SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-9848
CARETENDERS HEALTH CORP.
(Exact name of registrant as specified in its charter)
Delaware 06-1153720
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 Mallard Creek Road, Suite 400, Louisville, Kentucky 40207
(Address of principal executive offices) (Zip Code)
(502) 899-5355
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- -----------------------------------------
Common Stock NASDAQ National Market
par value $.10 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ______
As of June 22, 1998, 3,130,413 shares of the Registrant's Common Stock were
outstanding. The aggregate market value of Registrant's Common Stock held by
non-affiliates of the Registrant as of June 22, 1998 was approximately
$18,782,478 (based on the last sale price of a share of the common stock as of
June 22, 1998 ($6.00), as reported by the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") National Market system).
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive proxy statement, to be filed with the Commission
no later than 120 days after March 31, 1998, is incorporated by reference in
Part III of this report.
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
<PAGE>
PART I
ITEM 1. BUSINESS
General Development of Business
- -------------------------------
Incorporated in Delaware in November, 1985, Caretenders(r) Health Corp. and
subsidiaries (collectively "Caretenders" or the "Company") is one of the first
companies to provide integrated adult day health services and home health care
services for seniors and others with chronic and post-acute medical conditions
who wish to remain in their homes and communities. Today more than seven
million senior Americans are in need of alternatives to long-term nursing home
confinement and this number is expanding rapidly. These individuals desire to
remain in their homes and out of nursing homes and conserve their financial
resources as long as possible. The Company provides seniors in need with a
lower-cost alternative to institutional care helping them gain economic
security, access to health care, mobility and independence without isolation.
With its experience in home health care and leadership in adult day health
center operations, the Company is implementing an expansion program offering
integrated home and community based health care marketed under the name
Caretenders' SeniorCare Solutions(tm).
The Company is positioning itself to take advantage of changes and reform
activities in the healthcare industry by focusing its resources on its home
and community based health care business units which consist of adult day
health services and home health care (home health care includes nursing,
infusion therapy and durable medical equipment). These businesses are
involved with the delivery of health care in alternative settings which the
Company believes are preferred by consumers and operate at lower costs than
hospitals and nursing homes. The trend toward alternative site delivery of
healthcare is increasing, as more payor organizations are seeking to reduce
the costs of medical care. Certain changes in Medicare reimbursement for home
nursing services became effective for the Company on April 1, 1998.
Management believes these changes will have a significant effect on the
Company's revenues and financial performance. See Government Regulations for
more information.
Utilizing its strengths in home health care and adult day health services, the
Company is actively addressing the issue of senior care in America by its
comprehensive strategy - Caretenders SeniorCare Solutions. Through care
management by a Registered Nurse (RN), Caretenders helps families identify
solutions for caring for loved ones who can no longer meet their own health
and personal care needs. Through the Company's Care Manager, families can
learn about long-term care options available for seniors and obtain assistance
in choosing from Caretenders' SeniorCare Day Centers(tm) and home health care
centers or, if appropriate, other available community based resources.
Home Health Care Services
- -------------------------
The Company's comprehensive strategy allows it to provide a full range of home
health care services to a patient, enabling physicians, payors and patients to
deal with a single provider. All Caretenders services are rendered through
care management by a registered nurse, who coordinates nursing, home infusion
and equipment services.
Caretenders nursing provides a comprehensive range of both professional and
para-professional services from highly-skilled infusion therapy nursing to
custodial companion care. Professional staff including registered nurses,
licensed practical nurses, physical, speech and occupational therapists, and
medical social workers implement and monitor medical treatment plans
prescribed by physicians. Professional staff are subject to state licensing
requirements in the particular states in which they practice.
Para-professional staff includes home health aides, homemakers and companions
who assist patients with health related tasks and the activities of daily
living.
<PAGE>
Home infusion therapy involves the intravenous or other administration of
physician-prescribed nutrients, antibiotics, chemotherapeutic agents and other
medications to patients in their homes. Such therapy generally continues a
plan of treatment initiated in the hospital, or as a substitute for
hospitalization. Home infusion costs are generally between 30% and 70% less
than the same therapy administered in an institutional setting. There are
five major categories of infusion therapy: total parenteral nutrition, enteral
nutrition, antibiotic therapy, chemotherapy and pain management therapy.
Caretenders sells and rents medical equipment for use in the home. While the
Company provides a complete range of equipment, the businesses generally can
be divided into two predominant categories: respiratory/oxygen services and
rehabilitation products.
Caretenders is compensated for its services through (i) private pay (paid by
personal funds), (ii) Medicare, (iii) Medicaid, and (iv) other third party
payors (e.g. insurance companies). See "Item 1. Business -- Payment Sources".
Caretenders employs compensation specialists who advise patients as to the
availability of sources of payment for its services.
Adult Day Health Services
- -------------------------
Adult day health services is an alternative method of providing care for
seniors and other adults who without such care would likely be
institutionalized. The field has grown rapidly, from just 15 centers in the
United States in the early 1970s to over 4,000 today. Still in its early
stages, the industry is highly fragmented with the majority operated by the
non-profit sector. To the best of its knowledge and belief, Caretenders is
the largest for-profit provider of adult day care services in the U.S.
The Company's adult day health centers provide professional, high quality
adult day health services for disabled or frail adults who require some care
or supervision, but who do not require intensive medical attention or
institutionalization. The average center provides care for over 60 guests per
day, seven days a week. Round-trip transportation is available to each
participant.
The centers offer a range of therapeutic and medical services designed to
promote the independence of participants and provide respite to families and
caregivers. On-site staff nurses administer medications and give attention to
medical care. Other services include (i) a light breakfast, a hot lunch, and
an afternoon snack; (ii) a highly structured, individualized and creative
activities program which includes recreation, education, field trips, sports,
crafts, music and group conversations; and (iii) family counseling.
Through care management by a Registered Nurse (RN), Caretenders helps families
identify solutions for caring for loved ones who can no longer meet their own
health and personal care needs. Through the Company's Care Manager, families
can learn about their choices for long-term care for seniors and choose from
Caretenders' SeniorCare Day Centers and home health care centers as well as
other available community based resources.
<PAGE>
As of March 31, 1998, the Company's conducts its services in centers in the
following locations:
<TABLE>
<CAPTION>
Home Adult Day Managed
Locations Health Health Agencies Total
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kentucky:
Louisville area 5 2 5 16
Lexington area 8 1 1 10
Elizabethtown area 1 - 7 7
Indiana:
Evansville 3 1 - 4
Ohio:
Cincinnati 2 1 - 3
Columbus 2 1 - 3
Cleveland 3 1 - 4
Massachusetts:
Boston 3 - - 3
Connecticut:
Stamford 1 1 - 2
Middlebury - 1 - 1
Danbury 1 1 - 2
Maryland:
Baltimore - 10 - 10
Virginia:
Richmond 2 - - 2
Alabama:
Birmingham 6 1 - 7
Florida:
Fort Lauderdale 3 - - 3
West Palm Beach 2 1 - 3
Fort Myers 1 - - 1
---- ---- ---- ----
Total 43 22 13 81
==== ==== ==== ====
</TABLE>
Capacity for the Company's adult day health centers was 1,343 guests per day
at the beginning of the year and grew by 12.3% to 1,508 guests per day by the
end of the year.
The Company's strategic plan calls for acquisition of home care providers and
integration of its home health operations with adult day care centers to offer
a fully integrated home and community based health care solution. The
Company's target customers are seniors in need of care seeking to remain
independent and avoid long-term institutional care. Additionally, the Company
will acquire adult day care operations in markets where it also has home
health operations.
See "Government Regulations - Reimbursement Changes" and "Cautionary
Statements - Forward Outlook and Risks", . Management will monitor the
effects of such items and may consider modifications to its expansion and
development strategy when and if necessary.
<PAGE>
The following table details the change in the Company's centers during 1998:
<TABLE>
<CAPTION>
Adult Day Managed
Home Health Health Agencies Total
----------------------------------------
<S> <C> <C> <C> <C>
Centers as of 3/31/97 37 18 18 73
Change:
Acquired 4 1 - 5
Opened 2 3 1 5
Closed - - (6) (2)
Sold - - - -
----------------------------------------
Subtotal change 6 4 (5) (2)
----------------------------------------
Centers as of 3/31/98 43 22 13 81
========================================
</TABLE>
Acquisitions
- ------------
The Company continually considers and reviews possible acquisitions of
businesses that provide health care services similar to those currently
offered by Caretenders. Factors which may affect future acquisition decisions
include the quality and potential profitability of the company under
consideration, and the Company's profitability and ability to finance the
transaction.
During 1997, the Company completed three transactions to acquire two
intermittent home nursing services operations and an adult day health services
operation. These operations added to the Company's market presence in both
Ohio and Florida. No pro forma financial information has been provided as the
acquisitions, individually and in the aggregate, are not significant compared
to the Company's existing operations.
During 1998, the Company completed four transactions to acquire two
intermittent home nursing services operations, a personal care services
operation and an adult day health services operation. These operations added
to the Company's market presence in Florida, Connecticut and Ohio. No pro
forma financial information has been provided as the acquisitions,
individually and in the aggregate, are not significant compared to the
Company's existing operations.
Subsequent to March 31, 1998, the Company announced a non-binding letter of
intent to acquire certain home care operations of Vencor, Inc., a
Louisville, KY-based healthcare provider. Vencor home care operations based
in Indiana and Ohio are covered by the letter. This transaction will not be
significant compared to the Company's existing operations. As of the date of
this filing, no definitive purchase agreement has been executed by the
Company. There can be no assurance that this transaction will be completed.
<PAGE>
Competition, Marketing and Customers
- ------------------------------------
Home Health Care
- ----------------
The home health care industry is highly competitive but fragmented, with
competition largely focused on individual products or services. The Company's
competitors can be classified into three categories: nursing services,
infusion therapy, and medical equipment.
The Company believes competition is based primarily on the quality of service
provided, and such quality is measured by responsiveness and the technical
ability of the professional staff. The scope of services offered,
relationships with referral sources and price are also competitive
considerations. Caretenders competes with larger home health care providers
through its comprehensive strategy, which facilitates focused accountability,
quality, reduced administrative burdens and convenience for patients and
physicians. Another competitive factor in the home health care industry is
accreditation by JCAHO (Joint Commission on Accreditation of Healthcare
Organizations), a not-for-profit accreditation organization. All Caretenders
offices are accredited by JCAHO.
In addition to the larger national companies, Caretenders also competes with
numerous local and regional companies and pharmacies. Many of the Company's
competitors have greater resources than the Company.
The Company's home health services are marketed by a direct sales force
primarily to hospital discharge planners, physicians and insurance and managed
care organizations. Referrals may also be sought through advertisements in
several local specialty publications, attendance at major trade shows and
voluntary participation in JCAHO. The Company also utilizes consumer-direct
sales, marketing and advertising programs designed to increase its private pay
business.
Adult Day Health Services
- -------------------------
Like the home health care industry, the adult day health services industry is
also highly competitive but fragmented. Competitors include: other adult day
health centers, ancillary programs provided by nursing homes and hospitals;
other government-financed facilities, assisted living and retirement
communities, and senior adult associations.
The Company believes the primary competitive factors are quality of service
and reputation among referral sources. However, competitors are increasingly
focusing attention on providing alternative site health care services.
Caretenders competes by offering a high quality of care and by helping
families identify and access solutions for care via Caretenders' SeniorCare
Solutions. Adult day care competitive advantages include transportation and
superior facilities and guest activity programs.
The Company markets its adult day health services through its adult day health
center directors and the marketing staff. The directors contact referral
sources in their areas to market the Company's services. Major referral
sources include: Offices on Aging, social workers, hospital discharge planners
and group living facilities.
<PAGE>
Government Regulations
- ----------------------
Overview
- --------
The health care industry, particularly home health, has experienced, and is
expected to continue to experience, extensive and dynamic change. In addition
to economic forces and regulatory influences, continuing political debate is
subjecting the health care industry to significant reform. Health care reforms
have been enacted as discussed elsewhere in this document and proposals for
additional changes are continuously formulated by departments of the federal
government, Congress, and state legislatures. Certain adverse changes in
Medicare reimbursement for Medicare-certified home health services became
effective for the Company on April 1, 1998. See "Reimbursement Changes"
below.
Government officials can be expected to continue to review and assess
alternative health care delivery systems and payment methodologies. Changes in
the law or new interpretations of existing laws may have a dramatic effect on
the definition of permissible or impermissible activities, the relative cost
of doing business, and the methods and amounts of payments for medical care by
both governmental and other payors. Legislative changes to "balance the
budget" and slow the annual rate of growth of Medicare and Medicaid are
expected to continue. Such future changes may further impact reimbursement for
home health care. There can be no assurance that future legislation or
regulatory changes will not have a material adverse effect on the operations
of the Company.
Refer to the sections on Reimbursement Changes and Cautionary Statements -
Forward Outlook and Risks below, the notes to the accompanying financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations for additional information.
Reimbursement Changes
- ---------------------
In August of 1997, President Clinton signed into law the Balanced Budget Act
of 1997 (the BBA). This bill made significant changes in the reimbursement
system for Medicare certified home health services. The primary changes that
affect the Company include a reduction in the reimbursement for oxygen therapy
services and a restructuring of the reimbursement system related to Medicare
certified home care agencies.
Oxygen Reimbursement
The reimbursement of certain oxygen therapy services and products was cut 25%
for services provided on or after January 1, 1998. An additional cut of 5%
will take affect on January 1, 1999. Future increases to the reimbursement
rate have been tied to the Consumer Price Index and will not resume until
2003. Management expects the impact on the Company to be a decrease of
approximately $600,000 in revenues annually (approximately $150,000 in the
fourth quarter of fiscal 1998).
Bonding Requirements for Medicare Providers
The BBA now requires Medicare providers to purchase surety bonds in amounts
generally equal to 15% of Medicare reimbursement for periods up to 10 years.
The bonds must be in effect by July 7, 1998, retroactive to February 27, 1998.
The Company has made arrangements to meet such bonding, the cost of the which
is not expected to be material to the Company's results of operations or
financial position. Under the current rules, agencies that are not able to
secure the required surety bonds will be excluded from participation in the
Medicare program. In June 1998 the offices of two U.S. Senators announced
HCFA's agreement to defer implementation to no later than February 1999.
<PAGE>
Interim Payment System for Medicare Certified Home Health Nursing Services
The BBA also includes a new Interim Payment System (IPS) for
Medicare-certified home health services. IPS remains a cost-based
reimbursement system. However, per visit cost limits have been reduced and a
new "Per Beneficiary Limit" (PBL) has been added. IPS is effective for all
home care agencies for cost reporting years beginning on or after October 1,
1997. For the Company's agencies the new system went into effect on April 1,
1998. The BBA states that IPS will remain in effect until a new prospective
payment system (PPS) is implemented for cost reporting years beginning on or
after October 1, 1999.
The Interim Payment System, as well as other requirements imposed upon home
health providers in the BBA were designed to contain the growth in home health
care resulting in slower growth in Medicare home health expenditures. As a
result of these changes, home health providers will be forced to reduce their
costs of providing services and it is expected that utilization of home care
services per beneficiary will decline. Under certain conditions, Medicare
beneficiaries who had previously been entitled to services will no longer
qualify under Medicare reimbursement guidelines. Approximately 42% of the
Company's total revenues are subject to the Interim Payment System guidelines.
The PBL places an aggregate cap on reimbursable costs based on the number of
Medicare patients (beneficiaries) served during a fiscal year multiplied by an
established rate. This rate is calculated using a complicated cost-based
formula which blends historical data from the provider with others in the
region (or in some cases uses national data). This has the effect of placing
an additional limit on reimbursement. This serves to create a ceiling on the
amount of care that can be provided to the average beneficiary and constrains
the utilization of visits per patient.
In passing these new rules Congress expressed the intent of reducing Medicare
home care expenditures by approximately $16.2 billion over 5 years. However,
calculations made by the Congressional Budget Office (CBO) indicate that the
actual spending reductions that will result from IPS as implemented will be
more than $48 billion or three times the intent of Congress. The Health Care
Financing Administration (HCFA) anticipates that 93% of Medicare agencies will
be reimbursed less than their cost. According to the National Association for
Home Care (NAHC) agencies nationwide are experiencing an average 31% reduction
in reimbursement per patient. Although Congress passed the BBA in August 1997
and it went into effect for many providers on October 1, 1997, HCFA did not
publish all the rules and regulations for implementation until March 31, 1998.
Due to complexities in the rules, particularly differences in the effective
date and the Per Beneficiary Limit for different providers, the ultimate
amount of contraction in the home care industry and the effective reduction in
the Medicare home care benefit cannot yet be predicted. However, the Company
believes that the reduction in the Medicare home health program is likely to
equal or exceed the NAHC estimate.
In late calendar 1997 and early 1998, the Company began implementing action
plans to operate under IPS. However, the final rules published by HCFA on
March 31, 1998 were more prohibitive than the Company or the industry
expected. Accordingly, in April 1998, the Company revised its program to
reduce costs further and control utilization for operation in the IPS
environment. Consistent with industry estimates discussed above, the Company
has, since April 1, 1998, experienced a decline in volumes, revenues and
contribution from this portion of its operations compared with the same period
last year. Additionally, the Balanced Budget Act reduced Medicare
reimbursement for certain oxygen therapy services by 25% effective January
1, 1998.
As a result of the combined impact of these reimbursement items, the Company
expects a decline in revenues and earnings from recurring operations for its
fiscal year ending March 31, 1999 and anticipates reporting a consolidated net
operating loss for its first quarter, ending June 30, 1998. The Company is
continuing its assessment of the implications of the current reimbursement
environment and will, as necessary, make additional cost reductions and other
adjustments to its operational and development plans in the future intended to
return the Company to profitability. These actions may result in one-time
charges for severance, branch office closings, impairment of long-lived assets
<PAGE>
and other restructuring activities and may significantly reduce the Company's
ability to access capital and pursue development activities. As of March 31,
no such restructuring activities or impairment existed and, accordingly, no
provision for any liabilities or impairment charges that may result from such
actions has been made in the accompanying financial statements.
In addition to IPS, the Balance Budget Act mandated establishment of a
prospective payment system ("PPS") for home health services by October 1, 1999
(April 1, 2000 for the Company). However, rules and regulations have not yet
been developed by HCFA and there can be no assurance that such deadline will
be met. In the event that home care PPS is not implemented by that date, the
BBA as legislated requires cost limits then in existence to be lowered by an
additional 15%. Such lower cost limits, likely would have a material effect
on the operating results and cash flows of the Company. The Company is unable
to predict how PPS will ultimately be designed and implemented and thus is
also unable to predict its impact on the Company. However, by its prospective
nature, PPS should allow providers the opportunity to earn a profit on
services which they are not able to do under IPS which is cost-based.
State legislative proposals continue to be introduced that could impose more
limitations on payments to providers of health care services such as the
Company. Many states have enacted, or are considering enacting, measures that
are designed to reduce their Medicaid expenditures.
