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, 1997 Commission File Number 0-12927
NATIONAL HOME HEALTH CARE CORP.
(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 24, 1997, 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 $14,066,926, 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 24,
1997 was 5,098,821.
Portions of the Registrant's Proxy Statement for its 1997 Annual Meeting of
Stockholders are incorporated by reference in Part III hereof.
<PAGE>
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.
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d/b/a Allen Health Care Services
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Allen Health Care is a provider of personal home health care
services. Services are provided by registered nurses, personal care aides, home
health aides and homemakers. The Company is licensed by the Public Health
Council of the State of New York Department of Health. Allen Health Care
maintains its principal administrative office in Jamaica, New York and has
satellite offices in Manhattan, Farmingdale, Islandia and Hempstead, New York.
Services are provided in the following counties in the State of New York:
Nassau, Suffolk, Queens, Kings, New York and the Bronx.
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<PAGE>
All home health care 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. In May 1996, Allen Health Care was resurveyed 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
Certified Home Health Care Agencies ("CHHAs"), and long-term health care
provider programs that subcontract their patients to Allen Health Care, as well
as from private payors and both the Nassau and Suffolk Counties Department of
Social Services Medicaid Programs, for which Allen Health Care is a
participating provider.
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 aide 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.
Allen Health Care was acquired by the Company in October 1986.
Subsequent to the acquisition, the agency has grown its home care business by
securing contracts with CHHAs, expanding its services and geographical presence
and through acquisitions.
In March 1997, Allen Health Care completed the acquisition of certain
assets of C.J. Home Care, Inc. d/b/a Garden City Home Care, a New York licensed
home health care agency that provides home health aide services in Nassau
County, New York. Annual revenues for Garden City Home Care approximated
$2,000,000 in 1996. In May 1997, Allen Health Care completed the acquisition of
certain assets of Home Health Aides, Inc. and H.H.A. Aides, Inc., two New York
licensed home health care agencies that provide home health aide services in
both Nassau and Suffolk County, New York. The two companies collectively had
revenues of approximately $3,400,000 in 1996. The latter acquisition gives the
Company an entree into the Shared Aide Program in Nassau County. The Shared Aide
Program is a relatively new program for Medicaid patients that brings a group of
home health aides together to care for patients in one geographic area, thus
increasing operating efficiencies and reducing costs.
To a large extent, Allen Health Care's continued growth depends on
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
State of New York Department of Health. The company
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<PAGE>
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
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On August 4, 1995, the Company consummated the acquisition of 100% of
the capital stock of Nurse Care, the parent company of 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. Although such contract has expired, the
shareholder continues to be employed by Nurse Care. 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 transferred 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.
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. New England provides services
throughout Fairfield and New Haven Counties as well as the southern portions of
Litchfield, Hartford and Middlesex Counties, in the State of Connecticut.
Services include skilled nursing, physical therapy, occupational therapy, speech
therapy, medical social services and home health aide services. In addition, New
England offers specialty programs consisting of mental health and wellness,
perinatal/high risk pregnancy, pediatrics and disease management. New England
provides full-service home health care twenty-fours per day, seven days per
week. Weekends, holidays and after-hours are supported by an on-call system for
each office location with medical supervision by a registered nurse at all
times.
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 Program. Additional sources of revenues are from managed
care programs, commercial insurance carriers and private payors.
Nurse Care
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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 to Nurse Care, and from hospices and other certified
home care agencies.
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<PAGE>
Insurance
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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
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As of October 24, 1997, the Company had approximately 1,700 full and
part-time employees of whom 15 were employed in various management capacities
and 5 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
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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.
Customers
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One or more customers have each accounted for more than 10% of the
Company's revenues. For the fiscal years ended July 31, 1997, 1996 and 1995, VNS
Home Care, a non-profit Medicare certified home health care agency, accounted
for 22%, 24% and 40%, respectively; the State of New York, Department of Social
Services personal care aide program for the counties of Suffolk and Nassau
accounted for 10%, 7%, and 13%, respectively, of the Company's consolidated net
patient revenues from continuing operations; and the Federal Medicare program
accounted for approximately
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<PAGE>
22%, 21% and 0%, respectively, of net patient revenue for the fiscal years ended
July 31, 1997, 1996 and 1995. The loss of any of the foregoing customers would
have a material adverse effect on the Company.
Government Regulations and Licensing
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The health care industry is highly regulated. The Company's business
is subject to substantial and frequently changing regulations by Federal, state
and local authorities. The Company must comply with state licensing along with
Federal and state eligibility standards for certification as a Medicare and
Medicaid provider.
The ability of the Company to operate profitability will depend in
part upon the Company obtaining and maintaining all necessary licenses and other
approvals in compliance with applicable health care regulations.
Medicare
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Title XVIII of the Social Security Act authorizes Part A of the
Medicare program, the health insurance program that pays for home health care
services for covered persons (typically, those aged 65 and older and the
long-term disabled). Home health care providers may participate in the Medicare
program subject to certain conditions of participation and upon acceptance of a
provider agreement by the Secretary of the Department of Health and Human
Services. Only enumerated services, upon satisfaction of certain coverage
criteria, are eligible for reimbursement as a Medicare provider. The Company is
currently Medicare certified in the State of Connecticut.
Currently, Medicare Part A reimburses providers for certain costs for
certain home health care visits to eligible Medicare beneficiaries. There is no
limit to the number of home health visits a beneficiary may receive. Covered
services include intermittent skilled nursing care, physical, occupational or
speech therapy, medical social services, intermittent services of a home health
aide, and certain medical supplies.
Under current Medicare reimbursement, home health care providers,
including the Company, are reimbursed on a reasonable cost basis subject to
program-imposed cost per visit limitations applicable to each type of home
health service. Medicare reimbursement does not include a profit factor.
Medicare providers are subject to periodic audits of charges submitted for
reimbursement, which could result in recoupment of payments previously made to
the provider, or increases in payments due the Medicare provider.
The Balanced Budget Act of 1997 (the "Act"), which was signed into
law on August 5, 1997 contains many sweeping changes to Medicare home health
reimbursement and coverage. Under the Act, for cost reporting periods beginning
on or after October 1, 1997, Medicare providers will be reimbursed under an
interim payment system, which will remain in effect for a two year period prior
to the implementation of a prospective payment system. Under the interim payment
system, home
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<PAGE>
health care providers will be reimbursed the lower of (1) actual costs, (2) cost
per visit limits, or (3) an aggregate per beneficiary limit based on a blending
of agency-specific costs and a census region costs for cost reporting periods
ending during fiscal 1994, updated by the home health market basket index. The
prospective payment system calls for payments to Medicare providers for cost
reporting periods on or after October 1, 1999 in accordance with a prospective
payment system to be established by the Secretary. The Company cannot predict at
this time with any certainty what impact these changes will have on the
Company's business.
Medicare Fraud and Abuse
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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 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.
Over the past year, the home health industry has come under intense
government scrutiny regarding compliance with all applicable standards.
Operation Restore Trust, the government's Medicare anti-fraud program, is
expected to blanket all fifty states over the next five year period.
In September 1997, the Health Care Financing Administration ("HCFA")
announced a moratorium on the entry of new home health agencies into the
Medicare program. The moratorium includes new branches of existing home health
agencies. While the moratorium is in effect, HCFA will double the number of home
health agency audits, implement program safeguards included in the Act and work
on changes in requirements with which home health agencies must comply. An
immediate change being implemented by the HCFA is the requirement that home
health agencies disclose information about related businesses that they own.
Proposed regulations include the requirement that home health agencies re-enroll
in the Medicare program every three years and the posting of surety bonds to
establish financial stability.
Medicaid
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Approximately 17%, 18% and 13% of net patient revenue for the fiscal
years ended July 31, 1997, 1996 and 1995, respectively, were derived under state
sponsored Medicaid programs. Reimbursement for home health care services
rendered to eligible Medicaid recipients is made in an amount determined in
accordance with procedures and standards established by state law under federal
guidelines. States differ as to reimbursement policies and rates. The Company is
a licensed Medicaid provider in the State of Connecticut and in both Nassau and
Suffolk County in the State
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<PAGE>
of New York. Medicaid reimbursement rates may be reduced in response to state
economic and budgetary constraints, as well as in response to changes in the
Medicare program.
ITEM 2. PROPERTIES.
The Company, directly or through certain subsidiaries, leases various
office facilities under lease agreements with various expiration dates through
the year 2004. 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
Scarsdale, NY 2,095 Corporate headquarters October 31, 1998
Queens, NY 7,500 Administrative office January 31, 1998
Farmingdale, NY 3,519 Satellite office May 31, 1998
Hempstead, NY 3,800 Satellite office September 30, 2004
Islandia, NY 2,100 Satellite office June 30, 2001
Manhattan, NY 1,265 Satellite office April 30, 1998
Milford, CT 9,600 Administrative office May 31, 1999
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 575 Satellite office May 31, 1998
Danbury, CT 1,200 Satellite office Month to Month
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, 1997.
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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, 1996
and July 31, 1997. 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, 1996
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1st Quarter............................ $4.38 $3.13
2nd Quarter............................ 7.13 3.88
3rd Quarter............................ 7.00 4.50
4th Quarter............................ 7.75 5.50
Year ended July 31, 1997
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1st Quarter............................ $7.38 $5.88
2nd Quarter............................ 6.88 5.38
3rd Quarter............................ 6.25 5.00
4th Quarter............................ 6.38 5.00
(B) Holders
There were approximately 149 holders of record of Common Stock as of
October 24, 1997 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. On October 10, 1997, the
Board of Directors of the Company declared a 3% stock dividend payable December
8, 1997 to stockholders of record on November 6, 1997.
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<PAGE>
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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1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues $ 35,070,000 $ 38,830,000 $ 24,556,000 $ 20,116,000 $ 18,059,000
Operating expenses 31,770,000 35,564,000 22,414,000 17,982,000 15,795,000
Income from operations 3,300,000 3,266,000 2,142,000 2,134,000 2,264,000
Other income (loss):
Gain resulting from
subsidiary's stock offering -- 1,548,000 -- -- --
Interest income 446,000 412,000 410,000 161,000 116,000
(Loss) from equity investee (612,000) (10,000) -- -- --
Income from continuing operations
before taxes 3,134,000 5,216,000 2,552,000 2,295,000 2,380,000
Provision for income taxes 1,278,000 1,859,000 1,126,000 1,077,000 1,071,000
Income from continuing operations 1,856,000 3,357,000 1,426,000 1,218,000 1,309,000
Discontinued operations -- -- -- (3,472,000) (461,000)
Net income (loss) 1,856,000 3,357,000 1,426,000 (2,254,000) 848,000
Net income (loss) per share of common stock:
Continuing operations 0.35 0.65 0.27 0.24 0.25
Discontinued operations -- -- -- (0.67) (0.09)
Net income (loss) 0.35 0.65 0.27 (0.43) 0.16
</TABLE>
The above results include the operations of SunStar through April 30, 1996.
Subsequent thereto, the operations of SunStar are recorded on the equity method
and are reflected above as loss from equity investee.
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<TABLE>
<CAPTION>
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Total Assets 25,224,000 24,421,000 18,865,000 17,926,000 20,309,000
Working capital 16,853,000 16,288,000 15,292,000 13,484,000 10,000,000
Retained earnings 5,842,000 4,789,000 3,307,000 1,881,000 4,135,000
Stockholders' equity 23,360,000 21,504,000 17,914,000 16,688,000 18,942,00
</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 appearing elsewhere herein.
This discussion contains forward looking statements that are subject
to a number of known and unknown risks that, in additional to general economic,
competitive and other business conditions, could cause actual results,
performance and achievements to differ materially from those described or
implied in the forward looking statements.
On March 25, 1997, Health Acquisition Corp. ("HAC"), a wholly-owned
subsidiary of the Company, acquired certain assets of C.J. Home Care, Inc. and
on May 29, 1997, HAC acquired certain assets of Home Health Aides, Inc. and
H.H.A. Aides, Inc. All acquisitions were from New York State licensed home
health care companies that provided home healthcare services in both Nassau and
Suffolk Counties, New York. The acquisitions have been accounted for utilizing
purchase accounting principles.
On May 21, 1996, the initial public offering of common stock by
SunStar was consummated. SunStar, then a wholly-owned subsidiary of the Company
had comprised the Company's Florida outpatient medical center operations. The
Company currently owns 900,000 shares, or approximately 37.6%, of SunStar. The
operations of SunStar prior to the offering are reflected in the Company's
financial statements as continuing operations. In the preparation of its
financial information, the Company has relied upon the financial statements of
SunStar, which financial statements have been audited by other auditors whose
report has been furnished to the Company.
On August 4, 1995, the Company completed the purchase of Nurse Care
and New England. During the fiscal year ended July 31, 1996 ("fiscal 1996"),
Nurse Care transferred all of the outstanding stock of New England to the
Company. New England is a Medicare-certified and licensed home health care
company providing 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.
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<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED JULY 31, 1997 COMPARED TO YEAR ENDED JULY 31, 1996
For the fiscal year ended July 31, 1997 ("fiscal 1997"), net patient
revenues were $35,070,000 as compared with $38,830,000 in fiscal 1996. This
decrease is primarily attributable to the absence of revenues from outpatient
medical services during fiscal 1997 as compared with the presence of such
revenues of $3,693,000 during fiscal 1996. Revenues from home health care
services decreased $67,000 or .2% from $35,137,000 in fiscal 1996. Revenues from
HAC, the subsidiary providing home health care services in the New York
metropolitan area, decreased $100,000 or .5% to $20,562,000 in fiscal 1997 from
$20,662,000 in fiscal 1996. This decrease is the result of increased competition
and price pressures from the certified home health care agencies with which it
contracts. Revenues from New England and Nurse Care, the subsidiaries providing
home health care services in Fairfield and New Haven Counties, Connecticut
increased $33,000 or .2% to $14,508,000 in fiscal 1997 from $14,475,000 in
fiscal 1996.
With the completion of the initial public offering of SunStar in
fiscal 1996, the Company is now focused solely on home health care services. The
Company is optimistic there will be increasing 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 acquisitions in both fiscal
years reflect its commitment to devoting significant resources to the expansion
of its home care services.
Gross profit margin percentage in fiscal 1997 was 35% as compared to
36% for fiscal 1996. Excluding outpatient medical center operations, the gross
profit margin was 35% in fiscal 1996.
General and administrative expenses decreased from 27% of revenues in
fiscal 1996 to 25% of revenues in fiscal 1997. This decrease is primarily
attributable to improved efficiencies implemented in the operations of New
England and Nurse Care.
Amortization of intangibles decreased from $294,000 in fiscal 1996 to
$245,000 in fiscal 1997 as a result of certain intangible assets from prior
acquisitions being fully amortized.
Interest income increased to $446,000 for fiscal 1997 from $412,000
in fiscal 1996. This increase of $34,000 or 8% is the result of the Company's
increased cash flow over fiscal 1996.
The Company recorded a loss from equity investee of $612,000 in
fiscal 1997 as compared to a loss of $10,000 in fiscal 1996, representing the
Company's share of the net loss reported by SunStar for the same periods. In
addition, in fiscal 1996, the Company recorded a one-time net gain on the
SunStar initial public offering in the amount of $1,024,000.
The Company's effective tax rate increased to 41% in fiscal 1997 as
compared to 36% in fiscal 1996. This increase is attributable to the Company
utilizing available state net operating loss deductions in fiscal 1996.
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As a result of the foregoing, net income for fiscal 1997 decreased to
$1,856,000 from $3,357,000 for fiscal 1996.
YEAR ENDED JULY 31, 1996 COMPARED TO YEAR ENDED JULY 31, 1995
Net patient revenues 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 fiscal 1996. Net patient revenues from home health care services
increased approximately $15,709,000 or 81%. Approximately $14,475,000 or 92% of
this increase is attributable to the acquisition of Nurse Care and New England.
HAC, the licensed home health care company providing home health care services
in the New York metropolitan area, had revenues increase by $1,306,000 or 7%
from fiscal 1995. Net patient revenues recorded in fiscal 1996 from outpatient
medical operations decreased $1,435,000 or 28% from $5,128,000 in fiscal 1995.
This decrease is attributable to the Company recording only nine months of
revenues in fiscal 1996, due to the change in ownership in the fourth quarter
from 100% to approximately 37.6%.
Gross profit margin percentage in fiscal 1996 was 36% as compared to
39% in fiscal 1995. This decrease is attributable to the acquisition of New
England, which has a lower gross margin percentage as a result of revenue
generated from its Medicare patients being limited to cost reimbursement
principles.
General and administrative expenses decreased from 29% of revenues in
fiscal 1995 to 27% of revenues in fiscal 1996. This decrease is attributable to
the increase in revenues being absorbed by existing general and administrative
costs.
Amortization of intangibles increased $125,000 or 74% from $169,000
in fiscal 1995 to $294,000 in fiscal 1996. This increase is attributable to the
acquisition of Nurse Care and New England in August 1995.
In fiscal 1996, 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 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.
-13-
<PAGE>
As a result of the foregoing, net income for fiscal 1996 increased to
$3,357,000 from $1,426,000 for fiscal 1995.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1997, the Company had working capital of $16,853,000 as
compared to working capital of $16,288,000 at July 31, 1996. Cash and cash
equivalents at July 31, 1996 were $9,324,000 as compared with $8,929,000 at July
31, 1996.
Net cash provided by operating activities was $2,398,000 in fiscal
1997 as compared with $1,066,000 in fiscal 1996. This increase is primarily
attributable to decreases in accounts receivable and prepaid expenses and an
increase in accounts payable and accrued expenses as compared to fiscal 1996.
The Company expects to continue to generate sufficient cash flow from operation
to meet its working capital requirements.
Investing activities in fiscal 1997 used cash of $2,003,000 as
compared to cash used of $2,482,000 in fiscal 1996. The cash used in investing
activities primarily consisted of acquisitions in both fiscal 1997 and 1996.
The proceeds from the exercise of stock options offset by the
purchase of treasury shares provided no cash from financing activities in fiscal
1997. Cash provided from financing activities in fiscal 1996 was $1,108,000,
consisting of cash received on notes receivable and the proceeds from the
exercise of stock options, offset by the cash surrendered in the subsidiary
stock offering in fiscal 1996.
The nature of the Company's business requires weekly payments to
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 to 45 days with respect to certain governmental
payors, such as Medicare and Medicaid programs. For fiscal 1997, accounts
receivable turnover for home health care services was 91 days as compared to 90
days for fiscal 1996.
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 may 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 January 30, 1998. At July 31,
1997, 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.
-14-
<PAGE>
In July 1997, the Board of Directors authorized a stock repurchase
plan authorizing the Company to repurchase up to $1,000,000 of its Common Stock.
The buyback program will be financed out of existing cash balances.
Other than as set forth herein, the Company has no material
commitments for capital expenditures as of July 31, 1997.
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
The financial information required by this item is set forth in the
Consolidated Financial Statements on pages F-1 through F-23.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
-15-
<PAGE>
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 1997 Annual
Meeting of Stockholders to be held on December 8, 1997, 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, 1997.
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
-16-
<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 (8)
10.6 Employment Agreement dated as of July 1, 1996 between the
Registrant and Robert P. Heller (8)
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 (8)
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 (8)
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)
- -17-
<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, as amended on April 1, 1997.
