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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required) for transition period from to
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Commission File Number: 0-20372
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RES-CARE, INC.
(Exact name of Registrant as specified in its charter)
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KENTUCKY 61-0875371
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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10140 Linn Station Road 40223
Louisville, KY (Zip Code)
(Address of principal executive offices)
(502) 394-2100
(Registrant's telephone number, including area code)
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TITLE OF EACH CLASS
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Securities registered pursuant to None
Section 12(b) of the Act:
Securities registered pursuant to Common Stock, no par value
Section 12(g) of the Act:
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 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 February 28, 1997, there were 10,056,183 shares of the Registrant's Common
Stock, no par value, outstanding. The aggregate market value of the shares of
Registrant held by non-affiliates of the Registrant, based on the closing price
of such on the NASDAQ National Market System on February 28, 1997, was
approximately $114,221,222. For purposes of the foregoing calculation only, all
directors and executive officers of the Registrant have been deemed affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Part III is incorporated by reference from the Registrant's Proxy Statement
for the Annual Meeting of Stockholders to be held on May 13, 1997.
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TABLE OF CONTENTS
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PAGE
NUMBER
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PART I
Item 1 Business.................................................... 1
Item 2 Properties.................................................. 12
Item 3 Legal Proceedings........................................... 12
Item 4 Submission of Matters to a Vote of Security Holders......... 13
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 14
Item 6 Selected Financial Data..................................... 15
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
Item 8 Financial Statements and Supplementary Data................. 24
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 42
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 43
Item 11 Executive Compensation...................................... 43
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 43
Item 13 Certain Relationships and Related Transactions.............. 43
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 44
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PART I
ITEM 1. BUSINESS
OVERVIEW
Res-Care is a leading provider of residential, training, educational and
support services to populations with special needs, including persons with
developmental and other disabilities and at-risk and troubled youths. The
services provided by the Company have historically been provided by state and
local government agencies and not-for-profit organizations. The Company's
programs include an array of services provided in both residential and
non-residential settings for adults and youths with mental retardation or other
developmental disabilities ("MR/DD") and disabilities caused by acquired brain
injury ("ABI"), and for youths who have severe behavioral disorders, who are
from disadvantaged backgrounds or who have entered the juvenile justice system.
At February 28, 1997, Res-Care was providing services to approximately
7,600 persons with special needs compared to approximately 3,300 persons at
September 30, 1992. Res-Care currently provides services to approximately 5,000
persons with disabilities in larger facilities, group homes, personal residences
or other community-based programs in 17 states and to approximately 2,600
at-risk and troubled youths in federally-funded vocational training programs and
juvenile treatment programs operated for state and local agencies in seven
states and Puerto Rico.
Res-Care's growth strategy is to (i) pursue acquisitions, (ii) add programs
and expand its existing programs in markets in which it currently operates and
(iii) expand into additional geographic areas in the United States. The markets
for the Company's services are highly fragmented, and the Company believes that
there are significant opportunities to enhance its market positions through an
active acquisition program in the disabilities and at-risk and troubled youth
sectors that will enable the Company to expand its operations into new
geographic areas, add program offerings and establish new relationships with
governmental entities. The Company intends to build upon its established
relationships with governmental entities to expand its current programs and
obtain contracts for additional programs in existing markets, and to develop new
programs in response to societal trends and the needs of governmental agencies.
The Company also intends to expand its programs to additional geographic areas
which management identifies as having favorable reimbursement and operating
environments. Since September 1, 1996, the Company has obtained contracts for or
acquired operations of 36 facilities and programs serving approximately 800
persons with developmental and other disabilities and 20 facilities and programs
serving approximately 500 at-risk and troubled youths.
SERVICES
Disabilities Services
Since 1978, Res-Care has provided services to persons with developmental
disabilities primarily through the operation and management of group homes
(generally serving six to eight individuals) and larger facilities (generally
serving 40 or more individuals) that provide alternatives to placement in state
institutions or traditional nursing homes or other long-term care facilities not
capable of providing specialized active treatment required by these individuals.
Some of Res-Care's clients have acquired brain injury, and service patterns to
these individuals are similar to those for individuals with mental retardation
or other developmental disabilities. Since 1992, the Company has also operated
supported living programs, in which persons with disabilities reside in their
own residences or apartments with outside support provided as needed. Some
individuals require 24-hour staffing, while others need only drop-in services,
day programs, supported employment or transportation services. Community-based
settings enable persons with developmental or other disabilities to live and
develop in an environment that encourages each person to achieve maximum
independence and self-respect.
The Company's programs are based predominately on individual habilitation
plans designed to encourage greater independence and development of daily living
skills through individualized support and training. Management believes that the
breadth and quality of the Company's services and support and training
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programs makes the Company attractive to state and local governmental agencies
and not-for-profit providers who may wish to contract with it. As of February
28, 1997, the Company was providing services to approximately 5,000 individuals
in facilities and programs in 17 states. The Company's programs are designed to
offer specialized support to these individuals not generally available in larger
state institutions and traditional long-term care facilities. In each of the
Company's programs, services are administered by Res-Care employees and
contractors, such as qualified mental retardation professionals ("QMRPs"),
physicians, psychologists, therapists, social workers and other direct service
staff. These services include social, functional and vocational skills training,
and emotional and psychological counseling and therapy as needed for each
individual.
Social Skills Training. The Company's social skills training focuses
on problem solving, anger management and adaptive skills to allow
individuals with disabilities to interact with others in the residential
setting and in the community. Emphasis is placed on contact with the
community at large as appropriate for each individual. The desired outcome
is to enable each to participate in home, family and community life as
fully as possible.
Many individuals with developmental and other disabilities require
behavioral intervention services. The Company provides these services
through psychiatrists, psychologists and behavioral specialists, some of
whom serve as consultants on a contract basis. All operations utilize a
non-aversive approach to behavior management which has been pioneered by
the Company and which is designed to avoid consequences involving
punishment or extreme restrictions on individual rights. Behavior
management techniques are employed by the interdisciplinary team and direct
service staff rather than psychotropic medications to modify behavior, the
goal being to minimize the use of medications whenever possible. When
necessary, medications are handled in strict compliance with federal
regulations.
Functional Skills Training. The Company's functional skills training
program encourages mastery of personal skills and the achievement of
greater independence. As needed, individual habilitation plans may focus on
basic skills training in such areas as personal hygiene and dressing, as
well as more complex activities such as shopping and use of public
transportation. Individuals are encouraged to participate in daily
activities such as housekeeping and meal preparation as appropriate.
Vocational Skills Training and Day Programs. The Company provides
extensive vocational training or specialized day programs for all
individuals served. Some individuals are able to be placed in
community-based jobs, either independently or with job coaches, or may
participate as part of a work team contracted for a specific service such
as cleaning, sorting or maintenance. Clients not working in the community
may be served through vocational workshops or day programs appropriate for
their needs. The Company operates such programs and also contracts for this
service with outside providers. The Company's philosophy is to enable all
persons served to perform productive work in the community or otherwise
develop vocational skills based on their individual abilities. Clients
served by specialized day programs may be older or have physical or health
restrictions which prevent them from being employed or participating in
vocational programs. Specialized day programs may include further training
in daily living skills, community integration or specialized recreation
activities.
Counseling and Therapy Programs. The Company's counseling and therapy
programs address the physical, emotional and behavioral challenges of
individuals with MR/DD or ABI. Goals of the programs include the
development of enhanced physical agility and ambulation, acquisition of
adaptive skills for both personal care and work, as well as the development
of coping skills and the use of alternative, responsible, and socially
acceptable interpersonal behaviors. Individualized counseling programs may
include group and individual therapies. Occupational and physical therapies
and therapeutic recreation are provided based on the assessed needs of the
individual.
At each of its operations, the Company provides comprehensive
individualized support and training programs that encourage greater independence
and the development of personal and vocational skills commensurate with the
particular individual's capabilities. As the individual progresses, new programs
are
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created to encourage greater independence and self-respect, and the development
of additional personal or vocational skills.
Youth Services
Since 1976, the Company has been operating programs for disadvantaged
youths through the federal Job Corps program administered by the United States
Department of Labor ("DOL"), which provides for the educational and vocational
skills training, health care, employment counseling and other support necessary
to enable disadvantaged youths to become responsible working adults. In December
1995, the Company began a strategic initiative to expand its Division for Youth
Services and develop services that is designed to address the specific needs of
at-risk and troubled youths to enable each youth to be transitioned back into
the community. The youths targeted to be served through the strategic initiative
range from pre-adjudicated and adjudicated youths who have entered the juvenile
justice system to youths who exhibit a variety of behavioral and emotional
disorders and in some instances have been diagnosed with mental retardation or
another developmental disability. Programs offered for troubled youths include
secure and staff-secure detention programs, boot camps, long-term treatment
programs, secure transportation, tracker/mentor programs, AWOL apprehension,
proctor parent programs, day treatment programs and monitoring, transition and
after-care programs. At-risk youth programs include therapeutic residential
programs, non-residential educational programs and the operation of an
alternative school. Over time, the Company expects to continue to expand the
services provided by the Company to these youths.
The Company's programs include a variety of educational and vocational
training programs and comprehensive programs for behavior change, including
individual, group and family counseling and training in social and independent
living skills. These programs emphasize self-esteem, academic enhancement,
empathy development, critical thinking and problem solving, anger management and
coping strategies, substance abuse treatment and relapse prevention. Programs
are designed to increase self-control and effective problem-solving; to teach
youths how to understand and consider other people's values, behaviors and
feelings; to show youths how to recognize how their behavior affects other
people and why others respond to them as they do; and to enable them to develop
alternative, responsible, interpersonal behaviors. Although certain youths in
the Company's programs require both drug therapy and treatment for use or abuse
of drugs, the Company's goal is to minimize or eliminate the use of medication
whenever possible. When appropriate, medication is prescribed by independent
physicians and may be administered by Company personnel. Management believes
that the breadth of the Company's services and its history of working with
youths make the Company attractive to local, state and federal governmental
agencies.
As an integral part of its youth services program, Res-Care operates seven
Job Corps centers with a contracted capacity of 2,095 persons. The Job Corps
program is designed to address the severe unemployment problem faced by
disadvantaged youths throughout the country. The typical Job Corps student is a
16- to 24-year old high school dropout who reads at the seventh grade level,
comes from a disadvantaged background, has not held a regular job, and was
living in an environment characterized by a troubled home life or other
disruptive conditions. Each center offers training in several vocational areas
depending upon the particular needs and job market opportunities in the region.
Students are required to participate in basic education classes to improve their
academic skills and to complement their vocational training. High school
equivalency classes are available to obtain GED certificates. Upon graduation or
other departure from the program, each student is referred to the nearest Job
Corps placement agency for assistance in finding a job or enrolling in a school
or training program. Approximately 70% of the students completing the program
have obtained jobs or continued their education elsewhere.
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OPERATIONS
Disabilities Services
Division for Persons with Disabilities ("DPD") operations are under the
direct supervision of the Company's Executive Vice President, Operations,
Division for Persons with Disabilities, who is responsible for six geographic
regions, each headed by a Vice President, and two Vice Presidents responsible
for ABI operations nationally. Each Vice President supervises the senior
administrators and/or administrators responsible for the various MR/DD or ABI
facilities and programs under his or her control. In general, each cluster of
group homes, supported living program and larger facility is overseen by an
administrator. In addition, a program manager supervises a comprehensive team of
professionals and community-based consultants who participate in the design and
implementation of individualized programs for each individual served. QMRPs work
with direct service staff and professionals involved in the programs to ensure
that quality standards are met and that progress towards each individual's goals
and objectives is monitored and outcomes are achieved. Individual habilitation
plans are reviewed and modified by the team as needed. The operations utilize
community advisory boards and consumer satisfaction surveys to solicit input
from professionals, family members and advocates, as well as from the
neighboring community, on how to continue to improve service delivery and
increase involvement with the neighborhood or community.
The Company's direct service staff have the most frequent contact with, and
generally are recruited from, the community in which the facility or program is
located. These staff members are screened to meet certain qualification
requirements and receive orientation, training, and continuing education.
The provision of disabilities services is subject to complex and
substantial state and federal regulation and the Company strives to ensure that
its internal controls and reporting systems comply with Medicaid reimbursement
and other program requirements, policies and guidelines. The Company designs and
implements programs, often in coordination with appropriate state agencies, in
order to assist the state in meeting its objectives and to facilitate the
efficient delivery of quality services. Management and personnel resources are
devoted to keeping abreast of new laws, regulations and policy directives
affecting the quality of or reimbursement for such services. In addition, the
Company believes it has developed expertise in accurately predicting eligibility
for Medicaid and other benefits and in processing reimbursement claims. The
Company's billing system is centralized and able to take advantage of expedited
payment procedures, such as electronic billing, that may be available.
The Company has developed a model of ongoing program evaluation and quality
management which the Company believes provides critical feedback to measure the
quality of its various operations. Each operation conducts its own quality
assurance program, the Periodic Service Review ("PSR"), which is reviewed by the
responsible Vice President, Operations. Results from the PSRs are reviewed on a
quarterly basis with the Executive Vice President, Operations, Division for
Persons with Disabilities. Management and operational goals and objectives are
established for each facility and program, as part of an annual budget and
strategic planning process. A weekly statistical reporting system and quarterly
statement of progress provides management with relevant and timely information
on the operations of each facility. Survey results from government agencies for
each operation are recorded in a database and quarterly summary reports are
reviewed by senior management. The Company believes the PSR system is a vital
management tool to evaluate the quality of its programs, and has been useful as
a marketing tool to promote the Company's programs, since it provides more
meaningful and significant data than is usually provided by routine monitoring
by government agencies.
Youth Services
At-Risk and Troubled Youths. The Company's programs are designed to
provide consistent, high quality and cost-effective education and treatment to
address the needs of the various segments of the at-risk and troubled youths
population. The Company generally is responsible for the overall operation of
its facilities and programs, including management, general administration, staff
recruitment and security and supervision of the youth in their programs.
Youthtrack Inc. ("Youthtrack") operations are under the direct supervision of
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its President, and Alternative Youth Services, Inc. ("AYS") operations are
under the direct supervision of the Company's Vice President, Alternative Youth
Services.
The Company has assembled an experienced team of managers, counselors and
staff that blends program expertise with business and financial experience. The
Company believes that its recruitment, selection and training programs generate
sufficient personnel capable of implementing the Company's systems and
procedures as it expands this segment of its business. The Company's staff
includes teachers, counselors, mental health professionals, juvenile justice
administrators and licensed clinicians.
The Company's internal training policies require its teachers, counselors,
security and other direct service staff to complete extensive training. Core
training includes courses in the major Company program components such as
behavior change education, positive peer culture, nonviolent crisis
intervention, discipline and limit-setting, anger management and social skills
training. Continuing education also is required for all staff. The Company
demonstrates its commitment to its employees' professional development by
offering classes and training programs, as well as tuition reimbursement
benefits.
The Company has also implemented its PSR system at the majority of its
youth services programs and expects to complete implementation at the Company's
remaining programs during fiscal 1997.
The Company recognizes that, in the operation of programs for at-risk and
troubled youths, a primary mission is to protect the safety of the community
within a facility, as well as the neighboring community. Thus, the Company's
programs emphasize security, risk assessment and close supervision by
responsible and well-trained staff.
Job Corps Centers. The Company's Job Corps centers are operated under
contract with the DOL which provides the physical plant and equipment. The
Company is directly responsible for the management, staffing and administration
of Job Corps centers. Each center is managed by a center director, who reports
to the Vice President, Job Corps, who in turn reports to the Company's Chief
Executive Officer.
A typical Res-Care Job Corps operation consists of a three tier management
staff structure. The center director has the overall responsibility for
day-to-day management at each facility and is assisted by several senior staff
managers who typically are responsible for academics, vocational training,
social skills, safety and security, health services and behavior management.
Managers are assisted by front line supervisors who have specific
responsibilities for such areas as counseling, food services, maintenance,
finance, residential life, recreation, property, purchasing, human resources and
transportation.
A performance standards report for each center, issued by the DOL monthly,
measures and assigns ratings to three primary categories of performance: (i)
placement of graduates, (ii) education results, as measured by GED achievement
and reading and math gains and (iii) the number of students completing a
prescribed vocational curriculum to make a student job-ready. These are then
combined into an overall performance rating. The ratings are derived from a
comparison of the operator's performance results against predetermined standards
in each category. All 110 centers are ranked against each other in these
categories. Performance standards reports are reviewed by center directors and
the Vice President, Job Corps, and acted upon as appropriate to address areas
where improvement is needed. At February 28, 1997, the ratings of all of the
centers operated by the Company exceeded the national standard established by
the DOL for Job Corps centers and only one of the centers operated by the
Company was ranked in the bottom quartile in the ranking of all Job Corps
centers.
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FACILITIES AND PROGRAMS
The tables below set forth information as of February 28, 1997 regarding
the Company's disabilities services and youth services, respectively:
DIVISION FOR PERSONS WITH DISABILITIES
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INITIAL
CONTRACT OPERATING OPERATION
STATE TYPES OF PROGRAMS CAPACITY(1) ARRANGEMENTS IN STATE
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California...... Larger Facilities, Group 639 Provider of Record 1995
Homes, Day Programs
Colorado........ Larger Facility, Supported 164 Provider of Record 1992
Living
Florida......... Larger Facilities, Group 350 Provider of Record, 1983
Homes, ABI Management Contract
Illinois........ Larger Facilities, ABI 133 Provider of Record 1995
Indiana......... Larger Facilities, Group 840 Provider of Record 1983
Homes, Child Care Facility,
Supported Living
Kansas.......... Larger Facilities, Supported 274 Provider of Record 1995
Living
Kentucky........ Larger Facilities, Group 570 Provider of Record, 1978
Home, Supported Living, Day Management Contract
Program
Louisiana....... Group Homes 132 Provider of Record 1984
Missouri........ ABI 39 Provider of Record 1997
Nebraska........ Group Homes, Supported 348 Provider of Record 1992
Living, Day Program
New Mexico...... Supported Living 173 Provider of Record 1994
Ohio............ Larger Facility, Group Homes, 133 Provider of Record 1995
Supported Living, Respite
Program
Oklahoma........ Supported Living 145 Provider of Record 1995
Tennessee....... Group Homes, Supported Living 281 Provider of Record, 1993
Management Contract
Texas........... Larger Facilities, Group 708 Provider of Record 1993
Homes, Day Program
West Virginia... Larger Facility, Group Homes 303 Management Contract 1987
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Total...... 5,232
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(1) Contract capacity includes, in the case of licensed facilities, the number
of persons covered by the applicable license or permit, and in all other
cases, the number of persons covered by the applicable contract. Contract
capacity does not include capacity for day or respite programs.
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DIVISION FOR YOUTH SERVICES
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INITIAL
CONTRACT OPERATION
STATE TYPES OF PROGRAMS CAPACITY(1) IN STATE
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Colorado................. Residential, Non-Residential, Secure, 467 1996
Medium Secure, Proctor Parent, Day
Treatment, Apartment Living
Florida.................. Job Corps 300 1983
Georgia.................. Residential, Alternative School 60 1997
Kentucky................. Residential 48 1997
Mississippi.............. Job Corps 280 1978
New Jersey............... Job Corps 530 1995
New York................. Job Corps 250 1986
Puerto Rico.............. Job Corps 735 1990
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Total............... 2,670
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(1) Contract capacity includes, in the case of licensed facilities, the number
of persons covered by the applicable license or permit, and in all other
cases, the number of persons covered by the applicable contract.
CONTRACTS
State Contracts. Contracts for participation as a provider of services in
the Medicaid programs are regulated by federal and state agencies. Although the
contracts have a stated term of one year and generally may be terminated without
cause on 60 days notice, the contracts are typically renewed annually if the
Company has complied with licensing, certification, program standards and other
regulatory requirements. Serious deficiencies can result in delicensure or
decertification actions by these agencies. As provider of record, the Company
contractually obligates itself to adhere to the applicable federal and state
regulations regarding the provision of services, the maintenance of records and
submission of claims for reimbursement under the Medicaid Assistance Program,
Title XIX of the Social Security Act and pertinent state medical assistance
programs. Pursuant to provider agreements, the Company agrees to accept the
payment received from the government entity as payment in full for the services
administered to the individuals and to provide the government entity with
information regarding the owners and managers of the Company, as well as comply
with requests and audits of information pertaining to the services rendered.
Provider agreements can be terminated at any time for non-compliance with the
federal, state or local regulations. Reimbursement methods vary by state and are
typically based on a flat-rate or cost-based reimbursement system on a per
person, per diem basis. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Contracts for the Company's youth services programs, excluding Job Corps,
are regulated by state and local governmental entities. Contracts generally have
one year terms, subject to annual renewal, or cover individuals for specific
terms. The contract rate is also accepted as payment in full for services
rendered.
Management Contracts. Management contracts with states, local agencies or
other providers of record typically call for the Company to manage the
day-to-day operations of facilities or programs. Many of these contracts are
short-term (generally a year in duration) and are subject to renewal or
renegotiation provided that program standards and regulatory requirements are
met. Depending upon the state's reimbursement policies and practices, management
contracts provide fees to the Company computed on the basis of a fixed fee per
individual (which may include some form of incentive payment), a percentage of
operating expenses (so-called cost-plus contracts), a percentage of revenue or
an overall fixed fee paid regardless of occupancy. The provider of record is
generally paid a net operating income (facility gross revenues minus lease
payment, facility operating expenses and the Company's management fee), some
specified minimum amount or a fixed amount. Historically, the Company's Medicaid
provider contracts and management contracts have been renewed or satisfactorily
renegotiated. The Company believes its experience in this regard is consistent
with the overall experience of other operators in the disabilities services
business.
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Job Corps Contracts. Contracts for Job Corps centers are awarded pursuant
to a rigorous bid process. After successfully bidding, the Company operates the
Job Corps centers under comprehensive contracts negotiated with the DOL. Under
Job Corps contracts, the Company is reimbursed for all facility and program
costs related to Job Corps center operations and allowable indirect costs for
general and administrative expenses, plus a predetermined management fee,
normally a fixed percentage of facility and program expense.
The contracts cover a five-year period, consisting of an initial two-year
term with three one-year renewal terms exercisable at the option of the DOL. The
contracts specify that the decision to exercise an option is based on an
assessment of (i) the performance of the center as compared to its budget, (ii)
compliance with federal, state and local regulations, (iii) qualitative
assessments of center life, education, outreach efforts and placement record and
(iv) the overall rating received by the center. Shortly prior to the expiration
of the five-year contract period (or earlier if the DOL elects not to exercise a
renewal term), the contract is rebid, regardless of the operator's performance.
The current operator may participate in the rebid process. In situations where
the DOL elects not to exercise a renewal term, however, it is unlikely that the
current operator will be successful in the rebidding process. It is the
Company's experience that there is usually an inverse correlation between the
performance ratings of the current operator and the number of competitors who
will participate in the rebidding process, with relatively fewer competitors
expected where such performance ratings are high.
The Company is currently operating seven Job Corps Centers in Gulfport,
Mississippi; South Bronx, New York; Miami, Florida; Edison, New Jersey; and
Puerto Rico(3). The five-year period covered by the Company's Job Corps
contracts generally expire in 2000, although the Gulfport and the South Bronx
contracts expire in 1997 and 2001, respectively. The Company intends to
selectively pursue additional centers through the Request for Proposals ("RFP")
process.
MARKETING AND DEVELOPMENT
The primary focus of the Company's marketing activities is on identifying
other providers who may consider an acquisition or a management contract
arrangement, and on contacting state and local governments and governmental
agencies responsible for the provision of the types of disabilities services and
youth services offered by the Company.
The Executive Vice President is responsible for the Company's development
department which directs the Company's marketing efforts for disabilities
services and provides support as needed for the youth services marketing
efforts. Responsibility for marketing activities related to youth services are
divided among the following officers of the Company and its subsidiaries: the
Vice President, Job Corps; the Vice President, Alternative Youth Services; and
the President and Vice President, Development, of Youthtrack. Marketing
activities are reviewed on a regular basis by senior management.
In its pursuit of government contracts, the Company contacts governments
and governmental agencies in geographical areas in which it operates and in
others in which it has identified expansion potential. Contacts are made and
maintained by both regional operations personnel and corporate development
personnel, augmented as appropriate by other senior management. The Company
targets new areas based largely on its assessment of the needs for its services,
the system of reimbursement, the receptivity to out-of-state and proprietary
operators, expected changes in the service delivery system (i.e., privatization
or downsizing), the labor climate and existing competition.
The Company also seeks to identify service needs or possible changes in the
service delivery or reimbursement system of governmental entities that may be
driven by changes in administrative philosophy, budgetary considerations, or
pressure or legal actions brought by advocacy groups. As needs or possible
changes are identified, the Company attempts to work with and provide input to
the responsible governmental personnel and to work with provider associations
and consumer advocacy groups to this end. If an RFP results from this process,
the Company then determines whether and on what terms it will respond and
participate in the competitive process.
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With regard to identifying other providers who may be acquisition or
management contract candidates, the Company attempts to establish relationships
with providers through presentations at national and local conferences,
membership in national and local provider associations, direct contact via mail,
telephone or personal visit and follow up with information packets including
video presentation.
In some cases, the Company may be contacted directly and requested to
submit proposals or become a provider in order to provide services to address
specific problems. These may include an emergency takeover of a troubled
operation or the need to develop a large number of community placements within a
certain time period.
REFERRAL SOURCES
The Company receives substantially all of its new MR/DD clients from
referrals from third parties. Generally, family members of persons with MR/DD
are first made aware of available residential or alternative living arrangements
through a state or local case management system. Case management systems are
operated by governmental or private agencies. The Company's ABI services receive
referrals from doctors, hospitals, private and workers' compensation insurers
and attorneys. In either case, where it is determined that some form of MR/DD or
ABI service is appropriate, a referral of one or more providers of such services
is then made to family members or other interested persons. The Company
generally receives referrals or placements of individuals to its AYS and
Youthtrack programs through state or local agencies or entities responsible for
such services, and individuals are recruited to its Job Corps programs largely
through private contractors. The Company's reputation and prior experience with
agency staff, case workers and others in positions to make referrals to the
Company are important for building and maintaining census in the Company's
operations.
COMPETITION
The provision of disabilities services and youth services is subject to a
number of competitive factors, including range and quality of services provided,
cost-effectiveness, reporting and regulatory expertise, reputation in the
community, and the location and appearance of facilities and programs. These
markets are highly fragmented, with no single company or entity holding a
dominant market share. The Company competes with other for-profit companies,
not-for-profit entities and governmental agencies.
With regard to disabilities services, individual states remain a major
provider of MR/DD services, primarily through the operation of large
institutions, and not-for-profit organizations are active in all states and
range from small agencies serving a limited area with specific programs to
multi-state organizations. Many of these organizations are affiliated with
advocacy and sponsoring groups, such as community mental health and mental
retardation centers and religious organizations.
The youth services business in which the Company engages is one that other
entities may easily enter without substantial capital investment or experience
in management of education or treatment facilities. In addition, certain
not-for-profit entities may offer education and treatment programs at a lower
cost than the Company due in part to government subsidies, foundation grants,
tax deductible contributions or other financial resources not available to
for-profit companies.
Currently, only a limited number of companies actively seek Job Corps
contracts because the bidding process is highly specialized and technical and
requires a significant investment of personnel and other expenses over a period
of several months. Approximately one-half of the privately-operated centers are
operated by the three largest operators. Competition for Job Corps contracts has
increased as the DOL has made efforts to encourage new participants in the
program, particularly minority-owned businesses, and as several companies with
government defense contracting experience have entered the Job Corps market.
Certain proprietary competitors operate in multiple jurisdictions and may
be well capitalized. The Company also competes in some markets with smaller
local companies that may have a better understanding of the local conditions and
may be better able to gain political and public acceptance. Such competition may
adversely affect the Company's ability to obtain new contracts and complete
acquisitions on favorable terms.
9
<PAGE> 12
The Company faces significant competition from all of these providers in the
states in which it now operates and expects to face similar competition in any
state that it may enter in the future.
Professional staff retention and development is a critical factor in the
successful operation of the Company's business. The competition for talented
professional personnel, such as therapists and QMRPs, is intense. The Company
utilizes a standard professional service agreement for provison of services by
certain professional personnel, which is generally terminable on 30 or 60 day
notice. The demands of providing the requisite quality of service to persons
with special needs contribute to a high turnover rate of direct service staff.
Consequently, a high priority is placed on recruiting, training and retaining
competent and caring personnel.
GOVERNMENT REGULATION AND REIMBURSEMENT
The operations of the Company are subject to compliance with various
federal, state and local statutes and regulations. Compliance with state
licensing requirements is a prerequisite for participation in
government-sponsored health care assistance programs, such as Medicaid. The
following sets forth in greater detail certain regulatory considerations
applicable to the Company:
Funding Levels. Federal and state funding for the Company's disabilities
services business is subject to statutory and regulatory changes, administrative
rulings, interpretations of policy, intermediary determinations and governmental
funding restrictions, all of which may materially increase or decrease program
reimbursement. Congress has historically attempted to curb the growth of federal
funding of such programs, including limitations on payments to facilities under
the Medicaid program. These efforts have intensified recently. Federal law
requires Medicaid programs to pay rates that are reasonable and adequate to meet
the costs which must be incurred by an efficient provider in order to provide
services conforming with applicable laws, regulations and quality and safety
standards. Although states in general have historically increased rates to
compensate for inflationary factors, some have curtailed funding due to state
budget deficiencies or for other reasons. In several such instances providers,
acting through their state health care trade associations, have been able to
negotiate or employ legal action in order to reach a compromise settlement.
Revenues in the future may be affected by changes in rate-setting
structures, methodologies or interpretations that may be proposed or under
consideration in states where the Company operates.
Reimbursement Requirements. To qualify for reimbursement under Medicaid
programs, facilities and programs are subject to various requirements of
participation and other requirements imposed by federal and state authorities.
In order to maintain a Medicaid or state contract, certain statutory and
regulatory requirements must be met. These participation requirements relate to
client rights, quality of services, physical plant and administration. Long-term
providers, like the Company, are subject to periodic unannounced inspection by
state authorities, often under contract with the appropriate federal agency, to
assure compliance with the requirements of participation in the Medicaid or
state program.
Licensure. In addition to the requirements to be met by the Company for
participation in the Medicaid program, the Company's facilities and programs are
usually subject to annual licensing and other regulatory requirements of state
and local authorities. These requirements relate to the condition of the
facilities, the quality and adequacy of personnel and the quality of services.
State licensing and other regulatory requirements vary from jurisdiction to
jurisdiction and are subject to change.
Regulatory Enforcement. From time to time, the Company receives notices
from regulatory inspectors that in their opinion there are deficiencies for
failure to comply with various regulatory requirements. The Company reviews such
notices and takes corrective action as appropriate. In most cases, the Company
and the reviewing agency agree upon the steps to be taken to bring the facility
or program into compliance with regulatory requirements. Serious deficiencies
can result in decertification or delicensure actions by the Health Care
Financing Administration or state regulatory agencies.
Restrictions on Acquisitions and Additions. All states in which the
Company currently operates have adopted laws or regulations which generally
require that a state agency approve the Company as a provider and many require a
determination that a need exists prior to the addition of beds or services.
10
<PAGE> 13
Cross Disqualifications and Delicensure. In certain circumstances,
conviction of abusive or fraudulent behavior with respect to one facility or
program may subject other facilities and programs under common control or
ownership to disqualification from participation in the Medicaid program.
Executive Order 12549 prohibits any corporation or facility from participating
in federal contracts if it or its principals (including but not limited to
officers, directors, owners and key employees) have been debarred, suspended or
declared ineligible, or have been voluntarily excluded from participating in
federal contracts. In addition, some state regulations provide that all
facilities licensed with a state under common ownership or control are subject
to delicensure if any one or more of such facilities are delicensed.
Regulation of Certain Transactions. The Social Security Act, as amended by
the Health Insurance Portability and Accountability Act of 1996 (the "Health
Insurance Act"), provides for the mandatory exclusion of providers and related
persons from participation in the Medicaid program if the individual or entity
has been convicted of a criminal offense related to the delivery of an item or
service under the Medicaid program or relating to neglect or abuse of residents.
Further, individuals or entities may be, but are not required to be, excluded
from the Medicaid program under certain circumstances including, but not limited
to, the following: convictions relating to fraud; obstruction of an
investigation of a controlled substance; license revocation or suspension;
exclusion or suspension from a state or federal health care program; filing
claims for excessive charges or unnecessary services or failure to furnish
medically necessary services; or ownership or control by an individual who has
been excluded from the Medicaid program, against whom a civil monetary penalty
related to the Medicaid program has been assessed, or who has been convicted of
a crime described in this paragraph. The illegal remuneration provisions of the
Social Security Act make it a felony to solicit, receive, offer to pay or pay
any kickback, bribe or rebate in return for referring a resident for any item or
service, or in return for purchasing, leasing or ordering any good, service or
item, for which payment may be made under the Medicaid program. Other provisions
in the Health Insurance Act proscribe false statements in billing and in meeting
reporting requirements and in representations made with respect to the
conditions or operations of facilities. A violation of the illegal remuneration
statute is a felony and may result in the imposition of criminal penalties,
including imprisonment for up to five years and/or a fine of up to $25,000.
Further, a civil action to exclude a provider from the Medicaid program could
occur. There are also other civil and criminal statutes applicable to the
industry, such as those governing false billings and anti-supplementation
restrictions and the new health care offenses contained in the Health Insurance
Act, such as health care fraud, theft or embezzlement, false statements and
obstruction of criminal investigation of health care offenses. Criminal
sanctions for these new health care criminal offenses can be severe. Sanctions
for the newly-enacted health care fraud offense, for example, include
imprisonment for up to 20 years. The agencies administering the Medicaid program
have increased their criminal and civil enforcement activity in the prevention
of program fraud and abuse, including the payment of illegal remuneration.
Environmental Laws. Certain federal and state laws govern the handling and
disposal of medical, infectious and hazardous waste. Failure to comply with
those laws or the regulations promulgated thereunder could subject an entity
covered by these laws to fines, criminal penalties and other enforcement
actions.
OSHA. Federal regulations promulgated by the Occupational Safety and
Health Administration impose additional requirements on the Company including
those protecting employees from exposure to elements such as bloodborne
pathogens. The Company cannot predict the frequency of compliance, monitoring or
enforcement actions to which it may be subject as regulations are implemented
and there can be no assurance that such regulations will not adversely affect
the operations of the Company.
INSURANCE
The Company maintains professional malpractice and general liability
insurance on professionals and other staff employed in each of its locations in
addition to coverage for the customary risks inherent in the operation of
business in general. While the Company believes its insurance policies to be
adequate in 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.
11
<PAGE> 14
EMPLOYEES
As of February 28, 1997, the Company employed 8,218 employees, including
7,308 in its Division for Persons with Disabilities, 762 in its Division for
Youth Services, and 148 in its corporate offices. As of that date, the Company
was not subject to collective bargaining agreements with any of its employees.
ITEM 2. PROPERTIES
As of December 31, 1996, the Company owned 153 properties and operated
facilities and programs at 268 leased properties. All other facilities and
programs are operated under management contracts. See "Business -- Facilities
and Programs."
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to legal and/or administrative proceedings involving
state program administrators and others, that, in the event of unfavorable
outcomes, may affect revenues and period-to-period comparisons. In Indiana, in
July 1995, the Company and other providers were notified of reimbursement rates
issued retroactive to July 1, 1994 which were lower than the Company and certain
other providers projected based on a settlement that had been reached with the
State concerning the rate-setting methodology for larger facilities. The Company
and another provider filed a lawsuit and an agreement was reached with the State
under which the implementation of the new rate structure was delayed until March
1, 1996, at which time the State prospectively implemented the new rates. A
preliminary injunction was denied and testimony in the trial on the merits was
concluded in August 1996. There has been no decision in the case. If the State
is ultimately successful on all issues it could result in a reduction of net
revenues to the Company of approximately $1.3 million for the thirty months
ended December 31, 1996. Any reduction would be recorded against the Company's
allowance for contractual adjustments and/or net revenues, as appropriate, in
the period in which the issues are resolved. Based on the outcome of the
preliminary injunction proceedings, the Company is unable to predict whether it
will prevail on the merits of all issues in the litigation but the opinion of
its legal counsel in the case is that there is a significant likelihood that the
Company will ultimately prevail on the merits of the principal issues involved,
in which case the Company believes that the ultimate net effect on the results
of its operations, cash flow or financial condition will not be material.
In January 1995, the Company filed an action for declaratory judgment
against the landlord of four of the Company's large facilities in Indiana to
enforce a provision in the leases for such facilities to the effect that the
parties would renegotiate the terms of the leases if any change in the Medicaid
program becomes effective or is implemented such that reimbursement is reduced
to the extent that the economic feasibility of the lease is materially and
adversely affected. The parties have agreed to suspend the litigation pending
the outcome of the Indiana rate litigation, and the Company is unable at this
time to determine whether it will ultimately prevail in the matter. The Company
subleased three other large facilities in Indiana from the same landlord. The
sublease, which did not include a renegotiation provision, expired on July 31,
1996, and the parties have entered into a new nine-month lease, on essentially
the same terms and conditions as the previous sublease, which will expire on
April 30, 1997 and are currently in discussions regarding further extension of
the lease. These three facilities account for approximately $6.0 million in
annual revenues. As a result of these matters, the Company may be compelled or
may elect ultimately to reduce certain of its facility-based operations in
Indiana.
The Kentucky Department of Medicaid Services ("Kentucky") has notified the
provider of record of a larger facility managed by the Company of certain
adjustments to the facility cost report for the 1991 fiscal year as a result of
the completion of its audit for that year. Kentucky has also audited the
facility for fiscal years 1992 through 1995, but has not yet issued its audit
report with respect to these years. The Company and the provider believe that
Kentucky does not have the legal and factual basis for these adjustments and
thus, since receipt of the notification in August 1995, have engaged in various
administrative and other efforts with Kentucky to have the proposed adjustments
withdrawn. To date, the parties have been unable to resolve the matter. The
provider has filed an action for declaratory judgment and injunctive relief
against Kentucky in which it seeks a judicial determination concerning the
adjustments. The provider and the Company, in the
12
<PAGE> 15
opinion of their respective counsel for this matter, believe that there is a
significant likelihood that the provider will ultimately prevail on the merits
of its argument that the improper legal standards have been applied in the
adjustments. The Company believes that upon application of the appropriate legal
standards, the ultimate net effect of the adjustments on the results of its
operations, cash flow or financial condition will not be material. However, if
Kentucky ultimately prevails in the litigation and requires similar adjustments
for the subsequent years under audit (fiscal years 1992 through 1995), up to
$3.4 million of the provider's costs in the aggregate could be disallowed. The
Company is unable at this time to determine the effect on the Company if
Kentucky should prevail.
In May 1996, legislation was passed in Florida that would significantly
reduce rates effective September 1, 1996 for the operations that the Company
manages in that state. Both individual consumers and a trade association filed
motions in pre-existing lawsuits to stop implementation of the new rates. A
preliminary injunction has been granted in one of the actions which requires the
State to continue full funding of Intermediate Care Facilities/Developmental
Disabilities services pending approval of an alternate plan by the Health Care
Financing Administration. In Tennessee, new regulations were scheduled to take
effect October 1, 1996, which would reduce certain allowable costs to providers
which could affect the management fees of the Company under its management
contracts with not-for-profit providers for group homes. These regulations have
been withdrawn and regulations have been proposed, but not yet enacted, that are
acceptable to the providers and managers. The Company is unable, at this time,
to determine the extent of the effect any such regulations will have on revenues
and profit contributions.
In addition, the Company is a party to various other legal proceedings
encountered in the ordinary course of business. The Company believes that many
of such lawsuits are without merit. Further, such claims are generally covered
by insurance. The Company does not believe the results of such litigation will
have a material adverse effect on its consolidated financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Res-Care common stock began trading on the Nasdaq Stock Market's National
Market on December 15, 1992, under the symbol "RSCR." As of February 28, 1997,
the Company had approximately 3,800 shareholders based on the number of holders
of record and an estimate of the number of individual participants represented
by security position listings.
The following table sets forth the reported high and low sale prices for
Res-Care's common stock as reported by Nasdaq. The prices have been adjusted to
reflect the 3-for-2 stock split effective June 4, 1996.
<TABLE>
<CAPTION>
1995 HIGH LOW
---- ----- -----
<S> <C> <C>
First Quarter............................................. 12.17 10.50
Second Quarter............................................ 12.17 10.83
Third Quarter............................................. 12.00 10.33
Fourth Quarter............................................ 11.67 10.33
</TABLE>
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ----- -----
<S> <C> <C>
First Quarter............................................. 14.50 10.00
Second Quarter............................................ 26.50 12.67
Third Quarter............................................. 25.00 15.75
Fourth Quarter............................................ 18.50 14.75
</TABLE>
The Company currently does not pay dividends and does not anticipate doing
so in the foreseeable future. Payment of dividends is limited under the
Company's revolving credit facility.
14
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and related
notes appearing elsewhere herein. The selected consolidated financial data
presented below under the captions "Statement of Income Data" and "Balance Sheet
Data" for, and as of the end of, each of the years in the five-year period ended
December 31, 1996, are derived from the consolidated financial statements of the
Company, which have been audited by KPMG Peat Marwick LLP, independent certified
public accountants.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues:
Disabilities services................. $61,862 $ 83,697 $109,254 $140,302 $175,361
Youth services........................ 25,065 27,534 28,600 31,366 42,985
------- -------- -------- -------- --------
Total net revenues............ 86,927 111,231 137,854 171,668 218,346
Facility and program expenses:
Disabilities services................. 54,539 73,155 96,889 124,220 152,243
Youth services........................ 22,220 24,507 25,544 27,529 38,221
------- -------- -------- -------- --------
Total facility and program
expenses.................... 76,759 97,662 122,433 151,749 190,464
------- -------- -------- -------- --------
Facility and program contribution....... 10,168 13,569 15,421 19,919 27,882
------- -------- -------- -------- --------
Operating expenses:
Corporate general and
administrative..................... 4,689 5,170 5,820 6,832 9,280
Depreciation and amortization......... 1,022 953 1,355 2,100 3,596
------- -------- -------- -------- --------
Total operating expenses...... 5,711 6,123 7,175 8,932 12,876
------- -------- -------- -------- --------
Operating income........................ 4,457 7,446 8,246 10,987 15,006
Other (income) expense, net............. 99 (399) (700) (881) 797
------- -------- -------- -------- --------
Income from continuing operations before
income taxes.......................... 4,358 7,845 8,946 11,868 14,209
Income taxes............................ 416 3,510 3,862 4,699 5,518
------- -------- -------- -------- --------
Income from continuing operations....... 3,942 4,335 5,084 7,169 8,691
Net income(1)........................... 4,442 5,080 6,138 16,416 8,691
Income per share data:
Income from continuing operations
per share.......................... $ 0.56 $ 0.45 $ 0.52 $ 0.74 $ 0.87
Net income per share(1)............... $ 0.63 $ 0.53 $ 0.63 $ 1.69 $ 0.87
Pro forma net income per share(2)..... $ 0.41 $ -- $ -- $ -- $ --
Weighted average shares used in per
share calculations.................... 7,052 9,627 9,675 9,684 10,023
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $12,052 $15,222 $16,370 $16,542 $ 22,520
Total assets............................ 30,249 41,707 47,623 84,493 112,095
Long-term debt, less current portion.... 827 3,684 4,682 17,594 29,612
Shareholders' equity.................... 17,894 23,010 29,209 45,861 56,511
</TABLE>
- ---------------
(1) Net income includes income from operation of unconsolidated affiliate sold,
accounted for as a discontinued operation, of $500, $745, $1,054 and $428 in
1992, 1993, 1994 and 1995, respectively, and includes an $8,819 gain from
sale of this discontinued operation in 1995, net of applicable income taxes
of $6,270. The aggregate net income per share effect of the discontinued
operation was $0.07, $0.08, $0.11 and $0.95 in 1992, 1993, 1994 and 1995,
respectively.
(2) Pro forma net income reflects an adjustment to provision for income taxes as
if the Company had been taxed as a C Corporation during 1992 rather than as
an S Corporation.
16
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Res-Care receives revenues primarily from the delivery of residential,
training, educational and support services to populations with special needs,
including persons with developmental and other disabilities ("disabilities
services") and at-risk and troubled youths ("youth services"). Revenues for the
Company's disabilities services operations are derived primarily from state
government agencies under the Medicaid reimbursement system and from management
contracts with private operators, generally not-for-profit providers, who
contract with state government agencies and are also reimbursed under the
Medicaid system. Reimbursement methods vary by state and are typically based on
a flat rate or cost-based reimbursement system on a per person, per diem basis.
Generally, rates are adjusted annually based primarily upon historical costs
experienced by the Company and by other service providers, and inflation. At
facilities and programs where it is the provider of record, the Company is
directly reimbursed under state Medicaid programs for services it provides and
such reimbursement is affected by occupancy levels. At most facilities and
programs that the Company operates pursuant to management contracts, the
management fee is negotiated based upon the reimbursement amount expected to be
earned by the provider of record, which is affected by occupancy levels. Under
certain management contracts, the Company is paid a fixed fee regardless of
occupancy levels. See Note 1 of Notes to Consolidated Financial Statements for a
further discussion of the Company's revenue recognition policies with respect to
Medicaid contracts.