The Company cannot predict what additional government regulations, if any,
affecting its business may be enacted in the future, how existing or future
laws and regulations might be interpreted, or whether the Company will be able
to comply with such laws and regulations in its existing or future markets.
Permits and Licensure
- ---------------------
Many states require companies providing certain home health care services to
be licensed as home health agencies. The Company currently is licensed as a
home health agency where required by the law of the states in which it
operates. In addition, certain of the Company's pharmacy operations require
state licensure and are also subject to federal and other state laws and
regulations governing pharmacies and the packaging and repackaging and
dispensing of drugs (including oxygen). Federal laws may require registration
with the Drug Enforcement Administration of the United States Department of
Justice and the satisfaction of certain requirements concerning security,
record keeping, inventory controls, prescription order forms and labeling. In
addition, certain health care practitioners employed by the Company require
state licensure and/or registration and must comply with laws and regulations
governing standards of practice. The failure to obtain, renew or maintain any
of the required regulatory approvals or licenses could adversely affect the
Company's business. There can be no assurance that either the states or the
federal government will not impose additional regulations upon the Company's
activities which might adversely affect its business, results of operations or
financial condition.
Certificates of Need
- --------------------
Certain states require companies providing home health care services to obtain
a certificate of need issued by a state health planning agency. Some states
require such certificates of need only for Medicare-certified home health
agencies. Where required by law, the Company has obtained certificates of need
from those states in which it operates. There can be no assurance that the
Company will be able to obtain any certificates of need which may be required
in the future if the Company expands the scope of its services or if state
laws change to impose additional certificate of need requirements, and any
attempt to obtain additional certificates of need will cause the Company to
incur certain expenses.
<PAGE>
Other Regulations
- -----------------
A series of laws and regulations dating back to the Omnibus Budget
Reconciliation Act of 1987 ("OBRA 1987") and through the Balanced Budget Act
of 1997 have been enacted and apply to the Company. Periodic changes have
occurred from time to time since the 1987 Act including reimbursement
reduction and changes to payment rules. Changes are also expected to occur
continuously for the foreseeable future.
As a provider of services under the Medicare and Medicaid programs, the
Company is subject to the Medicare and Medicaid anti-kickback statute, also
known as the "fraud and abuse law." This law prohibits any bribe, kickback,
rebate or remuneration of any kind in return for, or as an inducement for, the
referral of Medicare or Medicaid patients. The Company may also be affected by
the federal physician self-referral prohibition, known as the "Stark" law,
which, with certain exceptions, prohibits physicians from referring patients
to entities in which they have a financial interest. Many states in which the
Company operates have adopted similar self-referral laws, as well as laws that
prohibit certain direct or indirect payments or fee-splitting arrangements
between health care providers, if such arrangements are designed to induce or
to encourage the referral of patients to a particular provider.
Health care is an area of extensive and dynamic regulatory change. Changes in
laws or regulations or new interpretations of existing laws or regulations can
have a dramatic effect on permissible activities, the relative costs
associated with doing business, and the amount and availability of
reimbursement by government and third-party payors. Furthermore, the Company
will be required to comply with applicable regulations in each new state in
which it desires to provide services.
Management believes that the Company is in material compliance with applicable
laws. The Company, however, is unable to predict what additional government
regulations, if any, affecting its business may be enacted in the future, how
existing or future laws and regulations might be interpreted or whether the
Company will be able to comply with such laws and regulations either in the
markets in which it presently conducts, or wishes to commence, business. The
Company also is subject to routine and periodic surveys and audits by various
governmental agencies.
Payment Sources
- ---------------
The Company receives payments from Medicare, Medicaid and other cost
reimbursement programs, private pay and insurance policies as detailed below.
As noted above, the Company's dependence on government sponsored reimbursement
programs makes it vulnerable to possible legislative and administrative
regulations and budget cut-backs that could adversely affect the number of
persons eligible for such programs, the amount of allowed reimbursements or
other aspects of the program, any of which could materially affect the
Company. In addition, loss of certification or qualification under
Medicare/Medicaid programs could materially affect the ability of the
Company's adult day health and home health care businesses to effectively
market their services.
The Company's future operating results are dependent in part upon its ability
to attract customers able to pay for the Company's charges from their own and
their families' financial resources. Circumstances which adversely affect the
ability or desire of seniors to pay for the Company's services could have an
adverse effect on the Company.
<PAGE>
The following table sets forth the Company's revenues derived from each major
class of payer during the following fiscal years (by percentage of net
revenues):
<TABLE>
<CAPTION>
1998 1997
Insurance & Insurance &
Business Unit Medicare Medicaid Private Pay Medicare Medicaid Private Pay
<S> <C> <C> <C> <C> <C> <C>
Home Health Services 59.4% 12.3% 28.3% 47.3% 10.6% 42.1%
Adult Day Health Services 0.0% 78.8% 21.2% 0.0% 80.2% 19.8%
Total - All Services 51.3% 21.4% 27.3% 38.7% 23.3% 38.0%
</TABLE>
Changes in payment sources from 1997 to 1998 are primarily a result of the
Company's acquisition and expansion activities which included two businesses
with respect to which a large portion of revenues are derived from Medicare
programs.
In determining charge rates for goods and services provided to customers, the
Company evaluates several factors including cost and market competition. The
Company also negotiates contract rates with third party providers such as
insurance companies. The rates of reimbursement for a significant portion of
the Company's charges are dictated by Federal or State programs such as
Medicare, Medicaid and Workers Compensation.
Insurance
- ---------
The Company and its subsidiaries carry general liability and professional
liability insurance. The Company also carries product liability insurance
associated with those operations requiring such coverage, including the
durable medical equipment operations. The Company's properties are covered by
casualty insurance policies. The Company carries directors and officers
liability with a $10,000,000 limit. The Company believes that its present
insurance coverage is adequate.
Employees and Labor Relations
- -----------------------------
As of March 31, 1998 the Company had approximately 3,400 employees. None of
the Company's employees are represented by a labor organization. Management
believes its relationship with the Company's employees is satisfactory.
<PAGE>
Cautionary Statements - Forward Outlook and Risks
- -------------------------------------------------
Information provided herein by the Company contains, and from time to time the
Company may disseminate material and make statements which may contain
"forward-looking" information, as that term is defined by the Private
Securities Litigation Reform Act of 1995 (the "Act"). These cautionary
statements are being made pursuant to the provisions of the Act and with the
intention of obtaining the benefits of "safe harbor" provisions of the Act.
The Company cautions investors that any forward-looking statements made by the
Company are not guarantees of future performance and that actual results may
differ materially from those in the forward-looking statements as a result of
various factors including but not limited to the following:
(i) Regulation and Reform
Legislative proposals are continually introduced or proposed in Congress and
in some state legislatures that would effect major changes in the health care
system, either nationally or at the state level. However, the Company cannot
predict whether any of the proposals will be adopted, and if adopted, no
assurance can be given that the implementation of such reforms will not have a
material impact on the operations of the Company.
(ii) Interim Payment System
In August of 1997, President Clinton signed into law the Balanced Budget Act
of 1997 (the BBA), This bill made significant changes in the reimbursement
system for Medicare home health services through a new Interim Payment System
(IPS) for Medicare-certified home health services. IPS remains a cost-based
reimbursement system. However, per visit cost limits have been reduced and a
new "Per Beneficiary Limit" (PBL) has been added. IPS is effective for all
home care agencies for cost reporting years beginning on or after October 1,
1997 and went into effect on April 1, 1998, for the Company. The BBA states
that IPS will remain in effect until a new prospective payment system (PPS) is
implemented for cost reporting years beginning on or after October 1, 1999.
The Interim Payment System, as well as other requirements imposed upon home
health providers in the BBA were designed to contain the growth in home health
care resulting in slower growth in Medicare home health expenditures. As a
result of these changes, home health providers will be forced to reduce their
costs of providing services and it is expected that utilization of home care
services per beneficiary will decline. There can be no assurance that payments
under the IPS and/or PPS programs will be sufficient to cover the costs
allocable to Medicare patients. The Company believes that the implementation
of IPS will have a significant effect on the Company's revenues and results of
operations in the near term. Refer to "Government Regulations - Reimbursement
Changes" for a more detailed discussion of this topic.
(iii) Other Reimbursement Changes
The Company derives substantial portions of its revenues from third-party
payors, including government reimbursement programs such as Medicare and
Medicaid, and non-government sources such as commercial insurance companies,
HMOs, PPOs and contract services. These payors have undertaken
cost-containment measures designed to limit payments to health care providers.
There can be no assurance that payments under these programs will be
sufficient to cover the costs allocable to patients eligible for
reimbursement. The Company cannot predict whether and what additional
proposals or cost containment measures will be adopted or, if adopted, what
effect, if any, such proposals might have on the operations of the Company.
(iv) Competition
The Company competes with numerous well established competitors which have
substantially greater financial resources than the Company. Competitors are
increasingly focusing attention on providing alternative site health care
services, specifically on adult day health services. Such increasing
competition may adversely affect revenues and profitability of Company
operations.
<PAGE>
(v) Contract Management Services
The Company provides contract management services to two home health agencies
in the Louisville, KY area operating under the name of Caretenders but owned
by Columbia/HCA. Columbia has announced its plans to divest itself of its
home care operations and the Company has expressed its interest in acquiring
these operations. Due to these changes, the agencies, which previously
operated under the Caretenders trade name have changed their names. The
Company continues to manage these agencies; however a sale of the Columbia
owned operations may result in termination of the management agreements (which
generated approximately $3 million of revenues in fiscal 1998) and the payment
of a termination fee by Columbia to the Company. The Company also owns and
operates a competing agency in the Louisville market. Due to the current
status of events, the Company is unable to predict the ultimate outcome of
this matter. There can be no assurance that the ultimate resolution of this
matter will not have an adverse impact on the Company.
(vi) Insurance
The Company believes its present insurance coverage is adequate. However,
there can be no assurance that such insurance will be available, or, if
available, that such insurance will be either adequate to cover the Company's
liabilities or available at affordable rates. In addition, increasing
insurance costs, and the increasing unwillingness of insurance companies to
insure against certain types of losses, raise some questions as to whether the
Company will be able to obtain or continue its present insurance coverage.
The inability to obtain adequate insurance coverage at affordable rates, or a
loss of existing coverage, could have a material effect on the Company. Refer
to the previous discussion of surety bonds in the section "Government
Regulations - Reimbursement Changes". Although the Company has made
arrangements to meet the bonding requirements imposed by the BBA, there can be
no assurance that the Company will be able to secure such bonds in the future.
Providers which are unable to secure such bonds will be precluded from
participation as a Medicare reimbursed home health provider.
(vii) Private Payment Sources
The Company's future operating results are dependent in part upon its ability
to attract customers able to pay for the Company's charges from their own and
their families' financial resources. Circumstances which adversely affect the
ability or desire of seniors to pay for the Company's services could have an
adverse effect on the Company. In the event that the Company encounters
difficulty in attracting seniors with adequate resources to pay for the
Company's services, the Company would be adversely affected.
(viii) Acquisitions
The Company seeks to establish and increase market share through acquisitions
in existing and new markets. The Company evaluates potential acquisition
candidates that would complement or expand its current services. In attempting
to make acquisitions, the Company competes with other providers, some of which
have greater financial resources than the Company. Management currently
believes that acquisition candidates meeting the criteria of its acquisition
strategy will continue to be identified in fiscal 1999 and certain of these
candidates will be acquired by the Company. However, there can be no
assurance that suitable acquisitions will continue to be identified or that
acquisitions can be consummated on acceptable terms.
(ix) Inclement Weather
The Company provides its services to individuals in home and community
settings. Severe winter weather may hinder the Company's ability to provide
its services and thus impact operating results.
<PAGE>
(x) Financing
The Company's ability to pursue its strategic plan is dependent upon its
ability to obtain financing on satisfactory terms and conditions. If the
Company is unable to obtain satisfactory financing it would have an adverse
impact on the Company's liquidity and its ability to execute its development
plans.
(x) ADC Development
During fiscal 1999, the Company plans to develop up to 6 new adult day health
centers after which the Company plans to continue development efforts at a
similar or accelerated pace. The Company's ability to achieve its development
plans will depend upon a variety of factors, many of which are beyond the
Company's control. There can be no assurance that the Company will not suffer
delays in its development program, which could slow the Company's growth. The
successful development of additional operations will involve a number of risks
including the possibility that the Company may be unable to locate suitable
sites at acceptable prices or may be unable to obtain, or may experience
delays in obtaining, necessary zoning, land use, building, occupancy,
licensing and other required governmental permits and authorizations. The
implementation of the Company's development strategy is also dependent upon
the Company's profitability, the financial performance of its adult day care
operations, the availability of financing and the other Cautionary Statements
listed above.
ITEM 2. PROPERTIES
The Company's executive offices are located in Louisville, Kentucky in
approximately 26,000 square feet of space leased from an unaffiliated party.
The Company has 57 locations that each lease from approximately 250 to 23,000
square feet of space in their respective locations. The Company believes that
its facilities are adequate to meet its current needs, and that additional or
substitute facilities will be available if needed.
ITEM 3. LEGAL PROCEEDINGS
The Company, from time to time, is subject to claims and suits arising in the
ordinary course of its business, including claims for damages for personal
injuries. In the opinion of management, the ultimate resolution of any of
these pending claims and legal proceedings will not have a material effect on
the Company's financial position or results of operations.
On January 26, 1994 Franklin Capital Associates L.P., Aetna Life and Casualty
Company and Aetna Casualty and Surety Company, shareholders, who at one time
held approximately 320,000 shares of the Company's common stock (approximately
13% of shares outstanding) filed suit in Chancery Court of Williamson County,
Tennessee claiming unspecified damages not to exceed three million dollars in
connection with registration rights they received in the Company's acquisition
of National Health Industries in February 1991. The suit alleges the Company
failed to use its best efforts to register the shares held by the plaintiffs
as required by the merger agreement. The Company believes it has meritorious
defenses to the claims and does not expect that the ultimate outcome of the
suit will have a material impact on the Company's results of operations,
liquidity or financial position. The Company plans to vigorously defend its
position in this case. No amounts have been recorded in the accompanying
financial statements related to this suit.
In January 1997, Aetna Life and Casualty Company withdrew its claim against
the Company without prejudice.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the National Market System of the
NASDAQ Stock Market under the symbol "CTND. Set forth below are the high and
low sale prices for the common stock for the periods indicated reported by
NASDAQ:
<TABLE>
<CAPTION>
Closing Common Stock Prices
- ---------------------------
<S> <C> <C>
Quarter Ended: High Low
June 30, 1996 $9.63 $6.50
September 30, 1996 $7.75 $5.25
December 31, 1996 $7.00 $5.37
March 31, 1997 $6.75 $5.37
June 30, 1997 $8.88 $5.50
September 30, 1997 $8.38 $7.13
December 31, 1997 $10.69 $7.00
March 31, 1998 $8.88 $7.00
</TABLE>
On June 22, 1998, the last reported sale price for the Common Stock reported
on the NASDAQ National Market System was $6.00 and there were approximately
727 holders of record of the Company's Common Stock. No cash dividends have
been paid by the Company.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information derived from the
consolidated financial statements of the Company for the periods and at the
dates indicated. This information has been restated to reflect the Company's
1 for 5 reverse stock split as further explained in Note 1 to the consolidated
financial statements of the Company. The information is qualified in its
entirety by and should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this and prior year Form
10-Ks.
<TABLE>
<CAPTION>
Consolidated Selected Financial Information
-------------------------------------------
(Dollar amounts in 000's
except per share data)
Year Ended March 31,
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
-------------------------------------------------
Results of Operations
Net revenues $ 95,183 $ 76,773 $ 63,227 $ 60,836 $ 50,857
Net Income $ 1,412 $ 1,759 $ 1,575 $ 1,248 $ 627
Per share:
Basic:
Number of shares 3,120 3,119 3,119 3,119 3,119
Net Income $ .45 $ .56 $ .50 $ .40 $ .20
Diluted:
Number of shares 3,162 3,142 3,149 3,145 3,175
Net Income $ .45 $ .56 $ .50 $ .40 $ .20
</TABLE>
<TABLE>
<CAPTION>
Balance sheet Data as of: March 31,
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
-------------------------------------------------
Working capital $ 10,908 $ 17,471 $ 13,844 $ 11,641 $ 8,001
Total assets 49,533 38,745 33,217 31,073 30,806
Long term liabilities 11,962 10,689 6,805 7,094 7,367
Total liabilities 27,450 18,081 14,313 13,744 14,731
Stockholders' equity 22,083 20,663 18,904 17,329 16,075
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
- --------
Strategic Focus
The Company is positioning itself to take advantage of healthcare reform
activities by focusing its resources on its home and community based health
care business units which consist of adult day health services and home health
care (home health care includes nursing, infusion therapy and durable medical
equipment). These businesses are involved with the delivery of health care in
alternative settings which the Company believes are preferred by consumers and
operate at lower costs than hospitals and nursing homes. The trend toward
alternative site delivery of healthcare is increasing, as more payor
organizations are seeking to reduce the costs of medical care.
Today more than seven million senior Americans are in need of alternatives to
long-term nursing home confinement and this number is expanding rapidly.
These individuals desire to remain in their homes and out of nursing homes and
conserve their financial resources as long as possible. Caretenders
SeniorCare Solutions provides seniors in need with a lower-cost alternative to
institutional care helping them gain economic security, access to health care,
mobility and independence without isolation.
Utilizing its strengths in home health care and adult day health services, the
Company is actively addressing the issue of senior care in America by its
comprehensive strategy - Caretenders SeniorCare Solutions. Through care
management by a Registered Nurse (RN), Caretenders helps families identify
solutions for caring for loved ones who can no longer meet their own health
and personal care needs. Through the Company's Care Manager, families can
learn about long-term care options available for seniors and obtain assistance
in choosing from Caretenders' SeniorCare Day and Home Health Care Centers or,
if appropriate, other available community based resources.
The Company's strategic plan calls for acquisition of home care providers and
integration of its home health operations with adult day care centers to offer
a fully integrated home and community based health care solution. The
Company's target customers are seniors in need of care seeking to remain
independent and avoid long-term institutional care. Additionally, the Company
will acquire adult day care operations in markets where it also has home
health operations.
See "Government Regulations - Reimbursement Changes" and "Cautionary
Statements - Forward Outlook and Risks", . Management will monitor the
effects of such items and may consider modifications to its expansion and
development strategy when and if necessary.