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 February 20, 1997 providing a
Secured Advised Line of Credit from the Bank of New York
to National Home Health Care Corp. (9)
10.23 Letter Agreement dated February 20, 1997 providing a
Secured Advised Line of Credit from the Bank of New York
to New England Home Care, Inc. (9)
10.24 Asset Purchase Agreement dated December 24, 1996 by and
between Health Acquisition Corp. and C.J. Home Care, d/b/a
Garden City Home Care. (9)
10.25 Asset Purchase Agreement dated February 19, 1997 among
Home Health Aides, Inc., H.H.A. Aides, Inc., and Health
Acquisition Corp. d/b/a Allen Health Care Services. (10)
21.1 List of Subsidiaries
- -18-
<PAGE>
Exhibit
Number Document
- ------ --------
23.1 Consent of Richard A. Eisner & Co., LLP
23.2 Consent of KPMG Peat Marwick 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 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.
(8) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1996.
(9) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended January 31, 1997.
(10) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1997.
(b) Reports on Form 8-K. None have been filed during the last fiscal
quarter.
-19-
<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 27, 1997
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 &
- -------------------------- Chief Executive Officer
Frederick H. Fialkow
/s/ Steven Fialkow President, Chief Operating Officer,
- -------------------------- Director and Secretary
Steven Fialkow
/s/ Robert P. Heller Vice President of Finance and Chief Financial
- -------------------------- Officer (Principal Financial and Accounting
Robert P. Heller Officer)
/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>
NATIONAL HOME HEALTH CARE CORP.
Index to Financial Statements and Schedules
Filed with the Annual Report of the Company on Form 10-K
Page
----
Part II Item 8
Independent Auditors' Report F-2
Consolidated Financial Statements
Balance sheets as of July 31, 1997 and 1996 F-3
Statements of operations for the years ended
July 31, 1997, 1996 and 1995 F-4
Statements of changes in stockholders' equity for
the years ended July 1997, 1996 and 1995 F-5
Statements of cash flows for the years ended
July 31, 1997, 1996 and 1995 F-6
Notes to financial statements F-7
Part IV Item 14
Independent Auditors' Report on Schedule F-22
Supplementary Information
Schedule II Valuation and Qualifying Accounts F-23
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>
NATIONAL HOME HEALTH CARE CORP.
INDEPENDENT AUDITORS' REPORT
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 of July 31, 1997 and 1996, 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, 1997. 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. The financial statements of SunStar Healthcare, Inc., (a corporation
in which the Company has a 37.6% interest), have been audited by other auditors
whose report has been furnished to us; insofar as our opinion on the 1997
consolidated financial statements relates to data included for SunStar
Healthcare, Inc., it is based solely on their report.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and, for 1997, the report of other
auditors, 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, 1997 and 1996, 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, 1997, in conformity with generally
accepted accounting principles.
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
New York, New York
September 26, 1997
With respect to Note 1 - Stock Dividend
October 10, 1997
F-2
<PAGE>
KMPG Peat Marwick LLP
Suite 2700, Independent Square
One Independent Drive
P.O. Box 190
Jacksonville, Fl 32201-0190
Independent Auditor's Report
----------------------------
To the Board of Directors
SunStar Healthcare, Inc.:
We have audited the accompanying consolidated balance sheets of SunStar
Healthcare, Inc. and Subsidiaries (the Company) as of July 31, 1996 and 1997,
and the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the years in the two-year period ended July
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. The accompanying
consolidated financial statements of SunStar Healthcare, Inc. for the year ended
July 31, 1995, were audited by other auditors whose report thereon dated October
6, 1995, expresses an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted accounting
principles. Those standards require that we plan and perform an 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SunStar Healthcare,
Inc. as of July 31, 1996 and 1997, and the results of its operations and its
cash flows for each of the years in the two-year period ended July 31, 1997, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KMPG Peat Marwick LLP
Jacksonville, Florida
September 16, 1997
F-2a
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
July 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash (including cash equivalents of $8,344,000 and $8,226,000) $ 9,324,000 $ 8,929,000
Investments - available for sale 508,000 528,000
Accounts receivable (less allowance for doubtful accounts of $327,000
and $414,000) 8,176,000 8,499,000
Income taxes receivable 203,000
Prepaid expenses and other assets 163,000 218,000
Deferred taxes 230,000 304,000
----------- -----------
Total current assets 18,401,000 18,681,000
Furniture, equipment and leasehold improvements, net 378,000 319,000
Excess of cost over fair value of net assets of businesses acquired 3,350,000 2,557,000
Other intangible assets 947,000 132,000
Deposits and other assets 138,000 110,000
Investment in unconsolidated investee 2,010,000 2,622,000
----------- -----------
$25,224,000 $24,421,000
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 1,331,000 $ 1,315,000
Income taxes payable 22,000
Estimated third-party payor settlements 195,000 1,078,000
----------- -----------
Total current liabilities 1,548,000 2,393,000
Deferred tax liability - noncurrent 316,000 524,000
----------- -----------
Total liabilities 1,864,000 2,917,000
----------- -----------
Commitments, contingencies and other matters
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; authorized 20,000,000 shares,
issued 6,208,646 and 6,050,321 shares 6,000 6,000
Additional paid-in capital 18,476,000 17,660,000
Retained earnings 5,842,000 4,789,000
----------- -----------
24,324,000 22,455,000
Less treasury stock (957,500 and 955,000 shares) - at cost 964,000 951,000
----------- -----------
Total stockholders' equity 23,360,000 21,504,000
----------- -----------
$25,224,000 $24,421,000
=========== ===========
</TABLE>
See notes to financial statements
F-3
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended July 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net patient revenue $ 35,070,000 $ 38,830,000 $ 24,556,000
------------ ------------ ------------
Operating expenses:
Cost of revenue 22,905,000 24,798,000 15,032,000
General and administrative 8,620,000 10,472,000 7,213,000
Amortization of intangibles 245,000 294,000 169,000
------------ ------------ ------------
Total operating expenses 31,770,000 35,564,000 22,414,000
------------ ------------ ------------
Income from operations 3,300,000 3,266,000 2,142,000
Other income:
Gain resulting from subsidiary's stock offering 1,548,000
Interest income 446,000 412,000 410,000
(Loss) from equity investee (612,000) (10,000)
------------ ------------ ------------
Income before income taxes 3,134,000 5,216,000 2,552,000
Provision for income taxes 1,278,000 1,859,000 1,126,000
------------ ------------ ------------
Net income $ 1,856,000 $ 3,357,000 $ 1,426,000
============ ============ ============
Net income per share of common stock $ .35 $ .65 $ .27
============ ============ ============
</TABLE>
See notes to financial statements
F-4
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
Consolidated Statements of Changes in Stockholders' Equity
[PART 1 OF 2]
<TABLE>
<CAPTION>
Common Stock
------------------------
Additional
Number of Paid-In
Shares Amount Capital
--------- ------------ ------------
<S> <C> <C> <C>
BALANCE AT JULY 31, 1994 5,670,075 $ 6,000 $ 15,544,000
Net income
Acquisition of treasury shares, $3.25 per share
Exercise of common stock options 3,000 8,000
--------- ------------ ------------
BALANCE AT JULY 31, 1995 5,673,075 6,000 15,552,000
Net income
Stock dividend declared on October 21, 1996 288,414 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
Net income
Acquisition of treasury shares, $5.32 per share
Stock dividend declared on October 10, 1997 153,025 803,000
Exercise of common stock options 5,300 13,000
--------- ------------ ------------
BALANCE AT JULY 31, 1997 6,208,646 $ 6,000 $ 18,476,000
========= ============ ============
</TABLE>
[PART 2 OF 2]
<TABLE>
<CAPTION>
Treasury Stock
----------------------
Retained Number of
Earnings Shares Cost
------------ ------- ------------
<S> <C> <C> <C>
BALANCE AT JULY 31, 1994 $ 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
------------ ------- ------------
BALANCE AT JULY 31, 1995 3,307,000 955,000 (951,000)
Net income 3,357,000
Stock dividend declared on October 21, 1996 (1,875,000)
Exercise of common stock options
------------ ------- ------------
BALANCE AT JULY 31, 1996 4,789,000 955,000 (951,000)
Net income 1,856,000
Acquisition of treasury shares, $5.32 per share 2,500 (13,000)
Stock dividend declared on October 10, 1997 (803,000)
Exercise of common stock options
------------ ------- ------------
BALANCE AT JULY 31, 1997 $ 5,842,000 957,500 $ (964,000)
============ ======= ============
</TABLE>
See notes to financial statements
F-5
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,856,000 $ 3,357,000 $ 1,426,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 355,000 454,000 329,000
Settlement for state income taxes (300,000)
Provision for doubtful accounts 123,000 173,000
Deferred tax (133,000) 410,000 120,000
Gain on subsidiary's stock offering (1,548,000)
Loss from equity investee 612,000 10,000
Changes in:
Accounts receivable 323,000 (544,000) (688,000)
Prepaid expenses and other assets 27,000 (65,000) (130,000)
Accounts payable, accrued expenses
and other liabilities 16,000 (337,000) 13,000
Income taxes receivable/payable 225,000 207,000 2,553,000
Estimated third-party payor settlements (883,000) (1,001,000)
----------- ----------- -----------
Net cash provided by operating activities 2,398,000 1,066,000 3,496,000
----------- ----------- -----------
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold
improvements (134,000) (172,000) (94,000)
Proceeds of investments 20,000 285,000 1,000,000
Purchase of assets of businesses (1,889,000) (225,000)
Purchase of Nurse Care, Inc., net of cash acquired (2,595,000)
----------- ----------- -----------
Net cash (used in) provided by investing activities (2,003,000) (2,482,000) 681,000
----------- ----------- -----------
Cash flows from financing activities:
Decrease in notes receivable 1,039,000 243,000
Purchase of treasury shares (13,000) (208,000)
Proceeds from exercise of stock options 13,000 233,000 8,000
Cash of subsidiary at date of stock offering (164,000)
----------- ----------- -----------
Net cash provided by financing activities - 0 - 1,108,000 43,000
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 395,000 (308,000) 4,220,000
Cash and cash equivalents - beginning of year 8,929,000 9,237,000 5,017,000
----------- ----------- -----------
Cash and cash equivalents - end of year $ 9,324,000 $ 8,929,000 $ 9,237,000
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 11,000 $ 14,000 $ 13,000
Taxes $ 1,584,000 $ 1,677,000 $ 618,000
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES - SEE
NOTES 5 AND 6.
See notes to financial statements
F-6
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
ACQUISITION
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 5.
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.
REVENUE RECOGNITION:
Net patient revenue is recorded at the estimated net realizable amount from
third-party payors and patients.
Under Medicare and Medicaid cost reimbursement programs, the Company is
reimbursed for services rendered to covered patients. Revenues derived form
these programs are based in part, on cost reimbursement principles and are
subject to examination and retroactive adjustment. 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.
Approximately 39%, 39% and 13% of net patient revenue for the fiscal years ended
July 31, 1997, 1996 and 1995, respectively, were derived under federal and state
third-party reimbursement programs.
CASH EQUIVALENTS:
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.
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.
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
being amortized over a period of 20 to 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.
F-7
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
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 1997. During the three years ended July 31, 1997, the
options were not materially dilutive. The number of shares used in the
calculation of earnings (loss) per share are 5,250,242 for the year ended July
31, 1997, 5,186,985 for the year ended July 31, 1996 and 5,202,144 for the year
ended July 31, 1995.
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, 1997 and 1996 are
summarized as follows:
1997 1996
Amortized
Cost (1)
-------- --------
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 160,000 170,000
Floating rate debentures issued by New York State,
maturing after ten years 170,000 180,000
Other 18,000 18,000
-------- --------
$508,000 $528,000
======== ========
(1) Amortized cost approximates market value. Accordingly, there is no
unrealized holding gain or loss.
F-8
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECLASSIFICATIONS:
Certain items in the 1995 and 1996 financial statements have been reclassified
to conform to the 1997 presentation.
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.
RECENTLY ADOPTED 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. The Company
adopted SFAS 121 and SFAS 123 in fiscal 1997. Adoption did not have a material
impact on its financial statements. The Company will 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128 ("SFAS 128"), "Earnings per Share". SFAS
128 is effective for financial statements issued for interim and annual periods
ending after December 15, 1997. Earlier application is not permitted. The
Company believes adoption of SFAS 128 will not have a material impact on its
financial statements.
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 primarily to goodwill, depreciable assets and valuation
reserves for accounts receivable and deferred tax assets.
F-9
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
STOCK DIVIDEND:
On October 21, 1996, the Company's Board of Directors declared a 6% stock
dividend payable on December 4, 1996 for shareholders of record as of November
8, 1996. A total of 288,414 shares of common stock were issued in connection
with the dividend. All stock related data in the consolidated financial
statements reflect the stock dividend for all periods presented.
On October 10, 1997, the Company's Board of Directors declared a 3% stock
dividend payable on December 8, 1997 for shareholders of record as of November
6, 1997. A total of 153,025 shares of common stock will be issued in connection
with the dividend. All stock related data in the consolidated financial
statements reflect the stock dividend for all periods presented.
F-10
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 2 - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost and are
summarized as follows:
July 31,
---------------------
1997 1996
-------- --------
Equipment, furniture and fixtures $753,000 $614,000
Leasehold improvements 159,000 130,000
-------- --------
912,000 744,000
Less accumulated depreciation and amortization 534,000 425,000
-------- --------
Balance $378,000 $319,000
======== ========
The net book value of furniture and equipment held under capital leases was $-0-
and $20,000 at July 31, 1997 and July 31, 1996, respectively. Depreciation
expense includes depreciation on assets held under capital leases.
NOTE 3 - EXCESS OF COST OVER FAIR VALUE
Changes in the excess of cost over fair value of net assets of businesses
acquired during the three years ended July 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ended
July 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance - beginning of year $ 2,557,000 $ 1,036,000 $ 1,073,000
Consideration for acquisition 929,000 2,049,000
Reduction from subsidiary stock offering (Note 5) (392,000)
Amortization (136,000) (136,000) (37,000)
----------- ----------- -----------
Balance - end of year $ 3,350,000 $ 2,557,000 $ 1,036,000
=========== =========== ===========
</TABLE>
F-11
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 4 - OTHER INTANGIBLE ASSETS
Other intangible assets are as follows:
July 31,
-----------------------
1997 1996
---------- ----------
Covenants not to compete $ 775,000 $ 400,000
Personnel files 678,000 478,000
Patient files 352,000 2,000
---------- ----------
1,805,000 880,000
Less accumulated amortization 858,000 748,000
---------- ----------
$ 947,000 $ 132,000
========== ==========
F-12
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 4 - OTHER INTANGIBLE ASSETS (CONTINUED)
Other intangible assets increased during fiscal 1997 as a result of certain
acquisitions and decreased during fiscal 1996 as a result of the subsidiary
stock offering. Other intangible assets are being amortized using the
straight-line method over a period of 3 to 10 years.
NOTE 5 - 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 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 years ended July 31 are as follows:
1997 1996
----------- -----------
Total current assets $ 5,105,000 $ 6,403,000
Total assets 6,371,000 7,499,000
Total current liabilities 881,000 505,000
Total liabilities 989,000 522,000
Total revenues 4,729,000 5,080,000
Net (loss) (1,631,000) (222,000)
Market value of the Company's investment 4,500,000* 4,233,000*
- -------------
* The market value of the Company's investment is based on quoted market
prices and does not necessarily represent the amount that may be realized
upon disposition of the investment.
NOTE 6 - ACQUISITIONS
On March 25, 1997, the Company acquired certain assets of C.J. Home Care, Inc.,
d/b/a Garden City Home Care, for approximately $677,000, including acquisition
costs of $27,000. The assets purchased consisted of personnel files of $100,000,
patient files of $50,000, furniture and equipment of $10,000, covenants not to
compete of $200,000 and goodwill of $317,000.
On May 29, 1997, the Company acquired certain assets of Home Health Aides, Inc.
and H.H.A. Aides, Inc., for approximately $1,212,000, including acquisition
costs of $77,000. The assets purchased consisted of personnel files of $100,000,
patient files of $300,000, furniture and equipment of $25,000, covenant not to
compete of $175,000 and goodwill of $612,000.
The above acquisitions have been accounted for utilizing purchase accounting
principles. Accordingly, the results of these operations have been included in
the accompanying consolidated financial statements since the dates of
acquisition.
Had the operations of the above acquisitions been acquired on August 1, 1995,
there would have been no material effect on the consolidated operations of the
Company for the years ended July 31, 1997 and July 31, 1996.
F-13
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 6 - ACQUISITIONS - (CONTINUED)
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 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 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, 1994,
there would have been no material effect on the consolidated operations of the
Company for the year ended July 31, 1995.
NOTE 7 - INCOME TAXES
The provision for income taxes is summarized as follows:
Year Ended
July 31,
----------------------------------------------
1997 1996 1995
----------- ----------- -----------
Current:
Federal $ 1,156,000 $ 1,340,000 $ 515,000
State and local 255,000 109,000 491,000
----------- ----------- -----------
1,411,000 1,449,000 1,006,000
Deferred (133,000) 410,000 120,000
----------- ----------- -----------
$ 1,278,000 $ 1,859,000 $ 1,126,000
=========== =========== ===========
F-14
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 7 - 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 expense (benefit) are as follows:
Year Ended
July 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
Loss from equity investee $(208,000)
State tax net operating loss carryforwards 75,000 $(114,000) $ 120,000
Tax on gain from sale of subsidiary stock 524,000
--------- --------- ---------
$(133,000) $ 410,000 $ 120,000
========= ========= =========
The deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
July 31,
-----------------------------------------
1997 1996
------------------- -------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C>
Accrued liability and reserves $191,000 -- $190,000 --
State net operating loss carryforwards 39,000 -- 114,000 --
Investment in unconsolidated investee -- $316,000 -- $524,000
-------- -------- -------- --------
230,000 316,000 304,000 524,000
Valuation allowance - 0 - -- - 0 - --
-------- -------- -------- --------
$230,000 $316,000 $304,000 $524,000
======== ======== ======== ========
</TABLE>
One subsidiary of the Company has incurred losses which can be used to offset
state taxable income through 2012. At July 31, 1997 total net operating loss
carryforward as applicable to Connecticut amounted to approximately $550,000.
F-15
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 7 - INCOME TAXES (CONTINUED)
The reconciliation of the statutory tax rate to the effective tax rate for the
three years ended July 31, 1997 is as follows:
1997 1996 1995
---- ---- ----
Statutory rate 34% 34% 34%
State and local taxes (net of federal tax effect) 5 1 12
Federal tax credit (2) (5)
Other 4 1 3
--- --- ---
Effective rate 41% 36% 44%
=== === ===
NOTE 8 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Most of the Company's business is with customers who are in the health care
industry and with governmental agencies.
The Company provides temporary health care personnel to in-home patients in the
New York City metropolitan area and State of Connecticut. Credit losses relating
to customers historically have been minimal and within management's
expectations.
At July 31, 1997, the Company maintained approximately 49% of its cash and cash
equivalents with one financial institution.
Under certain federal and state third-party reimbursement programs, the Company
received net patient revenues approximating $13,610,000, $15,211,000 and
$3,125,000 for the years ended July 31, 1997, July 31, 1996 and July 31, 1995,
respectively. The Company also received net patient revenues of approximately
$7,624,000, $9,275,000 and $9,933,000 for the years ended July 31, 1997, July
31, 1996 and July 31, 1995, respectively, from a private company. At July 31,
1997, the Company had an aggregate outstanding receivable from the federal and
state reimbursement programs of $2,206,000 and an outstanding receivable of
$1,989,000 from the private company.