The Company's youth services operations include seven vocational training
programs under the federal Job Corps program administered by the DOL. Under the
Job Corps program, the Company is reimbursed for direct costs related to Job
Corps center operations and allowable indirect costs for general and
administrative expenses, plus a predetermined management fee, normally a fixed
percentage of facility and program expenses. All of such amounts are reflected
as revenue, and all such direct costs are reflected as facility and program
expenses. Final determination of amounts due under Job Corps contracts is
subject to audit and review by the DOL, and renewals and extension of Job Corps
contracts are based in part on performance reviews. In July 1996, the Company
began operating various programs for at-risk and troubled youths through its
Youthtrack subsidiary, 20% of which is owned by Youthtrack's management, and the
Company's wholly-owned Alternative Youth Services subsidiary. Most of the youth
services programs are funded directly by federal, state and local government
agencies. Under these contracts, the Company is typically reimbursed based on
fixed contract amounts, flat rates or cost-based rates. The effect of Youthtrack
management's ownership interest is reflected in the Company's consolidated
statement of income as a minority interest.
Expenses incurred under federal, state and local government agency
contracts for disabilities services and youth services, as well as management
contracts with providers of record for such agencies, are subject to examination
by agencies administering the contracts and services. Any resulting adjustments
would be recorded as contractual adjustments to revenues in the period in which
the adjustment is made. See Note 1 of Notes to Consolidated Financial
Statements.
The Company's revenues and net income fluctuate from quarter to quarter, in
part because annual Medicaid rate adjustments have been announced inconsistently
and are usually retroactive to the beginning of the particular state's fiscal
reporting period. The Company expects that future adjustments in reimbursement
rates in most states will consist primarily of cost-of-living adjustments.
However, in some cases states have revised their rate-setting methodologies
which has resulted in rate decreases as well as rate increases. Current
initiatives at the federal or state level may materially change the Medicaid
system as it now exists. Retroactively calculated contractual adjustments are
accrued on an estimated basis in the periods the related services are rendered
and recorded as adjustments to revenues in future periods as final settlements
are determined. Because the cumulative effect of rate adjustments may differ
from previously estimated amounts, net income as a percentage of net revenues
for a period in which an adjustment occurs may not be indicative of expected
results in succeeding periods. Revenues in the future may be affected by changes
in rate-setting structures, methodologies or interpretations that may be
proposed or are under consideration in states where the Company operates. Also,
some states have considered initiating managed care plans for persons currently
17
<PAGE> 20
in Medicaid programs. At this time, the Company cannot determine the impact of
such changes, or the effect of various federal initiatives that have been
proposed.
The Company is currently engaged in litigation or administrative
proceedings with several state Medicaid programs regarding rate-setting and
reimbursement methodologies which, if adversely determined, could adversely
affect the Company's business, financial condition and results of operations,
especially in any period in which such adjustments exceed amounts previously
estimated. See "Business -- Legal Proceedings."
The loss of one or more contracts to operate the Company's programs or
facilities could have a material adverse effect on the Company's current or
future results of operations. In 1996, the Company's contract to operate the
Crystal Springs, Mississippi Job Corps center was not renewed. The Company
estimates that the loss of this contract represents approximately $5.7 million
in annualized revenues.
In January 1997, the Company acquired the partnership interests in Premier
Rehabilitation Centers ("Premier") in a transaction accounted for as a
pooling-of-interests. Premier provides disabilities services to clients with
acquired brain injuries. In the future, the Company's consolidated financial
statements will give retroactive effect to the Premier acquisition.
In May 1995, the Company sold to a third party all of its interest in an
unconsolidated affiliate engaged in providing home health care services and
reported a gain on this transaction of $8.8 million after applicable income
taxes. The effect of the sale has been recorded in the Company's financial
statements as a discontinued operation.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain items from
the Company's consolidated statements of income expressed as a percentage of the
Company's total net revenues and in the case of facility and program expenses
and facility and program contribution, as a percentage of related net revenues,
and the percentage change in the amounts of such items from the prior year:
<TABLE>
<CAPTION>
YEAR TO YEAR
INCREASE
(DECREASE)
--------------
YEARS ENDED DECEMBER 31, 1994 1995
------------------------ TO TO
1994 1995 1996 1995 1996
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Net revenues:
Disabilities services................................ 79.3% 81.7% 80.3% 28.4% 25.0%
Youth services....................................... 20.7 18.3 19.7 9.7 37.0
----- ----- -----
Total net revenues........................... 100.0 100.0 100.0 24.5 27.2
Facility and program expenses:
Disabilities services................................ 88.7 88.5 86.8 28.2 22.6
Youth services....................................... 89.3 87.8 88.9 7.8 38.8
Total facility and program expenses.......... 88.8 88.4 87.2 23.9 25.5
Facility and program contribution:
Disabilities services................................ 11.3 11.5 13.2 30.1 43.8
Youth services....................................... 10.7 12.2 11.1 25.6 24.2
Total facility and program contribution...... 11.2 11.6 12.8 29.2 40.0
Operating expenses:
Corporate general and administrative................. 4.2 4.0 4.2 17.4 35.8
Depreciation and amortization........................ 1.0 1.2 1.7 55.0 71.2
----- ----- -----
Operating income....................................... 6.0 6.4 6.9 33.2 36.6
Other (income) expense, net............................ (0.5) (0.5) 0.4 25.9 NM
Income from continuing operations before income
taxes................................................ 6.5 6.9 6.5 32.7 19.7
Income taxes........................................... 2.8 2.7 2.5 21.7 17.4
----- ----- -----
Income from continuing operations...................... 3.7% 4.2% 4.0% 41.0% 21.2%
===== ===== =====
</TABLE>
18
<PAGE> 21
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues
Total net revenues increased by 27.2%, or $46.7 million, to $218.3 million
in 1996 compared to 1995. Of this increase, 75.2% resulted from increased
disabilities services revenues. Disabilities services net revenues increased by
25.0%, or $35.1 million, to $175.4 million in 1996 compared to 1995. Revenues
increased primarily from the acquisition of 12 facilities and four supported
living operations in 1996, the opening of nine new facilities in 1996 and the
effect of a full year of operations of 21 new facilities and programs added in
1995. Revenues also increased due to certain cost-of-living and other rate
adjustments providing reimbursement for payroll and other expenses incurred in
prior periods. Average revenue per census day increased to $112.21 in 1996
compared to $110.45 in 1995. Average disabilities services facility and program
occupancy rates for 1996 increased 0.5% to 96.1% compared to 95.6% in 1995.
Youth services net revenues increased by 37.0%, or $11.6 million, to $43.0
million in 1996 compared to 1995, resulting primarily from the first full year
of operations of the Edison Job Corps Center and the Company's first year of
operations of Youthtrack. During 1996, the Company began providing services to
over 350 youths through an acquisition by and a new contract awarded to
Youthtrack. Revenues were also impacted by inflationary increases. In addition,
during 1996, the Company was awarded a contract by the U.S. Department of Labor
to continue operating the South Bronx Job Corps Center. In December 1996, the
Company was awarded a 10-month basic education contract to provide support
services at the Great Onyx Job Corps Center in Mammoth Cave, Kentucky.
Facility and Program Expenses
Facility and program expenses increased 25.5%, or $38.7 million, to $190.5
million in 1996 compared to 1995. Of this increase, $27.2 million, or 70.3%, was
due to payroll and payroll-related expenses. These expenses reflected additional
personnel, primarily for the facilities and programs added during the year, as
well as annual pay increases. Facility and program expenses decreased as a
percentage of total net revenues to 87.2% in 1996 from 88.4% in 1995 due to
improved operating efficiencies, higher occupancy levels and the effect of the
rate increases described above.
Disabilities services facility and program expenses increased 22.6%, or
$28.0 million, to $152.2 million in 1996 compared to 1995. Payroll and
payroll-related expenses represented 77.1% of this increase due primarily to the
additional facilities and programs that were operational during 1996 compared to
1995. As a percentage of disabilities services net revenues, disabilities
services facility and program expenses decreased to 86.8% in 1996 from 88.5% in
1995. This decrease was due to improved operating efficiencies, higher occupancy
levels and the effect of the rate increases described above.
Youth services facility and program expenses increased 38.8%, or $10.7
million, to $38.2 million in 1996 compared to 1995. The increase related
primarily to the first full year of the operation of the Edison Job Corps Center
and the initial costs of the Youthtrack operation. As a percentage of youth
services net revenues, youth services facility and program expenses increased to
88.9% in 1996 from 87.8% in 1995. The increase in facility and program expenses
as a percentage of net revenues was due primarily to the costs of the Youthtrack
operation incurred prior to the commencement of revenues.
Operating Expenses
Corporate general and administrative expenses increased 35.8%, or $2.4
million, to $9.3 million in 1996 compared to 1995. The increase primarily
reflected additional personnel to support the growth of the Company's
operations, as well as increased use of professional services. As a percentage
of total net revenues, such expenses increased to 4.2% in 1996 compared to 4.0%
in 1995.
Depreciation and amortization expense increased 71.2%, or $1.5 million, to
$3.6 million in 1996 compared to 1995. The increase reflects primarily the
purchase of real property and intangible assets in disabilities services during
1995 and 1996. Amortization expense also includes amortization of deferred
start-up costs relating to the development of new facilities and programs.
Deferred start-up costs include
19
<PAGE> 22
administrative and staff salaries, rent, professional fees, insurance and other
costs incurred during the period prior to operation of the facilities and
programs. Such costs are amortized using the straight-line method over periods
ranging from five to seven years, consistent with applicable state reimbursement
regulations. At December 31, 1996, unamortized start-up costs totaled $3.5
million. See Notes 1 and 4 of Notes to Consolidated Financial Statements.
Other (Income) Expense, Net
Net interest expense increased $1.1 million to $767,000 in 1996 compared to
net interest income of $363,000 in 1995. The difference resulted primarily from
increased borrowings for acquisitions and for working capital. In 1995, funds
held in escrow from a 1988 transaction for the sale of the assets of a facility
were returned, and the Company recognized a one-time credit of $507,000, net of
expenses. See Note 2 of Notes to Consolidated Financial Statements.
Income Taxes
Income taxes increased 17.4%, or $819,000, to $5.5 million in 1996 compared
to 1995, and reflect effective tax rates of 38.8% and 39.6% in 1996 and 1995,
respectively. The increase in income tax expense is attributable to the higher
level of operating income as discussed above.
Income From Continuing Operations and Net Income
Income from continuing operations increased 21.2%, or 1.5 million, to $8.7
million in 1996 compared to 1995 resulting primarily from the revenue
contribution of acquired and new programs and facilities as well as improved
occupancy and per diem rates. Included in 1995 net income is $9.2 million, or
$0.95 per share, attributable to income from and gain on the sale of the
Company's discontinued home health care operations. This operation was sold
during 1995, resulting in an after tax gain of $8.8 million. Due to the effect
of the sale of the discontinued operation, net income decreased 7.7 million to
$8.7 million, or $0.87 per share, in 1996 versus $16.4 million or $1.69 per
share in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues
Total net revenues increased 24.5%, or $33.8 million, to $171.7 million in
1995 compared to 1994. Of this increase, 91.8% resulted from increased
disabilities services revenues. Disabilities services net revenues increased by
28.4%, or $31.0 million, to $140.3 million in 1995 compared to 1994. Revenues
increased primarily from the acquisition of 21 facilities and programs in 1995
and ten facilities and programs in 1994. Disabilities services revenues also
increased due to reimbursement for general cost-of-living increases in staff and
other expenses in prior periods. Average disabilities services revenue per
census day decreased to $110.45 in 1995 compared to $111.13 in 1994 as a result
of lower reimbursement rates on certain acquired facilities. Average
disabilities services facility and program occupancy rates for 1995 increased
1.1% to 95.6% in 1995 compared to 94.5% in 1994.
Youth services net revenues increased by 9.7%, or $2.8 million, to $31.4
million in 1995 compared to 1994, due principally to a new contract to operate
the Edison Job Corps Center in New Jersey and a one-year basic education
contract to provide support services at the Gateway Job Corps Center in
Brooklyn, New York. Revenues were also impacted by inflationary increases.
Facility and Program Expenses
Facility and program expenses increased 23.9%, or $29.3 million, to $151.7
million in 1995 compared to 1994. Of this increase, $21.6 million, or 73.7%, was
due to payroll and payroll-related expenses. These expenses reflected additional
personnel, primarily for the additional facilities and programs in disabilities
services, as well as annual pay increases. Facility and program expenses
decreased as a percentage of total net revenues to 88.4% in 1995 from 88.8% in
1994.
20
<PAGE> 23
Disabilities services facility and program expenses increased 28.2%, or
$27.3 million, to $124.2 million in 1995 compared to 1994. Payroll and
payroll-related expenses represented 73.4% of the increase due primarily to the
additional disabilities services facilities and programs that were operational
during 1995 compared to 1994. As a percentage of disabilities services net
revenues, disabilities services facility and program expenses decreased to 88.5%
in 1995 from 88.7% in 1994.
Youth services facility and program expenses increased 7.8%, or $2.0
million, to $27.5 million in 1995 compared to 1994. As a percentage of youth
services net revenues, youth services facility and program expenses decreased to
87.8% in 1995 from 89.3% in 1994. This decrease was due primarily to increased
recruitment and placement revenues in the Puerto Rico and South Bronx Job Corps
centers and to the new Job Corps contracts discussed above.
Operating Expenses
Corporate general and administrative expenses increased 17.4%, or $1.0
million, to $6.8 million in 1995 compared to 1994. The increase reflected
additional personnel to support the growth of the Company as well as normal pay
increases, increased travel and increased use of professional services. As a
percentage of total net revenues, such expenses decreased to 4.0% in 1995
compared to 4.2% in 1994.
Depreciation and amortization expenses increased 55.0%, or $745,000, to
$2.1 million in 1995 compared to 1994. The increase reflects primarily the
effect of the real property and intangible assets added in disabilities services
in 1995.
Other (Income) Expense, Net
Net interest income decreased 49.2%, or $351,000, to $363,000 in 1995
compared to 1994. The decrease resulted primarily from increased borrowings for
acquisitions.
In 1995, funds held in escrow from a 1988 transaction for the sale of the
assets of a facility were returned and the Company recognized a one-time credit
of $507,000, net of expenses. See Note 2 of Notes to Consolidated Financial
Statements.
Income Taxes
Income taxes increased 21.7%, or $837,000, to $4.7 million in 1995 compared
to 1994, and reflect effective tax rates of 39.6% and 43.2% in 1995 and 1994,
respectively. The increase in income tax expense is attributable to the higher
level of operating income as discussed above.
Income From Continuing Operations and Net Income
For the reasons described above, income from continuing operations
increased 41.0%, or $2.1 million to $7.2 million in 1995 compared to 1994. Due
to the effect of the sale of the discontinued home health care operations,
described above, net income was $16.4 million or $1.69 per share in 1995
compared to $6.1 million or $0.63 per share in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's needs for capital are attributable primarily to the Company's
plans to expand through acquisitions and the development of new facilities and
programs, and to have sufficient working capital for general corporate purposes.
Since most of the Company's facilities and programs are operating at or near
capacity, and budgetary pressures and other forces are expected to limit
increases in reimbursement rates received by the Company, the Company's ability
to continue to grow at its current rate is directly dependent upon such
acquisitions and development.
For 1996, net cash provided by operating activities was $7.4 million
compared to $3.8 million for 1995 and $4.3 million for 1994. The increase in
1996 was due primarily to an increase in income from continuing operations,
offset by an increase in accounts receivable.
21
<PAGE> 24
For 1996, net cash used in investing activities was $20.4 million, related
primarily to acquisitions and the purchase of property and equipment. For 1995,
net cash used in investing activities was $17.2 million, related primarily to
acquisitions and the purchase of property and equipment, offset by dividends
from the unconsolidated affiliate sold and proceeds from the sale of the
unconsolidated affiliate net of income taxes. For 1994, net cash used in
investing activities was $4.2 million relating primarily to the purchase of
property and equipment.
Net cash provided by financing activities was $13.5 million for 1996 and
$10.3 million for 1995, both consisting primarily of borrowings against the
available line of credit. For 1994, net cash provided by financing activities
was $367,000, consisting primarily of borrowing against the line of credit
offset by repayment of notes payable.
On December 23, 1996, the Company entered into a new revolving credit
facility, expiring December 31, 2001 which allows for maximum borrowings of $65
million, including up to $10 million in letters of credit (the "Revolving Credit
Facility"). The Revolving Credit Facility bears interest at the Company's option
at either (i) LIBOR plus a range of 0.75% to 1.75% depending upon certain
financial ratios or (ii) the lead lender's prime rate. At December 31, 1996, the
Company had approximately $29.7 million in outstanding indebtedness, consisting
of a $26.2 million outstanding balance under its Revolving Credit Facility and
$3.5 million of notes payable. An additional $3.5 million in letters of credit
were also outstanding under the Revolving Credit Facility. See Note 5 of Notes
to Consolidated Financial Statements.
Net days revenue in accounts receivable for disabilities services was 50
days at December 31, 1996, compared to 47 days at December 31, 1995, and 46 days
at December 31, 1994. Accounts receivable for disabilities services at December
31, 1996, increased to $30.1 million, compared to $21.8 million at December 31,
1995, and $14.1 million at December 31, 1994. In youth services, payment is
generally received within 15 to 45 days of billings.
The Company generally prefers to provide its services under management
contracts or in facilities that are leased, which minimizes the amount of
capital expenditures required. However, in states that utilize flat-rate
reimbursement structures, purchases may be made to maximize returns. Also,
acquisitions may involve significant capital expenditures. The Company has no
material commitments for capital expenditures for its current facilities,
although the Company maintains an ongoing capital improvements program.
RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS
In response to the "safe harbor" provisions contained in the Private
Securities Litigation Reform Act of 1995, the Company is including the following
cautionary statements that are intended to identify certain important factors
that could cause the Company's actual results to differ materially from those
projected in forward-looking statements concerning the Company made by or on
behalf of the Company, whether contained herein or elsewhere.
The Company's growth in revenues and earnings per share has been directly
related to a considerable increase in the number of individuals served in its
Division for Persons with Disabilities and its Division for Youth Services. This
growth is largely dependent upon development-driven activities, including the
acquisitions of other businesses or facilities or of management contract rights
to operate facilities, the award of contracts to open new facilities or start
new operations or to assume management of facilities previously operated by
governmental agencies or not-for-profit organizations and the extension or
renewal of contracts previously awarded to the Company. The Company often makes
forward-looking statements regarding its development activities.
Changes in the Company's future revenues depend significantly upon the
success of these development activities, and in particular on the Company's
ability to obtain additional contracts to provide services to the consumer bases
it serves, whether through acquisitions, awards in response to requests for
proposals for new facilities or programs or for facilities being privatized by
governmental agencies, or other development activities. Future revenues also
depend on the Company's ability to maintain and renew its existing services
contracts and its existing leases. The Company actively seeks acquisitions of
other companies, facilities and
22
<PAGE> 25
other assets as a means of increasing the number of consumers served, and
changes in the market for such acquisition prospects, including increasing
competition for and increasing pricing of such acquisition prospects, could also
adversely affect the timing and/or viability of future development activities.
Revenues of the Company's Division for Persons with Disabilities are highly
dependent on reimbursement under federal and state Medicaid programs. Generally,
each state has its own Medicaid reimbursement regulations and formula. The
Company's revenues and operating profitability are dependent upon the Company's
ability to maintain its existing reimbursement levels and to obtain periodic
increases in reimbursement rates. Changes in the manner in which Medicaid
reimbursement rates are established in one or more of the states in which the
Company conducts its operations, such as those recently encountered by the
Company, could adversely affect revenues and profitability. Other changes in the
manner in which federal and state reimbursement programs are operated, and in
the manner in which billings/costs are reviewed and audited, could also affect
revenues and operating profitability.
The Company's cost structure and ultimate operating profitability are
significantly dependent on its labor costs and the availability and utilization
of its labor force and thus may be affected by a variety of factors, including
local competitive forces, changes in minimum wages or other direct personnel
costs, the Company's effectiveness in managing its direct service staff, and
changes in consumer services models, such as the trends toward supported living
and managed care.
Additionally, the Company's continued expansion of its existing operations,
and its ability to expand into providing services to other populations utilizing
the Company's core competencies are dependent upon continuation of trends toward
downsizing, privatization and consolidation, the Company's ability to tailor its
services to meet the specific needs of these different populations, and its
success in operating in a changing reimbursement environment. The continuation
of such trends and the nature of its operating environment are subject to a
variety of political, economic, social and legal pressures, including desires of
governmental agencies to reduce costs and increase levels of services, federal,
state and local budgetary constraints and actions brought by advocacy groups and
the courts to change existing service delivery systems. Material changes
resulting from these trends and pressures could adversely affect the demand for
and reimbursement of the Company's services and its operating flexibility, and
ultimately its revenues and profitability.
23
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Res-Care, Inc.:
We have audited the accompanying consolidated balance sheets of Res-Care,
Inc. and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1996. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Res-Care,
Inc. and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Louisville, Kentucky
February 26, 1997
24
<PAGE> 27
RES-CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------
1995 1996
----------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,253 $ 7,638
Accounts and notes receivable, less allowance for
contractual
adjustments of $1,911 in 1995 and $1,945 in 1996 (note
5)..................................................... 25,281 32,934
Inventories............................................... 468 656
Deferred income taxes (note 7)............................ 2,313 2,498
Prepaid expenses.......................................... 1,162 1,911
------- --------
Total current assets.............................. 36,477 45,637
------- --------
Property and equipment, at cost (note 10):
Land and land improvements................................ 1,146 4,025
Leasehold improvements.................................... 2,444 2,932
Buildings................................................. 28,898 34,711
Furniture and equipment................................... 5,178 7,378
------- --------
37,666 49,046
Less accumulated depreciation and amortization............ 4,851 7,178
------- --------
Net property and equipment........................ 32,815 41,868
------- --------
Excess of acquisition cost over net assets acquired, less
accumulated
amortization of $216 in 1995 and $632 in 1996 (note 10)... 8,521 14,478
Other assets (note 4)....................................... 6,680 10,112
------- --------
$84,493 $112,095
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 5)................ $ 123 $ 111
Trade accounts payable.................................... 4,424 5,075
Accrued expenses (note 6)................................. 13,356 15,910
Accrued income taxes (note 7)............................. 2,032 2,021
------- --------
Total current liabilities......................... 19,935 23,117
------- --------
Long-term liabilities....................................... 429 1,421
Long-term debt (note 5)..................................... 17,594 29,612
Deferred income taxes (note 7).............................. 637 1,361
------- --------
Total liabilities................................. 38,595 55,511
------- --------
Commitments and contingencies (note 11)
Minority interest in equity of consolidated subsidiary...... 37 73
Shareholders' equity (notes 1 and 9):
Preferred stock, no par value, authorized 1,000,000
shares, no shares issued or outstanding................ -- --
Common stock, no par value, authorized 20,000,000 shares,
issued
13,837,500 shares...................................... 15,535 15,535
Additional paid-in capital................................ 2,316 4,054
Retained earnings......................................... 32,427 41,118
------- --------
50,278 60,707
Less cost of common shares in treasury (4,435,772 shares
in 1995
and 4,213,072 shares in 1996).......................... (4,417) (4,196)
------- --------
Total shareholders' equity........................ 45,861 56,511
------- --------
$84,493 $112,095
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 28
RES-CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net revenues (note 8)...................................... $137,854 $171,668 $218,346
Facility and program expenses:
Wages, salaries and benefits............................. 73,703 95,316 122,499
Purchased services....................................... 7,025 7,822 8,963
Supplies and other expenses.............................. 41,705 48,611 59,002
-------- -------- --------
122,433 151,749 190,464
Operating expenses:
Corporate general and administrative..................... 5,793 6,805 9,276
Depreciation and amortization............................ 1,355 2,100 3,596
Compensation -- stock options (note 9)................... 27 27 4
-------- -------- --------
Total operating expenses......................... 7,175 8,932 12,876
-------- -------- --------
Total facility, program and operating expenses... 129,608 160,681 203,340
-------- -------- --------
Operating income......................................... 8,246 10,987 15,006
Other expenses (income):
Interest expense (note 5)................................ 38 488 1,225
Interest income.......................................... (752) (851) (458)
Loss (gain) from sale of assets (note 2)................. 14 (515) (7)
-------- -------- --------
Total other expenses (income), net............... (700) (878) 760
-------- -------- --------
Minority interest in (income) loss of consolidated
subsidiary............................................... -- 3 (37)
Income from continuing operations before income taxes...... 8,946 11,868 14,209
Income tax expense (note 7)................................ 3,862 4,699 5,518
-------- -------- --------
Income from continuing operations.......................... 5,084 7,169 8,691
Discontinued operations (note 3):
Income from operation of unconsolidated affiliate sold,
net of applicable income taxes of $92 in 1994 and $37
in 1995............................................... 1,054 428 --
Gain from sale of unconsolidated affiliate, net of
applicable income taxes of $6,270..................... -- 8,819 --
-------- -------- --------
Net income............................................... $ 6,138 $ 16,416 $ 8,691
======== ======== ========
Income per share data:
Income from continuing operations per share.............. $ 0.52 $ 0.74 $ 0.87
Income from discontinued operations per share............ 0.11 0.04 --
Gain from sale of discontinued operations per share...... -- 0.91 --
-------- -------- --------
Net income per share....................................... $ 0.63 $ 1.69 $ 0.87
======== ======== ========
Weighted average shares used in per share calculation.... 9,675 9,684 10,023
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 29
RES-CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
---------------------------------------------------------------------
COMMON STOCK ADDITIONAL TREASURY STOCK
---------------- PAID-IN RETAINED ----------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------- ---------- -------- ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993... 13,838 $15,535 $2,052 $ 9,873 4,469 $(4,450) $23,010
Net income..................... -- -- -- 6,138 -- -- 6,138
Exercise of stock options...... -- -- 56 -- (4) 5 61
------ ------- ------ ------- ----- ------- -------
Balance at December 31, 1994... 13,838 15,535 2,108 16,011 4,465 (4,445) 29,209
Net income..................... -- -- -- 16,416 -- -- 16,416
Exercise of stock options...... -- -- 208 -- (29) 28 236
------ ------- ------ ------- ----- ------- -------
Balance at December 31, 1995... 13,838 15,535 2,316 32,427 4,436 (4,417) 45,861
Net income..................... -- -- -- 8,691 -- -- 8,691
Exercise of stock options...... -- -- 1,738 -- (223) 221 1,959
------ ------- ------ ------- ----- ------- -------
Balance at December 31, 1996... 13,838 $15,535 $4,054 $41,118 4,213 $(4,196) $56,511
====== ======= ====== ======= ===== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 30
RES-CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 6,138 $16,416 $ 8,691
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 1,355 2,100 3,596
Provision for contractual adjustments................... 738 575 800
Deferred income taxes -- net............................ (814) (672) 539
Provision for compensation -- stock options............. 27 27 4
Income from operation of unconsolidated affiliate sold,
net of applicable income tax expense.................. (1,054) (428) --
Gain from sale of unconsolidated affiliate, net of
applicable income tax expense of $6,270............... -- (8,819) --
Loss (gain) from sale of assets......................... 14 (515) (7)
Income (loss) applicable to minority interest of
consolidated subsidiary............................... -- (3) 37
Change in operating assets and liabilities:
Increase in accounts and notes receivable............... (1,236) (9,808) (8,364)
(Increase) decrease in inventories...................... (40) 6 (157)
(Increase) decrease in prepaid expenses................. 12 (338) (650)
Increase in other assets................................ (127) (537) (102)
Increase (decrease) in trade accounts payable........... (658) 882 629
Increase in accrued expenses............................ 15 3,248 2,182
Increase (decrease) in accrued income taxes............. (58) 1,736 488
Decrease in long-term liabilities....................... -- (87) (325)
------- ------- -------
Net cash provided by operating activities............. 4,312 3,783 7,361
------- ------- -------
Cash flows from investing activities:
Decrease in advances to unconsolidated affiliate sold... 136 586 --
Dividend from unconsolidated affiliate sold............. -- 3,024 --
Proceeds from sale of unconsolidated affiliate, net of
costs................................................. -- 16,425 --
Payment of income taxes associated with the gain from
sale of
unconsolidated affiliate.............................. -- (6,270) --
Redemption of short-term investment..................... 1,545 -- --
Proceeds from sale of assets............................ 770 541 7
Purchase of property and equipment...................... (3,673) (12,445) (5,643)
Acquisitions of businesses.............................. (2,475) (17,773) (12,574)
Purchase of mortgages................................... (340) -- --
Payments received on notes from sale of assets.......... 39 39 39
Deferred start-up costs................................. (212) (1,287) (2,268)
------- ------- -------
Net cash used in investing activities................. (4,210) (17,160) (20,439)
------- ------- -------
Cash flows from financing activities:
Net borrowings under notes payable to bank.............. 1,038 10,172 12,006
Repayment of notes payable.............................. (705) (78) --
Proceeds received from exercise of stock options........ 34 209 1,457
Contribution from minority interest of consolidated
subsidiary............................................ -- 40 --
------- ------- -------
Net cash provided by financing activities............. 367 10,343 13,463
------- ------- -------
Increase (decrease) in cash and cash equivalents............ 469 (3,034) 385
Cash and cash equivalents at beginning of year.............. 9,818 10,287 7,253
------- ------- -------
Cash and cash equivalents at end of year.................... $10,287 $ 7,253 $ 7,638
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 31
RES-CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Description of Business
The consolidated financial statements include the accounts of Res-Care,
Inc. and its wholly-owned and majority-owned subsidiaries (the Company).
Intercompany transactions and balances are eliminated in consolidation.
The Company receives revenues primarily from the delivery of residential,
training, educational and support services to various populations with special
needs, including persons with mental retardation and other developmental
disabilities and at-risk and troubled youths that have typically been provided
by state and local government agencies and not-for-profit organizations.
Net Revenues
Disabilities Services: Client services are provided at rates established
at the time services are rendered. Payments for services rendered to clients
covered by Medicaid are generally less than the Company's established rates.
Contractual allowances and adjustments are recorded to reflect the difference
between established rates and expected reimbursement. Retroactively calculated
contractual adjustments are accrued on an estimated basis in the periods the
related services are rendered and recorded as adjustments to revenues in future
periods when final settlements are determined.
Revenues are derived primarily from state government agencies under the
Medicaid reimbursement system and from management contracts with private
operators, generally not-for-profit providers, who contract with state
government agencies and are also reimbursed under the Medicaid system.
Revenues in the future may be affected by changes in rate-setting
structures, methodologies or interpretations that may be proposed in states
where the Company operates. Some states are considering initiating managed care
plans for persons served in the Medicaid programs. At this time, the Company
cannot determine the impact of such changes, or the effect of any possible
Congressional actions.
Youth Services: Revenues include amounts reimbursable under cost
reimbursement contracts with the U.S. Department of Labor for operating Job
Corps centers. The contracts provide for payments based on per diem rates or
cost reimbursement formulas. Under government regulations, the Company is
reimbursed its allowable indirect costs for general and administrative expenses,
plus a predetermined fee. Final determination of amounts due under the contracts
is subject to audit and review by the U.S. Department of Labor.
Juvenile treatment revenues are derived primarily from state awarded
contracts and from state agencies under various reimbursement systems.
Reimbursement from state or locally awarded contracts varies per facility or
program, and is typically paid via fixed contract amounts, flat rates, or
cost-based rates.
For both disabilities services and youth services, expenses are subject to
examination by agencies administering the contracts and services. Management
believes that adequate provisions have been made for potential adjustments
arising from such examinations. Revenues and accounts receivable are recorded
net of estimated allowances and adjustments. Provision for bad debt expense, if
any, is provided for in the period the expense is determined by management.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
29
<PAGE> 32
RES-CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and Amortization
Depreciation and amortization are provided over the estimated useful lives
of the assets, principally by the straight-line method. Estimated useful lives
for buildings are 20 - 40 years. Leasehold improvements are generally amortized
over the life of the respective leases. The useful lives of furniture and
equipment vary from three to seven years. The Company acts as custodian of
assets where the Company has contracts to operate facilities or programs owned
or leased by the U.S. Department of Labor, various states and private providers.
The excess of acquisition cost over net assets acquired and the cost of
licenses are amortized over 20 - 30 years using the straight-line method. The
Company assesses the recoverability of goodwill and other intangibles as events
or circumstances indicate a possible inability to recover their carrying amount.
Such evaluation is based on various analyses, including cash flow and
profitability projections that incorporate, as applicable, the impact on
existing company businesses. The analyses necessarily involve significant
management judgment to evaluate the capacity of an acquired business to perform
within projections.
Inventories
Inventories consist principally of supplies, food and linens and are stated
at the lower of cost (first-in, first-out method) or market.
Deferred Start-Up Costs
Deferred start-up costs are reimbursable under applicable state regulations
and include administrative and staff salaries, rent, professional fees,
insurance and other costs incurred during the period prior to operation of the
various facilities. These costs are amortized on a straight-line method over
periods ranging from five to seven years, consistent with applicable state
reimbursement regulations.
Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under such method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
of a change in tax rates on deferred tax assets and liabilities is recognized in
income in the period that includes the enactment date.
Per Share Data
The Company's Board of Directors authorized a three-for-two stock split to
be distributed on June 4, 1996, to shareholders of record on May 24, 1996. All
share and per share data included in this annual report have been restated to
reflect the stock split. Per share data is based on the weighted average number
of common shares and common share equivalents outstanding during the period.
Insurance
The Company maintains insurance in the form of commercial general liability
and commercial umbrella liability policies, which include malpractice insurance.
Management intends to maintain such coverages in the future and is of the
opinion that insurance coverages are adequate to cover any potential losses on
asserted claims. Management is unaware of any incidents which would ultimately
result in a loss in excess of the Company's insurance coverages. In addition,
the Company self-insures group health insurance for its employees. Such
self-insurance costs are accrued based upon the aggregate of the liability for
reported claims
30
<PAGE> 33
RES-CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and an estimated liability for claims incurred but not reported. The Company has
an annual stop-loss limit of $125,000 for each covered individual.
Workers' compensation policies covering all operations except for New York,
West Virginia, Ohio and Puerto Rico are covered under large deductible or
retrospective policies. The Company is responsible for paying the first $250,000
of each claim until the total of all claims exceeds the aggregate stop loss. The
insurance company is responsible for the claim in excess of the deductible and
for all claims in excess of the aggregate stop loss. At this time, no claim is
likely to exceed the deductible and all claims are not likely to exceed the
aggregate stop loss. Estimated future payments have been expensed.
Financial Instruments
Various methods and assumptions were used by the Company in estimating its
fair value disclosures for significant financial instruments. Fair values of
cash and cash equivalents, short-term investments, accounts and notes receivable
and trade accounts payable approximate their carrying amount because of the
short maturity of those investments. The fair value of short-term debt
approximates its carrying amount. The fair value of long-term debt is based on
the present value of the underlying cash flows discounted at the current
estimated borrowing rates available to the Company, and approximates its
carrying value as interest rates are variable.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Reclassifications
Certain amounts in 1994 and 1995 have been reclassified to conform with the
1996 presentation.
2. CASH HELD IN ESCROW
On May 31, 1988, the Company sold the assets of a facility. In conjunction
with the sale, $541,000 of the sale proceeds were deferred to provide for
certain contingencies relating to periods prior to sale. In the fourth quarter
of 1995, funds held in escrow were returned and the Company recognized a
one-time credit of $507,000, net of expenses.
3. DISCONTINUED OPERATIONS
On May 31, 1995, the Company sold all of its stock in its unconsolidated
affiliate, Home Care Affiliates, Inc. ("HCAI"), to Housecall Medical Resources,
Inc. of Atlanta, Georgia, for $17.5 million in cash before accounting for other
costs of $2.0 million. The Company owned 68% of the stock of HCAI, a provider of
home nursing and related home health services, a business separate from that of
the Company. Due to certain provisions of the shareholder agreement, HCAI was
accounted for as an unconsolidated affiliate. The effect of the sale of the
Company's interest in HCAI has been reported in the accompanying financial
statements as a discontinued operation.
The Company provided managerial and administrative services to a division
of HCAI under an administrative management agreement. Administrative expenses
include personnel, management, accounting, risk management, benefits management,
purchasing and various other services, and amounted to approximately $838,000
for the year ended December 31, 1994. For the five months ended May 31, 1995,
the
31
<PAGE> 34
RES-CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximate amount was $433,000. The Company will continue to provide these
services under a separate administrative services agreement that expires May 31,
1999.
4. OTHER ASSETS
Other assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Long-term receivables and advances to managed facilities.... $ 963 $ 1,102
Deferred start-up costs, net of accumulated amortization.... 1,605 3,454
Licenses, net of accumulated amortization................... 3,104 3,013
Other assets................................................ 1,008 2,543
------ -------
$6,680 $10,112
====== =======
</TABLE>
5. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit facility with banks........................ $10,563 $26,196
Variable rate term loan payable to a bank with interest set
at "prime rate" or "Euro-rate" as of December 31, 1995.
Interest payments are due monthly in arrears with unpaid
principal due April 30, 1999. The rate was 7.1% as of
December 31, 1995. The note was paid in full during
1996...................................................... 3,500 --
Notes payable to Beverly Health and Rehabilitation Services,
with interest rates of 9.0% on the original $600 and 7.5%
on the remaining $3,000. These notes are secured by a deed
of trust for real estate. The $600 note is payable in
annual installments of $100, with final payment due April
30, 2001. The remaining notes are due at maturity on April
30, 2001.................................................. 3,600 3,500
Other....................................................... 54 27
------- -------
17,717 29,723
Less current portion...................................... 123 111
------- -------
$17,594 $29,612
======= =======
</TABLE>
On December 23, 1996, the Company entered into a new revolving credit
facility with its banks: PNC Bank, Kentucky, Inc.; National City Bank of
Kentucky; SunTrust Bank, Nashville, N.A.; and Bank One, Kentucky, N.A. The
facility provides for maximum borrowings of $65 million, including up to $10
million in letters of credit. It expires and is due at maturity in December
2001, subject to extension. The credit facility is secured by all accounts
receivable and general intangibles of the Company. As of December 31, 1996,
letters of credit in the amount of $3.5 million were outstanding. Under the
facility, the Company is provided a cash management system in which accounts are
replenished daily for checks clearing the previous day. Account replenishments
are applied against the outstanding borrowing.
As of December 31, 1996, uncleared checks in the amount of $3.1 million
were outstanding and are reflected in long-term debt. The agreement contains
certain covenants pertaining to net worth, current ratio, debt service coverage
ratios and ratio of total indebtedness to cash flow from operations. The Company
was in
32
<PAGE> 35
RES-CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compliance with all covenants as of December 31, 1996. The interest rate was
6.9% and 6.4% as of December 31, 1995, and 1996, respectively.
Interest expense was $38, $488 and $1,225 in the years 1994, 1995 and 1996,
respectively. During 1995, $136 of interest paid was capitalized as part of the
purchase and renovation of a corporate office building.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
--------------
(IN THOUSANDS)
<S> <C>
1997........................................................ $ 111
1998........................................................ 107
1999........................................................ 108
2000........................................................ 101
2001........................................................ 29,296
-------
$29,723
=======
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued trade payables...................................... $ 1,493 $ 1,963
Accrued wages and payroll taxes............................. 4,512 5,572
Accrued vacation............................................ 1,357 1,710
Accrued workers' compensation............................... 1,591 1,395
Other....................................................... 4,403 5,270
------- -------
$13,356 $15,910
======= =======
</TABLE>
7. INCOME TAXES
Total income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------
1994 1995 1996
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income from continuing operations....................... $3,862 $ 4,699 $5,518
Discontinued operations................................. 92 6,307 --
Shareholders' equity, for tax benefits related to stock
options............................................... -- -- (498)
------ ------- ------
$3,954 $11,006 $5,020
====== ======= ======
</TABLE>
33
<PAGE> 36
RES-CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense (benefit) attributable to income from continuing
operations is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current................................................ $3,495 $4,017 $3,937
Deferred............................................... (619) (492) 317
------ ------ ------
Total federal.................................. 2,876 3,525 4,254
------ ------ ------
State and local:
Current................................................ 1,164 1,317 1,042
Deferred............................................... (178) (143) 222
------ ------ ------
Total state and local.......................... 986 1,174 1,264
------ ------ ------
Total income tax expense....................... $3,862 $4,699 $5,518
====== ====== ======
</TABLE>
A reconciliation of income tax expense in relation to the amounts computed
by application of the U.S. Federal income tax rate of 34% to pretax income
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax at the statutory rate................. $3,042 $4,035 $4,831
Increase (decrease) in income taxes:
Additional federal income tax............................ 184 -- --
State taxes, net of federal benefit...................... 636 732 857
Other.................................................... -- (68) (170)
------ ------ ------
$3,862 $4,699 $5,518
====== ====== ======
</TABLE>
34
<PAGE> 37
RES-CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1996, are presented below:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
contractual adjustments................................ $ 765 $ 774
Workers' compensation costs, principally due to accrual
for financial reporting purposes....................... 636 558
Health insurance costs, principally due to accrual for
financial reporting purposes........................... 157 --
Compensated absences, due to accrual for financial
reporting purposes..................................... 249 371
Other liabilities and reserves, deductible in different
periods for financial reporting and tax purposes....... 503 911
Other.................................................. 96 40
------ ------
Total gross deferred tax assets................... 2,406 2,654
------ ------
Deferred tax liabilities:
Accounts receivable, principally due to experience rated
revenue recognition for income tax reporting
purposes............................................... 64 74
Property and equipment, due to differences in
depreciation........................................... 115 104
Deferred start-up costs, due to capitalization for
financial reporting purposes........................... 384 969
Amortization of goodwill and licenses..................... 167 337
Other..................................................... -- 33
------ ------
Total gross deferred tax liabilities.............. 730 1,517
------ ------
Net deferred tax asset.................................... $1,676 $1,137
====== ======
Classified as follows:
Deferred income tax asset................................. $2,313 $2,498
Deferred income tax liability............................. 637 1,361
------ ------
Net deferred tax asset.................................... $1,676 $1,137
====== ======
</TABLE>
No valuation allowance for deferred tax assets was required as of December
31, 1994, 1995 or 1996, nor was there any change in the total valuation
allowance for the years ended December 31, 1995 and 1996. The realization of
deferred tax assets is dependent upon the Company generating future taxable
income when temporary differences become deductible. Based upon the historical
and projected levels of taxable income, management believes it is more likely
than not the Company will realize the benefits of the deductible differences.
8. SEGMENT INFORMATION
The Company's continuing operations, all of which are in the United States
and Puerto Rico, are broken into two business segments as described in note 1.
Operating income is defined as net revenues less facility, program and
operating expenses. Identifiable assets are those assets used in the operations
of each business segment. The following table shows net revenues, operating
income and other financial information by business segment.
35
<PAGE> 38
RES-CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FACILITY AND DEPRECIATION
NET PROGRAM OPERATING AND IDENTIFIABLE CAPITAL
AS OF AND FOR THE YEARS ENDED DECEMBER 31: REVENUES EXPENSES INCOME AMORTIZATION ASSETS EXPENDITURES
- ------------------------------------------ -------- ------------- --------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1994
Disabilities services..................... $109,254 96,889 6,723 1,088 24,554 2,589
Youth services............................ 28,600 25,544 1,523 -- 4,004 --
Corporate and other....................... -- -- -- 267 19,065 1,084
-------- ------- ------ ----- ------- ------
Total........................... 137,854 122,433 8,246 1,355 47,623 3,673
======== ======= ====== ===== ======= ======
1995
Disabilities services..................... $140,302 124,220 8,853 1,434 56,040 4,259
Youth services............................ 31,366 27,529 2,134 -- 5,250 --
Corporate and other....................... -- -- -- 666 23,203 8,186
-------- ------- ------ ----- ------- ------
Total........................... 171,668 151,749 10,987 2,100 84,493 12,445
======== ======= ====== ===== ======= ======
1996
Disabilities services..................... $175,361 152,243 12,665 2,486 78,601 4,764
Youth services............................ 42,985 38,221 2,341 104 8,843 170
Corporate and other....................... -- -- -- 1,006 24,651 709
-------- ------- ------ ----- ------- ------
Total........................... $218,346 190,464 15,006 3,596 112,095 5,643
======== ======= ====== ===== ======= ======
</TABLE>
The Company accounts for contractual adjustments by charging them against
revenues, as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Disabilities services....................................... $575 $575 $800
Youth services.............................................. 163 -- --
---- ---- ----
$738 $575 $800
==== ==== ====
</TABLE>
9. BENEFIT PLANS
(In thousands, except share and per share data)
On January 1, 1995, the Company amended and restated its Money Purchase
Pension Plan in its entirety as the Res-Care, Inc. Retirement Savings Plan. In
connection with this plan, the Company contributed an amount equal to 3% of
eligible employee salary and an additional 3% of employee salary in excess of
$40. Total expenses relating to this plan for the years ended December 31, 1994,
1995 and 1996, were $1,360, $1,357 and $1,883, respectively.
On January 1, 1995, as part of the Retirement Savings Plan, the Company
established a 401(k) plan in which eligible employees may participate. In
connection with the plan, the Company matches one-half of the employee's
contribution up to a maximum of 2%. The total expense relating to this plan for
the years ended December 31, 1995 and 1996 was $344 and $354 respectively.
The Company has stock-based compensation plans, which are described below.
The Company applies APB Opinion No. 25 and related Interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for its
fixed stock option plans. Had compensation cost for the Company's stock-based
compensation plans been determined consistent with Statement of Financial
Accounting Standards
36
<PAGE> 39
RES-CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No. 123, the Company's net income and income per share amounts would have been
reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------
1995 1996
---------- ---------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
INCOME DATA:
As Reported
Income from continuing operations......................... $ 7,169 $8,691
Income from operation of unconsolidated affiliate sold.... 428 --
Gain from sale of unconsolidated affiliate................ 8,819 --
------- ------
Net income................................................ $16,416 $8,691
======= ======
Pro Forma
Income from continuing operations......................... 7,012 8,280
Income from operation of unconsolidated affiliate sold.... 428 --
Gain from sale of unconsolidated affiliate................ 8,819 --
------- ------
Net income................................................ $16,259 $8,280
======= ======
INCOME PER SHARE DATA:
As Reported
Income from continuing operations per share............... 0.74 0.87
Income from discontinued operations per share............. 0.04 --
Gain from sale of discontinued operations per share....... 0.91 --
------- ------
Net income per share...................................... $ 1.69 $ 0.87
======= ======
Pro Forma
Income from continuing operations per share............... 0.72 0.83
Income from discontinued operations per share............. 0.04 --
Gain from sale of discontinued operations per share....... 0.91 --
------- ------
Net income per share...................................... $ 1.67 $ 0.83
======= ======
</TABLE>
The Company's stock-based compensation plans are fixed stock option plans.