<PAGE>
The following table details the change in the Company's operations during
1998:
<TABLE>
<S> <C> <C> <C> <C>
Adult Day Managed
Home Health Health Agencies Total
----------------------------------------
Centers as of 3/31/97 37 18 18 73
Change:
Acquired 4 1 - 5
Opened 2 3 - 5
Closed - - (2) (2)
Sold - - - -
----------------------------------------
Subtotal change 6 4 (2) (2)
----------------------------------------
Centers as of 3/31/98 43 22 16 81
========================================
</TABLE>
<PAGE>
Earnings - 1998
The Company generated a 25% increase in pre-tax income despite investing in
initial operating losses related to geographic expansion. The increase in
pre-tax income is primarily a result of a 16% increase in net revenues from
recurring operations due to increased volumes. Income tax expense for 1997
included a non-recurring credit of approximately $634,000 or $0.20 per share
related to the reduction in a previously recorded valuation allowance for net
deferred taxes. As a result of these factors, reported earnings per share
were $0.45 in 1998 as compared to $0.56 for 1997. Excluding the 1997
non-recurring income tax credit earnings per share increased to $0.45 in 1998
from $0.36 in 1997.
<TABLE>
<S> <C> <C> <C> <C>
3/31/98 3/31/97 Increase % Change
Net Revenues
Recurring Operations $88,230,635 $75,952,252 $12,278,383 16%
Start-up Operations (1) 6,951,965 820,787 6,131,178 747%
-------------------------------------------
Total 95,182,600 76,773,039 18,409,561 24%
-------------------------------------------
Pre-tax Income
Recurring Operations $4,979,157 $3,701,535 $1,277,623 35%
Start-up Operations (2,576,075) (1,786,165) (789,910) (44%)
-------------------------------------------
Total 2,403,082 1,915,370 487,712 25%
-------------------------------------------
Net Income as reported
Recurring Operations $2,925,255 $3,400,058 $(474,803) (14%)
Start-up Operations (1,513,444) (1,640,688) 127,244 8%
-------------------------------------------
Total 1,411,811 1,759,370 (347,559) (20%)
===========================================
Weighted Diluted Shares 3,161,706 3,141,865 19,841
Net Income Per Share as reported
Recurring Operations $ 0.93 $ 1.08 $(0.16) (15%)
Start-up Operations (0.48) (0.52) 0.04 9%
-------------------------------------------
Total $ 0.45 $ 0.56 $ (0.11) (20%)
===========================================
As Adjusted for Comparable
Tax Provision
Net Income as reported $1,411,811 $1,759,370 $(347,559) (20%)
1997 Non-recurring credit (634,090) 634,090 100%
to tax expense (2) -------------------------------------------
Net Income as adjusted $1,411,811 $1,125,280 $286,531 25%
===========================================
Net Income as adjusted
Recurring Operations $2,925,255 $2,174,652 $750,604 35%
Start-up Operations (1,513,444) (1,049,372) (464,073) (44%)
-------------------------------------------
Total 1,411,811 1,125,280 286,531 25%
===========================================
Net Income Per Share as adjusted
Recurring Operations $ 0.93 $ 0.69 $ 0.24 35%
Start-up Operations (0.48) (0.33) (0.15) (43%)
-------------------------------------------
Total $ 0.45 $ 0.36 $ 0.09 25%
===========================================
</TABLE>
(1) Start-up operations include those businesses started by the Company that
have not been in operation for the entirety of both comparable periods
(2) Reduction of previously recorded valuation allowance related to net
deferred tax assets ($.20 per share)
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, 1998 Compared With Fiscal Year Ended March 31, 1997
Caretenders Health Corp.
Operating Data
for the Years Ended March 31,
(amounts in thousands)
1998 1997 Change
<S> <C> <C> <C> <C> <C> <C>
% of % of % of
Amount Revenues Amount Revenues Amount Revenues
Net Revenues
Home Health Care $78,698 82.7% $62,796 81.8% 15,902 25.3%
Adult Day Health Services 16,485 17.3% 13,977 18.2% 2,508 17.9%
------ ------- ------
95,183 100.0% 76,773 100.0% 18,410 24.0%
------ ------- ------
Cost of Sales and Services
Home Health Care 61,745 78.5% 49,301 78.6% 12,444 25.2%
Adult Day Health Services 13,967 84.7% 10,968 78.4% 2,999 25.7%
------ ------ ------
75,712 79.5% 60,269 78.5% 15,443 25.6%
------ ------ ------
Center Contribution
Home Health Care 16,953 21.5% 13,495 21.4% 3,458 25.6%
Adult Day Health Services 2,518 15.3% 3,009 21.6% (491) (16.3%)
------ ------ ------
19,471 20.5% 16,504 21.5% 2,967 18.0%
Selling, General & Admin 10,856 11.4% 9,363 12.2% 1,493 15.9%
Prov for Uncollectible Accts 2,635 2.8% 2,216 2.9% 419 18.9%
Depreciation and Amortization 2,583 2.7% 2,239 2.9% 344 15.4%
Interest and Other, Net 994 1.0% 771 1.0% 223 28.9%
------ ------ ------
Income Before Taxes 2,403 2.5% $ 1,915 2.5% 488 25.5%
====== ====== ======
</TABLE>
HOME HEALTH CARE REVENUES. Net revenue increases in the Company's
existing markets were primarily the result of increased volume for nursing
services, due in part to acquisitions completed during the year. Nursing
volumes increased 31.4%. Additional volumes in respiratory and durable
medical equipment and infusion therapies drove a combined 11.1% increase in
net revenues for those two service lines.
HOME HEALTH CARE COST OF SALES AND SERVICES. Cost of sales and services as a
percent of net revenues decreased slightly primarily as a result of
efficiencies gained from operating a larger number of home health care
centers. Seven additional centers were acquired or opened by the Company
during 1998.
<PAGE>
ADULT DAY HEALTH SERVICES NET REVENUES. The increase of $2.5 million in adult
day health services revenues is primarily attributable to the improvement and
growth of the centers added in conjunction with the Company's expansion
strategy which started in 1996. Total days of service provided increased
17.9% from approximately 236,600 in 1997 to 279,000 in 1998. As of March 31,
1998, the Company had 22 centers in operation as compared to 18 at March 31,
1997
ADULT DAY HEALTH SERVICES COST OF SALES AND SERVICES. As a percent of net
revenues, cost of sales and services increased primarily as a result of
absorbing over $1 million of initial operating losses from geographic
expansion.
SELLING, GENERAL AND ADMINISTRATIVE. The increase of $1,493,000 is due
primarily to an increase in certain administrative staff levels and costs
incurred related to the Company's geographic expansion. SG&A as a percent of
revenues declined due to growth in revenues.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS. The provision for uncollectible
accounts for the year ended March 31, 1998 was recorded based on management's
evaluation of collectibility.
DEPRECIATION AND AMORTIZATION. The increase of $344,000 is primarily due to
capital investments made by the Company. These capital investments
principally relate to geographic expansion and replacement of certain medical
equipment.
INTEREST AND OTHER, NET. The increase in interest and other, net is
primarily a result of higher average outstanding debt levels associated with
the Company's acquisition and expansion activities.
INCOME TAXES. As of March 31, 1998, the Company has net deferred tax assets
of approximately $690,000 The net deferred tax asset is composed of $88,000
of current deferred tax assets and $602,000 of long-term deferred tax asset.
Prior to 1997 the Company had provided a valuation allowance against net
deferred tax assets based upon management's estimation of realizability of
those assets through future taxable income. This valuation was based in large
part on the Company's history of generating operating income or losses and
expectations (at that time) for the future. Over time the Company
demonstrated an ability to generate operating income such that it became more
likely than not that the deferred tax assets would be realized through future
taxable income and, in accordance with generally accepted accounting
principles for income tax accounting, in 1997 the valuation allowance was
removed. The Company's ability to generate the expected amounts of taxable
income from future operations is dependent upon general economic conditions,
competitive pressures on revenues and margins and legislation and regulation
at all levels of government. There can be no assurances that the Company will
meet its expectations of future taxable income. However, management has
considered the above factors in reaching its conclusions that it is more
likely than not that future taxable income will be sufficient to fully utilize
the deferred tax assets as of March 31, 1998.
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, 1997 Compared With Fiscal Year Ended March 31, 1996
Caretenders Health Corp.
Operating Data
for the Years Ended March 31,
(amounts in thousands)
1 9 9 7 1 9 9 6 Change
------------------- --------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
% of % of
Amount Revenues Amount Revenues Amount %
Net Revenues
Home Health Care $62,796 81.8% $50,822 80.4% $11,974 23.6%
Adult Day Health Services 13,977 18.2% 12,405 19.6% 1,572 12.7%
------- ------- -------
76,773 100.0% 63,227 100.0% 13,546 21.4%
======= ======= =======
Cost of Sales and Services
Home Health Care 49,301 78.6% 39,399 77.5% 9,902 25.1%
Adult Day Health Services 10,968 78.4% 9,331 75.2% 1,637 17.5%
------- ------- -------
60,269 78.5% 48,730 77.1% 11,539 23.7%
======= ======= =======
Center Contribution
Home Health Care 13,495 21.4% 11,423 22.5% 2,072 18.1%
Adult Day Health Services 3,009 21.6% 3,074 24.8% (65) (2.1%)
------- ------- -------
16,504 21.5% 14,497 22.9% 2,007 13.8%
Selling, General & Administrative 9,363 12.2% 8,438 13.3% 925 11.0%
Provision for Uncollectible Accounts 2,216 2.9% 1,669 2.6% 547 32.8%
Depreciation and Amortization 2,239 2.9% 2,057 3.3% 182 8.8%
Interest and Other, Net 771 1.0% 623 1.0% 148 23.8%
------- ------- -------
Income Before Taxes $ 1,915 2.5% $ 1,710 2.7% $ 205 12.0%
======= ======= =======
</TABLE>
HOME HEALTH CARE NET REVENUES. Net revenue increases in the Company's
existing markets were primarily the result of increased volume for nursing
services. Nursing volumes increased 38.7%. Additional volumes in respiratory
and durable medical equipment and infusion therapies drove a combined 17.1%
increase for those two service lines.
HOME HEALTH CARE COST OF SALES AND SERVICES. Cost of sales and services as a
percent of net revenues increased primarily as a result of incurring $770,000
of initial operating losses from geographic expansion.
ADULT DAY HEALTH SERVICES NET REVENUES. The increase of $1.6 million in adult
day health services revenues is primarily attributable to improved occupancy
in existing markets. Total days of service provided increased 9.9% from
214,600 in 1996 to 236,000 in 1997. As of March 31, 1997, the Company had 18
centers in operation.
<PAGE>
ADULT DAY HEALTH SERVICES COST OF SALES AND SERVICES. As a percent of net
revenues, cost of sales and services increased primarily as a result of
absorbing $495,000 of initial operating losses from geographic expansion.
SELLING, GENERAL AND ADMINISTRATIVE. The increase of $925,000 is due
primarily to an increase in certain administrative staff levels and costs
incurred related to the Company's geographic expansion. SG&A as a percent of
revenues declined as these costs are spread over a larger operation.
PROVISION FOR UNCOLLECTIBEL ACCOUNTS. The provision for uncollectible
accounts for the year ended March 31, 1997 was recorded based on management's
evaluation of collectibility.
DEPRECIATION AND AMORTIZATION. The increase of $182,000 is primarily due to
capital investments made by the Company. These capital investments
principally relate to geographic expansion and replacement of certain medical
equipment.
INTEREST AND OTHER, NET. The increase in interest and other, net is
primarily a result of higher average outstanding debt levels associated with
the Company's acquisition and expansion activities.
INCOME TAXES. As of March 31, 1997, the Company has net deferred tax assets
of approximately $1,264,000. The net deferred tax asset is composed of
$1,647,000 of deferred tax assets and $383,000 of deferred tax liabilities.
Prior to 1997 the Company had provided a valuation allowance against net
deferred tax assets based upon management's estimation of realizability of
those assets through future taxable income. This valuation was based in large
part on the Company's history of generating operating income or losses and
expectations (at that time) for the future. Over time the Company
demonstrated an ability to generate operating income such that it became more
likely than not that the deferred tax assets would be realized through future
taxable income and, in accordance with generally accepted accounting
principles for income tax accounting, in 1997 the valuation allowance was
removed. The Company's ability to generate the expected amounts of taxable
income from future operations is dependent upon general economic conditions,
competitive pressures on revenues and margins and legislation and regulation
at all levels of government. There can be no assurances that the Company will
meet its expectations of future taxable income. However, management has
considered the above factors in reaching its conclusions that it is more
likely than not that future taxable income will be sufficient to fully utilize
the deferred tax assets as of March 31, 1997.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Revolving Credit Facility
- -------------------------
The Company has $18 million in revolving credit facilities, comprised of $15
million with the Healthcare Financial Services Division of Heller Financial,
Inc. and $3 million with Bank One, Kentucky NA. Interest accrues on amounts
drawn under the facility at a rate of 1 percent over prime for the Heller
facility and at a rate of 1/2 percent over prime for the Bank One facility.
Availability from the Heller facility is determined pursuant to a formula
principally consisting of a percentage of accounts receivable subject to
certain exclusions.
At March 31, 1998, the Company had total cash and unused borrowings of
approximately $4.3 million available for working capital and development. The
Heller facility remains in effect until October 13, 1999 and for annual one
year terms thereafter unless either party to the credit agreement provides the
other with a written notice of termination one year and 60 days prior to the
renewal date. The Bank One Facility will remain in effect until August 4,
1998. The Company is currently negotiating a replacement credit facility in a
range of $20-$30 million. While there can be no assurance that the
replacement credit facility will be obtained, management believes that it
will be completed during the second quarter of its fiscal 1999 year. If the
Company is unable to obtain satisfactory financing it would have an adverse
impact on the Company's ability to execute its development plans.
Management will continuously pursue additional capital including possible debt
and equity investments in the Company to support a more rapid development of
the business than would be possible with internal funds.
Cash Flows and Financial Condition
- ----------------------------------
<TABLE>
<CAPTION>
Key elements to the Consolidated Statements of Cash Flows were (in thousands):
<S> <C> <C> <C>
Net Change in Cash and Cash Equivalents 1998 1997 1996
Provided by (used in)
Operating activities $ 4,390 $ 442 $ 1,817
Investing activities (8,657) (4,257) (993)
Financing activities 4,077 3,269 (528)
--------------- ------------- -------------
Net Change in Cash and Cash Equivalents $ (190) $ (546) $ 296
=============== ============= =============
</TABLE>
1998
----
Net cash provided by operating activities of approximately $4.4 million
resulted principally from current period earnings net of changes in
accounts receivable and accounts payable and accrued expenses. Net cash
used in investing activities of approximately $8.7 million resulted
principally from amounts invested in acquisition and expansion activities
and capital expenditures related to purchase of certain durable medical
equipment and real estate. Net cash provided by financing activities of
approximately $4.1 million resulted primarily from an increase in the
Company's credit facility related to investments made in acquisitions and
geographic expansion.
<PAGE>
1997
----
Net cash provided by operating activities of approximately $442,000
resulted principally from current period earnings net of changes in
accounts receivable and accounts payable and accrued expenses. Net cash
used in investing activities of approximately $4.3 million resulted
principally from amounts invested in acquisition and expansion activities
and capital expenditures related to purchase of certain durable medical
equipment and real estate. Net cash provided by financing activities of
approximately $3.3 million resulted primarily from an increase in the
Company's credit facility related to investments made in acquisitions and
geographic expansion.
1996
----
Net cash provided by operating activities of approximately $1.8 million
resulted principally from current period earnings net of changes in
accounts receivable and accounts payable and accrued expenses. Net cash
used in investing activities of approximately $993,000 resulted
principally from capital expenditures. Net cash used in financing
activities of approximately $528,000 resulted primarily from principal
payments on term debt and capital leases.
Year 2000 Computer System Issue
- -------------------------------
The year 2000 issue is the result of computer programs which were written
using two digits rather than four to define the applicable year. The
Company's principal information systems operate in a database environment
which uses four digits for the year, and, accordingly, this issue is not
expected to have a significant impact on the majority of the Company's
computer systems. Certain purchased systems used by the Company, and for
which the Company does not control the programming code, use two digits for
the year. These systems are relatively old and have been independently slated
for replacement with new systems that better meet the information needs of the
Company as it expands and deals with the current operating environment. The
Company anticipates that these conversions will be completed to provide
compliance with the requirements to handle the year 2000 issue with no
significant operational concerns. Management currently believes that the
financial resources necessary to accomplish such compliance will not be
material to the Company's financial condition, liquidity or results of
operations. However, there is no guarantee that the Company's expected
results will be achieved and actual results could differ materially from those
expected results.
The Company depends on receipt of payment for services from its payor sources
most of which utilize computer software to process those payments. The
Company has over 3,000 individual payors including Medicare and Medicaid
programs, insurance companies and HMO's. The Company is currently unable to
predict what effect, if any, the year 2000 issue may have on the computer
systems of those payors, or in turn on the Company. System maintenance and
modification costs to existing software will be expensed as incurred. The
costs associated with purchasing replacement software will be capitalized and
amortized over the useful life of the software.
<PAGE>
Contract Management Services
- ----------------------------
The Company currently provides contract management services to two home health
agencies in the Louisville, KY area owned by Columbia/HCA Health Corporation
(Columbia). Columbia has announced its plans to divest itself of its home
care operations and the Company has expressed its interest to Columbia to
acquire the managed business. Columbia has announced a transaction to sell
its hospitals in the Louisville market as well. Due to these changes, the
agencies, which previously operated under the Caretenders trade name have
changed their names . The Company continues to manage these agencies;
however a sale of the Columbia owned operations may result in termination of
the management agreements (which generated approximately $3 million of
revenues in fiscal 1998) and the payment of a termination fee by Columbia to
the Company. The Company also owns and operates a competing agency in the
Louisville market. Due to the current status of events, the Company is unable
to predict the ultimate outcome of this matter. There can be no assurance that
the ultimate resolution of this matter will not have an adverse impact on the
Company.
Health Care Reform
- ------------------
The health care industry, particularly home health, has experienced, and is
expected to continue to experience, extensive and dynamic change. In addition
to economic forces and regulatory influences, continuing political debate is
subjecting the health care industry to significant reform. Health care reforms
have been enacted as discussed elsewhere in this document and proposals for
additional changes are continuously formulated by departments of the federal
government, Congress, and state legislatures. Certain adverse changes in
Medicare reimbursement for Medicare-certified home health services became
effective for the Company on April 1, 1998. See "Reimbursement Changes"
below.
Government officials can be expected to continue to review and assess
alternative health care delivery systems and payment methodologies. Changes in
the law or new interpretations of existing laws may have a dramatic effect on
the definition of permissible or impermissible activities, the relative cost
of doing business, and the methods and amounts of payments for medical care by
both governmental and other payors. Legislative changes to "balance the
budget" and slow the annual rate of growth of Medicare and Medicaid are
expected to continue. Such future changes may further impact reimbursement for
home health care. There can be no assurance that future legislation or
regulatory changes will not have a material adverse effect on the operations
of the Company.
Refer to the sections on Reimbursement Changes and Cautionary Statements -
Forward Outlook and Risks below, the notes to the accompanying financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations for additional information.