NOTE 9 - 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, 1997, 432,868 shares of the Company's common stock have been
reserved for future issuance pursuant to the 1992 Plan.
F-16
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 9 - STOCK OPTION PLAN (CONTINUED)
The Company applies APB Opinion 25 and related Interpretations in accounting for
its options. Accordingly, no compensation cost has been recognized for its stock
option grants. Had compensation cost for the Company's stock option grants been
determined based on the fair value at the grant dates for awards consistent with
the method of SFAS 123, the adjustment to the Company's net income and earnings
per share would not be material.
F-17
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 9 - STOCK OPTION PLAN (CONTINUED)
A summary of the status of the Company's stock options as of July 31, 1997, 1996
and 1995 and changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- ------------------- -----------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Shares Price Shares Price Shares Price
--------- ------- ------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 203,982 $2.85(1) 295,502 $2.77 300,502 $3.22
Granted 12,000 $6.25 286,502 $2.69
Exercised (5,300) $2.47 (88,832) $2.63 (3,000) $2.63
Forfeited (26,234) $2.91 (288,502) $2.72
------- -------- --------
Outstanding at end of year 198,682 $2.86 192,436 $3.03 295,502 $2.77
Options exercisable at
year-end 198,682 $2.86 192,436 $3.03 295,502 $2.77
Weighted-average fair value
of options granted during
the year $2.53
</TABLE>
(1) Adjusted for 6% stock dividend declared in October 1996.
The following table summarizes information about stock options outstanding at
July 31, 1997:
Options Outstanding and Exercisable
-----------------------------------
Shares Weighted- Weighted -
Outstanding Average Average
Range at Remaining Exercise
Exercise Prices July 31, 1997 Contractual Life Price
- --------------- ------------- ----------------- ------------
$2.47 - $2.71 175,362 2 years $2.58
$3.88 10,600 5 years $3.88
$5.88 12,720 9 years $5.88
--------- ------- -----
198,682 3 years $2.86
F-18
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 10 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
[a] Effective April 1, 1997 the Company amended and restated the Company's
Employee Savings and Stock Investment Plan organized under Section 401(k)
of the Internal Revenue Code. Under the new plan, employees may contribute
up to 15% of their salary into the plan, limited to the maximum amount
allowable under federal tax regulations. The Company will match 100% of
employees contributions; provided, that in no event shall the matching
contributions on behalf of any employee exceed 2.5% of each employee's
compensation. The Company may also make additional contributions at its
discretion. An employee may invest in Company stock and several mutual
funds. The Company's matching contributions for each of the years ended
July 31, 1997, July 31, 1996 and July 31, 1995 were $135,000,$122,000 and
$59,000, respectively.
[b] The Company has an employment agreement with an officer which expires in
April 1998. The aggregate commitment for future salary, excluding bonuses,
under the agreement is $213,750. The agreement also provides for increases
based on increases in the consumer price index and 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.
At July 31, 1997, minimum annual rental commitments under noncancellable
operating leases are as follows:
Year Ending
July 31,
--------
1998 $326,000
1999 156,000
2000 80,000
--------
$562,000
========
Rent expense for the years ended July 31, 1997, July 31, 1996 and July 31,
1995 was approximately $435,000, $655,000 and $584,000, respectively.
One lease is with a company controlled by the Company's Chief Executive
Officer. Rent expense under such lease approximates $123,000 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 line of
credit. The maximum amount that can be borrowed under the secured 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 January 30, 1998 . At July
31, 1997, there were no outstanding balances under either line of credit.
NOTE 11 - 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 State of Connecticut. Outpatient medical
services were performed in Brevard and Volusia County, Florida. Subsequent to
the Company's sale of its majority
F-19
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
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.
F-20
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 11 - SEGMENT INFORMATION (CONTINUED)
Revenue, operating expenses and income from operations pertaining to the
Company's operations are as follows:
Year Ended
July 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
Net patient revenue:
Home health care services $35,070,000 $35,137,000 $19,428,000
Outpatient medical services 3,693,000 5,128,000
----------- ----------- -----------
35,070,000 38,830,000 24,556,000
----------- ----------- -----------
Operating expenses:
Home health care services 31,720,000 31,968,000 17,379,000
Outpatient medical services 3,596,000 5,035,000
----------- ----------- -----------
31,720,000 35,564,000 22,414,000
----------- ----------- -----------
Income from operations:
Home health care services 3,350,000 3,241,000 2,049,000
Outpatient medical services 25,000 93,000
----------- ----------- -----------
$ 3,350,000 $ 3,266,000 $ 2,142,000
=========== =========== ===========
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
Board of Directors and Stockholders
National Home Health Care Corp.
New York, New York
The audits referred to in our report dated September 26, 1997 on the
consolidated financial statements of National Home Health Care Corp. and
subsidiaries, which appears in Part II, also included Schedule II for each of
the years in the three-year period ended July 31, 1997. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein, in compliance with the applicable accounting regulation of the
Securities and Exchange Commission.
/s/ Richard A. Eisner & Company, LLP
New York, New York
September 26, 1997
F-22
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------------------------------------------------------------------------------------------
Additions
-------------------------
(1) (2)
Balance -------------------------
at Charged to Balance
beginning Charged to other at
of costs and accounts - Deductions - end of
period expenses describe describe period
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Description
Year ended July 31, 1997:
Reserve and allowance deducted from asset account
and allowance for uncollectible accounts $ 414,000 $ (87,000) (1) $ 327,000
========== =========== ========
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
========== ========= =========== =========
(1) Represents actual write-offs.
(2) Includes $340,000 acquired in acquisition of Nurse Care, Inc.
</TABLE>
See accompanying notes to financial statements
F-23
<PAGE>
Exhibit Page
Number Document Number
- ------ -------- ------
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 (8)
10.6 Employment Agreement dated as of July 1, 1996 between the
Registrant and Robert P. Heller (8)
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 (8)
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 (8)
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)
<PAGE>
Exhibit Page
Number Document Number
- ------ -------- ------
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, as amended on April 1, 1997.
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 February 20, 1997 providing a
Secured Advised Line of Credit from the Bank of New York
to National Home Health Care Corp. (9)
10.23 Letter Agreement dated February 20, 1997 providing a
Secured Advised Line of Credit from the Bank of New York
to New England Home Care, Inc. (9)
10.24 Asset Purchase Agreement dated December 24, 1996 by and
between Health Acquisition Corp. and C.J. Home Care, d/b/a
Garden City Home Care. (9)
10.25 Asset Purchase Agreement dated February 19, 1997 among
Home Health Aides, Inc., H.H.A. Aides, Inc., and Health
Acquisition Corp. d/b/a Allen Health Care Services. (10)
21.1 List of Subsidiaries
<PAGE>
Exhibit Page
Number Document Number
- ------ -------- ------
23.1 Consent of Richard A. Eisner & Co., LLP
23.2 Consent of KPMG Peat Marwick 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 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.
(8) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1996.
(9) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended January 31, 1997.
(10) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1997.
NATIONAL HOME HEALTH CARE CORP.
SAVINGS AND STOCK INVESTMENT PLAN
AS AMENDED AND RESTATED
EFFECTIVE APRIL 1, 1997
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
SAVINGS AND STOCK INVESTMENT PLAN
TABLE OF CONTENTS
Page
Preamble
Section 1 - Definitions ....................................................1
Section 2 - Membership .....................................................8
Section 3 - Crediting of Service ..........................................10
Section 4 - Voluntary Contributions .......................................14
Section 5 - Contributions .................................................15
Section 6 - Benefits ......................................................23
Section 7A- Investment and Valuation of Account A ...........................25
Section 7B- Termination and Valuation of Accounts B and C....................27
Section 8 - Withdrawals Prior To Separation From Service ..................28
Section 9 - Manner of Payment .............................................30
Section 10 - Administration of Plan .........................................34
Section 11 - Management of Trust Fund .......................................39
Section 12 - Miscellaneous Provisions .......................................40
Section 13 - Non-Alienation of Benefits .....................................43
Section 14 - Amendments .....................................................44
Section 15 - Construction ...................................................45
Section 16 - Trust Agreement and Exhibits ...................................46
Exhibit A - Participating Employers ........................................A
Exhibit B - Top-Heavy ......................................................B
Exhibit C - Trust Agreement ................................................C
Exhibit D - Loans to Members ...............................................D
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
SAVINGS AND STOCK INVESTMENT PLAN
PREAMBLE
--------
Effective March 1, 1986, National Home Health Care Corp. (the "Employer")
established a defined contribution plan, known as the National Home Health Care
Corp. Savings and Stock Investment Plan (the "Plan") in recognition of the
contribution made to its successful operation by its employees and for the
exclusive benefit of its eligible employees.
Effective January 1, 1993, the Plan was amended and restated in its
entirety.
In this document the Plan is again amended and restated in its entirety.
All of the provisions set forth in the Plan are effective April 1, 1997, unless
another effective date is indicated.
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
SAVINGS AND STOCK INVESTMENT PLAN
---------------------------------
SECTION 1 - DEFINITIONS
1.01 "Account" or "Accrued Benefit" means a Member's interest in the
assets of the Trust Fund as represented by the value of his Account A, Account B
and Account C, which values shall be determined as of any Valuation Date.
(a) "Account A" means those assets attributable to a Member's
Tax-Deferred Contributions, Qualified Matching Contributions, Qualified
Non-Elective Contributions and pre April 1, 1997 Employer Matching
Contributions.
(b) "Account B" means those assets attributable to Employer
Matching Contributions made on and after April 1, 1997.
(c) "Account C" means those assets attributable to Employer
Discretionary Contributions.
1.02 (a) "Actual Deferral Percentage" means, for any Member, the ratio of
such Member's Tax-Deferred Contributions to such Member's Compensation. With
respect to any Member who elects not to make any Tax-Deferred Contributions, his
Actual Deferral Percentage shall be zero.
(b) "Actual Deferral Percentage Test" means the test described in
Section 5.02 hereof.
1.03 "Average Actual Deferral Percentage" means the average of the Actual
Deferral Percentages of all Members for a given Plan Year.
1.04 (a) "Actual Contribution Percentage" means, for any Member, the
ratio of the Employer Matching Contributions allocated to such Member's Account
B during a given Plan Year to such Member's Compensation. With respect to any
Member who does not have any Employer Matching Contributions allocated to his
Account for a Plan Year, his Actual Contribution Percentage shall be zero.
(b) "Actual Contribution Percentage Test" means the test described
in Section 5.03 hereof.
1.05 "Average Actual Contribution Percentage" means the average of the
Actual Contribution Percentages of all Members for a given Plan Year.
<PAGE>
1.06 "Allocation Date" means December 31, 1997 and each anniversary
thereof.
1.07 "Applicable Law" means the Code or ERISA, as hereinafter defined.
1.08 "Beneficiary" means the person or persons (including a trust, or the
estate of the Member) designated by the Member to receive the balance, if any,
of the Member's Account upon the Member's death, either before or after
retirement. In addition to designating a primary Beneficiary, a Member may
designate a secondary Beneficiary to receive the death benefit in the event the
primary Beneficiary does not qualify or survive. If the deaths of the Member and
his Beneficiary occur within 30 days of one another as the result of a common
disaster, the Member shall be deemed to have survived his Beneficiary for all
purposes of the Plan. If no Beneficiary has been designated, or if for any
reason no person designated as a Beneficiary survives the Member or qualifies as
a Beneficiary, any death benefit payable hereunder upon the Member's death shall
be paid in a lump sum to the spouse of the Member, and if there is no spouse, to
the Member's estate.
If the designated Beneficiary survives the Member but dies before
receiving the entire death benefit otherwise payable (and he is not survived by
a secondary Beneficiary, or the secondary Beneficiary also dies), the remainder
shall be paid in a lump sum, to the estate of the last surviving designated
Beneficiary.
Notwithstanding the foregoing, with respect to any beneficiary
designation the spouse of the Member shall be the primary Beneficiary unless the
spouse of the Member consents to the naming of another primary Beneficiary. Such
consent shall be in writing, shall acknowledge the effect of such consent, and
shall be witnessed by a notary public; provided, however, that if it is
established to the satisfaction of the Committee that the spouse of the Member
cannot be located, such consent will not be required. Any such consent shall
only be effective with respect to the spouse who gives the consent. Once the
spouse has consented, the Member may change his Beneficiary at any time by
filing with the Committee a new Beneficiary designation on a Prescribed Form.
1.09 "Board" means the Board of Directors of the Company.
1.10 "Break in Service" means a Break in Service as defined in Section
3.03.
1.11 "Code" means the Internal Revenue Code of l986 as it now exists or
may from time to time be amended.
1.12 "Committee" means the Administrative Committee referred to in
Section 10 hereof.
1.13 (a) "Company" means National Home Health Care Corp., a corporation
organized under the laws of the State of Delaware, and any organization which is
a successor thereto.
(b) "Company Stock" means the common stock of the Company.
2
<PAGE>
1.14 (a) "Compensation" means, with respect to any Plan Year, the total
remuneration paid to an Employee during such Plan Year and reportable for
purposes of Federal Tax Form W-2, plus any contributions made to Account A by
such Employee during such Plan Year.
(b)(1) In addition to other applicable limitations set forth in
the Plan, and notwithstanding any other provisions of the Plan to the contrary,
the annual Compensation of each Employee taken into account under the Plan shall
not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual
compensation limit is $150,000, as adjusted by the Commissioner for increases in
the cost of living in accordance with Section 401(a)(17)(B) of the Code. The
cost-of-living adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which compensation is determined (determination
period) beginning in such calendar year. If a determination period consists of
fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied
by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
(2) Any reference in this Plan to the limitation under Section
401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set
forth in this provision.
(3) If Compensation for any prior determination period is taken
into account in determining an Employee's benefits accruing in the current Plan
Year, the Compensation for that prior determination period is subject to the
OBRA '93 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before the first
day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93
annual compensation limit is $150,000.
1.15 "Deferred Retirement" means the continued employment of an Active
Member after his Normal Retirement Date.
1.16 (a) "Effective Date" means March 1, 1986.
(b) "Amendment Date" means April 1, 1997.
1.17 (a) "Employee" means any person employed by the Company. Employee
shall also include any Leased Employee deemed to be an Employee as provided in
Sections 414(n) or (o) of the Code, but only to the extent necessary to meet the
requirements of the provisions set forth in Section 414(n)(3) of the Code.
(b) "Eligible Employee" means an Employee who is not an Ineligible
Employee.
(c) "Ineligible Employee" means an Employee who is ineligible for
membership in the Plan because the Employee is covered under a collective
bargaining agreement entered into by his employer and employee representatives,
between whom retirement benefits were the subject the
3
<PAGE>
subject of good faith bargaining, unless such agreement expressly provides for
the coverage of Employee under this Plan.
(d) "Highly Compensated Employee" means, effective January 1,
1997:
(1) an Employee who is a 5-Percent Owner (as defined in
Section 416 of the Code) during the Plan Year or the preceding Plan Year; or
(2) an Employee who, during the preceding Plan Year, had
Code Section 415(c)(3) Compensation in excess of $80,000.
(3) If the Employer so elects, in accordance with rules and
procedures promulgated by the Secretary of the Treasury, Highly Compensated
Employees listed in (2) above shall be limited to those Employees in the "top
paid group" (defined for these purposes as the top 20% of Employees when ranked
on the bases of Code Section 415 Compensation for the year, determined after
excluding those Employees described in Code Section 414(q)(5), (8) and (9).
(4) The determination of who is a Highly Compensated
Employee shall be made in accordance with Code Section 414(q) and the
Regulations promulgated thereunder.
(e) "Non-Highly Compensated Employee" means any Eligible Employee
who meets the requirements of Section 2.01 and who is not a Highly Compensated
Employee.
1.18 (a) "Employer" means each of the following business entities (except
that, in adopting the Plan for the benefit of its employees, such business
entity may limit the application of the Plan to one or more of its divisions,
locations or operations):
(1) the Company;
(2) any subsidiary, affiliated or associated corporation
(or a partnership or sole proprietorship) or other Related Company, as
hereinafter defined, which elects to participate herein pursuant to Section
l2.05; and
(3) any predecessor thereof or successor thereto.
Exhibit A hereof shall contain a list of all participating Employers
indicating, for each such Employer, its name and date of participation, and any
special provisions with respect to the recognition or nonrecognition of previous
employment with such Employer as Service under this Plan, and any other special
provisions.
1.19 (a) "Employer Discretionary Contribution" means a contribution made
by an Employer pursuant to Section 5.01 and allocated pursuant to Section 5.04.
4
<PAGE>
(b) "Employer Matching Contribution" means a contribution made by
an Employer pursuant to Section 5.01 and allocated pursuant to Section 5.03.
1.20 "Entry Date" means the first day of each calender quarter.
1.21 "ERISA" means the Employee Retirement Income Security Act of l974 as
it now exists or may from time to time be amended.
1.22 "Hour of Service" means the unit of Service with an Employer as
described in Section 3.0l.
1.23 (a) "Member" means any person who is included in the membership of
this Plan as provided in Section 2, and who is currently an Active Member,
Inactive Member, Retired Member, Disabled Member or a Suspended Member.
(b) "Active Member" means a Member who is working for an Employer
and who is an Eligible Employee.
(c) "Inactive Member" means a Member whose employment has
terminated and who is entitled to, but has not commenced to receive, benefits in
accordance with the provisions of Section 6.03.
(d) "Retired Member" means a Member who has retired under this
Plan in accordance with its provisions and has not as yet received all of the
payments due to him from his Account, and shall include a formerly Inactive
Member from the time he commences receiving benefits. The term "Retired Member"
shall include a Disabled Member, except where the context shall clearly indicate
to the contrary.
(e) "Disabled Member" means a Retired Member who is disabled and
who is receiving or is entitled to receive the value of his Account as provided
in Section 6.02.
(f) "Suspended Member" means a previously Active Member who is
still working for an Employer and has not incurred a Break in Service, but who
has become an Ineligible Employee.
1.24 "Military Service" means a leave of absence from active employment
of an Employer during which the Employee was in the Armed Forces of the United
States of America if, after termination of such service, the Employee reenters
the employ of an Employer during the period while his reemployment rights are
protected by law without any intervening employment elsewhere.
In the event a person in Military Service fails to return to the employ
of an Employer, as provided herein, he shall be considered as having terminated
his employment as of the commencement of such Military Service.
5
<PAGE>
1.25 "Named Fiduciary" means:
(a) with respect to the administration of the terms of this Plan,
other than the review procedure described in Section l0.02(c) and the
administration of the Trust Fund, the Committee;
(b) with respect to the review procedure detailed in Section
l0.02(c), the reviewer appointed pursuant thereto; and
(c) with respect to the administration of the Trust Fund, the
Trustee.
1.26 "Normal Retirement Age" means the Member's 65th birthday. "Normal
Retirement Date" means the first day of the calendar quarter coinciding with or
next following the Member's attainment of his Normal Retirement Age..
1.27 "Permitted Leave" means any leave of absence approved by an
Employer, for a period which shall not be in excess of two years, provided that
upon termination of such leave of absence the Employee promptly returns to the
employ of an Employer, without intervening employment (other than Military
Service), except with the consent of an Employer. In the granting of any such
leave, an Employer shall act in a uniform and nondiscriminatory manner with
respect to all Employees similarly situated.
In the event a person on Permitted Leave fails to return to the
employ of an Employer, as provided herein, he shall be considered as having
terminated his employment as of the commence ment of the Permitted Leave.