Under the 1991 Incentive Stock Option Plan, the Company may grant options to its
salaried officers and employees for up to 2,534,062 shares of common stock.
Under the plan, the exercise price of each option equals the market price of the
Company's stock on the date of grant, and an option's maximum term is normally
five years. All options, except those granted to its president and chief
executive officer, vest 20 percent per year over five years. Options for 97,500
shares granted to the president and chief executive officer on October 26, 1995
vested immediately, and options for 112,797 shares granted to the president and
chief executive officer on November 5, 1996 vest 100% on March 15, 1997.
Under a stock option plan adopted October 28, 1993, 60,000 shares are
available for issuance to nonemployee members of the Board of Directors at an
exercise price which cannot be less than the fair market value on the date of
grant.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996: no dividends paid, as it has been
the Company's policy not to declare or pay dividends since its initial public
offering in 1992
37
<PAGE> 40
RES-CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and the Company does not anticipate paying dividends in the foreseeable future;
expected volatility, 49%; risk-free interest rate, 6.368%; and expected lives,
five to six years.
Stock option activity is shown below:
<TABLE>
<CAPTION>
1995 1996
-------------------- ---------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE
------------- ------- --------- -------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year................. 635,175 $ 6.06 849,210 $ 7.59
Granted.......................................... 295,050 11.44 397,647 11.82
Exercised........................................ (27,900) 7.50 (222,725) 6.54
Canceled......................................... (53,115) 10.89 (40,935) 11.24
------- --------
Outstanding at end of year....................... 849,210 7.59 983,197 9.39
======= ========
Exercisable at end of year....................... 400,814 $ 4.57 490,780 $ 6.79
======= ========
Weighted-average fair value of options granted
during the year................................ $3.93 $4.08
======= ========
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------- ------------------------------------
RANGE OF NUMBER WEIGHTED-AVERAGE NUMBER
EXERCISE OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
PRICES DECEMBER 31, 1996 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1996 EXERCISE PRICE
-------- ----------------- ---------------- ---------------- ----------------- ----------------
<C> <C> <S> <C> <C> <C>
$ 1 to 8 256,050 0.4 years $ 2.84 256,050 $ 2.84
10 to 12 608,350 4.0 10.90 233,230 11.02
15 to 19 112,797 5.8 15.25 -- --
20 to 25 6,000 4.4 24.50 1,500 24.50
------- -------
$ 1 to 25 983,197 3.3 $ 9.39 490,780 $ 6.79
======= =======
</TABLE>
10. ACQUISITIONS
During the three years ended December 31, 1996, the Company has made
various acquisitions as set forth below, all of which have been accounted for as
purchases (also see note 13). The consolidated financial statements include the
operating results of each business acquired from the date of its acquisition.
Except for the acquisitions of the 12 Beverly facilities and the 44 group homes
in Texas, pro forma results of operations have not been presented because the
effects of these acquisitions were not significant.
On August 31, 1993, the Company entered into an agreement with several
companies controlled by a single shareholder to acquire up to 59 group homes in
Texas under leasing arrangements with certain obligations and options to
purchase over a three-year period. In 1995, the Company completed the purchase
under the agreement acquiring 44 group homes. The purchase price of the 44 group
homes and other assets was $5.7 million, of which $3.5 million was paid in cash
and the balance by mortgages previously acquired and
38
<PAGE> 41
RES-CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
other accrued expenses. The Company has been operating 57 of the group homes
since September 1, 1993. The allocation of the purchase price for the 44 group
homes was as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Buildings, land and equipment.............................. $3,314
Licenses, at cost.......................................... 1,572
Excess of acquisition cost over net assets acquired........ 845
-------
$5,731
=======
</TABLE>
On May 1, 1995, the Company acquired the assets of 12 intermediate care
facilities for persons with mental retardation from Beverly Enterprises. The
purchase price was $16.7 million. The purchase price was paid with $12.6 million
in cash and three promissory notes to Beverly in the amount of $3.6 million. The
purchase price also included $.5 million of other costs associated with the
acquisition. The allocation of the purchase price was as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Buildings, land and equipment.............................. $11,027
Excess of acquisition cost over net assets acquired........ 5,417
Inventory.................................................. 199
Other...................................................... 11
-------
$16,654
=======
</TABLE>
The following summary of results of operations on a pro forma basis gives
effect to the acquisition of the 12 Beverly facilities and the acquisition of
the 44 group homes in Texas as though both acquisitions had taken place as of
January 1, 1994:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------
1994 1995
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net revenues............................................. $169,312 $182,081
Income from continuing operations........................ 6,160 7,612
Net income............................................... 7,214 16,859
Income from continuing operations per share.............. 0.64 0.79
Net income per share..................................... $ 0.75 $ 1.74
</TABLE>
During the year ended December 31, 1996, the Company made eight
acquisitions. Seven of the acquisitions were businesses providing disabilities
services. The other acquisition was a provider of youth services. The total
purchase price of these acquisitions was $12.6 million in cash, allocated as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Buildings, land and equipment.............................. $ 5,950
Excess of acquisition cost over net assets acquired........ 6,361
Other...................................................... 263
-------
$12,574
=======
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Company leases certain operating facilities, office space, vehicles and
equipment under operating leases which expire at various dates from 1997 through
2002. Total rent expense was approximately $7,558,
39
<PAGE> 42
RES-CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$8,446 and $9,166 for the years ended December 31, 1994, 1995 and 1996,
respectively. Approximate future minimum lease payments under all
non-cancellable operating leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
--------------
(IN THOUSANDS)
<S> <C>
1997........................................................ $7,933
1998........................................................ 6,364
1999........................................................ 4,539
2000........................................................ 1,758
2001........................................................ 1,281
Thereafter.................................................. $2,237
</TABLE>
The Company is involved in various claims and legal actions arising in the
ordinary course of business. The Company is a party to litigation in Indiana in
which the state's methodology for calculating reimbursement is being contested.
In the opinion of management, the ultimate disposition of these matters will not
have a material adverse effect on the Company's consolidated financial condition
or results of operations.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for:
Interest.................................................... $ 27 $ 439 $1,226
Income taxes................................................ 4,692 9,909 4,362
Supplemental schedule of noncash investing and financing
activities:
Notes payable resulting from purchase of property and
equipment................................................. $ 78 $3,600 --
</TABLE>
13. SUBSEQUENT EVENT
Effective January 1, 1997, the Company acquired all of the partnership
interests in Premier Rehabilitation Centers in exchange for 409,250 shares of
the Company's common stock in a business combination to be accounted for as a
pooling of interests. Historical financial information presented in future
financial statements will be restated to include Premier Rehabilitation Centers.
The following summarized operating data gives effect to the acquisition as if it
occurred on January 1, 1994, and includes the impact of income taxes as if the
partnership's operations had been taxed as a corporation.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Pro forma:
Income data:
Net revenues..................................... $142,958 $177,428 $224,265
Income from continuing operations................ 5,107 7,255 9,151
Net income....................................... 6,161 16,502 9,151
Income per share data:
Income from continuing operations per share...... 0.51 0.72 0.88
Net income per share............................. 0.61 1.63 0.88
Weighted average shares used in per share
calculation................................... 10,084 10,093 10,432
</TABLE>
40
<PAGE> 43
RES-CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1995
- ----------------------------------------
Net revenues............................ $35,670 $41,003 $46,096 $48,899 $171,668
Facility and program contribution....... 3,931 4,824 5,534 5,630 19,919
Income from continuing operations....... 1,296 1,673 1,983 2,217 7,169
Net income.............................. 1,543 10,758 1,983 2,132 16,416
Income from continuing operations per
share................................. 0.14 0.17 0.20 0.23 0.74
Discontinued operations:
Income from operation of
unconsolidated affiliate sold, net
of applicable income taxes, per
share.............................. 0.02 0.02 -- -- 0.04
Gain from sale of unconsolidated
affiliate, net of applicable income
taxes, per share................... -- 0.92 -- (0.01) 0.91
Net income per share.................... 0.16 1.11 0.20 0.22 1.69
1996
- ----------------------------------------
Net revenues............................ $52,688 $52,685 $54,919 $58,054 $218,346
Facility and program contribution....... 6,102 6,429 7,324 8,027 27,882
Net income.............................. 1,817 2,004 2,299 2,571 8,691
Net income per share.................... 0.18 0.20 0.23 0.26 0.87
</TABLE>
41
<PAGE> 44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
42
<PAGE> 45
PART III
ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by these Items is omitted because the Company is
filing a definitive proxy statement pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this report which includes
the required information. The required information contained in the Company's
proxy statement is incorporated herein by reference.
43
<PAGE> 46
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
<TABLE>
<CAPTION>
REFERENCE
FORM 10-K
ANNUAL
REPORT
PAGE
---------
<S> <C> <C>
(a)(1) Index to Consolidated Financial Statements-Res-Care, Inc.
and Subsidiaries:
Independent Auditors' Report................................ 24
Consolidated Balance Sheets as of December 31, 1995 and
1996...................................................... 25
Consolidated Statements of Income for the years ended
December 31, 1994, 1995 and 1996.......................... 26
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1994, 1995 and 1996.............. 27
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996.......................... 28
Notes to Consolidated Financial Statements.................. 29
(a)(2) Index to Consolidated Financial Statement Schedule-Res-Care,
Inc. and Subsidiaries:
Schedule as of and for the years ended December 31, 1994,
1995 and 1996:
Independent Auditors' Report................................ S-1
Schedule II-Valuation and Qualifying Accounts............... S-2
</TABLE>
All other schedules have been omitted, as the required information is
inapplicable or the information is presented in the financial statements or
related notes.
44
<PAGE> 47
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.
RES-CARE, INC
<TABLE>
<S> <C>
Date: March 18, 1997 By: /s/ RONALD G. GEARY
----------------------------------------------
Ronald G. Geary
President and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES R. FORNEAR Chairman of the Board and Director March 18, 1997
- -------------------------------------
James R. Fornear
/s/ RONALD G. GEARY President, Chief Executive Officer March 18, 1997
- ------------------------------------- (Principal Executive Officer) and
Ronald G. Geary Director
/s/ E. HALSEY SANDFORD Executive Vice President-Development March 18, 1997
- ------------------------------------- and Director
E. Halsey Sandford
/s/ R. DAN BRICE Acting Executive Vice President, March 18, 1997
- ------------------------------------- Finance/Administration (Principal
R. Dan Brice Financial Officer and Principal
Accounting Officer)
/s/ SEYMOUR L. BRYSON Director March 18, 1997
- -------------------------------------
Seymour L. Bryson
/s/ W. BRUCE LUNSFORD Director March 18, 1997
- -------------------------------------
W. Bruce Lunsford
/s/ SPIRO B. MITSOS Director March 18, 1997
- -------------------------------------
Spiro B. Mitsos
</TABLE>
45
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Res-Care, Inc.:
Under date of February 26, 1997, we reported on the consolidated balance
sheets of Res-Care, Inc. and subsidiaries as of December 31, 1995 and 1996, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996, as
contained in the 1996 annual report to shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1996. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Louisville, Kentucky
February 26, 1997
S-1
<PAGE> 49
RES-CARE, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
------------------------- ---------- ---------------------------------- ---------------------------------
ADDITIONS
BALANCE CHARGED TO CHARGED TO
@ COST OTHER DEDUCTION
YEAR DESCRIPTION JANUARY 1 AND EXPENSES ACCOUNTS DEDUCTIONS DESCRIPTION
- ---- ------------------------- ---------- --------------- ---------------- ---------- --------------------
<C> <C> <C> <C> <C> <C> <C>
Allowance for Contractual Accounts Receivables
1994 Adjustments $1,733,218 $738,522** $488,891 Written-off
Allowance for Contractual Accounts Receivables
1995 Adjustments $1,982,849 $575,076** $646,600 Written-off
Allowance for Contractual Accounts Receivables
1996 Adjustments $1,911,325 $800,000** $765,893 Written-off
<CAPTION>
COL. E
-----------
BALANCE @
YEAR DECEMBER 31
- ---- -----------
<C> <C>
1994 $1,982,849
1995 $1,911,325
1996 $1,945,432
</TABLE>
** Charged to Revenue
S-2
<PAGE> 50
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- -------
<C> <S> <C>
2.1 Agreement by and among Res-Care, Inc., RSCR California,
Inc., Res-Care Illinois, Inc., Res-Care Kansas, Inc., and
RSCR Texas, Inc. and Beverly Health and Rehabilitation
Services, Inc., Beverly Enterprises-California, Inc.,
Beverly Enterprises-Illinois, Inc., Beverly
Enterprises-Kansas, Inc. and Beverly Enterprises-Texas, Inc.
dated April 5, 1995 (excluding Exhibits and Schedules).
Exhibit 2-1 to the Company's Report on Form 8-K dated May 1,
1995 filed on May 12, 1995 is hereby incorporated by
reference.
2.2 Stock Purchase Agreement by and among Housecall Medical
Resources Inc. and Res-Care, Inc., Blair S. Gordon and J.
Paul Gordon dated as of May 31, 1995 (excluding Exhibits and
Schedules). Exhibit 2-1 to the Company's Report on Form 8-K
dated May 31, 1995 filed on June 15, 1995 is hereby
incorporated by reference.
3.1 Amended and Restated Articles of Incorporation of the
Company as amended. Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-48749) is
hereby incorporated by reference.
3.2 Bylaws of the Company. Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-48749) is
hereby incorporated by reference.
4.1 Specimen Common Stock Certificate. Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-48749) is hereby incorporated by reference.
4.2 Article VI of the Amended and Restated Articles of
Incorporation of the Company included in Exhibit 3.1.
10.1* 1991 Incentive Stock Option Plan of the Company (adopted
April 24, 1991, amended and restated as of February 23,
1995). Exhibit 4 to the Company's Registration Statement on
Form S-8 (Reg. No. 33-80331) is hereby incorporated by
reference.
10.2* Amended and Restated Employment Agreement, dated April 27,
1992, between the Company and E. Halsey Sandford. Exhibit
10.14 to the Company's Registration Statement on Form S-1
(Reg. No. 33-48749) is hereby incorporated by reference.
10.3* 1991 Compensation/Evaluation Bonus Plan. Exhibit 10.15 to
the Company's Registration Statement on Form S-1 (Reg. No.
33-48749) is hereby incorporated by reference.
10.4 1993 Nonemployee Directors Stock Ownership Incentive Plan of
the Company (adopted October 28, 1993). Exhibit 4.1 to the
Company's Registration Statement on Form S-8 (Reg. No.
33-76612) is hereby incorporated by reference.
10.5 Amended and Restated Loan Agreement dated as of April 26,
1995 by and among Res-Care, Inc., and PNC Bank, Kentucky,
Inc. and National City Bank, Kentucky. Exhibit 10.7 to the
Company's Report on Form 10-K for the year ending December
31, 1995, is hereby incorporated by reference.
10.6* 1994 Employee Stock Purchase Plan effective July 1, 1995.
Exhibit 4.1 to the Company's Registration Statement on Form
S-8 (Reg. No. 33-85964) is hereby incorporated by reference.
</TABLE>
<PAGE> 51
<TABLE>
<C> <S> <C>
10.7* Employment Agreement dated as of October 26, 1995 between the Company and Ronald G. Geary.
Exhibit 10-1 to the Company's Report on Form 10-Q for the quarter ending September 30,
1995 is hereby incorporated by reference.
10.8* Res-Care, Inc. 401(K) Restoration Plan effective December 1, 1995. Exhibit 10.11 to the
Company's Report on Form 10-K for the year ending December 31, 1995, is hereby
incorporated by reference.
10.9 Second Amendment to Loan Instruments dated as of February 16, 1996 by and among Res-Care,
Inc., and PNC Bank, Kentucky, Inc. National City Bank, Kentucky and Sun Trust Bank,
Nashville, N.A. Exhibit 10.12 to the Company's Report on Form 10-K for the year ending
December 31, 1995, is hereby incorporated by reference.
10.10* Second Amended and Restated Employment Agreement dated March 17, 1996, between the Company
and E. Halsey Sandford. Exhibit 10.13 to the Company's Report on Form 10-K for the year
ending December 31, 1995, is hereby incorporated by reference.
10.11*+ Amended and Restated Employment Agreement dated as of October 26, 1995, and amended
November 5, 1996, between the Company and Ronald G. Geary.
10.12+ Loan Agreement dated December 23, 1996, by and among Res-Care, Inc. and all of its
subsidiaries and PNC Bank, Kentucky, Inc., National City Bank of Kentucky, SunTrust Bank,
Nashville, N.A. and Bank One, Kentucky, N.A.
10.13*+ Employment Agreement dated January 1, 1997, between the Company and Jeffrey M. Cross.
21.1+ Subsidiaries of the Company.
23.1+ Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* Management contracts or compensatory plan or arrangements.
+ Filed herewith.
<PAGE> 1
Exhibit 10.11
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This is an Amended and Restated Employment Agreement ("AGREEMENT") dated
as of October 26, 1995, between RES-CARE, INC., a Kentucky corporation (the
"COMPANY"), and RONALD G. GEARY (the "EXECUTIVE").
Recitals
A. The Executive has been employed by the Company since February 5, 1990,
and the services of the Executive, his managerial, legal and financial
experience, and his knowledge of the affairs of the Company is of great value to
the Company;
B. The Executive possesses an intimate knowledge of the business and
affairs of the Company, its policies, methods, personnel and plans for the
future;
C. The Company's Board of Directors recognizes that the Executive's
contribution to the growth and success of the Company has been substantial and
wishes to offer an inducement to the Executive to remain in the employ of the
Company; and
D. This Agreement amends, restates and supersedes in its entirety the
Employment Agreement dated October 26, 1995, between the Company and the
Executive.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, the parties agree as follows:
1. EMPLOYMENT AND TERM. The Company hereby employs the Executive, and the
Executive accepts such employment, upon the terms and conditions herein set
forth for an initial term commencing as of September 15, 1995, and ending on
September 14, 2000, subject to earlier termination only in accordance with the
express provisions of this Agreement ("INITIAL TERM"). The Initial Term of this
Agreement shall be automatically extended for additional 12 month periods (each
an "ADDITIONAL TERM" and collectively the "ADDITIONAL TERMS"), commencing on
September 15, 1999 and on each anniversary date of this Agreement thereafter,
unless sooner terminated in accordance with the express provisions of this
Agreement, so that the remaining period of the Term shall always equal two
years. For purposes of this Agreement, the term "TERM" shall mean the Initial
Term plus any Additional Terms.
2. DUTIES.
(a) EMPLOYMENT AS PRESIDENT AND CHIEF EXECUTIVE OFFICER. During the
Term, the Executive shall serve as the Company's President and Chief Executive
Officer. The Executive shall, subject to the supervision and control of the
Company's Board of Directors, perform such duties and exercise such powers over
and with regard to the Company's business as are presently being performed and
exercised by him and such additional duties which are similar in nature and
responsibility to those presently being performed by the Executive as may
<PAGE> 2
be prescribed from time to time by the Company's Board of Directors, including,
without limitation, serving as a director and/or officer of the Company or one
or more subsidiaries or affiliates of the Company, if elected to either or both
of such positions, without any further salary or other compensation, including
directors' fees.
(b) TIME AND EFFORT. The Executive shall devote all of his business
time, energies and talents exclusively to the Company's business and to no other
business during the Term; provided, however, that subject to paragraph 7 of this
Agreement, the Executive may (i) invest his personal assets in such form or
manner as will not require his services in the operation of the affairs of the
entities in which such investments are made, (ii) subject to satisfactory
performance of the duties described in paragraph 2(a) of this Agreement, devote
such time as may be reasonably required for him to continue to maintain his
current level of participation in various civic and charitable activities, and
(iii) subject to satisfactory performance of the duties described in paragraph
2(a) of this Agreement, devote such time as may be reasonably required for him
to continue to serving as a director on various for-profit and non-profit boards
of directors, including without limitation, serving as director on the board of
The First Capital Bank of Kentucky.
3. COMPENSATION.
(a) BASE SALARY. The Company shall pay to the Executive during the
Term a fixed, annual salary of $300,000.00, plus, beginning one year from the
date of this Agreement, any cost of living increase determined in accordance
with the formula set forth in paragraph 3(b) of this Agreement (the "BASE
SALARY").
(b) COMPUTATION OF COST OF LIVING INCREASES. The Executive's cost of
living increase, if any, shall be determined as promptly as practicable after
each anniversary of the date of this Agreement. The cost of living increase
shall be determined as follows:
(i) The basis of the computation shall be the "Consumer Price
Index for Urban Wage Earners and Clerical Workers" (CPI-W with base 1982-84 =
100) (the "INDEX") published by the Bureau of Labor Statistics of the United
States Department of Labor. If the Bureau of Labor Statistics at any time during
the Term compiles the Index in a different manner than is in effect on the date
of this Agreement, the Company shall have the right, in its reasonable
discretion, to determine which Consumer Price Index as then compiled by the
Bureau of Labor Statistics will be used for the purpose of this Agreement. Upon
written notice to the Executive of its reasonable determination of any change,
such Index shall be the "Index" for purposes of this Agreement.
(ii) The Index for the month of August, 1995 shall be the
"BASE INDEX NUMBER" and the Index for the month of August next preceding each
determination shall be the "CURRENT INDEX NUMBER."
(iii) The rate of the cost of living increase on any annual
anniversary of
2
<PAGE> 3
this Agreement shall be determined by dividing the Current Index Number by the
Base Index Number, and subtracting the integer 1 from the quotient, in
accordance with the following formula: Rate = (Current Index Number/Base Index
Number) - 1.
(iv) The product of the rate of the cost of living increase
multiplied by $300,000.00 shall be the cost of living increase for that
following 12 month period, effective on the applicable anniversary of the Term.
(c) CASH BONUS. The Executive shall be entitled to the bonus
described in Section 3(b) of the Employment Agreement dated January 1, 1991,
between the Executive and the Company (the "1991 EMPLOYMENT AGREEMENT") for the
1995 calendar year, payable as described in the 1991 Employment Agreement. For
the calendar year beginning January 1, 1996, and thereafter during the Term, the
Executive shall be eligible for an annual bonus (or pro rata portion thereof)
during the Term equal to 0% to 50% of Base Salary, based upon performance
criteria to be mutually agreed upon by the Executive and the Board of Directors'
Compensation Committee on or before January 1 of each year during the Term (the
"CASH BONUS").
(d) INCENTIVE STOCK OPTION.
(i) The Company hereby grants to the Executive, effective as
of October 26, 1995 (the "EFFECTIVE DATE"), an incentive stock option (the "BASE
OPTION") to purchase up to a total of 65,000 shares (the "OPTION SHARES") of the
common stock of the Company, no par value, on the terms and conditions of and
pursuant to the Res-Care, Inc. 1991 Incentive Stock Option Plan (the "PLAN"), at
a price per share equal to fair market value (as defined in the Plan) as of the
Effective Date (the "EXERCISE PRICE"). The Base Option is fully vested and
immediately exercisable by the Executive as of the Effective Date. The right to
exercise the Base Option shall expire six years from the date of this Agreement,
except as the right to exercise the Option is otherwise qualified by the terms
of the Plan or this Agreement. The Company also agrees to grant to the Executive
additional incentive stock options (each an "ADDITIONAL OPTION" and
collectively, the "ADDITIONAL OPTIONS") to purchase (A) up to a total of 50,000
shares of the common stock of the Company ("COMPANY COMMON STOCK"), no par
value, at the then fair market value, on the last Thursday of each February
during the Term, commencing on the last Thursday of February 1997, and (B)
112,797 shares of Company Common Stock, no par value, at the fair market value
on November 5, 1996 (the date of execution of this Amended and Restated
Employment Agreement), and in each case otherwise on the terms and conditions of
and pursuant to the Plan. The Additional Option described in clause (A) shall be
fully vested and immediately exercisable on the respective date of issuance of
such Additional Option and the Additional Option described in clause (B) shall
become fully vested and immediately exercisable on March 15, 1997 (and prior to
that date shall not be exercisable). The Base Option and the Additional Options
shall be referred to as the "OPTION". The right to exercise each Additional
Option shall expire six years from the date of
3
<PAGE> 4
issuance of such Additional Option. The Company's Board of Directors shall have
approved the granting of the Base Option and the Additional Options as of the
date of this Agreement.
(ii) The Option is not transferable otherwise than by will or
the laws of descent and distribution, and is exercisable during the Executive's
lifetime only by him. The Option is not liable for or subject to, in whole or in
part, the debts, contracts, liabilities, or torts of the Executive nor shall it
be subject to garnishment, attachment, execution, levy or other legal or
equitable process. A modification, extension or renewal of an outstanding
incentive stock option, including the Option, shall be treated as the granting
of a new incentive stock option to the extent required under applicable
provisions of the Internal Revenue Code.
(iii) The Option shall be subject to the provisions of the
Plan and the Plan is incorporated in its entirety into this Agreement by this
reference.
(iv) The Option shall automatically terminate on the Date of
Termination (as defined in paragraph 4(f) of this Agreement) with respect to all
unexercised Option Shares, and the Executive shall be entitled to receive an
amount equal to the number of Option Shares exercisable immediately prior to the
Date of Termination multiplied by the excess, if any, of the fair market value
(defined to mean the closing price of the Company's common stock on the last
trading day prior to the Date of Termination) of each such Option Share over the
Option Price (or zero, if the fair market value is less than or equal to the
Option Price);
(v) The Option may be exercised only by written notice by the
Executive in the manner set forth in paragraph 10 of this Agreement. Such notice
shall state the number of Option Shares in respect of which the option is being
exercised and, if the Option Shares for which the option is being exercised are
to be evidenced by more than one stock certificate, the denominations in which
the stock certificates are to be issued; provided that no stock certificate
shall be issued for less than 100 Option Shares. The notice shall be signed by
the Executive. Such notice shall be accompanied by payment of the full Exercise
Price of such Option Shares by cash or check payable to the order of the
Company.
(vi) The certificates for the Option Shares as to which the
Option shall have been so exercised shall be registered in the name of the
Executive and shall be delivered to the Executive at the address set forth in
paragraph 10 of this Agreement. Each certificate shall bear any legend required
under applicable state or federal securities laws.
(vii) Subject to the limitations, expressed herein, the Option
may be exercised with respect to all or a part of the Option Shares; provided,
however, that no one exercise of the Option shall result in the issuance of less
than 500 Option Shares.
(viii) Neither the Executive nor any person claiming under or
through the Executive shall be or have any rights or privileges of a stockholder
of the Company in respect of any of the Option Shares, unless and until
certificates representing such Option Shares
4
<PAGE> 5
shall have been issued (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company).
(ix) In the event of a stock dividend, stock split or other
subdivision, consolidation, reorganization or change in the shares of the
Company Common Stock or otherwise with respect to the capital structure of the
Company, the number of Option Shares shall be proportionately adjusted. All such
adjustments shall be made so as not to constitute a modification within the
meaning of Section 425 of the Internal Revenue Code of 1986, as amended (the
"CODE").
(x) If the Company shall be a party to a binding agreement to
any merger, consolidation, reorganization or sale of substantially all the
assets of the Company, the Option shall pertain and apply to the securities
and/or property which a share owner of the number of shares of Company Common
Stock subject to the Option would be entitled to receive pursuant to such
merger, consolidation, reorganization or sale of assets.
(xi) In the event that: (A) any person other than the Company
shall acquire more than 50% of the Company Common Stock through a tender offer,
exchange offer or otherwise; or (B) there shall be a sale of all or
substantially all of the assets of the Company; then the Executive shall be
entitled to receive in lieu of exercise of the Option, to the extent that it is
then exercisable, a cash payment in an amount equal to the difference between
the aggregate Exercise Price of such Option, or portion thereof, and (1) in the
case of an event covered by (A) above, the final offer price per share paid for
Company Common Stock, or such lower price as the Company's Board of Directors
may determine is necessary to preserve the Option's status as an "incentive
stock option" within the meaning of Section 422 of the Code, multiplied by the
number of shares of Company Common Stock granted pursuant to the Option, and (2)
in the case of an event covered by (B) above, the aggregate fair market value of
the Option Shares, as determined by the Company's Board of Directors at such
time. Any payment which the Company is required to make under this paragraph
3(d)(xi) shall be made within 15 business days following the event which results
in the Executive's right to such payment. Notwithstanding anything in this
paragraph 3(d)(xi) to the contrary, if an event covered by (A) above results in
the Company receiving non-cash compensation, then the Executive's payment
pursuant to this paragraph 3(d)(xi) shall, to the extent possible, be in the
same form of non-cash payment as received by the Company's shareholders with
respect to their shares of Company Common Stock.
(e) OUT-OF-POCKET EXPENSES. The Company shall pay to the Executive
the ordinary, necessary and reasonable expenses incurred by him in the
performance of his duties hereunder (or if such expenses are paid directly by
the Executive, shall reimburse him for such payment), provided that the
Executive properly accounts therefor in accordance with the Company's policy.
(f) PARTICIPATION IN BENEFIT PLANS. The Executive shall be entitled
to participate in (i) health insurance, (ii) term life insurance, (iii) 401(k)
plan, (iv) sick leave, and
5
<PAGE> 6
(v) long-term disability and other benefits generally made available to officers
of the Company during the Term, which shall include all normal benefits
available under the Company's current "Flex-Care" plan, subject to any
eligibility, coverage, qualification or other limitations or restrictions
applicable to such benefits. The Company further agrees to provide the Executive
with the maximum disability insurance coverage permitted under the Company's
current "Flex-Care" plan, at the Company's expense.
(g) VACATION; PROFESSIONAL LICENSES. The Executive shall be entitled
to an annual vacation leave of three weeks at full pay, such vacation to be
taken during each relevant year at time(s) mutually agreeable to the parties
hereto. The Executive shall also be entitled to be absent from work for up to
one week at full pay so as to maintain his CPA and law licenses. The Company
shall pay all reasonable fees and expenses (including transportation, lodging,
food and tuition) associated with such courses and shall also pay all state
licensing fees and dues for local, state and federal professional associations
in which the Executive is a member.
(h) WITHHOLDING OF TAXES; INCOME TAX TREATMENT. If, upon the payment
of any compensation or benefit to the Executive under this Agreement (including,
without limitation, in connection with the exercise of the Option), the Company
determines in its discretion that it is required to withhold or provide for the
payment in any manner of taxes, including but not limited to, federal income or
social security taxes, state income taxes or local income taxes, the Executive
agrees that the Company may satisfy such requirement by: (i) withholding an
amount necessary to satisfy such withholding requirement from the Executive's
compensation or benefit; or (ii) conditioning the payment or transfer of such
compensation or benefit upon the Executive's payment to the Company of an amount
sufficient to satisfy such withholding requirement. The Executive agrees that he
will treat all of the amounts payable pursuant to this Agreement as compensation
for income tax purposes.
(i) OFFICE. The Company shall provide to the Executive during the
Term at the Company's expense a fully equipped office in the Executive's home,
in addition to his office at the corporate headquarters, including without
limitation, all furniture, fax machine, copier, printer, computer, telephone,
and all expenses associated with the use of such equipment, and all fees and
costs for computer on-line services to monitor the various public markets. Upon
termination of the Executive's employment with the Company, the Executive shall
return to the Company, at the Company's expense, all equipment provided to the
Executive pursuant to this paragraph 3(i).
(j) FINANCIAL PLANNING. The Company agrees to pay all reasonable
legal and accounting fees incurred each year during the Term by the Executive in
connection with the Executive's personal tax and financial planning.
(k) ANNUAL PHYSICAL. The Company shall pay any reasonable expenses
for the Executive's annual physical that are not covered by insurance.
4. TERMINATION. The Executive's employment hereunder may be terminated
under
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this Agreement as follows, subject to the Executive's rights pursuant to
paragraph 5 of this Agreement:
(a) DEATH. The Executive's employment hereunder shall terminate upon
his death.
(b) DISABILITY. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from his duties
hereunder on a full-time basis for 90 consecutive calendar days, and within 30
days after written Notice of Termination is given (which may occur no earlier
than 30 days before, but at any time after, the end of such 90- day period), the
Executive shall not have returned to the performance of his duties hereunder on
a full-time basis, the Company may terminate the Executive's employment
hereunder.
(c) CAUSE. The Company may terminate the Executive's employment
hereunder for Cause. For purposes of this Agreement, the Company shall have
"CAUSE" to terminate the Executive's employment because of the Executive's
breach of fiduciary duty involving personal profit, repeated and gross neglect
of or failure to perform his material duties under this Agreement, or conviction
of, or plea of nolo contendere to, any law, rule or regulation (other than
traffic violations or similar offenses).
(d) WITHOUT CAUSE. By appropriate action of the Company's Board of
Directors, the Company shall have the right to terminate the Executive's
employment under this Agreement at any time without Cause.
(e) NOTICE OF TERMINATION. Any termination during the term of this
Agreement of the Executive's employment hereunder (other than termination
pursuant to paragraphs 4(a) or (d) above) shall be communicated by written
Notice of Termination to the Executive hereto. For purposes of this Agreement, a
"NOTICE OF TERMINATION" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated. If
the Company's Board of Directors terminate the Executive pursuant to paragraph
4(d), then the Company shall notify the Executive that he is being terminated
pursuant to paragraph 4(d) of this Agreement.
(f) DATE OF TERMINATION. The "DATE OF TERMINATION" shall, for
purposes of this Agreement, mean: (i) if the Executive's employment is
terminated by his death, the date of his death; (ii) if the Executive's
employment is terminated on account of disability pursuant to paragraph 4(b)
above, 30 days after Notice of Termination is given (provided that the Executive
shall not, during such 30-day period, have returned to the performance of his
duties on a full-time basis), (iii) if the Executive's employment is terminated
by the Company for Cause pursuant to paragraph 4(c) above, the date specified in
the Notice of Termination, (iv) if the Executive's employment is terminated by
the Company without Cause, pursuant to paragraph 4(d) above, 30 days after
Notice of Termination is given, or (v) if the Executive's employment is
terminated by the Executive's voluntary resignation, upon the date of notice of
such resignation by the
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<PAGE> 8
Executive or such later date as specified in such notice.
5. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) DEATH. If the Executive's employment shall be terminated by
reason of his death, the Executive shall continue to receive his full Base
Salary until the date of his death and a Cash Bonus, prorated based upon the
number of full months that have elapsed from the immediately preceding January 1
until the date of his death (plus any earned but unpaid Cash Bonus for a prior
period).
(b) DISABILITY. During any period that the Executive fails to
perform his duties hereunder as a result of incapacity due to physical or mental
illness, the Executive shall continue to receive his full Base Salary until the
Date of Termination and shall be entitled to receive a Cash Bonus, prorated
based upon the number of full months that have elapsed from the immediately
preceding January 1 until the Date of Termination (plus any earned but unpaid
Cash Bonus for a prior period). Upon termination due to death prior to a
termination as specified in the preceding sentence, paragraph 5(a) above shall
apply.
(c) CAUSE; VOLUNTARY RESIGNATION. If the Executive's employment
shall be terminated for Cause or the Executive's voluntary resignation, the
Company shall, through the Date of Termination, continue to pay the Executive
his full Base Salary but the Executive shall not be entitled to receive a Cash
Bonus (other than any earned but unpaid Cash Bonus for a prior period).
(d) WITHOUT CAUSE. If the Executive's employment shall be terminated
without Cause, the Executive shall continue to receive his full Base Salary for
the balance of the Term. The Executive shall also be entitled to receive a Cash
Bonus, prorated based upon the number of full months that have elapsed from the
immediately preceding January 1 until the Date of Termination (plus any earned
but unpaid Cash Bonus for a prior period).
(e) NO FURTHER OBLIGATIONS AFTER PAYMENT. After all payments, if
any, have been made to the Executive pursuant to paragraph 3(c) of this
Agreement and any of paragraphs 5(a) through 5(d) of this Agreement, the Company
shall have no further obligations to the Executive under this Agreement other
than the provision of any employee benefits required to be continued under
applicable law.
(f) TERMINATION FOLLOWING CHANGE OF CONTROL. Notwithstanding
anything else in this Agreement to the contrary, if any of the events
constituting a Change of Control of the Company shall have occurred, then the
Executive shall be entitled to an amount equal to (i) the unpaid balance of the
Executive's full base salary through the Date of Termination at the rate in
effect as of the Date of Termination, and (ii) an amount equal to the
Executive's full base salary for 24 months at the rate in effect as of the Date
of Termination, upon the concurrent or subsequent termination of the Executive's
employment, or the voluntary resignation of the Employee, unless such
termination is because of the Executive's death or for Cause. A "CHANGE
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<PAGE> 9
OF CONTROL" of the Company shall mean a change of control of the Company which
is of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended ("EXCHANGE ACT"); provided that, without limitation, such a
change of control shall be deemed to have occurred if (A) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
beneficial owner as defined in Rule 13d-3 under the Exchange Act, directly or
indirectly, of securities of the Company representing 40% or more of the
combined voting power of the Company's then outstanding securities; or (B)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Company's Board of Directors cease for any reason to
constitute at least a majority thereof unless the election, or the nomination
for election by the Company's shareholders, of each new director was approved by
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period; or (C) the Company's shareholders
approve a merger or consolidation of the Company with another corporation if the
Company's shareholders immediately before such vote will not, as a result of
such merger or consolidation own more than 50% of the voting stock of the
corporation resulting from such merger or consolidation; or (D) the business of
the Company and its subsidiaries is disposed of pursuant to a partial or
complete liquidation of the Company or its subsidiaries or the sale of
substantially all of the assets of the Company or its subsidiaries, or
otherwise.
6. DUTIES UPON TERMINATION. Upon the Executive's termination of employment
hereunder for any reason whatsoever, the Executive shall promptly return to the
Company any Confidential Information (as hereinafter defined) and, whether or
not constituting Confidential Information, any technical data, marketing plans,
customer lists, rolodexes and any tape recordings, computer programs, disks, and
any other physical representations of any information relating to the Company or
to the Business (as hereinafter defined) of the Company. The Executive hereby
acknowledges that any and all of such items, physical representations and
information are and shall remain at all times the exclusive property of the
Company.
7. RESTRICTIVE COVENANTS IN CONNECTION WITH THE EXECUTIVE'S EMPLOYMENT.
(a) ACKNOWLEDGMENTS. The Executive acknowledges that (i) his
services hereunder are of a special, unique and extraordinary character and that
his position with the Company places him in a position of confidence and trust
with the clients and employees of the Company and its affiliates and allows him
access to Confidential Information, (ii) the nature and periods of restrictions
imposed by the covenants contained in this paragraph 7 are fair, and reasonable
and necessary to protect and preserve for the Company the benefits of the
Executive's employment hereunder, (iii) the Company would sustain great and
irreparable loss and damage if the Executive were to breach any of such
covenants, (iv) the Company conducts its business actively in and throughout the
entire Territory, and (vi) the Territory is reasonably sized because the
Business of the Company is scattered over a wide geographical area, and requires
the entire Territory for profitable operations.
(b) COVENANTS. Having acknowledged the foregoing, the Executive
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<PAGE> 10
covenants and agrees with the Company that he will not, directly or indirectly,
from the date of this Agreement until the later of (i) one year after the Date
of Termination, or (ii) if the Executive receives payments after termination
pursuant to paragraphs 5(c) or (d), then one year after the date that he ceases
to receive such payments: (A) solicit, divert or appropriate to himself or any
other person, or attempt to solicit or divert or appropriate to himself or any
other person, any business or services (similar in nature to the Business) of
any person who was a client, an employee or an agent of the Company or any
affiliate of the Company at any time during the 12 months immediately preceding
the Date of Termination (or if a Date of Termination has not occurred, the date
of such solicitation, diversion or appropriation); or (B) own, manage, operate,
join, control, assist, participate in or be connected with, directly or
indirectly, as an officer, director, shareholder, partner, proprietor, employee,
agent, consultant, independent contractor or otherwise, any person which is, at
the time, directly or indirectly, in competition within the Territory with the
Business of the Company or any affiliate of the Company. The Executive covenants
further that, without limitation as to time, he will not, directly or indirectly
disclose or use or otherwise exploit for his own benefit, or the benefit of any
other person, except as may be necessary in the performance of his duties
hereunder, any Confidential Information.
(c) DEFINITIONS. For purposes of this Agreement,
(i) The "TERRITORY" shall mean the area described on SCHEDULE
A to this Agreement.
(ii) "CONFIDENTIAL INFORMATION" shall mean any business
information relating to the Company or any of its affiliates or to the Business
of the Company or any of its affiliates (whether or not constituting a trade
secret), which has been or is treated by the Company or any of its affiliates as
proprietary and confidential. without limiting the generality of the foregoing,
so long as such information is treated by the Company or any of its affiliates
as proprietary and confidential, Confidential Information shall include,
information regarding the Company's or any of its affiliates' services,
technology, processes, research, pricing, purchasing, accounting, operations,
finances, marketing, employment practices, customer and prospective customer
lists, agents and affiliates; provided, however, that Confidential Information
shall not include any information that (A) has been lawfully disclosed on a
non-confidential basis by the Company or any of its affiliates to any third
party, (B) has been independently developed or disclosed by others, or (C)
otherwise enters the public domain by lawful means.
(iii) The "BUSINESS" of the Company and its affiliates shall
mean any business engaged in by the Company or its affiliates during the Term.
(iv) The term "PERSON" shall mean an individual, a
partnership, an association, a corporation, a trust, an unincorporated
organization, or any other business entity or enterprise.
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(d) INJUNCTIVE RELIEF; INVALIDITY OF ANY PROVISION. The Executive
acknowledges that his breach of any covenant contained in this paragraph 7 will
result in irreparable injury to the Company and its affiliates and that the
company's and the affiliate's remedy at law for such a breach will be
inadequate. Accordingly, the Executive agrees and consents that the Company or
any of its affiliates, in addition to all other remedies available to any of
them at law and in equity, shall be entitled to seek both preliminary and
permanent injunctions to prevent and/or halt a breach or threatened breach by
the Executive of any covenant contained in this paragraph 7. If any provision of
this paragraph 7 is invalid in part or in whole, it shall be deemed to have been
amended, whether as to time, area covered or otherwise, as and to the extent
required for its validity under applicable law and, as so amended, shall be
enforceable. The parties further agree to execute all documents necessary to
evidence such amendment.
8. ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Agreement constitutes the
entire agreement between the parties pertaining to the subject matter contained
in it and supersedes all prior and contemporaneous agreements, representations,
and understandings of the parties. This Agreement supersedes (i) the 1991
Employment Agreement and the Employment Agreement Addendum dated November 25,
1991, except with respect to (A) the incentive stock option granted pursuant to
the 1991 Employment Agreement, with respect to which the rights of the Executive
shall not be affected by this Agreement, and (B) the bonus for the calendar year
1995 as provided for under the 1991 Employment Agreement and in paragraph 3(c)
of this Agreement, with respect to which the rights of the Executive shall not
be affected by this Agreement and (ii) the Employment Agreement dated as of
October 26, 1995. No supplement, modification, or amendment of this Agreement
shall be binding unless executed in writing by all parties hereto (other than as
provided in the next to last sentence of paragraph 7(d) of this Agreement. No
waiver of any of the provisions of this Agreement will be deemed, or will
constitute, a waiver of any other provision, whether or not similar, nor will
any waiver constitute a continuing waiver. No waiver will be binding unless
executed in writing by the party making the waiver.
9. SUCCESSORS AND ASSIGNS; ASSIGNMENT. This Agreement shall be binding on,
and inure to the benefit of, the parties hereto and their respective heirs,
executors, legal representatives, successors and assigns; provided, however,
that this Agreement is intended to be personal to the Executive and the rights
and obligations of the Executive hereunder may not be assigned or transferred by
him.
10. NOTICES. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement, or any other
agreement executed in connection therewith, shall be in writing and shall be
deemed to have been given on the date of delivery personally or upon deposit in
the United States mail postage prepaid by registered or certified mail, return
receipt requested, to the appropriate party or parties at the following
addresses (or at such other address as shall hereafter be designated by any
party to the other parties by notice given in accordance with this paragraph
10):
TO THE COMPANY:
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Res-Care, Inc.
1300 Embassy Square
Louisville, Kentucky 40299
Attn: Chairman of the Board
TO THE EXECUTIVE:
Ronald G. Geary
603 Flat Rock Road
Louisville, Kentucky 40245
11. EXECUTION IN COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
12. FURTHER ASSURANCES. The parties each hereby agree to execute and
deliver all of the agreements, documents and instruments required to be executed
and delivered by them in this Agreement and to execute and deliver such
additional instruments and documents and to take such additional actions as may
reasonably be required from time to time in order to effectuate the transactions
contemplated by this Agreement.
13. SEVERABILITY OF PROVISIONS. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions of
this Agreement and this Agreement shall be construed in all respects as if such
invalid or unenforceable provisions were omitted.
14. GOVERNING LAW. This Agreement is executed and delivered in, and shall
be governed by, enforced and interpreted in accordance with the laws of, the
Commonwealth of Kentucky.
15. TENSE; CAPTIONS. In construing this Agreement, whenever appropriate,
the singular tense shall also be deemed to mean the plural, and vice versa, and
the captions contained in this Agreement shall be ignored.
16. SURVIVAL. The provisions of paragraph 7 of this Agreement shall
survive the termination, for any reason, of this Agreement, in accordance with
their terms.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above but actually on the dates set forth below.
RES-CARE, INC.