Reimbursement Changes
- ---------------------
In August of 1997, President Clinton signed into law the Balanced Budget Act
of 1997 (the BBA). This bill made significant changes in the reimbursement
system for Medicare certified home health services. The primary changes that
affect the Company include a reduction in the reimbursement for oxygen therapy
services and a restructuring of the reimbursement system related to Medicare
certified home care agencies.
OXYGEN REIMBURSEMENT
The reimbursement of certain oxygen therapy services and products was cut 25%
for services provided on or after January 1, 1998. An additional cut of 5%
will take affect on January 1, 1999. Future increases to the reimbursement
rate have been tied to the Consumer Price Index and will not resume until
2003. Management expects the impact on the Company to be a decrease of
approximately $600,000 in revenues annually (approximately $150,000 in the
fourth quarter of fiscal 1998).
BONDING REQUIREMENTS FOR MEDICARE PROVIDERS
The BBA now requires Medicare providers to purchase surety bonds in amounts
generally equal to 15% of Medicare reimbursement for periods up to 10 years.
The bonds must be in effect by July 7, 1998, retroactive to February 27, 1998.
The Company has made arrangements to meet such bonding, the cost of the which
is not expected to be material to the Company's results of operations or
financial position. Under the current rules, agencies that are not able to
secure the required surety bonds will be excluded from participation in the
Medicare program. In June 1998 the offices of two U.S. Senators announced
HCFA's agreement to defer implementation to no later than February 1999.
<PAGE>
INTERIM PAYMENT SYSTEM FOR MEDICARE CERTIFIED HOME HEALTH NURSING SERVICES
The BBA also includes a new Interim Payment System (IPS) for
Medicare-certified home health services. IPS remains a cost-based
reimbursement system. However, per visit cost limits have been reduced and a
new "Per Beneficiary Limit" (PBL) has been added. IPS is effective for all
home care agencies for cost reporting years beginning on or after October 1,
1997. For the Company's agencies the new system went into effect on April 1,
1998. The BBA states that IPS will remain in effect until a new prospective
payment system (PPS) is implemented for cost reporting years beginning on or
after October 1, 1999.
The Interim Payment System, as well as other requirements imposed upon home
health providers in the BBA were designed to contain the growth in home health
care resulting in slower growth in Medicare home health expenditures. As a
result of these changes, home health providers will be forced to reduce their
costs of providing services and it is expected that utilization of home care
services per beneficiary will decline. Under certain conditions, Medicare
beneficiaries who had previously been entitled to services will no longer
qualify under Medicare reimbursement guidelines. Approximately 42% of the
Company's total revenues are subject to the Interim Payment System guidelines.
The PBL places an aggregate cap on reimbursable costs based on the number of
Medicare patients (beneficiaries) served during a fiscal year multiplied by an
established rate. This rate is calculated using a complicated cost-based
formula which blends historical data from the provider with others in the
region (or in some cases uses national data). This has the effect of placing
an additional limit on reimbursement. This serves to create a ceiling on the
amount of care that can be provided to the average beneficiary and constrains
the utilization of visits per patient.
In passing these new rules Congress expressed the intent of reducing Medicare
home care expenditures by approximately $16.2 billion over 5 years. However,
calculations made by the Congressional Budget Office (CBO) indicate that the
actual spending reductions that will result from IPS as implemented will be
more than $48 billion or three times the intent of Congress. The Health Care
Financing Administration (HCFA) anticipates that 93% of Medicare agencies will
be reimbursed less than their cost. According to the National Association for
Home Care (NAHC) agencies nationwide are experiencing an average 31% reduction
in reimbursement per patient. Although Congress passed the BBA in August 1997
and it went into effect for many providers on October 1, 1997, HCFA did not
publish all the rules and regulations for implementation until March 31, 1998.
Due to complexities in the rules, particularly differences in the effective
date and the Per Beneficiary Limit for different providers, the ultimate
amount of contraction in the home care industry and the effective reduction in
the Medicare home care benefit cannot yet be predicted. However, the Company
believes that the reduction in the Medicare home health program is likely to
equal or exceed the NAHC estimate.
In late calendar 1997 and early 1998, the Company began implementing action
plans to operate under IPS. However, the final rules published by HCFA on
March 31, 1998 were more prohibitive than the Company or the industry
expected. Accordingly, in April 1998, the Company revised its program to
reduce costs further and control utilization for operation in the IPS
environment. Consistent with industry estimates discussed above, the Company
has, since April 1, 1998, experienced a decline in volumes, revenues and
contribution from this portion of its operations compared with the same period
last year. Additionally, the Balanced Budget Act reduced Medicare
reimbursement for certain oxygen therapy services by 25% effective January
1, 1998.
<PAGE>
As a result of the combined impact of these reimbursement items, the Company
expects a decline in revenues and earnings from recurring operations for its
fiscal year ending March 31, 1999 and anticipates reporting a consolidated net
operating loss for its first quarter, ending June 30, 1998. The Company is
continuing its assessment of the implications of the current reimbursement
environment and will, as necessary, make additional cost reductions and other
adjustments to its operational and development plans in the future intended to
return the Company to profitability. These actions may result in one-time
charges for severance, branch office closings, impairment of long-lived assets
and other restructuring activities and may significantly reduce the Company's
ability to access capital and pursue development activities. As of March 31,
no such restructuring activities or impairment existed and, accordingly, no
provision for any liabilities or impairment charges that may result from such
actions has been made in the accompanying financial statements. .
In addition to IPS, the Balance Budget Act mandated establishment of a
prospective payment system ("PPS") for home health services by October 1, 1999
(April 1, 2000 for the Company). However, rules and regulations have not yet
been developed by HCFA and there can be no assurance that such deadline will
be met. In the event that home care PPS is not implemented by that date, the
BBA as legislated requires cost limits then in existence to be lowered by an
additional 15%. Such lower cost limits, likely would have a material effect
on the operating results and cash flows of the Company. The Company is unable
to predict how PPS will ultimately be designed and implemented and thus is
also unable to predict its impact on the Company. However, by its prospective
nature, PPS should allow providers the opportunity to earn a profit on
services which they are not able to do under IPS which is cost-based.
State legislative proposals continue to be introduced that would impose more
limitations on payments to providers of health care services such as the
Company. Many states have enacted, or are considering enacting, measures that
are designed to reduce their Medicaid expenditures.
The Company cannot predict what additional government regulations, if any,
affecting its business may be enacted in the future, how existing or future
laws and regulations might be interpreted, or whether the Company will be able
to comply with such laws and regulations in its existing or future markets.
Impact of Inflation
- -------------------
Management does not believe that inflation has had a material effect on income
during the past several years.
ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk
Not appplicable
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended March 31,
<S> <C> <C> <C>
1998 1997 1996
Net revenues $95,182,600 $76,773,039 $63,226,968
Cost of sales and services 75,711,768 60,268,808 48,729,847
Selling, general and administrative expenses 10,856,509 9,363,031 8,438,050
Depreciation and amortization expense 2,582,653 2,239,194 2,057,092
Provision for uncollectible accounts 2,634,985 2,215,537 1,668,844
---------- ---------- ----------
Income before interest expense, 3,396,685 2,686,469 2,333,135
net and provision for income taxes
Interest expense, net 993,602 771,099 622,852
---------- ---------- ----------
Income before provision for income taxes 2,403,083 1,915,370 1,710,283
Provision for income taxes 991,272 156,000 135,000
---------- ---------- ----------
Net income $ 1,411,811 $ 1,759,370 $ 1,575,283
========== ========== ==========
PER SHARE:
Weighted average shares outstanding:
Basic 3,120,436 3,119,436 3,119,436
Diluted 3,161,706 3,141,865 3,148,707
Net income per share:
Basic $ 0.45 $ 0.56 $ 0.50
Diluted $ 0.45 $ 0.56 $ 0.50
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<S> <C> <C>
ASSETS March 31, 1998 March 31, 1997
CURRENT ASSETS:
Cash and cash equivalents $ 824,293 $ 1,014,604
Accounts receivable - net of allowance for uncollectible accounts of
approximately $3,691,000 and $3,153,000 respectively 23,832,574 20,436,964
Prepaid expenses and other current assets 1,649,579 1,765,168
Deferred tax assets 88,635 1,646,990
------------ ------------
TOTAL CURRENT ASSETS 26,395,081 24,863,726
PROPERTY AND EQUIPMENT - net 7,752,103 4,959,217
COST IN EXCESS OF NET ASSETS ACQUIRED - net of
accumulated amortization of approximately $1,719,000
and $1,430,000, respectively 13,514,130 7,723,263
OTHER ASSETS 1,871,309 1,198,367
------------ ------------
TOTAL ASSETS $ 49,532,623 $ 38,744,573
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 12,139,101 $ 7,031,021
Current portion of term debt and capital lease obligations 3,248,185 261,716
Other current liabilities 100,000 100,000
------------ ------------
TOTAL CURRENT LIABILITIES 15,487,286 7,392,737
------------ ------------
LONG-TERM LIABILITIES:
Revolving credit facility 11,038,646 9,754,640
Term debt and capital lease obligations 197,184 145,308
Other liabilities 726,614 788,616
------------ ------------
TOTAL LONG-TERM LIABILITIES 11,962,444 10,688,564
------------ ------------
TOTAL LIABILITIES 27,449,730 18,081,301
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Common stock, par value $.10;
10,000,000 shares authorized; 3,130,436 and 3,129,436 issued and
outstanding, respectively 313,044 312,944
Treasury stock, at cost, 10,000 shares (95,975) (95,975)
Additional paid-in capital 25,345,586 25,337,876
Accumulated deficit (3,479,762) (4,891,573)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 22,082,893 20,663,272
------------ ------------
$ 49,532,623 $ 38,744,573
============ ============
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1998, 1997, and 1996
Additional Total
Common Stock Treasury Stock Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C>
--------- --------- -------- -------- ------------ ------------ ------------
Balance, March 31, 1995 3,129,436 $ 312,944 10,000 $ (95,975) $ 25,337,876 $ (8,226,226) $ 17,328,619
Net Income - - - - - 1,575,283 1,575,283
--------- --------- -------- -------- ------------ ------------ ------------
Balance, March 31, 1996 3,129,436 312,944 10,000 (95,975) 25,337,876 (6,650,943) 18,903,902
Net Income - - - - - 1,759,370 1,759,370
--------- --------- -------- -------- ------------ ------------ ------------
Balance, March 31, 1997 3,129,436 312,944 10,000 (95,975) 25,337,876 (4,891,573) 20,663,272
Options Exercised 1,000 100 - - 7,710 - 7,810
Net Income - - - - - 1,411,811 1,411,811
--------- --------- -------- -------- ------------ ------------ ------------
Balance, March 31, 1998 3,130,436 $ 313,044 10,000 $ (95,975) $ 25,345,586 $ (3,479,762) $ 22,082,893
========= ========= ======== ======== ============ ============ ============
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,411,811 $ 1,759,370 $ 1,575,283
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,582,653 2,239,194 2,057,092
Deferred income taxes 574,000 (192,000) (492,000)
Provision for uncollectible accounts 2,634,985 2,215,537 1,668,844
----------- ----------- -----------
7,203,449 6,022,101 4,809,219
Change in certain net current assets, net of the effects of acquisitions
(Increase) decrease in:
Accounts receivable (6,143,660) (5,455,101) (3,588,432)
Prepaid expenses and other current assets 171,743 (274,784) (551,879)
Increase (decrease) in:
Accounts payable and accrued expenses 3,158,029 156,628 999,625
Other liabilities - (6,985) 148,820
----------- ----------- -----------
Net cash provided by (used in) operating activities 4,389,561 441,859 1,817,353
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (4,017,796) (2,620,942) (1,015,161)
Acquisitions, net of cash acquired (4,439,746) (1,084,846) -
Other assets (199,344) (551,245) 21,827
----------- ----------- -----------
Net cash (used in) provided by investing activities (8,656,886) (4,257,033) (993,334)
----------- ----------- -----------
Cash flows from financing activities:
Principal payments on term debt and capital leases (163,549) (441,202) (607,959)
Net revolving credit facility borrowings 4,302,006 3,902,932 80,206
Other (61,443) (192,993) -
----------- ----------- -----------
Net cash provided by (used in) financing activities 4,077,014 3,268,737 (527,753)
----------- ----------- -----------
Net (decrease) increase in cash (190,311) (546,437) 296,266
Cash and cash equivalents at beginning of year 1,014,604 1,561,041 1,264,775
----------- ----------- -----------
Cash and cash equivalents at end of year $ 824,293 $ 1,014,604 $ 1,561,041
=========== =========== ===========
Supplemental Information
Cash paid for interest $ 1,049,000 $ 691,000 $ 611,000
=========== =========== ===========
Cash paid for income taxes $ 197,000 $ 52,000 $ 671,000
=========== =========== ===========
<FN>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
</TABLE>
<PAGE>
CARETENDERS HEALTH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
BASIS OF CONSOLIDATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include the accounts of Caretenders
Health Corp. and its wholly-owned subsidiaries ("the Company"). The Company
provides adult day health services and home health care services to
individuals in Alabama, Connecticut, Florida, Indiana, Kentucky, Maryland,
Massachusetts, Ohio and Virginia. All material intercompany transactions and
accounts have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Uninsured deposits at March 31, 1998, and 1997 were approximately $724,000 and
$915,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives. The estimated useful
lives of depreciable assets are as follows:
Estimated
Useful Life
Building and Leasehold Improvements 5 - 30
Medical and Office Equipment 3 - 8
Transportation and Other Equipment 3 - 5
Included in Property and Equipment is rental equipment which may be sold.
Upon sale, the cost net of related accumulated depreciation is charged to
costs of sales and services.
COST IN EXCESS OF NET ASSETS ACQUIRED
The costs in excess of fair value of net assets acquired are stated at cost
and amortized on a straight-line basis over their estimated useful lives which
range from 20 (approximately $6.8 million, net) to 40 years (approximately
$6.7 million, net).
Subsequent to its acquisitions, the Company evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life
of goodwill may warrant revision or that the remaining balance of goodwill may
not be recoverable. At March 31, 1998, no such events or circumstances
existed warranting such revisions to the lives or recorded amounts of recorded
goodwill. When factors indicate that goodwill should be evaluated for
possible impairment, the Company will utilize appropriate methods (such as
discounted cash flows over the remaining life of the goodwill), in measuring
whether or not the goodwill is recoverable.
<PAGE>
CAPITALIZATION POLICIES
Maintenance, repairs and minor replacements are charged to expense as
incurred. Major renovations and replacements are capitalized to appropriate
property and equipment accounts. Upon sale or retirement of property, the
cost and related accumulated depreciation are eliminated from the accounts and
the related gain or loss is recognized in income.
Construction costs incurred to ready a project for its intended use are
capitalized for major development projects and are amortized over the lives of
the related assets. These costs will be amortized over the life of the
specific leases.
Pre-opening costs related to the start up of new operations and facilities are
deferred and amortized over two years beginning with commencement of
operations. The unamortized balance of capitalized pre-opening costs as of
March 31, 1998 and 1997 was approximately $651,000 and $470,000, respectively
and is included in other assets on the accompanying balance sheet. During
1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5),
The statement provides guidance on the financial reporting of start-up and
organization costs to require all such costs to be expensed as incurred. SOP
98-5 is required to be adopted for financial statements for fiscal years
beginning after December 15, 1998. Therefore, this statement will be required
to be adopted by the Company in the fiscal year ending March 31, 2000, if not
adopted earlier. Management has not yet determined the adoption date of SOP
98-5 for the Company. If adopted on April 1, 1998, the Company would report
an after-tax charge of approximately $383,000 for the cumulative effect of a
change in accounting principle.
NET REVENUES
The Company is paid for its services primarily by federal and state
third-party reimbursement programs, commercial insurance companies, and
patients. Revenues are recorded at established rates in the period during
which the services are rendered. Appropriate allowances to give recognition
to third party payment arrangements are recorded when the services are
rendered.
Approximately 73%, 62%, and 55%, of net revenues for the fiscal years ended
March 31, 1998, 1997, and 1996, respectively, were derived under federal and
state third-party reimbursement programs. These revenues are based, in part,
on cost reimbursement principles and are subject to examination and
retroactive adjustment by agencies administering the programs. Management
continuously evaluates the outcome of these reimbursement examinations and
provides allowances for losses based upon the best available information. In
the opinion of management, adjustments, if any, would not be material to the
financial position or the results of operations of the Company.
The ability of payors to meet their obligations depends upon their financial
stability, future legislation and regulatory actions. The Company does not
believe there are any significant credit risks associated with receivables
from federal and state third-party reimbursement programs. The allowance for
doubtful accounts principally consists of management's estimate of amounts
that may prove uncollectible from non-governmental payors.
<PAGE>
NET INCOME PER SHARE
Net income per share is presented as a unit of basic shares outstanding and
diluted shares outstanding. Diluted shares outstanding is computed based on
the weighted average number of common shares and common equivalent shares
outstanding. Common equivalent shares result from dilutive stock options and
warrants. The following table is a reconciliation of basic to diluted shares
used in the earnings per share calculation:
<TABLE>
<CAPTION>
For the Fiscal Years Ended March 31,
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Basic outstanding shares at year end 3,120,436 3,119,436 3,119,436
Add-common equivalent shares representing shares
issuable upon exercise of dilutive options
and warrants 41,270 22,429 29,271
--------- --------- ---------
Diluted weighted average number of shares at year end 3,161,706 3,141,865 3,148,707
========= ========= =========
</TABLE>
REVERSE STOCK SPLIT
On March 22, 1995, the shareholders approved and implemented a one (1) for
five (5) reverse stock split. Simultaneously, the par value per common share
changed from $.02 per share to $.10. Share and per share information have
been restated for all periods presented to reflect this reverse stock split.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates. Refer also to the notes "NET
REVENUES" and "HEALTHCARE REFORM LEGISLATION, REGULATIONS AND MARKET
CONDITIONS" above for examples of such estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable and
payable and debt instruments. The book values of cash and accounts receivable
and payable are considered representative of their respective fair values.
The fair value of the Company's debt instruments approximate their carrying
values as substantially all of such debt has rates which fluctuate with
changes in market rates.
<PAGE>
NOTE 2 - HEALTHCARE REFORM LEGISLATION, REGULATIONS AND MARKET CONDITIONS
- -------------------------------------------------------------------------
HEALTH CARE REFORM
- ------------------
The health care industry, particularly home health, has experienced, and is
expected to continue to experience, extensive and dynamic change. In addition
to economic forces and regulatory influences, continuing political debate is
subjecting the health care industry to significant reform. Health care reforms
have been enacted as discussed elsewhere in this document and proposals for
additional changes are continuously formulated by departments of the federal
government, Congress, and state legislatures. Certain adverse changes in
Medicare reimbursement for home nursing services became effective for the
Company on April 1, 1998.