1.28 "Plan" means the National Home Health Care Corp. Savings and Stock
Investment Plan as described herein, and as it may from time to time be amended,
which Plan is intended to be a profit sharing plan pursuant to the relevant
provisions of the Code.
1.29 "Plan Administrator" means the Committee.
1.30 "Plan Year" means, effective January 1, 1997, a 12-month period
beginning on January 1st and ending on the next succeeding December 31st. The
Plan Year shall be the limitation year for purposes of Section 415 of the Code
and Section 5.05 hereof.
1.31 "Prescribed Form" means an administrative form prepared and made
available by the Committee, which is prescribed by the Committee for use in
applying for a benefit or in filing an elec tion with respect to a benefit under
this Plan.
1.32 (a) "Qualified Matching Contribution" means an Employer Matching
Contribution that is allocated to a Member's Account A for purposes of
satisfying the Actual Deferral Percentage Test and/or the Actual Contribution
Percentage Test, as determined by the Committee.
6
<PAGE>
(b) "Qualified Non-Elective Contributions" means any Employer
contribution other than a Tax-Deferred Contribution or an Employer Matching
Contribution that is allocated to a Member's Account A or B for purposes of the
Actual Contribution Percentage Test and the Actual Deferral Percentage Test.
1.33 "Related Company" means any business entity which, together with the
Employer is:
(a) Included within a "Controlled Group of Corporations", under
Section 4l4(b) of the Code;
(b) Included within a commonly controlled group, under Section
4l4(c) of the Code;
(c) Included in an affiliated service group under Section 4l4(m)
of the Code;
(d) Required to be aggregated with the Employer under Section
414(o) of the Code.
"Related Company" includes any division, location or operation of any
Employer not included in Exhibit A.
For purposes of Section 5.05, the determination of whether a Related
Company is included in a "Controlled Group of Corporations" shall be made by
substituting the phrase "more than 50 percent" for the phrase "at least 80
percent" whenever it appears in Section 1563(a)(1) of the Code.
1.34 "Service" and all terms related thereto shall have the meanings
described in Section 3.
1.35 "Tax-Deferred Contributions" means a contribution made by means of
payroll deduction pursuant to Section 5.02(a).
1.36 (a) "Trust Fund" means all the assets which are held by the Trustee
for the purposes of this Plan.
(b) "Fund" or "Funds" mean the investment vehicles made available
to Members, as described in Section 7.01.
1.37 "Trustee" means the Trustee or Trustees named in the Trust Agreement
referred to in Section 11 hereof and any additional or successor Trustee or
Trustees from time to time acting as Trustee of the Trust Fund as provided in
Section 11.02. "Trustee" shall be deemed to refer to the plural as well as to
the singular, except where the context otherwise requires.
1.38 "Valuation Date" means the last day of each calendar quarter.
7
<PAGE>
1.39 "Year of Service" means certain Service with the Company, as
described in Section 3.0l(c).
SECTION 2 MEMBERSHIP
- ---------------------
2.01 Eligibility Requirements:
Every Eligible Employee who is a Member of the Plan as of the
Amendment Date shall continue as a Member.
On and after the Amendment Date, each other Eligible Employee
shall become a Member on the Entry Date coincident with or next following the
date he shall have attained age twenty-one (21) and completed one Year of
Service.
Notwithstanding the foregoing, any Eligible Employee who was
employed by the Company on March 31, 1997 shall become a Member of the Plan on
the earlier of the January 1 or July 1 coincident with or next following
attainment of age eighteen (18) and completion of six (6) consecutive months of
service with the Company or, if earlier, the date he would become a Member
pursuant to the preceding paragraph.
Each Eligible Employee upon becoming a Member shall be deemed
conclusively, and for all purposes, to have assented to the terms and provisions
of this Plan and shall be bound thereby.
Every Eligible Employee shall be notified of his eligibility by
his Employer and shall designate in writing, on a Prescribed Form filed with the
Committee, a Beneficiary or Beneficiaries to receive the balance in the Member's
Account, if any, in the event that the death of the Member should occur before
such entire balance has been paid to the Member.
2.02 Change in Employment Status:
(a) Change From Eligible to Ineligible Status. If an Active Member
becomes an Ineligible Employee because of a change in his employment status
(including a transfer to the employ of a Related Company which is not an
Employer), he shall not be deemed to have incurred a Break in Service, but shall
become and shall remain a Suspended Member for so long as he remains in such
status, and the following special provisions shall apply:
(1) The Active Member who becomes an Ineligible Employee
because of a change in his employment status shall become a Suspended Member as
of the date of his change in status.
(2) While he is a Suspended Member, he shall retain credit
for Vesting Service earned prior to becoming a Suspended Member and his
continued employment with such
8
<PAGE>
Related Company while a Suspended Member shall be counted as part of his Vesting
Service to the extent that the requirements of Section 3.02 are satisfied.
(3) His Accounts shall continue to be revalued in
accordance with Section 7.03 but he shall no longer share in the allocation of
any contributions or forfeitures unless and until he again becomes an Active
Member.
(4) When a Suspended Member's employment terminates for any
reason, including retirement or death, he (or, in the event of his death, his
Beneficiary) shall be entitled to the benefits provided under the applicable
provisions of Section 9.
(b) Change from Ineligible to Eligible Status. If a person who has
been an Ineligible Employee becomes an Eligible Employee because of a change in
his employment status (including a transfer to an Employer from the employ of
the Company or from a Related Company which is not an Employer), the following
special provisions shall apply:
(1) His prior employment while an Ineligible Employee shall
be counted as part of his Service for eligibility purposes. After becoming an
Eligible Employee he shall become an Active Member as of the first Entry Date on
which he satisfies the requirements of Section 2.0l; provided, however, that if
he was previously an Active Member in the Plan, he shall automatically be come
an Active Member as of the date on which he becomes an Eligible Employee.
(2) His prior employment while an Ineligible Employee shall
be counted as part of his Vesting Service to the extent that the requirements of
Section 3.02 are satisfied (or would have been satisfied had such employment
been with an Employer).
(c) Transfer Between Employers. In the event that a Member leaves
the employ of one Employer to enter directly into the employ of another
Employer, he shall not be deemed to have terminated his membership hereunder but
shall be considered for all purposes of this Plan thereafter as an Employee of
the succeeding Employer from the date of such transfer. Any such transferred
Member shall receive credit for his aggregate Service with all Employers.
SECTION 3 CREDITING OF SERVICE
- -------------------------------
3.0l Service in General:
(a) The term "Service" means employment with an Employer. However,
the determination of whether and to what extent "Service" includes employment
with any business entity prior to the date on which it became part of the
Company or a Related Company shall be made by reference to the portion of
Exhibit A hereof applicable to such entity.
(b) Terms such as "employment with an Employer", "Service with an
Employer" and "working for an Employer" shall include employment with a Related
Company which is not an
9
<PAGE>
Employer, but only for the purpose of determining an Employee's eligibility for
membership in the Plan, or his eligibility for benefits under the Plan, under
the limited circumstances described in Section 2.02.
(c) The term "Year of Service" means a l2-month computation period
during which an Employee completes not less than l,000 Hours of Service.
(1) For eligibility purposes, the computation period shall
be the twelve (12) month period commencing on an Eligible Employee's employment
commencement date (the "Initial Eligibility Computation Period").
(2) Notwithstanding the foregoing, if an Eligible Employee
does not complete a Year of Service during the Initial Eligibility Computation
Period, the computation period shall be the Plan Year beginning after such
Eligible Employees' employment commencement date.
(d) In determining whether an Employee has a sufficient number of
Hours of Service to be eligible for membership in the Plan and eligible for a
benefit under any provision hereof, the Employee will be credited with one Hour
of Service for each hour for which either:
(l) he is paid or entitled to payment by an Employer, for
the performance of duties during the applicable Plan Year in which the duties
were performed, or
(2) he is paid or entitled to payment by an Employer for
reasons (such as vacation, holiday, sickness, temporary disability, lay-off,
jury duty or Permitted Leave) other than for the performance of duties, during
the applicable Plan Year, with the particular Hour of Service to be counted in
the Plan Year in which the period during which no duties are performed occurs,
subject to the provisions of paragraph (e) below, or
(3) back pay (irrespective of mitigation of damages) is
awarded or agreed to by the Employer, with the particular hour (which is not
included in (l) or (2) above) to be counted in the Plan Year to which the award
for back pay pertains.
(e) Notwithstanding the provisions of (d) above:
(l) If an Employee's work records are not kept on an hourly
basis, then his actual number of hours worked need not be determined but, in
lieu thereof, a determination shall be made as follows:
(A) He shall be credited with one week of Service
for each week in which he would have been credited with at least one Hour of
Service pursuant to (d) above.
(B) He shall be credited with one Year of Service
for each Plan Year in which he is credited with at least 23 weeks of Service
under (A) above (with such completion of
10
<PAGE>
23 weeks of Service being the equivalent of having completed l,000 Hours of
Service during such year).
(C) He shall be deemed to have incurred a Break in
Service if, during any Plan Year, he is not credited with at least l2 weeks of
Service under (A) above (with such completion of l2 weeks' Service being the
equivalent of having completed 50l Hours of Service during such year).
(2) For the purpose of determining the number of hours to
be credited under paragraph (d)(2) above, an Employee shall be credited with the
number of hours determined under Labor Department Regulations 2530.200b-2(b) and
(c). However, he shall not be credited with any Hours of Service for any hours
compensated under a program run or required solely for the purpose of complying
with applicable workman's compensation, unemployment compensation or disability
insurance laws and in any event, he shall not be credited with more than 50l
Hours of Service under paragraph (d)(2) above during any continuous period in
which no duties are performed.
(3) The determination of an Employee's period of Service
prior to the Effective Date shall be based on the records maintained with
respect to this Plan and any other related records and need not be based on
hours actually worked.
(f) Periods of employment with two or more Employers (or, if
applicable, with an Employer and a Related Company which is not an Employer) at
the same time shall not create more than one period of Service for purposes of
this Section 3.
(g) Any special provisions applicable to the determination of
Service with a particular Employer shall be set forth in Exhibit A hereof.
3.02 Vesting Service:
For purposes of determining a Member's Vested Percentage of his
Accounts pursuant to Section 6.03, or eligibility for a benefit under any other
provision hereof, each Member's Vesting Service shall be equal to the sum of (a)
and (b):
(a) A Member shall be credited with one year of Vesting Service
for each Plan Year in which he completes a Year of Service after he first
completes an Hour of Service (or since his return to Service following his last
Break in Service, if any); and
(b) any other Service completed prior to a Break in Service, if
any, to the extent that credit for such Service has been restored pursuant to
Section 3.04.
3.03 Break in Service.:
11
<PAGE>
An Employee will be deemed to have incurred a "Break in Service"
as of the first day of each computation period in which he fails to complete
more than 500 Hours of Service (or its l2- week equivalent determined under
Section 3.0l(e)) whether such failure is the result of his absence from the
employ of an Employer (other than for Military Service or a Permitted Leave), or
of any change in the nature of his employment. In the event a Member has a Break
in Service, he will forfeit all benefits accrued under the Plan, except to the
extent vested pursuant to Section 6.03, subject to Section 3.04.
Solely for purposes of determining whether a Break in Service for
eligibility and vesting purposes has occurred, an Employee who is absent from
work for maternity or paternity reasons shall receive credit for the Hours of
Service which would otherwise have been credited to such Employee but for such
absence, or in any case in which such hours cannot be determined, eight (8)
Hours of Service per each day of such absence. For purpose of this paragraph, an
absence from work for maternity or paternity reasons means an absence (1) by
reason of the pregnancy of the Employee, (2) by reason of a birth of a child of
the Employee, (3) by reason of the placement of a child with the Employee in
connection with the adoption of such child by such Employee, or (4) for purposes
of caring for such child for a period beginning immediately following such birth
or placement. The Hours of Service credited under this paragraph shall be
credited (1) in the computation period in which the absence begins if the
crediting is necessary to prevent a Break in Service in that period, or (2) in
all other cases, in the following computation period. Hours of Service shall not
be credited to an Employee under this paragraph unless such Employee furnishes
to the Committee such timely information as the Committee may require to
establish that the absence from employment is for the reasons described above
and to establish the number of days for which there was such an absence. No more
than 501 Hours of Service shall count for any such absence.
3.04 Restoration of Vesting Service:
(a) Except as otherwise provided in (b) below, if an Employee
returns to Service following a Break in Service, his Vesting Service completed
prior to the Break in Service shall be restored as soon as he has completed one
Year of Service.
(b) The Vesting Service credited prior to a Break in Service shall
not be restored upon a return to Service if (1) the Employee had a Vested
Percentage of zero under Section 6.03 at the time of the Break in Service and
(2) the number of consecutive Breaks in Service equals or exceeds the greater of
five or his aggregate Vesting Service prior to such Break in Service.
3.05 Restoration of Eligibility Service:
(a) If a Member separates from Service he shall become a Member on
the Entry Date following his return to Service as an Eligible Employee.
12
<PAGE>
(b) An Eligible Employee who was not a Member upon his prior
termination of Service shall be treated as a new Employee upon a return to
Service and shall become a Member in accordance with the provisions set forth in
Section 2.01.
SECTION 4 VOLUNTARY EMPLOYEE CONTRIBUTIONS
- -------------------------------------------
4.01 There are no post-tax Voluntary Employee Contributions permitted
under this Plan.
SECTION 5 CONTRIBUTIONS
- ------------------------
5.0l Employer Contributions:
Each Employer shall contribute for each Plan Year an amount to be
determined by the Employer, taking into account the Member's Tax-Deferred
Contributions under Section 5.02, the Employer Matching Contributions allocated
pursuant to Section 5.03, and the Employer Discre tionary Contributions, if any,
allocated pursuant to Section 5.04. However, in no event shall the amount
contributed by the Employer exceed the maximum amount deductible under the
applicable provisions of the Code. Contributions under Section 5.02 shall be
made as soon as is practicable, but in no event later than the fifteenth (15th)
business day of the month following the month during which they are received by
the Employer or would otherwise have been payable to the Employee in cash.
Contributions under Sections 5.03 and 5.04 shall be made not later than the due
date of the Company's Federal income tax return (including extensions) for the
Plan Year.
Except as otherwise provided herein, any and all contributions
made by an Employer shall be irrevocable and shall be transferred to the Trustee
and held as provided in Section 11, to be used in accordance with the provisions
of this Plan, in providing the benefits and paying the expenses thereof. Neither
such contributions nor any income therefrom shall be used for, or diverted to,
purposes other than for the exclusive benefit of Members or their Beneficiaries,
and payment of reasonable and necessary administrative expenses of this Plan.
5.02 Members' Tax-Deferred Contributions:
(a) A Member may elect to defer receipt of a portion of his
Compensation, and to have contributed by the Employer on his behalf to his
Account A for any Plan Year, an amount equal to a whole percentage of his
Compensation; provided, however, that the total amount of such contributions
cannot exceed 15% of such Compensation; and further provided that in any
calendar year, the total of such contributions made under this Plan and any
other plan, contract or arrangement maintained by the Company or by a Related
Company may not exceed $9,500 or such higher amount as is permitted under
Section 402(g)(5) of the Code. Such contributions shall be made by means of
payroll deductions, as designated by the Member by filing a Prescribed Form with
the Committee no less than fifteen (15) days prior to the date such payroll
deduction is to be made with respect to any Plan Year.
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(b) Any election or change in election with respect to the rate of
Tax-Deferred Contributions shall be made to the Committee on a Prescribed Form,
effective as of the Entry Date next following such election, and such Prescribed
Form must be filed with the Plan Administrator no less than fifteen (15) days
prior to the effective date of the change.
(c) A Member may change his rate of Tax-Deferred Contributions a
maximum of four (4) times per Plan Year.
(d) Notwithstanding anything contained herein to the contrary, any
Member who receives a hardship withdrawal pursuant to Section 8.01:
(1) May not make Tax-Deferred Contributions pursuant to
this Section 5.02 for a period of 12 months following the date of such hardship
withdrawal;
(2) Will be limited in the amount of Tax-Deferred
Contributions he may make in the calendar year following the year of the
hardship withdrawal to an amount equal to (A) below, minus (B), below:
(A) the applicable limit for said Plan year under
Section 402(g)(5) of the Code;
(B) the amount of such Member's Tax-Deferred
Contributions in the calendar year of the hardship withdrawal.
(e) Effective January 1, 1997 and notwithstanding the foregoing,
the Average Actual Deferral Percentage for Highly Compensated Employees for any
Plan Year shall not exceed the greater of (1) or (2) below, as follows:
(1) The Average Actual Deferral Percentage for the
Non-Highly Compensated Employees for the prior Plan Year times 1.25, or
(2) The Average Actual Deferral Percentage for Non-Highly
Compensated Employees for the prior Plan Year times 2.0, provided that the
Average Actual Deferral Percentage for Highly Compensated Employees does not
exceed the Average Actual Deferral Percentage for Non-Highly Compensated
Employees for the prior Plan Year by more than two percentage points.
(f) The Committee may require any Member to reduce his
contribution to a specified rate or to suspend his contribution so that the Plan
will satisfy the requirement of either (e)(1) or (e)(2) above.
(g) The Employer may remedy any failure to satisfy the Actual
Deferral Percentage Test by any combination of the following:
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(1) Making Qualified Matching Contributions in an amount
necessary to satisfy such requirements;
(2) Distributing to each Highly Compensated Employee an
amount determined in accordance with Section 5.07(b) hereof;
(3) Making a special Qualified Non-Elective Contribution on
behalf of Non-Highly Compensated Members in an amount sufficient to satisfy
(e)(1) or (e)(2) above. Such contribution shall be allocated to the Member's
Account A in the following manner: (i) to the Non-Highly Compensated Member with
the lowest Eligible Compensation for the Plan Year up to the maximum permitted
by Section 5.05; (ii) if additional contributions remain unallocated, to the
Non-Highly Compensated Member with the second lowest Compensation for such Plan
Year up to the maximum permitted by Section 5.05, and (iii) thereafter, if any
contributions are yet unallocated, to each Non-Highly Compensated member in the
order of his Compensation as set forth until all such contributions have been
allocated; or
(4) Taking any other action permitted by Section 401(k) of
the Code and the Regulations promulgated thereunder, the provisions of which are
incorporated herein by reference.
5.03 Employer Matching Contributions:
(a) For each Plan Year, the Employer shall contribute, on behalf
of each Member, an amount equal to one hundred (100%) percent of the amount of
such Member's Tax-Deferred Contributions; provided, however, that in no event
shall the Employer Matching Contribution on behalf of any Member for a given
Plan Year exceed 2.5% of such Member's Compensation for said Plan Year.
(b) Employer Matching Contributions shall be allocated to the
Account B of each Member.
(c) Effective January 1, 1997 and notwithstanding the foregoing,
the Average Actual Contribution Percentage for Highly Compensated Employees for
any Plan Year shall not exceed the greater of (1) or (2) below, as follows:
(1) The Average Actual Contribution Percentage for the
Non-Highly Compensated Employees for the Prior Plan Year times 1.25, or
(2) The Average Actual Contribution Percentage for
Non-Highly Compensated Employees for the prior Plan Year times 2.0, provided
that the Average Actual Contribution Percentage for Highly Compensated Employees
does not exceed the Average Actual Contribution Percentage for Non-Highly
Compensated Employees for the prior Plan Year by more than two percentage
points.
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(d) The Committee may require any Member to reduce his
Tax-Deferred Contributions to a specified rate or to suspend his Tax-Deferred
Contributions so that the Plan will satisfy the Actual Contribution Percentage
Test.