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By: /s/ James R. Fornear
------------------------------
Title: Chairman
---------------------------
Date: 11/5/96
----------------------------
---------------------------------
RONALD G. GEARY
Date: 11/5/96
----------------------------
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<PAGE> 1
Exhibit 10.12
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Loan Agreement"), is made and entered into as of the
23rd day of December, 1996, by and among (i) (a) PNC BANK, KENTUCKY, INC., a
Kentucky banking corporation with principal office and place of business in
Louisville, Kentucky ("PNC"), (b) NATIONAL CITY BANK OF KENTUCKY, a national
banking association with principal office and place of business in Louisville,
Kentucky ("National City"), (c) SUNTRUST BANK, NASHVILLE, N.A., a national
banking association with principal office and place of business in Nashville,
Tennessee ("SunTrust"), (d) BANK ONE, KENTUCKY, NA, a national banking
association with principal office and place of business in Louisville, Kentucky
("Bank One") (PNC, National City, SunTrust and Bank One are hereinafter
collectively referred to as the "Banks", and each is hereinafter individually
referred to as a "Bank"); (ii) PNC BANK, KENTUCKY, INC., in its capacity as the
administrative bank hereunder (in such capacity the "Administrative Bank"); and
(iii) RES-CARE, INC., a Kentucky corporation with principal office and place of
business in Louisville, Kentucky ("Res-Care") and each of the Consolidated
Subsidiaries of Res-Care identified on Schedule 1 hereto (Res-Care and each
Consolidated Subsidiary, a "Borrower," and all of the foregoing collectively,
the "Borrowers").
P R E L I M I N A R Y S T A T E M E N T:
A. The Borrowers desire to obtain from the Banks a revolving line of
credit in the principal amount of Sixty Five Million Dollars ($65,000,000.00)
(as defined in Section 1 hereof, the "Revolving Credit Facility").
B. The Borrowers desire to obtain from the Banks a commitment to issue
letters of credit for the account of the Borrowers in an aggregate outstanding
amount of up to Ten Million ($10,000,000.00) at any one time, as a subfacility
under the Revolving Credit Facility (as defined in Section 1 hereof, the "Letter
of Credit Subfacility").
C. The Borrowers desire to obtain from PNC a swing line revolving line
of credit in the principal amount of Seven Million Five Hundred Thousand Dollars
($7,500,000) (as defined in Section 1 hereof, the "Swing Line Credit Facility")
D. The Banks desire to establish the Revolving Credit Facility and the
Letter of Credit Subfacility in favor of the Borrowers, and PNC desires to
establish the Swing Line Facility in favor of the Borrowers, in each case upon
the terms and conditions set forth herein.
E. Res-Care and the other Borrowers will benefit from the extension of
the Revolving Credit Facility, the Letter of Credit Subfacility and the Swing
Line Credit Facility because such extensions of credit will enable Res-Care and
the other Borrowers to have available and to draw from time to time credit that
would not otherwise be available to Res-Care and the other Borrowers.
<PAGE> 2
F. Res-Care obtained from PNC, National City and SunTrust certain credit
accommodations pursuant to an Amended and Restated Loan Agreement dated as of
April 26, 1995, as amended by Second Amendment to Loan Instruments dated as of
February 16, 1996 (together, the "Old Loan Agreement"), including the following:
(i) a revolving line of credit in the principal amount of Thirty Five Million
Dollars ($35,000,000), (ii) a term loan in the principal of Four Million Dollars
($4,000,000), (iii) a commitment to issue letters of credit for the account of
the Borrower in an aggregate outstanding amount of up to Two Million Dollars
($2,000,000) at any one time and (iv) a commitment to enter into equipment
leases with the Borrower that obligated PNC to purchase equipment for lease to
the Borrower having an aggregate cost of up to Seven Hundred Thousand Dollars
($700,000). A portion of the proceeds of the loans under this Loan Agreement
will be used to satisfy the obligations of Res-Care under the Old Loan
Agreement. The Old Loan Agreement and the notes executed in connection therewith
will be deemed satisfied and terminated upon the execution and delivery of this
Loan Agreement and the satisfaction of all closing conditions set forth in
Section 5 hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the mutuality, receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1
DEFINITIONS AND CROSS REFERENCE
Certain terms used in this Loan Agreement are defined in this Section 1;
other terms are defined elsewhere in this Loan Agreement.
1.1 "Accounts Receivable" means all (a) rights to payment for any goods
sold or services performed, whether such right to payment exists on the date of
this Loan Agreement or is created thereafter, and whenever and wherever
acquired, whether or not such right to payment has been earned by performance,
and whether or not such right to payment is evidenced by any document,
instrument or chattel paper, and all claims against common carriers for goods
and Inventory lost in transit; and (b) the proceeds or products of any of the
foregoing. The term "Accounts Receivable" includes the term "account" as defined
in KRS 355.9-106. The amount of an Account Receivable shall be the amount of the
receivable net of all discounts.
1.2 "Administrative Bank" has the meaning assigned to that term in the
introduction to this Loan Agreement.
1.3 "Advance" means with respect to any Borrower, each and every advance
of proceeds under the Revolving Credit Facility, the Letter of Credit
Subfacility, or the Swing Line Credit Facility, directly or indirectly, to such
Borrower, regardless of whether such advance is accounted for under GAAP as an
extension of credit, a contribution of capital or otherwise.
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1.4 "Affiliate" means, as applied to any Person, (i) any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person, (ii) any other Person that, directly or indirectly, owns or
controls, whether beneficially or as a trustee, guardian or other fiduciary, 10%
or more of the stock having ordinary voting power in the election of directors
of such Person, or (iii) each of such Person's directors and officers appointed
by the board of directors of such Person. For the purposes of this definition,
"control" (including with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with") , as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through the
ownership of voting securities or by contract or otherwise.
1.5 "And/or" means one or the other or both, or any one or more or all,
of the things or persons or parties in connection with which the conjunction is
used.
1.6 "Applicable Base Rate Margin" means the applicable per annum
percentage set forth in the table appearing in Section 2.2A hereof, with respect
to Base Rate Loans.
1.7 "Applicable Euro-Rate Margin" means the applicable per annum
percentage set forth in the table appearing in Section 2.2A hereof, with respect
to Euro-Rate Loans.
1.8 "Applicable Commitment Fee Percentages" means the applicable per
annum percentage set forth in the table appearing in Section 2.3B hereof, with
respect to the calculation of Revolving Credit Commitment Fees.
1.9 "Applicable Letter of Credit Percentages" means the applicable per
annum percentage set forth in the table appearing in Section 2.7F of the Loan
Agreement.
1.10 "Application and Agreement For Letter of Credit" means the document
substantially in the form of Exhibit C annexed hereto, with appropriate
insertions and deletions, with respect to the proposed issuance or amendment of
a Letter of Credit.
1.11 "Assignment Agreement" means an Assignment Agreement between an
assigning Bank and its assignee, substantially in the form of Exhibit H annexed
hereto.
1.12 "Assumption Agreement" means an Assumption Agreement in favor of
the Administrative Bank, for the benefit of the Banks, executed and delivered by
a Consolidated Subsidiary that becomes a Borrower subsequent to the Closing
Date, pursuant to the requirement of Section 7.10 hereof, substantially in the
form of Exhibit M hereto.
1.13 "Authorized Officer" means the President, the Financial Officer and
any other officer of Res-Care, for itself and as agent for the other Borrowers,
who, by the Articles of Incorporation, Bylaws or Resolutions of the Board of
Directors of such Borrower, is authorized to execute and deliver this Loan
Agreement and the other Loan Instruments on behalf of such Borrower.
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1.14 "Banks" has the meaning assigned to that term in the introduction
to this Loan Agreement.
1.15 "Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy" as now and hereafter in effect, or any successor statute.
1.16 "Base Rate" means the variable rate per annum equal to the higher
of (i) the Federal Funds Effective Rate plus one half of one percent (0.5%), as
the same may change from time to time, or (ii) the Prime Rate, as the same may
change from time to time.
1.17 "Base Rate Loan" means Revolving Credit Loans bearing interest at
rates determined with reference to the Base Rate, as the same may change from
time to time as provided in Section 2.2A.
1.18 "Beverly Acquisition" means the acquisition and/or sublease by
certain Consolidated Subsidiaries of Res-Care of twelve (12) intermediate care
facilities for persons with developmental disabilities and/or mental retardation
located in California, Illinois, Kansas and Texas, upon the terms and conditions
set forth in that certain Agreement dated April 5, 1995, among Res-Care, RSCRC,
RCI, RCK, and RSCRT, Beverly Health and Rehabilitation Services, Inc., Beverly
Enterprises-California, Inc., Beverly Enterprises-Illinois, Inc., Beverly
Enterprises-Kansas, Inc. and Beverly Enterprises-Texas, Inc., each a California
corporation, as amended.
1.19 "Beverly Note" means, collectively, (i) that certain Purchase Money
Note dated May 1, 1995, made by RSCRT, payable to the order of Beverly Health
and Rehabilitation Services, Inc., and in the face principal amount of Three
Million Dollars ($3,000,000.00), together with all amendments, modifications,
extensions, renewals, restatements and replacements thereof, and (ii) that
certain Purchase Money Note dated May 1, 1995, made by RSCRT, payable to the
order of Beverly Health and Rehabilitation Services, Inc., and in the face
principal amount of Six Hundred Thousand Dollars ($600,000.00), together with
all amendments, modifications, extensions, renewals, restatements and
replacements thereof.
1.20 "Borrowers" means each and any of the Persons identified as
"Borrowers" in Schedule 1 to this Loan Agreement, as it may be amended from time
to time to include as "Borrowers" any new Consolidated Subsidiaries hereafter
acquired or created, pursuant to the provisions of Section 7.10 hereof.
1.21 "Borrowers' Loan Accounts" means the accounts respectively on the
books of the Banks in which will be recorded Revolving Credit Loans made by the
Banks to the Borrowers, payments made on such Revolving Credit Loans and other
appropriate debits and credits as provided by this Loan Agreement.
1.22 "Business Combination" means any acquisition or merger, whether
accounted for under GAAP as a purchase or pooling of interests and regardless of
whether the value of the consideration paid or received is comprised of cash,
assets, common stock, preferred stock, partnership interests, limited liability
company or limited liability partnership interests.
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1.23 "Business Combination Consideration" means the aggregate legal
consideration paid by Res-Care and/or its Consolidated Subsidiaries in
connection with a Business Combination, which legal consideration shall be the
sum of the consideration granted by the Borrowers (whether by cash, stock or
other means), plus the amount of the acquired entity's debt assumed or
refinanced by the Borrowers (and excluding any of the acquired entity's debt not
assumed or refinanced by the Borrowers).
1.24 "Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the Commonwealth of Kentucky or is a
day on which banking institutions located in the Commonwealth of Kentucky are
authorized or required by law or other governmental action to close.
1.25 "Cash Flow from Operations" means the sum of the amounts for the
period in question of (i) Net Income, (ii) Interest Expense, (iii) provisions
for taxes based on income, (iv) depreciation, amortization and other non-cash
charges to Net Income, minus non-cash credits to Net Income, of the Borrowers on
a consolidated basis in accordance with GAAP, determined as of the end of each
Fiscal Quarter, for the previous four Fiscal Quarters. The Borrowers may include
in the calculation of "Cash Flow from Operations" the sum of (i), (ii), (iii)
and (iv) for the 12 months preceding the date of calculation for any entity that
has been acquired in a Permitted Business Combination; provided, however, that:
(a) if the sum of (i), (ii), (iii) and (iv) that is based in whole or in
part upon pre-acquisition unaudited financial results of entities acquired in
Permitted Business Combinations (the "Pre-Acquisition Financial Results") equals
or exceeds twenty five percent (25%) (the "Cash Flow from Operations
Limitation") of the total "Cash Flow from Operations" of the Borrowers for the
period being measured, then the calculation of total "Cash Flow from Operations"
may include the portion of the Pre-Acquisition Financial Results that is equal
to the Cash Flow from Operations Limitation but must exclude the portion of
Pre-Acquisition Financial Results that exceeds the Cash Flow from Operations
Limitation;
(b) if the calculation of "Cash Flow from Operations" is performed at
any time from the beginning of the seventh month after the date of acquisition
of an entity until the end of the twelfth month following the acquisition, the
calculation with respect to such entity shall be based upon the actual financial
results of such entity for the period occurring after the acquisition,
annualized on a 12-month basis; and
(c) Net Income for purposes of the calculation of Cash Flow from
Operations shall not include any Net Income of a Borrower derived from such
Borrower's ownership of a Person that is not a Consolidated Subsidiary except to
the extent such Borrower has received a distribution of such Net Income from
such Person.
1.26 "Change in Control" means the acquisition by any Person or "group"
(as defined in Section 13 (d) (3) of the Securities Exchange Act of 1934, as
amended) of more than 50% of the Voting Stock of Res-Care, including any such
acquisition by merger or consolidation.
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1.27 "Closing Fees" means the Closing Fees described in Section 2.3A
hereof and set forth in Schedule 2.3A hereto.
1.28 "Closing Date" means December 23, 1996.
1.29 "Compliance Certificate" means a certificate substantially in the
form of Exhibit G annexed hereto delivered by the Borrowers to the
Administrative Bank pursuant to Section 7.3(iii) hereof.
1.30 "Confidentiality Agreement" means a Confidentiality Agreement
between a potential assignee Bank and the Borrowers substantially in the form of
Exhibit I annexed hereto.
1.31 "Consolidated Subsidiary" means each Subsidiary of Res-Care whose
accounts are or should be consolidated with those of Res-Care in accordance with
GAAP. As of the Closing Date, the Consolidated Subsidiaries of Res-Care are
listed on Schedule 6.13.
1.32 "Contingent Obligations" means, with respect to the Borrowers, any
direct or indirect liability, contingent or otherwise (excluding all
transactions which, on a consolidated basis under GAAP, should be eliminated) of
the Borrowers, (i) with respect to any indebtedness, lease, dividend, letter of
credit or other obligation of another if the primary purpose or intent thereof
by the Borrowers is to provide assurance to the obligee of such obligation of
another that such obligation of another will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holder of such
obligation will be protected (in whole or in part) against loss in respect
thereof, or (ii) under any letter of credit issued for the account of the
Borrowers or for which the Borrowers are otherwise liable for reimbursement
thereof, or (iii) under interest rate swap agreements, interest rate collar
agreements or other similar arrangements providing interest rate protection.
Contingent Obligations shall include, without limitation, (a) the direct or
indirect guaranty, endorsement (otherwise than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale with
recourse by the Borrowers of the obligation of another, and (b) any liability of
the Borrowers for the obligations of another through any agreement (contingent
or otherwise) (1) to purchase, repurchase, or otherwise acquire such obligation
or any security therefor, or to provide funds for the payment or discharge of
such obligation (whether in the form of loans, advances, stock purchases,
capital contributions or otherwise), (2) to maintain the solvency of any balance
sheet item, level of income or financial condition of another, or (3) to make
take-or-pay or similar payments if required regardless of non-performance by any
other party or parties to an agreement, in the case of any agreement described
under subclauses (1), (2) or (3) of this sentence the primary purpose or intent
thereof is as described in clause (i) of the preceding sentence. The amount of
any Contingent Obligation, as at any time of determination, shall be equal to
the amount of the obligation so guaranteed or otherwise supported at such time
of determination which amount shall be deemed to be the amount of such
obligation guaranteed, as reasonably estimated by the Borrowers, if such amount
cannot be specifically determined at the time of determination.
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1.33 "Continuing Director" means any member of the Board of Directors of
Res-Care who is a member of such Board on the Closing Date and any Person who is
a member of such Board and whose nomination as a director was approved by a
majority of the Continuing Directors then on the Board of Directors of Res-Care.
1.34 "Covered Tax" means any Tax that is not an Excluded Tax.
1.35 "Current Maturities of Long Term Debt" means the current principal
maturities of all indebtedness for borrowed money (including but not limited to
amortization of capitalized lease obligations) having an original term of one
year or more.
1.36 "Current Ratio" means, as of any date of determination thereof, the
ratio of current assets to current liabilities existing on such date, all as
determined in accordance with GAAP.
1.37 "Date of Determination" means, for purposes of determining the
applicable Pricing Level on any Pricing Level Calculation Date, the last day of
the most recently ended calendar month.
1.38 "Debts" means the present value, as of the Enforcement Date, of
known probable liabilities of any Borrower, whether matured or unmatured,
liquidated or unliquidated, absolute, fixed or contingent (other than (i) any
liabilities under this Loan Agreement, (ii) any guaranty that is subordinated in
right of payment to obligations of such Borrower under this Loan Agreement, and
(iii) all intercompany indebtedness owed by such Borrower to Res-Care or another
Borrower, as such term is defined in the Loan Agreement, to the extent that such
intercompany indebtedness owed by such Borrower may be discharged by offsetting
the amount paid by such Borrower under this Loan Agreement against such
intercompany indebtedness, whether such offset may be effected by operation of
law, pursuant to implied or express contractual rights, whether relating to
intercompany accounts or rights of contribution or subrogation, or otherwise),
with contingent or unliquidated liabilities being measured at the amount which,
in light of all the facts and circumstances existing as of the Enforcement Date,
represents the amount which could reasonably be expected to become an actual or
matured liability.
1.39 "Default Rate" means, (i) for any Revolving Credit Loan bearing
interest as a Base Rate Loan or as a Euro-Rate Loan, and (ii) for any Swing Line
Loan, the Base Rate plus the Applicable Base Rate Margin plus two percent (2%).
1.40 "Designated Interest Rate Agreement" shall have the meaning set
forth in Section 8.13 hereof.
1.41 "Dollars" or "$" means lawful currency of the United States of
America.
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<PAGE> 8
1.42 "EBIT" means, for the period in question, the sum of the amounts
for such period of the Borrowers' (i) Net Income, (ii) Interest Expense, and
(iii) provisions for taxes based on income.
1.43 "Enforcement Date" means the earlier of the date of the
commencement of a case under Title 11 of the United States Code involving
Res-Care or any Consolidated Subsidiary or the date enforcement under this Loan
Agreement is sought.
1.44 "Equipment Lease" means each equipment lease now or hereafter
executed by the Borrowers and PNC.
1.45 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute.
1.46 "Euro-Rate" means, with respect to Euro-Rate Loans, the interest
rate per annum determined by the Administrative Bank by dividing (the resulting
quotient rounded upward to the nearest 1/100th of 1% per annum) (i) the rate of
interest determined by the Administrative Bank in accordance with its usual
procedures (which determination shall be conclusive and binding upon the
Borrowers, absent manifest error on the part of the Administrative Bank) to be
equal to the offered rate for deposits in Dollars for the applicable Interest
Period which appear on Page 3750 of the TELERATE rate reporting system or other
similar system as of approximately 11 a.m, Greenwich Mean Time, two (2) Business
Days prior to the first day of such Interest Period and having a borrowing date
and a maturity comparable to such Interest Period by (ii) a number equal to 1.00
minus the Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed by
the following formula:
Euro-Rate = Offered rate on TELERATE page 3750
-----------------------------------
1.00 - Euro-Rate Reserve Percentage
1.47 "Euro-Rate Loans" means Revolving Credit Loans bearing interest at
rates determined by reference to the Euro-Rate as provided in Section 2.2A
hereof.
1.48 "Euro-Rate Reserve Percentage" of the Administrative Bank for the
Interest Period for any Euro-Rate Loan means the reserve percentage applicable,
if any, during such Interest Period (or, if more than one such percentage shall
be so applicable, the daily average of such percentages for those days in such
Interest Period during which any such percentage shall be so applicable) under
regulations issued from time to time by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum reserve
requirement (including, without limitation, any emergency, supplemental or other
marginal reserve requirement) for the Administrative Bank with respect to
liabilities or assets consisting of or including eurocurrency liabilities
(within the meaning of that term in Regulation D of the Board of Governors of
the Federal Reserve System, as in effect from time to time) having a term equal
to such Interest Period.
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<PAGE> 9
1.49 "Events of Default" means the occurrence or happening of any of the
matters set forth in Section 9 hereof.
1.50 "Excluded Tax" means any of the following taxes, levies, imposts,
duties, deductions, withholdings or charges, and all liabilities with respect
thereto: (i) Taxes imposed on the net income of any Bank or a Tax Transferee
(including without limitation branch profits taxes, minimum taxes and taxes
computed under alternative methods, at least one of which is based on net
income) (collectively referred to as "net income taxes") by (A) the United
States of America, (B) the jurisdiction under the laws of which such Bank or Tax
Transferee is organized or any political subdivision thereof, or (C) the
jurisdiction of such Bank's or Tax Transferee's applicable lending office or any
political subdivision thereof, or (D) any jurisdiction in which such Bank or Tax
Transferee is doing business, (ii) any Taxes to the extent that they are in
effect and would apply to a payment to any Bank as of the Closing Date, or as of
the date such Person becomes a Bank, in the case of any assignee pursuant to
Section 13 hereof, (iii) any Taxes that are in effect and would apply to a
payment to a Tax Transferee as of the date of acquisition of any portion of the
Revolving Credit Loans by such Tax Transferee or the date of the change of
lending office of such Tax Transferee, as the case may be (provided however that
a Person shall not be considered a Tax Transferee for purposes of this clause
(iii) as a result of a change of its lending office or the taking of any other
steps pursuant to Section 4.4 hereof), (iv) any Taxes to the extent of any
credit or other Tax benefit available to any Bank or Tax Transferee, as
applicable, as a result thereof, or (v) any Taxes that would not have been
imposed but for the failure by any Bank or Tax Transferee, as applicable, to
provide and keep current any certification or other documentation required to
qualify for an exemption from or reduced rate of any Tax.
1.51 "Facility" or "Facilities" means each facility, program, group home
and training center now or hereafter owned, operated and/or managed by any of
the Borrowers at which the services or programs described in Section 8.5 hereof
are provided by the Borrowers.
1.52 "Fair Saleable Value" of any assets means the amount which may be
realized as of the Enforcement Date, within a reasonable time, either through
collection of such assets or sale of such assets at the regular market value,
understanding "regular market value" to mean the amount which could be obtained
for the assets in question within such period by a capable and diligent
businessman from an interested buyer who is willing to purchase under ordinary
selling conditions.
1.53 "Federal Funds Effective Rate" for any day shall mean the rate per
annum (based on a year of 360 days and actual days elapsed and rounded upward to
the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or
any successor) on such day as being the weighted average of the rates on
overnight Federal funds transactions arranged by Federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does
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<PAGE> 10
not announce such rate on any day, the "Federal Funds Effective Rate" for such
day shall be the Federal Funds Effective Rate for the last day on which such
rate was announced.
1.54 "Financial Officer" means the chief financial officer of Res-Care
or other officer who is the highest ranking officer with responsibility for the
financial affairs of Res-Care.
1.55 "Fiscal Quarter" means a fiscal quarter of the Borrowers. The
Fiscal Quarters of the Borrowers currently end on the last day of each March,
June, September and December of each calendar year.
1.56 "Fiscal Year" means a fiscal year of the Borrowers. The Borrowers'
current Fiscal Year ends on the last day of December of each calendar year.
1.57 "Fixed Charge Coverage Ratio" means, as of any Date of
Determination thereof, the ratio of (i) the sum of the Borrowers' EBIT and
Operating Lease/Rental Expense to (ii) the sum of the Borrowers' Interest
Expense, Operating Lease/Rental Expense and Current Maturities of Long Term
Debt.
1.58 "Funding Date" means the date of the funding of a Revolving Credit
Loan.
1.59 "GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination, as applied in accordance with the modifications contained
in Section 1.117 hereof.
1.60 "General Intangibles" means all intangible personal property
(including things in action) other than goods, accounts, chattel paper,
documents and instruments (all as defined in the Uniform Commercial Code),
whether such personal property is owned on the date of this Loan Agreement, or
is acquired thereafter, and shall include, but is not limited to, all existing
and future royalties, rights, claims, benefits and proceeds in, under or to any
franchise agreements, insurance policies, customer lists, choice in action,
books, records, patents and patents applications, copyrights, trademarks, trade
names, trade secrets, sales contracts, licenses, certificates of need, permits,
tax and any other types of refunds, returned and unearned insurance premiums,
claims, product designs, drawings, technical data, computer programs, computer
tapes and software, catalogs, blue prints, contract rights, and all rights as an
unpaid vendor or lienor, including stoppage in transit, replevin or reclamation.
The term "General Intangible" includes "general intangible" as defined in KRS
355.9-105.
1.61 "Indebtedness" means, with respect to the Borrowers on a
consolidated basis in accordance with GAAP, (i) all indebtedness for borrowed
money, including, without limitation, all Revolving Credit Loans, all Swing Line
Loans, all reimbursement obligations of the Borrowers in respect of all letters
of credit, including the Letters of Credit, issued for the
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<PAGE> 11
account of the Borrowers, and all obligations of the Borrowers under all
Equipment Leases, (ii) that portion of obligations with respect to capital
leases which is properly classified as a liability on a balance sheet in
conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation owed for all or any part of the deferred purchase price of
property or services which purchase price is (y) due more than six months from
the date of incurrence of the obligation in respect thereof, or (z) evidenced by
a note or similar written instrument, but excluding trade payables incurred in
the ordinary course of business, (v) all indebtedness secured by any lien on any
property or asset owned by the Borrowers regardless of whether the indebtedness
secured thereby shall have been assumed by the Borrowers or is non-recourse to
the credit of the Borrowers but only to the extent of the fair market value of
any such property or assets, and (vi) all other Contingent Obligations of the
Borrowers not otherwise included in clauses (i) through (v) of this Section .
1.62 "Interest Expense" means, for the period in question, total
interest expense (including that attributable to capital leases in conformity
with GAAP) of the Borrowers with respect to all outstanding Indebtedness of the
Borrowers, including, without limitation, all capitalized interest, all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing and net costs and benefits under
interest rate agreements, whether payable in cash or accrued (including
amortization of discount), all as determined on a consolidated basis in
accordance with GAAP.
1.63 "Interest Payment Date" means, (i) with respect to each Base Rate
Loan, the last day of each calendar quarter during which such Base Rate Loan is
outstanding in whole or in part, (ii) with respect to each Euro-Rate Loan, the
ninetieth (90th) day of the Interest Period applicable to such Euro-Rate Loan,
and/or the last day of the Interest Period applicable to such Euro-Rate Loan,
and (iii) with respect to each Swing Line Loan, the last day of each calendar
quarter during which such Swing Line Loan is outstanding in whole or in part,
and (iv) with respect to all Revolving Credit Loans and Swing Line Loans, the
date of maturity thereof.
1.64 "Interest Period" means any interest period applicable to a
Euro-Rate Loan, as determined pursuant to Section 2.2B hereof.
1.65 "Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement.
1.66 "Interest Rate Determination Date" means each date for calculating
the Euro-Rate for purposes of determining the interest rate in respect of an
Interest Period. The Interest Rate Determination Date shall be the date which is
two (2) Business Days prior to the related Interest Period for a Euro-Rate Loan.
1.67 "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
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<PAGE> 12
1.68 "Letters of Credit" means all letters of credit or similar
instruments issued by PNC for the account of the Borrowers pursuant to Section
2.7 of the Loan Agreement for the purpose of securing the performance, payment,
deposit or surety obligations of Res-Care or a Subsidiary (including any such
obligations of Res-Care or a Subsidiary under applicable workers compensation
laws).
1.69 "Letter of Credit Subfacility" means the commitment of PNC, to
issue Letters of Credit for the account for Res-Care or a Subsidiary up to an
aggregate amount at any one time outstanding of Ten Million Dollars
($10,000,000). The Letter of Credit Subfacility is a sublimit of the Revolving
Credit Facility.
1.70 "Letter of Credit Fee" has the meaning assigned to that term in
Section 2.7F(i) hereof.
1.71 "Letter of Credit Fronting Fee" has the meaning assigned to that
term in Section 2.7F(v) hereof.
1.72 "Letter of Credit Usage" means, as at any date, the sum of (i) the
maximum aggregate amount which is or at any time thereafter may become available
for drawing under all Letters of Credit then outstanding, plus (ii) the
aggregate amount of all drawings under all Letters of Credit honored by PNC and
not theretofore reimbursed by the Borrowers to PNC, whether by virtue of the
Banks making a Revolving Credit Loan to the Borrowers to enable the Borrowers to
reimburse PNC for such drawing or otherwise.
1.73 "Loan Agreement" means this Loan Agreement as further amended,
supplemented or otherwise modified from time to time.
1.74 "Loan Instruments" means this Loan Agreement, the Revolving Credit
Notes, the Swing Line Note, each Application and Agreement for Letter of Credit,
the Stock Pledge Agreement, the Security Agreements and all other agreements,
documents and instruments now or hereafter evidencing and/or pertaining to this
Loan Agreement and/or the other Obligations, and as may be further amended,
supplemented or otherwise modified from time to time.
1.75 "Maximum Consolidated Subsidiary Borrower Amount" means the excess
of (A) the aggregate Fair Saleable Value of the assets of a Borrower that is a
Consolidated Subsidiary on the Enforcement Date over (B) the amount of Debts of
such Consolidated Subsidiary on the Enforcement Date.
1.76 "Net Income" means, for the period in question, the net income (or
loss) of the Borrowers for such period taken as a single accounting period,
determined on a consolidated basis in accordance with GAAP and excluding any
extraordinary items; provided, however, that Net Income shall include the
reversal of reserves that had previously been charged against Net Income.
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1.77 "Net Worth" means, as at any date on which the amount thereof shall
be determined, the shareholders' equity of Res-Care as determined on a
consolidated basis in accordance with GAAP.
1.78 "Notice of Conversion/Continuation" means the Notice in the form of
Exhibit D annexed hereto with respect to the conversion and/or continuation of
the interest rate(s) applicable to the Revolving Credit Loans.
1.79 "Obligations" means, collectively, (i) the entire unpaid principal
balance of and all interest now accrued or hereafter to accrue on the Revolving
Credit Notes, (ii) the entire unpaid principal balance of and all interest now
accrued or hereafter to accrue on the Swing Line Note, (iii) the obligation of
the Borrowers to reimburse PNC for all drafts honored by PNC under Letters of
Credit together with accrued interest thereon, (iv) the obligation of the
Borrowers to pay all rent and all other amounts now or hereafter due under all
Equipment Leases now or hereafter entered into by the Borrowers and PNC, (v) the
performance of all of the covenants, agreements and obligations of the Borrowers
hereunder and under the other Loan Instruments, and (vi) all other liabilities,
obligations, covenants and duties owing by the Borrowers to any Bank arising
under or pursuant to this Loan Agreement or the other Loan Instruments of any
kind or nature, present or future, and whether or not evidenced by any note,
guaranty or other instrument. The term "Obligations" includes, without
limitation, all interest, charges, expenses, reasonable attorneys' fees and any
other sums chargeable to the Borrowers under this Loan Agreement and/or any
other Loan Instrument.
1.80 "Offered Rate" means the interest rate quoted from time to time by
PNC to the Borrowers as applicable to Swing Line Loans made or to be made by PNC
to the Borrowers for an Offered Rate Period. The Offered Rate shall constitute,
on each Funding Date of a Swing Line Loan, the Administrative Bank's fully
absorbed cost of funds on such date plus the Applicable Euro-Rate Margin in
effect on the Funding Date of such Swing Line Loan.
1.81 "Offered Rate Period" means the time period from one (1) to seven
(7) consecutive calendar days for which the Administrative Bank offers an
Offered Rate for a Swing Line Loan under Section 3.1 hereof.
1.82 "Operating Lease/Rental Expense" means that portion of obligations
with respect to non-capital leases.
1.83 "Permitted Business Combination" means a Business Combination that
meets all of the requirements of Section 8.11 hereof.
1.84 "Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
other entity or group, institution, party or government, whether federal, state,
county, city, municipal or other, or any agency or division thereof.
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1.85 "Potential Default" means the occurrence of any act or event which,
with the giving of notice and/or the passage of time, or both, would become an
Event of Default.
1.86 "Pricing Level" means, for any Pricing Period, Pricing Level I,
Pricing Level II, Pricing Level III, Pricing Level IV, or Pricing Level V, as
may be in effect for such Pricing Period; provided that, the Default Rate shall
be in effect upon the occurrence and during the continuation of any Event of
Default.
1.87 "Pricing Level I" means the Pricing Level that will be in effect
for the applicable Pricing Period if, as at the relevant Date of Determination,
the ratio of the Borrowers' Indebtedness as measured on such Date of
Determination, to the Borrowers' Cash Flow from Operations as measured on such
Date of Determination, is less than 1.50 to 1.0.
1.88 "Pricing Level II" means the Pricing Level that will be in effect
for the applicable Pricing Period if, as at the relevant Date of Determination,
the ratio of the Borrowers' Indebtedness as measured on such Date of
Determination, to the Borrowers' Cash Flow from Operations as measured on such
Date of Determination, is equal to or greater than 1.50 to 1.0, but is less than
2.0 to 1.0.
1.89 "Pricing Level III" means the Pricing Level that will be in effect
for the applicable Pricing Period if, as at the relevant Date of Determination,
the ratio of the Borrowers' Indebtedness as measured on such Date of
Determination, to the Borrowers' Cash Flow from Operations as measured on such
Date of Determination, is equal to or greater than 2.0 to 1.0, but is less than
2.50 to 1.0.
1.90 "Pricing Level IV" means the Pricing Level that will be in effect
for the applicable Pricing Period if, as of the relevant Date of Determination,
the ratio of the Borrowers' Indebtedness as measured on such Date of
Determination, to the Borrowers' Cash Flow from Operations as measured on such
Date of Determination, is equal to or greater than 2.50 to 1.0, but less than
3.0 to 1.0.
1.91 "Pricing Level V" means the Pricing Level that will be in effect
for the applicable Pricing Period if, as of the relevant Date of Determination,
the ratio of the Borrowers' Indebtedness as measured on such Date of
Determination, to the Borrowers' Cash Flow from Operations as measured on such
Date of Determination, is equal to or greater than 3.0 to 1.0.
1.92 "Pricing Level Calculation Date" means the date of the delivery to
the Banks of a Compliance Certificate in the form of Exhibit G hereto
demonstrating the appropriate Pricing Level, which delivery can occur on any
date from the prior Date of Determination to the date of delivery of the
Borrowers' financial statements for the particular month then ended required
pursuant to Section 7.3(ii) hereof.
1.93 "Pricing Period" means, with respect to any Date of Determination,
the period commencing on the day immediately after such Date of Determination
and ending on the next Date of Determination.
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1.94 "Prime Rate" means at any time the interest rate per annum most
recently designated or announced by the Administrative Bank as its "Prime Rate"
in effect at its principal office in Louisville, Kentucky, it being expressly
understood and agreed to by the Borrower that the "Prime Rate" is the rate of
interest designated by the Administrative Bank as its "Prime Rate" and such term
does not necessarily mean or imply that it is the lowest or best rate then
available from the Administrative Bank.
1.95 "Request for Revolving Credit Loan" means the Request in the form
of Exhibit E annexed hereto with respect to a proposed Revolving Credit Loan to
be delivered by the Borrowers to the Administrative Bank pursuant to Sections
2.lC and 6.2A hereof.
1.96 "Request for Swing Line Loan" means the Request in the form of
Exhibit F annexed hereto with respect to a proposed Swing Line Loan to be
delivered by the Borrowers to the Administrative Bank pursuant to Sections 3.l
and 6.2A hereof.
1.97 "Revolving Credit Facility" means the revolving line of credit
established by the Banks in favor of the Borrowers in the principal amount of
Sixty Five Million Dollars ($65,000,000) pursuant to which the Borrowers may
obtain Revolving Credit Loans from the Banks and/or Letters of Credit from PNC
during the term of the Revolving Credit Facility upon the terms and conditions
set forth in this Loan Agreement. The Revolving Credit Facility includes as a
sublimit the Letter of Credit Subfacility and the Swing Line Credit Facility.
All references to the "aggregate principal balance of the Revolving Credit Loans
outstanding" or similar phrases in this Loan Agreement or in the Revolving
Credit Notes shall mean, as of the date of determination thereof, the sum of (i)
the entire aggregate outstanding principal balance of all Revolving Credit Loans
made by the Banks pursuant to this Loan Agreement, (ii) the then existing Letter
of Credit Usage and (iii) the then existing Swing Line Usage.
.
1.98 "Revolving Credit Facility Commitment Fees" shall have the meaning
set forth in Section 2.3B hereof.
1.99 "Revolving Credit Facility Pro Rata Shares" means, with respect to
each Revolving Loan Commitment of each Bank, the percentage set forth opposite
that Bank's name on Schedule 2.1 annexed hereto; provided that Schedule 2.1
shall be amended and each Bank's Revolving Credit Facility Pro Rata Share shall
be adjusted from time to time to give effect to the addition or removal of any
Bank as provided herein or by assignment pursuant to Section 12 hereof.
1.100 "Revolving Credit Loans" means advances of principal of the
Revolving Credit Facility made pursuant to Section 2 hereof by the Banks to the
Borrowers from time to time pursuant to, and subject to the terms and conditions
set forth in, this Loan Agreement to support the working capital needs of the
Borrowers and for the other purposes described in Section 2.5A hereof.
1.101 "Revolving Credit Notes" means collectively (i) that certain
Revolving Credit Promissory Note dated of even date with this Loan Agreement,
made by the Borrowers, payable
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to the order of PNC, and in the face principal amount of Twenty Five Million
Dollars ($25,000,000), a form of which is annexed to this Loan Agreement as
Exhibit A-1, as the same may hereafter be amended, modified, renewed, replaced
and/or restated from time to time, (ii) that certain Revolving Credit Promissory
Note dated of even date with this Loan Agreement, made by the Borrowers, payable
to the order of National City, and in the face principal amount of Seventeen
Million Five Hundred Thousand Dollars ($17,500,000), a form of which is annexed
to this Loan Agreement as Exhibit A-2, as the same may hereafter be amended,
modified, renewed, replaced and/or restated from time to time, (iii) that
certain Revolving Credit Promissory Note dated of even date with this Loan
Agreement, made by the Borrowers, payable to the order of SunTrust, and in the
face principal amount of Twelve Million Five Hundred Thousand Dollars
($12,500,000), a form of which is annexed to this Loan Agreement as Exhibit A-3,
as the same may hereafter be amended, modified, renewed, replaced and/or
restated from time to time, (iv) that certain Revolving Credit Promissory Note
dated of even date with this Loan Agreement, made by the Borrowers, payable to
the order of Bank One and in the face principal amount of Ten Million Dollars
($10,000,000), a form of which is annexed to this Loan Agreement as Exhibit A-4,
as the same may hereafter be amended, modified, renewed, replaced and/or
restated from time to time, and (v) each future Revolving Credit Promissory
Note, if any, made by the Borrowers pursuant to the Revolving Credit Facility.
1.102 "Revolving Loan Commitments" means each Bank's commitment to
maintain or make Revolving Credit Loans and/or to issue Letters of Credit as set
forth in Section 2.1 hereof.
1.103 "Revolving Loan Commitment Termination Date" means the Revolving
Loan Commitment Termination Date then in effect, which shall be the earliest of
(i) December 31, 2001, subject to extension thereof as provided in Section 2.1B
hereof, (ii) the date as of which the Obligations shall have become immediately
due and payable pursuant to Section 9 of the Loan Agreement and (iii) the date
on which all of the Obligations are paid in full (including, without limitation,
the repayment, expiration, termination or cash collateralization of Letters of
Credit pursuant to this Loan Agreement) and the Revolving Loan Commitments are
reduced to zero.
1.104 "Security Agreement" means any of the Security Agreements dated as
of the date hereof entered into between the Administrative Bank and the
Borrowers, for the benefit of the Banks, as the same may hereafter be amended,
modified, renewed, replaced and/or restated from time to time, whether entered
into as of the Closing Date, or subsequent thereto.
1.105 "Stock Pledge Agreement" means that certain Stock Pledge Agreement
in the form of Exhibit J hereto, dated as of the date of this Agreement, between
Res-Care and the Administrative Bank, for the benefit of the Banks.
1.106 "Subsidiary" means, with respect to Res-Care, (i) any corporation
of which more than 50% of the outstanding Voting Stock is at the time owned by
Res-Care or by one or more of its Subsidiaries, and (ii) any Person controlled
by Res-Care or by one or more of its Subsidiaries, whether by virtue of voting
interest, other beneficial interest or by voting agreement, contract, proxy or
otherwise.
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<PAGE> 17
1.107 "Swing Line Commitment Period" means the period from the Closing
Date through the Swing Line Commitment Termination Date.
1.108 "Swing Line Credit Facility" means the sums advanced or to be
advanced by the Administrative Bank as described in Section 3 hereof.
1.109 "Swing Line Loan" means advances of principal of the Swing Line
Credit Facility made by PNC to the Borrowers from time to time pursuant to, and
subject to the terms and conditions set forth in, this Loan Agreement for the
other purposes described in Section 3 hereof.
1.110 "Swing Line Note" means that certain Swing Line Promissory Note
dated of even date with this Loan Agreement, made by the Borrowers, payable to
the order of PNC, and in the face principal amount of Seven Million Five Hundred
Thousand ($7,500,000), a form of which is annexed to this Loan Agreement as
Exhibit B, as the same may hereafter be amended, modified, renewed, replaced
and/or restated from time to time.
1.111 "Swing Line Commitment Termination Date" shall mean the same date
as the Revolving Loan Commitment Termination Date.
1.112 "Swing Line Usage" means, as at any date of determination thereof,
the sum of the maximum aggregate principal amount of all outstanding Swing Line
Loans, which amount shall never exceed $7,500,000.
1.113 "Tax" or "Taxes" means any present or future tax, levy, impost,
duty, charge, governmental fee, deduction or withholding of any nature and
whatever called, by whomsoever, on whomsoever and wherever imposed, levied,
collected, withheld or assessed; provided that "Tax on the overall net income"
of a Person shall be construed as a reference to a tax imposed by the
jurisdiction in which that Person's principal office (and/or, in the case of any
Bank, its lending office) is located on all or part of the net income, profits
or gains of that Person (whether worldwide, or only insofar as such income,
profits or gains are considered to arise in or to relate to a particular
jurisdiction, or otherwise).
1.114 "Tax Transferee" means any Person who acquires any interest in the
Revolving Credit Loans (whether or not by operation of law) or the office to
which any Bank has transferred its Revolving Credit Loans for purposes of
determining where such Bank's Revolving Credit Loans are made, accounted for or
booked.
1.115 "Total Utilization of Revolving Loan Commitments" means, as at any
date of determination thereof, the sum of (i) the aggregate principal amount of
all outstanding Revolving Credit Loans, (ii) the Letter of Credit Usage and
(iii) the Swing Line Usage.
1.116 "Voting Stock" means the shares of capital stock or other
securities of the Borrowers entitled to vote generally in the election of the
directors of the Borrowers.
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1.117 Accounting Terms and Financial Information.
A. Accounting Terms. For purposes of this Loan Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP and all financial statements and certificates
and reports as to financial matters required to be delivered to the
Administrative Bank hereunder shall (unless otherwise disclosed to the
Administrative Bank in writing at the time of delivery thereof in the manner
described in paragraph B of this Section ) be prepared in accordance with GAAP
applied on a basis consistent with GAAP as applied in the preparation of the
latest financial statements furnished to the Administrative Bank hereunder.
B. Accounting Variances. Res-Care, for itself and the other
Borrowers, shall deliver to the Administrative Bank at the same time as the
delivery of any annual or quarterly financial statement under Section 7.3
hereof, (i) a description in reasonable detail of any variation between the
application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the next preceding annual or quarterly financial statements
(which variation materially affects the presentation of the financial position
or results of operations of Res-Care and the other Borrowers on a consolidated
basis in accordance with GAAP) and (ii) reasonable estimates of the difference
between such statements arising as a consequence thereof.
1.118 Other Definitional Provisions. Any reference in this Loan
Agreement (i) to a Section , a Schedule or an Exhibit is a reference to a
section hereof, a schedule hereto or an exhibit hereto, respectively; and (ii)
to a subsection or a clause is, unless otherwise stated, a reference to a
subsection or a clause of the Section or subsection in which the reference
appears. In this Loan Agreement the singular includes the plural and the plural
the singular; "hereof," "herein," "hereto," "hereunder" and the like mean and
refer to this Loan Agreement as a whole and not merely to the specific section,
paragraph or clause in which the respective word appears; words importing any
gender include the other genders; references to statutes are to be construed as
including all statutory provisions consolidating, amending or replacing the
statute referred to; references to "writing" include printing, typing,
lithography and other means of reproducing words in a tangible visible form; the
words "including", "includes" and "include" shall be deemed to be followed by
the words "without limitation"; references to agreements and other contractual
instruments shall be deemed to include all subsequent amendments, supplements,
assignments and other modifications thereto, but only to the extent such
modifications are not prohibited by the terms of this Loan Agreement, and
references to Persons include their respective permitted successors and assigns
or, in the case of governmental Persons, Persons succeeding to the relevant
functions of such Persons.