BALANCED BUDGET ACT OF 1997
- ---------------------------
In August of 1997, President Clinton signed into law the Balanced Budget Act
of 1997 (the BBA). This bill made significant changes in the reimbursement
system for Medicare home health services. The primary changes that affect the
Company include a reduction in the reimbursement for oxygen therapy services
and a restructuring of the reimbursement system related to Medicare certified
home care agencies.
OXYGEN REIMBURSEMENT
The reimbursement of certain oxygen therapy services and products was cut 25%
for services provided on or after January 1, 1998. An additional cut of 5%
will take affect on January 1, 1999. Future increases to the reimbursement
rate have been tied to the Consumer Price Index and will not resume until
2003. Management expects the impact on the Company to be a decrease of
approximately $600,000 in revenues annually (approximately $150,000 in the
fourth quarter of fiscal 1998).
BONDING REQUIREMENTS FOR MEDICARE PROVIDERS
The BBA now requires Medicare providers to purchase surety bonds in amounts
generally equal to 15% of Medicare reimbursement for periods up to 10 years.
The bonds must be in effect by July 7, 1998, retroactive to February 27, 1998.
The Company has made arrangements to meet such bonding, the cost of the which
is not expected to be material to the Company's liquidity, results of
operations or financial position. Under the current rules, agencies that are
not able to secure the required surety bonds will be excluded from
participation in the Medicare program. In June 1998 the offices of two U.S.
Senators announced HCFA's agreement to defer implementation to no later than
February 1999.
INTERIM PAYMENT SYSTEM FOR MEDICARE CERTIFIED HOME HEALTH NURSING SERVICES
The BBA also includes a new Interim Payment System (IPS) for
Medicare-certified home health services. IPS remains a cost-based
reimbursement system. However, per visit cost limits have been reduced and a
new "Per Beneficiary Limit" (PBL) has been added. IPS is effective for all
home care agencies for cost reporting years beginning on or after October 1,
1997. For the Company's agencies the new system went into effect on April 1,
1998. The BBA states that IPS will remain in effect until a new prospective
payment system (PPS) is implemented for cost reporting years beginning on or
after October 1, 1999.
The Interim Payment System, as well as other requirements imposed upon home
health providers in the BBA were designed to contain the growth in home health
care resulting in slower growth in Medicare home health expenditures. As a
result of these changes, home health providers will be forced to reduce their
costs of providing services and it is expected that utilization of home care
services per beneficiary will decline. Under certain conditions, Medicare
beneficiaries who had previously been entitled to services will no longer
qualify under Medicare reimbursement guidelines. Approximately 42% of the
Company's total revenues are subject to the Interim Payment System guidelines.
<PAGE>
The PBL places an aggregate cap on reimbursable costs based on the number of
Medicare patients (beneficiaries) served during a fiscal year multiplied by an
established rate. This rate is calculated using a complicated cost-based
formula which blends historical data from the provider with others in the
region (or in some cases uses national data). This has the effect of placing
an additional limit on reimbursement. This serves to create a ceiling on the
amount of care that can be provided to the average beneficiary and constrains
the utilization of visits per patient.
In late calendar 1997 and early 1998, the Company began implementing action
plans to operate under IPS. However, the final rules published by HCFA on
March 31, 1998 were more prohibitive than the Company or the industry
expected. Accordingly, in April 1998, the Company revised its program to
reduce costs further and control utilization for operation in the IPS
environment. Consistent with industry estimates discussed above, the Company
has, since April 1, 1998, experienced a decline in volumes, revenues and
contribution from this portion of its operations compared with the same period
last year. Additionally, the Balanced Budget Act reduced Medicare
reimbursement for certain oxygen therapy services by 25% effective January
1, 1998.
As a result of the combined impact of these reimbursement items, the Company
expects a decline in revenues and earnings from recurring operations for its
fiscal year ending March 31, 1999 and anticipates reporting a consolidated net
operating loss for its first quarter, ending June 30, 1998. The Company is
continuing its assessment of the implications of the current reimbursement
environment and will, as necessary, make additional cost reductions and other
adjustments to its operational and development plans in the future intended to
return the Company to profitability. These actions may result in one-time
charges for severance, branch office closings, impairment of long-lived assets
and other restructuring activities and may significantly reduce the Company's
ability to access capital and pursue development activities. As of March 31,
no such restructuring activities or impairment existed and, accordingly, no
provision for any liabilities or impairment charges that may result from such
actions has been made in the accompanying financial statements. .
In addition to IPS, the Balance Budget Act mandated establishment of a
prospective payment system ("PPS") for home health services by October 1, 1999
(April 1, 2000 for the Company). However, rules and regulations have not yet
been developed by HCFA and there can be no assurance that such deadline will
be met. In the event that home care PPS is not implemented by that date, the
BBA as legislated requires cost limits then in existence to be lowered by an
additional 15%. Such lower cost limits, likely would have a material effect
on the operating results and cash flows of the Company. The Company is unable
to predict how PPS will ultimately be designed and implemented and thus is
also unable to predict its impact on the Company. However, by its prospective
nature, PPS should allow providers the opportunity to earn a profit on
services which they are not able to do under IPS which is cost-based.
State legislative proposals continue to be introduced that could impose more
limitations on payments to providers of health care services such as the
Company. Many states have enacted, or are considering enacting, measures that
are designed to reduce their Medicaid expenditures.
The Company cannot predict what additional government regulations, if any,
affecting its business may be enacted in the future, how existing or future
laws and regulations might be interpreted, or whether the Company will be able
to comply with such laws and regulations in its existing or future markets.
<PAGE>
CONTRACT MANAGEMENT SERVICES
- ----------------------------
The Company currently provides contract management services to two home health
agencies in the Louisville, KY area owned by Columbia/HCA Health Corporation
(Columbia). Columbia has announced its plans to divest itself of its home
care operations and the Company has expressed its interest to Columbia to
acquire the managed business. Columbia has announced a transaction to sell
its hospitals in the Louisville market as well. Due to these changes, the
agencies, which previously operated under the Caretenders trade name have
changed their names . The Company continues to manage these agencies;
however a sale of the Columbia owned operations may result in termination of
the management agreements (which generated approximately $3 million of
revenues in fiscal 1998) and the payment of a termination fee by Columbia to
the Company. The Company also owns and operates a competing agency in the
Louisville market. Due to the current status of events, the Company is unable
to predict the ultimate outcome of this matter. There can be no assurance that
the ultimate resolution of this matter will not have an adverse impact on the
Company.
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
- ----------------------------------------------
<TABLE>
<CAPTION>
Accounts payable and accrued expenses at March 31, 1998 and 1997 consisted of the following:
<S> <C> <C>
1998 1997
---------- ----------
Trade payables 5,769,528 2,935,702
Wages and employee benefits 5,106,929 2,783,305
Accrued taxes 845,694 783,759
Other 416,950 528,255
---------- ----------
12,139,101 7,031,021
========== ==========
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
- -------------------------------
<TABLE>
<CAPTION>
Property and equipment, including equipment under capital leases, consist of the following:
<S> <C> <C>
March 31, 1998 March 31, 1997
Buildings and improvements $ 1,407,526 $ 713,572
Leasehold improvements 3,025,895 1,894,695
Medical equipment 6,841,810 5,291,958
Office and other equipment 6,025,795 4,578,098
Transportation equipment 1,636,628 1,763,843
------------------- -------------------
18,937,654 14,242,166
Less accumulated depreciation (11,185,551) (9,282,949)
------------------- -------------------
$ 7,752,103 $ 4,959,217
==================== ===================
</TABLE>
<PAGE>
Property and equipment acquired under capital leases consists principally of
transportation, and medical equipment, of $50,000 and $720,000 at March 31,
1998 and 1997, respectively against which obligations of approximately $14,000
and $434,000 were outstanding at those dates.
Depreciation expense was approximately $1.8 million for the fiscal periods
ended March 31, 1998, 1997, and 1996.
NOTE 5 - REVOLVING CREDIT FACILITY
- ----------------------------------
The Company has a $15 million revolving credit facility with the Healthcare
Financial Services Division of Heller Financial, Inc.. Interest accrues on
the facility at 1 percent over prime (9.5% as of March 31, 1998).
Availability is determined pursuant to a formula principally consisting of a
percentage of accounts receivable subject to certain exclusions, as defined.
The facility is collaterialized by accounts receivable, inventory and a lien
on the stock of the Company's subsidiaries. $14.6 million was available under
the formula on March 31, 1998. The balance outstanding as of March 31, 1998
was approximately $11,039,000. The credit agreement contains certain
restrictive covenants. As of March 31, 1998, the Company was in technical
default of certain covenants however Heller has waived these defaults. The
Heller facility remains in effect until October 13, 1999 and for annual one
year terms thereafter unless either party to the credit agreement provides the
other with a written notice of termination one year and 60 days prior to the
renewal date. Heller has waived its right to give notice of termination under
this provision, and, accordingly, the facility has been extended until October
13, 1999. In addition to the Heller facility, the company has a $3 million
revolving facility with Bank One, Kentucky NA. Interest accrues on the
facility at 1/2 percent over prime. The facility is unsecured and will remain
in effect until August 4, 1998. The balance outstanding as of March 31, 1998
was approximately $3 million. The Company is currently negotiating a
replacement credit facility in a range of $20-$30 million which it expects to
complete during the second quarter of its fiscal 1999 year.
NOTE 6 - TERM DEBT AND CAPITAL LEASE OBLIGATIONS
- ------------------------------------------------
<TABLE>
<CAPTION>
Term debt and capital lease obligation borrowings consist of the following:
<S> <C> <C>
March 31, 1998 March 31, 1997
The Company has various promissory notes and
capital leases with interest rates ranging 8% to
10.375% due in varying monthly amounts ranging
from $2,000 to $5,000, related to and collaterized
by certain real property and equipment expiring
at various dates through 2002. $ 427,369 $ 407,024
--------------- -------------
Less current portion (230,185) (261,716)
--------------- -------------
Non-current obligations $ 197,184 $ 145,308
=============== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As of March 31, 1998, future net minimum lease payments under capital leases and maturities of term debt
are as follows:
<S> <C> <C>
Capital Leases Long-term Debt
1999 $ 19,692 $ 215,947
2000 - 165,012
2001 - 19,295
2002 - 12,877
2003 - -
Thereafter - -
---------- ----------
Total minimum lease payments and maturities 19,692 $ 413,131
==========
Less amount representing interest (5,454)
----------
Present value of minimum lease payments 14,238
Less current portion (14,238)
----------
Long-term portion of capital lease obligations $ -
==========
</TABLE>
NOTE 7 - INCOME TAXES
- ---------------------
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109) requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
Company's book and tax bases of assets and liabilities and tax carryforwards
using enacted tax rates in effect for the year in which the differences are
expected to reverse. The principal tax carryforwards and temporary
differences giving rise to the Company's deferred taxes consist of tax net
operating loss carryforwards, differences in book and tax accounting for
depreciation, bonuses, compensated absences, deferred compensation, and
allowance for uncollectible accounts.
<PAGE>
<TABLE>
<CAPTION>
The Company's deferred tax assets and liabilities were as follows:
<S> <C> <C>
March 31, March 31,
1998 1997
Deferred tax assets
Nondeductible reserves and allowances $ 879,000 $ 496,000
Net operating loss carryforwards 116,000 202,000
Accelerated depreciation 462,000 589,000
AMT Credit 41,000 106,000
Other 254,000
------------- -------------
1,468,000 1,647,000
Valuation allowance - -
------------- -------------
$ 1,468,000 $ 1,647,000
============= =============
Deferred tax liabilities
Accounts receivable $ 605,000 $ -
Other 173,000 $ 383,000
------------- -------------
$ 778,000 $ 383,000
============= =============
Net deferred tax assets $ 690,000 $ 1,264,000
============= =============
</TABLE>
<TABLE>
<CAPTION>
Provision for income taxes consist of the following:
Year Ended March 31,
1998 1997 1996
<S> <C> <C> <C>
Federal - Current $ 267,000 $ 200,000 $ 30,000
State and local - Current 150,000 148,000 135,000
Deferred 574,000 (192,000) (30,000)
------------- ------------- -------------
$ 991,000 $ 156,000 $ 135,000
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
A reconciliation of the statutory to the effective rate of the Company is as follows:
March 31,
1998 1997 1996
<S> <C> <C> <C>
Tax provision using statutory rate $ 817,000 $ 651,000 $ 555,900
Goodwill 79,000 75,000 71,400
Valuation Allowance and other - (1,156,000) (624,000)
State and local taxes, net of federal benefit 186,000 155,000 89,100
Other, net (91,000) 431,000 42,600
------------- ------------- -------------
$ 991,000 $ 156,000 $ 135,000
============= ============= =============
</TABLE>
<PAGE>
Prior to 1997 the Company had provided a valuation allowance against net
deferred tax assets based upon management's estimation (at that time) of
realizability of those assets through future taxable income. This valuation
was based in large part on the Company's history of generating operating
income or losses and expectations for the future. Over time the Company
demonstrated an ability to generate operating income such that it became more
likely than not that the deferred tax assets would be realized through future
taxable income and, in accordance with generally accepted accounting
principles for income tax accounting, in 1997 the valuation allowance was
removed. The Company's ability to generate the expected amounts of taxable
income from future operations is dependent upon general economic conditions,
competitive pressures on revenues and margins and legislation and regulation
at all levels of government. There can be no assurances that the Company will
meet its expectations of future taxable income. However, management has
considered the above factors in reaching its conclusions that it is more
likely than not that future taxable income will be sufficient to fully utilize
the deferred tax assets as of March 31, 1998 and 1997.
NOTE 8 - STOCK OPTIONS AND WARRANTS
- -----------------------------------
Employee Stock Option Plans
1. The Company has a Nonqualified Stock Option Plan which provides for the
granting of options to key employees, officers, and directors, to purchase up
to 220,000 shares of the Company's common stock. The Board of Directors will
determine the amount and terms of the options which cannot exceed ten years.
2. The Company has an Incentive Stock Option Plan providing key employees,
officers, and directors, options to purchase up to 80,000 shares of the
Company's common stock. Generally, these options expire ten years after the
date of grant, while options held by individuals owning more than 10% of the
Company's common stock expire after five years. The option price cannot be
less than the fair market price of the common stock at the date granted and
the options are not exercisable during the first year.
3. The Company has a Supplemental Nonqualified Stock Option Plan which
provides options for the purchase up to 40,000 shares of the Company's common
stock to key employees and non-employee consultants. The Board of Directors
will determine the amount and terms of the options, which cannot exceed ten
years.
4. The Company has a 1991 Long-term Incentive Nonqualified Stock Option Plan
which provides options to purchase up to 500,000 shares of the Company's
common stock to key employees, officers, and directors. The Board of
Directors will determine the amount and terms of the options, which cannot
exceed ten years.
5. The Company has a 1993 Stock Option Plan for Non-employee Directors which
provides options to purchase up to 120,000 shares of the Company's common
stock to directors who are not employees. Each newly elected director or any
director who does not possess options to purchase 10,000 shares of the
Company's common stock will automatically be granted options to purchase
10,000 shares of common stock at an exercise price based on the market price
as of the date of grant.
<PAGE>
<TABLE>
<CAPTION>
Changes in qualified options, non-qualified options, and supplemental non-qualified options
and warrants outstanding are summarized as follows:
Warrants Options
Wtd. Avg Wtd. Avg
Shares Ex. Price Shares Ex. Price
<S> <C> <C> <C> <C>
March 31, 1995 286,600 $12.15 551,580 $8.61
Granted - 135,000 $6.30
Exercised - -
Terminated - 163,280 $9.26
------- -------
March 31, 1996 286,600 $12.15 523,300 $7.82
Granted - 41,500 $6.30
Exercised - -
Terminated 20,000 $13.75 26,000 $4.34
March 31, 1997 266,600 $12.03 538,800 $7.87
------- -------
Granted - 46,500 $8.11
Exercised - 1,000 $7.81
Terminated - 151,300 $8.57
------- -------
March 31, 1998 266,600 $12.03 433,000 $7.65
======= =======
<FN>
At March 31, 1998 and 1997, 266,600 warrants were exercisable. The following table details exercisable
options and related information:
</TABLE>
<TABLE>
<S> <C> <C>
1998 1997
Excercisable at end of year 350,000 420,000
Weighted Average Exercise Price $7.80 $8.18
Weighted Average of Fair Value
of options Granted during the year $5.01 $4.26
</TABLE>
<PAGE>
The Company applies APB Opinion 25 and related interpretations in accounting
for its stock option plans. In 1995, Statement of Financial Accounting
Standards No. 123 "Accounting for Stock Based Compensation" (SFAS 123) was
issued and, if fully adopted, changes the method of recognition of costs on
plans similar to the Company's. The Company adopted the disclosure-only
provisions of SFAS 123. Accordingly, no compensation cost has been recognized
for the Company's stock option plans. Had compensation cost for the stock
option plans been determined based upon the fair value at the grant date for
the awards in 1998 and 1997 consistent with the provisions of SFAS 123, the
effect on net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Net Income: As Reported $ 1,411,811 $ 1,759,370 $ 1,575,283
Pro Forma 1,274,061 1,582,801 1,505,649
Basic EPS: As Reported $ 0.45 $ 0.56 $ 0.50
Pro Forma 0.41 0.51 0.48
Diluted EPS: As Reported $ 0.45 $ 0.56 $ 0.50
Pro Forma 0.40 0.50 0.48
<FN>
Because the SFAS 123 method of accounting has not been applied to options award prior to April 1, 1995, the
resulting pro forma compensation cost may not be representative of that to be expected in future years.
</TABLE>
<TABLE>
<CAPTION>
The following table summarizes information about stock options outstanding at March 31, 1998:
Options Outstanding Options Exercisable
<S> <C> <C> <C> <C> <C>
Outstanding Wtd. Avg. Exercisable
Range of As of Remaining Wt. Avg. As of Wt. Avg.
Ex. Price March 31, 1998 Contractual Life Ex. Price March 31, 1998 Ex. Price
------------------------------------------------- --------------------------------------------
$1.95 19,500 1.9 $ 1.95 19,500 $ 1.95
$ 5.50 - 6.50 138,000 6.2 $ 6.15 93,240 $ 6.15
$ 7.00 - 8.13 90,800 7.5 $ 7.97 52,425 $ 7.91
$ 8.75 - 9.69 181,100 3.7 $ 9.06 181,100 $ 9.06
$16.55 - 20.00 3,600 1.4 $ 17.01 3,600 $ 17.01
-------- --------
$ 1.95 - 20.00 433,000 5.2 $ 7.65 349,865 $ 7.80
======== ========
</TABLE>
The fair value of each option award is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for awards in 1998 and 1997 respectively: risk-free interest
rates of 5.8% and 6.5%, expected volatility of approximately 51% and 59%,
expected lives of 7.5 years for both 1998 and 1997, and no expected dividend
yields for both 1998 and 1997
<PAGE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
(a) Operating Leases
The Company leases certain real estate, office space, vehicles and equipment
under noncancellable operating leases expiring at various dates through 2008.
