of July 1, 1996 to Employment Agreement dated
August 1993 between the Registrant and Richard Garofalo
10.9 Employment Agreement dated August 1993 between the Registrant and
Thomas Smith (3)
10.10 First Amendment dated as of July 1, 1996 to Employment Agreement dated
August 1993 between the Registrant and Thomas Smith
10.11 Agreement between Division of Social Services of Suffolk County and
Health Acquisition Corp. (5)
10.12 Agreement between Nassau County Department of Social Services and
Allen Health Care Services (2)
10.13 Agreement dated January 1, 1994 between Catholic Medical Center of
Brooklyn and Queens, Inc. (4)
-16-
<PAGE>
EXHIBIT
NUMBER DOCUMENT
- ------ --------
10.14 Letter Agreement dated March 15, 1995 securing a line of credit from
the Bank of New York (7)
10.15 Letter dated June 1, 1992 from Public Health Council of the State of
New York Department of Health to Health Acquisition Corp. d/b/a Allen
Health Care Services (2)
10.16 Letter from Joint Commission on Accreditation of Healthcare
Organizations awarding accreditation to Allen Health Care, dated
September 20, 1993 (3)
10.17 1993 401(k) Plan (3)
10.18 Letter Agreement between National HMO (New York), Inc. and Boro
Medical, P.C. dated November 12, 1993 (3)
10.19 Asset Purchase Agreement among National HMO (New York), Inc., National
HMO Corp. of Elizabeth, Inc., Boro Medical, P.C. and Boro Health Care
of Union, P.C. dated April 30, 1994 (4)
10.20 Agreement for the Purchase of the Stock of Nurse Care, Inc. and
Related Transactions (6)
10.21 Employment Agreement dated as of August 1, 1995 between New England
and Aileen O'Connell (6)
10.22 Letter Agreement dated December 27, 1995 securing a line of credit
from the Bank of New York
21.1 List of Subsidiaries
23.1 Consent of Richard A. Eisner & Co., LLP
27 Financial Data Schedule
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (No. 2-86643) filed September 20, 1983.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1992.
(3) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1993.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal yeard ended July 31, 1994.
-17-
<PAGE>
(5) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal yeard ended July 31, 1991.
(6) Incorporated by reference to the Registrant's Report on Form 8-K dated
August 4, 1995.
(7) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal yeard ended July 31, 1995.
(b) Reports on Form 8-K. None have been filed during the last fiscal
quarter.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NATIONAL HOME HEALTH CARE CORP.
By: /s/ Robert P. Heller
------------------------------
Robert P. Heller
Vice President of Finance and Chief
Financial Officer
Dated: October 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on the above date by the following persons on behalf of the
Registrant and in the capacities indicated.
/s/ Frederick H. Fialkow Chairman of the Board of Directors,
- ------------------------------ President & CEO
Frederick H. Fialkow
/s/ Robert P. Heller Vice President of Finance and Chief Financial
- ------------------------------ Officer (Principal Financial and Accounting
Robert P. Heller Officer)
/s/ Steven Fialkow Director
- ------------------------------
Steven Fialkow
/s/ Ira Greifer Director
- ------------------------------
Ira Greifer, M.D.
/s/ Bernard Levine Director
- ------------------------------
Bernard Levine, M.D.
/s/ Robert Pordy Director
- ------------------------------
Robert Pordy, M.D.
<PAGE>
Commission File No. 0-12927
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
to
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED JULY 31,1996
NATIONAL HOME HEALTH CARE CORP.
<PAGE>
EXHIBIT
NUMBER DOCUMENT
- ------ --------
3.1 Certificate of Incorporation (1)
3.2 Certificate of Amendment to Certificate of Incorporation (2)
3.3 By-laws (1)
10.1 1992 Stock Option Plan (3)
10.2 Incentive Stock Option Plan (3)
10.3 Agreement dated January 1, 1994 between Allen Health Care Services and
VNS Home Care (4)
10.4 Employment Agreement dated August 1993 between the Registrant and
Steven Fialkow (3)
10.5 First Amendment dated as of July 1, 1996 to Employment Agreement dated
August 1993 between the Registrant and Steven Fialkow
10.6 Employment Agreement dated as of July 1, 1996 between the Registrant
and Robert P. Heller
10.7 Employment Agreement dated August 1993 between the Registrant and
Richard Garofalo (3)
10.8 First Amendment dated as of July 1, 1996 to Employment Agreement dated
August 1993 between the Registrant and Richard Garofalo
10.9 Employment Agreement dated August 1993 between the Registrant and
Thomas Smith (3)
10.10 First Amendment dated as of July 1, 1996 to Employment Agreement dated
August 1993 between the Registrant and Thomas Smith
10.11 Agreement between Division of Social Services of Suffolk County and
Health Acquisition Corp. (5)
10.12 Agreement between Nassau County Department of Social Services and
Allen Health Care Services (2)
10.13 Agreement dated January 1, 1994 between Catholic Medical Center of
Brooklyn and Queens, Inc. (4)
-2-
<PAGE>
EXHIBIT
NUMBER DOCUMENT
- ------ --------
10.14 Letter Agreement dated March 15, 1995 securing a line of credit from
the Bank of New York (7)
10.15 Letter dated June 1, 1992 from Public Health Council of the State of
New York Department of Health to Health Acquisition Corp. d/b/a Allen
Health Care Services (2)
10.16 Letter from Joint Commission on Accreditation of Healthcare
Organizations awarding accreditation to Allen Health Care, dated
September 20, 1993 (3)
10.17 1993 401(k) Plan (3)
10.18 Letter Agreement between National HMO (New York),Inc. and Boro
Medical, P.C. dated November 12, 1993 (3)
10.19 Asset Purchase Agreement among National HMO (New York), Inc., National
HMO Corp. of Elizabeth, Inc., Boro Medical, P.C. and Boro Health Care
of Union, P.C. dated April 30, 1994 (4)
10.20 Agreement for the Purchase of the Stock of Nurse Care, Inc. and
Related Transactions (6)
10.21 Employment Agreement dated as of August 1, 1995 between New England
and Aileen O'Connell (6)
10.22 Letter Agreement dated December 27, 1995 securing a line of credit
from the Bank of New York
21.1 List of Subsidiaries
23.1 Consent of Richard A. Eisner & Co., LLP
27 Financial Data Schedule
(1) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (No. 2- 86643) filed September 20, 1983.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1992.
(3) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1993.
-3-
<PAGE>
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1994.
(5) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1991.
(6) Incorporated by reference to the Registrant's Report on Form 8-K dated
August 4, 1995.