SECTION 2
REVOLVING CREDIT FACILITY
Subject to the terms and conditions of this Loan Agreement, the Banks
hereby establish the Revolving Credit Facility in favor of the Borrowers in the
principal amount of Sixty Five
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<PAGE> 19
Million Dollars ($65,000,000.00). Pursuant to the Revolving Credit Facility, the
Borrowers may obtain Revolving Credit Loans and/or Letters of Credit pursuant
to, and subject to the terms and conditions set forth in, this Loan Agreement
for the purposes set forth in Sections 2.5A and 2.7 hereof. The Revolving Credit
Facility is subject to the following terms and conditions:
2.1 Revolving Loan Commitments, Revolving Credit Loans.
A. Revolving Loan Commitments. Each Bank severally agrees,
subject to the limitations set forth below with respect to the maximum amount of
Revolving Credit Loans permitted to be outstanding from time to time, to lend to
the Borrowers from time to time during the period from the Closing Date to but
excluding the Revolving Loan Commitment Termination Date an aggregate amount not
exceeding its Revolving Credit Facility Pro Rata Share of the aggregate
Revolving Loan Commitments. The amount of each Bank's Revolving Loan Commitment
is set forth opposite its name on Schedule 2.1 annexed to this Loan Agreement
and the aggregate amount of the Revolving Loan Commitments is Sixty Five Million
Dollars ($65,000,000); provided, the amount of the Revolving Loan Commitments
shall be reduced from time to time by the amount of any reductions that are made
pursuant to Section 2.4C hereof (it being understood that all references to the
Revolving Loan Commitments of the Banks set forth in this Loan Agreement shall
mean the initial Revolving Loan Commitments of the Banks set forth on Schedule
2.1 annexed to this Loan Agreement as reduced by the voluntary reductions of the
Revolving Loan Commitments effected by the Borrowers pursuant to Section 2.4C of
the Loan Agreement). Each Bank's Revolving Loan Commitment shall expire on the
Revolving Loan Commitment Termination Date and all Revolving Credit Loans shall
be paid in full no later than that date. Amounts borrowed under this Section
2.lA may be repaid and reborrowed to but excluding the Revolving Loan Commitment
Termination Date, subject to the provisions of Section 2.4C hereof.
Anything contained in this Loan Agreement to the contrary
notwithstanding, the Revolving Credit Loans and the Revolving Loan Commitments
shall be subject to the following limitations:
(i) The Letter of Credit Subfacility is a sublimit under
the Revolving Credit Facility. The amount otherwise available for borrowing
under the Revolving Loan Commitments as of the time of determination thereof
(other than to reimburse PNC for the amount of any drawings under any Letters of
Credit honored by PNC and not theretofore reimbursed by the Borrowers) shall be
reduced by an amount equal to the Letter of Credit Usage as of such time of
determination;
(ii) The Swing Line Credit Facility is a sublimit under
the Revolving Credit Facility. The amount otherwise available for borrowing
under the Revolving Loan Commitments as of the time of determination thereof
shall be reduced by an amount equal to the Swing Line Usage;
(iii) The Total Utilization of Revolving Loan Commitments
shall not exceed the aggregate Revolving Loan Commitments; and
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<PAGE> 20
(iv) At no time shall the Banks be required to make
Revolving Loans if the making of such Revolving Loans would cause the ratio of
Indebtedness to Cash Flow from Operations of the Borrowers to exceed 3.5 to 1.0.
B. Term of Revolving Loan Commitments. The Revolving Loan
Commitments shall become effective immediately as of the Closing Date, and as of
the Closing Date, the Borrowers may obtain Revolving Credit Loans and Letters of
Credit subject to the terms and conditions contained herein. The Revolving Loan
Commitments shall continue in effect until the Revolving Loan Commitment
Termination Date, unless sooner terminated (i) by the Banks upon the occurrence
and during the continuation of an Event of Default, or (ii) by the Borrowers at
any time in their sole and absolute discretion. The Borrowers may request, not
less than sixty (60) days prior to December 31, 1997 or not less than sixty (60)
days prior to any subsequent December 31, that the Revolving Loan Commitment
Termination Date be extended for a period of an additional twelve (12) months
beyond the then current Revolving Loan Commitment Termination Date. The Banks
shall notify the Borrowers in writing, within thirty (30) days after receipt of
such request, whether the Banks have elected to so extend the Revolving Loan
Commitment Termination Date. In the event the Banks fail to give such written
notice to the Borrowers within such thirty (30) day period, such failure shall
constitute an affirmative election by the Banks not to so extend the Revolving
Loan Commitment Termination Date. The Revolving Loan Commitment Termination Date
may only be extended by the unanimous written consent of all of the Banks in
their sole and absolute discretion. If any Bank elects not to extend the
Revolving Loan Commitment Termination Date, such Bank shall notify the Borrowers
and the other Banks thereof. In the event any Bank elects not to extend the
Revolving Loan Commitment Termination Date, the Revolving Loan Commitments shall
terminate, and the entire unpaid principal balance of and all accrued and unpaid
interest on the Revolving Credit Loans and all other Obligations shall be
respectively due and payable in full to the Banks on the then Revolving Loan
Commitment Termination Date, subject at all times to the Banks' absolute right
to terminate the Revolving Loan Commitments upon the occurrence and during the
continuation of an Event of Default. Upon termination of the Revolving Loan
Commitments by the Banks upon the occurrence and during the continuation of an
Event of Default, or by the Borrowers at any time in their sole and absolute
discretion, the entire unpaid principal balance of and all accrued and unpaid
interest on the Revolving Credit Loans and all other Obligations shall be
respectively due and payable in full to the Banks. The termination of the
Revolving Loan Commitments, for whatever reason, shall not in any way release or
relieve the Borrowers from their obligations incurred hereunder or in connection
herewith or under the Revolving Credit Notes, the Swing Line Note, the
Applications and Agreements For Letters of Credit, or the other Loan Instruments
and the provisions hereof and of the Revolving Credit Notes, the Swing Line
Note, the Applications and Agreements For Letters of Credit, and the other Loan
Instruments shall continue in full force and effect until the Revolving Credit
Notes, the Swing Line Note, the Applications and Agreements For Letters of
Credit, and all other Obligations have been respectively paid in full to the
Banks. In the event the Borrowers terminate the Revolving Loan Commitments,
which the Borrowers have the right to do at any time in their sole and absolute
discretion, the Borrowers shall be obligated to pay the Revolving Credit Notes,
the Swing Line Note, the Applications and Agreements For Letters of Credit, and
all other Obligations in full to the Banks, respectively.
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<PAGE> 21
C. Borrowing Mechanics For Revolving Credit Loans Made to the
Borrowers. Revolving Credit Loans (except Swing Line Loans under the Swing Line
Credit Facility discussed in Section 3 hereof) made to the Borrowers on any
Funding Date shall be in an aggregate minimum amount of (i) Two Hundred Fifty
Thousand Dollars ($250,000.00) and integral multiples of Fifty Thousand Dollars
($50,000.00) in excess of that amount in the case of Base Rate Loans, and (ii)
Five Hundred Thousand Dollars ($500,000.00) and integral multiples of One
Hundred Thousand Dollars ($100,000.00) in excess of that amount in the case of
Euro-Rate Loans. Whenever the Borrowers desire that the Banks make a Revolving
Credit Loan to the Borrowers, the Borrowers shall deliver to the Administrative
Bank a Request For Revolving Credit Loan no later than 11:00 A.M. (Louisville,
Kentucky time) at least three (3) Business Days in advance of the proposed
Funding Date in the case of a Euro-Rate Loan and on the proposed Funding Date in
the case of a Base Rate Loan. The Request For Revolving Credit Loan shall be in
the form of Exhibit E annexed hereto and shall specify (i) the proposed Funding
Date, (ii) the amount of the Revolving Credit Loan, (iii) whether the Revolving
Credit Loan shall be a Base Rate Loan or a Euro-Rate Loan, (iv) in the case of
any Revolving Credit Loan requested to be made as a Euro-Rate Loan, the initial
Interest Period applicable thereto, (v) that the amount of the proposed
Revolving Credit Loan will not cause the Total Utilization of Revolving Loan
Commitments to exceed the aggregate Revolving Loan Commitments and (vi) that the
amount of the proposed Revolving Credit Loan will not cause the ratio of the
Borrowers' Indebtedness to Cash Flow from Operations to exceed 3.5 to 1.0.
Revolving Credit Loans made to the Borrowers may be continued as or converted
into Base Rate Loans or Euro-Rate Loans in the manner provided in Section 2.2D
hereof. In lieu of delivering the above described Request For Revolving Credit
Loan, the Borrowers may give the Administrative Bank telephonic notice by the
required time of the requested Revolving Credit Loan under this Section 2.lC;
provided that such notice shall be promptly confirmed in writing by delivery of
a Request For Revolving Credit Loan to the Administrative Bank on or before the
applicable Funding Date.
No Bank shall incur any liability to the Borrowers in acting upon any
telephonic notice referred to above which the Administrative Bank believes in
good faith to have been given by a duly Authorized Officer or other Person
authorized to borrow on behalf of the Borrowers or for otherwise acting in good
faith under this Section 2.lC and, upon funding of any Revolving Credit Loan by
the Banks in accordance with this Loan Agreement pursuant to any telephonic
notice, the Borrowers shall have effected such Revolving Credit Loan hereunder.
Except as provided in Sections 2.6B, 2.6C and 2.6G hereof, a Request For
Revolving Credit Loan for a Euro-Rate Loan (or telephonic notice in lieu
thereof) shall be irrevocable on and after the related Interest Rate
Determination Date, and the Borrowers shall be bound to obtain the Euro-Rate
Loan in accordance therewith.
D. Disbursement of Revolving Credit Loans to the Borrowers. All
Revolving Credit Loans made to the Borrowers under this Loan Agreement shall be
made by the Banks simultaneously and proportionately in accordance with their
respective Revolving Credit Facility Pro Rata Shares, it being understood that
no Bank shall be responsible for any default by the other Bank in funding its
Revolving Credit Facility Pro Rata Share of a Revolving Credit Loan requested
hereunder by the Borrowers, nor shall the Revolving Loan Commitment of any Bank
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<PAGE> 22
be increased or decreased as a result of the default by the other Bank in
funding its Revolving Credit Facility Pro Rata Share of a Revolving Credit Loan
requested hereunder by the Borrowers. Each Bank shall make its Revolving Credit
Facility Pro Rata Share of each Revolving Credit Loan to be made to the
Borrowers available to the Administrative Bank, in same day funds, at the office
of the Administrative Bank located at 500 West Jefferson Street, Louisville,
Kentucky not later than 1:00 P.M. (Louisville, Kentucky time) on the Funding
Date. Except with respect to the reimbursement to PNC for a drawing under a
Letter of Credit issued by PNC as provided in Section 2.7 hereof, upon
satisfaction or waiver of the conditions precedent specified in Section 5.1 in
the case of the initial Revolving Credit Loan on the initial Funding Date and
Section 5.2 in the case of a Revolving Credit Loan on any subsequent Funding
Date, the Administrative Bank shall make the proceeds of each Revolving Credit
Loan requested by the Borrowers available to the Borrowers on the Funding Date
by causing an amount of same day funds equal to the proceeds of the Banks'
respective Revolving Credit Facility Pro Rata Shares of such Revolving Credit
Loan received by the Administrative Bank at its office located at the address
set forth in the preceding sentence to be credited to the Borrowers' Loan
Account maintained at such office of the Administrative Bank or wired to an
account designated by the Borrowers. All Revolving Credit Loans shall be
respectively paid in full to the Banks on the Revolving Loan Commitment
Termination Date.
Nothing in this Section 2.1D shall be deemed to relieve any Bank from
its obligation to fulfill its Revolving Loan Commitment hereunder or to
prejudice any rights that the Borrowers may have against any Bank as a result of
any default by such Bank hereunder.
E. Records. Each Bank shall record the Revolving Credit Loans
made to the Borrowers from time to time and each repayment or prepayment in
respect of the principal amount of such Revolving Credit Loans in the Bank's
electronic records. Any such recordation in accordance with the terms of this
Loan Agreement shall be conclusive and binding on the Borrowers absent manifest
error; provided, the failure to make any such recordation, or any error in such
recordation, shall not affect the Borrowers' obligation to repay all Revolving
Credit Loans to the Banks in accordance with this Loan Agreement and the
Revolving Credit Notes.
F. Borrowers' Loan Accounts.
(i) Each Bank shall enter all Revolving Credit Loans made
to the Borrowers as debits in the Borrowers' Loan Account maintained with such
Bank. Each Bank shall also record in the Borrowers' Loan Account maintained with
such Bank in accordance with customary accounting practice all other charges,
expenses and other items properly chargeable to the Borrowers; all payments made
by the Borrowers on account of the Revolving Credit Loans made by such Bank; and
other appropriate debits and credits. The debit balance of the Borrowers' Loan
Account maintained with such Bank shall reflect the unpaid principal balance of
the Revolving Credit Loans from time to time maintained with such Bank. At least
once each month the Administrative Bank shall render a statement of account for
the Borrowers' Loan Accounts maintained with PNC and the other Banks, which
statement shall be considered correct and accepted by the Borrowers and
conclusively binding upon the Borrowers in the absence of
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manifest error unless the Borrowers notify the Administrative Bank to the
contrary within thirty (30) days from the receipt of said statement by the
Borrowers.
(ii) Any and all principal, interest, charges and expenses,
attorneys' fees and taxes now or hereafter due and owing under the Revolving
Credit Notes and any of the other Loan Instruments may be charged to any deposit
account of the Borrowers with a Bank or to the Borrowers' Loan Account
maintained with such Bank.
2.2 Interest on the Revolving Credit Loans.
A. Rates of Interest. Subject to the provisions of Sections 2.2E
and 4 hereof, each Revolving Credit Loan shall bear interest on the unpaid
principal amount thereof from the date made through maturity (whether by
acceleration or otherwise) at the Base Rate plus the Applicable Base Rate Margin
or the Euro-Rate plus the Applicable Euro-Rate Margin, as the case may be. The
applicable rate of interest with respect to Revolving Credit Loans shall be
selected by the Borrowers initially at the time a Request For Revolving Credit
Loan is delivered to the Administrative Bank pursuant to Section 2.1C hereof.
The interest rate with respect to any Revolving Credit Loan may be changed by
the Borrowers from time to time pursuant to Section 2.2D hereof. If on any day a
Revolving Credit Loan is outstanding with respect to which notice has not been
delivered to the Administrative Bank or the Banks in accordance with the terms
of this Loan Agreement specifying the applicable interest rate, then, for that
day, that Revolving Credit Loan shall bear interest at the Base Rate plus the
Applicable Base Rate Margin.
Subject to the provisions of Sections 2.2E and 4 hereof, Revolving
Credit Loans shall bear interest through maturity as follows:
(i) if a Base Rate Loan, at a rate equal to the higher of
(a) the Federal Funds Effective Rate plus one half percent (0.5%) per annum plus
the Applicable Base Rate Margin or (b) the Prime Rate plus the Applicable Base
Rate Margin; provided that, on each Date of Determination, commencing with the
first Date of Determination to occur after the Closing Date, the Applicable Base
Rate Margin in effect for the Pricing Period commencing on such Date of
Determination and continuing for the term of the Pricing Period that begins on
such Date of Determination shall be the Applicable Base Rate Margin
corresponding to the Pricing Level in effect for such Pricing Period, as
follows:
Pricing Level Applicable Base Rate Margin
------------- ---------------------------
Level I 0.00%
Level II 0.00%
Level III 0.00%
Level IV 0.00%
Level V 0.25%
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(ii) if a Euro-Rate Loan, at a rate per annum equal to the
sum of the Euro-Rate plus the Applicable Euro-Rate Margin; provided that, on
each Date of Determination, commencing with the first Date of Determination to
occur after the Closing Date, the Applicable Euro-Rate Margin in effect for the
Pricing Period commencing on such Date of Determination and continuing for the
term of the Pricing Period that begins on such Date of Determination shall be
the Applicable Euro-Rate Margin corresponding to the Pricing Level in effect for
such Pricing Period, as follows:
Pricing Level Applicable Euro-Rate Margin
------------- ---------------------------
Level I 0.75%
Level II 1.00%
Level III 1.25%
Level IV 1.50%
Level V 1.75%
(iii) Notwithstanding that the Pricing Level Calculation
Date of the applicable Pricing Level for a Pricing Period occurs after the
relevant Date of Determination, upon the actual calculation of the applicable
Pricing Level for such Pricing Period, adjustments to the amount of accrued
interest on the Base Rate Loans and/or Euro-Rate Loans, as applicable, shall be
made to reflect retroactive application of the applicable Pricing Level to the
first day of such Pricing Period.
Notwithstanding anything in the foregoing to the
contrary, if any Compliance Certificate delivered by the Borrowers demonstrating
the appropriate Pricing Level shall prove to be incorrect (as determined by
reference to a subsequent Compliance Certificate or subsequent publicly filed
financial statements of the Borrowers or otherwise), such Compliance Certificate
shall no longer be in effect, and the Administrative Bank shall notify the
Borrowers of such incorrectness and shall calculate the difference between the
amount of interest actually paid by the Borrowers on the Base Rate Loans and the
Euro-Rate Loans on the basis of such incorrect Compliance Certificate and the
amount of interest which would have been due on the Base Rate Loans and the
Euro-Rate Loans had such incorrect Compliance Certificate not been delivered.
The Administrative Bank shall notify the Borrowers of the amount of such
difference, if any, in a statement setting forth the method of calculation of
such amount (which calculation, in the absence of demonstrable error, shall be
deemed correct) and the Borrowers shall pay such amount to the Administrative
Bank for the benefit of the Banks within three (3) Business Days of such notice.
B. Interest Periods. In connection with each Euro-Rate Loan, the
Borrowers may, pursuant to the applicable Request For Revolving Credit Loan,
select the Interest Period to be applicable to such Euro-Rate Loan, which
Interest Period shall be at the Borrowers' option either a one, two, three or
six month period. The following provisions are applicable to Interest Periods
generally:
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(i) the initial Interest Period for any Euro-Rate Loan
shall commence on the Funding Date of such Euro-Rate Loan, in the case of a
Revolving Credit Loan initially made as a Euro-Rate Loan, or on the date
specified in the applicable Notice of Conversion/Continuation, in the case of a
Revolving Credit Loan converted to a Euro-Rate Loan;
(ii) in the case of immediately successive Interest
Periods applicable to a Euro-Rate Loan continued as such pursuant to Notice of
Conversion/Continuation, each successive Interest Period shall commence on the
day on which the next preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a
day that is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided that, if any Interest Period would otherwise
expire on a day that is not a Business Day but is a day of the month after which
no further Business Day occurs in such month, such Interest Period shall expire
on the next preceding Business Day;
(iv) any Interest Period of a Euro-Rate Loan that begins
on the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (iii) of this Section 2.2B, end on the last
Business Day of a calendar month;
(v) in the event the Borrowers fail to specify an Interest
Period with respect to a Euro-Rate Loan in the applicable Request For Revolving
Credit Loan or Notice of Conversion/Continuation, the Borrowers shall be deemed
to have selected an Interest Period of one month; and
(vi) no Interest Period shall extend beyond the Revolving
Loan Commitment Termination Date.
C. Interest Payments. Subject to the provisions of Section 2.2E
hereof, interest shall be payable on the Revolving Credit Loans as follows:
(i) interest on each Base Rate Loan shall be payable in
arrears on and to the last day of each calendar quarter, upon any prepayment or
repayment of such Base Rate Loan (to the extent accrued on the amount being
prepaid or repaid) and at maturity (including final maturity); and
(ii) interest on each Euro-Rate Loan shall be payable in
arrears on and to the ninetieth (90th) day during each Interest Period
applicable to that Euro-Rate Loan, the last day of each Interest Period
applicable to that Euro-Rate Loan, and upon any prepayment or repayment of that
Euro-Rate Loan (to the extent accrued on the amount being prepaid or repaid) and
at maturity (including final maturity).
D. Conversion or Continuation. Subject to the provisions of
Section 2.6 hereof, the Borrowers shall have the option (i) to convert at any
time all or any part of
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<PAGE> 26
outstanding Revolving Credit Loans from Revolving Credit Loans bearing interest
as Base Rate Loans to Revolving Credit Loans bearing interest as Euro-Rate
Loans, and (ii) upon the expiration of any Interest Period applicable to a
Euro-Rate Loan, to continue all or any portion of such Revolving Credit Loan as
a Euro-Rate Loan, and the succeeding Interest Period of such continued Euro-Rate
Loan shall commence on the most recent Interest Payment Date thereof; provided
however that a Euro-Rate Loan may only be converted into a Revolving Credit Loan
bearing interest as a Base Rate Loan on the expiration date of the Interest
Period applicable thereto.
The Borrowers shall deliver a Notice of Conversion/Continuation to the
Administrative Bank no later than 11:00 A.M. (Louisville, Kentucky time) at
least three (3) Business Days in advance of the proposed conversion/continuation
date. A Notice of Conversion/ Continuation shall specify (i) the proposed
conversion/continuation date (which shall be a Business Day), (ii) the amount of
the Revolving Credit Loan to be converted/continued, (iii) the nature of the
proposed conversion/continuation, (iv) in the case of a conversion to, or
continuation of, a Euro-Rate Loan, the requested Interest Period, and (v) in the
case of a conversion to, or a continuation of, a Euro-Rate Loan or a Base Rate
Loan, that no Event of Default has occurred and is continuing. In lieu of
delivering the above-described Notice of Conversion/Continuation, the Borrowers
may give the Administrative Bank telephonic notice by the required time of any
proposed conversion/continuation under this section 2.2D; provided that such
notice shall be promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to the Administrative Bank on or before the proposed
conversion/continuation date.
The Banks shall not incur any liability to the Borrowers in acting upon
any telephonic notice referred to above that the Administrative Bank believes in
good faith to have been given by a duly Authorized Officer or other Person
authorized to act on behalf of the Borrowers or for otherwise acting in good
faith under this Section 2.2D, and upon conversion or continuation of the
applicable basis for determining the interest rate with respect to any Revolving
Credit Loans in accordance with this Loan Agreement pursuant to any such
telephonic notice, the Borrowers shall have effected a conversion or
continuation, as the case may be, hereunder.
Except as otherwise provided in Sections 2.6B, 2.6C and 2.6G hereof, a
Notice of Conversion/Continuation for conversion to, or continuation of, a
Euro-Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on
and after the related Interest Rate Determination Date and the Borrowers shall
be bound to effect a conversion or continuation in accordance therewith.
E. Post-Maturity Interest. Any principal payments on the
Revolving Credit Loans not paid when due and, to the extent permitted by
applicable law, any interest payments on the Revolving Credit Loans or any fees
or other amounts owed by the Borrowers hereunder not paid when due, in each case
whether at stated maturity, by notice of prepayment, by acceleration or
otherwise, shall thereafter bear interest (including post-petition interest in
any proceeding under the Bankruptcy Code or other applicable bankruptcy laws)
payable on demand at a rate equal to the Default Rate. Payment or acceptance of
the increased rates of interest provided for in this Section 2.2E is not a
permitted alternative to timely payment and shall not
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constitute a waiver of any Event of Default or otherwise prejudice or limit any
rights or remedies of the Banks.
F. Computation of Interest. Interest on the Euro-Rate Loans shall
be computed on the basis of a 360-day year, and interest on the Base Rate Loans
shall be computed on the basis of an actual 365 or 366-day year, as applicable,
in each case for the actual number of days elapsed in the period during which it
accrues. In computing interest on any Revolving Credit Loan, the date of the
making of such Revolving Credit Loan or the first day of an Interest Period
applicable to such Revolving Credit Loan, as the case may be, shall be included,
and the date of payment of such Revolving Credit Loan or the expiration date of
an Interest Period applicable to such Revolving Credit Loan or, with respect to
a Revolving Credit Loan being converted to a Euro-Rate Loan or Base Rate Loan,
the date of conversion of such Revolving Credit Loan to such Euro-Rate Loan or
Base Rate Loan shall be excluded; provided that if a Revolving Credit Loan is
repaid on the same day on which it is made, one day's interest shall be paid on
that Revolving Credit Loan.
G. Limitation on Euro-Rate Loan Tranches. At no time shall the
number of Euro-Rate Loans outstanding at any time outstanding exceed seven (7).
2.3 Fees.
A. Closing Fees and Expenses. The Borrowers agree to pay to the
Administrative Bank on the Closing Date, for the benefit of the Banks, Closing
Fees in the total amount set forth in Section III of Schedule 2.3A hereto. Upon
receipt of such moneys, the Administrative Bank shall remit the Closing Fees set
forth in Sections I and II of Schedule 2.3A to the Banks. The Borrowers shall
have no liability to any Bank for any Closing Fees paid to the Administrative
Bank which the Administrative Bank does not properly remit to such Bank pursuant
to Sections I and II of Schedule 2.3A, and such Bank's sole remedy in respect
thereof shall be against the Administrative Bank. Pursuant to this Section 2.3A
and Section 15.10 hereof, the Borrowers also agree to pay to the Administrative
Bank on the Closing Date the reasonable fees and expenses of the Administrative
Bank's counsel in negotiating, drafting and closing this Loan Agreement and
related documents.
B. Commitment Fee.
(i) The Borrowers agree to pay to the Administrative Bank,
for the benefit of the Banks in proportion to their respective Revolving Credit
Facility Pro Rata Shares, commitment fees (the "Revolving Credit Facility
Commitment Fees") for the period from and including the Closing Date to and
excluding the Revolving Loan Commitment Termination Date, equal to the average
of the daily excess of the Revolving Loan Commitments (as they may be reduced
pursuant to Section 2.4C hereof) over the aggregate outstanding principal amount
of Revolving Credit Loans and the Letter of Credit Usage multiplied by the
Applicable Commitment Fee Percentage set forth below; provided that, on each
Date of Determination, commencing with the first Date of Determination to occur
after the Closing Date, the Applicable Commitment Fee Percentage in effect for
the Pricing Period commencing on such Date of
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<PAGE> 28
Determination and continuing for the term of the Pricing Period that begins on
such Date of Determination shall be the Applicable Commitment Fee Percentage
corresponding to the Pricing Level in effect for such Pricing Period, as
follows:
Pricing Level Applicable Commitment Fee Percentage
------------- ------------------------------------
Level I 0.25%
Level II 0.25%
Level III 0.30%
Level IV 0.30%
Level V 0.30%
Provided, further, that, in the case of PNC only, the calculation of the
Revolving Credit Facility Commitment Fee shall be adjusted to add the aggregate
outstanding principal amount of Swing Line Loans to the aggregate outstanding
principal amount of Revolving Credit Loans and the Letter of Credit Usage
allocable to PNC, before the calculation of the Revolving Credit Facility
Commitment Fee payable to PNC is performed.
The Revolving Credit Facility Commitment Fees shall be calculated on the basis
of a 360-day year and the actual number of days elapsed and shall be payable
quarterly in arrears on the last day of each Fiscal Quarter, commencing on the
first such date to occur after the Closing Date, and on the Revolving Loan
Commitment Termination Date. The Borrowers shall have no liability to the Banks
for any Revolving Credit Facility Commitment Fees paid to the Administrative
Bank which the Administrative Bank does not properly remit to such Bank, and
such Bank's sole remedy in respect thereof shall be against the Administrative
Bank.
(ii) Notwithstanding that the Pricing Level Calculation
Date of the Applicable Pricing Level for a Pricing Period occurs after the
relevant Date of Determination, upon the actual calculation of the applicable
Pricing Level for such Pricing Period, adjustments to the Applicable Commitment
Fee Percentage and the amount of the Revolving Credit Facility Commitment Fees,
as applicable, shall be made to reflect retroactive application of the
applicable Pricing Level to the first day of such Pricing Period.
Notwithstanding anything in the foregoing to the contrary, if any Compliance
Certificate delivered by the Borrowers demonstrating the appropriate Pricing
Level shall prove to be incorrect (as determined by reference to a subsequent
Compliance Certificate or subsequent publicly filed financial statements of the
Borrowers or otherwise), such Compliance Certificate shall no longer be in
effect, and the Administrative Bank shall notify the Borrowers of such
incorrectness and shall calculate the difference between the amount of the
Revolving Credit Facility Commitment Fees actually paid by the Borrowers on the
basis of such incorrect Compliance Certificate and the amount of Revolving
Credit Facility Commitment Fees which would have been due had such incorrect
Compliance Certificate not been delivered. The Administrative Bank shall notify
the Borrowers of the amount of such difference, if any, in a statement setting
forth the method of calculation of such amount (which calculation, in the
absence of demonstrable error, shall be deemed
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<PAGE> 29
correct) and the Borrowers shall pay such amount to the Administrative Bank for
the benefit of the Banks within three (3) Business Days of such notice.
C. Other Fees. The Borrowers agree to pay to the Administrative
Bank such fees for serving as the Administrative Bank hereunder in the amounts
and at the times agreed to in writing between the Borrowers and the
Administrative Bank.
2.4 Prepayments and Payments; Reductions in Revolving Loan Commitments.
A. Voluntary Prepayments. The Borrowers may, upon not less than
one (1) Business Day prior written or telephonic notice confirmed in writing to
the Administrative Bank, at any time and from time to time, prepay any Revolving
Credit Loans (other than Swing Line Loans) in whole or in part in an aggregate
minimum amount of One Hundred Thousand Dollars ($100,000.00) and integral
multiples of Twenty Five Thousand Dollars ($25,000.00) in excess of that amount;
provided however that in the event that the Borrowers prepay a Euro-Rate Loan
pursuant to this Section 2.4B on a date that is other than the expiration date
of the Interest Period applicable thereto, the Borrowers shall compensate the
Banks in accordance with the provisions of Section 2.6D hereof. If the Borrowers
have given notice of prepayment as afore-said, the principal amount of the
Revolving Credit Loans specified in such notice shall become due and payable on
the prepayment date specified therein. All prepayments of principal of the
Revolving Credit Loans shall be accompanied by the payment of accrued interest
on the principal amount being prepaid and shall be applied to the payment of
interest before application to principal. All prepayments of the Revolving
Credit Loans shall be applied first to Base Rate Loans to the full extent
thereof and then shall be applied to Euro-Rate Loans, in each case in a manner
which minimizes the amount of any payments required to be made by the Borrowers
pursuant to Section 2.6D hereof.
B. General Provisions Regarding Payments.
(i) Manner and Time of Payment. All payments of principal,
interest and fees hereunder and under the Revolving Credit Notes by the
Borrowers shall be made without defense, setoff and counterclaim and in same day
funds and delivered to the Administrative Bank not later than 11:00 A.M.
(Louisville, Kentucky time) on the date due at its office located in Louisville,
Kentucky; funds received by the Administrative Bank after that time shall be
deemed to have been paid by the Borrowers on the next succeeding Business Day.
(ii) Payments on Business Days. Whenever any payment to be
made hereunder or under the Revolving Credit Notes shall be stated to be due on
a day that is not a Business Day, such payment shall be made on the next
succeeding Business Day (unless no further Business Day occurs in such month, in
which case payment shall be made on the next preceding Business Day) and such
extension of time shall be included in the computation of the payment of
interest hereunder or under the Revolving Credit Notes or of the Revolving
Credit Facility Commitment Fees, as the case may be.
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<PAGE> 30
C. Voluntary Reduction of Revolving Loan Commitments. The
Borrowers shall have the right, at any time and from time to time, to terminate
in whole or permanently reduce in part, without premium or penalty, the
Revolving Loan Commitments. The Borrowers shall give not less than five (5)
Business Days' prior written notice to the Administrative Bank designating the
date (which shall be a Business Day) of such termination or reduction and the
amount of any partial reduction of the Revolving Loan Commitments. Such
termination or partial reduction of the Revolving Loan Commitments shall be
effective on the date specified in the Borrowers' notice and shall reduce the
Revolving Loan Commitment of each Bank in proportion to its Revolving Credit
Facility Pro Rata Share. Any such partial reduction of the Revolving Loan
Commitments shall be in a minimum amount of One Million Dollars ($1,000,000.00)
and integral multiples of One Hundred Thousand Dollars ($100,000.00) in excess
of that amount.
2.5 Use of Proceeds.
A. Revolving Credit Loans. The proceeds of the Revolving Credit
Loans shall be used by the Borrowers to fund their working capital needs, to pay
off an existing term loan and to fund the purchase price of acquisitions of and
investments in businesses which are described in Section 8.5 hereof and all
businesses incidental to or related to the foregoing businesses of the Borrowers
therein described.
B. Margin Regulations. No portion of the proceeds of any
Revolving Credit Loans under this Loan Agreement shall be used by the Borrowers
in any manner which might cause the making of the Revolving Credit Loans or the
application of the proceeds thereof to violate Regulation G, Regulation U,
Regulation T, or Regulation X of the Board of Governors of the Federal Reserve
System or any other regulation of such Board or to violate the securities and
Exchange Act of 1934, in each case as in effect on the date or dates of the
making of any such Revolving Credit Loan and such use of the proceeds thereof.
If requested by the Banks, the Borrowers shall execute and deliver to the Banks
a completed Federal Reserve Form U-1.
2.6 Special Provisions Governing Euro-Rate Loans. Notwithstanding any
other provision of this Loan Agreement to the contrary, the following provisions
shall govern with respect to Euro-Rate Loans as to the matters covered:
A. Determination of Euro-Rate. As soon as practicable after 10:00
A.M. Louisville, Kentucky time on each Interest Rate Determination Date
applicable to the particular Euro-Rate Loan, the Administrative Bank shall
furnish to the Borrowers a quote of the Euro-Rate to apply to the particular
Euro-Rate Loan. The Administrative Bank will in addition confirm to the
Borrowers in writing the actual Euro-Rate prior to the funding of the particular
Euro-Rate Loan, and the determination of each Euro-Rate by the Administrative
Bank, provided that the Administrative Bank shall have determined the Euro-Rate
in good faith, shall be final, conclusive and binding upon both the Borrowers
and the Banks in the absence of manifest or demonstrable error and shall apply
to the particular Euro-Rate Loan for the applicable Interest Period.
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<PAGE> 31
B. Inability to Determine Euro-Rate. In the event that the
Administrative Bank shall have determined in good faith (which determination
shall be final and conclusive and binding upon the Borrowers), on any Interest
Rate Determination Date or Funding Date with respect to any Euro-Rate Loans,
that by reason of circumstances occurring after the date of this Loan Agreement
affecting the London interbank market, adequate and fair means do not exist for
ascertaining the interest rate applicable to such Euro-Rate Loans on the basis
provided for in the definition of Euro-Rate, the Administrative Bank shall on
such date give notice (by telecopy or by telephone confirmed in writing) to the
Borrowers and the Banks of such determination, whereupon (i) no Revolving Credit
Loans may be made as, or converted to, Euro-Rate Loans until such time as the
Administrative Bank notifies the Borrowers and the Banks that the circumstances
giving rise to such notice no longer exist; (ii) any Request for Revolving
Credit Loan or Notice of Conversion/Continuation given by the Borrowers with
respect to the Revolving Credit Loans in respect of which such determination was
made shall be deemed to be rescinded by the Borrowers, and (iii) any Request for
Revolving Credit Loan or Notice of Conversion/Continuation given by the
Borrowers with respect to the Revolving Credit Loans in respect of which such
determination was made shall be deemed to be a request to make Base Rate Loans.
C. Illegality or Impracticability of Euro-Rate Loans. In the
event that on any date any Bank shall have determined in good faith (which
determination shall be final and conclusive and binding upon the parties hereto
but shall be made only after consultation with the Borrowers) that the making,
maintaining or continuation of its Euro-Rate Loans (i) has become unlawful as a
result of compliance by such Bank in good faith with any law, treaty,
governmental rule, regulation, guideline or order (or would conflict with any
such treaty, governmental rule, regulation, guideline or order not having the
force of law even though the failure to comply therewith would not be unlawful)
or (ii) has become impracticable, or would cause such Bank material hardship, as
a result of contingencies occurring after the date of this Loan Agreement which
materially and adversely affect the London interbank market or the position of
such Bank in that market, then such Bank shall on that day give notice (by
telecopy or by telephone confirmed in writing) to the Borrowers and the other
Bank of such determination. Thereafter, (a) the obligation of the Banks to make
Revolving Credit Loans as, or to convert Revolving Credit Loans to, Euro-Rate
Loans shall be suspended until such notice shall be withdrawn by the particular
Bank, (b) to the extent such determination by the particular Bank relates to a
Euro-Rate Loan then being requested by the Borrowers pursuant to a Request for
Revolving Credit Loan or Notice of Conversion/Continuation, the Banks shall make
such Euro-Rate Loan as (or convert such Euro-Rate Loan to, as the case may be) a
Base Rate Loan, and (c) the Banks' obligation to maintain their outstanding
Euro-Rate Loans, as the case may be (the "Affected Loans"), shall be terminated
at the earlier to occur of the expiration of the Interest Periods then in effect
with respect to the Affected Loans or when required by law, and the Affected
Loans shall automatically convert into Base Rate Loans on the date of such
termination.
D. Compensation For Breakage or Non-Commencement of Interest
Periods. The Borrowers shall compensate the Banks, upon written request by the
Banks (which request shall set forth the basis for requesting such amounts), for
all reasonable losses, expenses and
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<PAGE> 32
liabilities (including, without limitation, any interest paid by the Banks to
lenders of funds borrowed by them to make or carry the Euro-Rate Loans and any
reasonable loss, expense or liability sustained by the Banks in connection with
the liquidation or re-employment of such funds) which the Banks may sustain: (i)
if for any reason (other than a default by the Banks or the conversion of the
Borrowers' Request for Revolving Credit Loan or Notice of Conversion/
Continuation from a request to make Euro-Rate Loans into a request to make Base
Rate Loans pursuant to Sections 2.6B or 2.6C hereof) a borrowing of any
Euro-Rate Loan does not occur on a date specified therefor in a Request for
Revolving Credit Loan or Notice of Conversion/Continuation or a telephonic
request for borrowing, or a conversion to or continuation of any Euro-Rate Loan
does not occur on a date specified therefor in a Request for Revolving Credit
Loan or Notice of Conversion/Continuation or a telephonic request for conversion
or continuation, (ii) if any prepayment or conversion of any of the Euro-Rate
Loans occurs on a date that is not the last day of the Interest Period
applicable to that Euro-Rate Loan, (iii) if any prepayment of any of the
Euro-Rate Loans is not made on any date specified in a notice of prepayment
given by the Borrowers, or (iv) as a consequence of any other default by the
Borrowers to repay the Euro-Rate Loans when required by the terms of this Loan
Agreement. The Banks shall deliver to the Borrowers a certificate setting forth
the calculation of the compensation claimed to be due to the Banks within thirty
(30) days after the occurrence of the event giving rise to such claim for
compensation, which calculations shall be binding upon the Borrowers in the
absence of manifest or demonstrable error.
E. Booking of Euro-Rate Loans. Each Bank may make, carry or
transfer its Revolving Credit Facility Pro Rata Share of Euro-Rate Loans at, to,
or for the account of any of its branch offices or the office of an Affiliate of
such Bank; provided however that if any transfer of a Bank's Revolving Credit
Pro Rata Share of Euro-Rate Loans from the office where such Bank's Revolving
Credit Facility Pro Rata Share of Euro-Rate Loans originated shall materially
and unreasonably increase the cost to the Borrowers of such Euro-Rate Loans,
such transfer may occur only if required (i) by the introduction of or any
change (including, without limitation, any change by way of imposition or
increase of reserve requirements) in or in the interpretation of any law or
regulation, or (ii) to comply with any guideline or request from any central
bank or other governmental authority or quasi-governmental authority exercising
control over banks or financial institutions generally (whether or not such
guideline or request shall have the force of law).
F. Assumptions Concerning Funding of Euro-Rate Loans. The
calculation of all amounts payable to the Banks under this Section 2.6 and under
Section 4.1 hereof shall be made as though each Bank had actually funded each
Euro-Rate Loan through the purchase of a deposit bearing interest at the rate
obtained pursuant to clause (i) of the definition of Euro-Rate in an amount
equal to such Bank's Revolving Credit Facility Pro Rata Share of the amount of
such Euro-Rate Loan and having a maturity comparable to the relevant Interest
Period and through the transfer of such deposit from an offshore office of such
Bank to a domestic office of such Bank in the United States of America; provided
however that each Bank may fund its Revolving Credit Facility Pro Rata Share of
the Euro-Rate Loans in any manner it sees fit and the foregoing assumptions
shall be utilized only for the purposes of calculating amounts payable under
this Section 2.6 and under Section 4.1 hereof.
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<PAGE> 33
G. Euro-Rate Loans After Event of Default. After the occurrence
and during the continuation of an Event of Default, (i) the Borrowers may not
elect to have a Revolving Credit Loan made or maintained as, or converted to, a
Euro-Rate Loan after the expiration of any Interest Period then in effect for
that Revolving Credit Loan, (ii) subject to the provisions of Section 2.6E
hereof, any Request for Revolving Credit Loan or Notice of Conversion/
Continuation given by the Borrowers with respect to a requested borrowing or
conversion/ continuation, as applicable, that has not yet occurred shall be
deemed to be rescinded by the Borrowers, and (iii) all Euro-Rate Loans shall
thereupon bear interest at the Default Rate until the Event of Default is cured
or the Revolving Credit Loans are respectfully paid in full to the Banks and the
Revolving Loan Commitments have expired or have been terminated by the Borrowers
or the Banks.
2.7 Letters of Credit.
A. Letters of Credit. Subject to the terms and conditions of this
Loan Agreement and in reliance upon the representations and warranties of the
Borrowers set forth herein, the Borrowers may request, in accordance with the
provisions of this Section 2.7A, that on and after the Closing Date, PNC issue
Letters of Credit for the account of the Borrowers denominated in Dollars.
Issuances of Letters of Credit shall be subject to the following limitations:
(i) The Borrowers may not request that PNC issue any
Letter of Credit if, after giving effect to such issuance, (y) the total Letter
of Credit Usage would exceed Ten Million Dollars ($10,000,000.00), or (z) the
Total Utilization of Revolving Loan Commitments would exceed the Revolving Loan
Commitments, as the amount available under such Revolving Loan Commitments may
be reduced from time to time pursuant to Section 2.4C hereof.
(ii) In no event shall PNC issue, reissue, amend or permit
the extension of: (y) any Letter of Credit having an expiration date later than
the Revolving Loan Commitment Termination Date in effect at the time of
issuance, reissuance, amendment or extension (automatic or otherwise) thereof;
or (z) subject to the foregoing clause (y), any Letter of Credit having an
expiration date more than one year after its date of issuance; provided that
subject to the foregoing clause (y), this clause (z) shall not prevent PNC from
agreeing that a Letter of Credit will automatically be extended annually for one
or more periods each not to exceed one year if PNC does not cancel such
extension, subject to the Banks extending the Revolving Loan Commitment
Termination Date.
It shall be a condition precedent to the issuance of any Letter of
Credit in accordance with the provisions of this Section 2.7 that each condition
set forth in Sections 5.1 and 5.2A and B of this Loan Agreement shall have been
satisfied.
Immediately upon the issuance of each Letter of Credit, each Bank shall
be deemed to, and hereby agrees to, have irrevocably purchased from PNC a
participation in such Letter of Credit and drawings thereunder in an amount
equal to such Bank's Revolving Credit Facility Pro
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<PAGE> 34
Rata Share of the maximum amount which is or at any time may become available to
be drawn thereunder.
Each Letter of Credit shall provide that it shall be subject to the
Uniform Customs and Practice of Documentary Credits (1993 Revision),
International Chamber of Commerce Brochure No. 500, or any successor thereto.
Each Letter of Credit may provide that PNC may (but shall not be required to)
pay the beneficiary thereof upon the occurrence of an Event of Default and the
acceleration of the maturity of the Revolving Loans or, if payment is not then
due to the beneficiary, provide for the deposit of funds in an account to secure
payment to the beneficiary and that any funds so deposited shall be paid to the
beneficiary of the Letter of Credit if conditions to such payment are satisfied
or returned to PNC for distribution to the Banks (or, if all Obligations shall
have been indefeasibly paid in full, to the Borrowers) if no payment to the
beneficiary has been made and thirty (30) days after the final date available
for drawings under the Letter of Credit has passed. Each payment or deposit of
funds by PNC as provided in this paragraph shall be treated for all purposes of
this Loan Agreement as a drawing duly honored by PNC under the related Letter of
Credit.
B. Notice of Issuance. Whenever a Borrower desires the issuance
of a Letter of Credit, Res-Care, as agent for such Borrower, shall deliver to
PNC an Application and Agreement for Letter of Credit in the form of Exhibit C
annexed hereto no later than 10:00 A.M. (Louisville, Kentucky time) at least ten
(10) Business Days, or in each case such shorter period as may be agreed to by
PNC in any particular instance, in advance of the proposed date of issuance. The
Application and Agreement for Letter of Credit shall specify (i) the proposed
date of issuance (which shall be a Business Day under the laws of the
Commonwealth of Kentucky), (ii) the face amount of the Letter of Credit, (iii)
the expiration date of the Letter of Credit, (iv) the name and address of the
beneficiary of the Letter of Credit, and (v) a summary of the purpose and
contemplated terms of the Letter of Credit. Prior to the date of issuance of any
Letter of Credit, Res-Care shall specify a precise description of the documents
and the proposed text of any certificate to be presented by the beneficiary
under such Letter of Credit which, if presented by the beneficiary prior to the
expiration date of the Letter of Credit, would require PNC to make payment under
the Letter of Credit; provided that PNC, in its sole reasonable judgment, may
require changes in any such documents and certificates; provided further that no
Letter of Credit shall require payment against a conforming draft to be made
thereunder on the same Business Day (under the laws of the Commonwealth of
Kentucky) that such draft is presented if such presentation is made after 11:00
A.M. (Louisville, Kentucky time) on such Business Day. In determining whether to
pay under any Letter of Credit, PNC shall be responsible only to determine that
the documents and certificates required to be delivered under that Letter of
Credit have been delivered and that they comply on their face with the
requirements of that Letter of Credit; provided, further, nothing contained in
this Section 2.7B shall be deemed to prejudice the right of the Borrowers to
recover from PNC in respect of any amounts paid by PNC under any Letter of
Credit in the event that it is determined by a court of competent jurisdiction
that the payment with respect to such Letter of Credit by PNC constituted gross
negligence or willful misconduct on the part of PNC.
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<PAGE> 35
C. Delivery of Copies of Letters of Credit and Letter of Credit
Amendments. PNC shall, promptly after the issuance of each Letter of Credit, or
any amendment or cancellation thereto, furnish to the Banks a copy of such
Letter of Credit or of such amendment or cancellation, as the case may be,
together with, in the case of the issuance of any Letter of Credit, the amount
of its risk participation therein, which shall be such Bank's Revolving Credit
Facility Pro Rata Share of the stated amount of such Letter of Credit.