(e) The Employer may remedy any failure to satisfy the Actual
Contribution Percentage Test by any combination of the following:
(1) Making Qualified Non-Elective Contributions in an
amount necessary to satisfy such requirements;
(2) Distributing to each Highly Compensated Employee an
amount determined in accordance with Section 5.07(c) hereof; or
(3) Taking any other action permitted by Section 401(m) of
the Code and the Regulations promulgated thereunder, the provisions of which are
incorporated herein by reference.
5.04 Employer Discretionary Contributions:
(a) Members Eligible to Share in Contribution Allocation.
Each Employer's Discretionary Contributions for each Plan Year
shall be allocated to the Accounts C of Active Members who are Employees as of
the Allocation Date in accordance with (b), below.
(b) Allocation of Employer Discretionary Contributions.
Any Employer Discretionary Contributions for a Plan Year plus any
forfeitures determined pursuant to Section 6.05 shall be allocated to each
eligible Active Member's Account C, as of the Allocation Date, in the ratio that
the eligible Active Member's Compensation bears to the Compensation of all such
Active Members.
5.05. Maximum Annual Additions.
The maximum "annual addition", as hereinafter defined, for any
Member shall be the lesser of $30,000 (or such higher limit as permitted by
Applicable Law) or 25% of the Member's total Compensation from any Employer
during the Plan Year (which shall be the limitation year for purposes of Section
4l5 of the Code).
The annual addition for a Member shall be the sum of
(l) the total contributions allocated to the Accounts of
such Member for the Plan Year, and
-24-
<PAGE>
(2) any forfeitures allocated to the Member's Accounts for
such Plan Year.
The annual addition for any Member shall include all such
contributions and forfeitures under this or any other plans of any Employer and
any Related Company, whether or not terminated, which constitute "defined
contribution" plans as defined in Section 4l4(i) of the Code.
The provisions of Section 415 of the Code are incorporated
herein by reference.
5.06 Return of Contributions to an Employer Under Certain
Circumstances:
Notwithstanding the provisions of Section 5.0l, to the extent
permitted by Applicable Law, Employer contributions shall be returned to the
Employer under the following circumstances:
(a) Mistake
If and to the extent that any contribution was made by a mistake
in fact, the Committee may direct the Trustee to return the excess of the
contribution made over the amount that would have been made had there not
occurred a mistake of fact. Said contribution shall be returned within one year
after the payment of such contribution, and the Account of any Member affected
shall be adjusted accordingly.
Any Employer Matching Contribution which is attributable to any
contribution which must be returned under Section 5.07 shall be deemed to have
been made under a mistake of fact, and shall be returned to the Employer within
2-1/2 months after the end of the applicable Plan Year.
(b) Nondeductibility
If and to the extent that the Internal Revenue Service determines
that a contribution is not deductible under Section 404 of the Code, the
Committee may direct the Trustee to return the contribution made by a mistake in
determining the amount of the deduction to the Employer, or by a good faith
mistake in determining the deductibility of the contribution, in an amount equal
to the excess of the money contributed over the amount that would have been
contributed had there not occurred a mistake in determining the amount of the
deduction or the deductibility of the contribu tion, at any time within one year
after the date of disallowance, and the Account of any Member affected shall be
adjusted accordingly.
Every contribution made to this Plan is expressly conditional upon
deductibility under Section 404 of the Code.
(c) Adjustments
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Any contribution returned pursuant to this Section 5.06 shall be
reduced to reflect its proportionate share of Trust Fund losses, if any,
attributable to such excess contribution. Any earnings attributable to such
excess contribution may not be returned to the Employer.
(d) Limitation on Rights
Notwithstanding any provision of this Plan to the contrary, the
right or claim of any Member or Beneficiary to any asset of the Fund or to any
benefit under the Plan shall be subject to and limited by the provisions of this
Section 5.06.
5.07 Return of Contributions to a Member:
(a) Return of Excess Tax-Deferred Contributions:
In the event that any Member's Tax-Deferred Contributions for a
given taxable year made to this Plan or to any other Plan described in Sections
401(k) or 403(b) of the Code maintained by the Employer exceeds $9,500 (or such
higher amount as is permitted under Section 402(g)(5) of the Code), the Member
may, prior to March 1st of the following calendar year, allocate the amount of
such excess deferral among the plans under which such deferrals were made and
notify the Committee of the amount of such allocation. Following such
notification, the Committee shall, prior to the April 15th of the calendar year
following the year of the excess deferral, distribute to such Member the amount
of such excess deferral plus the earnings or minus the losses thereon.
(b) Return of Excess Contributions
(1) In the event that the Plan does not satisfy the Actual
Deferral Percentage Test with respect to a Plan Year (immediately following any
corrective actions taken pursuant to Section 5.02(g)), such Excess Contributions
(plus earnings or minus losses thereon) shall be distributed to the Member no
later than two and one-half months after the close of the applicable Plan Year.
(2) Effective January 1, 1997, the amount of any
distribution made under this Section 5.07(b) shall be determined as follows:
(A) First, the Actual Deferral Percentage of the
Highly Compensated Employee with the highest dollar amount of Tax-Deferred
Contributions for the Plan Year shall be reduced to the extent necessary to
satisfy either the Actual Deferral Percentage Test or to cause the Actual
Deferral Percentage of such Highly Compensated Employee to equal the Actual
Deferral Percentage of the Highly Compensated Employee with the next such
highest Actual Deferral Percentage.
(B) Secondly, the above process shall be repeated
until the Actual Deferral Percentage Test is satisfied.
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<PAGE>
(C) The amount of "Excess Contributions" shall be
the amount by which a Highly Compensated Employee's Tax-Deferred Contributions
are reduced pursuant to this Section 5.07.
(D) Income (or loss) shall be allocated to Excess
Contributions for both the Plan Year to which the Excess Contributions relate
and the period between the end of such Plan Year and the date of distribution.
(c) Return of Excess Aggregate Contributions
(1) In the event that the Plan does not satisfy the Actual
Contribution Percentage Test for a Plan Year (immediately following any
corrective actions taken pursuant to Section 5.03(e)) such Excess Aggregate
Contributions (plus earnings or minus losses thereon) shall be distributed to
the Member no later than two and one-half months after the close of the
applicable Plan Year.
(2) Effective January 1, 1997, the amount of any
distribution made under this Section 5.07(c) shall be determined as follows:
(A) First, the Actual Contribution Percentage of the
Highly Compensated Employee with the highest dollar amount of Employer Matching
Contributions for the Plan Year shall be reduced to the extent necessary to
either satisfy the Actual Contribution Test or to cause the Actual Contribution
Percentage of such Highly Compensated Employee to equal the Actual Contribution
Percentage of the Highly Compensated Employee with the next such highest Actual
Contribution Percentage.
(B) Secondly, the above process shall be repeated
until the Actual Contribution Percentage Test is satisfied.
(C) The amount of "Excess Aggregate Contributions"
shall be the amount by which the Highly Compensated Employee's Employer Matching
Contributions are reduced pursuant to this Section 5.07.
(D) Income (or loss) shall be allocated to Excess
Aggregate Contributions for both the Plan Year to which the Excess Aggregate
Contributions relate and the period between the end of such Plan Year and the
date of distribution.
5.08 Multiple Use of Alternative Limitation
Notwithstanding the foregoing, in no event shall there occur
multiple use of the alternative limitation (which is defined for these purposes
as the 200 percent or 2 percentage point limits contained in Sections
401(k)(3)(A)(ii)(II) and 401(m)(2)(A)(ii) of the Code and Sections 5.02(e)(2)
and 5.03(c)(2) of this Plan).
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(a) Determination of Multiple Use
Multiple use of the alternative limitation occurs if all of the
conditions set forth in Regulation 1.401(m)-2(b) are satisfied.
(b) Correction of Multiple Use
(1) Effective January 1, 1997, multiple use of the
alternative limitation shall be corrected by reducing the Actual Deferral
Percentage for all Highly Compensated Employees in an amount necessary to
satisfy the Actual Deferral Percentage Test (without reference to the
alternative limitation), in the manner set forth in Section 5.07(b)(2) hereof.
(2) Notwithstanding the foregoing, the Employer may elect
to correct any multiple use of the alternative limitation by making Qualified
Non-Elective Contributions for Non-Highly Compensated Employees in an amount
necessary to satisfy the Actual Deferral Percentage Test (without regard to the
alternative limitation) and/or use any other corrective action permitted by the
relevant provisions of the Code and Regulations, which are incorporated herein
by reference.
SECTION 6 BENEFITS
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6.0l Normal Retirement:
Upon a Member's retirement after attaining his Normal Retirement
Date, there shall be payable to such Member the value of his Accounts, in the
manner and at the time specified in Section 9.
6.02 Disability Retirement:
Upon a Member's retirement by virtue of his having become totally
and permanently disabled, as determined by a physician satisfactory to the
Committee, to such a degree that he is unable to perform his duties for any
Employer, the Member shall be fully vested in the value of his Accounts. The
Member's Account shall be paid to him in the manner and at the time specified in
Section 9.
6.03 Termination of Employment:
(a) A Member's interest in his Account A and Account B shall
always be fully vested and non-forfeitable. A Member shall have a vested
interest in his Account C, determined as of the date of termination of
employment, by multiplying the balance in his Account C by the Vested Percentage
determined in accordance with the following schedule:
Completed Years of Vested Percentage
Vesting Service In Account C
------------------ -----------------
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Less than 2 years 0%
2 years but less than 3 years 20%
3 years but less than 4 years 40%
4 years but less than 5 years 60%
5 years but less than 6 years 80%
6 years or more l00%
(b) Notwithstanding the foregoing, a Member will be fully vested
upon attaining his Normal Retirement Date.
(c) Upon the termination of employment of a Member for any reason
other than death, disability or retirement, the Vested Percentage of his Account
C shall be determined as of his date of termination of employment, such Vested
Percentage to be based on the Member's Years of Vesting Service as of such date.
Payments shall be made in the manner and at the time specified in
Section 9.
6.04 Death
(a) Upon the death of an Active Member, there shall be payable to
his Beneficiary the value of the Member's Accounts.
(b) Payment shall be made in the manner and at the time specified
in Section 9.
(c) A Member may change his designated Beneficiary at any time by
filing a Prescribed Form with the Committee, subject to the consent of the
spouse, if any. In the event that there is no designated Beneficiary living at
the time of the Member's death, the balance of the Member's Account shall be
paid as determined in Section 1.08.
6.05 Forfeitures:
(a) If a Member incurs five (5) consecutive one year Breaks in
Service before his Account has become 100 percent vested pursuant to Section
6.03, the nonvested portion of his Account C shall be forfeited effective as of
the Allocation Date occurring on the last day of the Plan Year in which the last
day of the fifth consecutive Break in Service occurs. Until such Allocation
Date, the nonvested portion of his Account C shall continue to be revalued, and,
upon such Allocation Date, the amount forfeited shall be added to the amount of
the Employer's Discretionary Contribution, if any, to the Plan for such Plan
Year and allocated among the Active Members eligible to share in such
contribution as provided in Section 5.04.
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(b) Notwithstanding the foregoing, if a Member receives a
distribution of his entire vested Account, the nonvested portion of such Account
shall be forfeited as of the date of distribution.
(c) For purposes of this Section 6.05, any Member who terminates
employment with a Vested Percentage of zero shall be deemed to have received a
distribution of the vested Account upon their termination of employment.
(d) If any Member receives a distribution and returns to
employment with any Employer prior to incurring five (5) consecutive one year
Breaks in Service, any amount forfeited shall be reinstated first from amounts
forfeited in the current Plan year and, to the extent necessary, from an
additional Employer contribution.
SECTION 7A - INVESTMENT AND VALUATION OF ACCOUNT A
- --------------------------------------------------
7.01 Election of Investments/Account A:
A Member shall, by filing a Prescribed Form with the Plan
Administrator elect to have a percentage of his Account A (in increments of 10%)
invested in any or all of the Funds made available by the Plan Administrator for
the investment of Account A; provided, however, that if the total of such
investments elected is less than 100%, or if no election is made, the Account in
question will be invested in a money market fund or, if no such Fund is
available, then the Fund offered that most closely resembles a money market
fund. As of April 1, 1997, there are nine (9) available Funds.
7.02 Change of Investments:
(a) Effective July 1, 1997 and subject to the provisions of
Section 7.02(b), a Member may, by filing a Prescribed Form with the Plan
Administrator, elect to change the amount of his Account A invested in each
Fund, but such change may not be made more frequently than four times in any
Plan Year, and may be made effective only as of the first day of a calendar
quarter by giving notice in writing to the Plan Administrator on a Prescribed
Form no less than fifteen (15) days prior to the date such change is to become
effective.
(b) Effective July 1, 1997, a Member may, as of the first day of
any calendar quarter, elect to transfer up to twenty five (25%) percent of the
value of his Account currently invested in Company Stock to and among the other
available Funds. In no event, however, may a Participant transfer more than
2,500 shares of Company Stock at any time.
7.03 Valuation:
As of each valuation date, before one-half of the current
valuation period allocation of contributions, any income earned of the Fund's
assets shall be allocated in the same proportion that each Member's or Former
Member's nonsegregated account, in each Fund, bears to the total of all
21
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Members' and Former Members' nonsegregated account, in each Fund, as of such
date. For purposes hereof, "valuation period" means any calendar quarter, and
"income earned" means the net of the interest, dividends, unrealized
appreciation and depreciation, capital gains and losses, and investment
expenses.
The Company Stock Fund shall be valued based on the bid price of
Company Stock reported in the consolidated trading, prices for NASDAQ traded
securities on the last trading date on or prior to the Valuation Date.
7.04 Statement of Accounts:
The Plan Administrator shall furnish to each Member, as soon as
practicable after each Valuation Date, a statement of his Accounts.
SECTION 7B - TERMINATION AND VALUATION OF ACCOUNTS B AND C
- ----------------------------------------------------------
7.01B Investments:
The investment of that portion of the Trust Fund representing
the sum of the Member's Accounts B and C shall be made by the Trustee in
accordance with the provisions of the Trust Agreement.
7.02B Valuation:
As of each Valuation Date, the Trustee shall determine the value
of the Trust fund attributable to Accounts B and C. Said valuation shall be at
fair market value.
7.03B Allocation of Insurance and Appreciation:
As of each Valuation Date the increase (decrease) in the value of
the Trust Fund attributable to all Members' Accounts B and C over (under) the
value of that portion of the Trust Fund as of the preceding Valuation Date shall
be allocated among the Members as of the current Valuation Date, in the
proportion that the value of their respective Accounts B and C on the preceding
Valuation Date bore to the total of such Account balances of all Members on such
preceding Valuation Date.
In computing the increase (decrease) in the value of the Trust
fund under this Section 7.03B, there shall be included any amounts contributed
thereto and any forfeitures reallocated as of the Allocation Date at the end of
the preceding Plan Year. There shall be excluded from the value of the Trust
Fund on such preceding Valuation Date, as well as from the value of the Trust
Fund on the current Valuation Date, the amount of any Accounts segregated in
accordance with Section 7A. There shall also be excluded from the value of the
Trust fund on the preceding Valuation Date the amount of any payments made to
Members or on their behalf after the preceding Valuation Date.
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SECTION 8 WITHDRAWALS PRIOR TO SEPARATION FROM SERVICE
- -------------------------------------------------------
8.01 Hardship Withdrawals:
A Member may make a withdrawal from his Accounts prior to
separation from Service with an Employer if such withdrawal is necessary to
satisfy immediate and heavy financial needs of the Member, which needs the
Member is unable to meet from any other resource available to him. The amount of
such withdrawal may not exceed the amount required to meet the immediate and
heavy financial need, but in no event may any withdrawal from Account A exceed
the Maximum Hardship Distributable Amount. The Committee shall determine the
existence and amount of such financial need by applying uniform rules in a
nondiscriminatory fashion.
(a) A withdrawal will be deemed to be made on account of an
immediate and heavy financial need of the Member if such withdrawal is on
account of:
(1) Medical expenses described in Code Section 213(d)
previously incurred by the Member, the Member's spouse, or any dependents of the
Member (as defined in Code Section 152) or necessary for these persons to obtain
medical care described in Code Section 213(d);
(2) Costs directly related to the purchase (excluding
mortgage payments) of a principal residence for the Member;
(3) Payment of tuition and related educational fees for the
next twelve (12) months of post-secondary education for the Member, his or her
spouse, children, or dependents; or
(4) Payments necessary to prevent the eviction of the
Member from his principal residence or foreclosure on the mortgage of the
Member's principal residence.
(b) A withdrawal will be deemed necessary to satisfy an immediate
and heavy financial need of a Member if all of the following requirements are
satisfied:
(1) The distribution is not in excess of the amount of the
immediate and heavy financial need of the Member, taking into account amounts
necessary to pay any federal, state or local taxes or penalties reasonably
anticipated to result from the distribution;
(2) The Member has obtained all distributions, other than
hardship distributions, and all nontaxable loans currently available under all
plans maintained by the Employer;
(3) The plan, and all other plans maintained by the
Employer, provide that the Member's elective contributions and employee
contributions will be suspended for at least twelve (12) months after receipt of
the hardship distribution; and
23
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(4) The plan, and all other plans maintained by the
Employer, provide that the Member may not make elective contributions for the
Member's taxable year immediately following the taxable year of the hardship
distribution in excess of the applicable limit under Section 402(g) for such
next taxable year less the amount of such employee's elective contributions for
the taxable year of the hardship distribution.
(c) For purposes of this Section 8.01, the term "Maximum Hardship
Distributable Amount" is equal to the sum of (1), (2) and (3), below:
(1) The Member's Account A valued as of December 31, 1988;
(2) Any Tax-Deferred Contributions allocated to Account A
between January 1, 1989 and the date of distribution;
(3) Value of the Employer Matching Contributions in the
Member's Accounts A and B.
(d) Notwithstanding the provisions of Section 8.01(c), any amounts
invested in Company Stock that are not eligible to be reinvested in other
Investment Funds also are not available for distribution on account of hardship
as otherwise provided by Section 8.01.
8.02 Ordering of Withdrawals:
To the extent allowable, any withdrawals made pursuant to this
Section 8 shall be deemed to be made in the following order:
(a) To the extent available, from the vested balance of the
Member's Account C, valued as of the most recent Allocation Date;
(b) To the extent available, from the Vested balance of the
Member's Account B, valued as of the most recent Allocation Date;
(c) To the extent available, and subject to the provisions of
Section 8.01(c) and 8.01(d), from the Member's Account A.
SECTION 9 MANNER OF PAYMENT
- ----------------------------
9.01 Retirement and Disability:
Upon a Member's retirement or disability, there shall be payable
to such Member the value of his Accounts determined as of the Valuation Date
preceding the date of distribution.
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<PAGE>
9.02 Death:
Upon the death of a Member, there shall be payable to his
Beneficiary the value of the Member's Accounts. Payment shall be in a single sum
cash distribution (valued as of the Valuation Date preceding the date of
distribution plus any contributions made since that date) within five (5) years
of the Member's death.
A Member may change his designated Beneficiary at any time by
filing a Prescribed Form with the Committee, subject to Section 1.08. In the
event that there is no designated benefici ary living at the time of the
Member's death, the balance of the Member's Accounts shall be paid as determined
in Section 1.08.
9.03 Termination of Employment:
Upon a Member's termination of employment, there shall be payable
to such Member the vested interest in the Members Accounts, determined as of the
Valuation Date preceding the distribution, plus any contributions made since
that date.