(7) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1995.
-4-
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement, dated as of July 1, 1996
(the "Amendment"), is by and between NATIONAL HOME HEALTH CARE CORP., a Delaware
corporation having an address at 700 White Plains Road, Suite 363, New York, New
York 10583 (the "Company") and STEVEN FIALKOW, an individual having an address
c/o Nurse Care, Inc., 57 Plains Road, Milford, Connecticut 06460 (the
"Employee").
WHEREAS, the Company and the Employee are parties to an Employment
Agreement dated as of August 1993 (the "Agreement"); and
WHEREAS, the Company and the Employee desire to amend the Agreement in
certain respects.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions hereinafter set forth, the parties hereby agree as
follows:
1. Amendment to the Agreement. The Agreement hereby is amended as of
July 1, 1996, as follows:
(a) The first sentence of Paragraph 2 of the Agreement hereby is
amended such that the amount "$93,600" contained therein hereby is
changed to "$115,000" and the word "first" contained therein hereby is
changed to "third".
(b) The third sentence of Paragraph 2 of the Agreement hereby is
amended such that the word "two" contained therein hereby is changed to
"three".
(c) New Sections 11 and 12 contained in Annex A attached hereto
hereby are added in their entirety to the Agreement immediately
following Section 10 thereof and each subsequent section of the
Agreement hereby is renumbered accordingly.
2. Counterparts. This Amendment may be signed in one or more counterpart
copies, each of which constitutes an original, but all of which, when taken
together, shall consti tute one agreement binding upon all of the parties
hereto.
<PAGE>
3. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflicts of law rules thereof.
4. Agreement to Continue as Amended. Except as modified and amended by
this Amendment, the Agreement shall remain and continue in full force and effect
after the date hereof.
IN WITNESS WHEREOF, the parties hereunto have executed and delivered
this Amendment as of the date first written above.
NATIONAL HOME HEALTH CARE CORP.
By: /s/ Frederick Fialkow
--------------------------
Name: Frederick Fialkow
Title:
/s/ Steven Fialkow
--------------------------
Steven Fialkow
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<PAGE>
ANNEX A
11. Change in Control Bonus. In the event of a Change in Control, as
defined below, the Company promptly shall pay to Employee a lump-sum amount
equal to one-half of Employee's Salary at the time of the occurrence of such
Change in Control. The Company hereby agrees to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement. For purposes
of this Agreement, a "Change in Control" shall have occurred if:
a. any "person", as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than
the Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or any corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities;
b. during any period of not more than two consecutive years (not
including any period prior to the execution of this Agreement), individuals who
at the beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an agreement
with the Company to effect a transaction described in clause (a), (c) or (d) of
this Section) whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority thereof;
c. the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or
d. the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
12. Assignment. Neither this Agreement, nor any of Employee's rights,
powers, duties or obligations hereunder, may be assigned by Employee. This
Agreement shall be binding upon and
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<PAGE>
inure to the benefit of Employee and his heirs and legal representatives and the
Company and its successors and assigns. Successors of the Company shall include,
without limitation, any corporation or corporations acquiring, directly or
indirectly, all or substantially all of the assets of the Company, whether by
merger, consolidation, purchase, lease or otherwise, and such successor shall
thereafter be deemed "the Company" for the purpose hereof.
-4-
EMPLOYMENT AGREEMENT
This Agreement, dated as of July 1, 1996, by and between NATIONAL
HOME HEALTH CARE CORP., a Delaware corporation, with offices at 700 White Plains
Road, Scarsdale New York 10583 (the "Company"), and ROBERT P. HELLER, an
individual residing at 617 Fir Court, Norwood, New Jersey 07648 ("Employee").
W I T N E S S E T H
WHEREAS, Employee is currently employed by the Company; and
WHEREAS, the Company wishes to continue to employ Employee;
NOW, THEREFORE, the parties agree as follows:
1. Employment: he Company hereby agrees to employ Employee and
Employee agrees to be employed by the Company upon the terms and conditions set
forth below for a period of one (1) year commencing on the date of this
Agreement, unless sooner terminated as herein provided (the "Employment
Period"). During the Employment Period, Employee will initially hold the
position of Vice President of Finance and Chief Financial Officer of the
Company, and, thereafter, hold such positions of an executive nature and perform
all duties and services incident to those positions as may be assigned to
Employee from time to time by the Board of Directors or the President of the
Company. Employee will devote substantially all his working time and energies to
the business of the Company to accomplish the duties assigned by the Board of
Directors of the Company, will perform those duties to the best of Employee's
ability and will devote Employee's best efforts to advance the interests of the
Company.
2. Compensation: For all services performed by Employee for the
Company during the Employment Period, the Company will pay Employee a salary at
the rate of $107,000 per annum until August 1, 1996 and increasing by five
percent (5%) of the original rate for each subsequent twelve-month period
thereafter ("Salary"), payable in accordance with the normal payment practices
of the Company. The Company will provide Employee the use, for business
purposes, of a full-sized domestic automobile owned or leased by the Company,
Employee will be entitled to vacation during the Employment Period not to exceed
three weeks per annum. The vacation may be taken at times agreed upon by
Employee and the Company. During that vacation, Employee will receive Employee's
usual compensation. No additional compensation will be paid to Employee for
vacation time that is not taken. Employee will be entitled to participate, at a
level commensurate with his position, in any benefit plans, including health,
pension and stock option plans adopted by the Company for its executive
employees.
3. Reimbursement of Expenses: The Company recognizes that Employee,
in performing Employee's duties under this Agreement, may be required to spend
sums of money in connection with those duties on behalf of or for the benefit of
the Company. Employee may present
<PAGE>
to the Company, on a weekly basis, an itemized voucher listing all sums of money
paid or expenses incurred by Employee in the performance of Employee's duties on
behalf of or for the benefit of the Company, and, on presentation of that
itemized voucher, the Company will reimburse Employee or pay the expense
incurred for all reasonable expenses itemized on the voucher including, but not
limited to, travel, meals, lodging, entertainment and promotion. In addition,
commencing as of the date hereof, the Company will initially pay to Employee the
amount of Employee's annual contribution under the Company's Premium Conversion
Plan (the "Annual Premium Contribution Amount"), payable in accordance with the
normal payment practices of the Company.
4. Death and Disability:
A. The Employment Period shall terminate on the date of
Employee's death, in which event Employee's Salary and Annual Premium
Contribution Amount earned or accrued and reimbursable expenses owing, if any,
through the date of Employee's death, shall be paid to Employee's estate.
Employee will not be entitled to any other compensation upon termination of this
Agreement pursuant to this paragraph 4(A).