D. Payment of Amounts Drawn Under Letters of Credit. In the event
of any drawing under any Letter of Credit by the beneficiary thereof, PNC shall
promptly notify the Borrowers and the Banks of such drawing, and the Borrowers
shall reimburse PNC on the date on which such drawing is honored in an amount in
same day funds equal to the amount of such drawing. The Borrowers shall have the
right to obtain a Revolving Credit Loan (subject to the limitations set forth in
Section 2.lA hereof and in the absence of any Event of Default hereunder) in an
amount sufficient to repay in full any such drawing honored by PNC under a
Letter of Credit.
E. Payment by Banks with Respect to Letters of Credit. In the
event that the Borrowers shall fail to reimburse PNC as provided in Section 2.7D
hereof in an amount equal to the amount of any drawing honored by PNC under a
Letter of Credit issued by PNC, PNC shall promptly notify each of the other
Banks of the unreimbursed amount of such drawing and of each Bank's
participation therein, which participation shall be equal to such Bank's
Revolving Credit Facility Pro Rata Share of the unreimbursed amount of such
drawing. Each Bank shall make available to PNC an amount equal to its
participation in same day funds, at the offices of PNC located at 500 West
Jefferson Street, Louisville, Kentucky not later than 1:00 P.M. (Louisville,
Kentucky time) on the Business Day (under the laws of Commonwealth of Kentucky)
after the date notified by PNC, and each such amount so made available by each
Bank will be deemed a Revolving Credit Loan made by such Bank to the Borrowers
under this Loan Agreement as of the date such amount is so made available to
PNC. In the event that any Bank fails to make available to PNC the amount of
such Bank's participation in such Letter of Credit as provided in this Section
2.7E, PNC shall be entitled to recover such amount on demand from such Bank
together with interest at the customary rate set by PNC for the correction of
errors among banks for three Business Days and thereafter at the Federal Funds
Effective Rate. Nothing in this Section 2.7 shall be deemed to prejudice the
right of any Bank to recover from PNC any amounts made available by such Bank to
PNC pursuant to this Section 2.7E in the event that it is determined by a court
of competent jurisdiction that the payment made by PNC with respect to a Letter
of Credit in respect of which reimbursement was made by such Bank constituted
gross negligence or willful misconduct on the part of PNC. PNC shall distribute
to the each other Bank, to the extent that it has paid all amounts payable by it
under this Section 2.7E with respect to any Letter of Credit issued by PNC, such
Bank's Revolving Credit Facility Pro Rata Share of all payments received by PNC
from the Borrowers in reimbursement drawings honored by PNC under such Letter of
Credit, as the case may be, when such payments are received. Notwithstanding
anything to the contrary herein, each Bank shall have a direct to reimbursement
of such amounts from the Borrowers, subject to the procedures for reimbursing
such Bank set forth in this Section 2.7.
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F. Compensation. The Borrowers agree to pay, without duplication,
the following amounts to PNC with respect to each such Letter of Credit issued
by PNC for the account of the Borrowers:
(i) With respect to each Letter of Credit, a letter of
credit fee (the "Letter of Credit Fee") payable to PNC for the account of the
Banks (and to be shared by the Banks pro rata in accordance with their
respective Revolving Credit Facility Pro Rata Shares) equal to the Applicable
Letter of Credit Percentage multiplied by the maximum amount available from time
to time to be drawn under such Letter of Credit; provided that, on each Date of
Determination, commencing with the first Date of Determination to occur after
the Closing Date, the applicable Letter of Credit Percentage in effect for the
Pricing Period commencing on such Date of Determination and continuing for the
term of the Pricing Period that begins on such Date of Determination shall be
the Applicable Letter of Credit Percentage corresponding to the Pricing Level in
effect for such Pricing Period, as follows:
Pricing Level Applicable Letter of Credit Percentage
------------- --------------------------------------
Level I 0.75%
Level II 1.00%
Level III 1.25%
Level IV 1.50%
Level V 1.75%
The Letter of Credit Fee, as based on the Applicable Letter of Credit
Percentage, shall be payable quarterly in advance beginning on the date of
issuance of such Letter of Credit and quarterly in advance beginning on the
date, if such should occur, of each renewal or extension of such Letter of
Credit;
(ii) with respect to drawings made under any Letter of
Credit, interest, payable in immediately available funds to PNC on demand, on
the amount paid by PNC in respect of each such drawing from the date of the
drawing through the date such amount is reimbursed by the Borrowers at a
variable rate equal to the Prime Rate;
(iii) with respect to the issuance, amendment or transfer
of each Letter of Credit and each drawing made thereunder, documentary and
processing charges payable to PNC in accordance with PNC's standard schedule for
such charges in effect at the time of such issuance, amendment, transfer or
drawing, as the case may be;
(iv) promptly upon receipt by PNC of the amount described
in subdivisions (ii) and (iii) of this Section 2.7F, PNC shall distribute to
each Bank its Pro Rata Share of such amount.
(v) With respect to each Letter of Credit, a letter of
credit fronting fee (the "Letter of Credit Fronting Fee") payable to PNC for its
own account, in the amount of one
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eighth of one percent (0.125%) multiplied by the aggregate face amount of
Letters of Credit outstanding during a Fiscal Quarter, payable quarterly in
advance.
(vi) The Letters of Credit issued under the Old Loan
Agreement and outstanding as of the Closing Date are deemed to be issued and
outstanding under this Loan Agreement. To the extent that fees have been paid
with respect to such Letters of Credit, no fees shall be due under this Section
2.7F for such Letters of Credit until the date on which fees would otherwise be
due for such Letters of Credit.
G. Obligations Absolute; Indemnification, Nature of PNC's Duties.
Subject to the right of the Borrowers and the Banks to seek damages in the event
that a court of competent jurisdiction determines that PNC acted in bad faith
and/or committed gross negligence or willful misconduct in honoring any draft
presented under any Letter of Credit issued by PNC, the obligation of the
Borrowers to reimburse PNC for drawings made under such Letter of Credit and the
obligation of the Banks under Section 2.7E hereof to reimburse PNC in accordance
with their Pro Rata Shares for drawings made under such Letter of Credit shall
be unconditional and irrevocable and shall be paid strictly in accordance with
the terms of this Loan Agreement under all circumstances including, without
limitation, the following circumstances:
(i) any lack of validity or enforceability of such Letter
of Credit;
(ii) the existence of any claim, set-off, defense or other
right which the Borrowers may have at any time against a beneficiary or any
transferee of such Letter of Credit (or any Persons for whom any such transferee
may be acting), the Administrative Bank, any Bank or any other Person, whether
in connection with this Loan Agreement, the transactions contemplated herein or
any unrelated transaction (including any underlying transaction between the
Borrowers and the beneficiary for which such Letter of Credit was procured);
(iii) any draft, demand, certificate or any other document
presented under such Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) payment by PNC under such Letter of Credit against
presentation of a demand, draft or certificate or other document which does not
comply with the terms of such Letter of Credit;
(v) any other circumstance or happening whatsoever, which
is similar to any of the foregoing; or
(vi) the fact that an Event of Default or a Potential
Event of Default under this Loan Agreement shall have occurred and be
continuing.
In addition to amounts payable as elsewhere provided in this Section 2,
the Borrower hereby agrees to protect, indemnify, pay and save PNC harmless from
and against any all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable
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<PAGE> 38
attorneys' fees but excluding allocated costs of internal counsel), which PNC
may incur or be subject to as a consequence, direct or indirect, of (i) the
issuance of the Letters of Credit, other than as a result of bad faith, gross
negligence or wilful misconduct of PNC as determined by a court of competent
jurisdiction, or (ii) the failure of PNC to honor a drawing under any Letter of
Credit as a result of any act or omission, whether rightful or wrongful, of any
present or future de jure or de facto government or governmental authority.
As between the Borrower and PNC, the Borrower assumes all risks of the
acts and omissions of, or misuse of the Letters of Credit issued by PNC for the
account of the Borrowers by, the respective beneficiaries of such Letters of
Credit. In furtherance and not in limitation of the foregoing, PNC shall not be
responsible: (i) for the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted by any party in connection with the
application for and issuance of the Letters of Credit, even if it should in fact
prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent
or forged; (ii) for the validity or sufficiency of any instrument transferring
or assigning or purporting to transfer or assign any Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part, which
may prove to be invalid or ineffective for any reason; (iii) for failure of the
beneficiary of any such Letter of Credit to comply fully with conditions
required in order to draw upon such Letter of Credit; (iv) for errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher;
(v) for errors in interpretation of technical terms; (vi) for any loss or delay
in the transmission or otherwise of any document required in order to make a
drawing under any such Letter of Credit or of the proceeds thereof; (vii) for
the misapplication by the beneficiary of any such Letter of Credit of the
proceeds of any drawing under such Letter of Credit; and (viii) for any
consequences arising from causes beyond the control of PNC, including, without
limitation, any act or omission, whether rightful or wrongful, of any present or
future government agency or authority. None of the above shall affect, impair,
or prevent the vesting of any of PNC's rights or powers hereunder; provided
however, that PNC shall be responsible for any payment PNC makes under any
Letter of Credit against presentation of a demand, draft or certificate or other
document which does not comply with the terms of such Letter of Credit in the
event such payment constitutes bad faith, gross negligence or willful misconduct
of PNC as determined by a court of competent jurisdiction.
In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by PNC under or in
connection with the Letters of Credit issued by it or the related certificates,
if taken or omitted in good faith and without bad faith, gross negligence or
willful misconduct, shall not put PNC under any resulting liability to the
Borrowers or the Banks.
Notwithstanding anything to the contrary contained in this Section 2.7,
the Borrowers shall have no obligation to indemnify PNC in respect of any
liability incurred by PNC arising out of the bad faith, gross negligence or
willful misconduct of PNC, as determined by a court of competent jurisdiction,
or out of the wrongful dishonor by PNC of proper demand for payment made under
the Letters of Credit issued by it.
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<PAGE> 39
H. Computation of Interest. Interest payable pursuant to this
Section 2.7 shall be computed on the basis of a 360-day year and the actual
number of days elapsed in the period during which it accrues.
I. Amendments. The Borrowers may request that PNC enter into one
or more amendments of any Letter of Credit issued by PNC for the account of the
Borrowers by delivering to PNC an Application and Agreement For Letter of Credit
specifying (i) the proposed date of the amendment, and (ii) the requested
amendment. PNC shall be entitled to enter into amendments with respect to the
Letters of Credit issued by it; provided however that any such amendment
extending the expiry date, changing the Letter of Credit Fee, or increasing the
stated amount of any Letter of Credit shall only be permitted if PNC would be
permitted to issue a new Letter of Credit having such an expiry date, different
Letter of Credit Fee, or stated amount under this Section 2.7 on the date of the
amendment.
J. Additional Payments. If by reason of (i) any change in
applicable law, regulation, rule, decree or regulatory requirement or any change
in the interpretation or application by any judicial or regulatory authority of
any law, regulation, rule, decree or regulatory requirement or (ii) compliance
by PNC with any direction, request or requirement (whether or not having the
force of law) of any governmental or monetary authority including, without
limitation, Regulation D:
(a) any reserve, deposit or similar requirement is or shall be
applicable, imposed or modified in respect of any Letter of Credit
issued by PNC; or
(b) there shall be imposed on PNC any other condition regarding this
Section 2.7 or any Letter of Credit;
and the result of the foregoing is to directly or indirectly increase the cost
to PNC of issuing, making or maintaining any Letter of Credit, or to reduce the
amount receivable in respect thereof by PNC (other than an increase in cost or
reduction in amounts receivable as consequence of any Tax, which shall be
governed by the provisions of Section 4 hereof), then and in any such case PNC
may, at any time within a reasonable period after the additional cost is
incurred or the amount received is reduced, notify the Borrowers, and the
Borrowers shall pay on demand such amounts as PNC may specify to be necessary to
compensate PNC for such additional cost or reduced receipt, together with
interest on such amount from ten (10) days after the date of such demand until
payment in full thereof at a rate equal at all times to the Prime Rate. The
determination by PNC of any amount due pursuant to this Section 2.7J as set
forth in a certificate setting forth the calculation thereof in reasonable
detail, shall, in the absence of manifest or demonstrable error, be final and
conclusive and binding on the Borrowers.
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SECTION 3
SWING LINE CREDIT FACILITY
Subject to the terms and conditions of this Loan Agreement, PNC hereby
agrees to make Swing Line Loans to the Borrowers under the Swing Line Credit
Facility.
3.1 Swing Line Credit Facility. From the date hereof throughout the
Swing Line Commitment Period, and subject to the terms, conditions and other
provisions of this Agreement, PNC agrees to make Swing Line Loans to the
Borrowers from time to time in a total amount not exceeding Seven Million Five
Hundred Thousand Dollars ($7,500,000.00) in amounts of Twenty Five Thousand
Dollars ($25,000) and integral multiples of Five Thousand Dollars ($5,000) in
excess thereof. The Swing Line Credit Facility is established for the
administrative convenience of the Borrowers, PNC and the Banks. During the Swing
Line Commitment Period the Borrowers may borrow and repay advances under the
Swing Line Credit Facility in whole or in part, and reborrowing all in
accordance with the terms, conditions and other provisions of this Agreement.
The making of each Swing Line Loan shall be subject to the further provisions of
this Section 3.1, and shall be subject to all of the conditions of lending
stated in Section 5.2 being fulfilled at the time of each Swing Line Loan, and
provided further that each Swing Line Loan shall be on the terms and subject to
the conditions hereinafter stated.
A. Interest. Swing Line Loans shall bear interest (calculated on
the basis that an entire year's interest is earned in 365 or 366 days as the
case may be) from the date of each such Swing Line Loan until repaid at an
annual rate equal to the Offered Rate. After maturity, whether by acceleration
or scheduled maturity, until paid in full, or when and so long as there shall
exist any uncured Default, Swing Line Loans shall bear interest at the
applicable Default Rate. Interest shall be due and payable to PNC at the end of
each calendar quarter following receipt of a statement from PNC, and on the
Swing Line Commitment Termination Date.
B. Principal. The Borrowers shall pay all principal of Swing Line
Loans on the Swing Line Commitment Termination Date.
C. Swing Line Note. The obligations of the Borrowers to repay
Swing Line Loans shall be evidenced by a promissory note (the "Swing Line Note")
substantially in the form of Exhibit "C" attached hereto.
D. Conditions for Swing Line Loans. So long as no Event of
Default or Default shall have occurred and be continuing, during the Swing Line
Commitment Period, the Borrowers may borrow, repay and reborrow under the Swing
Line Credit Facility on any Business Day, subject to the terms, conditions and
other provisions of this Agreement. The making of Swing Line Loans will be
conditioned upon receipt by PNC from the Borrowers of a Request for Swing Line
Loan by 12:00 noon Louisville, Kentucky, time on the Business Day of the
requested Swing Line Loan. Notwithstanding the foregoing, PNC may, in its sole
discretion, accept an oral or written request made on behalf of the Borrowers by
an Authorized Officer by telephone, telex, facsimile or some other form of
written electronic communication,
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<PAGE> 41
in which case PNC shall be entitled to rely on any such oral or written request
received by PNC in good faith from anyone reasonably believed by PNC to be an
Authorized Officer. The Borrowers shall promptly confirm any such communication
by delivery of a Request for Swing Line Loan upon request of PNC. Disbursements
of, and payments of principal with respect to Swing Line Loans may be evidenced
by notations of PNC or its electronic data processing equipment. The aggregate
amount of all disbursements of Swing Line Loans made and shown on PNC's
electronic data processing equipment, over all of the payments of principal made
by the Borrowers and recorded on PNC's electronic data processing equipment
shall be prima facie evidence of the outstanding principal balance due under the
Swing Line Note.
E. General Provisions Regarding Payments.
(i) Manner and Time of Payment. All payments of principal,
interest and fees hereunder and under the Swing Line Note by the Borrowers shall
be made without defense, setoff and counterclaim and in same day funds and
delivered to PNC not later than 11:00 A.M. (Louisville, Kentucky time) on the
due date therefor at its office located in Louisville, Kentucky; funds received
by PNC after that time shall be deemed to have been paid by the Borrowers on the
next succeeding Business Day.
(ii) Payments on Business Days. Whenever any payment to be
made hereunder or under the Swing Line Credit Facility shall be stated to be due
on a day that is not a Business Day, such payment shall be made on the next
succeeding Business Day (unless no further Business Day occurs in such month, in
which case payment shall be made on the next preceding Business Day) and such
extension of time shall be included in the computation of the payment of
interest hereunder or under the Swing Line Note.
F. Voluntary Reduction of Swing Line Loan Commitment. The
Borrowers shall have the right, at any time and from time to time, to terminate
in whole or permanently reduce in part, without premium or penalty, the Swing
Line Loan Commitment. The Borrowers shall give not less than five (5) Business
Days' prior written notice to PNC designating the date (which shall be a
Business Day) of such termination or reduction and the amount of any partial
reduction of the Swing Line Loan Commitment. Such termination or partial
reduction of the Swing Line Loan Commitment shall be effective on the date
specified in the Borrowers' notice. Any such partial reduction of the Swing Line
Loan Commitment shall be in a minimum amount of One Million Dollars
($1,000,000.00).
G. Other Banks. Swing Line Loans will be made by PNC, in its
individual capacity. Upon a request to reduce the principal amount outstanding
Swing Line Loans from the Administrative Bank, the Banks shall make advances
based on their Revolving Credit Facility Pro Rate Shares in amounts sufficient
to effect the requested reduction in Swing Line Loans.
H. Limitation. The Borrowers may not request that PNC make any
Swing Line Loan if, after making such Swing Line Loan, (y) the total aggregate
principal amount of outstanding Swing Line Loans would exceed Seven Million Five
Hundred Thousand Dollars
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($7,500,000.00), or (z) the Total Utilization of Revolving Loan Commitments
would exceed the Revolving Loan Commitments, as the amount available under such
Revolving Loan Commitments may be reduced from time to time pursuant to Section
2.4C hereof.
3.2 Use of Proceeds.
A. Swing Line Loans. The principal of the Swing Line Loans shall
be used by Borrowers for any lawful corporate purposes.
B. Margin Regulations. No portion of the principal of the Swing
Line Loans shall be used by the Borrowers in any manner which might cause the
making of the Swing Line Loan or the application of the proceeds thereof to
violate Regulation G, Regulation U, Regulation T, or Regulation X of the Board
of Governors of the Federal Reserve System or any other regulation of such Board
or to violate the Securities and Exchange Act of 1934, in each case as in effect
on the date or dates of each Swing Line Loan. If requested by PNC, the Borrowers
shall execute and deliver to PNC a completed Federal Reserve Form U-1.
SECTION 4
INCREASED COSTS; TAXES; CAPITAL ADEQUACY
4.1 Compensation for Increased Costs and Taxes. In the event that the
Banks shall determine in good faith (which determination shall, absent manifest
or demonstrable error, be final and conclusive and binding upon both the
Borrowers and the Banks) that any law, treaty or governmental rule, regulation
or order, or any change therein or in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a court or
governmental authority, in each case that becomes effective after the Closing
Date, or compliance by the Banks with any guideline, request or directive issued
or made after the date hereof by any central bank or other governmental or
quasi-governmental authority, and which has the force of law and first becomes
effective after the Closing Date:
(i) subjects any Bank (or its applicable lending office)
to any additional Covered Tax with respect to this Loan Agreement or any of the
Revolving Credit Loans or (in the case of PNC) the Swing Line Loans or any of
its other obligations hereunder, or changes the basis of taxation of payments to
such Bank (or its applicable lending office) of principal, interest, fees or any
other amount payable hereunder (but not changes in Excluded Taxes);
(ii) imposes, modifies or holds applicable any additional
reserve (including without limitation any marginal, emergency, supplemental,
special or other
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reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities in or for
the account of, or advances or loans by, or other credit extended by, or any
other acquisition of funds by, any Bank (or its applicable lending office)
(other than any such reserve or other requirements with respect to Euro-Rate
Loans that are reflected in the definition of Euro-Rate); or
(iii) imposes any other condition on or affecting any Bank
(or its applicable lending office) or its obligations hereunder or the London
interbank market, other than with respect to Taxes;
and the result of any of the foregoing is to increase the cost to any Bank of
agreeing to make, making or maintaining Revolving Credit Loans or (in the case
of PNC) the Swing Line Loans hereunder or to reduce any amount received or
receivable by any Bank (or its applicable lending office) with respect thereto,
then, in any such case, the Borrowers shall promptly pay to such Bank, upon
demand, such additional amount or amounts (in the form of an increased rate of,
or a different method of calculating, interest as such Bank in its reason able
discretion shall determine) as may be necessary to compensate such Bank on an
after-tax basis for any such increased cost or reduction in amounts received or
receivable hereunder; provided that any increased cost arising as a result of
any of the foregoing other than in respect of Taxes shall apply only to
Euro-Rate Loans to the extent the same bear interest by reference to the
Euro-Rate. The Bank seeking reimbursement for such amounts from the Borrowers
shall deliver to the Borrowers a written statement setting forth in reasonable
detail the basis for calculating the additional amounts owed to such Bank under
this Section 4.1, which statement shall be conclusive and binding upon both
parties hereto absent manifest or demonstrable error.
4.2 Withholding of Taxes.
A. Payments to Be Free and Clear. All sums payable by the
Borrowers under this Loan Agreement and the other Loan Instruments to or for the
benefit of any Bank or any Person who acquires any interest in the Revolving
Credit Loans pursuant to the provisions hereof shall be paid free and clear of
and (except to the extent required by law) without any deduction or withholding
on account of any Covered Tax imposed, levied, collected, withheld or assessed
by or within the United States of America or any political subdivision in or of
the United States of America or any other jurisdiction from or to which a
payment is made by or on behalf of the Borrowers or by any federation or
organization of which the United States of America or any such jurisdiction is a
member at the time of payment.
B. Grossing-up of Payments. If the Borrowers or any other Person
is required by law to make any deduction or withholding on account of any
Covered Tax from any sum paid or payable by the Borrowers to any Bank under any
of the Loan Instruments:
(i) The Borrowers shall notify such Bank of any such
requirement or any change in any such requirement as soon as the Borrowers
becomes aware of it;
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(ii) The Borrowers shall pay any such Tax before the date
on which penalties attach thereto, such payment to be made (if the liability to
pay is imposed on the Borrowers) for their own account or (if that liability is
imposed on such Bank) on behalf of and in the name of such Bank;
(iii) The sum payable by the Borrowers in respect of which
the relevant deduction, withholding or payment is required shall be increased to
the extent necessary to ensure that, after the making of that deduction,
withholding or payment, such Bank receives on the due date and retains (free
from any liability in respect of any such deduction, withholding or payment) a
net sum equal to what it would have received and so retained had no such
deduction, withholding or payment in respect of Covered Taxes been required or
made; and
(iv) Within thirty (30) days after paying any sum from
which it is required by law to make any deduction or withholding, and within
thirty (30) days after the due date of payment of any Tax which it is required
to pay by clause (ii) above, the Borrowers shall deliver to such Bank evidence
satisfactory to such Bank of such deduction, withholding or payment and of the
remit thereof to the relevant taxing or other authority;
provided that no such additional amount shall be required to be paid to any Bank
under clause (iii) above except to the extent that any change after the date
hereof in any such requirement for a deduction, withholding or payment as is
mentioned therein shall result in an increase in the rate of such deduction,
withholding or payment from that in effect at the date of this Loan Agreement in
respect of payments to such Bank.
C. Tax Refund. If the Borrowers determine in good faith that a
reasonable basis exists for contesting a Covered Tax, the relevant Bank or Tax
Transferee, as applicable, shall cooperate with the Borrowers in challenging
such Tax at the Borrowers' expense if requested by the Borrowers (it being
understood and agreed that no Bank shall have any obligation to contest, or any
responsibility for contesting, any Tax). If any Tax Transferee or any Bank, as
applicable, receives a refund (whether by way of a direct payment or by offset
of any Covered Tax for which a payment has been made pursuant to this Section 4)
the amount of such refund (together with any interest received thereon) shall be
paid to the Borrowers to the extent payment has been made in full pursuant to
this Section 4.
4.3 Capital Adequacy Adjustment. If any Bank shall have determined in
good faith that the adoption, effectiveness, phase-in or applicability of any
law, rule or regulation (or any provision thereof) regarding capital adequacy,
or any change therein or in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
applicable lending office) with any guideline, request or directive regarding
capital adequacy of any such governmental authority, central bank or comparable
agency, and which has the force of law and first becomes effective after the
Closing Date, has or will have the effect of reducing the rate of return on the
capital of such Bank or any
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<PAGE> 45
corporation controlling such Bank as a consequence of, or with reference to,
such Bank's Revolving Credit Loans or Revolving Loan Commitment or other
obligations hereunder to a level below that which such Bank or such controlling
corporation would have achieved but for such adoption, effectiveness, phase-in,
applicability, change or compliance (taking into consideration the policies of
such Bank or such controlling corporation with regard to capital adequacy), then
from time to time, within ten (10) Business Days after demand by such Bank, the
Borrowers shall pay to such Bank such additional amount or amounts as will
compensate such Bank or such controlling corporation on an after-tax basis for
such reduction as and when incurred. Each Bank, upon determining in good faith
that any additional amounts will be payable pursuant to this Section 4.3, will
give prompt written notice thereof to the Borrowers, which notice shall set
forth the basis of the calculation of such additional amounts, although the
failure to give any such notice shall not release or diminish any of the
Borrowers' obligations to pay additional amounts under this Section 4.3.
4.4 Banks' Obligation to Mitigate. Each Bank agrees that, as promptly as
practicable after the officer of such Bank responsible for administering the
Revolving Credit Loans under this Loan Agreement becomes aware of the occurrence
of an event or the existence of a condition that would entitle such Bank to
receive payments under Section 2.6 or Section 4 hereof, it will, to the extent
not inconsistent with its internal policies, use reasonable efforts (i) to
make, fund or maintain its Revolving Credit Loans through another lending office
of such Bank, or (ii) take such other reasonable measures if as a result thereof
the additional amounts which would otherwise be required to be paid to such Bank
pursuant to Section 2.6 or Section 4 hereof would be materially reduced and if,
as determined by such Bank in its sole discretion, the making, funding or
maintaining of such Revolving Credit Loans through such other lending office or
in accordance with such other measures, as the case may be, would not otherwise
materially adversely affect such Revolving Credit Loans or the interests of such
Bank; provided that such Bank will not be obligated to utilize such other
lending office pursuant to this Section 4.4 unless the Borrowers agree to pay
all expenses incurred by such Bank in utilizing such other lending office. A
certificate as to the amount of any such expenses payable by the Borrowers
pursuant to this Section 4.4 (setting forth in reasonable detail the basis for
requesting such amount) submitted by any Bank to the Borrowers shall be
conclusive absent manifest or demonstrable error.
SECTION 5
CLOSING CONDITIONS
The establishment of the Revolving Credit Facility by the Banks in favor
of the Borrowers, the obtaining of Revolving Credit Loans and/or Letters of
Credit by the Borrowers thereunder, and the making of the Swing Line Loans by
PNC to the Borrowers are subject to the satisfaction of all of the following
conditions:
5.1 Initial Closing Conditions. The obligation of the Banks to make the
initial Revolving Credit Loan to the Borrowers and to make the Swing Line Loans
to the Borrowers are subject to the condition that, in addition to the
satisfaction of the conditions precedent specified in Section 5.2 hereof and,
with respect to the Swing Line Loans, the conditions
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<PAGE> 46
precedent specified in Section 3.lD hereof, as of the Closing Date, the Banks
shall have received the following from the Borrowers, dated the Closing Date or
such other date as shall be acceptable to the Banks:
A. Loan Agreement. This Loan Agreement, duly executed and
delivered by the Borrowers.
B. Revolving Credit Notes. The Revolving Credit Notes, duly
executed and delivered by the Borrowers.
C. Swing Line Note. The Swing Line Note, duly executed and
delivered by the Borrowers.
D. Security Agreements. The Security Agreements, duly and
respectively executed and delivered by each of the Borrowers, granting to the
Banks a security interest in all of the Accounts and General Intangibles of the
Borrowers.
E. UCC-1 Financing Statements. UCC-1 financing statements, duly
and respectively executed and delivered by each of the Borrowers, which, upon
filing in the proper UCC filing offices, will perfect the Banks' security
interest in all of the Accounts and General Intangibles of the Borrowers.
F. Stock Pledge Agreement. The Stock Pledge Agreement, duly
executed and delivered by Res-Care, together with the stock certificates
evidencing all of the issued and outstanding shares of common stock of the
Consolidated Subsidiaries and executed blank stock powers appended thereto.
G. Opinion of Counsel. A written opinion of counsel on behalf of
the Borrowers and the Consolidated Subsidiaries, in form and substance
satisfactory to the Banks.
H. Certificate of Secretary of Res-Care. A Certificate of the
Secretary or Assistant Secretary of Res-Care (i) certifying as to the
authenticity, completeness and accuracy of, and attaching copies of, (a) the
Articles of Incorporation and By-Laws of Res-Care, and (b) Resolutions of the
Board of Directors of Res-Care authorizing Res-Care's execution, delivery and
performance of the Loan Instruments to which Res-Care is a party, and (ii)
certifying the names and true signatures of the officers of Res-Care authorized
to execute and deliver the Loan Instruments to which Res-Care is party, on
behalf of Res-Care.
I. Certificate of Secretary of Each Consolidated Subsidiary. A
Certificate of the Secretary or Assistant Secretary of each Consolidated
Subsidiary (i) certifying as to the authenticity, completeness and accuracy of,
and attaching copies of, (a) the Articles of Incorporation and By-Laws of such
Consolidated Subsidiary, and (b) Resolutions of the Board of Directors of such
Consolidated Subsidiary authorizing the execution, delivery and performance of
the Loan Instruments to which the Consolidated Subsidiary is a party by such
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Consolidated Subsidiary, and (ii) certifying the names and true signatures of
the officers of such Consolidated Subsidiary authorized to execute and deliver
the Loan Instruments to which such Consolidated Subsidiary is a party on behalf
of such Consolidated Subsidiary.
J. Compliance Certificate. A Compliance Certificate in the form
of Exhibit G hereto, completed by Res-Care, on behalf of itself and the other
Borrowers, and executed by the President or Financial Officer of Res-Care, for
itself and as agent for the other the Borrowers, certifying as to the accuracy
of the representations and warranties of the Borrowers set forth in this Loan
Agreement as of the date hereof.
K. Other Documents. Such other documents as the Banks may
reasonably request.
5.2 Conditions to All Revolving Credit Loans, Letters of Credit and
Swing Line Loans. The obligation of the Banks to make each Revolving Credit Loan
on each Funding Date and to issue, through PNC, each Letter of Credit, and the
obligation of PNC to make each Swing Line Loan pursuant to the Swing Line Credit
Facility, is in each case subject to the following additional conditions
precedent:
A. Request for Revolving Credit Loan. The Administrative Bank
shall have received with respect to each Revolving Credit Loan, in accordance
with the provisions of Section 2.lC of this Loan Agreement, an originally
executed Request For Revolving Credit Loan, in each case signed by an Authorized
Officer of the Borrowers.
B. Letters of Credit. The Administrative Bank shall have received
with respect to each Letter of Credit, in accordance with the provisions of
Section 2.7B of this Loan Agreement, an originally executed Application and
Agreement For Letter of Credit relating to such Letter of Credit, in each case
signed by an Authorized Officer of the Borrowers.
C. Request for Swing Line Loan. PNC shall have received with
respect to each Swing Line Loan, in accordance with the provisions of Section
3.1D of this Loan Agreement, an originally executed Request For Swing Line Loan,
in each case signed by an Authorized Officer of the Borrowers.
D. General Conditions. As of the Funding Date of any Revolving
Credit Loan, the date of issuance or extension of the stated expiration date of
any Letter of Credit, or the date of any Swing Line Loan:
(i) The representations and warranties contained herein
shall be true and correct in all material respects on and as of that date to the
same extent as though made on and as of that date;
(ii) No event shall have occurred and be continuing or
would result from the funding of the Revolving Credit Loan contemplated by such
Request For Revolving
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Credit Loan, the issuance or extension of the stated expiration date of such
Letter of Credit contemplated by such Application and Agreement For Letter of
Credit, or the funding of the Swing Line Loan contemplated by such Request for
Swing Line Loan which would constitute an Event of Default;
(iii) The Borrowers shall have performed in all material
respects all agreements and satisfied all conditions which this Loan Agreement
and the other Loan Instruments provide shall be performed by it on or before
such date;
(iv) No order, judgment or decree of any court, arbitrator
or governmental authority shall purport to enjoin or restrain the Banks from
making that Revolving Credit Loan or issuing, through PNC, that Letter of Credit
or PNC from making such Swing Line Loan; and
(v) There shall not be pending or, to the knowledge of the
Borrowers threatened, any action, suit, proceeding or arbitration or, to the
knowledge of the Borrowers, any governmental investigation pending or
threatened, against or affecting the Borrowers or any property of the Borrowers,
which has not been disclosed by the Borrowers pursuant to Sections 7.3 and 7.6
hereof prior to (a) the making of the last preceding Revolving Credit Loan (or,
in the case of the initial Revolving Credit Loan made hereunder, prior to the
execution of this Loan Agreement), (b) the issuing of the most recent Letter of
Credit (or in the case of the initial Letter of Credit issued hereunder, prior
to the execution of this Loan Agreement) or the most recent extension of the
stated maturity date of any Letter of Credit, or (c) the making of the last
Swing Line Loan (or in the case of the initial Swing Line Loan hereunder, prior
to the execution of this Loan Agreement). Further, there shall have occurred no
development not so disclosed in any such action, suit, proceeding, governmental
investigation or arbitration so disclosed, which, in either event, in the
opinion of the Banks, could reasonably be expected to have a material adverse
effect on the financial condition of the Borrowers. No injunction or other
restraining order shall have been issued and no hearing to cause an injunction
or other restraining order to be issued shall be pending or noticed with respect
to any action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of this Loan Agreement or the making of the Revolving Credit Loans,
the issuing or extension of the respective stated expiration dates of the
Letters of Credit, and/or the making of the Swing Line Loans hereunder.
E. General Conditions. As of the Funding Date of any Revolving Credit
Loan, the date, the date of issuance or extension of the stated expiration date
of any Letter of Credit, or the date of any Swing Line Loan, the Administrative
Bank shall have received such other documentation as it may reasonably request.
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SECTION 6
REPRESENTATIONS AND WARRANTIES
The Borrowers represent and warrant to the Banks as follows, which
representations and warranties shall be deemed to be continuing representations
and warranties until the Revolving Credit Notes, the Swing Line Note, and the
other obligations have been respectively paid in full to the Banks, the
Revolving Credit Facility has been terminated by the Banks or the Borrowers, the
Swing Line Credit Facility has been terminated by PNC or the Borrowers, and the
Letter of Credit Subfacility has been terminated by PNC or the Borrowers, and
shall survive the execution and delivery of this Loan Agreement:
6.1 Organization, Standing, etc, of the Borrowers. Res-Care is a
corporation duly organized and validly existing under the laws of the
Commonwealth of Kentucky. The Consolidated Subsidiaries are each corporations
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each of the Borrowers has all requisite power and authority
to own and operate its properties, to carry on its businesses as now conducted
and proposed to be conducted, and to execute and deliver this Loan Agreement and
the other Loan Instruments to which it is a party and to carry out the terms
hereof and thereof. The Borrowers have delivered to the Administrative Bank a
true and complete copy of their Articles of Incorporation and Certificates of
Incorporation (as applicable) and By-Laws as in effect on the date hereof.
6.2 Qualification. Schedule 6.13 hereto sets forth a list of the
Consolidated Subsidiaries and locations in which those Consolidated Subsidiaries
are qualified to do business. No Borrower is presently required to be qualified
to transact business as a foreign corporation in any jurisdiction other than the
states identified in Schedule 6.13 hereto, and except where failure to so
qualify would not have a material adverse effect upon the business or operations
of such Borrower.
6.3 Use of Proceeds. The Borrowers' uses of the proceeds of the
Revolving Credit Loans and the Swing Line Loans and the uses of the Letters of
Credit are and will continue to be legal and proper corporate uses duly
authorized by the Board of Directors of each of the Borrowers, and such uses are
consistent with all applicable laws and statutes as in effect as of the date
hereof.
6.4 Intellectual Property. To the best of the Borrowers' knowledge, the
Borrowers own or possess adequate assets, licenses, patents, patent
applications, copyrights, trademarks, trademark applications, trade names,
franchises, consents, authorizations and service marks and rights with respect
to the foregoing necessary for the conduct of their businesses as presently
conducted and as proposed to be conducted, without any known conflict with the
rights of others.
6.5 Disclosure; Solvency. Neither this Loan Agreement nor any other
document furnished to the Banks by or on behalf of the Borrowers in connection
with the Revolving Credit Facility and/or the Swing Line Loans and/or the other
Obligations taken as a whole
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<PAGE> 50
contains any statement of any material fact which is untrue or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact known to the Borrowers which materially
adversely affects or in the future will (so far as the Borrowers can now
foresee) materially adversely affect the business, operations, affairs or
condition of the Borrowers or any of their properties which has not been set
forth in this Loan Agreement or in the other documents furnished to the Banks by
or on behalf of the Borrowers in connection with the Revolving Credit Facility,
the Swing Line Loans and the other Obligations. Res-Care and its Subsidiaries,
on a consolidated basis in accordance with GAAP, are currently solvent; and
neither the issuance and delivery of the Revolving Credit Notes to the Banks and
the Swing Line Note to PNC, nor the obtaining of the Letters of Credit, nor the
performance of the transactions contemplated hereunder or thereunder, will
render Res-Care and its Subsidiaries, on a consolidated basis in accordance with
GAAP, insolvent, inadequately capitalized to undertake the transactions
contemplated hereunder or to undertake the businesses in which they are
presently engaged or about to engage or render the any of Borrowers unable to
pay their debts as they become due; the Borrowers are not contemplating either
the filing of a petition by them or the commencement of a case by them under any
state or federal bankruptcy or insolvency laws or the liquidation of all or a
major portion of their property; and the Borrowers have no knowledge of any
Person contemplating the filing of any such petition or commencement of any such
case against the Borrowers.
6.6 Tax Returns and Payments. To the best of the Borrowers' knowledge
after due inquiry, the Borrowers have filed all tax returns required by law to
be filed by them and have paid all taxes, assessments and other governmental
charges levied upon their properties, assets, income and franchises, other than
those not yet delinquent and those, not substantial in aggregate amount, being
or about to be contested as provided in Section 7.2A hereof. The charges,
accruals and reserves on the books of the Borrowers in respect of their taxes
are adequate in the opinion of the Borrowers. The Borrowers know of no material
unpaid assessment for additional taxes or of any basis therefor.
6.7 Indebtedness, etc. As of the date of this Loan Agreement, and
without regard to the transactions contemplated hereunder, there is no
outstanding Indebtedness of the Borrowers in respect of borrowed money, capital
leases or the deferred purchase price of property, existing guaranties issued by
the Borrowers or existing liens and security interests encumbering the assets of
the Borrowers other than as disclosed in the most recent annual and monthly
financial statements of the Borrowers delivered to the Banks or on Schedule 6.7
attached hereto and made a part hereof.
6.8 Title to Properties; Liens; Leases. The Borrowers have good and
marketable title to all of their properties and assets and none of such
properties or assets is subject to any mortgage, pledge, lien, security
interest, charge or encumbrance other than as described in Section 8.4 hereof.
The Borrowers enjoy quiet possession under all leases to which they are party as
lessee, and all of such leases are to the best knowledge of the Borrowers, after
due inquiry, validly existing and in full force and effect, and, to the best
knowledge of the Borrowers, after due inquiry, neither the lessor nor the
Borrowers as lessee is in default under any of such leases.
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<PAGE> 51
6.9 Litigation, etc. Except for items disclosed in the Res-Care Annual
Report on Form 10-K for Fiscal Year 1995 and items disclosed in the Res-Care
Quarterly Reports on Form 10-Q for the Fiscal Quarters ended March 31, 1996,
June 30, 1996 and September 30, 1996, and items subsequently disclosed pursuant
to Form 10-Ks and Form 10-Qs for periods ended after September 30, 1996, there
is no action, proceeding or investigation pending or, to the best knowledge of
the Borrowers, threatened (or any basis therefor known to the Borrowers) (i)
which questions the validity of this Loan Agreement, the Revolving Credit Notes,
the Swing Line Note, the Stock Pledge Agreement or the other Loan Instruments or
any action taken or to be taken pursuant hereto or thereto, (ii) which is not
fully covered by insurance other than any applicable deductible, or (iii) which
might result, either in any case or in the aggregate, in any material adverse
change in the businesses, operations, affairs or condition of the Borrowers or
in any of their properties or assets or in any material liability on the part of
the Borrowers. Except for items disclosed in the Res-Care Annual Report on Form
10-K for Fiscal Year 1995 and items disclosed in the Res-Care Quarterly Reports
on Form 10-Q for the Fiscal Quarters ended March 31, 1996, June 30, 1996 and
September 30, 1996 and items subsequently disclosed pursuant to Form 10-Ks and
Form 10-Qs for periods ended after September 30, 1996, the Borrowers have
provided the Administrative Bank with a list of all pending actions, proceedings
and investigations involving (y) claims against the Borrowers seeking damages in
excess of $1,000,000 in any individual case or in excess of $2,500,000 in the
aggregate which is not fully covered by insurance other than any applicable
deductible, and (z) claims of the Borrowers for payment, reimbursement or under
contracts in excess of $1,000,000 or in excess of $2,500,000 in the aggregate.
6.10 Authorization; Compliance With Other Instruments, etc. The
execution, delivery and performance of this Loan Agreement, the Revolving Credit
Notes, the Swing Line Note, and the other Loan Instruments to which the
Borrowers are party have been duly authorized by all necessary corporate action
on the part of the Borrowers, will not result in any violation of or be in
conflict with or constitute a default under any term of the Articles of
Incorporation or Certificate of Incorporation, as applicable, or By-Laws of the
Borrowers or of any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to the Borrowers, or result in the
creation of any mortgage, lien, charge or encumbrance upon any of the properties
or assets of the Borrowers pursuant to any such term. The Borrowers are not in
violation of any term of their Articles of Incorporation or Certificate of
Incorporation, as applicable, or By-Laws, or of any material term of any
agreement or instrument to which they are party, or, to the Borrowers' best
knowledge, of any judgment, decree, order, statute, rule or governmental
regulation applicable to the Borrowers. Without limiting the generality of the
foregoing, to the best knowledge of the Borrowers, the Borrowers are in
compliance in all material respects with all federal and state laws and all
rules, regulations and administrative orders of all state and local commissions
or authorities which are applicable to the Borrowers or to the operation of
their businesses.
6.11 Enforceability. This Loan Agreement, the Revolving Credit Notes,
the Swing Line Note, the Stock Pledge Agreement and the other Loan Instruments
to which the Borrowers are party constitute legal, valid and binding obligations
of the Borrowers, enforceable against the Borrowers in accordance with their
respective terms, except to the
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extent the enforceability hereof and thereof may be limited by applicable laws
affecting creditors, rights generally and by equitable principles.
6.12 Governmental Consent. To the best knowledge of the Borrowers, the
Borrowers are not required to obtain any order, consent, approval or
authorization of, and is not required to make any declaration or filing with,
any governmental authority in connection with the execution and delivery of this
Loan Agreement, the Revolving Credit Notes, the Swing Line Note, the Stock
Pledge Agreement or the other Loan Instruments to which the Borrowers are party.
6.13 Consolidated Subsidiaries. All of Res-Care's Consolidated
Subsidiaries as of the date of this Loan Agreement are listed on Schedule 6.13
annexed hereto.
SECTION 7
AFFIRMATIVE COVENANTS
The Borrowers hereby covenant and agree that until the Revolving Credit
Notes and the other Obligations have been respectively paid in full to the
Banks, the Swing Line Note has been paid in full to PNC, the Revolving Credit
Facility has been terminated by the Banks or the Borrowers, the Swing Line
Credit Facility has been terminated by PNC or the Borrowers, and the Letter of
Credit Subfacility has been terminated by PNC or the Borrowers, the Borrowers
will perform and observe all of the following provisions:
7.1 Maintenance of Properties, etc. The Borrowers will, insofar as they
are not prevented by causes beyond their control, maintain or cause to be
maintained in good repair, working order and condition all properties used or
useful in the businesses of the Borrowers. The Borrowers will maintain or cause
to be maintained, with financially sound and reputable insurers, insurance with
respect to their properties and businesses against loss or damage of the kinds
customarily insured against by corporations of established reputation engaged in
the same or a similar business and similarly situated, in such types and amounts
as are customarily carried under similar circumstances by such other
corporations. The Banks have no basis to conclude that the Borrowers' current
insurance, including their current worker compensation insurance, is deficient
in any material respect.
7.2 Money Obligations, Payment of Taxes, ERISA, etc.
A. Governmental Obligations. The Borrowers will pay promptly as
they become due and payable all taxes, assessments and other governmental
charges levied upon it or their income or upon any of their properties or assets
or in respect of their franchises, businesses, income or profits, or upon any
part thereof, as well as all lawful claims of any kind (including claims for
labor, materials and supplies) which, if unpaid, might by law become a lien or a
charge upon their property before any of the same become delinquent; provided
that no such tax, assessment or charge need be paid if being contested in good
faith and by appropriate proceedings promptly initiated and diligently conducted
by the Borrowers
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and if such reserve or other appropriate provision, if any, as shall be required
by GAAP shall have been made therefor. The Borrowers will satisfy or cause to be
satisfied the minimum annual funding standard within the meaning of ERISA for
any employee benefit plan established or maintained by the Borrowers which is
subject to ERISA, and the Borrowers will not permit any tax or penalty to be
incurred by it as a result of any failure to satisfy any such minimum funding
requirement or as a result of any violation of the provisions of Section 4975 of
the Code, or of any regulation issued thereunder.