Rent expense amounted to approximately $4.5, $3.5, and $2.6 million for 1998,
1997, and 1996, respectively. At March 31, 1998 the minimum rental payments
under these leases are as follows:
1999 $4,822,000
2000 3,571,000
2001 3,088,000
2002 2,058,000
2003 1,459,000
(b) Employment Contracts
The Company has entered into an employment contract with an officer. In
connection with this contract, the Company is contractually obligated to pay
an annual base salary of $190,000 for three years. In addition, the agreement
contains contingent obligations associated with performance bonuses and
severance.
(c) Medical Malpractice Claims
The Company has insurance coverage with respect to medical malpractice
risks. The malpractice insurance coverage provides coverage up to $1,000,000
per occurrence, and has no deductible for which the Company would be
responsible.
It is the Company's policy to record losses from asserted and unasserted
claims identified by the Company and unreported claims based on estimates that
incorporate the Company's past experience, as well as other considerations
including the nature of each claim or incident and relevant trend factors.
Based on these factors and the Company's insurance coverage, no accrual for
potential losses attributable to asserted and unasserted claims has been
recorded in the accompanying financial statements.
(d) Legal Proceedings
The Company is currently, and from time to time, subject to claims and suits
arising in the ordinary course of its business, including claims for damages
for personal injuries. In the opinion of management, the ultimate resolution
of any of these pending claims and legal proceedings will not have a material
effect on the Company's financial position or results of operations.
On January 26, 1994 Franklin Capital Associates, Aetna Casualty and Surety and
Aetna Life and Casualty, shareholders, who at one time held approximately
320,000 shares of the Company's common stock (approximately 13% of shares
outstanding) filed suit in Chancery Court of Williamson County, Tennessee
claiming unspecified damages not to exceed three million dollars in connection
with registration rights they received in the Company's acquisition of
National Health Industries in February 1991.
<PAGE>
The suit alleges the Company failed to use its best efforts to register the
shares held by the plaintiffs as required by the merger agreement. The
Company believes it has meritorious defenses to the claims and does not expect
that the ultimate outcome of the suit will have a material impact on the
Company's results of operation, liquidity or financial position. The Company
plans to vigorously defend its position in this case. No amounts have been
recorded in the accompanying financial statements related to this suit.
In January 1997, Aetna Life & Casualty withdrew its claim against the Company
without prejudice.
NOTE 10 - QUARTERLY FINANCIAL DATA (UNAUDITED)
- ---------------------------------------------
<TABLE>
<CAPTION>
Summarized quarterly financial data for years ended March 31, 1998 and 1997
are as follows (in thousands expect per share data):
1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------- -------------------------------------
First Second Third Fourth First Second Third Fourth
------------------------------------- -------------------------------------
Net Revenues $21,521 $22,834 $23,436 $27,392 $17,746 $19,158 $19,630 $20,239
Gross Profit 4,443 4,882 4,744 5,402 3,699 4,305 4,253 4,247
Net Income 293 415 410 294 368 465 512 414
Per Share
Basic $ 0.09 $ 0.13 $ 0.13 $ 0.09 $ 0.12 $ 0.15 $ 0.16 $ 0.13
Diluted $ 0.09 $ 0.13 $ 0.13 $ 0.09 $ 0.12 $ 0.15 $ 0.16 $ 0.13
</TABLE>
NOTE 11 - ACQUISITIONS
- ----------------------
In the fourth quarter of fiscal 1998 the Company completed four separate
acquisitions of home and community-based health care businesses in
transactions accounted for as purchases. The results of operations for these
business have been included in the accompanying financial statements from the
date of each acquisition. The aggregate purchase was approximately $10
million of which approximately $4.4 million was paid in cash with the balance
assumed in liabilities. The transactions resulted in approximately $6 million
of cost in excess of net assets acquired (goodwill) which is being amortized
on a straight line basis over its estimated useful life (twenty years). The
allocation of purchase price for these acquisitions has been based on
estimates and information currently available, and, in accordance with
generally accepted accounting principles is subject to change as additional
information becomes available. The impact of the above acquisitions were not
significant for any of the periods presented and, accordingly, proforma
amounts are not presented illustrating the effects of such acquisitions.
<PAGE>
Report of Independent Public Accountants
To the Stockholders of Caretenders Health Corp.:
We have audited the accompanying consolidated balance sheets of Caretenders
Health Corp. (a Delaware corporation) and subsidiaries as of March 31, 1998
and 1997 and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended March
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Caretenders Health Corp. and
subsidiaries as of March 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1998 in conformity with generally accepted accounting
principles.
ARTHUR
ANDERSEN LLP
Louisville, Kentucky
June 5, 1998
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is set forth the Registrants definitive
proxy materials of the Company to be filed with the Commission no later than
120 days after March 31, 1998, except for the information regarding executive
officers of the Company, which is contained in Item 1 of Part I report. The
information required by this Item contained in such definitive proxy materials
is incorporated herein by reference.
The following table sets forth certain information with respect to the
Company's directors and executive officers.
Name Age Position with the Company
- -----------------------------------------------------------------
William B. Yarmuth (1) 46 Chairman of the Board President
and Chief Executive Officer
C. Steven Guenthner (2) 37 Senior Vice President and
Chief Financial Officer
Mary A. Yarmuth (3) 51 Senior Vice President - Service
Development
Ric Pritchard (4) 43 Senior Vice President --
Operations
Todd Lyles (5) 35 Senior Vice President - Planning
and Development
Steven B. Bing (6) 51 Director
Patrick B. McGinnis (7) 51 Director
Donald G. McClinton (8) 64 Director
Tyree G. Wilburn (9) 46 Director
Jonathan Goldberg (10) 46 Director
Wayne T. Smith (11) 52 Director
*Such individuals are not deemed to be executive officers of the Company
pursuant to Rule 16-a(1)(f) promulgated under Section 16 of the Securities
Exchange Act of 1934
Executive officers of the Company are elected by the Board of Directors for
one year and serve at the pleasure of the Board of Directors with the
exception of William B. Yarmuth who has an employment agreement with the
Company. See Item 11 -- William B. Yarmuth Employment Agreement. Mary A.
Yarmuth is married to William B. Yarmuth. There are no other family
relationships between any director or executive officer.
Each Director is elected to hold office until the next annual meeting of
stockholders and until a successor is elected and qualified.
(1) William B. Yarmuth has been a director of the Company since 1991, when
the Company acquired National, where Mr. Yarmuth was Chairman, President
and Chief Executive Officer. After the acquisition, Mr. Yarmuth became
the President and Chief Operating Officer of the Company. Mr. Yarmuth
became Chairman and CEO in 1992. He was Chairman of the Board, President
and Chief Executive Officer of National from 1981 to 1991.
<PAGE>
(2) C. Steven Guenthner has been Senior Vice President and Chief Financial
Officer of the Company since 1992. From 1983 through 1992 Mr. Guenthner
was employed as a C.P.A. with Arthur Andersen LLP. Prior to joining the
Company he served as a Senior Manager in the firm's Accounting and Audit
division specializing in mergers and acquisitions, public companies and
the healthcare industry.
(3) Mary A. Yarmuth has served as Senior Vice President of the Company since
1991, currently as Senior Vice President of Service Development. From
1985 to 1991 Ms. Yarmuth served as President of the Company's Nursing
Division. Ms.Yarmuth joined National in 1981.
(4) Ric Pritchard has served as Senior Vice President Operations of the
Company since February of this year. Ric has been in the field of Home
Healthcare since 1981 in the areas of Home Infusion, HME, Managed Care
and Home health Nursing. His functional responsibilities have encompassed
sales, sales management, operations, operations management, managed care
contracting and management and senior management with American Hospital
Supply Corp./Baxter, Healthdyne/ HNS/ NMC Homecare and Olsten Health
Services, Inc.
(5) P. Todd Lyles joined the Company as Senior Vice President Planning and
Development in October 1997. Prior to joining the Company Mr. Lyles was
Vice President Development for the Kentucky Division of Columbia/HCA, a
position he had held since 1993. Mr. Lyles experience also includes
includes 8 years with Humana Inc. in various financial and hospital
management positions.
(6) Steven B. Bing was elected a Director in January 1992. Mr. Bing is an
employee of R. Gene Smith, Inc., a private investment company located in
Louisville, Kentucky. From 1989 to March 1992, Mr. Bing was President of
ICH Corporation, an insurance holding company. From 1984 to 1989, he
served as Senior Vice President of ICH Corporation. He is also a
director of the University of Louisville, First Alliance Corporation, and
various closely-held business entities.
(7) Patrick B. McGinnis was elected a director in October 1994. Mr. McGinnis
is the co-founder of Healthcare Recoveries, Inc. and serves as the
company's chairman and CEO. Healthcare Recoveries, Inc. is a provider of
subrogation and other claims recovery services to the healthcare
industry. From 1979 to 1988, Mr. McGinnis was Vice President-Finance and
Planning for Humana, Inc.
(8) Donald G. McClinton was elected a director in October 1994. From 1986 to
1994, Mr. McClinton was co-chairman of Interlock Industries, Inc., a
privatelyheld company engaged in metal fabrication, corrugated container
manufacturing, aluminum processing and transportation. Presently, Mr.
McClinton is President and part owner of Skylight Thoroughbred Training
Center. Inc., a thoroughbred course training center. He is also a
director of Jewish Hospital Systems,Inc., and Mid-America Bancorp.
(9) Tyree G. Wilburn was elected a director in January 1996. Mr. Wilburn is
a private investor. From 1992 to 1996, Mr. Wilburn was Chief Development
Officer of Community Health Systems, Inc. and, most recently, Executive
Vice President and Chief Financial and Development Officer. From 1974 to
1992 Mr. Wilburn was with Humana Inc. where he held senior and executive
positions in mergers and acquisitions, finance, planning, hospital
operations, audit and investor relations. He is also a director of
Health Directions, Inc.
<PAGE>
(10) Jonathan Goldberg was elected a director in February 1997. Mr. Goldberg
is the managing partner of the law firm of Goldberg and Simpson and has
served in that capacity for the last five years.
(11) Wayne T. Smith was elected a director in March 1997. Mr. Smith is
President and Chief Executive Officer of Community Health Systems, Inc.
Mr. Smith was President and Chief Operating Officer of Humana, Inc. from
1993 to 1996 and has served with Humana from 1973 to 1993 in various
capacities,including numerous vice president and divisional president
positions.
ITEMS 11, 12 AND 13. EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The Registrant intends to file a definitive proxy statement with the
Commission pursuant to Regulation 14A (17 CFR 240.14a) not later than 120 days
after the close of the fiscal year covered by this report. In accordance with
General Instruction G(3) to Form 10-K, the information called for by Items 11,
12 and 13 is incorporated herein by reference to the definitive proxy
statement. Neither the report on Executive Compensation nor the performance
graph included in the Company's definitive proxy statement shall be deemed
incorporated herein by reference.
<PAGE>
PART IV
Item 14. Exhibits and Financial Statement Schedules and Reports on Form 8-K.
Page Number
(a)(1) Index to Consolidated Financial Statements
Consolidated Statements of Income for the three years
ended March 31, 1998, 1997, and 1996 31
Consolidated Balance Sheets - March 31, 1998 and 1997 32
Consolidated Statements of Stockholders' Equity for
the three years ended March 31, 1998, 1997, and 1996 33
Consolidated Statements of Cash Flows for the three years
ended March 31, 1998, 1997, and 1996 34
Notes to Consolidated Financial Statements 35-48
Report of Independent Public Accountants 49
(a)(2) Index to Financial Statement Schedule
Report of Independent Public Accountants 58
Schedule II - Valuation and Qualifying Accounts S-1
All other Schedules have been omitted because they are either not required,
not applicable or, the information has otherwise been supplied in the
financial statements or notes thereto.
<PAGE>
(a)(3) Exhibits (* denotes filed herein)
Exhibit
Number Description of Exhibit
- ------- ----------------------
3.1 Certificate of Incorporation, as amended
3.2 Amended and Restated By-laws
4.1 Credit Agreement by and between the Company and First National Bank
of Louisville and AmSouth Bank, N.A., and HEALTHSOUTH Rehabilitation
Corporation, as guarantor, dated as of June 29, 1992 with exhibits
(incorporated by reference to Exhibit 10.88 to the Registrant's Form
S-1 Reg.33-46565 dated April 23, 1993)
4.2 Medical Claims, Revolving Loan Agreement, Revolving Credit Note and
exhibits between the Company and Heller Financial dated June 20,
1994
4.3 Other Debt Instruments -- copies of other debt instruments for which
the total debt is less than 10% of assets will be furnished to the
Commission upon request.
10.1 Form of Lender's Notes and Lenders' Warrants (Incorporated by
Reference to Exhibit 10.3 to the Registrant's Registration Statement
on Form S-1 Reg. No. 33-8158 effective December 2, 1986)
10.2 Stockholders and Noteholders Agreement, dated February 5, 1991, by
and among the Company, Senior Kentucky, Inc., National Health
Industries,Inc., Franklin Capital Associates, L.P., Aetna Life and
Casualty Company, The Standard Fire Insurance Company and the
holders of National's common stock(Incorporated by reference to
Exhibit 2.3 to the Registrant's Report on Form 8-K, dated February
5, 1991)
10.3 Nonqualified Stock Option Plan, as amended (Incorporated by
reference to the Registrant's Registration Statement on Form S-8
Reg. No. 33-20815)
10.4 Supplemental Nonqualified Stock Option Plan (Incorporated by
reference to Exhibit 19.4 to the Registrant's Report on Form 10-Q
for the Quarter Ended November 30, 1987 Commission File No. 15342)
10.5 Incentive Stock Option Plan, as amended (Incorporated by reference
to the Registrant's Registration Statement on Form S-8 Reg. No.
33-20815)
10.6 Indemnity Agreement, effective as of October 15, 1987, between
Senior Service Corporation and Robert S. Shulman (Incorporated by
Reference to Exhibit 10.46 to the Registrant's Post-Effective
Amendment No. 3 to its Registration Statement on Form S-1 Reg. No.
33-8158)
<PAGE>
10.7 Amendment to the Senior Service Corporation 1987 Nonqualified Stock
Option Plan (Incorporated by reference to Exhibit 19.3 to the
Registrant's Report on Form 10-Q for the quarter ended November 30,
1989)
10.9 Provider Agreement, dated May 24, 1989, between the Maryland State
Department of Health and Mental Hygiene and Towson Community Adult
Day Care (Incorporated by reference to Exhibit 10.70 to the
Registrant's Post-Effective Amendment No. 4 to its Registration
Statement on Form S-1 File No. 33-8158)
10.22 1991 Long-Term Incentive Plan
10.23 Warrant Agreement, dated June 29, 1991, between the Company and
HEALTHSOUTH Rehabilitation Corporation (incorporated by reference to
Exhibit 10.88 to the Registrant's Form S-1 Reg. 33-46565 dated April
23, 1993)
10.24 Employment Agreement, dated January 1. 1996, between the Company and
William B. Yarmuth
10.25 Asset Sale Agreements between the Company and Columbia/HCA
Healthcare Corporation
10.26* Management Services Agreement between the Company and Columbia/HCA
Healthcare Corporation
10.27* Asset Purchase Agreement between the Company and Home Care
Solutions, Inc.
10.28* Asset Purchase Agreement between the Company and Metro Home Care,
Inc.
10.29* Asset Purchase Agreement between the Company and Visiting Nurse
Association of Palm Beach County, Inc.
22* List of Subsidiaries of Caretenders Health Corp.
24.1* Consent of Arthur Andersen LLP
27* Financial Data Schedule
(b) Reports on Form 8-K
None.
(c) Exhibits
Described in Item 14(a)(3) of this report
(d) Financial Statement Schedules
Described in Item 14(a)(2) of this report
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CARETENDERS HEALTH CORP.
July 10, 1998
By /s/ William B. Yarmuth
William B. Yarmuth
Chairman, President and Chief Executive Officer
By /s/ C. Steven Guenthner
C. Steven Guenthner
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated:
By /s/ William B. Yarmuth July 10, 1998
William B. Yarmuth Date
Director
By /s/ Patrick B. McGinnis July 10, 1998
Patrick B. McGinnis Date
Director
By /s/ Donald G. McClinton July 10, 1998
Donald G. McClinton Date
Director
By /s/ Steven B. Bing July 10, 1998
Steven B. Bing Date
Director
By /s/ Tyree Wilburn July 10, 1998
Tyree Wilburn Date
Director
By /s/ Jonathan Goldberg July 10, 1998
Jonathan Goldberg Date
Director
By /s/ Waynt T. Smith July 10, 1998
Wayne T. Smith Date
Director
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To the Stockholders of Caretenders Health Corp.:
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
Financial Statement Schedule is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
June 5, 1998
<PAGE>
<TABLE>
<CAPTION>
CARETENDERS HEALTH CORP AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
Col. A Col. B Col. C Col. D Col. E
Additions
(1)
Balance at Charged to Charged to
Beginning of Costs Other (2) Balance at
Description Period and Expenses Accounts Deductions End of Period
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1998:
Allowance for bad debts $ 3,153,145 $ 2,634,985 $ - $ 2,096,793 $ 3,691,337
Year ended March 31, 1997:
Allowance for bad debts $ 2,884,743 $ 2,215,537 $ - $ 1,947,135 $ 3,153,145
Year ended March 31, 1996:
Allowance for bad debts $ 2,910,272 $ 1,668,844 $ - $ 1,694,373 $ 2,884,743
<FN>
(1) Charged to bad debt expense.
(2) Write-off of accounts.
</TABLE>
<PAGE>
CARETENDERS HEALTH CORP
LIST OF SUBSIDIARIES
AS OF MARCH 31, 1998
EXHIBIT 22
Subsidiaries of Caretenders Health Corp
- ---------------------------------------
Adult Day Care of America, Inc.
Adult Day Care of Louisville, Inc.
Adult Day Care of Maryland, Inc.
HouseCalls, Inc.
Adult Day Clubs of America Joint Venture, Ltd.
SEI Publishing Corporation
National Health Industries, Inc.
HHJC Holdings, Inc.
Pro-Care Home Health of Broward, Inc.
Subsidiaries of National Health Industries, Inc.
- ------------------------------------------------
Freelife Medical Equipment, Inc.
Caretenders Homecare,Inc.
Caretenders Infusion of Birmingham, Inc.
Caretenders of Birmingham, Inc.
Caretenders of Boston, Inc.
Caretenders of Cincinnati, Inc.
Caretenders of Columbus, Inc.
Caretenders of Elizabethtown, Inc.
Caretenders of Indiana, Inc.
Caretenders of Indianapolis, Inc.
Caretenders of Lincoln Trail, Inc.
Caretenders of Louisville, Inc.
Caretenders of New Jersey, Inc.
Caretenders of Northern Kentucky, Inc.
Caretenders of Richmond, Inc.
Caretenders of the Bluegrass, Inc.
Caretenders Visiting Services of Richmond, Inc.