B. If, during the Employment Period, in the opinion of the
Company, Employee, because of physical or mental illness or incapacity, shall
become substantially unable to perform the duties and services required of him
under this Agreement for a period of three (3) consecutive months or four (4)
months in the aggregate during any six (6) month period, the Company may, upon
at least ten (10) days' prior written notice given at any time after the
expiration of such three (3) or four (4) month period, as the case may be, to
Employee of its intention to do so, terminate this Agreement as of such date as
may be set forth in the notice. In case of such termination, Employee shall be
entitled to receive his Salary and Annual Premium Contribution Amount earned or
accrued and reimbursable expenses owing to Employee through the date of
termination. Employee will not be entitled to any other compensation upon
termination of this Agreement pursuant to this paragraph 4 (B).
5. Discharge for Cause: The Company may discharge Employee for cause
at any time. Cause for discharge will exist when (i) Employee materially
breaches this Agreement and such breach is not cured within thirty (30) days
following written notice by the Company to Employee of such breach, (ii)
Employee commits any act or engages in any course of action involving moral
turpitude which adversely affects the reputation of the Company, or (iii)
Employee breaches any policy applicable to all executive officers of the Company
promulgated by Company's Board of Directors, the breach of which has been
specified by the Board of Directors to be cause for discharge, including,
without limitation, those policies set forth in the Addendum to Employment
Agreement between the Company and Employee attached hereto and incorporated
herein by reference. If, during the Employment Period, Employee is discharged
for cause, this Agreement terminates and the Company, without any limitation on
any remedies it may have at law or equity, is without liability for Salary or
any other liability to Employee after the date of such discharge.
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<PAGE>
6. Disclosure of Confidential Information: "Confidential Information"
means all information known by Employee, because of employment by the Company,
about the Company's present or prospective products, processes, services, or
activities. Confidential Information does not include information generally
known, other than through breach of a confidentiality agreement with the
Company, in the industries in which the Company engages or may engage. The
determination as to whether information is generally known in the industries in
which the Company engages or may engage will be made, in good faith, solely by
the Company and will be binding on Employee. Employee will never, during or
after the Employment Period, directly or indirectly, use any Confidential
Information except in the performance of Employee's duties for the Company, or
publish or disclose any Confidential Information except to persons to whom
disclosure of Confidential Information is necessary in the performance of
Employee's duties and to other persons as directed by the Company. The Company
has the right to decide in what circumstances disclosures of Confidential
Information are necessary. Employee will use his best efforts to prevent
unauthorized use or disclosure of Confidential Information. Upon termination of
employment with the Company, Employee will deliver to the Company all writings
relating to or containing Confidential Information, including, without
limitation, notes, memoranda, letters, drawings, diagrams and printouts and also
including any tapes, discs or other forms of recorded information. Full
compliance with this paragraph is a condition of continued employment with,
retention by or association with, the Company. If Employee violates any
provision of this paragraph during the Employment Period, the Company may
immediately discharge Employee without any liability for Salary or an other
liability to Employee after the date of discharge. If Employee violates any
provision of this paragraph during or after the Employment Period, the Company
will have no further liability to Employee, including rights, benefits,
privileges or other interests which may have vested for Employee's account
during the Employment Period. Moreover, if Employee violates any provision of
this paragraph during or after the Employment Period, the company may seek full
indemnification from Employee should the Company suffer any monetary damages or
incur any legal liability to any person as a result of the disclosure or use of
Confidential Information by Employee in violation of this paragraph.
7. Restrictive Covenants: During the Employment Period and for a
period of six (6) months thereafter, Employee will not directly or indirectly,
either as an individual or as a partner, joint venturer, independent contractor,
consultant, stockholder, director, employee or officer, engage in or participate
in the management or ownership of any business or activity in the New York City
metropolitan area, including suburban and other counties of New York, New Jersey
and Connecticut generally considered a part of such area, or in any other state
in which the Company is registered to do business as of the date of termination
of the Employment Period which directly or indirectly competes with the business
conducted by the Company. Employee recognizes and hereby acknowledges that the
restrictions imposed upon Employee in this paragraph are reasonable and are
necessary for the protection of the business of the Company.
8. Ownership of Inventions, Discoveries and Improvements: Employee
shall promptly disclose in writing to the Board of Directors of the Company all
inventions, discoveries, designs, developments, processes, software programs,
works of authorship, formulas, data, techniques and any other improvements
conceived, devised, created, or developed by Employee
-3-
<PAGE>
(either alone or with others) while in the employ of the Company (collectively,
"Invention"), and Employee shall transfer and assign to the Company all right,
title and interest in and to such Invention, including any and all domestic and
foreign patent rights, domestic and foreign copyright rights therein, and any
renewal thereof. Such disclosure is to be made promptly after the conception of
each Invention, and each Invention is to become and remain the property of the
Company, whether or not patent or copyright applications are filed thereon by
the Company. On request of the Company, Employee shall execute from time to
time, during or after the termination of employment, such further instruments
including, without limitation, applications for patents and copyrights and
assignments thereof as maybe deemed necessary or desirable by the Company to
effectuate the provisions of this paragraph 8.
9. Construction: If the provisions of paragraph 7 should be deemed
unenforceable, invalid, or overbroad in whole or in part for any reason, then
any court of competent jurisdiction or any Arbitrator appointed in accordance
with paragraph 10 is hereby authorized, requested and instructed to reform such
paragraph to provide for the maximum competitive restraints upon Employee's
activities (in time, product, geographic area, and customer solicitation as may
then be legal and valid).
10. Remedies, Damages and Jurisdiction:
A. Employee agrees that violation of paragraphs 6, 7 or 8
would cause irreparable injury to the Company for which the remedy at law would
be inadequate, and that the Company shall be entitled in any court of law or
equity or in any arbitration proceeding in accordance with this paragraph 10,
whichever forum is designated by the Company, to preliminary, permanent or other
injunctive relief against any breach of the provisions contained in paragraphs
6, 7 or 8, and such punitive and compensatory damages as shall be awarded.
Further, in the event of a violation of the provisions of paragraph 7, the
period of noncompetition referred to therein shall be extended but not decreased
for a period of time equal to the period that the violation occurred.
B. Except as otherwise provided in paragraphs 9 and 10A
relating to the reformation of the restrictive covenants and obtaining equitable
relief, any controversy or claim arising out of, or relating to this Agreement,
or the breach thereof, shall be settled by arbitration by one arbitrator in New
York, New York, in accordance with the rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof.