B. Other Obligations. The Borrowers will pay in full all their
other debts, obligations and liabilities allowed hereunder before the same
become delinquent, unless the same are being contested in good faith by the
Borrowers, the Borrowers have established adequate reserves for the payment of
the same in accordance with GAAP, and the contesting thereof does not involve
the risk of forfeiture or loss of any of the Borrowers' assets.
7.3 Financial Statements and Reports. The Borrowers will furnish to
the Administrative Bank:
(i) As soon as reasonably possible, and in any event within one
hundred twenty (120) days after the end of each Fiscal Year of the Borrowers,
the audited consolidating and consolidated balance sheets of the Borrowers as at
the end of such Fiscal Year, and the related audited consolidating and
consolidated statements of income, retained earnings and cash flows of the
Borrowers for such Fiscal Year, setting forth in comparative form the figures
for the previous Fiscal Year, all in reasonable detail and certified to be true,
accurate and complete in all material respects by the Financial Officer of
Res-Care, for itself and as agent for the other Borrowers, and accompanied by
the opinion thereon of independent certified public accountants selected by the
Borrowers and reasonably acceptable to the Banks, which opinion shall be in a
form generally recognized as unqualified and shall state that such financial
statements have been prepared in accordance with GAAP applied on a basis
consistent with that of the preceding Fiscal Year, as applicable (except for
such changes, if any, as shall be specified and approved by such accountants in
such opinion) and that the audit by such accountants in connection with such
financial statements has been made in accordance with GAAP relating to auditing;
(ii) As soon as reasonably possible, and in any event within
thirty (30) days after the end of each month, an unaudited consolidated balance
sheet of Res-Care and its Consolidated Subsidiaries as at the end of such month,
and related unaudited divisional and consolidated statements of income, retained
earnings and cash flows of Res-Care and its Consolidated Subsidiaries on a
consolidated basis in accordance with GAAP for such month, compared to budget,
all in reasonable detail, prepared in accordance with GAAP consistently applied
and certified to be true, accurate and complete in all material respects by the
Financial Officer of Res-Care, for itself and as agent for the other Borrowers;
(iii) Together with the delivery to the Administrative Bank of
the financial statements referred to in subparts (i) and (ii) above, Res-Care,
for itself and as agent for the other Borrowers, shall deliver to the
Administrative Bank a Compliance Certificate (i) stating
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that the Authorized Officer of Res-Care, for itself and as agent for the other
Borrowers, signing the Compliance Certificate has reviewed the relevant terms of
this Loan Agreement, the Revolving Credit Notes, the Swing Line Note, the Stock
Pledge Agreement and the other Loan Instruments to which the Borrowers are
party, and such Authorized Officer has no actual knowledge (after making such
inquiry as is consistent with the scope of his or her duties) of any event or
condition which constitutes an Event of Default hereunder, or, if any such
condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Borrowers have taken or are taking or
propose to take with respect thereto, and (ii) demonstrating in reasonable
detail compliance at the end of such accounting period with Sections 8.6 through
8.9 of this Loan Agreement to the extent applicable to such period;
(iv) Forthwith upon any Authorized Officer of Res-Care obtaining
knowledge of, or receiving notice of any claim of or action taken with respect
to, any condition or event which constitutes a Potential Default or an Event of
Default hereunder, a certificate specifying the nature and period of existence
thereof and what action the Borrowers have taken or are taking or propose to
take with respect thereto;
(v) Promptly upon receipt thereof, copies of any reports
(including management letters, if any) submitted to the Borrowers by independent
certified public accountants in connection with the examination of the financial
statements of the Borrowers made by such accountants;
(vi) With reasonable promptness after the preparation thereof, a
3 year strategic plan containing budgets and forecasts of the Borrowers; and
(vii) With reasonable promptness, such other information and data
with respect to the Borrowers as from time to time may be reasonably requested
by the Banks.
The Banks shall keep confidential all of the financial statements and
other information furnished to the Banks pursuant to this Loan Agreement, except
that each Bank shall have the right to furnish copies of such financial
statements and other information furnished to such Bank to financial
institutions which purchase interests in the Revolving Credit Facility pursuant
to Section 12 hereof and governmental agencies having jurisdiction over such
Bank and which request copies of such financial statements and/or other
information. Such Bank will promptly inform the Borrowers each time such Bank is
obligated or required to deliver any such financial statements and other
information to any such governmental agency having jurisdiction over such Bank.
7.4 Financial Records; Inspection.
A. System of Accountants. The Borrowers will maintain a system of
accounting established and administered in accordance with GAAP consistently
applied, and will set aside on their books all such proper reserves as shall be
required by GAAP.
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B. Access to Books and Records. The Borrowers will permit any
authorized representative designated by any Bank to inspect any of the
properties of the Borrowers, including their books of account (and to make
copies thereof and to take extracts therefrom), and to discuss their affairs,
finances and accounts with their officers and with their independent
accountants, all at such reasonable times and as often as may be reasonably
requested. Such inspection shall be for the information and benefit of the Banks
and, unless otherwise publicly available, any information obtained thereby or
otherwise pursuant thereto shall not be divulged to others except in connection
with the enforcement of the rights of the Banks upon the occurrence of an Event
of Default hereunder or to financial institutions which purchase interests in
the Revolving Credit Facility pursuant to Section 12 hereof and except as may be
required by law or by any governmental agency having jurisdiction over any Bank.
Each Bank will promptly inform the Borrowers each time such Bank is obligated or
required to deliver any such information to any governmental agency having
jurisdiction over such Bank.
7.5 Permits, Certificates, Leases, Licenses. The Borrowers will obtain,
maintain and comply at all times with all permits, certificates, licenses,
approvals, authorizations, leases and other instruments necessary or appropriate
for the conduct of their businesses as presently conducted or as contemplated to
be conducted in the future.
7.6 Notice. The Borrowers will notify the Banks in writing, within no
more than ten (10) calendar days (and without the benefit of any grace period
afforded in any provision of this Loan Agreement or the other Loan Instruments)
after any Authorized Officer of Res-Care learns of any of the following: (i) the
existence or occurrence of any Event of Default under this Loan Agreement, (ii)
that any representation or warranty made herein or in any other Loan Instrument
shall, for any reason, not be or shall cease in any material respect to be true
and complete and not misleading, (iii) the institution of, or adverse
determination in, any arbitration proceeding, including, without limitation, an
audit or examination by the Internal Revenue Service, involving the Borrowers
and describing the nature thereof, what happened with respect thereto and what
steps are being taken by the Borrowers with respect thereto, or (iv) the
institution of, or adverse determination in, any litigation involving a claim
against the Borrowers in excess of the sum of Five Hundred Thousand Dollars
($500,000.00) not covered by applicable insurance, describing the nature
thereof, what happened with respect thereto, and what steps are being taken by
the Borrowers with respect thereto.
7.7 Payment of Obligations. The Borrowers will pay the Revolving Credit
Notes, the Swing Line Note and the other Obligations timely in accordance with
their respective terms in legal tender of the United States of America. All
payments on the Revolving Credit Notes, the Swing Line Note and the other
Obligations shall be made to the Banks, respectively, in "good and collected
funds," at the principal office of the Administrative Bank or PNC, as
applicable, not later than 11:00 A.M., Louisville, Kentucky time, on the date
due; funds received by the Administrative Bank or PNC, as applicable, after that
hour shall be deemed to have been received on the next following Business Day.
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7.8 Environmental Matters. The Borrowers hereby warrant that, to the
best of their knowledge, the Borrowers' assets are now and so long as the
Revolving Credit Facility, the Swing Line Loans, and the Letters of Credit
continue in effect will remain materially free of contamination by hazardous,
dangerous, contaminating, noxious or unsafe materials. Subject to the right of
the Borrowers to contest any alleged violation of any environmental law,
regulation and requirement in good faith and with due diligence, and provided
that no such contesting will result in the loss or forfeiture of any assets of
the Borrowers or otherwise have a material adverse effect on the financial
condition of the Borrowers, the Borrowers further covenant to comply with all
applicable environmental laws, regulations and requirements, and the Borrowers
covenant and agree to remedy any violation of any environmental law, regulation
and requirement, promptly upon the Borrowers' learning of such violation. The
Borrowers further hereby agree to indemnify and hold the Banks harmless from any
expense, loss, claim, suit or fee arising out of any such contamination or
noncompliance or the Borrowers' breach of the provisions of this Section 7.8.
7.9 Accounts. The Borrowers will maintain their primary depository
account and their primary cash management account with PNC.
7.10 Consolidated Subsidiaries and Interests in Persons that are not
Consolidated Subsidiaries. Res-Care shall promptly notify the Administrative
Bank in writing of each new Consolidated Subsidiary hereafter created or
acquired by Res-Care or a Consolidated Subsidiary and each acquisition by
Res-Care or a Consolidated Subsidiary of interests in a Person that will not
treated be as a Consolidated Subsidiary of Res-Care subsequent to such
acquisition of interests.
Unless the requirement to do so is waived in writing by the
Administrative Bank, within nine (9) days after the advance of any moneys by
Res-Care or another Borrower to or for the benefit of a New Consolidated
Subsidiary, Res-Care (i) shall cause each such new Consolidated Subsidiary of
Res-Care to execute and deliver to the Administrative Bank for the benefit of
the Banks (a) an Assumption Agreement in the form of Exhibit M hereto, (b) a
Security Agreement in the form of Exhibit K hereto, (c) UCC-1 financing
statement(s) in the form of Exhibit L hereto for filing in the Commonwealth of
Kentucky, the state of Delaware and the state(s) in which the Consolidated
Subsidiary has assets or operations, (d) a borrowing resolution of the
Consolidated Subsidiary and (e) copies of the Articles of Incorporation or
Certificate of Incorporation, as applicable, and Bylaws of the Consolidated
Subsidiary, all in form and substance satisfactory to the Administrative Bank,
and (ii) shall pledge all of the issued and outstanding shares of stock of such
Consolidated Subsidiary owned by Res-Care or a Consolidated Subsidiary of
Res-Care to the Administrative Bank for the benefit of the Banks by (a)
executing and delivering an Amendment to Stock Pledge Agreement, in the form of
Exhibit N hereto and (b) delivering the share certificates in the Consolidated
Subsidiary to the Administrative Bank. At such times as may be required by the
Administrative Bank, Res-Care shall cause any new Consolidated Subsidiary and
the existing Consolidated Subsidiaries to execute amendment(s) to this
Agreement, the Revolving Credit Notes, the Swing Line Note, to reflect the
addition of the new Consolidated
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<PAGE> 57
Subsidiaries. The Borrowers shall cause all existing and future Consolidated
Subsidiaries to observe and perform the covenants set forth in Sections 7 and 8
of this Loan Agreement.
Unless the requirement to do so is waived in writing by the
Administrative Bank, within nine (9) days after the advance of any moneys by
Res-Care or another Borrower to or for the benefit of a Person that will not
treated be as a Consolidated Subsidiary of Res-Care subsequent to an acquisition
of interests in such Person, Res-Care shall cause itself or the Consolidated
Subsidiary acquiring the interests, as applicable, to pledge all of the issued
and outstanding shares of stock, partnership interests, limited partnership
interests, limited liability company interests or other interests of such Person
acquired by Res-Care or such Consolidated Subsidiary to the Administrative Bank,
for the benefit of the Banks, by (a) executing and delivering a Stock Pledge
Agreement, in the form of Exhibit O hereto and (b) (1), if the acquired
interests are represented by certificated shares, by delivering the share
certificates to the Administrative Bank or (2), if the acquired interests are
not represented by certificated shares, by causing the security interest of the
Administrative Bank to be recorded in the records of the partnership, limited
partnership or limited liability company, as applicable.
SECTION 8
NEGATIVE COVENANTS
The Borrowers hereby covenant and agree that until the Revolving Credit
Notes and the other Obligations have been respectively paid in full to the
Banks, the Swing Line Note has been paid in full to PNC, the Revolving Credit
Facility has been terminated by the Banks or the Borrowers, the Swing Line
Credit Facility has been terminated by the Administrative Bank or the Borrowers,
and the Letter of Credit Subfacility has been terminated by PNC or the
Borrowers, the Borrowers will perform and observe all of the following
provisions:
8.1 Mergers and Other Extraordinary Events. The Borrowers will not,
without the prior written consent of the Banks in every specified instance:
(i) Except for Permitted Business Combinations that meet the
requirements of Section 8.11 hereof, be or become a party to any consolidation,
reorganization (including, without limitation, the types referred to in Section
368 of the Internal Revenue Code of 1986, as amended) merger or
recapitalization; or
(ii) Sell, lease, assign, transfer or dispose of or suffer the
non-insurable loss of ten percent (10%) or more of the fair market value of
their properties or assets on a consolidated basis in accordance with GAAP in
any period of twelve (12) consecutive months, other than if such assets or
properties are replaced promptly by assets or properties of comparable utility
to the Borrowers.
8.2 Indebtedness, etc. The Borrowers will not, without the prior written
consent of the Banks, directly or indirectly, create, incur, assume, guarantee,
agree to purchase or
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repurchase or provide funds in respect of, or otherwise become liable with
respect to any Indebtedness other than:
(i) The Revolving Credit Facility;
(ii) The Swing Line Credit Facility;
(iii) The Equipment Leases in the aggregate amount not exceeding
$1,500,000;
(iv) The Beverly Note;
(v) Current liabilities of the Borrowers (other than for borrowed
money) incurred in the ordinary course of their businesses and in accordance
with customary trade practices;
(vi) Purchase money indebtedness incurred or assumed by the
Borrowers in connection with acquisition of tangible and intangible personal and
real property, to the extent such tangible and intangible personal and real
property are to be used by the Borrowers in businesses permitted under Section
8.5 hereof; provided that the aggregate amount of all purchase money
indebtedness incurred under this Section 8.2(vi) and the aggregate amount of all
purchase money indebtedness incurred under Section 8.4(vii) hereof, excluding
the Beverly Note, shall not exceed Five Million Dollars ($5,000,000); and
(vii) The advances, loans and guarantees permitted under Section
8.12 hereof.
8.3 Use of Assets. The Borrowers will not use, or cause or permit the
use of, any of their assets in any manner prohibited by law, governmental
regulations or applicable insurance policies.
8.4 Mortgages, Liens, Encumbrances, Security Interests, etc. The
Borrowers will not, without the prior written consent of the Banks, directly or
indirectly create, incur, assume or permit to continue in existence any
mortgage, lien, charge or encumbrance on, or security interest in, or pledge or
deposit of, or conditional sale or other title retention agreement (including
any lease which in accordance with GAAP would constitute Indebtedness) with
respect to, any property or asset now owned or hereafter acquired by the
Borrowers, provided that the restrictions in this Section 8.4 shall not
prohibit:
(i) Liens and security interests granted to the Banks pursuant to
the Security Agreements;
(ii) Liens for taxes, assessments or governmental charges the
payment of which is not at the time required for the reasons set forth by the
proviso to the first sentence of Section 7.2A;
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(iii) Statutory liens of landlords and liens of carriers,
warehousemen, mechanics, contractors and materialmen incurred in the ordinary
course of business for sums not yet due or being contested in good faith and by
appropriate proceedings promptly initiated and diligently conducted, if such
reserve or other appropriate provision, if any, as shall be required by GAAP
shall have been made therefor;
(iv) Liens incurred or deposits made in the ordinary course of
business in connection with worker's compensation, unemployment insurance and
other types of social security or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, performance and
return of money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money) for sums not yet due or being contested in
good faith and by appropriate proceedings promptly initiated and diligently
conducted, if such reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor;
(v) Liens, charges, encumbrances and priority claims which (a)
are incidental to the conduct of the businesses of the Borrowers and the
ownership of their properties and assets, (b) were not incurred in connection
with the borrowing of money or the obtaining of advances of credit, and (c) do
not in the aggregate materially detract from the value of the property of the
Borrowers or materially impair the use thereof in the operation of their
businesses;
(vi) Liens created under operating leases and capital leases
entered into or assumed by the Borrowers in the ordinary course of business for
fair and adequate consideration, to the extent such liens only secure the
performance by the Borrowers of their obligations under such operating leases
and capital leases;
(vii) Subject to the provisions of Section 8.11 hereof, purchase
money security interests; provided that each such purchase money security
interest shall only encumber the assets acquired by the Borrowers with the
proceeds of the Indebtedness secured by such purchase money security interest,
and each such purchase money security interest shall not secure more than 100%
of the Indebtedness incurred by the Borrowers in connection with the acquisition
of the assets encumbered by such purchase money security interest; provided
further that the aggregate amount of all purchase money indebtedness incurred
under Section 8.2(vi) hereof and the aggregate amount of all purchase money
indebtedness incurred under this Section 8.4(vii), excluding the Beverly Note,
shall not exceed Five Million Dollars ($5,000,000); and
(viii) Mortgage liens and security interests assumed by the
Borrowers in connection with any Permitted Business Combination of the type
described in Section 8.11 hereof which are hereafter made by the Borrowers, or
which the Borrowers otherwise takes subject to as part of any such Permitted
Business Combination, provided that no such lien or security interest shall
secure Indebtedness in an amount which exceeds the fair market value of the
assets acquired by the Borrowers in connection with any such Permitted Business
Combination;
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(ix) The existing liens and security interests identified on
Schedule 8.4 annexed hereto; and
(x) Mortgage liens and security interests securing indebtedness
of a Subsidiary to a Borrower.
Further, no Borrowers will grant to any Person other than the Administrative
Bank, for the benefit of the Banks, a negative pledge on such Borrower's assets.
8.5 Nature of Businesses. The Borrowers will not, without the prior
written consent of the Banks in every specified instance, engage in any
businesses other than (i) providing residential, vocational and other training,
education, support and related programs and services (including habilitation,
rehabilitation and required medical services) to (a) persons with developmental
and other neurological disabilities (including individuals with mental
retardation, dual diagnosis, acquired brain injury and other special needs), and
(b) at-risk youth, juveniles and others (including individuals who are
adjudicated or court-referred), in a variety of settings, ranging from single
placements to large congregate settings, some of which may be secured, or
pursuant to management or operating agreements with other parties, and (ii) all
businesses incidental thereto.
8.6 Current Ratio. Res-Care and its Subsidiaries on a consolidated basis
in accordance with GAAP shall not permit the Current Ratio to be less than 1.25
to 1.0 at any time.
8.7 Minimum Net Worth. Res-Care and its Subsidiaries on a consolidated
basis in accordance with GAAP will not permit their Net Worth:
(i) With respect to each Fiscal Quarter ending subsequent to the
Closing Date, to be less than the higher of (a) $51,000,000 or (b) the minimum
Net Worth required of the Borrowers as of the immediately preceding Fiscal
Quarter and plus the sum of (x) 75% of Net Income for the Fiscal Quarter then
ended, (y) 100% of all proceeds (net of underwriters' discount and other
customary and usual closing costs) realized by Res-Care from the private
placement and/or public offering of any shares of its stock during the Fiscal
Quarter then ended, and (z) 100% of all additions to Res-Care's stockholders'
equity resulting from the issuance by Res-Care of its capital stock to pay in
whole or in part the purchase price of Facilities acquired by the Borrowers
during the Fiscal Quarter then ended.
For purposes of this Section 8.7, any net losses hereafter incurred by
the Borrowers will not reduce the amount of the minimum Net Worth required to be
maintained by the Borrowers pursuant to this Section 8.7.
8.8 Fixed Charge Coverage Ratio. The Borrowers shall not permit, for any
rolling four (4) consecutive Fiscal Quarter period, the Fixed Charge Coverage
Ratio for such rolling four (4) consecutive Fiscal Quarter period to be less
than 1.75 to 1.0.
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8.9 Ratio of Indebtedness to Cash Flow from Operations. The Borrowers
shall not permit, for any rolling four (4) consecutive Fiscal Quarter period,
the ratio of Indebtedness as of the end of such rolling four (4) consecutive
Fiscal Quarter period to Cash Flow from Operations for such rolling four (4)
consecutive Fiscal Quarter period to exceed 3.5 to 1.0.
8.10 Payment of Dividends. Res-Care shall not pay any dividends to its
shareholders if an Event of Default has occurred and is continuing or if the
payment of dividends would result in the Borrowers ceasing to be in compliance
with the financial covenants set forth in Sections 8.6 through 8.9 of this Loan
Agreement.
8.11 Permitted Business Combinations. Res-Care and its Subsidiaries
shall not, without the prior written consent of the Banks, engage in any
Business Combination unless all of the following conditions are met, in which
case the proposed Business Combination shall be deemed a "Permitted Business
Combination":
(i) the Business Combination shall be with a Person that
is engaged in a business of the type described in Section 8.5 hereof;
(ii) the Business Combination shall be accomplished
through consensual (non-hostile) agreement with the seller;
(iii) the Business Combination shall result in Res-Care
being the surviving entity such that it reports the results of the acquisition
on a consolidated basis in accordance with GAAP or the equity basis of
accounting in accordance with GAAP;
(iv) the Business Combination Consideration associated
with the proposed Business Combination plus the aggregate Business Combination
Consideration associated with Permitted Business Combinations that have been
completed in the current Fiscal Year does not exceed Thirty Five Million Dollars
($35,000,000);
(v) the Business Combination Consideration associated with
the proposed Business Combination does not exceed Seven Million Five Hundred
Thousand Dollars ($7,500,000)(except for the acquisition of certain interests by
RCP and RSCRP to occur on or after the Closing Date as contemplated in the
Exchange Agreement dated December 9, 1996);
(vi) if the Business Combination involves acquisition of
interests in a Person that will not treated be as a Consolidated Subsidiary of
Res-Care subsequent to the Business Combination, the aggregate amount of
Business Combination Consideration associated with all such Business
Combinations in any Fiscal Year cannot exceed Three Million Dollars
($3,000,000); and
(vii) the Borrowers shall have provided the Administrative
Bank with a Compliance Certificate, substantially in the form of Exhibit G
hereto, demonstrating to the reasonable satisfaction of the Banks that the
proposed Business Combination does not cause
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the Borrowers, on a consolidated pro forma basis, to violate any of the
financial covenants set forth in Sections 8.6 through 8.9 of this Loan
Agreement.
8.12 Loans, Advances and Guaranties by Borrowers. Without the prior
written consent of the Banks, no Borrower will make loans or capital
contributions, or guaranty the repayment of obligations of another Person, or
otherwise become liable in any respect to the obligations and liabilities of
another Person in an aggregate amount exceeding One Million Five Hundred
Thousand Dollars ($1,500,000.00), except for the following:
(i) loans and advances from one Borrower to a Subsidiary; and
(ii) endorsement of instruments or items of payment in the
ordinary course of business.
Provided, any Borrower may, without violating the provisions of this Section
8.12, assume or guarantee minimum working capital obligations of owners and/or
lessees of Facilities which such Borrower has been engaged to manage under duly
executed management agreements, but only to the extent such Borrower has been
granted a perfected security interest in or otherwise has valid and effective
control over the accounts receivable arising in respect of services furnished to
the occupants of such Facilities and to the extent that all such assumptions and
guarantees by Borrowers in the aggregate do not exceed Seven Million Five
Hundred Thousand Dollars ($7,500,000). The Borrowers agree that all existing
security interests granted to any Borrower in the accounts receivable of owners
of Facilities which such Borrower manages, to the extent the same have been
previously assigned to PNC, shall continue to be assigned to the Administrative
Bank to secure the payment of the Obligations. The Borrowers further covenant
and agree that, (a) to the extent any Borrower in its sole discretion elects to
hereafter acquire perfected security interests in the accounts receivable of
owners of Facilities which such Borrower now or hereafter manages, such Borrower
will assign of record all such security interests to the Administrative Bank to
secure the payment of the obligations, and (b) such Borrower will assign of
record to the Administrative Bank, to secure the payment of the Obligations, the
perfected security interest in the accounts receivable of Salem Village MRDD,
Inc. granted to the Borrower.
8.13 Interest Rate Agreements. The Borrowers will not, and will not
permit any Subsidiary to, enter into any Interest Rate Agreement unless (i) such
Interest Rate Agreement is intended to fix or establish a maximum interest rate
in respect of Indebtedness with a notional amount not in excess of the Revolving
Loan Commitments and is embodied in a standard ISDA form of agreement which is
acceptable to the Banks with respect to any intercreditor issues, (ii) the
counterparty is a lender or another financial institution acceptable to the
Banks, and (iii) the Borrower promptly provides a true and complete copy of such
Interest Rate Agreement to the Administrative Bank, on behalf of itself and the
Banks. At or following the effective date of any such Interest Rate Agreement,
the Administrative Bank may, upon written notification to the Borrowers and the
Banks and such counterparty, designate (which designation shall be made only
upon the instructions or with the consent of the Majority Banks) the credit
exposure of such counterparty under such Interest Rate
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Agreement as an obligation entitled to share, pari passu with the Obligations,
in respect to the benefits provided by the collateral under the Security
Agreements, in accordance with the applicable provisions of the Security
Agreements, and if the Administrative Bank so designates such credit exposure,
the applicable Interest Rate Agreement of such counterparty shall be considered
a "Designated Interest Rate Agreement".
SECTION 9
EVENTS OF DEFAULT; ACCELERATION
The following events shall constitute Events of Default under this Loan
Agreement:
(i) The failure by the Borrowers to pay any interest on and/or
any principal of any Revolving Credit Note when the same becomes due and payable
or within five (5) days thereafter; or
(ii) The failure by the Borrowers to reimburse PNC upon demand
for any draft honored by PNC under any Letter of Credit now or hereafter issued
by PNC for the account of the Borrowers; or
(iii) The failure by the Borrowers to pay any interest on and/or
any principal of the Swing Line Note when the same becomes due and payable or
within five (5) days thereafter; or
(iv) The failure by the Borrowers to pay any rent or other
amounts under any Equipment Lease when due or within any grace period provided
therein for the payment of the same; or
(v) The failure by the Borrowers to perform or observe any of the
provisions of Sections 8.2, 8.3, 8.5, 8.6, 8.7, 8.8 or 8.9 hereof, and such
default continues for thirty (30) days after written notice of such default
shall have been delivered to the Borrowers; or
(vi) The failure by the Borrowers to perform or observe any of
the provisions of Sections 7.10, 8.1, 8.4, 8.10, 8.11, or 8.12; or
(vii) The Borrowers shall default in the performance of or
compliance with any covenant, obligation or provision contained in this Loan
Agreement (other than those referred to above in this Section 9), and any such
default shall not have been remedied (i) within thirty (30) days after written
notice of such default shall have been delivered to the Borrowers, or (ii) if
such default cannot be cured within such thirty (30) day period, within sixty
(60) days after written notice of such default shall have been delivered to the
Borrowers, provided that the Borrowers commence to cure the particular default
within such
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thirty (30) day period and prosecutes the cure to completion with due diligence
within such sixty (60) day period; or
(viii) If any material representation or warranty made in writing
by or on behalf of the Borrowers herein or pursuant hereto or otherwise in
connection with the Revolving Credit Facility, the Swing Line Credit Facility,
and/or the Letter of Credit Subfacility shall have been materially false or
misleading or incorrect when made and the Authorized Officer of Res-Care on
behalf of itself and the other Borrowers knew or should have known of the
falsity, misleading nature of or incorrectness of such representation or
warranty when it was made, and the Borrowers fail to cause such representation
or warranty to cease to be materially false, misleading or incorrect within
thirty (30) days after written notice of such materially false, misleading or
incorrect representation or warranty shall have been delivered to the Borrowers;
or
(ix) The failure of the Borrowers to pay any of their other
Indebtedness, not otherwise referred to in this Section 9, and which in the
aggregate exceeds Fifty Thousand Dollars ($50,000.00) to any one Person, when
due or within any grace period afforded the Borrowers for paying the same, or
the acceleration of the maturity of any such Indebtedness by the holder thereof,
other than any such Indebtedness with respect to which the Borrowers are
contesting in good faith the validity, amount and/or the Borrowers' liability
therefor and for which adequate reserves have been established on the books of
the Borrowers in accordance with GAAP; or
(x) If the Borrowers shall discontinue their businesses (except
for the discontinuation of business by a Borrower whose business is combined
with that of one or more other Borrowers, whether by merger, transfer of assets,
etc.) or shall make an assignment for the benefit of creditors, or shall fail
generally to pay their debts as such debts become due, or shall apply for or
consent to the appointment of or taking possession by a trustee, receiver or
liquidator (or other similar official) of any substantial part of their
property, or shall commence a case or have an order for relief entered against
it under the federal bankruptcy laws, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or if the Borrowers or the shareholders of the Borrowers shall take any action
in furtherance of the dissolution or liquidation of the Borrowers; or
(xi) If, within thirty (30) days after the commencement against
the Borrowers of a case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency or
other similar law, such case shall have been consented to or shall not have been
dismissed or all orders or proceedings thereunder affecting the operations or
the businesses of the Borrowers shall not have been stayed, or if the stay of
any such order or proceeding shall thereafter be set aside, or if within sixty
(60) days after the entry of a decree appointing a trustee, receiver or
liquidator (or other similar official) of any substantial part of the property
of the Borrowers, such appointment shall not have been vacated; or
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(xii) If a final uninsured judgment shall be rendered against any
of the Borrowers which causes the Borrowers to be in breach of any of the
covenants set forth in Sections 8.6 through 8.10 hereof and (i) if, prior to the
availability of any execution thereon, such judgment shall not have been
discharged or execution thereof shall not have been stayed pending appeal, or
if, after the expiration of any such stay, such judgment shall not have been
discharged, or (ii) the Borrowers shall not have established adequate reserves
on their books in respect of such final uninsurable judgment or judgments; or
(xiii) In the event Res-Care experiences a Change in Control
without the prior written consent of the Banks.
Upon the occurrence of any Event of Default described in clauses (xi) or (xii)
of this Section 9 with respect to the Borrowers, the unpaid principal balance of
each of the Revolving Credit Notes, the Swing Line Note and the other
Obligations, together with all accrued interest thereon, shall automatically
become immediately due and payable, without presentment, demand, protest or
other requirements of any kind, all of which are hereby expressly waived by the
Borrowers. Upon the occurrence of any other Event of Default referred to in this
Section 9, the Banks may at any time at their option, by written notice to the
Borrowers, declare the unpaid principal balance of and all accrued and unpaid
interest on each of the Revolving Credit Notes, the Swing Line Note and the
other Obligations to be immediately due and payable in full to the Banks, as
applicable, without presentment, demand, protest or other requirements of any
kind, all of which are hereby waived by the Borrowers.
SECTION 10
REMEDIES UPON DEFAULT, ETC.
10.1 Defaults. Upon the occurrence and during the continuation of any
Event of Default, the Banks may proceed to protect and enforce their rights by
an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained herein or in the Revolving
Credit Notes or the Swing Line Note or for an injunction against a violation of
any of the terms hereof or thereof, or in aid of the exercise of any right,
power or remedy granted hereby or thereby or by law or pursuant to the other
Loan Instruments. In case of a default in the payment of any principal of or
interest on the Revolving Credit Notes, the Swing Line Note and/or the other
obligations, or upon acceleration thereof, the Borrowers will pay to the Banks
such further amount as shall be sufficient to cover the reasonable costs and
expenses of collection thereof, including (to the extent permitted by law),
without limitation, reasonable attorneys' fees, expenses and disbursements.
10.2 Offset. If any Event of Default shall occur and be continuing and
regardless of whether or not the Banks have accelerated the maturity date of the
Revolving Credit Notes, the Swing Line Note and/or the other Obligations, each
Bank shall have the right then, or at any time thereafter, to set off against
any and all deposit balances and other sums and Indebtedness and other property
then held or owned by such Bank to or for the credit or
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account of the Borrowers, all without notice to or demand upon the Borrowers or
any other Person, all such notices and demands being hereby expressly waived by
the Borrowers.
10.3 Rights Cumulative. All of the rights and remedies of the Banks upon
the occurrence of an Event of Default hereunder shall be cumulative to the
greatest extent permitted by law, and shall be in addition to all those rights
and remedies afforded the Banks at law or in equity.
10.4 Payment of Costs and Expenses. All of the reasonable costs,
expenses, damages and liabilities, including, without limitation, all reasonable
attorneys' fees, incurred by and imposed upon any Bank with respect to, in
connection with the enforcement of this Loan Agreement or any other Loan
Instrument or collection of amounts due hereunder or thereunder or the proof and
allowability of any claim arising under this Loan Agreement or any other Loan
Instrument, whether in bankruptcy or receivership proceedings or otherwise, and
in any workout or restructuring or in connection with the protection,
preservation, exercise or enforcement of any of the terms hereof or of any
rights hereunder or under any other Loan Instrument or in connection with any
foreclosure, collection or bankruptcy proceedings, in connection with or as a
result of any action taken or omitted to be taken pursuant to this Loan
Agreement, the Revolving Credit Notes, the Swing Line Note or the other Loan
Instruments shall be paid by, and shall be the sole responsibility of, the
Borrowers.
SECTION 11
THE ADMINISTRATIVE BANK
11.1 Appointment. Each Bank hereby irrevocably designates, appoints and
authorizes PNC to act as the Administrative Bank under this Loan Agreement and
to execute and deliver or accept on behalf of each of the Banks the other Loan
Instruments. Each Bank hereby irrevocably authorizes, and each holder of any
Revolving Credit Note by the acceptance of such Revolving Credit Note shall be
deemed irrevocably to authorize, the Administrative Bank to take such action on
behalf of such Bank and such holder under the provisions of this Loan Agreement
and the other Loan Instruments and any other instruments and agreements referred
to herein, and to exercise such powers and to perform such duties hereunder as
are specifically delegated to or required of the Administrative Bank by the
terms hereof, together with such powers as are reasonably incidental thereto.
PNC agrees to act as the Administrative Bank to the extent provided in this Loan
Agreement.
11.2 Delegation of Duties. The Administrative Bank may perform any of
its duties hereunder by or through agents or employees (provided such delegation
is exercised with reasonable care and does not constitute a relinquishment of
its duties as Administrative Bank) and, subject to Sections 11.5, 11.6 and 11.7
hereof, shall be entitled to engage and pay for the advice or services of any
attorneys, accountants or other experts concerning all matters pertaining to its
duties hereunder and to rely upon any advice so obtained, provided reasonable
care is used in the selection of the foregoing experts.
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11.3 Nature of Duties; Independent Credit Investigation. The
Administrative Bank shall have no duties or responsibilities except those
expressly set forth in this Loan Agreement and the other Loan Instruments and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Loan Agreement or shall otherwise exist. The
duties of the Administrative Bank shall be mechanical and administrative in
nature and shall include the duty to provide to each Bank an executed original
of such Bank's Revolving Credit Note and an executed original of this Loan
Agreement and a copy of the other Loan Instruments; the Administrative Bank
shall not have by reason of this Loan Agreement a fiduciary or trust
relationship in respect of any Bank; and nothing in this Loan Agreement,
expressed or implied, is intended to or shall be so construed as to impose upon
the Administrative Bank any obligations in respect of this Loan Agreement except
as expressly set forth herein. Each Bank expressly acknowledges (i) that the
Administrative Bank has not made any representations or warranties to it and
that no act which the Administrative Bank hereafter takes, including any review
of the affairs of the Borrowers, shall be deemed to constitute any
representation or warranty by the Administrative Bank to any Bank; (ii) that it
has made and will continue to make, without reliance upon the Administrative
Bank, its own independent investigation of the financial condition and affairs
and its own appraisal of the creditworthiness of the Borrowers in connection
with this Loan Agreement and the making and continuance of the Revolving Credit
Loans hereunder; and (iii) except as expressly provided herein, that the
Administrative Bank shall have no duty or responsibility, either initially or on
a continuing basis, to provide any Bank with any credit or other information
with respect thereto, whether coming into its possession before the making of
any Revolving Credit Loan or at any time or times thereafter.
11.4 Actions in Discretion of the Administrative Bank: Instructions from
the Banks. The Administrative Bank agrees, upon the written request of the
Banks, to take or refrain from taking any action of the type specified as being
within the Administrative Bank's rights, powers or discretion herein; provided
that the Administrative Bank shall not be required to take any action which
exposes the Administrative Bank to legal liability or which is contrary to this
Loan Agreement or any other Loan Instrument or applicable law. In the absence of
a request by the Banks, the Administrative Bank shall have authority, in its
sole discretion, to take or not to take any such action, unless this Loan
Agreement specifically requires the consent of the Banks. Any action taken or
failure to act pursuant to such instructions or discretion shall be binding on
the Banks, subject to the provisions of Section 11.6 hereof. Subject to the
provisions of Section 11.6 hereof, no Bank shall have any right of action
whatsoever against the Administrative Bank as a result of the Administrative
Bank acting or refraining from acting hereunder in accordance with the
instructions of the Banks or, in the absence of such instructions, in the
absolute discretion of the Administrative Bank.
11.5 Reimbursement and Indemnification of the Administrative Bank and
the Banks by the Borrowers. The Borrowers unconditionally agree to pay or
reimburse the Administrative Bank and hold the Administrative Bank harmless
against liability for the payment of all reasonable and necessary out-of-pocket
costs, expenses and disbursements for which reimbursement is customarily
obtained, including fees and expenses of counsel and
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consultants incurred by the Administrative Bank (a) in connection with the
preparation, negotiation, printing, execution, administration, interpretation
and performance of this Loan Agreement and the other Loan Instruments and (b)
relating to any requested amendments, waivers or consents pursuant to the
provisions hereof. The Borrowers unconditionally agree to pay or reimburse the
Administrative Bank and hold each Bank harmless against all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Administrative Bank and/or any Bank, in
its capacity as such, in any way relating to or arising out of this Loan
Agreement or any other Loan Instrument or any action taken or omitted by the
Administrative Bank and/or any Bank hereunder or thereunder; provided that the
Borrowers shall not be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements (A) if the same results from the bad faith, gross negligence or
willful misconduct of the Administrative Bank or any Bank, or (B) if the
Borrowers were not given notice of the subject claim and the opportunity to
participate in the defense thereof, at its expense, or (C) if the same results
from a compromise or settlement agreement entered into without the consent of
the Borrowers, which consent shall not be unreasonably withheld.
11.6 Exculpatory Provisions. Neither the Administrative Bank nor any of
its directors, officers, employees, agents or affiliates shall (i) be liable to
any Bank for any action taken or omitted to be taken by it or them hereunder, or
in connection herewith including pursuant to any other Loan Instruments, unless
caused by its or their own gross negligence or willful misconduct, (ii) be
responsible in any manner to any of the Banks for the effectiveness,
enforceability, genuineness, validity or the due execution of this Loan
Agreement or any other Loan Instrument or for any recital, representation,
warranty, document, certificate, report or statement herein or made or furnished
under or in connection with this Loan Agreement or any other Loan Instrument, or
(iii) be under any obligation to any of the Banks to ascertain or to inquire as
to the performance or observance of any of the terms, covenants or conditions
hereof or thereof on the part of the Borrowers, or the financial condition of
the Borrowers, or the existence or possible existence of any Event of Default or
Potential Default under the Loan Instruments. Neither the Administrative Bank
nor any Bank nor any of their respective directors, officers, employees, agents,
attorneys or affiliates shall be liable to the Borrowers or any other Person for
consequential damages resulting from any breach of contract, tort or other wrong
in connection with the negotiation, documentation or administration of the Loan
Instruments or the collection of the obligations.
11.7 Reimbursement and Indemnification of the Administrative Bank by the
Banks. Each Bank agrees to reimburse and indemnify the Administrative Bank (to
the extent not reimbursed by the Borrowers and without limiting the obligation
of the Borrowers to do so) in proportion to its Revolving Credit Facility Pro
Rata Share from and against all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Administrative Bank, in its capacity as such, in any way relating to
or arising out of this Loan Agreement or any other Loan Instrument or any action
taken or omitted by the Administrative Bank hereunder or thereunder, provided
that no such reim-
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<PAGE> 69
bursement shall be required with respect to expenses incurred by the
Administrative Bank during the time period through the Closing Date and no Bank
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
(i) if the same relates to or arises out of the Administrative Bank's gross
negligence or willful misconduct, or (ii) if such Bank was not given notice of
the subject claim and the opportunity to participate in the defense thereof, at
its expense, or (iii) if the same results from a compromise and settlement
agreement entered into without the consent of the Bank, which consent shall not
be unreasonably withheld.
11.8 Reliance by the Administrative Bank. The Administrative Bank shall
be entitled to rely upon any writing, telegram, telex or teletype message,
facsimile, resolution, notice, consent, certificate, letter, cablegram,
statement, order or other document or conversation by telephone or otherwise
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons, and upon the advice and opinions of counsel and
other professional advisers selected by the Administrative Bank. The
Administrative Bank shall be fully justified in failing or refusing to take any
action hereunder unless it shall first be indemnified to its satisfaction by the
Banks in accordance with their respective Revolving Credit Facility Pro Rata
Shares against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action.
11.9 Notice of Default. The Administrative Bank shall not be deemed to
have knowledge or notice of the occurrence of any Potential Default or Event of
Default unless the Administrative Bank has received written notice from a Bank
or the Borrowers referring to this Loan Agreement, specifically describing such
Potential Default or Event of Default and stating that such notice is a "notice
of default."
11.10 The Banks in Their Individual Capacities. With respect to its
Revolving Loan Commitment, the Administrative Bank shall have the same rights
and powers hereunder as any other Bank and may exercise the same as though it
were not the Administrative Bank, and the term "Banks" shall, unless the context
otherwise indicates, include the Administrative Bank in its individual capacity.
Each Bank and its Affiliates may, without liability to account, except as
prohibited herein, make loans to, accept deposits from, discount drafts for, act
as trustee under indentures of, and generally engage in any kind of banking or
trust business with, Res-Care and its Affiliates, in the case of the
Administrative Bank, as though it were not acting as Administrative Bank
hereunder and in the case of each Bank, as though such Bank were not a Bank
hereunder.
11.11 Holders of Revolving Credit Notes. The Administrative Bank may
deem and treat any payee of any Revolving Credit Note as the owner thereof for
all purposes hereof unless and until written notice of the assignment or
transfer thereof shall have been filed with the Administrative Bank. Any
request, authority or consent of any Person who at the time of making such
request or giving such authority or consent is the holder of any Revolving
Credit Note shall be conclusive and binding on any subsequent holder, transferee
or assignee of such Revolving Credit Note or of any Revolving Credit Note issued
in exchange therefor.
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<PAGE> 70
11.12 Equalization of the Banks. The Banks and the holders of any
participations in any Revolving Credit Notes agree among themselves that, with
respect to all amounts received by any Bank or any such holder for application
to any Revolving Credit Note or under any such participation, whether received
by voluntary payment, by realization upon security, by the exercise of the right
of setoff or banker's lien, by counterclaim or by any other non-pro rata source,
equitable adjustment will be made in the manner stated in the following sentence
so that, in effect, all such excess amounts will be shared ratably among the
Banks and such holders in proportion to their interests in payments under the
Revolving Credit Notes. The Banks or any such holder receiving any such amount
shall purchase for cash from each of the other Banks an interest in such Bank's
Revolving Credit Loans in such amount as shall result in a ratable participation
by the Banks and each holder in the aggregate unpaid amount under the Revolving
Credit Notes, provided that if all or any portion of such excess amount is
thereafter recovered from the Bank or the holder making such purchase, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, together with interest or other amounts, if any, required by law
(including court order) to be paid by the Bank or the holder making such
purchase.
11.13 Successor Administrative Bank. The Administrative Bank may resign
as Administrative Bank with the consent of the Borrowers, such consent not to be
unreasonably withheld, upon not less than thirty (30) days prior written notice
given to the Borrowers and the other Bank(s). If the Administrative Bank shall
resign under this Loan Agreement, then either (i) the Banks shall appoint a
successor administrative bank, subject to the consent to such successor
administrative bank by the Borrowers, such consent not to be unreasonably
withheld, or (ii) if a successor administrative bank shall not be so appointed
and approved within the thirty (30) day period following the Administrative
Bank's notice to the Banks of its resignation, then the Administrative Bank
shall appoint, with the consent of the Borrowers, such consent not to be
unreasonably withheld, a successor administrative bank who shall serve as
Administrative Bank until such time as the Banks appoint, and the Borrowers
consent, which consent shall not be unreasonably withheld, to the appointment of
a successor administrative bank. Upon its appointment pursuant to either clause
(i) or (ii) above, such successor administrative bank shall succeed to the
rights, powers and duties of the Administrative Bank and the term
"Administrative Bank" shall mean such successor administrative bank, effective
upon its appointment, and the former Administrative Bank's rights, powers and
duties as Administrative Bank shall be terminated without any other or further
act or deed on the part of such former Administrative Bank or any of the other
parties to this Loan Agreement. After the resignation of any Administrative Bank
hereunder, the provisions of this Section 11 shall not by reason of such
resignation be deemed to release the Administrative Bank from liability for any
actions taken or not taken by it while it was the Administrative Bank under this
Loan Agreement.
11.14 Calculations. In the absence of gross negligence or willful
misconduct, the Administrative Bank shall not be liable for any error in
computing the amount payable to any Bank whether in respect of the Revolving
Credit Loans or the fees or other amounts due to the Banks under this Loan
Agreement. In the event an error in computing any amount payable to any Bank is
made, the Administrative Bank, the Borrowers and each affected
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<PAGE> 71
Bank shall, forthwith upon discovery of such error, make such adjustments as
shall be required to correct such error, and any compensation therefor will be
calculated at the Federal Funds Effective Rate.
11.15 Beneficiaries. Except as set forth in Sections 11.5 and 11.13
hereof, the pro visions of this section 11 are solely for the benefit of the
Administrative Bank and the Banks, and the Borrowers shall not have any right to
rely on or enforce any of the provisions hereof. In performing its functions and
duties under this Loan Agreement, the Administrative Bank shall act solely as
agent of the Banks and does not assume and shall not be deemed to have assumed
any obligation toward or relationship of agency or trust with or for the
Borrowers or any other Person.