9.04 Time of Payment:
(a) If the vested value of the Member's Account is and always has
been $3,500 or less, payment under this Plan shall be made in a lump sum as soon
as practicable after the Valuation Date immediately following the Member's
retirement or termination of employment.
(b) If the value of the Member's Account is or ever has been more
than $3,500, payment shall be made as soon as is practicable following the date
requested in writing by the Mem ber, on a Prescribed Form filed with the
Committee, but in no event sooner than the Valuation Date following the date the
Member terminated employment.
(c) Notwithstanding anything herein to the contrary, the payment
of benefits hereunder will begin not later than 60 days after the close of the
Plan Year in which the later of the following shall occur:
(1) the Member's Normal Retirement Date, or
(2) the date on which he actually retires or terminates
employment.
Such benefit shall commence at that time even if no application
therefor has been filed. If an application for benefits under this Plan is
denied, the procedure described in Section l0.02 shall be applicable. If the
amount prescribed by this Section cannot be ascertained by such date, a payment
retroactive to such date may be made no later than 60 days after the earliest
date on which the amount of such payment can be ascertained under the Plan.
25
<PAGE>
9.05 Method of Payment:
Any Member entitled to receive a distribution from the Plan in
accordance with the provisions hereof shall receive said distribution in
accordance with the following rules:
(a) With respect to the value of a Member's Account as of December
31, 1992, the Member may elect (i) or (ii) below:
(i) a lump sum payment;
(ii) equal monthly installments over a period of 5, 10, 15
or 20 years, but in no event over a period in excess of the life expectancy of
the Member or the joint life expectancies of the Member and the designated
Beneficiary.
(b) With respect to the value of a Member's Account in excess of
the value of such Member's Account as of December 31, 1992, all payments shall
be made in a lump sum.
(c) All distributions shall be made in cash other than the value
of a Member's Accounts attributable to the Company Stock Fund.
(d) With respect to the value of a Member's Account attributable
to the Company Stock Fund, such amount shall be paid in cash or Company Stock,
as elected by the Member in writing on a Prescribed Form.
9.06 Indirect Payment of Benefits:
If any Member or Beneficiary is, in the judgment of the Committee,
legally, physically or mentally incapable of personally receiving and receipting
for any payment due hereunder, payment may be made to the guardian or other
legal representative of such Member or Beneficiary or, if none, to such other
person or institution that, in the opinion of the Committee, is then maintaining
or has custody of such Member or Beneficiary. Such payment shall constitute a
full discharge with respect thereto.
9.07 Direct Transfers:
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Section, a distributee
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
(b) For purposes of this Section, the following definitions shall
apply: (1) "An eligible rollover distribution" is any distribution of all or any
portion of the balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is one of a series
of substantially equal periodic payments (not less frequently than annually)
made for
26
<PAGE>
the life (or life expectancy) of the distributee or the joint lives (or joint
life expectancies) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; any distribution to
the extent such distribution is required under Section 401(a)(9) of the Code;
and the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
(2) "An eligible retirement plan" is an individual
retirement account described in Section 408(a) of the Code, an individual
retirement annuity described in Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the Code, or a qualified plan described in
Section 401(a) of the Code, that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
(3) A "distributee" includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving spouse and
the Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Section 414(p)
of the Code, are distributees with regard to the interest of the spouse or
former spouse.
(4) A "direct rollover" is a payment by the plan to the
eligible retirement plan specified by the distributee.
9.08 Required Minimum Distributions:
(a) Effective January 1, 1997 and solely with respect to a Member
who is a "5-percent owner" as defined in Section 416 of the Code and Regulations
issued thereunder, notwithstanding anything herein to the contrary, the
following provisions shall apply in the event that the Member is actively
employed by the Employer upon attainment of age 70 1/2:
(1) Distributions shall commence no later than the April 1
following the year in which such Member attains the age of 70 1/2. However, the
Member may elect, on a Prescribed Form filed with the Committee, to receive his
initial required distribution no later than December 31st of the Plan Year in
which the Member attains age 70 1/2.
(2) The amount required to be distributed in a given Plan
Year shall be calculated in accordance with the provisions of Code Section
401(a)(9) and the Regulations promulgated hereunder. A Member may elect,
however, on a Prescribed Form filed with the Committee, to receive a
distribution in an amount greater than the amount calculated in accordance with
the preceding sentence.
(3) The Member may make an irrevocable election of (a) or
(b), below. However in the event that no election is made prior to the date that
payments commence, (b), below will be deemed to have been elected:
27
<PAGE>
(a) If the Beneficiary is the Member's spouse, their joint
life expectancies shall be redetermined annually; if the Beneficiary is not the
Member's spouse, the Member's life expectancy shall be redetermined annually.
(b) The Member's life expectancy, or the joint life
expectancies of the Member and the Designated Beneficiary (if the Designated
Beneficiary is the Member's spouse) shall not be redetermined after payments
commence.
(4) The provisions of Code Section 401(a)(9) and the
Regulations promulgated thereunder are incorporated herein by reference.
(b) If a Member who is not a "5-percent owner" attains age 70 1/2
while an Employee on or after January 1, 1996, then he may elect, but is not
required, to begin receiving benefits as otherwise provided in Section 9.08(a)
herein. Such a Member may instead defer the receipt of benefits to any date but
not beyond the April 1 following the calendar year in which occurs his actual
retirement date.
SECTION l0 ADMINISTRATION OF PLAN
- ----------------------------------
l0.0l Administrative Committee:
(a) General Duties of Committee.
The Plan shall be administered by an administrative Committee. The
Committee shall have the general responsibility for carrying out the provisions
of the Plan. Except as otherwise provided in (f)(l), (2) or (3) below, the
Committee shall not be responsible in any way for the application or for the
administration of the Trust Fund.
The Committee shall discharge its duties under the Plan solely in
the interest of the Members of the Plan and their Beneficiaries in accordance
with the provisions of the Plan insofar as they are consistent with the
provisions of Applicable Law.
The Committee shall discharge its duties under the Plan with the
care, skill, prudence and diligence under the circumstances then prevailing that
a prudent man acting in like capacity and familiar with such matters would use
in the conduct of a similar enterprise of a like character and with like aims.
(b) Membership of Committee.
The Committee shall be comprised of at least one person appointed
from time to time by the Board and serving without compensation at the pleasure
of the Board. The Committee may appoint from among its members a Chairman and it
may appoint a Secretary, who may but need not
28
<PAGE>
be a member of the Committee, and may appoint such subcommittees from their own
number or otherwise to which they may delegate such of their powers and duties
as they shall determine.
Any person appointed a member of the Committee shall signify his
acceptance by filing a written acceptance with the Board.
The Board may remove or replace a member of the Committee by
written notice to such member and to all other members of the Committee, and any
member of the Committee may resign by written notice to the Board and to all
other members of the Committee, to take effect upon the date specified in any
such notice.
(c) Procedures.
The Committee shall hold meetings upon such notice at such places,
and at such times as they may from time to time determine. Notice may be waived
in writing. At any meeting, a quorum for the transaction of business shall be
two-thirds of the then membership of the Committee.
The Committee shall act by a majority of its membership, and the
action of such majority shall be expressed by a majority vote of those members
present at a meeting, or in writing without a meeting signed by a majority of
the then membership of the Committee.
The Committee may authorize one or more of its members or any
agent to sign on behalf of the entire Committee.
The Committee shall keep appropriate books and records.
(d) Powers of the Committee.
The Committee is specifically authorized and empowered, but not by
way of limitation,
(l) To interpret and construe the provisions of the Plan
including any doubtful provisions thereof, in its sole discretion.
(2) To employ such agents, legal counsel and such clerical,
medical, accounting and actuarial services as it may deem advisable to assist in
the administration of the Plan.
(3) To establish from time to time rules for the
administration of the Plan and the transaction of its business. Except as
otherwise provided in Section l0.02, the determination of the Committee as to
any disputed question arising hereunder, including but without limitation
thereto, questions of construction, administration, and interpretation, shall be
final and conclusive upon all persons including, but not by way of limitation,
Employees, Members, Beneficiaries, and the heirs, distributees and personal
representatives of any of them and any other person claiming an in terest under
the Plan.
29
<PAGE>
(4) The Committee or any of its members may also act as
Trustee of the Trust Fund.
(e) Expenses of Committee; Indemnification.
The expenses incurred by the Committee in the performance of its
duties, including fees for legal, clerical, medical, accounting, actuarial and
other services rendered to the Committee, shall be paid by the Employers and, if
not paid by the Employers, shall be payable from the Trust Fund.
Each member of the Committee shall be indemnified by the Employers
against all such expenses (other than amounts paid in any settlement not
approved by the Employers) reasonably in curred by him in connection with any
action to which he may be a party by reason of his membership on the Committee,
except in relation to matters as to which he shall be adjudged in such action to
have participated in a prohibited transaction or other breach of fiduciary duty.
The foregoing right to indemnification shall be in addition to any other rights
to which any such member may be entitled as a matter of law.
Any expense of the Plan which is payable by the Employers shall be
allocated among and charged to the Employers on an equitable basis.
(f) Committee Members' Liability.
The members of the Committee shall not be liable for action taken
by them in the administration of the Plan other than for damages due to their
participation in a prohibited transaction or other breach of fiduciary duty or
their lack of prudence. The members of the Committee shall not be deemed
imprudent by reason of their taking or refraining from taking any action in
accordance with the advice of any legal counsel, physician, accountant or
actuary.
A member of the Committee shall be liable for a breach of
fiduciary responsibility by another fiduciary (another Committee member, a
Trustee, or any other person deemed a fiduciary pursuant to the applicable
provisions of ERISA) only if such Committee member:
(l) participates knowingly in, or knowingly undertakes to
conceal, an act or omission of such other fiduciary, knowing such act or
omission is a breach; or
(2) by his failure to act prudently, has enabled such other
fiduciary to commit a breach; or
(3) has knowledge of a breach of such other fiduciary,
unless he makes reasonable efforts under the circumstances to remedy such
breach.
l0.02 Claim and Appeal Procedure:
30
<PAGE>
(a) Benefit Claim Procedure:
Each Member (or Beneficiary) claiming a benefit under the Plan
must complete an application on a Prescribed Form and file it with the
Committee. Within 90 days after its receipt of an application, the Committee
shall give written notice to the claimant of its decision on the application.
(b) Denial of Benefits:
If the Committee denies the claim, in whole or in part, the
written notice of that decision will:
(l) explain why the claim was denied,
(2) cite the Plan section on which the decision was based,
and
(3) explain the Plan's review procedure set forth in (c)
below.
If the Committee does not deny the claim on its merits, but
rejects the application for failure to furnish certain necessary material or
information, the written notice to the claimant will explain what additional
material is needed and why, and advise the claimant that he may refile a proper
application under the claim procedure set forth in (a) above.
(c) Review Procedure:
If a claim has been denied, the claimant may appeal the denial
within 60 days after his receipt of written notice thereof by submitting in
writing to a reviewer appointed for such purpose by the Board (or, if none has
been appointed, to the Board, itself), with a copy to the Committee:
(1) a request for his review of the denial of the claim,
(2) a statement of issues and comments, and
(3) a request for an opportunity to review the Plan, the
Trust Agreement and any other pertinent documents (which shall be made available
to him by the Committee, within 30 days after its receipt of a copy of the
request, at a convenient location during regular business hours).
The reviewer will make a decision, which shall be in writing,
delivered to the claimant and to the Committee, within 60 days after his receipt
of the appeal. However, if special circum stances require an extension of time,
such as the need to hold a hearing, the extension may not extend beyond l20 days
after his receipt of the appeal. The reviewer's written decision will contain
specific
31
<PAGE>
reasons for the decision and the pertinent provisions of the Plan on which the
decision is based. The reviewer's decision will be final and binding on all
persons concerned.
10.03 Nondiscriminatory Action.
Any discretionary acts to be taken under the provisions of this
Plan by the Committee or by any Employer, or by the reviewer pursuant to Section
10.02(c), with respect to classification of Employees, contributions or
benefits, shall be uniform in their nature and applicable to all persons
similarly situated, and no discretionary act shall be taken which shall be
discriminatory under the provisions of Section 401(a) of the Code.
10.04 Government Forms:
The Committee shall have primary responsibility with respect to
the preparation of any forms which, pursuant to Applicable Law, must be filed by
or on behalf of the Plan with a governmental agency or which must be distributed
or made available to any person, and the Committee shall be primarily
responsible for the proper filing, distribution or availability of such forms.
10.5 Committee Discretion:
Notwithstanding anything contained herein to the contrary, the
Committee may, in its sole and absolute discretion, accept elections under
Sections 5 and 7 with respect to any specific election period even if they are
filed after the due date for such elections has passed; provided, however, that
any decision to do so shall be made in a uniform and nondiscriminatory fashion,
and the opportunity for the later election shall be made available to all
Employees.
SECTION 11 MANAGEMENT OF TRUST FUND
- -------------------------------------
11.01 Trustee: The Trust Fund shall be held in trust by a Trustee or
Trustees appointed from time to time by the Board with such powers and duties in
the Trustee or Trustees as shall be provided in the Trust Agreement between the
Trustee or Trustees and the Company.
11.02 Investments: The investment of the Trust Fund shall be made in
accordance with the provisions of the Trust Agreement between the Trustee or
Trustees and the Company, and to the extent provided herein, in accordance with
the elections made by the Members of the Plan.
11.03 Payment of Expense: The administrative and all other expenses of
the Plan shall be paid out of the Trust Fund unless paid by the Employers.
SECTION 12 MISCELLANEOUS PROVISIONS
- ------------------------------------
12.01 Disclaimer of Liability:
32
<PAGE>
(a) It is the intention of each Employer to continue this Plan and
make contributions regularly each year, but nothing contained in this Plan or
the Trust Agreement by which it is implemented shall be deemed to require any
Employer to make contributions under this Plan and no Employer shall be under
any legal obligation to contribute to this Plan after the Plan has been
terminated as herein provided.
(b) Once a contribution has been made to the Trustee, no liability
shall attach to any Employer for any payment of any benefit or claims hereunder
and Members and their Beneficiaries, and all persons claiming under or through
them, shall have recourse only to the Trust Fund for payment of any benefit
hereunder.
(c) The rights of the Members, their Beneficiaries and other
persons are hereby expressly limited and shall be only in accordance with the
provisions of the Plan.
12.02 Termination: The Company reserves the right to terminate this Plan
with respect to all Employers or may direct that any individual Employer
withdraw from the Plan. In addition, any Employer may elect to discontinue
contributions to the Plan or to terminate its participation in the Plan
completely or with respect to one or more of its divisions, locations, or
operations. In the event that the Plan is terminated (either wholly or
partially) or if there is a complete discontinuance of contributions by any
participating Employer, the amount of the Trust Fund allocable to the Account of
each Employee with respect to which the Plan is being terminated shall be
determined promptly and, if not already fully vested, shall become fully vested
and nonforfeitable. (For this purpose a suspension of contributions which is
merely a temporary cessation of contributions by any Employer shall not be
deemed a complete discontinuance). Upon the termination of the Plan, the Account
of each Member shall be distributed as soon as is practicable following the
issuance by the Internal Revenue Service of a favorable determination upon plan
termination. Until fully distributed, each Account shall continue to be revalued
in accordance with Section 7.03.
12.03 Employer-Employee Relationship: The establishment of this Plan
shall not be construed as conferring any legal or other rights upon any Employee
or any person for a continuation of employment, nor shall it interfere with the
rights of any Employer to discharge any Employee or otherwise act in relation to
him. Each Employer may take any action (including discharge) with respect to any
Employee or other person and may treat him without regard to the effect which
such action or treatment might have upon him as a Member of this Plan.
12.04 Merger: The merger or consolidation of any Employer with another
organization shall not of itself cause the termination of this Plan or be deemed
a termination of employment as to any Employee. The merger of this Plan with
another retirement plan shall not of itself cause the termination of this Plan.
In the case of any merger or consolidation of the Plan with, or in the case of
any transfer of assets or liabilities of the Plan to, any other plan, each
Member will (if the Plan then terminates) be entitled to receive a benefit
immediately after the merger, consolidation or transfer
33
<PAGE>
which is equal to or greater than the benefit he would have been entitled to
receive immediately before the merger, consolidation or transfer (if the Plan
had then terminated).
12.05 Inclusion and Withdrawal of Participating Employer: Any subsidiary,
affiliated or associated corporation (or a partnership or sole proprietorship)
or other Related Company which is authorized by the Board to participate herein
may elect to participate herein by action of its own Board of Directors (or
other managing body). Each Employee of an Employer which commences to
participate in this Plan after the Effective Date shall become a Member on the
subsequent Entry Date coinciding with or next following such association or
later completion of the eligibility requirements of Section 2.0l. His period of
Vesting Service shall be based upon his employment from his date of hire, unless
otherwise specifically provided in the authorizing resolution adopted by the
Board and found in Exhibit A hereof.
The Company at any time in its discretion may determine that an Employer
shall no longer participate in this Plan and may direct that such Employer
withdraw from this Plan. Any Employer may similarly elect to terminate its
participation in this Plan at any time.
l2.06 Joint Employment. Any Employee employed by more than one Employer
shall be considered to be an Employee of each such Employer for purposes of
membership in this Plan and for benefits under this Plan.
l2.07 Receipt and Release: Any final payment or distribution to any
Member, Retired Member or his Beneficiary or his legal representative or other
person to whom payment is made in accordance with this Plan shall be in full
satisfaction of all claims against the Trust Fund, the Trustee, the Committee
and any Employer. The Trustee, any Employer, the Committee or any of them may
require a Member, Retired Member or his Beneficiary or his legal representative
to execute a receipt and release of all claims under this Plan upon a final
payment or distribution or a receipt to the extent of any partial payment or
distribution. The form of any such receipt and release shall be determined by
the Trustee, the Company, the Committee or any of them that are concerned with
the payment or distribution to which the receipt and release is applicable.
12.08 Voting of Company Stock
(a) The Company will make forms available to each Member to
instruct the Trustee with regard to the voting of any shares of Company Stock
held in the Member's Account A. The Company will vote such shares only as
directed by the Member. If a Member fails to give timely directions as to the
voting of shares of Company Stock held in a Members' Account or if any shares
held by the Trustees are not allocated to Members' Accounts, the Company will
vote such shares in the same proportion as it votes the shares for which the
Company receives directions. The Company shall use its best efforts to timely
distribute to each Member such information as is distributed to other
shareholders of the Company in connection with any such vote.
34
<PAGE>
(b) Each Member shall have the right to direct the Company in
writing as to the manner in which to regard to a tender or exchange offer with
respect to any shares of Company Stock held in that Member's Account. If the
Company does not receive timely directions from a Member as to the manner in
which to respond to such a tender or exchange offer with respect to any shares
of Company Stock held in the Member's Account, then the Company shall not tender
or exchange any such shares. The Company shall use its best efforts to timely
distribute to each Member such information as is distributed.
(c) Pursuant to Section 404(c) of ERISA, a Member shall not be
deemed a fiduciary by reason of any investment direction hereunder and no person
who is otherwise a fiduciary shall be liable for any loss which results from
such Member's investment direction.
12.09 Insiders
(a) Definition of Insider. For purposes of this Section 12.09,
"Insider" shall mean an officer, director or beneficial owner of more than ten
(10%) percent of the stock of the Company or any Employer, as determined by the
Company.