C. Each of the Company and Employee hereby consents to the
jurisdiction of the Supreme Court of the State of New York for the County of New
York and the United States District Court for the Southern District of New York
for all purposes in connection with said arbitration or for obtaining the relief
referred to in paragraphs 6, 7 or 8, and further consents that any process or
notice of motion therewith may be served by certified or registered mail or
personal service, within or without the State of New York, provided a reasonable
time for appearance is allowed.
-4-
<PAGE>
11. Change in Control Bonus. In the event of a Change in Control, as
defined below, the Company promptly shall pay to Employee a lump-sum amount
equal to one-half of Employee's Salary at the time of the occurrence of such
Change in Control. The Company hereby agrees to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement. For purposes
of this Agreement, a "Change in Control" shall have occurred if:
(i) any "person", as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities;
(ii) during any period of not more than two consecutive
years (not including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constitute the Board, and any
new director (other than a director designated by a person who has entered into
an agreement with the Company to effect a transaction described in clause (a),
(c) or (d) of this Section) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof;
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or
(iv) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
12. Assignment. Neither this Agreement, nor any of Employee's rights,
powers, duties or obligations hereunder, may be assigned by Employee. This
Agreement shall be binding upon and inure to the benefit of Employee and his
heirs and legal representatives and the Company and its successors and assigns.
Successors of the Company shall include, without limitation, any corporation
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<PAGE>
or corporations acquiring, directly or indirectly, all or substantially all of
the assets of the Company, whether by merger, consolidation, purchase, lease or
otherwise, and such successor shall thereafter be deemed "the Company" for the
purpose hereof.
13. Severability: If any of the provision of this Agreement is held
to be invalid, illegal, or unenforceable, that determination will not affect the
enforceability of any other provisions of this Agreement, and the remaining
provisions of this Agreement will be valid and enforceable according to their
terms.
14. Binding Effect: This Agreement constitutes the entire
understanding of the parties, may be modified only in writing, is governed by
and construed in accordance with the laws of the state of New York, without
regard to the conflicts of law rules thereof, and will be binding upon and inure
to the benefit of Employee and Employee's personal representatives and the
Company and the Company's successors and assigns. This Agreement is in the
nature of a personal services contract, is not assignable by Employee and the
duties imposed hereby are non-delegable.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
NATIONAL HOME HEALTH CARE CORP.
By: /s/ Frederick H. Fialkow
------------------------------
Frederick H. Fialkow, President
/s/ Robert P. Heller
------------------------------
ROBERT P. HELLER
-6-
<PAGE>
ADDENDUM TO EMPLOYMENT AGREEMENT:
BUSINESS POLICIES OF NATIONAL HOME HEALTH CARE CORP.
This addendum supplements and is hereby incorporated into the terms
of your Employment Agreement. The Company has set forth in this addendum basic
principles and standards of conduct that senior management of the Company is
expected to follow in all respects. You have a personal responsibility to abide
by each of the standards. Each person, alone, is responsible for his actions. No
one will be permitted to justify an illegal act by claiming it was ordered by
someone higher in management. No one, regardless of level or position, is ever
authorized to direct an employee to commit an illegal or unethical act.
As a summary of basic principles, this addendum does not include all
the rules and regulations that apply to every situation. The absence of a
specific practice or instruction covering a particular situation does not
relieve you from exercising the highest ethical standards applicable to the
circumstances. If you have questions as to what the proper course of conduct
should be in any given situation consult me and the Company's legal counsel.
Violations of the guidelines set forth below can result in
disciplinary action, including dismissal, and possible criminal prosecution.
Any reprisal against an employee who in good faith reports a
violation or suspected violation of law or company policies is strictly
forbidden.
* * *
<PAGE>
1. It is the Company's policy to comply fully with the law. We should
avoid even the appearance of wrongdoing and, at all times, should conduct our
business according to the highest ethical standards.
Since the Company is a medical services company, there are many state
and federal laws and regulations which affect and define the responsibilities of
each employee. These laws and regulations must be adhered to at all times. If
there is ever any doubt on your part about the meaning of a law or regulation
you must check with corporate counsel or special counsel. You are responsible
for designing, implementing and monitoring quality control programs to assure
that Company policies are being followed and that all personnel are in
compliance. In connection with any compliance program, it is vital that you be
sure that no falsification of records be allowed and you must undertake to have
programs developed to assure that this does not happen.
2. The Company shall not tolerate any unfair competition. Additional
guidelines relating to this general policy are,:
- do not interfere with contracts made between a prospective
customer and a competitor.
- never engage in commercial bribery.
- do not disparage a competitor's services,
- be accurate and truthful in all dealings with customers
and be careful not to misrepresent the state and quality,
features or availability of our services.
3. The Company awards business to suppliers solely on merit. You
should have no relationship, financial or otherwise, with any supplier or
competitor that might be construed as a
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<PAGE>
conflict of interest or that might even appear to impair your independent
judgment on behalf of the Company. Gifts, loans or any other thing of
significant value should not be accepted or solicited, even indirectly.
4. Each employee's primary obligation is to the Company, and,
therefore, any form of outside activity must be kept totally separate from
employment with the Company. No outside' activity should involve the use of
Company assets, materials or facilities.
5. You cannot use your position in the Company for outside gain or
benefit, nor should you use property or other confidential or private
confidential information in any outside activity.
6. The law requires that the Company's books and records accurately
and fairly reflect transactions in reasonable detail, and that the Company's
internal accounting controls provide reasonable assurances that:
- transactions are carried out in an authorized manner.
- transactions have been reported and recorded to permit
correct preparation of financial statements and to
maintain accurate records of assets. access to assets is
in accordance with management's authorization.
- inventories of assets are taken periodically and
appropriate action is taken to correct discrepancies.
7. Every employee who has control over Company funds is personally
accountable for such funds. There are no exceptions to this rule.
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<PAGE>
When spending Company money or personal money that will be
reimbursed, or requesting services that will cause Company money to be spent,
the employee involved should make sure the Company receives proper value in
return and should be sure the expenditure is for a legitimate business purpose.
Anyone responsible for the handling of Company revenue, and the
associated records and materials, is accountable for their safe keeping.
8. The Company categorically forbids the use of corporate funds for
the support of political parties or candidates. No employee is authorized to
make or approve such a contribution.
9. Company business records must always be prepared accurately and
reliably, since they are of critical importance to the Company's meeting its
financial, legal and management obligations.
10. Records containing personal data on patients and the Company's
employees are confidential. As such, they are to be carefully safeguarded and
kept current and accurate. They should be disclosed only to authorized personnel
having a "need to know" or pursuant to lawful processes. Should you have any
questions about disclosure, consult with the Company's legal counsel before
disclosing.