House Calls of America, Inc.
Caretenders Infusion Corp.
Metro Home Care, Inc.
National Orthopedic & Rehabilitation Services, Inc.
Physician Affiliates, Inc.
Special Healthcare Services, Inc.
Reliable Home Healthcare, Inc.
Caretenders Visiting Services of Cincinnati, Inc.
Caretenders of Cleveland, Inc.
Caretenders Visiting Services of Columbus, Inc.
Caretenders of Fort Lauderdale, Inc.
Caretenders of Evansville, Inc.
Caretenders of West Palm Beach, Inc.
Caretenders Visiting Services of Indianapolis, Inc.
Caretenders of Charlotte, Inc.
Caretenders Visiting Services of Southwest FL, Inc.
Caretenders of Southwest Florida, Inc.
Caretenders Visiting Services of Southeast FL, Inc.
Subsidiary of HHJC Holdings, Inc.
- ---------------------------------
Home Health of Jefferson County, Inc.
Caretenders of Marshall County, Inc.
<PAGE>
EXIBIT 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
- -----------------------------------------
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-33601 relating to the Company's Incentive
Stock Option Plan, Registration Statement File No. 33-81122 related to the
1987 Nonqualified Stock Option Plan, Registration Statement No. 33-881100
related to the 1993 Non-Employee Directors Stock Option Plan, and Registration
Statement No. 33-81124 related to the 1991 Long-Term Incentive Plan.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
July 13, 1998
AGREEMENT
AGREEMENT made as of the 1st of July, 1994, between NATIONAL HEALTH
INDUSTRIES, INC., a Delaware corporation, with its principal office at 9200
Shelbyville Road, Louisville, Kentucky 40222 (hereinafter referred to as
"Management Co."), and GALEN OF KENTUCKY, INC. d/b/a AUDUBON REGIONAL MEDICAL
CENTER, a Kentucky corporation, with its principal office at One Audubon Plaza
Drive, Louisville, Kentucky 40217 (hereinafter referred to as the "Hospital").
W I T N E S S E T H:
WHEREAS, the Hospital maintains a department which operates as a home health
agency known as "Caretenders". (the "Agency");
WHEREAS, Management Co. and it's subsidiaries (collectively, "Management Co.")
provide management services suited to and designed for the operation of home
health agencies; and
WHEREAS, Management Co. desires to provide management services to the
Agency, and the Hospital desires to procure such services from Management
Co. for the Agency, pursuant to the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. RETENTION OF MANAGEMENT CO.: AUTHORITY
Subject to the terms and conditions of this Agreement, the Hospital hereby
retains Management Co. to provide management services for the Agency, and
Management Co. hereby accepts such retention by the Hospital. Pursuant to this
Agreement, Management Co. shall have the authority and responsibility to
manage, supervise and administer the day-to-day operations of the Agency
subject at all times to the Hospital's ultimate responsibility for and
authority over the governance, management and operations of the Agency, and
Management Co.'s compliance with (a) the policies and procedures adopted by
the Hospital and the Agency from time to time, (b) specific and general
directives from the Hospital's and the Agency's governing board(s) and
management and (c) all applicable laws, rules and regulations, including,
without limitation, the Medicare Conditions of Participation for Home Health
Agencies, now set forth at 42 C.F.R. 484.1 et seq., as amended or recodified
from time to time or any substitute or successor regulations (the
"Conditions").
<PAGE>
2. OBLIGATIONS OF MANAGEMENT CO.
During the term of this Agreement, subject to the limitations set forth
in Section 1 and subject to the obligations of the Hospital set forth herein,
Management Co. shall, as requested perform the services set forth below:
(a) Supervise the general operations of the Agency, as follows:
(i) Provide on-site consultation for management regarding policy development;
(ii) Provide strategic planning and analysis of the Agency's integration into
the Hospital's mainstream operations;
(iii) Assist in maintaining, renewing and supplementing all local, state
and federal applications, certifications, licenses, forms and permits
necessary or appropriate for the operation of the Agency;
(iv) Assist in maintaining the Agency's compliance with all governmental laws,
rules and regulations, including the Conditions;
(v) Supervise the preparation for and assist in the conduct of
the Agency's regulatory surveys and inspections, as follows:
(1) Assist the Agency in maintaining appropriate state
licensure as a home health agency. Management Co. will use
its best efforts to the Agency in remedying any
deficiencies identified by the state licensing authority.
(2) Assist the Agency in maintaining certification to participate in
Medicare, Medicaid and other reimbursement programs in which the Agency
participates. Management Co. will use its best efforts to assist the
Agency in remedying any deficiencies identified by such programs.
(3) Assist the Agency in maintaining certification by the Joint
Commission the Accreditation of Healthcare Organizations ("JCAHO").
Management Co. will use its best efforts to assist the Agency in
remedying any deficiencies identified by JCAHO;
(vi) Assist in the negotiation and maintenance of the Agency's contractual
arrangements with service providers and lessors;
(vii)Supervise plant and equipment maintenance and
(viii)Assist in the design, implementation and maintenance of operating,
organizational, office and personnel policies and procedures for the Agency;
(ix) Assist and advise the Agency regarding administrative personnel matters;
and
(x) Provide assistance with other daily administrative functions, as
requested;
(xi) Provide on-site training for home care coordinators and on generally
accepted methodologies for conducting the services of the Agency;
(xii)Provide tracking, analysis and reporting for all referrals,
categorized by physician, hospital and hospital department; and
(xiii)Participate in public, marketing and educational, business plan
preparation and the development of the Agency's services by providing formats
for community awareness and other activities.
<PAGE>
(b) Assist in the development of the Agency's business, services and
relations, as follows:
(i) Provide on-site training for home care coordinators and
general on accepted methodologies for promoting the
services of the Agency;
(ii) Provide tracking, analysis and reporting for all
referrals, categorized by physician, hospital and hospital
department; and
(iii)Assist in public, marketing and educational, business
plan preparation and the development of the Agency's
services by providing
formats for community awareness and other activities.
(c) Oversee and manage the clinical staff and clinical operations of the
Agency, as follows:
(i) Assist the Agency in the recruiting of clinical personnel
and assist and advise the Agency with respect to other
clinical personnel matters;
(ii) Provide on-site consultation regarding the development and
implementation of clinical policies;
(iii)Design and assist in the implementation of Continuous
Quality Improvement Strategies (CQI) and patient
satisfaction measures for the Agency;
(iv) Assist in the development and implementation of quality
assurance and utilization review policies;
(v) Provide staff to conduct training programs and seminars
for professional and non-professional administrative and
clinical personnel of the Agency, as necessary, and
provide staff development and staff training
modules for clinical staff;
Hold staff development and departmental meetings with applicable Agency and
Management Co. personnel, as necessary;
Provide analyses and evaluations of staffing patterns in relation to patient
mix, scope of services and number of disciplines;
Assist and advise the Agency regarding the maintenance of a medical records
system, and
Perform, directly or under arrangement, medical record/utilization review
audits, as necessary.
(d) Assist the Hospital in managing the financial affairs of the Agency, as
follows:
(i) Perform all billing and collecting activities in a manner consistent with
that utilized by the Management Co. for its other agencies. Management Co.
shall perform those services in accordance with applicable Medicare and
Medicaid guidelines, including, without limitation, requirements for the
timely submission of claims;
(ii) Monitor payments to the Agency and oversee the Agency's collection
system;
(iii)Monitor and review the posting of cash receipts;
(iv) Maintain, review and monitor Medicare/Medicaid logs;
(v) Supervise the follow-up on outstanding receivables;
<PAGE>
(vi) Review and monitor transaction logs;
(vii) Consult in the processing and payment of the Agency's accounts payable
and payroll;
(viii) Assist in the preparation of the annual budget of the Agency; and
(ix) Consult with and assist the Hospital's accounting staff and outside
accountants, as necessary.
(x) Provide billing and collecting activities with monthly reconciliations.
(e) Manage the aspects of the operations of the Agency that are affected by
third party reimbursement, as follows. Management Co. agrees to continue to
provide the services described in Subsections (vi) - (ix) below as may be
reasonably requested by the Agency following expiration or termination of this
Agreement by either party, without additional charge to the Hospital, until
all cost reports pertaining to patient visits provided prior to the
expiration or termination of this Agreement have been filed. Management Co.
will also provide reasonable billing, collection and computer services
pertaining to visits performed prior to the expiration or termination of this
Agreement for the period ending six (6) months after expiration or termination
of this Agreement without additional charge to the Hospital. Management Co.
will, after the date of expiration or termination of this Agreement and
upon reasonable request of the Hospital provide other services of the type and
nature specified in this Agreement in return for which Management Co. will be
compensated at a rate of one hundred fifty dollars ($150.00) per hour.
Management Co. shall not be required to provide any services under this
Agreement after the Agency has reached final settlement of all cost reports
pertaining to patient visits provided prior to the expiration or termination
of this agreement:
(i) Review and assist in preparation of monthly cost reports
for purposes of internal management information;
(ii) Review and assist the Hospital's reimbursement staff in
the preparation of all quarterly interim rate computations,
periodic reimbursement reports, annual cost reports and other
required data and reports for the Hospital's submission to the
Agency's Medicare fiscal intermediary, Medicaid and other third
party payors, as may be necessary under the provision of laws,
rules, regulations and general instructions of Medicare,
Medicaid or any other local, state, federal or other program in
which the Agency participates;
(iii)Provide on-site reimbursement consulting, as
necessary and periodic reimbursement reports;
(iv) Assist the Hospital's reimbursement staff in developing
specific reimbursement policies for the Agency;
(v) Monitor all cost cap and therapy 1imitations published by
third party payors in light of applicable requirements;
(vi) Assist in the preparation for and conduct of Medicare and
Medicaid audits, and attend all exit conferences;
(vii)Review initial reimbursement settlements and proposed
audit adjustments and prepare commentary for submission to the
relevant authorities (e.g., the Medicare fiscal intermediary),
as necessary;
(viii)Provide consultation regarding correspondence with
governmental agencies and fiscal intermediaries, and provide
primary advice and research on reimbursement matters affecting
the Agency;
<PAGE>
(ix) Provide advice and assistance to the Agency in connection
with the pursuit and prosecution of reimbursement appeals; and
(x) Assist the Agency in maintaining and updating an
appropriate charge structure.
(f) Provide the following standby services:
(i) Provide clinical, administrative or financial consulting
personnel as may be necessary from time to time to assist in
the operation of the Agency;
(ii) Provide data to the Hospital related to local, regional
and national trends in home care as well as market research
data to which Management Co. may have access; and
(iii) Participate with the Hospital in the conducting of feasibility
studies, as necessary.
(g) Throughout the term of this Agreement, Management Co. shall
submit monthly and annual progress reports to the Hospital for the
Agency. Management Co.'s progress reports will address, among other
things, Management Co.'s success in meeting defined goals and
objectives for services and the Agency's operations, as set forth in
this Agreement, the Agency's business plan or as otherwise agreed
upon by the Hospital and Management Co.
(h) Management Co. shall provide Computer Services to the Hospital
and/or Agency according to the following terms and conditions:
(i) The system as defined by this document includes the
hardware supplied by Management Co. and all system and
application software residing on the hardware as supplied;
(ii) Management Co. is responsible for the maintenance of the
system in good operating condition throughout the term of this
Agreement through routine maintenance and repair. Management
Co. will provide twenty-four (24) hour per day, seven (7) day
per week, repair and maintenance services for the Hardware;
(iii) The cost associated with the correction of hardware
malfunctions shall be borne at all times by Management Co.
(iv) Management Co. will furnish the Agency with access to any
and all updates, modifications, improvements, revisions and
enhancements to the system software.
(v) Management Co. will provide assistance with development of
the interfaces between the system and the Hospital's computer
system.
(vi) Management Co. will provide upon reasonable request by the
Hospital, from time to time, and subject to any requirements
imposed on Management Co. by its hardware and software vendors,
routine minor modifications to the system. Services related to
customization and/or major modifications will be paid for by
the Hospital at Management Co.'s standard charges for time and
materials.
(vii) Any and all customized and/or modified software shall
remain the property of Management Co. or its software vendors
as an integral part of the system.
(viii) The components of the system located in the Agency's
offices shall be used for operating the system as described in
this agreement and for no other purpose. No software other than
the software furnished by Management Co. shall be utilized on
the system without prior written consent of Management Co.
<PAGE>
(ix) The Hospital and the Agency shall ensure that the
management and data entry personnel working in the Agency's
offices cooperate with Management Co. in the discharge of
Management Co.'s duties under this Agreement and comply with
the reasonable instructions provided by Management Co. from
time to time as to the proper use and functioning of the
system.
(x) Under no circumstances shall the Hospital make any
modifications, customizations or other revisions to the System
or any component of the system without prior written consent of
Management Co.
(xi) The Hospital acknowledges that the system and all of its
component parts (including, without limitation, specifications,
manuals and other documentation) are, and shall remain, the
sole and exclusive property of Management Co. At no time during
the term of this agreement or thereafter shall the Hospital
assign, sell, license, lease, duplicate, transfer, pledge or
encumber the system or any component part of the system. Upon
termination of this agreement, all of the Hospital's rights
with respect to the system shall terminate and Management Co.
shall be entitled to remove the components of the system
located in the Agency's offices.
3. OBLIGATIONS OF THE HOSPITAL
(a) The Hospital agrees that the Agency is and will continue to be,
subject to the obligations of Management Co. to provide the
management services set forth herein, operated and maintained as a
duly certified, licensed and accredited home health agency in
accordance with: (i) the Conditions; (ii) the provisions contained
in the Medicare "Home Health Agency Manual", HIM-ll, and other
applicable Medicare or Medicaid manuals and general instructions;
(iii) any and all other applicable federal, state or local laws,
rules or regulations; and (iv) all supplements, amendments,
substitutions or additions to any of the foregoing..
(b) The Hospital shall employ for the Agency, directly or under
arrangement, adequate clinical and administrative staff who are
capable of providing all of the Agency's clinical services and
performing its administrative duties, all in conformity with the
standards now or hereafter prescribed by any law, rule or regulation
which may be applicable to the operation of the Agency, including
the Conditions. Hospital shall consult with the Management Co., from
time to time, to determine whether there is adequate clinical and
administrative staff, and shall use its best efforts to comply with
Management Co.'s recommendations. Hospital's failure to provide
adequate clinical and administrative staff will preclude the
Management Co. from performing its duties hereunder.
(c) The Hospital shall, at all times, be ultimately responsible for
the direction and control of the Agency, including, but not limited
to, all professional and ethical affairs, all fiscal affairs and all
general operating policies.
(d) The Hospital and the advisory board of the Agency shall request
and receive recommendations from Management Co. and shall duly
consider all such recommendations concerning operations of the
Agency prior to adopting any changes in the policies, procedures,
directives or bylaws applicable to the Agency. A representative of
Management Co. shall be entitled to receive notice of and to attend
all meetings of the Agency's advisory board, other than meetings or
portions thereof devoted to a review of the performance of
Management Co. hereunder. At meetings or portions thereof attended
by Management Co., representatives of Management Co. shall be
permitted to participate in discussions of Agency operations, but
shall not be entitled to vote. The Hospital shall promptly deliver
or communicate to Management Co. a copy of resolutions, directives
and authorizations which in any way affect the services provided by
Management Co. under this Agreement.
<PAGE>
4. FEES
(a) In consideration of the services to be provided by Management
Co. pursuant to this Agreement, the Hospital shall pay to Management
Co. fees as set forth in Exhibit A attached hereto.
(b) Management Co. will bill the Hospital monthly by itemized
invoice for services provided during the preceding month. The
Hospital will pay invoices for fees within thirty (30) days of
receipt. All amounts not paid to Management Co. when due should bear
interest at the rate of 1 1/2 % per month until paid in full.
(c) In the event that Hospital or any of its affiliates acquires,
operates or affiliates with another home health agency in the
counties covered by this Agreement, and Hospital or any of its
affiliates do not engage Management Co. to manage said agency(s),
the management fee payable during any contract year to Management
Co. under this Agreement shall be the greater of the fee required by
Paragraph 4(a) or One Million Four Hundred Thousand Dollars
($1,400,000) per year, beginning in the year that this provision is
triggered and for each year thereafter until the expiration or
termination of the Agreement.
(d) Disallowance of Fees. Any fees paid to Management Co. by
Hospital pursuant to this Agreement that are not allowed by the
Medicare Program because they are not comparable with marketplace
prices for similar services, shall be forgiven or repaid by
Management Co. to the Hospital, and Hospital shall have no liability
to Management Co. for such disallowed fees; provided, however, that
such forgiveness or repayment shall not occur until thirty (30) days
after the later of (1) such time as the parties have exhausted such
administrative and legal remedies that they deem appropriate to
pursue to challenge the disallowance of such fees by the Medicare
Program, or (2) the completion of any arbitration as provided
herein.
(e) Challenge of Disallowance of Fees. In any challenge to a
disallowance of Management Co.'s fees, Management Co. shall be
entitled to participate fully in the challenge through counsel of
its own choosing. In the event that one hundred percent (100%) of
the disallowed amount results from the Medicare Program's
determination that the Management Co. fees were not comparable with
marketplace prices for similar services, Management Co. shall be
entitled to assume control of the challenge in the Agency's name. If
the Hospital elects not to pursue the matter or if, in the
reasonable judgment of Management Co., the Hospital is not
vigorously pursuing the challenge, Management Co. shall be entitled
to assume control of the challenge in the Agency's name.
(f) Settlement. The Hospital shall not be entitled, without the
prior written consent of Management Co., to enter into any
settlement or compromise of any such claim, where either (i) fifty
percent (50%) or more of the disallowed amount results from the
Medicare Program's determination that the Management Co. fees were
not comparable with marketplace prices for similar services; or (ii)
where the disallowance results in an indemnification liability of
Management Co. of greater than one hundred thousand dollars
($100,000.00) to Hospital.
(g) Allocation of Settlement. In the event that a global settlement
is reached, the parties will attempt to agree on a reasonable
allocation of the total disallowances, as settled. If the parties
are unable to reach agreement on the allocation within ninety (90)
days of the settlement, either party may submit the dispute to
arbitration as provided in Section 22.
(h) Costs of Appeals. Each party shall be responsible for its own
fees and expenses, including those of its legal counsel, in pursuant
reimbursement appeals hereunder.
(i) Effect of Termination. The rights and obligations of the
parties under Subsections (c) - (g) shall survive the termination of
this Agreement.
<PAGE>
(j) Damages. Under section 4(c), Hospital may have to pay
liquidated damages to Management Co. To the extent that liquidated
damages are paid under section 4(c), Hospital will not enforce the
indemnification provision under section 4(d) of the Management
Contrct.