(b) Voluntary Suspension. In the case of any voluntary suspension
by an Insider pursuant to Section 5.02(c) of the Plan which results in the
cessation of any Tax-Deferred Contributions to the Company Stock Fund with
respect to the Insider, the Insider may not elect to resume any such
contributions for a period of at least six (6) months following the date of such
suspension.
(c) Allocation of Contributions. In the case of a change in
investment direction with respect to future contributions pursuant to Section
7.02 of the Plan by an Insider whose current investment direction with respect
to the Company Stock Fund is greater than 0%, if such change in investment
direction results in a greater than 0% multiple with respect to the Company
Stock Fund, any subsequent change of investment election resulting in greater
than 0% multiple with respect to the Company Stock Fund shall not take effect
until a date which is at least six (6) months later than the effective date of
the preceding change.
SECTION l3 NON-ALIENATION OF BENEFITS
- --------------------------------------
l3.0l Provisions with Respect to Assignment and Levy: No benefit under
this Plan shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, levy or charge, and any attempt to so
anticipate, alienate, sell, transfer, assign, pledge, encumber, levy upon or
charge the same shall be void; nor shall any such benefit be in any manner
liable for or subject to the debts, contracts, liabilities, engagements or torts
of the person entitled to such benefit. Notwithstanding the foregoing, the Plan
shall pay benefits pursuant to a "qualified domestic relations order", as that
term is defined in Section 414(p) of the Code.
35
<PAGE>
l3.02 Alternate Application: If any Member or Beneficiary under this Plan
becomes bankrupt or attempts to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge any benefit under this Plan, except as specifically
provided herein, or if any benefit shall be levied upon, garnisheed or attached,
then such benefit shall, in the sole discretion of the Committee, cease and
terminate, and in that event the Committee may hold or apply the same or any
part thereof to or for the benefit of such Member or Beneficiary, his spouse,
children or other dependents or any of them in such manner and in such
proportion as the Committee, in its sole discretion, may deem proper.
SECTION l4 AMENDMENTS
- ----------------------
l4.0l Company's Rights:
The Company reserves the right at any time and from time to time by
action of its Board to modify or amend in whole or in part any or all of the
provisions of this Plan. However, no such modification or amendment may result
in a retroactive reduction in the value of the Members' Accounts based on
contributions previously made.
Notwithstanding anything contained herein to the contrary, the Board, in
its sole discretion may make any modifications, amendments, additions or
deletions in this Plan, as to benefits or otherwise, and retroactively if
necessary, and regardless of the effect on the rights of any particular Members,
which it deems appropriate in order to bring this Plan into conformity with or
to satisfy any conditions of Applicable Law in order to continue or maintain the
qualification of this Plan and to keep it qualified under Section 40l(a) of the
Code, and to have the Trust declared exempt and keep it exempt from taxation
under Section 50l(a) of said Code.
l4.02 Prohibition Against Diversion. Subject to the provisions of
Sections 5.06 and 5.07, no part of the assets of the Trust Fund shall, by reason
of any modification or amendment or otherwise, be used for, or diverted to,
purposes other than for the exclusive benefit of Members of their Beneficiaries
under this Plan and to pay administrative expenses of this Plan.
14.03 Protected Benefits. Except as otherwise permitted by Regulations,
no Plan amendment or transaction having the effect of a Plan amendment (such as
a merger, plan transfer or similar transaction) shall be effective to the extent
it eliminates or reduces any "Section 411(d) protected benefit" or adds or
modifies conditions relating to "Section 411(d)(6) protected benefits," the
result of which is a further restriction on such benefit unless such protected
benefits are preserved with respect to benefits accrued as of the later of the
adoption date or effective date of the amendment. "Section 411(d)(6) protected
benefits" are benefits described in Code Section 411(d)(6)(A), early retirement
benefits, retirement-type subsidies and optional forms of benefits.
SECTION l5 CONSTRUCTION
- ------------------------
36
<PAGE>
l5.0l The provision of this Plan shall be construed, regulated and
administered according to the laws of the State of New York, except to the
extent preempted by Federal law.
Wherever applicable, the masculine pronoun as used herein shall be
deemed to include the feminine pronoun, and the singular shall be deemed to
include the plural.
SECTION l6 TRUST AGREEMENT AND EXHIBITS
- ----------------------------------------
l6.0l The Exhibits, including the Trust Agreement, attached hereto are
hereby incorporated by reference herein.
Executed this 1st day of April, l997.
NATIONAL HOME HEALTH CARE CORP.
By: /s/ Frederick H. Fialkow
-----------------------------
Frederick H. Fialkow, President
/s/ Robert P. Heller
-----------------------------
Robert P. Heller, Trustee
37
<PAGE>
EXHIBIT A
---------
PARTICIPATING EMPLOYERS IN PLAN
-------------------------------
As of April 1, 1997, National Home Health Care Corp. and the following
entities are Employers participating in the Plan on behalf of their respective
employees:
Health Acquisition Corp.
Nurse Care, Inc.
New England Home Care, Inc.
National HMO (New York), Inc.
A-1
<PAGE>
EXHIBIT B
---------
TOP-HEAVY
---------
1. Effective Date - The provisions of this Exhibit B shall become
effective for the first Plan Year after 1983 in which this Plan is Top-Heavy.
2. Definitions
(a) "Key Employee" shall mean any employee or former employee (and
the beneficiaries of such employee) who at any time during the plan year of any
of the four (4) preceding plan years was: (i) an officer of the Employer having
an annual compensation in excess of 150 percent of the dollar limitation in
effect under Section 415(b)(1)(A) of the Code; (ii) 1 of the 10 employees having
compensation from the Employer of more than the limitation in effect under
Section 415(c)(1)(A) and owning (or considered owning under Section 318) the
largest interest in the Employer; (iii) a 5-percent owner of the Employer (as
defined in Code Section 416); and or (iv) a 1-percent owner of the Employer (as
defined in Code Section 416(i)(B)(ii)) who has annual compensation for a Plan
Year of more than $150,000. For purposes of the rules of Sections 414(b), (c),
(m) and (o) of the Code shall not apply.
(b) "Top-Heavy Plan Year" means, with respect to any Plan Year
that begins after 1983, any such year in which the Top-Heavy Ratio exceeds 60%.
(ii) "Super Top-Heavy Plan Year" means a Plan Year in which the
Top-Heavy Ratio exceeds 90%.
(c) "Compensation" means the total remuneration paid to an
Employee and reportable for purposes of Federal Tax Form W-2.
(d) "Top-Heavy Ratio" means, as of the Determination Date for a
Plan Year (last day of the preceding Plan Year), the ratio of (i) below to (ii)
below:
(i) the sum of (A) and (B)
(A) the aggregate present values of accrued benefits
for all Key Employees under this Plan, plus
(B) the aggregate account values and the aggregate
present values of accrued benefits for all Key Employees under all other plans
in the Aggregation Group in which this Plan is included,
B-1
<PAGE>
(ii) all such aggregate values for all individuals under
all plans in such Aggregation Group.
In determining the value of any individual's account or the
present value of his accrued benefit under this Plan or any other plan in the
Aggregation Group:
(1) the value of such account or the present value
of such accrued benefit shall be increased by the aggregate distributions made
with respect to such individual from such plan during the five (5) year period
ending on the Determination Date;
(2) rollover contributions and transfers from other
plans shall not be taken into account to the extent provided under Section 416
of the Code and the regulations thereunder;
(3) for Plan Years beginning after December 31,
1984, if any person has not performed services for the Employer or any Related
Company at any time during the five (5) year period ending on the Determination
Date, then the present value of the Member's accrued benefits and account
balances shall not be taken into account; and
(4) in the case of a defined benefit plan, the
present value of such accrued benefit shall be determined by using actuarial
assumptions set forth for such purpose in such Plan.
(e) "Aggregation Group" means all plans of the Employer and any
Related Company (including terminated Plans) in which one or more Key Employees
are participants, and all other plans maintained by the Employer or any Related
Company that enable any plan in which a Key Employee is a participant to comply
with the coverage and nondiscrimination requirements of Section 401(a)(4) or 410
of the Code; and all plans of the Employer and any Related Company that the
Employer designates as part of the Aggregation Group, provided the resulting
Aggregation Group meets the coverage and nondiscrimination requirements of
Sections 401(a)(4) and 410 of the Code.
3. Determination of Top-Heaviness - For the purpose of making a
determination as to the top-heaviness of this Plan under Section 416(g) of the
Code, this Plan will be aggregated with any other plan maintained by the
Employer and/or a Related Employer in the Aggregation Group. Pursuant to Section
416(g), the Top-Heavy Ratio for Key Employees for any Plan Year shall be
determined as of the last day of the preceding Plan Year ("Determination Date")
based on the actuarial assumptions set forth in the defined benefit plan, if
any, for the purpose of determination of top-heavy, and the present value of
Accrued Benefits determined by such assumptions as of the Valuation Date, under
the defined benefit plan, and the value of Accounts under this Plan. The
Valuation Date shall be the first day of the Plan Year in which such
Determination Date occurs for a defined benefit plan, and shall be the last day
of the Plan Year for a defined contribution plan. The Determination Date for the
first Plan Year for which this amendment and restatement shall apply shall be
December 31, 1991.
B-2
<PAGE>
4. Minimum Benefit - For any Plan Year for which this Plan is
Top-Heavy, a Minimum Benefit shall be payable under this Plan to any Member who
is not a Key Employee. Any such Member who is eligible to participate under this
Plan pursuant to Section 2.01 and who is in the employ of an Employer on the
last day of the given Plan Year shall receive a Minimum Benefit equal to 3% of
Compensation (as defined in this Exhibit B) over the sum of (a) and (b), below
(subject to the limitation set forth in (c), below):
(a) Any contributions and forfeitures allocated to the Account C
of a Member;
(b) Any amounts treated as employer contributions, for top-heavy
purposes, pursuant to Regulation 1.401(m)-1(f)(12)(iii) and 1.416-1(m-19); and
(c) Notwithstanding the foregoing, if the largest allocation to
the Account A, Account B and Account C of any Key Employee, expressed as a
percentage of compensation, is less than 3% for a given Plan Year, the Minimum
Benefit provided to non-Key Employees for such Plan Year shall be such reduced
percentage of compensation.
B-3
<PAGE>
EXHIBIT C
---------
NATIONAL HOME HEALTH CARE CORP.
SAVINGS AND STOCK INVESTMENT TRUST
AS AMENDED & RESTATED
EFFECTIVE APRIL 1, 1997
<PAGE>
AGREEMENT effective the 1st day of April, 1997 by and between National
Home Health Care Corp., a corporation organized and existing under the laws of
the State of Delaware (hereinafter referred to as the "Company") and Robert P.
Heller (hereinafter referred to as the "Trustees," which shall also be read to
mean the singular whenever there is just one Trustee).
W I T N E S S E T H
WHEREAS, effective March 1, 1986, the Company had authorized and adopted
a defined contribution plan and trust for its eligible employees, known as the
National Home Health Care Corp. Savings and Stock Investment Plan (hereinafter
referred to as the "Plan"); and
WHEREAS, effective April 1, 1997, the provisions of the Plan have been
amended and restated in their entirety; and
WHEREAS, under the Plan, funds have been and will from time to time be
contributed to the Trustees, which funds, as and when received by the Trustees,
will constitute a trust fund to be held in Trust for the benefit of members
under the Plan and their beneficiaries; and
WHEREAS, it is intended that the Plan and Trust shall continue to qualify
and the Trust shall continue to be tax exempt under the applicable provisions of
the Internal Revenue Code of 1986 as it now exists or from time to time may be
amended (hereinafter referred to as the "Code"), and that the Plan and Trust
shall continue to conform in all respects to the provisions of the Employee
Retirement Income Security Act of 1974 as it now exists or from time to time may
be amended (hereinafter referred to as "ERISA"); and
WHEREAS, the Company desires the Trustees to continue to hold and
administer such funds and the Trustees are willing to continue to hold and
administer such funds pursuant to the terms of this Agreement; and
WHEREAS, the Company wishes to amend and restate the provisions of the
Plan relating to the Trustees and the trust fund in this document, known as the
"National Home Health Care corp. Savings and Stock Investment Trust"
(hereinafter referred to as the "Trust"), the provisions of which are
incorporated by reference in and made a part of the Plan;
NOW, THEREFORE, in consideration of the terms and mutual covenants herein
contained, the Company and the Trustees do hereby covenant and agree as follows:
Section 1. The Trust Fund. The Trust shall consist of such sums of money
and other property acceptable to the Trustees as shall from time to time be paid
or delivered to the Trustees. All such money and property, all investments made
therewith, and all proceeds thereof and all earnings and profits thereon, less
the payments which at the time of reference shall have been made by the
Trustees, as authorized herein, are referred to herein as the "Fund."
C-1
<PAGE>
Section 2. General Duties of Trustees. It shall be the duty of the
Trustees to hold, to invest and to reinvest the Fund, and to pay to or on the
order of the Committee including, when the Committee shall so order, payments to
the Members under the Plan and their beneficiaries. Such orders need not specify
the application to be made of moneys so ordered and, except as otherwise
provided in Section 6A, B or C hereof, the Trustees shall not be responsible in
any way respecting such application or for the administration of the Plan. The
Trustees shall be under no duty to enforce payment of any contribution to the
Fund and shall not be responsible for the adequacy of the Fund to make benefit
payments and to meet and discharge other liabilities under the Plan.
The Trustees shall discharge their duties under this Agreement solely in
the interest of Members under the Plan and their beneficiaries and, in so doing,
shall be guided by the following prime directives:
A. The Fund shall be held by the Trustees in Trust and dealt with in
accordance with the provisions of this Agreement insofar as they are consistent
with the applicable provisions of the Code and ERISA, and the Regulations issued
thereunder, as the same from time to time may be amended.
B. The Fund shall be held by the Trustees for the exclusive benefit of
Members under the Plan and their beneficiaries and for the payment of expenses
of the Plan and of the Trust created hereby, and at no time shall any part of
the corpus or income of the Fund be used for any other purpose except as
follows:
(i) If the Company makes a contribution by a mistake in fact, the
Committee may direct the Trustees to return such contribution to the Company at
any time within one year after payment of the contribution.
(ii) If a contribution by the Company is expressly conditioned
upon its deductibility under Section 404 of the Code, then, to the extent the
deduction is disallowed, the Committee may direct the Trustees to return the
disallowed portion thereof to the Company at any time within one year after the
disallowance of such deduction.
(iii) If a contribution by the Company is conditioned on initial
qualification under Section 401(a) of the Code, and if the Plan receives an
adverse determination with respect to its initial qualification, the Committee
may direct the Trustees to return such contribution to the Company within one
year after such adverse determination, but only if the application for the
determination is made by the time prescribed by law for filing the Company's tax
return for the taxable year in which the Plan was adopted, or such later date as
prescribed by applicable law.
(iv) Any contribution returned pursuant to (i), (ii) or (iii)
above shall be adjusted to reflect its proportionate share of Trust Fund losses,
if any, attributable to such excess contribution. Any earnings attributable to
such excess contribution may not be returned to the Company.
C-2
<PAGE>
C. The Trustees shall discharge their duties under this Agreement with
the care, skill, prudence and diligence under the circumstances then prevailing,
that a prudent man acting in like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and with like aims.
D. The Trustees shall diversity the investments of the Trust so as to
minimize the risk of large losses, unless under the circumstances it is clearly
prudent not to do so.
Section 3. Investment of Fund. The Trustees shall invest and reinvest the
principal and income of the Fund and keep the Fund invested, without distinction
between principal and income, as follows:
A. Subject to the settlor's intent that Trust assets attributable to
Members' Accounts B be invested primarily in money market funds and, in
accordance with Paragraph C below, Company securities, the Trustees also may
invest in any and all common stocks, preferred stocks, bonds, notes, debentures,
mortgages regardless of the degree of subordination, equipment trust
certificates, investment trust certificates, real and personal property wherever
situated, and in such other property, investments and securities of any kind,
class or character as the Trustees may deem suitable for the Fund, and such
investment and reinvestment shall not be restricted to properties and securities
authorized for investment by trustees under any present or future law.
B. The Trustees shall, to the extent from time to time directed by the
Committee, use the Fund to purchase and maintain insurance policies or annuity
contracts issued by an insurance company approved by the Committee.
C. The Trustees may invest in any preferred and common stocks,
securities, property or obligations or other evidences of indebtedness of the
Company or any of its subsidiaries or affiliates even though the same may not be
legal investments for Trustees under the laws applicable, but in no event shall
any such investment be made unless and to the extent that such investment is
permitted under the applicable provisions of ERISA. With respect to the purchase
of the common stock of the Company, the Trustee is hereby authorized to purchase
such stock from the Company or from any shareholder, and such stock may be
outstanding, newly issued or treasury stock, subject to provisions of the Code
and ERISA.
D. The Trustees shall coordinate their investment policy hereunder with
the Plan's short-term and long-term financial needs (such as liquidity
requirements and expected investment performance), as expressed in any statement
of "funding policy" established under the Plan in accordance with ERISA and
furnished to the Trustees by the Committee.
E. The Trustees shall, to the extent provided for in the Plan, follow the
written instructions of Members directing the investment of their Accounts under
the Plan, subject to the terms and limitations set forth in the applicable Plan
provisions.
C-3
<PAGE>
Section 4. Powers of Trustees. The Trustees are authorized and empowered:
A. To purchase or subscribe for any securities or other property and to
retain in Trust such securities or other property.
B. To sell for cash or on credit, to grant options, convert, redeem,
exchange for other securities or other property, or otherwise to dispose of any
securities or other property at any time held by them.
C. To settle, compromise or submit to arbitration, any claims, debts or
damages, due or owing to or from the Trust, to commence or defend suits or legal
proceedings and to represent the Trust in all suits or legal proceedings.
D. To exercise any conversion privilege and/or subscription right
available in connection with any securities or other property at any time held
by them; to oppose or to consent to the reorganization, consolidation, merger,
or readjustment of the finances of any corporation, company or association or to
the sale, mortgage, pledge or lease of the property of any corporation, company
or association any of the securities of which may at any time be held by them
and to do any act with reference thereto, including the exercise of options, the
making of agreements or subscriptions and the payment of expenses, assessments
or subscriptions, which may be deemed necessary or advisable in connection
therewith, and to hold and retain any securities or other property which they
may so acquire.
E. Subject to the provisions of the Plan regarding Company Stock, to
exercise, personally or by general or limited power of attorney, any right,
including the right to vote, appurtenant to any securities or other property
held by them at any time.
F. To manage, administer, operate, lease for any number of years,
regardless of any restrictions on leases made by fiduciaries, develop, improve,
repair, alter, demolish, mortgage, pledge, grant options with respect to, or
otherwise deal with any real property or interest therein at any time held by
them.
To hold any such real property in their own names or in the name of a
nominee, with the addition of words indicating that such property is held in a
fiduciary capacity. However, no such holding shall relieve the Trustees of their
responsibility for the safe custody and disposition of the Fund in accordance
with the provisions of this Agreement; the Trustees' books and records shall at
all time show that such real property is part of the Fund; and the Trustees
shall be absolutely liable for any loss occasioned by the acts of their nominee
with respect to real property registered in the name of the nominee.