11. When a dishonest act by an employee is discovered it should be
reported immediately and directly to me.
12. The Company encourages employees to participate in its future by
investing in its securities. However, in trading in Company securities you
should be aware that it may be illegal (and possibly result in civil or criminal
penalties) to buy or sell Company securities while in possession of material
non-public information about the Company.
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<PAGE>
Material information can be anything that could have actual
significance in an investors decision, such as acquisition plans; dividends,
earnings, new contracts, products; major regulatory, court or legislative
events; and major management changes or other business plans. Employees aware of
such, information prior to its being made public should not buy or sell company
securities until the information has been made public.
Employees should not trade in the securities of other companies when
they know material non-public information about these companies which they learn
as part of their job. For example, you may learn that another company is being
considered for a major contract or any other information which could have actual
significance in an investor's decision about the securities of the other
Company.
Employees should keep any such-information about the Company or any
other company secret and use it only for Company 'purposes, because it is
unlawful to "tip" others who may buy or sell such securities, even though the
tipper does not.
Some types of trading -- even if innocent -- could appear to the
public and to public officials to be based on the misuse of inside information
concerning the Company. To avoid even an appearance of impropriety, employees
are not to engage in short term speculation in company securities (that is, the
purchase and sale on the open market within a six month period). Nor should an
employee engage in any transaction when he stands to profit due to the short
term savings in the value of the Company's securities. An example of this type
of trading includes "short sales" (selling borrowed securities which the seller
hopes can be purchased at a lower price when they are due for delivery).
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<PAGE>
Please indicate your acceptance of the Company's business policies by
signing a copy of this addendum provided below.
/s/ Frederick H. Fialkow
------------------------
Frederick H. Fialkow
I have read and understand the
Company's Business Policies and
agree to fully comply with all
requirements of law affecting the
Company and the Business Policies
set forth herein.
/s/ Robert P. Heller
- --------------------------
-6-
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement, dated as of July 1,
1996 (the "Amendment"), is by and between NATIONAL HOME HEALTH CARE CORP., a
Delaware corporation having an address at 700 White Plains Road, Suite 363, New
York, New York 10583 (the "Company") and RICHARD GAROFALO, an individual
residing at 99 Rustic Avenue, Medford, New York 11763 (the "Employee").
WHEREAS, the Company and the Employee are parties to an Employment
Agreement dated as of August 1993 (the "Agreement"); and
WHEREAS, the Company and the Employee desire to amend the Agreement
in certain respects.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions hereinafter set forth, the parties hereby agree as
follows:
1. Amendment to the Agreement. The Agreement hereby is amended as of
July 1, 1996, as follows:
(a) The first sentence of Paragraph 2 of the Agreement
hereby is amended such that the amount "$93,600" contained therein
hereby is changed to "$150,000" and the word "first" contained
therein hereby is changed to "third".
(b) The third sentence of Paragraph 2 of the Agreement
hereby is amended such that the word "two" contained therein hereby
is changed to "three".
(c) New Sections 11 and 12 contained in Annex A attached
hereto hereby are added in their entirety to the Agreement
immediately following Section 10 thereof and each subsequent section
of the Agreement hereby is renumbered accordingly.
2. Counterparts. This Amendment may be signed in one or more
counterpart copies, each of which constitutes an original, but all of which,
when taken together, shall consti tute one agreement binding upon all of the
parties hereto.
<PAGE>
3. Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
conflicts of law rules thereof.
4. Agreement to Continue as Amended. Except as modified and amended
by this Amendment, the Agreement shall remain and continue in full force and
effect after the date hereof.
IN WITNESS WHEREOF, the parties hereunto have executed and delivered
this Amendment as of the date first written above.
NATIONAL HOME HEALTH CARE CORP.
By: /s/ Frederick Fialkow
---------------------------
Name: Frederick Fialkow
Title:
/s/ Richard Garofalo
---------------------------
Richard Garofalo
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<PAGE>
ANNEX A
11. Change in Control Bonus. In the event of a Change in Control, as
defined below, the Company promptly shall pay to Employee a lump-sum amount
equal to one-half of Employee's Salary at the time of the occurrence of such
Change in Control. The Company hereby agrees to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement. For purposes
of this Agreement, a "Change in Control" shall have occurred if:
a. any "person", as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities;
b. during any period of not more than two consecutive
years (not including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constitute the Board, and any
new director (other than a director designated by a person who has entered into
an agreement with the Company to effect a transaction described in clause (a),
(c) or (d) of this Section) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof;
c. the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or
d. the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
12. Assignment. Neither this Agreement, nor any of Employee's rights,
powers, duties or obligations hereunder, may be assigned by Employee. This
Agreement shall be binding upon and
-3-
<PAGE>
inure to the benefit of Employee and his heirs and legal representatives and the
Company and its successors and assigns. Successors of the Company shall include,
without limitation, any corporation or corporations acquiring, directly or
indirectly, all or substantially all of the assets of the Company, whether by
merger, consolidation, purchase, lease or otherwise, and such successor shall
thereafter be deemed "the Company" for the purpose hereof.
-4-
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement, dated as of July 1,
1996 (the "Amendment"), is by and between NATIONAL HOME HEALTH CARE CORP., a
Delaware corporation having an address at 700 White Plains Road, Suite 363, New
York, New York 10583 (the "Company") and THOMAS SMITH, an individual having an
address c/o Nurse Care, Inc., 57 Plains Road, Milford, Connecticut 06460 (the
"Employee").
WHEREAS, the Company and the Employee are parties to an Employment
Agreement dated as of August 1993 (the "Agreement"); and
WHEREAS, the Company and the Employee desire to amend the Agreement
in certain respects.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions hereinafter set forth, the parties hereby agree as
follows:
1. Amendment to the Agreement. The Agreement hereby is amended as of
July 1, 1996, as follows:
(a) The first sentence of Paragraph 2 of the Agreement
hereby is amended such that the amount "$93,600" contained therein
hereby is changed to "$115,000" and the word "first" contained
therein hereby is changed to "third".
(b) The third sentence of Paragraph 2 of the Agreement
hereby is amended such that the word "two" contained therein hereby
is changed to "three".
(c) New Sections 11 and 12 contained in Annex A attached
hereto hereby are added in their entirety to the Agreement
immediately following Section 10 thereof and each subsequent section
of the Agreement hereby is renumbered accordingly.
2. Counterparts. This Amendment may be signed in one or more
counterpart copies, each of which constitutes an original, but all of which,
when taken together, shall consti tute one agreement binding upon all of the
parties hereto.