SECTION 12
ASSIGNMENTS AND PARTICIPATIONS
A. Assignments to Eligible Assignees. Each Bank shall have the
right at any time, with the prior consent of the Borrowers and the
Administrative Bank, which shall not be unreasonably withheld, to sell, assign,
transfer or negotiate all or any part of its Revolving Loan Commitment and
Revolving Credit Loans in a minimum amount of Five Million Dollars ($5,000,000)
to one or more commercial banks, insurance companies, savings and loan
associations, savings banks or other financial institutions, pension funds or
mutual funds or other accredited investors ("Eligible Assignees"); provided that
prior to receiving any confidential or other material information regarding the
Borrowers or the transactions contemplated by this Loan Agreement, any Eligible
Assignee shall have entered into a Confidentiality Agreement; provided further
that any such assignment shall become effective five (5) Business Days after an
Assignment Agreement is executed by the Eligible Assignee. In the case of any
sale, assignment, transfer or negotiation of all or part of the Revolving Loan
Commitment or Revolving Credit Loans authorized under this Section 12, the
assignee, transferee or recipient shall have, to the extent of such sale,
assignment, transfer or negotiation, the same rights, benefits and obligations
as it would if it were a Bank hereunder, including, without limitation (x) the
right to approve or disapprove actions which, in accordance with the terms
hereof, require the approval of the Banks, and (y) the obligation to fund
Revolving Credit Loans pursuant to Section 2 hereof. The Bank assigning a
portion or all of its Revolving Loan Commitment and Revolving Credit Loans
pursuant to this Section 12, or the bank purchasing the interest of the
Assigning Bank, shall pay a fee to the Administrative Bank of $3,500.
B. Participations. Notwithstanding Section 12.A hereof, each Bank
may grant participations in all or any part of its Revolving Loan Commitment and
Revolving Credit Loans to one or more Eligible Assignees; provided that (i) any
such disposition shall not, without the consent of the Borrowers, require the
Borrowers to file a registration statement with the Securities and Exchange
Commission or apply to qualify the Revolving Credit Loans or the Revolving
Credit Notes under the blue sky law of any state; and (ii) the holder of any
such participation, other than an Affiliate of such Bank, shall not be entitled
to
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<PAGE> 72
require the Banks to take or omit to take any action hereunder except action
directly extending the final maturity of any portion of the principal amount of
or interest on a Revolving Credit Loan allocated to such participation or a
reduction of the principal amount of or the rate of interest payable on the
Revolving Credit Loans allocated to such participation. For purposes of Sections
2.6, 3.6 and 11.2 hereof, the Borrowers hereby acknowledge and agree that any
such disposition will give rise to a direct obligation of the Borrowers to the
participant and the participant shall be considered to be a "Bank" (subject to
the provisions of Section 5 hereof).
C. Assignments to Affiliates. Notwithstanding the foregoing
provisions of this Section 12, each Bank may at any time sell, assign, transfer,
or negotiate all or any part of its Revolving Loan Commitment and Revolving
Credit Loans to any Affiliate of such Bank; Provided that an Affiliate to whom
such disposition has been made shall not be considered a "Bank" for purposes of
this Loan Agreement other than for purposes of Section 10.2 hereof; provided
further that the Borrowers shall not incur any additional expenses solely as a
result of such sale, assignment, transfer or negotiation.
D. No Release of Obligations. No Bank shall, as between the
Borrowers and such Bank, be relieved of any of its obligations hereunder as a
result of any granting of participations in all or any part of its Revolving
Loan Commitment and Revolving Credit Loans. Each Bank shall, as between the
Borrowers and such Bank, be relieved of its obligations hereunder as a result of
any sale, assignment, transfer or negotiation of all or any part of its
Revolving Loan Commitment and Revolving Credit Loans made in accordance with
Section 12.A hereof.
SECTION 13
INDEMNITY
The Borrowers shall indemnify and hold harmless each Bank and its
successors, assigns, agents and employees from and against any and all claims,
actions, suits, proceedings, costs, expenses, damages, fines, penalties and
liabilities, including, without limitation, reasonable attorneys' fees and
costs, arising out of, connected with or resulting from the operation of the
business of the Borrowers.
SECTION 14
NOTICES
All notices required or permitted to be given hereunder shall be given
in writing and shall be personally delivered or sent by facsimile transmission
or by registered or certified United States mail, return receipt requested,
postage prepaid, addressed as follows (or to such other address as to which any
party hereto shall have given the other parties written notice):
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<PAGE> 73
If to ResCare and
the Other Borrowers: Res-Care, Inc.
10140 Linn Station Road
Louisville, KY 40223
Attn: Mr. Ronald G. Geary
If to the Banks: PNC Bank, Kentucky, Inc.
500 West Jefferson Street
Louisville, KY 40202
Attn: Mr. Ben Willingham
National City Bank of Kentucky
101 South Fifth Street
Louisville, KY 40202
Attn: Mr. Deroy Scott
SunTrust Bank, Nashville, N.A.
P.O. Box 305110
Nashville, TN 37230-5110
Attn: Ms. Karen Cole Ahern
Bank One, Kentucky, NA
416 West Jefferson
Louisville, Kentucky 40202
Attn: Mr. Todd Munson
If to the
Administrative Bank: PNC Bank, Kentucky, Inc.
500 West Jefferson Street
Louisville, KY 40202
Attn: Mr. Ben Willingham
All notices hereunder shall be deemed given upon the earlier of (i)
actual delivery in person or by facsimile transmission, or (ii) two (2) Business
Days after having been deposited in the United States mails, in accordance with
the foregoing.
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<PAGE> 74
SECTION 15
MISCELLANEOUS
15.1 Joint and Several Liability of Borrowers; Limitation on Liability
of Consolidated Subsidiary Borrowers. The obligation of each of the Borrowers
for repayment of all unpaid principal of and interest on Revolving Credit Loans
and all other Obligations to the Banks and for repayment of all unpaid principal
of and interest on the Swing Line Loans and all other Obligations to PNC shall
be joint and several; provided, however, that the obligation of any particular
Borrower that is a Consolidated Subsidiary for repayment of all unpaid principal
of and interest on Revolving Credit Loans and all other Obligations to the Banks
and for repayment of all unpaid principal of and interest on the Swing Line
Loans and all other Obligations to PNC shall be limited to an amount not to
exceed the greater of (a) the aggregate amount of the outstanding Advances to
such Consolidated Subsidiary as of the Enforcement Date, or (b) ninety-five
percent (95%) of the Maximum Consolidated Subsidiary Borrower Amount as of the
Enforcement Date. The foregoing limitation on the obligation of the Borrowers
for repayment of all unpaid principal of and interest on Revolving Credit Loans
and all other Obligations to the Banks and for repayment of all unpaid principal
of and interest on the Swing Line Loans and all other Obligations to PNC shall
not be applicable to Res-Care, whose liability therefor shall not be limited.
15.2 Ratable Sharing. Each Bank agrees with the other Bank that (i) with
respect to all amounts received by it which are applicable to the payment of
principal of or interest on the Revolving Credit Loans and the Revolving Credit
Facility Commitment Fees, including, without limitation, all amounts received by
such Bank pursuant to the exercise of the right of setoff pursuant to Section
11.2 hereof, equitable adjustment will be made so that, in effect, all such
amounts will be shared among the Banks proportionately in accordance with their
respective Revolving Credit Facility Pro Rata Shares, whether received by
voluntary payment, by the exercise of the right of set-off or banker's lien, by
counterclaim or cross action or by the enforcement of any or all of the
Obligations, and (ii) if any of them shall exercise any right of counterclaim,
set-off, banker's lien or similar right with respect to amounts owed by the
Borrowers hereunder, that Bank shall apportion the amount recovered as a result
of the exercise of such right pro rata in accordance with (a) all amounts
outstanding at such time owed by the Borrowers to it hereunder with respect to
the Revolving Credit Loans, and (b) all amounts otherwise owed by the Borrowers
to it, and (iii) if any of them shall thereby through the exercise of any right
of counterclaim, set-off, banker's lien or otherwise, or as adequate protection
of a deposit treated as cash collateral under the Bankruptcy Code, receive
payment or reduction of a proportion of the aggregate amount of principal and
interest due with respect to the Revolving Credit Loans made by that Bank or any
participation therein, or any other amount payable hereunder (collectively, the
"Aggregate Amount Due" to such Bank), which is greater than the proportion
received by any other Bank in respect of the Aggregate Amount Due to such other
Bank, then the Bank receiving such proportionately greater payment shall (y)
notify each other Bank and the Administrative Bank of such receipt and (z)
purchase participations (which it shall be deemed to have done simultaneously
upon the receipt of such payment) in the Aggregate Amounts Due to the other
Banks so that all recoveries of Aggregate Amounts Due shall be shared by
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the Banks in proportion to their respective Revolving Credit Facility Pro Rata
Shares; provided that if all or part of such proportionately greater payment
received by such purchasing Bank is thereafter recovered from such Bank, those
purchases shall be rescinded and the purchase prices paid for such
participations shall be returned to that Bank to the extent of such recovery,
but without interest. The Borrowers expressly consent to the foregoing
arrangements and agree that any participant in respect of any Revolving Credit
Loan may exercise any and all rights of banker's lien, set-off or counterclaim
with respect to any and all rights of banker's lien, set-off or counterclaim
with respect to any and all monies owing by the Borrowers to that participant as
fully as if that participant were a Bank in the amount of such participation
held by that participant.
15.3 Waiver. No course of dealing in respect of, nor any omission or
delay in the exercise of, any right, power, remedy or privilege by the Banks
shall operate as a wavier thereof, nor shall any right, power, remedy or
privilege of the Banks be exclusive of any other right, power, remedy or
privilege referred to herein or in any related document or now or hereafter
available at law, in equity, in bankruptcy, by statute or otherwise. Each such
right, power, remedy or privilege may be exercised by the Banks, either
independently or concurrently with others, and as often and in such order as the
Banks may deem expedient. No waiver or consent granted by the Banks in respect
of this Loan Agreement or the other Loan Instruments shall be binding upon the
Banks unless specifically granted in writing by a duly authorized officer of
each Bank, which writing shall be strictly construed.
15.4 Survival of Representations and Warranties. All representations,
warranties and covenants of the Borrowers and each Bank contained herein or made
pursuant hereto shall survive the execution and delivery of this Loan Agreement
and shall continue throughout the term hereof. Further, the indemnities set
forth in Section 13 hereof shall survive the payment of the Revolving Credit
Notes and the other Obligations to the Banks, as applicable.
15.5 Invalidity. If any part of this Loan Agreement shall be adjudged
invalid or unenforceable, whether in general or in any particular circumstance,
then such partial invalidity or enforceability shall not cause the remainder of
this Loan Agreement to be or to become invalid or unenforceable, and if a
provision hereof is held invalid or unenforceable in one or more of its
applications, the parties hereto agree that said provision shall remain in
effect in all valid applications that are severable from the invalid or
unenforceable application or applications.
15.6 Assignment. This Loan Agreement may not be assigned by the
Borrowers without the prior written consent of the Banks. This Loan Agreement
may be assigned by the Banks as provided in Section 12 hereof. All rights of the
Banks hereunder shall inure to the benefit of their respective successors and
assigns, and all obligations, covenants and agreements of the Borrowers shall
bind their permitted successors and assigns, if any.
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<PAGE> 76
15.7 Governing Law. This Loan Agreement and the rights and obligations
of the parties hereunder shall, in all respects, be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky.
15.8 Section Headings. The section headings of this Loan Agreement are
inserted herein solely for convenience of reference and shall not affect the
construction or interpretation of the provisions hereof.
15.9 Entire Agreement. This Loan Agreement and the other Loan
Instruments constitute the entire agreement between the Borrowers and the Banks
with respect to the subject matter hereof.
15.10 Time of the Essence. Time shall be of the essence in the payment
and performance of all of the Borrowers' obligations under this Loan Agreement,
the Revolving Credit Note and the other Loan Instruments to which the Borrowers
are party.
15.11 Modifications. This Loan Agreement may be modified only in writing
executed by the Borrowers and the Banks. Neither this Loan Agreement nor the
other Loan Instruments nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by Banks holding at least sixty six and 66/100 percent (66
2/3%) of the aggregate of the Revolving Credit Facility Pro Rata Shares (the
"Majority Banks"); provided, however, that no such change, waiver, discharge or
termination, shall, without the consent of each Bank, (i) extend the Revolving
Loan Commitment Termination Date or the final maturity of the Revolving Credit
Note of such Bank, or change the rate or extend the time of payment of interest,
principal or fees, or reduce the principal amount thereof, or increase the
aggregate amount of the Revolving Loan Commitments above the maximum amount
provided for in Section 2.1 hereof, or increase any Bank's commitment to
disburse its Revolving Loan Pro Rata Share of Revolving Credit Loans requested
by the Borrowers as set forth in Section 2.1 hereof, or (ii) release any
Collateral except as it shall otherwise be provided in any Loan Instrument, or
(iii) amend, modify or waive any provisions of this Section 15.12
(Modifications), Section 2 (Revolving Credit Facility), Section 3 (Swing Line
Credit Facility), Section 10 (Events of Default; Acceleration), Section 11
(Remedies Upon Default, Etc.), Section 12 (The Administrative Bank), Section
15.2 (Ratable Sharing), or Section 15.10 (Costs and Expenses), or (iv) amend,
modify or waive any provision requiring consent of all Banks, or (v) reduce the
percentages specified in this Section 15.11 or (vi) consent to the assignment or
transfer by the Borrowers of any of their rights and obligations under this
Agreement.
15.12 Submission to Jurisdiction, Etc. The Borrowers hereby irrevocably
agree that any legal action, suit or proceeding against the Borrowers with
respect to the obligations and liabilities of the Borrowers hereunder or any
other matter under or arising out of or in connection with this Loan Agreement,
the Revolving Credit Notes, the Swing Line Note or any other Loan Instrument or
for recognition or enforcement of any judgment rendered in any such action, suit
or proceeding may be brought in the United States District Court of the
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<PAGE> 77
Western District of Kentucky or in the courts of the Commonwealth of Kentucky,
as the Banks may elect, and, by execution and delivery of this Loan Agreement,
the Borrowers hereby irrevocably accept and submit to the non-exclusive
jurisdiction of each of the aforesaid courts in personam generally and
unconditionally with respect to any such action, suit or proceeding involving
the Borrowers and in respect of the Borrowers' property. The Borrowers further
agree that final judgment against the Borrowers in any action, suit or
proceeding referred to herein shall be conclusive after all appeals have been
exhausted or waived by the Borrowers, and may thereafter be enforced in any
other jurisdiction, within or outside the United States of America, by suit on
the judgment, a certified or exemplified copy of which shall be conclusive
evidence of the fact and of the amount of the Borrowers' obligations and
liabilities. The Borrowers further irrevocably consent and agree to the service
of any and all legal process, summons, notices and documents out of any of the
aforesaid courts in any such action, suit or proceeding by mailing copies
thereof by registered or certified air mail, postage prepaid, to the Borrowers
at the address set forth in Section 14 hereof or by serving copies thereof upon
any statutory agent for service of process of the Borrowers. The Borrowers agree
that service upon the Borrowers as provided for herein shall constitute valid
and effective personal service upon the Borrowers and that the failure of any
statutory agent to give any notice of such service to the Borrowers shall not
impair or affect in any way the validity of such service or any judgment
rendered in any action or proceeding based thereon. Nothing herein shall, or
shall be construed so as to, limit the right of the Banks to bring actions,
suits or proceedings with respect to the obligations and liabilities of the
Borrowers under, or any other matter arising out of or in connection with, this
Loan Agreement, the Revolving Credit Notes, the Swing Line Note and/or the other
Loan Instruments, or for recognition or enforcement of any judgment rendered in
any such action, suit or proceeding, in the courts of whatever jurisdiction in
which property of the Borrowers may be found or as otherwise shall to the Banks
seem appropriate, or to affect the right to service of process in any
jurisdiction in any manner permitted by law. In addition, the Borrowers hereby
irrevocably and unconditionally waive any objection which the Borrowers may now
or hereafter have to the laying of venue of any of the aforesaid actions, suits
or proceedings arising out of or in connection with this Loan Agreement, the
Revolving Credit Notes, the Swing Line Note and/or the other Loan Instruments
brought in the Circuit Court of Jefferson County, Kentucky or in the United
States District Court for the Western District of Kentucky, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim that any
such action, suit or proceeding brought in either such court has been brought in
an inconvenient forum.
15.13 Waiver of Jury Trial. EACH BORROWER, EACH BANK AND THE
ADMINISTRATIVE BANK EACH HEREBY AGREES TO WAIVE ITS RIGHT TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS LOAN AGREEMENT, THE
REVOLVING CREDIT NOTES, THE SWING LINE NOTE OR THE OTHER LOAN INSTRUMENTS. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT THAT RELATE TO THE SUBJECT MATTER OF THIS
TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH
OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
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<PAGE> 78
AND STATUTORY CLAIMS. THE BORROWER, EACH BANK AND THE ADMINISTRATIVE BANK EACH
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH SUCH PARTY TO
ENTER INTO A BUSINESS RELATIONSHIP, AND THAT EACH BORROWER, EACH BANK AND THE
ADMINISTRATIVE BANK HAVE ALREADY RELIED ON THE WAIVER IN ITS RELATED FUTURE
DEALINGS WITH THE OTHERS. THE BORROWER, EACH BANK AND THE ADMINISTRATIVE BANK
EACH FURTHER WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH ITS
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS LOAN AGREEMENT, THE REVOLVING CREDIT NOTES, THE SWING LINE NOTE OR THE
OTHER LOAN INSTRUMENTS. IN THE EVENT OF LITIGATION, THIS LOAN AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
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IN WITNESS WHEREOF, the Administrative Bank, the Banks and the Borrowers
have caused this Loan Agreement to be duly executed as of the day and year first
above written.
PNC BANK, KENTUCKY, INC.
("PNC")
________________________________________
By: Ben Willingham, Vice President
NATIONAL CITY BANK OF
KENTUCKY
("National City")
________________________________________
By: Deroy Scott, Vice President
SUNTRUST BANK, NASHVILLE, N.A.
("SunTrust")
________________________________________
Karen Cole Ahern, Group Vice President
BANK ONE, KENTUCKY, NA
("Bank One")
________________________________________
Todd D. Munson, Senior Vice President
PNC BANK, KENTUCKY, INC.
(the "Administrative Bank")
________________________________________
By: Ben Willingham, Vice President
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<PAGE> 80
RES-CARE, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President and
Chief Executive Officer
COMMUNITY ALTERNATIVES
INDIANA, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
COMMUNITY ALTERNATIVES
NEBRASKA, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
COMMUNITY ADVANTAGE, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
TEXAS HOME MANAGEMENT, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
CAPITAL TX INVESTMENTS, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
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<PAGE> 81
THM HOMES, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
RSCR TEXAS, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
RES-CARE NEW MEXICO, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
RES-CARE OHIO, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
COMMUNITY ALTERNATIVES OF
TEXAS, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
CATX PROPERTIES, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
- 81 -
<PAGE> 82
RES-CARE CALIFORNIA, INC., d/b/a
RCCA Services
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
RES-CARE FLORIDA, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
RSCR CALIFORNIA, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
RES-CARE KANSAS, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
RES-CARE ILLINOIS, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
RES-CARE OKLAHOMA, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
- 82 -
<PAGE> 83
RES-CARE TENNESSEE, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
RES-CARE TRAINING
TECHNOLOGIES, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
YOUTHTRACK, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, Chairman
RES-CARE PREMIER, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
RSCR PREMIER, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
RES-CARE NEW JERSEY, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
- 83 -
<PAGE> 84
COMMUNITY ALTERNATIVES
KENTUCKY, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
ALTERNATIVE YOUTH SERVICES,
INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
COMMUNITY ALTERNATIVES
VIRGINIA, INC.
(a "Borrower")
________________________________________
By: Ronald G. Geary, President
RESIDENTIAL ALTERNATIVES
IN SUPPORTIVE ENVIRONMENTS,
INC.
(a "Maker")
________________________________________
By: Ronald G. Geary, President
SOUTHWIND RESIDENTIAL
SERVICES, INC.
(a "Maker")
________________________________________
By: Ronald G. Geary, President
- 84 -
<PAGE> 85
LIST OF EXHIBITS
1. Exhibit A-1: PNC Revolving Credit Note
Exhibit A-2: National City Revolving Credit Note
Exhibit A-3: SunTrust Revolving Credit Note
Exhibit A-4: Bank One Revolving Credit Note
2. Exhibit B: Swing Line Note
3. Exhibit C: Application and Agreement for Letter of Credit
4. Exhibit D: Notice of Conversion/Continuation
6. Exhibit E: Request For Revolving Credit Loan
7. Exhibit F: Request for Swing Line Loan
8. Exhibit G: Compliance Certificate
9. Exhibit H: Assignment Agreement
10. Exhibit I: Confidentiality Agreement
11. Exhibit J: Stock Pledge Agreement
12. Exhibit K: Form of Security Agreement
13. Exhibit L: Form of UCC-1 Financing Statement
14. Exhibit M: Form of Assumption Agreement
13. Exhibit N: Form of Amendment to Stock Pledge Agreement
14. Exhibit O: Form of Stock Pledge Agreement (Shares in Non-Consolidated
Persons)
14. Exhibit P: Form of Borrower Counsel Opinion
<PAGE> 1
Exhibit 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Employment Agreement") is made as of the 1st
day of January, 1997, between RES-CARE, INC., a Kentucky corporation (the
"Company"), and JEFFREY M. CROSS (the "Employee").
RECITALS:
WHEREAS, the Employee has been employed by the Company since September 1,
1989, and the services of the Employee, his managerial experience, and his
knowledge of the affairs of the Company are of great value to the Company;
WHEREAS, the Employee possesses an intimate knowledge of the business and
affairs of the Company, its policies, methods, personnel and plans for the
future; and
WHEREAS, the Board of Directors of the Company recognizes that the
Employee's contribution to the growth and success of the Company has been
substantial and wishes to offer an inducement to the Employee to remain in the
employ of the Company.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, the parties agree as follows:
1. Employment and Term. The Company hereby employs the Employee, and the
Employee accepts such employment, upon the terms and conditions herein set forth
for an initial term commencing on January 1, 1997, and ending on December 31,
1999, subject to earlier termination only in accordance with the express
provisions of this Employment Agreement ("Initial Term"). This Employment
Agreement shall be automatically extended on a year-to-year basis (January 1
through December 31 of each successive year), unless sooner terminated in
accordance with the express provisions of this Employment Agreement ("Additional
Terms"), upon the expiration of the Initial Term or any Additional Term, unless
prior to the commencement of a sixty (60) day period expiring at the end of such
Initial Term or any Additional Term, the Company or the Employee shall have
given written notice to the other stating that the term of this Employment
Agreement shall not be extended. For purposes of this Employment Agreement, the
term "Term" shall mean the Initial Term plus all Additional Terms.
2. Duties.
(a) Employment as Executive Vice President of Operations. During the
Term, the Employee shall serve as the Executive Vice President of Operations for
the Division for Persons with Disabilities of the Company. The Employee shall,
subject to the supervision and control of the President and Chief Executive
Officer of the Company (the "President") and the Board of Directors of the
Company (the "Board"), perform such duties and exercise such powers
<PAGE> 2
over and with regard to the business of the Company's Division for Persons with
Disabilities as are presently being performed and exercised by him and such
additional duties which are similar in nature and responsibility to those
presently being performed by the Employee as may be prescribed from time to time
by the President or the Board, including, without limitation, serving as an
officer of one or more subsidiaries or affiliates of the Company, if elected to
such positions, without any further salary or other compensation.
(b) Time and Effort. The Employee shall devote all of his business
time, energies and talents exclusively to the business of the Company and to no
other business during the Term of this Employment Agreement; provided, however,
that subject to the restrictions in Section 7 hereof, the Employee may (i)
invest his personal assets in such form or manner as will not require his
services in the operation of the affairs of the entities in which such
investments are made and (ii) subject to satisfactory performance of the duties
described in Section 2(a) hereof, devote such time as may be reasonably required
for him to continue to maintain his current level of participation in various
civic and charitable activities.
3. Compensation.
(a) Base Salary. The Company shall pay to the Employee during the
Term a fixed, annual salary (the "Base Salary"), which initially shall be
$150,000. The Base Salary shall be due and payable in substantially equal
bi-weekly installments or in such other installments as may be necessary to
comport with the Company's normal pay periods for all employees.
Provided that this Employment Agreement or Employee's employment hereunder
shall not have been terminated for any reason, the Base Salary shall be
increased, effective as of the first day of each year of the Term, in proportion
to the increase in the Consumer Price Index "All-Items" category, as published
by the Bureau of Labor Statistics (the "CPI") established for the month of
December immediately preceding the date on which the adjustment is to be made
over that established for the month of December 1996. If the Bureau of Labor
Statistics suspends or terminates its publication of the CPI, the parties agree
that a reasonably comparable price index shall be substituted for the CPI.
(b) Annual Bonus Plan. The Employee shall participate with the other
executive officers of the Company in the Annual Bonus Plan established by the
Board, and in connection therewith shall be eligible for an annual bonus of up
to twenty-five percent (25%) of his Base Salary (as adjusted by the CPI for the
calendar year for which the bonus is determined), in accordance with and based
upon the mutually agreeable performance goals established for the Employee by
the President and the Employee and as such Annual Bonus Plan shall be modified
by the Board from time to time.
(c) Participation in Benefit, Insurance, Vacation and Sick Leave
Plans. Employee shall be entitled to participate in the standard Company benefit
package which is to be implemented generally as reflected in Company's Flex-Care
Employee guide currently in
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<PAGE> 3
effect, as modified by the Company from time to time. Employee acknowledges that
the Company is in the process of modifying its Flex-Care Plan. During the
Initial Term and each Additional Term, Employee will be entitled to three (3)
weeks of vacation, which vacation may be utilized as earned. Employee will
accrue ten (10) days of sick leave for each year of employment. The Employer
reserves the right to amend or modify in their entirety or any of the
above-mentioned fringe benefit programs.
(d) Participation in Stock Option Plan. Employee shall be entitled
to participate in the Company stock option plan which is applicable to its
managerial employees. Provided Employee continues to be employed hereunder, on
the fourth (4th) Thursday of each February commencing in 1998, Employee shall be
granted options to purchase 25,000 shares of Company common stock (with such
maximum number of shares to be equitably adjusted for stock splits, stock
dividends, recapitalizations and the like) for the preceding calendar year.
Provided Employee shall continue to be employed hereunder, any stock options
granted to Employee pursuant to this paragraph (d) shall vest and be exercisable
immediately on the date of grant and such options shall have an exercise price
based upon the closing sale price of Company common stock as reported on the
NASDAQ National Market System on the respective date of grant.
(e) Participation in Retirement and Profit Sharing Plans. Employee
shall continue to be eligible to participate in any retirement and/or profit
sharing plans applicable to the Company's managerial employees, as modified by
the Company from time to time.
(f) Out-of-Pocket Expenses. The Company shall promptly pay the
ordinary, necessary and reasonable expenses incurred by Employee in the
performance of Employee's duties hereunder (or if such expenses are paid
directly by Employee shall promptly reimburse him for such payment), consistent
with the reimbursement policies adopted by the Board from time-to-time.
Provided, however, such payment or reimbursement shall be subject to prior
written approval by the President.
(g) Withholding of Taxes; Income Tax Treatment. If, upon the payment
of any compensation or benefit to the Employee under this Employment Agreement
(including, without limitation, in connection with the exercise of any option),
the Company determines in its discretion that it is required to withhold or
provide for the payment in any manner of taxes, including but not limited to,
federal income or social security taxes, state income taxes or local income
taxes, the Employee agrees that the Company may satisfy such requirement by:
(i) withholding an amount necessary to satisfy such
withholding requirement from the Employee's compensation or benefit; or
(ii) conditioning the payment or transfer of such compensation
or benefit upon the Employee's payment to the Company of an amount
sufficient to satisfy such withholding requirement.
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<PAGE> 4
The Employee agrees that he will treat all of the amounts payable pursuant to
this Employment Agreement as compensation for income tax purposes.
4. Termination. The Employee's employment hereunder may be terminated
under this Employment Agreement as follows, subject to the Employee's rights
pursuant to Section 5 hereof:
(a) Death. The Employee's employment hereunder shall terminate upon
his death.
(b) Disability. If, as a result of the Employee's incapacity due to
physical or mental illness, the Employee shall have been absent from his duties
hereunder on a full-time basis for 180 consecutive calendar days, and within
thirty (30) days after written Notice of Termination is given (which may occur
no earlier than thirty (30) days before, but at any time after, the end of such
180- day period), the Employee shall not have returned to the performance of his
duties hereunder on a full-time basis, the Company may terminate the Employee's
employment hereunder.
(c) Cause. The Company may terminate the Employee's employment
hereunder for Cause. For purposes of this Employment Agreement, the Company
shall have "Cause" to terminate the Employee's employment because of the
Employee's personal dishonesty, intentional misconduct, breach of fiduciary duty
involving personal profit, failure to perform his duties hereunder, conviction
of, or plea of nolo contendere to, any law, rule or regulation (other than
traffic violations or similar offenses) or breach of any provision of this
Employment Agreement.
(d) Without Cause. By appropriate action of the Board, the Company
shall have the right to terminate the Employee's employment under this
Employment Agreement at any time without Cause (as defined in Subsection 4(c)).
(e) Voluntary Termination. By not less than thirty (30) days prior
written notice to the President, Employee may voluntarily terminate his
employment hereunder.
(f) Notice of Termination. Any termination during the term of this
Employment Agreement of the Employee's employment hereunder (other than
termination pursuant to Section 4(a) above) shall be communicated by written
Notice of Termination to the Employee hereto (except in the case of termination
as described in Section 4(e) above written Notice of Termination shall be
delivered by the Employee). For purposes of this Employment Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Employment Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision so
indicated.
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<PAGE> 5
(g) Date of Termination. The "Date of Termination" shall, for
purposes of this Employment Agreement, mean: (i) if the Employee's employment is
terminated by his death, the date of his death; (ii) if the Employee's
employment is terminated on account of disability pursuant to Section 4(b)
above, thirty (30) days after Notice of Termination is given (provided that the
Employee shall not, during such 30-day period, have returned to the performance
of his duties on a full-time basis), (iii) if the Employee's employment is
terminated by the Company for Cause pursuant to Section 4(c) above, the date
specified in the Notice of Termination, (iv) if the Employee's employment is
terminated by the Employer without Cause, pursuant to Section 4(d) above, thirty
(30) days after Notice of Termination is given, (v) if the Employee's employment
is terminated voluntarily pursuant to Section 4(e) above, the date specified in
the Notice of Termination, and (vi) if the Employee's employment is terminated
by reason of an election by either party not to extend the Term, the last day of
the then effective Term.
5. Compensation upon Termination or During Disability.
(a) Death. If the Employee's employment shall be terminated by
reason of his death, the Employee shall continue to receive his full Base Salary
until the date of his death and a Cash Bonus, prorated based upon the number of
full months that have elapsed from the immediately preceding January 1 until the
date of his death (plus any earned but unpaid Cash Bonus for a prior period).
(b) Disability. During any period that the Employee fails to perform
his duties hereunder as a result of incapacity due to physical or mental
illness, the Employee shall continue to receive his full Base Salary until the
Date of Termination and shall be entitled to receive a Cash Bonus, prorated
based upon the number of full months that have elapsed from the immediately
preceding January 1 until the Date of Termination (plus any earned but unpaid
Cash Bonus for a prior period). Upon termination due to death prior to a
termination as specified in the preceding sentence, Section 5(a) above shall
apply.
(c) Cause. If the Employee's employment shall be terminated for
Cause, the Company shall, through the Date of Termination, continue to pay the
Employee his full Base Salary but the Employee shall not be entitled to receive
a Cash Bonus (other than any earned but unpaid Cash Bonus for a prior period),
and shall not be eligible for any severance payment of any nature.
(d) Without Cause. If the Employee's employment shall be terminated
without Cause, and such Notice of Termination shall have been given after a
Change of Control (as defined below) shall be applicable to the Company, the
Employee shall continue to receive his full Base Salary until the Date of
Termination and for one (1) year after the Date of Termination. In all other
cases in which the Employee's employment shall be terminated without Cause, the
Employee shall continue to receive his full Base Salary until the Date of
Termination and for six (6) months after the Date of Termination. In all cases
in which Employee's employment shall be terminated without Cause, the Employee
shall also be entitled
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<PAGE> 6
to receive a Cash Bonus, prorated based upon the number of full months that have
elapsed from the immediately preceding January 1 until the Date of Termination
(plus any earned but unpaid Cash Bonus for a prior period). A "Change of
Control" shall be applicable to the Company --
(i) if any person shall acquire more than fifty percent (50%)
of the common capital stock of the Company through a tender offer,
exchange offer or otherwise;
(ii) if the Company shall be a party to a binding agreement to
any merger, consolidation or reorganization in which any person who on the
date hereof does not own more than ten percent (10%) of the issued and
outstanding common capital stock of the Company acquires, beneficially or
of record, more than fifty percent (50%) of such stock; or
(iii) there shall be a sale of all or substantially all of the
assets of the Company.
(e) Expiration of Term. If the Employee's employment shall be
terminated by reason of expiration of the Term (irrespective of which party
elected not to extend the Term), the Company shall, through the Date of
Termination, continue to pay the Employee his full Base Salary and the Company
shall pay the Employee his Cash Bonus for the last calendar year of the Term.
(f) Voluntary Termination. If the Employee's employment shall be
terminated pursuant to Section 4(e) hereof, the Company shall, through the Date
of Termination, continue to pay the Employee his full Base Salary but the
Employee shall not be entitled to receive a Cash Bonus (other than any earned
but unpaid Cash Bonus for a period), and shall not be entitled to any severance
payment of any nature.
(g) No Further Obligations after Payment. After all payments, if
any, have been made to the Employee pursuant to any of paragraphs (a) through
(f) of this Section 5, the Company shall have no further obligations to the
Employee under this Employment Agreement other than the provision of any
employee benefits required to be continued under applicable law.
6. Duties Upon Termination. Upon the termination of Employee's employment
hereunder for any reason whatsoever (including but not limited to the failure of
the parties hereto to agree to the extension of this Employment Agreement
pursuant to Section 2 hereof), Employee shall promptly return to the Company any
Confidential Information (as defined in Section 7(c)(ii) hereof) and whether or
not constituting Confidential Information, any technical data, performance
information and reports, sales or marketing plans, documents or other records,
rolodexes, and any manuals, drawings, tape recordings, computer programs, discs,
and any other physical representations of any other information relating to the
Company, its subsidiaries or affiliates or to the Business (as defined in
Section 7(c)(iii) hereof) of the Company. Employee hereby acknowledges that any
and all of such documents, items, physical
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<PAGE> 7
representations and information area and shall remain at all times the exclusive
property of the Company.
7. Restrictive Covenants.
(a) Acknowledgments. Employee acknowledges that (i) his services
hereunder are of a special, unique and extraordinary character and that his
position with the Company places him in a position of confidence and trust with
the operations of the Company, its subsidiaries and affiliates (collectively,
the "Res-Care Companies") and allows him access to Confidential Information,
(ii) the Company has provided Employee with a unique opportunity as its
Executive Vice President of Operations for the Division for Persons with
Disabilities, (iii) the nature and periods of the restrictions imposed by the
covenants contained in this Section 7 are fair, reasonable and necessary to
protect and preserve for the Company the benefits of Employee's employment
hereunder, (iv) the Res-Care Companies would sustain great and irreparable loss
and damage if Employee were to breach any of such covenants, (v) the Res-Care
Companies conduct and are aggressively pursuing the conduct of their business
actively in and throughout the entire Territory (as defined in paragraph (d)(i)
of this Section 7), and (vi) the Territory is reasonably sized because the
current Business of the Res-Care Companies is conducted throughout such
geographical area, the Res-Care Companies are aggressively pursuing expansion
and new operations throughout such geographic area and the Res-Care Companies
require the entire Territory for profitable operations.
(b) Confidentiality Covenant. Having acknowledged the foregoing,
Employee covenants that without limitation as to time, he will not directly or
indirectly disclose or use or otherwise exploit for his own benefit, or the
benefit of any other person, except as may be necessary in the performance of
his duties hereunder, any Confidential Information.
(c) Covenants. Having acknowledged the statements in Section 7(a)
hereof, Employee covenants and agrees with the Res-Care Companies that he will
not, directly or indirectly, from the date hereof until the Date of Termination
of Employee's employment hereunder, and for a period of one (1) year thereafter,
directly or indirectly (i) solicit, divert or appropriate to himself or any
other person, any business or services (similar in nature to the Business) of
any person who was an employee or an agent of any of the Res-Care Companies at
any time during the last twelve (12) months of Employee's employment hereunder;
or (ii) own, manage, operate, join, control, assist, participate in or be
connected with, directly or indirectly, as an officer, director, shareholder,
partner, proprietor, employee, agent, consultant, independent contractor or
otherwise, any person which is, at the time, directly or indirectly, in
competition within the Territory with the Business of the Res-Care Companies.
(d) Definitions. For purposes of this Employment Agreement:
(i) For purposes of this Section 7, "termination of Employee's
employment" shall include any termination pursuant to paragraphs (b), (c),
(d) and (e) of Section 5 hereof, the termination of such Employee's
employment by reason of the failure of the
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<PAGE> 8
parties hereto to agree to the extension of this Agreement pursuant to
Section 2 hereof or the voluntary termination of Employee's employment
hereunder.
(ii) The "Territory" shall mean the forty-eight (48)
contiguous states of the United States, the United States Virgin Islands
and Puerto Rico.
(iii) "Confidential Information" shall mean any business
information relating to the Res-Care Companies or to the Business (whether
or not constituting a trade secret), which has been or is treated by any
of the Res-Care Companies as proprietary and confidential and which is not
generally known or ascertainable through proper means. Without limiting
the generality of the foregoing, so long as such information is not
generally known or ascertainable by proper means and is treated by the
Res-Care Companies as proprietary and confidential, Confidential
Information shall include the following information regarding any of the
Res-Care Companies:
(1) any patent, patent application, copyright,
trademark, trade name, service mark, service name,
"know-how" or trade secrets;
(2) customer lists and information relating to (i) any
client of any of the Res-Care Companies or (ii)
any client of the operations of any other person
or entity for which operations any of the Res-Care
Companies provides management services;
(3) supplier lists, pricing policies, consulting
contracts and competitive bid information;
(4) records, operational methods and Company policies
and procedures, including manuals and forms;
(5) marketing data, plans and strategies;
(6) business acquisition, development, expansion or
capital investment plan or activities;
(7) software and any other confidential technical
programs;
(8) personnel information, employee payroll and
benefits data;
(9) accounts receivable and accounts payable;
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<PAGE> 9
(10) other financial information, including financial
statements, budgets, projections, earnings and any
unpublished financial information; and
(11) correspondence and communications with outside
parties.
(iv) The "Business" of the Res-Care Companies shall mean the
business of providing juvenile treatment or services, services to persons
with mental retardation and other developmental disabilities, including
but not limited to persons who have been dually diagnosed, services to
persons with acquired brain injuries, training services, or providing
management and/or consulting services to third parties relating to the
foregoing.
(v) The term "person" shall mean an individual, a partnership,
an association, a corporation, a trust, an unincorporated organization, or
any other business entity or enterprise.
(e) Injunctive Relief, Invalidity of any Provision. Employee
acknowledges that his breach of any covenant contained in this Section 7 will
result in irreparable injury to the Res-Care Companies and that the remedy at
law of such parties for such a breach will be inadequate. Accordingly, Employee
agrees and consents that each of the Res-Care Companies in addition to all other
remedies available to them at law and in equity, shall be entitled to seek both
preliminary and permanent injunctions to prevent and/or halt a breach or
threatened breach by Employee of any covenant contained in this Section 7. If
any provision of this Section 7 is invalid in part or in whole, it shall be
deemed to have been amended, whether as to time, area covered, or otherwise, as
and to the extent required for its validity under applicable law and, as so
amended, shall be enforceable. The parties further agree to execute all
documents necessary to evidence such amendment.
8. Entire Agreement; Modification; Waiver. This Employment Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter contained in it and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties. No supplement, modification,
or amendment of this Employment Agreement shall be binding unless executed in
writing by all parties hereto (other than as provided in the next to last
sentence of Section 7(e) hereof). No waiver of any of the provisions of this
Employment Agreement will be deemed, or will constitute, a waiver of any other
provision, whether or not similar, nor will any waiver constitute a continuing
waiver. No waiver will be binding unless executed in writing by the party making
the waiver.
9. Successors and Assigns; Assignment. This Employment Agreement shall be
binding on, and inure to the benefit of, the parties hereto and their respective
heirs, executors, legal representatives, successors and assigns; provided,
however, that this Employment Agreement is intended to be personal to the
Employee and the rights and obligations of the Employee hereunder may not be
assigned or transferred by him.
-9-
<PAGE> 10
10. Notices. All notices, requests, demands and other communications
required or permitted to be given or made under this Employment Agreement, or
any other agreement executed in connection therewith, shall be in writing and
shall be deemed to have been given on the date of delivery personally or upon
deposit in the United States mail postage prepaid by registered or certified
mail, return receipt requested, to the appropriate party or parties at the
following addresses (or at such other address as shall hereafter be designated
by any party to the other parties by notice given in accordance with this
Section ):
To the Company:
Res-Care, Inc.
10140 Linn Station Road
Louisville, Kentucky 40223
Attn: Ronald G. Geary,
President and Chief Executive Officer
To the Employee:
Jeffrey M. Cross
5109 Shadow Wood Lane
Prospect, Kentucky 40059
11. Execution in Counterparts. This Employment Agreement may be executed
in multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document.
12. Further Assurances. The parties each hereby agree to execute and
deliver all of the agreements, documents and instruments required to be executed
and delivered by them in this Employment Agreement and to execute and deliver
such additional instruments and documents and to take such additional actions as
may reasonably be required from time to time in order to effectuate
the transactions contemplated by this Employment Agreement.
13. Severability of Provisions. The invalidity or unenforceability of any
particular provision of this Employment Agreement shall not affect the other
provisions hereof and this Employment Agreement shall be construed in all
respects as if such invalid or unenforceable provisions were omitted.
14. Governing Law. This Employment Agreement is executed and delivered in,
and shall be governed by, enforced and interpreted in accordance with the laws
of, the Commonwealth of Kentucky.
15. Tense; Captions. In construing this Employment Agreement, whenever
appropriate, the singular tense shall also be deemed to mean the plural, and
vice versa, and the captions contained in this Employment Agreement shall be
ignored.
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<PAGE> 11
16. Survival. The provisions of Sections 5, 6 and 7 hereof shall survive
the termination, for any reason, of this Employment Agreement, in accordance
with their terms.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on the day and year set forth above.
RES-CARE, INC.
By: _____________________________________________
Ronald G. Geary
President and Chief Executive Officer
_________________________________________________
Jeffrey M. Cross
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<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARY STATE OF INCORPORATION
- ---------- ----------------------
Community Alternatives Indiana, Inc. Delaware
Community Alternatives Nebraska, Inc. Delaware
Community Advantage, Inc. Delaware
Texas Home Management, Inc. Delaware
Capital TX Investments, Inc. Delaware
THM Homes, Inc. Delaware
RSCR Texas, Inc. Delaware
Res-Care New Mexico, Inc. Delaware
Res-Care Ohio, Inc. Delaware
Community Alternatives of Texas, Inc. Delaware
CATX Properties, Inc. Delaware
Res-Care California, Inc. d/b/a RCCA Services Delaware
RSCR California, Inc. Delaware
Res-Care Kansas, Inc. Delaware
Res-Care Illinois, Inc. Delaware
Res-Care Florida, Inc. Delaware
Res-Care Oklahoma, Inc. Delaware
Youthtrack, Inc. Delaware
Res-Care Tennessee, Inc. Delaware
Res-Care Training Technologies, Inc. Delaware
RSCR West Virginia, Inc. Delaware
Community Alternatives Virginia, Inc. Delaware
Community Alternatives Kentucky, Inc. Delaware
Alternative Youth Services, Inc. Delaware
Res-Care Aviation, Inc. Kentucky
Res-Care Premier, Inc. Delaware
RSCR Premier, Inc. Delaware
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Res-Care, Inc.:
We consent to incorporation by reference in the registration statements
(No. 33-61878), (No. 33-76612), (No. 33-85964) and (No. 33-80331) on Form S-8 of
Res-Care, Inc. of our report dated February 26, 1996, relating to the
consolidated balance sheets of Res-Care, Inc. and subsidiaries as of December
31, 1995 and 1996, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996, and the related schedule, which report appears
in the December 31, 1996 annual report on Form 10-K of Res-Care, Inc.
KPMG PEAT MARWICK LLP
Louisville, Kentucky
March 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RES-CARE, INC. FOR THE YEAR ENDED DECEMBER 31, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,638
<SECURITIES> 0
<RECEIVABLES> 34,879
<ALLOWANCES> 1,945
<INVENTORY> 656
<CURRENT-ASSETS> 45,637
<PP&E> 49,046
<DEPRECIATION> 7,178
<TOTAL-ASSETS> 112,095
<CURRENT-LIABILITIES> 23,117
<BONDS> 0
0
0
<COMMON> 15,535
<OTHER-SE> 40,976
<TOTAL-LIABILITY-AND-EQUITY> 112,095
<SALES> 0
<TOTAL-REVENUES> 218,346
<CGS> 0
<TOTAL-COSTS> 203,340
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,225
<INCOME-PRETAX> 14,209
<INCOME-TAX> 5,518
<INCOME-CONTINUING> 8,691
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,691
<EPS-PRIMARY> 0
<EPS-DILUTED> .87
</TABLE>