To renew or extend or participate in the renewal or extension of any
mortgage, upon such terms as may be deemed advisable, and to agree to a
reduction in the rate of interest on any mortgage or of any guarantee pertaining
thereto, in any manner and to any extent that may be deemed advisable
C-4
<PAGE>
for the protection of the Trust Fund or the preservation of the value of the
investment; to waive any default whether in the performance of any covenant or
condition of any mortgage or in the performance of any guarantee, or to enforce
any such default in such manner and to such extent as may be deemed advisable;
to exercise and enforce any and all rights of foreclosure, to bid in property on
foreclosure, to take a deed in lieu of foreclosure with or without paying a
consideration therefor and in connection therewith to release the obligation on
the bond secured by such mortgage, and to exercise and enforce in any action,
suit or proceedings at law or in equity any rights or remedies in respect to any
such mortgage or guarantee.
G. To hold such portion or all of the Trust Fund uninvested as the
Trustees may from time to time deem to be in the best interest of the Fund.
H. To employ in the management of the Fund suitable agents, and a
suitable investment counselor (hereinafter referred to as an "Investment
Adviser" as distinguished from an Investment Manager appointed pursuant to
Section 12 hereof), and to pay their reasonable expenses and compensation. The
Trustees shall select an agent or an Investment Adviser with the care, skill,
prudence and diligence under the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with similar aims.
I. To register any securities held by them hereunder in their own names
or in the name of a nominee with the addition of words indicating that such
securities are held in a fiduciary capacity and to hold any securities in bearer
form. However, no such holding shall relieve the Trustees of their
responsibility for the safe custody and disposition of the Fund in accordance
with the provisions of this Agreement; the Trustees' books and records shall at
all times show that such securities are part of the Fund; and the Trustees shall
be absolutely liable for any loss occasioned by the acts of their nominee with
respect to securities registered in the name of the nominee.
J. To form corporations and to create trusts to hold title to any
securities or other property, all upon such terms and conditions as may be
deemed advisable.
K. To make, execute and deliver, as Trustees, any and all deeds, leases,
mortgages, conveyances, contracts, waivers, releases or other instruments in
writing necessary or proper for the accomplishment of any of the foregoing
powers.
L. To borrow money from time to time from any lender (other than from the
Trustees in their individual capacities or from any other party in interest with
respect to the Plan or Trust) for the purposes of the Trust on such terms and
conditions as the Trustees, in their absolute discretion, may deem advisable and
to secure the repayment thereof by pledging all or any part of the Fund, but no
person lending money to the Trust shall be bound to see to the application of
the money loaned or to inquire into the validity, expediency or propriety of any
such borrowing.
C-5
<PAGE>
M. To open and maintain any bank account or accounts in the name of the
Trustees in any bank as the Trustees shall determine.
N. In the exercise of all powers granted to the Trustees, each action
shall be approved by a majority of the Trustees. Any instrument to be executed
on behalf of the Trustees including any check issued by or to the order of the
Trustees may be made, executed, signed, endorsed or delivered by any two of the
Trustees (unless the Trustees shall authorize one Trustee to sign on behalf of
all), and any person, firm or corporation, including any bank, may rely upon and
shall be protected in relying upon the signature of the Trustee or Trustees so
signing with the same force and effect as though all the Trustees had signed. If
there be only one Trustee acting hereunder, his action alone shall be
sufficient.
Section 5. Expenses and Compensation of Trustees; Taxes. The expenses
incurred by the Trustees in the performance of their duties, including fees for
legal, accounting, actuarial and investment services rendered to the Trustees,
and such compensation to the Trustees as may be agreed upon in writing from time
to time between the Company and the Trustees, shall be paid from the Fund unless
paid by the Company; provided, however, that any Trustee who receives full-time
pay from an Employer whose employees are eligible for membership in the Plan
shall receive no compensation for services as a Trustee except for reimbursement
for expenses properly and actually incurred. All taxes of any and all kinds
whatsoever that may be levied or assessed under existing or future laws upon or
in respect of the Fund or the income thereof shall be paid from the Fund;
provided, however, that a tax which is imposed on a Trustee or other fiduciary
pursuant to ERISA, on account of his participation in a prohibited transaction
or other breach of fiduciary duty, shall not be paid from the Fund.
Section 6. Trustee's Liability. The individuals named herein as the
Trustees and any successor Trustees shall not be liable for the making,
retention, or sale of any investment or reinvestment made by them as herein
provided nor for any loss to or diminution of the Fund, except due to their
participation in a prohibited transaction, or their lack of prudence. The
Trustees may from time to time consult with counsel who may be counsel to the
Company, and shall not be deemed imprudent by reason of their taking or
refraining from taking any action in accordance with the advice of counsel.
A Trustee shall be liable for a breach of fiduciary responsibility of
another fiduciary (a co-Trustee, or an Investment Manager appointed pursuant to
Section 12 hereof, or any other person deemed a fiduciary pursuant to the
applicable provisions of ERISA) only if such Trustee:
A. participates knowingly in, or knowingly undertakes to conceal, an
act or omission of such other fiduciary, knowing such act or omission is a
breach; or
B. by his failure to comply with Section 2A, B, C or D hereof, he had
enabled such other fiduciary to commit a breach; or
C-6
<PAGE>
C. has knowledge of a breach of such other fiduciary, unless he makes
reasonable efforts under the circumstances to remedy such breach.
Section 7. Accounts. The Trustees shall keep accurate and detailed
accounts of all investments, receipts, disbursements and other transactions
hereunder, and all accounts, books and records relating thereto shall be open to
inspection and audit at all reasonable times by any person designated by the
Committee. Within 90 days following the close of each fiscal year, and within 90
days after the removal, resignation or death of a Trustee or Trustees as
provided in Section 8 hereof, the remaining Trustees shall file with the
Committee (and, in the case of the death of a Trustee, the remaining Trustees
and the representatives of the deceased Trustee shall file with the Committee) a
written account setting forth all investments, receipts, disbursements and other
transactions effected by them during such fiscal year to the date of such
removal, resignation or death. Upon the expiration of 90 days from the date of
filing such annual or other account, the Trustees shall be forever released and
discharged from all liability and accountability to anyone with respect to the
propriety of their acts and transactions except as to those to which the
Committee shall within such 90 day period file with the Trustees written
objections.
Section 8. Removal or Resignation of Trustees. A Trustee may be removed
by the Company at any time upon 60 days notice in writing to the Trustee and the
Committee. A Trustee may resign at any time upon 60 days notice in writing to
the Company and the Committee. At any time the Company may reduce the number of
Trustees from several to one and, if a corporate Trustee be named, it shall not
be necessary to appoint any co-Trustee. The number of Trustees may be increased
to not more than seven. Upon the death, incapacity, removal or resignation of a
Trustee, the Company may appoint a successor Trustee and, if it so elects,
successor Trustees or additional Trustees, who shall have the same powers and
duties as those conferred upon the Trustees hereunder and, upon acceptance of
such appointment by a successor or an additional Trustee or Trustees, the
removed or resigned Trustee shall assign, transfer and pay out to such successor
Trustee, and the continuing Trustees, if any, the funds and properties then
constituting the Fund. The resigned or removed Trustee is authorized, however,
to reserve such sum of money as he may deem advisable for payment of fees and
expenses in connection with the settlement of his account, if such settlement be
necessary or otherwise. Any balance of such reserve remaining after the payment
of such fees and expenses shall be paid over to the continuing Trustees, if any,
and the successor Trustee.
Section 9. Certifications and Communications. Any action by the Company
pursuant to any of the provisions of this Agreement shall be evidenced by a
resolution of its Board certified to the Trustees over the signature of its
Secretary or Assistant Secretary under the corporate seal, and the Trustee shall
be fully protected in acting in accordance with such resolution so certified to
them. All orders, requests and instructions of the Committee to the Trustees
shall be in writing signed by any member of the Committee and the Trustees shall
act and shall be fully protected in acting in accordance with such orders,
requests and instructions. The Company shall furnish the Trustees from time to
time with certified copies of resolutions of its Board evidencing the
appointment and termination of office of any member of the Committee and the
appointment of successors thereto.
C-7
<PAGE>
Section 10. Other Participating Employers. Any company which is a
subsidiary of the Company or which may be affiliated with the Company in any way
and which is now or may hereafter be organized under the laws of the United
States of America, or of any State or Territory thereof, may adopt the Trust by
resolution of its own Board, with the approval of the Board of the Company, if
such subsidiary or affiliate shall have adopted the Plan.
Any such subsidiary or affiliate may at any time withdraw from further
participation in the Trust under this Trust Agreement. If it is determined that,
with respect to any subsidiary or affiliate, the Plan does not qualify under
Section 401(a) of the Code, such subsidiary or affiliate shall be required to
withdraw from further participation in the Trust as soon thereafter as is
administratively feasible. A withdrawing subsidiary or affiliate shall file with
the Trustees a document evidencing its withdrawal from the Trust Fund and its
planned disposition of the assets in accordance with the applicable provisions
of the Plan.
In such event, the Trustees shall thereupon withdraw from the Trust Fund
such assets as they shall in their absolute discretion deem to be equal in value
to the appropriate share (as determined and certified to the Trustees by the
Committee) of the Trust Fund then held in respect of the participants of such
subsidiary or affiliate. Such withdrawal from the Trust Fund, or in a
combination of both, in the absolute discretion of the Trustees, and the
Trustees' valuation of the assets of the Trust Fund for such purpose shall be
conclusive and binding on all persons. Such former subsidiary or affiliate may
thereafter exercise in respect to such segregated portion of the Trust Fund all
the rights and powers reserved to the Company and to the Committee under the
provisions of this Trust Agreement.
In a similar manner, upon written direction of the Committee, the
appropriate share of the Trust Fund determined by the Trustees to be then held
in respect of the employees in any division, plant, location or other
identifiable group or unit of the Company or of any subsidiary or affiliate may
be segregated, and the Trustees shall hold such segregated assets in the same
manner and for the same purpose as provided in the event of segregation of a
subsidiary or affiliate, and the Company or any successor owner of the
segregated unit shall have the rights hereinabove provided for a segregated
subsidiary or affiliate.
Section 11. Other Participating Plans. The Company may, subject to the
Trustee's consent, designate this Agreement and the Trust created hereby and the
Trustees hereof as the Agreement, Trust and Trustees, respectively, with respect
to any other retirement plan maintained by the Company, or any subsidiary or
affiliate of the Company, for its eligible employees (hereinafter referred to as
the "Participating Plan"). All of the assets of each Trust participating herein
(hereinafter referred to as the "Participating Trust") shall be pooled with the
assets of all the other Participating Trusts, and shall be held and invested by
the Trustees as an undivided pooled Trust Fund (hereinafter referred to as the
"Consolidated Trust Fund") in accordance with the terms of this Agreement,
subject to the following provisions:
A. The Trustees shall commingle such assets and make joint or common
investments and carry joint accounts on behalf of the Participating Trusts,
allocating undivided shares of such
C-8
<PAGE>
investments, accounts and pooled assets to said participating Trusts in
accordance with their respective interests. With respect to each such
Participating Trust, the term "Trust Fund" or "Fund" as used in this Agreement
shall mean the allocable portion of the pooled fund in respect of the
contributions to the Trustees pursuant to the applicable participating Plan, and
the term "Plan" as used in this Agreement shall mean the applicable
Participating Plan. The Trustees shall maintain a record showing the total
amounts originally received by them with respect to each Participating Plan, the
total benefits paid by them with respect to each Participating Plan, the total
contributions paid to them with respect to each Participating Plan, the total
expenses incurred by them with respect to each Participating Plan and the value,
at both book and market, of the accumulated assets held by them with respect to
each Participating Plan, and the Trustees shall adjust such record from time to
time and as of each date on which a Participating Plan shall become such or
shall cease to be such. Each account rendered by the Trustees pursuant to
Section 7 hereof shall indicate the portion of the Consolidated Trust Fund
allocable to each Participant Trust.
B. With respect to each Participating Trust, the term "Committee" as used
in this Agreement shall mean the administrative committee (by whatever name
designated) appointed to administer the particular Participating Plan. However,
any direction made pursuant to this Agreement which affects the Trust as a whole
shall be made jointly by all such committees.
C. The funds of the portion of the Consolidated Trust Fund applicable to
a particular Participating Plan may not under any circumstances be used to fund
or otherwise pay, in whole or in part, the retirement or other benefits payable
under any other Participating Plan.
D. The commingling of funds of a particular Participating Trust with the
funds of the other Participating Trusts as authorized herein shall be effective
only if, and so long as, such Participating Trust is part of a Participating
Plan which qualifies under Section 401(a) of the Code, and such participating
Trust is entitled to tax exemption under Section 501(a) of the Code. If it is
determined that a Participating Plan and Trust do not qualify under Section
401(a) of the Code, or that a Participating Trust is not entitled to tax
exemption under Section 501(a) of the Code, the Participating Trust shall be
withdrawn from further participation in the Consolidated Trust Fund, pursuant to
Paragraph E, below, as soon thereafter as is administratively feasible.
E. Any such Participating Trust may at any time be withdrawn from further
participation in the Consolidated Trust Fund under this Trust Agreement by the
Company or the subsidiary or affiliate filing with the trustees a document
evidencing such withdrawal from the Consolidated Trust Fund and its continuance
of a trust in accordance with the provisions of this Trust Agreement, and such
trust and the funds allocable thereto shall thereupon be segregated and disposed
of in a manner similar to that provided for in Section 10 hereof.
Section 12. Appointment of Investment Manager. The Trustees in their
discretion and to the extent they may deem it necessary or desirable may appoint
as an Investment Manager:
C-9
<PAGE>
A. a bank, as defined in the Investment Advisers Act of 1940, which
shall be appointed to serve in the capacity of either a corporate trustee or
custodian pursuant to a trust or custodial agreement,
B. an insurance company qualified to manage, acquire or dispose of
the assets of an employee benefit plan under the laws of more than one state,
which shall be appointed pursuant to a group annuity or other appropriate
contract, or
C. a firm registered as an investment adviser under the Investment
Advisers Act of 1940, which shall be appointed pursuant to an investment
management or other appropriate agreement, which agreement with the Investment
Manager (hereinafter referred to as the "Investment Agreement") shall provide
for the Investment Manager's receipt, retention, investment and reinvestment of
assets of the Fund as a fiduciary with respect thereto. The Trustees may
transfer to the Investment Manager any part or all of the assets of the Fund as
the Trustees shall deem advisable, and the Investment Manager shall invest and
reinvest the assets so transferred and all income and increment thereon in
accordance with the terms of the Investment Agreement. In the case of an
Investment Agreement with a bank or trust company, said Agreement may provide
for the investment of the assets transferred pursuant thereto in any trust
qualified under Section 401(a) and tax exempt under Section 501(a) of the Code
which is maintained by such designated bank or trust company as a medium for the
collective investment of pension, profit sharing or other employee benefit
trusts for which it acts as trustee or custodian. The Trustees shall have the
right at any time and from time to time to direct the Investment Manager to pay
over and to deliver to the Trustees such sums of money and other property at any
time constituting a part of the assets of the Fund in the hands of the
Investment Manager as the Trustees may direct, and the Trustees shall have the
authority to receive the same from the Investment Manager subject, however, to
the terms of this Agreement. The Trustees may provide for the payment of the
reasonable fees and expenses of the Investment Manager. In the event of a breach
of fiduciary responsibility of an Investment Manager, the Trustees'
responsibility therefor shall be determined in accordance with Section 6A
hereof.
Section 13. Amendment of Trust Agreement. The Company reserves the right
at any time and from time to time by action of the Board to amend, in whole or
in part, any or all of the provisions of this Agreement by notice thereof in
writing delivered to the Committee and the Trustees, provided that no such
amendment which affects the rights, duties or responsibilities of the Trustees
may be made without their consent, and provided further that no such amendment
shall authorize or permit, at any time prior to the satisfaction of all
liabilities with respect to the members under the Plan and their beneficiaries,
any part of the corpus or income of the Fund to be used for or diverted to
purposes other than for the exclusive benefit of such members and their
beneficiaries.
Section 14. Termination of Plan and Trust. In the event of the
termination of the Plan as provided therein, the Trustees shall dispose of the
Fund in accordance with the written order of the Committee. Upon the complete
distribution of the Fund, the Trust shall terminate.
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<PAGE>
Section 15. Applicable Law. This Agreement shall be administered,
construed, and enforced according to the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and their corporate seal to be hereunder affixed and attested on the
1st day of April , 1997.
NATIONAL HOME HEALTH CARE CORP.
By: /s/ Frederick H. Fialkow
-----------------------------
Frederick H. Fialkow, President
/s/ Robert P. Heller
-----------------------------
Robert P. Heller, Trustee
C-11
<PAGE>
EXHIBIT D
---------
LOANS TO MEMBERS
----------------
D.1 Authorization
- -----------------
The Trustee is authorized to allow loans from the Plan to any Member who
requests the same and who satisfies the criteria for loans established by the
Trustee. The Committee shall establish a "participant loan program" in
compliance with Labor Regulation ss.2550.408(b). The terms of such loan program
shall be in writing and shall constitute part of the Plan. Such terms shall
include:
The identity of the person or persons responsible for
administering the participant loan program;
A procedure for applying for loans;
The basis on which loans will be approved or denied;
Limitations on the terms and amount of loans offered;
The procedure under the program for determining a
reasonable rate of interest; The types of collateral which may
secure a loan; and
The events constituting default and the steps that will be
taken to preserve plan assets in the event of default.
D.2 Requirements
- ----------------
Loans shall be made available to Members on a reasonably
equivalent basis, without regard to race, color, religion, sex,
age or national origin.
Loans shall not be made available to Highly Compensated
Employees in an amount greater than the amount made available to
non-Highly Compensated Employees.
Loans shall be adequately secured and shall bear a
reasonable interest rate.
D-1
<PAGE>
D.3 Limitations
- ---------------
In no event shall the amount loaned to any Member exceed
the lesser of:
(1) twenty-five thousand dollars ($25,000), or
(2) fifty (50%) percent of the Member's vested Account.
All loans from all plans of the Employer and other members
of a group of employers described in Sections 414(b), (c), (m) and
(0) of the Code shall be aggregated.
All loans will, by their terms, require repayment in equal
installments, payable by payroll deduction or, if the Member is on
an unpaid leave of absence, not less frequently than monthly, over
a term of not more than five (5) years.
D.4 Prohibitions
- ----------------
(a) No loans shall be made that would constitute prohibited
transactions, as that term is defined in Section 406 of ERISA and Section 4975
of the Code, unless an exemption for the loan has been obtained pursuant to
Section 408 of ERISA.
(b) Notwithstanding any other provision of this Exhibit D, any
amounts invested in Company Stock that are not eligible to be reinvested in
other Investment Funds also are not available as payment to a Member as loan
proceeds.
List of Subsidiaries
Wholly Owned Subsidiary State of Incorporation
- ----------------------- ----------------------
National HMO (New York), Inc. Delaware
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 reports dated
September 26, 1997 (with respect to Note 1 - Stock Dividend October 10, 1997),
with respect to the consolidated financial statements and schedule of National
Home Health Care Corp. and subsidiaries as at July 31, 1997 and July 31, 1996
and for each of the years in the three year period ended July 31, 1997 included
in its Annual Report on Form 10-K for the year ended July 31, 1997.
/s/ Richard A. Eisner & Company, LLP
New York, New York
October 23, 1997
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
National Home Healthcare Corp.
We consent to the incorporation of our report dated September 16, 1997 with
respect to the consolidated financial statements of SunStar Healthcare Inc. as
of and for the two years ended July 31, 1997, in the Annual Report on Form 10-K
for the fiscal year ended July 31, 1997 of National Home Health Care Corp.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Certified Public Accountants
Jacksonville, Florida
October 23, 1997
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