<PAGE>
3. Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
conflicts of law rules thereof.
4. Agreement to Continue as Amended. Except as modified and amended
by this Amendment, the Agreement shall remain and continue in full force and
effect after the date hereof.
IN WITNESS WHEREOF, the parties hereunto have executed and delivered
this Amendment as of the date first written above.
NATIONAL HOME HEALTH CARE CORP.
By: /s/ Frederick Fialkow
--------------------------
Name: Frederick Fialkow
Title:
/s/ Thomas Smith
--------------------------
Thomas Smith
-2-
<PAGE>
ANNEX A
11. Change in Control Bonus. In the event of a Change in Control, as
defined below, the Company promptly shall pay to Employee a lump-sum amount
equal to one-half of Employee's Salary at the time of the occurrence of such
Change in Control. The Company hereby agrees to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement. For purposes
of this Agreement, a "Change in Control" shall have occurred if:
a. any "person", as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities;
b. during any period of not more than two consecutive
years (not including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constitute the Board, and any
new director (other than a director designated by a person who has entered into
an agreement with the Company to effect a transaction described in clause (a),
(c) or (d) of this Section) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof;
c. the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or
d. the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
12. Assignment. Neither this Agreement, nor any of Employee's rights,
powers, duties or obligations hereunder, may be assigned by Employee. This
Agreement shall be binding upon and
-3-
<PAGE>
inure to the benefit of Employee and his heirs and legal representatives and the
Company and its successors and assigns. Successors of the Company shall include,
without limitation, any corporation or corporations acquiring, directly or
indirectly, all or substantially all of the assets of the Company, whether by
merger, consolidation, purchase, lease or otherwise, and such successor shall
thereafter be deemed "the Company" for the purpose hereof.
-4-
THE BANK OF NEW YORK
NEW YORK'S FIRST BANK-FOUNDED 1784 BY ALEXANDER HAMILTON
8 EAST PARKWAY, SCARSDALE, NEW YORK 10583
December 27, 1995
Mr. Robert E. Heller, Vice President &
Chief Financial Officer
National Home Health Care Corp.
700 White Plains Road, Suite 363
Scarsdale, New York 10583
Dear Bob:
This letter confirms that The Bank of New York (the "Bank") holds available a
$2,000,000 secured advised line of credit to National Home Health Care Corp.
Advances under the line of credit shall be payable on demand and bear interest
at the rate per annum equal to the alternate base commercial lending rate of the
Bank as publicly announced to be in effect from time to time (the "Alternate
Base Rate"), such rate to change on the effective date of any change in the
Alternate Base Rate.
"Alternate Base Rate" shall mean, for any day, a rate per annum equal
to the higher of (i) the Prime Rate in effect on such and (ii) the
Federal Funds Rate in effect on such day plus 1/2 of 1%.
For purposes of this definition:
"Prime Rate" shall mean, for any day, the weighted average of the
rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal fund brokers, as published
for such day (or if such day is not a business day, for the next
preceding business day) by the Federal Reserve Bank of New York, or
if such rate is not so published for any day which is a business day,
the average of quotations for such day on such transactions received
by the Bank from three Federal funds brokers of recognized standing
selected by the Bank.
All advances and all principal payments hereunder shall be endorsed by the Bank
on the sheet attached to the Promissory Grid Note and shall be secured by all
assets of the borrower pursuant to
<PAGE>
Page -2-
12/27/95
Robert E. Heller
NHHCC
a security agreement. The borrower authorizes the Bank to accept telephonic
instructions from a duly authorized representative of the borrower, as indicated
by the latest Corporate Resolution on file with the Bank, to make an advance or
receive a repayment hereunder and to endorse the sheet attached to this
Promissory Grid Note accordingly. All advances made hereunder shall be credited
to the Borrower's deposit account referred to above, which credits shall be
confirmed to the borrower by standard advice of credit. The borrower agrees that
the actual crediting of the sum of money so borrowed to the borrower's deposit
account shall constitute conclusive evidence that the advance was made, and the
failure of the Bank to endorse the amount of any advance on the sheet attached
to this note or to forward to the borrower an advice of credit shall not affect
the obligation of the borrower to repay such advance.
In addition, all advances under the line of credit shall be jointly and
severally guaranteed by Health Acquisition Corp. and First Health, Inc. and
Brevard Medical Center, Inc. Each guarantee shall be secured by all assets of
the respective guarantors pursuant to a security agreement. The form of note,
security agreement and guarantee to be furnished to the Bank shall be in form
and substance acceptable to the Bank and its counsel.
Advances under the line of credit are subject to the Bank's satisfaction with
(i) the specific purpose and expected time and source of repayment of each
advance, and (ii) the Borrower's and the guarantors' financial condition,
business prospects and operations at the time of each advance. As you know,
lines of credit may be cancelled by either party at any time, however, unless
cancelled earlier, the line of credit shall be held available until December 31,
1996.
Additionally, all outstanding advances under the line of credit shall be reduced
to zero for a period of 30 consecutive days during each twelve (12) month
calendar period in which the line of credit is held available.
Very truly yours,
THE BANK OF NEW YORK
/s/ John Gusciora
- ----------------------------
Vice President
JG:bc
<PAGE>
THE BANK OF NEW YORK
NEW YORK'S FIRST BANK-FOUNDED 1784 BY ALEXANDER HAMILTON
8 EAST PARKWAY, SCARSDALE, NEW YORK 10583
December 27, 1995
New England Home Care, Inc.
c/o National Home Health Care Corp.
700 White Plains Road, Suite 363
Scarsdale, New York 10583
RE: The Bank of New York to New England Home Care, Inc.
$2,000,000.00 Secured Advised Line of Credit
----------------------------------------------------------
Gentlemen:
The Bank of New York (the "BANK") is pleased to advise you that it is
prepared to offer a secured advised line of credit (the "LINE") to New England
Home Care, Inc. (the "COMPANY") pursuant to the terms and conditions herein set
forth. Under the Line, the Bank will consider making loans (the "LOANS") to the
Company of which the aggregate principal amount of Loans at any one time
outstanding, shall not-exceed the lesser of the Borrowing Base (as hereinafter
defined) or $2,000,000.00. This Line means that the Bank will perform an ongoing
credit review to enable it to respond quickly to any request for Loans which the
Company may make. The issuance of this letter and the Line is not a commitment
and does not in any way obligate the Bank to make loans or grant any credit.
Any Loan extended under the Line will be subject to the terms and
conditions herein contained and such additional terms and conditions as the Bank
may require at the time the Company requests a Loan and must be evidenced by
documents in form and substance satisfactory to the Bank.
Prior to the making of any Loan hereunder, the Bank must have
received, at minimum, the following support, in form and content satisfactory to
the Bank, which must remain in place as long as any Loan is outstanding and the
Company must be in compliance with the following terms and conditions:
<PAGE>
Page -2-
12/27/95
New England Home Care, Inc.
1. Security:
(i) Receipt by the Bank of a perfected first priority
security interest in all of the personal property and
assets of the Company and of National Home Health Care
Corp. and Nurse Care, Inc.;
(ii) Receipt by the Bank of the joint and several,
unconditional corporate guaranties of payment (the
"Guaranties") of National Home Health Care Corp. and Nurse
Care, Inc. collectively the "Corporate Guarantors") of all
indebtedness and obligations of the Company to the Bank.
2. Financial Statements. To enable the Bank to carry out an
ongoing financial review, the Company must furnish the
following:
(i) within 90 days after the end of each fiscal year of
the Company and the Corporate Guarantors, an audited
consolidated and internal consolidating financial
statement, a balance sheet of the Company and the
Corporate Guarantors as of the end of such fiscal year and
an income statement and statements of cash flows and
retained earnings for such fiscal year, all in reasonable
detail and stating in comparative form the figures for the
corresponding date and period in the prior fiscal year
audited by independent certified public accountants
selected by the Company and acceptable to the Bank;
(ii) within 60 days after the end of each quarter of the
Company and the corporate Guarantors, an unaudited
consolidated and internal consolidating financial
statement, a balance sheet of the Company and the
Corporate Guarantors as of the end of such interim period
and an income statement and statements of cash flows and
retained earnings for such interim period, all in
reasonable detail and stating in comparative form the
figures for the corresponding date and period in the prior
interim period audited by independent certified public
accountants selected by the Company and acceptable to the
Bank;
(iii) no later than the 5th day of each month and,
together with any request for a Loan hereunder, a detailed
listing prepared by the Company of all accounts receivable
outstanding with a summary of the dates due, and
confirmation of the value of inventory held by the
Company;
(iv) no later than the 5th day of each month and together
with any request for a Loan hereunder, a Borrowing Base
certificate in the form attached hereto as Exhibit A;
<PAGE>
Page -3-
12/27/95
New England Home Care, Inc.
(v) promptly after the commencement thereof, notice of all
actions, suits, and proceedings before any court or
governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, affecting the
Company or Corporate Guarantor or any of their
Subsidiaries which, if determined adversely to the Company
or any such Corporate Guarantor or any such Subsidiary
could have a material adverse effect on the financial
condition, properties, or operations of the company, any
Corporate Guarantor or such Subsidiary;
(vi) prior to the payment thereof, notice of any intended
payment of dividends to shareholders as permitted by the
provisions of this agreement;
(vii) such other information respecting the condition or
operations, financial or otherwise, of the Company and the
corporate Guarantors as the Bank may from time to time
reasonably request.
3. Loans. All Loans made under the Line shall be evidenced by
a credit line grid note prepared by the Bank's counsel in form and content
satisfactory to the Bank. The Bank shall have the right to make notations on the
note evidencing all loans and prepayments made under the Line and the Bank's
notations shall be deemed correct absent manifest error. Each Loan under the
Line shall be made subject to the terms and conditions contained herein to the
Company in increments of not less than $25,000.00 and upon at least one (1)
business day prior written notice to the Bank.
4. Interest Rate and Charges. Interest on the Loans made
under this Line shall accrue on each Loan from and including the date of each
advance to, but excluding, the date of repayment in full of such amount, in
lawful money of the United States, and in immediately available funds, payable
on the first day of each calendar month, at a floating interest rate per annum
(the "Floating Rate") equal at all times to the Alternate Base Rate. For the
purposes of this letter, the term "Alternate Base Rate" shall mean, for any day,
a rate per annum equal to the higher of (i) the Prime Commercial Lending Rate of
the Bank as publicly announced to be in effect from time to time, such rate to
be adjusted automatically, without notice, on the effective date of any change
in such rate, and (ii) the Federal Funds Rate in effect on such day plus 1/2 of
1%. For the purposes of this letter, the term "Prime Commercial Lending Rate"
shall mean that rate of interest from time to time announced by The Bank of New
York as its prime commercial lending rate. Any change in the interest rate
resulting from a change in the Prime commercial Lending Rate or the Federal
Funds Rate shall be effective at the beginning of the day on which such change
in the Prime Commercial Lending Rate or the Federal Funds Rate becomes
effective.
<PAGE>
Page -4-
12/27/95
New England Home Care, Inc.
The principal of any Loan, if not paid down when due (whether at
stated maturity, by acceleration or otherwise) shall bear interest from and
including the date due to but excluding the date paid in full at the rate of 5%
plus the Floating Rate set forth above.
The Bank shall have the right to impose a late charge of 4% of any
installment if any payment under any Loan is received 15 days or more after it
is due. No acceleration of the Loans will be required in order to impose this
rate. This rate will be in addition to and not in lieu of any other rate
imposition.
5. Prepayments. Except for borrowings which exhaust the full
remaining amount of the Line, and prepayments which result in the prepayment of
all loans outstanding under the Line, each borrowing or prepayment of principal
under the Line shall be in an amount at least equal to $25,000.00. The Company
shall have the right to prepay the Loans and re-borrow under the Line, subject
to the conditions set forth herein, at any time or from time to time prior to
the Expiration Date (as hereinafter defined).
6. Financial Covenants.
(i) The Company and the Corporate Guarantors agree that,
so long as the Line is in effect and any of the Loans
remain outstanding, the Company and the Corporate
Guarantors, on a consolidated basis, will maintain a
Minimum Net Worth of $1,000,000. The term "Minimum Net
Worth" shall mean the excess of Assets over Liabilities
which includes common stock, additional paid in capital
and retained earnings.
(ii) The Company and the Corporate Guarantors shall not,
without the Bank's prior written consent incur any
additional indebtedness with any other institutional
lender.
7. Borrowing Base. The amount of Loans outstanding under the
Line shall not exceed the Lesser of the Borrowing Base or $2,000,000.00 at any
time. As used herein, the term "Borrowing Base" shall mean (a) eighty percent
(80%) of the company's Eligible Accounts Receivable not more than 90 days past
due from time to time outstanding plus (b) fifty (50%) of the Company's
Estimated Unbilled Accounts Receivable for the Company's previous month. For the
purposes of this letter, the term "Eligible Accounts Receivable" shall mean
those accounts arising out of the sale or lease of goods or the rendering of
services by the Company in the ordinary course of business to persons or
entities other than the Corporate Guarantors or subsidiaries which have been
outstanding for not more than 90 days from invoice date. For the purposes of
this letter, the term "Estimated Unbilled Accounts Receivable" shall mean
estimated unbilled accounts receivable for the immediately preceding month for
which the calculation of the Borrowing Base is being made. The Borrowing
<PAGE>
Page -5-
12/27/95
New England Home Care, Inc.
Base shall be calculated pursuant to the Borrowing Base Certificate set forth on
Exhibit A attached hereto. In the event that the amount of Loans outstanding
hereunder ever exceed the Borrowing Base, the Company shall, within five (5)
days of written notice thereof from the Bank, prepay the outstanding Loans in
such an amount as would be necessary to bring the amount outstanding under the
Line in compliance with the terns and conditions hereof.
8. Expiration. Notwithstanding anything to the contrary
contained herein provided, the Line shall be reviewed by the Bank on December
31, 1996 (the "Expiration Date"). At such time, the Bank shall have the right,
exercisable in our sole discretion, to make no additional advances under the
Line and to demand immediate payment in full of the outstanding principal
balance of all Loans advanced hereunder, together with all accrued interest
thereon.
9. Maturity. In addition to the monthly payments of interest
hereinabove set forth and the other provisions contained herein pursuant to
which the Bank shall have the right to accelerate repayment of the Loans, the
outstanding principal balance of Loans under the Line and any accrued and unpaid
interest shall be due and payable, unless extended by the Bank in their sole and
absolute discretion, on the Expiration Date.
10. Defaults. If (a) there shall be any material adverse
change in the business or property of the Company or the Corporate Guarantors;
or (b) the Company or any of the Corporate Guarantors shall default under or
fail to comply with any of the terms and conditions contained herein or in any
note, security agreement, guaranty or other document executed in connection
herewith (the "Facility Documents"); or (c) an Event of Default shall occur
under any other document or instrument executed and delivered by the Company or
the corporate Guarantors to the Bank in connection with this or any other
financing; or (d) the Company's Medicare and/or Medicaid certification shall be
discontinued (all of the foregoing of which shall be collectively referred to as
an "Event of Default") then, in such event, the Bank shall have the right,
without notice and without regard to the other provisions contained herein, to
decline to make any other Loans hereunder and to declare all Loans outstanding
hereunder immediately due and payable.
This Line is issued subject to the terms and conditions herein
contained and to the Bank, in its sole discretion, continuing to be satisfied
with the Company's and the Corporate Guarantors' financial condition and
economic prospects; and the Company's and the Corporate Guarantors' maintenance
of a satisfactory relationship with the Bank.
This letter is for the Company's information only and is not to be
shown to or relied upon by third parties. This letter constitutes the entire
understanding between the Bank and the Company, and supersedes all prior
discussion.
<PAGE>
Page -6-
12/27/95
New England Home Care, Inc.
Please acknowledge your understanding of the above by signing and
returning the original copy of this letter.
THE BANK OF NEW YORK
By: /s/ John Gusciora
------------------------
John Gusciora
Vice President
JG:bc
ACKNOWLEDGED AND CONSENTED TO:
NEW ENGLAND HOME CARE, INC.
By: /s/ Thomas Smith, President
-------------------------------
NATIONAL HOME HEALTH CARE CORP.
By: /s/ Robert P. Heller C.F.O.
-------------------------------
NURSE CARE, INC.
By: /s/ Steven Fialkow
-------------------------------
<PAGE>
Page -7-
EXHIBIT A
BORROWING BASE CERTIFICATE
This certificate is a part of and subject to the terms and conditions set forth
in a certain Line Letter dated December 27, 1995 (the "Letter"), by and between
the Bank of New York (the "Bank") and New England Home Care, Inc. (the
"Company").
Terms used in this certificate shall have the same meaning as ascribed thereto
in the Letter.
The undersigned officers of the Company certify that the information furnished
herein as of _________, 199__ as to Eligible Accounts Receivable and as of
_________, 199__ as to Estimated Unbilled Accounts Receivable is true and
correct and that as of the date hereof no Event of Default, or event which after
notice or lapse of time or both would be an Event of Default exists under the
Letter.
I. Computation of Borrowing Base
A. Eligible Accounts Receivable $______________
B. 80% of Line A $______________
C. Value of Estimated Unbilled Accounts
Receivable for the month of _________ (the
month immediately preceding the month of
this certificate) $______________
D. 50% of Line C $______________
E. Borrowing Base (Line B + Line D) $______________
II. Aggregate principal balance of loans
outstanding $______________
III. Commitment Available or Amount Due
A. If line II is greater than line I(E), Amount Due. $______________
If line II is less than line IE, Amount Available
NEW ENGLAND HOME CARE, INC.
By:____________________________
List of Subsidiaries
Wholly Owned Subsidiary State of Incorporation
- ----------------------- ----------------------
National HMO (New York), Inc. Delaware
National HMO Corp. of Elizabeth, Inc. New Jersey
Health Acquisition Corp. d/b/a Allen Health Care Services New York
Nurse Care, Inc. Connecticut
New England Home Care, Inc. Connecticut
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement of National Home Health Care Corp. on Form S-8, Registration No.
33-61315 pertaining to the 1992 Stock Option Plan and the 1993 401(k) Plan, as
filed with the Securities and Exchange Commission on July 26, 1995 of our report
dated October 21, 1996, with respect to the consolidated financial statements
and schedules of National Home Health Care Corp. and subsidiaries as at July 31,
1996 and July 31, 1995 and for each of the years in the three year period ended
July 31, 1996 included in its Annual Report on Form 10-K for the year ended July
31, 1996.
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
New York, New York
October 21, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000728389
<NAME> NATIONAL HOME HEALTH CARE
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 8,929,000
<SECURITIES> 528,000
<RECEIVABLES> 8,913,000
<ALLOWANCES> (414,000)
<INVENTORY> 0
<CURRENT-ASSETS> 18,681,000
<PP&E> 744,000
<DEPRECIATION> (425,000)
<TOTAL-ASSETS> 24,421,000
<CURRENT-LIABILITIES> 2,393,000
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 21,498,000
<TOTAL-LIABILITY-AND-EQUITY> 24,421,000
<SALES> 38,830,000
<TOTAL-REVENUES> 38,830,000
<CGS> 0
<TOTAL-COSTS> 35,564,000
<OTHER-EXPENSES> (1,950,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,216,000
<INCOME-TAX> 1,859,000
<INCOME-CONTINUING> 3,357,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,357,000
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0
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