5. PROPRIETARY MATERIALS AND INFORMATION; COVENANT NOT TO HIRE AWAY
EMPLOYEES
(a) The Hospital acknowledges and agrees that the various policy
and procedure manuals developed by Management Co. and used by
Management Co. in the provision of management services to home
health agencies, are proprietary in nature, shall be and remain
(along with any corresponding copyrights, patents or similar rights)
the sole property of Management Co. and shall not at any time be
directly or indirectly used, distributed, disclosed, copied or
otherwise employed by the Hospital, except in the operation of the
Agency under Management Co.'s management during the term of this
Agreement. Upon termination of this Agreement, the Hospital shall
return to Management Co. all such manuals (including all portions
and copies thereof) in the Hospital's possession or within its
control, shall use reasonable efforts to ensure that its employees
have not retained any such manuals or portions or copies thereof
and, upon request by Management Co., shall confirm compliance with
the foregoing in writing.
(b) The Hospital acknowledges that Management Co. has spent a great
deal of time, money and effort to recruit, hire and train qualified
personnel to provide management services to home health agencies
such as the Agency. Accordingly, during the term of this Agreement
and for a period of one (1) year thereafter, the Hospital shall not,
directly or indirectly, alone or with others, solicit, attempt to
solicit or otherwise induce or attempt to induce to leave Management
Co.'s employ, without the prior written consent of Management Co.,
any of the employees of Management Co. who performed services on
behalf of Management Co. for the Agency at any time during the term
of this Agreement.
(c) The Management Co. acknowledges that the Hospital has spent a
great deal of time, money and effort to recruit, hire and train
qualified personnel to work for the Agency. Accordingly, during the
term of this Agreement and for a period of one (1) year thereafter,
Management Co. shall not, directly or indirectly, alone or with
others, solicit, attempt to solicit or otherwise induce or attempt
to induce to leave the Hospital's employ, without the prior written
consent of the Hospital, any of the employees of the Hospital who
worked for the Agency at any time during the term of this Agreement.
(d) In the event of a breach or threatened breach of Subsections
(a) or (b) by the Hospital, the Hospital acknowledges and agrees
that Management Co. will be entitled to injunctive relief in order
to prevent the breach or continuing breach thereof, without having
to post bond, in addition to any and all other rights and remedies
available to Management Co. at law or in equity.
(e) In the event of a breach or threatened breach of Subsection (c)
by Management Co., Management Co. acknowledges and agrees that the
Hospital will be entitled to injunctive relief in order to prevent
the breach or continuing breach thereof, without having to post
bond, in addition to any and all other rights and remedies available
to the Hospital at law or in equity.
(f) The rights and obligations of the. parties under this Section 5
shall survive termination of this Agreement.
(g) Subsection (b) and (c) shall not apply to an employee who is
terminated or voluntarily leaves the employ of the Hospital or
Management Co., as the case may be, and is not employed by the other
party to this Agreement within sixty (60) days after the last day of
employment.
<PAGE>
6. OWNERSHIP AND CONFIDENTIALTY OF AGENCY INFORMATION AND DATA
Management Co. acknowledges that it will obtain and/or have access to
various confidential information concerning the business and affairs of
the Agency in connection with the performance of Management Co.'s
obligations hereunder. Such confidential information includes, but is not
limited to, patient information and records, employee and financial
information ("Confidential Information"). Management Co. agrees (1) to
hold the Confidential Information in strict confidence, (2) not to use
the Confidential Information for any purpose other than the performance
of Management Co.'s obligations hereunder, (3) not to disclose any of the
Confidential Information to any third party or any of Management Co.'s
employees, agents or representatives other than those who need to know
and/or have access to such Confidential Information in connection with
the performance of their duties on behalf of Management Co., and (4) to
return to the Hospital or destroy or delete, at the Hospital's election,
all or the relevant portions of any of the documents and other materials
embodying Confidential Information (including all copies thereof) in
Management Co.'s possession upon termination of this Agreement. The
foregoing restrictions shall not, however apply to information which (1)
is generally known to and available for use within the trade or by the
public at the time of disclosure to Management Co., (2) becomes generally
known to and available for use within the trade or by the public other
than as a result of a breach of Management Co. 's duty of confidentiality
hereunder, (3) was in the possession or knowledge of Management Co. free
of Confidentiality restrictions prior to the time of disclosure to
Management Co. by the Hospital, or becomes available to Management Co.
from a third party who or which is not bound by confidentiality
restrictions, (4) is required to be disclosed by law or pursuant to a
court order, subject to prompt prior written notice by Management Co. to
the Hospital of such potential disclosure and the Hospital's right to
prevent or otherwise limit such disclosure with the bounds of the law or
court order, or (5) is authorized to be used and/or disclosed to third
parties by the Hospital in writing, subject to execution of a
confidentiality agreement acceptable to the Hospital by the third party.
Management Co. further agrees to comply with any and all laws and
regulations and procedures relating to patient and all other information
which is disclosed to Management Co. or to which Management Co. has, and
to comply with the Hospital's applicable reasonable security and
confidentiality policies and procedures relative to the Agency's
facilities, communications and information. The Hospital shall have the
right to deny Management Co. access to the Agency's facilities,
communications and information at such times when Management Co. fails to
comply with the Hospital's applicable reasonable policies and procedures.
The provisions of this Section 6 shall survive termination of this
Agreement. Management Co. acknowledges and agrees that any breach or
threatened breach by it of the provisions of this Section would cause the
Hospital irreparable injury for which the Hospital would have no remedy
at law and that, in addition to any other remedies which it may have, the
Hospital shall be entitled to preliminary and permanent injunctive relief
against any such breach or threatened breach.
7. TERM AND TERMINATION
(a) Subject to Subsections (b) through (d) below, this Agreement
shall have a term of five (5) years beginning July 1, 1994 and
terminating on June 30, 1999. Within one hundred eighty (180) days
prior to the expiration of the term of this Agreement, the Hospital
shall notify Management Co. of the Hospital's plans regarding
management of the Agency thereafter in order to allow Management Co.
sufficient time to make appropriate plans and arrangements.
(b) The Hospital shall have the power to terminate this Agreement as follows:
(i) If Management Co. breaches or defaults in the performance
of any material term, condition or undertaking set forth herein
and fails to cure such breach or default within thirty (30)
days of its receipt of written notice from the Hospital
describing in detail the occurrence and nature of the breach or
default, or fails to submit a plan reasonably acceptable to
Hospital for curing the breach or default within such thirty
(30) day period and to thereafter diligently cure the breach or
default pursuant to the plan if the breach or default cannot
reasonably be cured within the thirty (30) day period;
(ii) Immediately upon written notice if Management Co. becomes
insolvent, has a petition in bankruptcy filed with respect to
it which is not dismissed or discharged within thirty (30) days
or makes an assignment for the benefit of creditors;
<PAGE>
(iii) Immediately upon written notice if Management Co.
shall commit or be involved in any act involving fraud or shall
misappropriate Agency funds; and
(iv) Immediately upon written notice if Management Co. is
barred or suspended from involvement in the Medicare or
Medicaid Programs.
(c) Management Co. shall have the power to terminate this Agreement as
follows:
(i) If the Hospital breaches or defaults in the performance of
any material term, condition or undertaking set forth herein
and fails to cure such breach or default within thirty (30)
days of its receipt of written notice from Management Co.
describing in detail the occurrence and nature of the breach or
default, or fails to provide a plan reasonably acceptable to
Management Co. for curing the breach or default within such
thirty (30) day period and to thereafter diligently cure the
breach or default pursuant to the plan if the breach or default
cannot reasonably be cured within the thirty (30) day period;
provided, however, that for a breach or default involving the
payment of money, the cure period shall be limited to ten (10)
days;
(ii) Immediately upon written notice if the Hospital has a
petition in bankruptcy filed with respect to it which is not
dismissed or discharged within thirty (30) days or makes an
assignment for the benefit of creditors; and
(iii) Immediately upon written notice in the event of the
actual or threatened revocation, termination or suspension of
any certification (including Medicare and Medicaid
certification), license, permit or accreditation of the
Hospital or the Agency which shall or may materially and
adversely affect the Agency's business, or in the event of the
actual or threatened cancellation or lapsing of the Agency's
professional liability insurance.
(d) Either party shall have the power to terminate the Agreement as follows:
(i) In the event there is a change in Medicare, Medicaid or
other Federal or state statutes or regulations or in the
interpretation thereof, or in the event a claim is threatened,
made or filed by a government agency, which renders any of the
material terms of this Agreement unlawful, or asserts that any
such terms are unlawful, the parties shall promptly and in good
faith renegotiate the affected term to remedy such condition in
such a manner that will preserve, in all material respects, the
underlying economic, financia1 and business relationship of the
parties. In the event the parties cannot renegotiate the
agreement within sixty (60) days following notice of the intent
to renegotiate, either party may terminate this Agreement upon
written notice to the other.
(ii) In the event there is a material change in the methodology
of Medicare or Medicaid reimbursement for home health services,
the parties shall promptly and in good faith renegotiate the
affected term(s) to remedy such condition in such a manner that
will preserve, in all material respects, the underlying
economic, financial and business relationship of the parties.
In the event the parties cannot renegotiate the agreement
within sixty (60) days following notice of the intent to
renegotiate, either party may terminate this Agreement upon
written notice to the other.
(e) (i) Termination of this Agreement shall not release the
Hospital from its obligation to pay any sum, which may be due
and owing to Management Co. for services rendered prior to
termination, and such obligation shall survive termination.
(ii) In the event that the Agreement is terminated by Hospital
pursuant to Paragraph 7(d), Hospital shall make payment to
Management Co. in an amount equal to the fifty percent (50%) of
the management fee remaining to be paid for the term of the
Agreement had it not been terminated. For purposes of this
Subsection, the annual management fee shall be the greater of
the management fee paid pursuant to 4(a) for the year
immediately preceding the termination of the Agreement, or One
Million Four Hundred Thousand Dollars ($1,400,000.00).
<PAGE>
(iii) In the event that the Agreement is terminated by
Management Co. pursuant to Paragraphs 7(d), Management Co.
shall make payment to Hospital in an amount of Five Hundred
Thousand Dollars ($500,000.00).
8. INSURANCE AND INDEMNITY
(a) Management Co. shal1 carry and maintain in force insurance to
cover liabilities arising out of the services provided by Management
Co. hereunder, including general liability insurance with limits of
at least $1.0 million per occurrence and $2.0 million in the
aggregate and workers' compensation insurance with the limits
required by law. The Hospital shall carry and maintain in force
insurance to cover liabilities arising out of the operation of the
Agency, including liability, general liability insurance and
workers' insurance, in reasonable amounts given the nature of the
Agency's business.
(b) The Hospital shall indemnify and hold harmless Management Co.
(including its directors, officers, employees and agents,
individually and collectively) from and against any and all claims,
liabilities, damages, fines, penalties, taxes, costs and expenses,
including reasonable attorneys' fees and of settlement, which any
such party may suffer, sustain or become subject to as a result of:
(i) the negligence or other wrongful conduct (including, without
limitation, misrepresentation, fraud, willful misconduct, violations
of law or breach of contract) of the Hospital, the Agency or their
directors, officers, employees or agents in the operation of the
Agency's business or the performance of the Hospital's obligations
hereunder; (ii) any existing or future debts, liabilities or
obligations of the Hospital relative to the Agency; or (iii) any
acts or omissions of Management Co. or any of its officers,
employees or agents taken or not taken pursuant to the directives of
the Hospital or the Agency, their governing board(s), officers or
employees.
(c) Management Co. shall indemnify and hold harmless the Hospital
(including its directors, officers, employees and agents,
individua1ly and collectively) from and against any and all claims,
liabilities, damages, fines, penalties, taxes, costs and expenses,
including reasonable attorneys' fees and costs of settlement, which
any such party may suffer, sustain or become subject to as a result
of the negligence or other wrongful conduct (including, without
limitation, misrepresentation, fraud, willful, violations of law or
breach of contract) of the Management Co. or its directors,
officers, employees or agents in the performance of Management Co.'s
obligations hereunder.
(d) The obligations of the parties under Subsections (b) and (c)
shall survive termination of this Agreement.
9. ASSIGNMENT
Neither party may assign any of its rights or obligations under this
Agreement to any other person, firm or corporation without the express
written consent of the other party; provided, however, that Management
Co. may delegate some or all of its duties described in Section 2 to any
of its subsidiaries and, to that extent, such subsidiaries are third
party beneficiaries of this Agreement; and further provided that the
Hospital may assign all of its rights and obligations under this
Agreement upon written notice to Management Co. (a) to any affiliate of
the Hospital which acquires the Agency pursuant to a corporate
reorganization, or, (b) to a third party purchaser of all or
substantially all of the assets of the Hospital or the Agency or a third
party which acquires control of the Hospital or the Agency pursuant to a
merger, consolidation or other similar transaction, and any such
affiliate, purchaser or other acquirer shall assume and agree to be bound
by the terms of this Agreement. Agreement shall inure to the benefit of
and be binding upon the legal representatives, permitted assigns and
successors of the parties hereto.
<PAGE>
10. NOTICES
Notices required hereunder shall be in writing and delivered in person or
sent by Certified Mail, postage prepaid, to the President and Chief
Executive Officer of the Hospital or the President of Management Co. at
the appropriate address set forth in the preamble of this Agreement or
such other addresses as either party may designate in writing to the
other party in accordance with this Section 10. If mailed, such notices
shall be effective as of the date of delivery or the date of attempted
delivery if delivery is refused.
11. ACCESS TO BOOKS AND RECORDS
(a) For a period of four (4) years following the last date
Management Co. furnishes services pursuant to this Agreement,
Management Co. shall make available upon written request of the
Secretary of the United States Department of Health and Human
Services, the United States Comptroller General and their duly
authorized representatives, all contracts, books, documents and
records of Management Co. to the extent required by 42 U.S.C.
1395x(v)(1)(I) (as amended or recodified from time to time or any
substitute or successor statute) and lawful regulations promulgated
thereunder. Management Co. shall notify the Hospital within ten (10)
days of its receipt of such a request and of Management Co.'s
proposed response to the request.
(b) If Management Co. carries out any of its duties under this
Agreement through a subcontract with a value of $10,000.00 or more
over a twelve (12) month period with a related organization, such
subcontract shall contain a clause to the effect that until four (4)
years after the furnishing of such services pursuant to such
subcontract, such related organization shall make available, upon
written request of the Secretary of the United States Department of
Health and Human Services, the United Comptroller General or any of
their duly authorized representatives, the sub-contract and the
books, documents and records of such organization to the extent
required by 42 U.S.C. 1395x(v)(l)(I) (as amended or recodified from
time to time or any substitute or successor statute) and lawful
regulations promulgated thereunder.
12. ENTIRE AGREEMENT
This instrument contains the entire agreement of the parties with respect
to the subject matter hereof. Any and all prior agreements, promises,
inducements, negotiations or representations not expressly set forth in
this Agreement are superseded hereby and are void and of no force and
effect.
13. AMENDMENTS
Agreement cannot be altered or amended except pursuant to an instrument
in writing signed by both of the parties hereto.
14. SEVERABlLlTY
In the event that any provision of this Agreement is rendered illegal,
invalid or unenforceable by a federal or state law, rule or regulation,
or declared illegal, invalid or unenforceable by any court of competent
jurisdiction, the remaining provisions hereof shall remain in full force
and effect.
15. HEADINGS
Headings are used herein solely for the convenience of the parties and
are not part of this Agreement.
<PAGE>
16. APPLICABLE LAW
This Agreement shall be construed and interpreted in accordance with the
laws of the Commonwealth of Kentucky, notwithstanding its conflict of
laws rules.
17. WAIVER OF BREACH
The waiver by a party of a breach of or default under any term or
provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach or default under the same
or any other term or provision of this Agreement by that party.
18. STATUS OF RELATIONSHIP
It is understood and agreed that the parties to this Agreement are
independent contractors, and nothing herein shall be construed to
establish a partnership or joint venture relationship between the
parties. Each party has sole responsibility for the payment of each of
its employee's wages, payroll taxes and benefits. By virtue hereof,
neither party assumes, directly or by implication, the debts,
obligations, taxes or liabilities of the other party.
19. FORCE MAJEURE
If either the Hospital or Management Co. is delayed or prevented from
fulfilling any of its obligations under this Agreement by force majeure,
such party shall not be liable under this Agreement for the delay or
failure. "Force Majeure" means any cause beyond the reasonable control of
a party, including but not limited to an act of God, act or omission of
civil or military authorities of a state or nation, fire, strike, flood,
riot, war, delay of transportation, or inability due to any of these
causes to provide or obtain necessary labor, materials or facilities.
20. EXCLUSIVITY
The relationship between Management Co. and the Hospital with respect to
the Agency shall be exclusive in that neither Management Co. nor any of
its subsidiaries will, directly or indirectly, during the term of this
Agreement, manage, own or affiliate or consult with any home health
agency providing services in any of the counties for which the Agency (or
any additional agency managed by Management Co. pursuant to Section 21)
has a license to provide home health services. Such exclusivity will not,
however, apply (a) after termination or non-renewal of this Agreement,
(b) to management services provided by Management Co. to home health
agencies not doing business inside the identified geographic area, (c) to
management services provided by Management Co. to entities other than
home health agencies, (d) any other business ventures of Management Co.
not encompassed within the foregoing provision, or (e) to Management
Co.'s ownership, operation, or management of, consulting for or
affiliation with House Calls of America, Inc.
21. ADDITIONAL COUNTIES AND HOME HEALTH AGENCIES
The Hospital hereby grants Management Co. the right to manage, pursuant
to the terms set forth herein, the operations of the Agency in any
additional counties added to the Hospital's license and any additional
home health agencies acquired by the Hospital during the term of this
Agreement. The parties will execute such amendments to this Agreement as
may be necessary or appropriate to document Management Co.'s management
of such additional counties or agencies.
22. DISPUTE RESOLUTION
Any material dispute between the parties arising under this Agreement
which is not resolved by good faith negotiation (including, without
limitation, disputes under Subsection 4(d), Section 19 or Exhibit A) may
be submitted by either party to binding arbitration in Louisville,
Kentucky in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award may be
entered in any court with jurisdiction thereof. The costs of arbitration
shall be borne by the parties in proportions decided by the
arbitrator(s).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
NATIONAL HEALTH INDUSTRIES, INC.
By: _________________________________
Title:________________________________
GALEN OF KENTUCKY, INC. d/b/a
AUDUBON REGIONAL MEDICAL CENTER
By:___________________________________
Title:__________________________________
EXHIBIT A
MANAGEMENT FEES
CHARGE/VISIT AND
CHARGE/WAIVER UNIT
Home
Health Waiver
Services (Visits) Services (Units)
GENERAL MANAGEMENT GENERAL MANAGEMENT
0 - l50,000 Visits $2.55 0 - 75,000 Units $1.30
l50,001 + Visits $1.70 75,001 + Units $0.80
CLINICAL CLINICAL
0 - l50,000 Visits $1.35 0 - 75,000 Units $0.70
l50,001 + Visits $0.90 75,001 + Units $0.40
FINANCIAL FINANCIAL
0 - l50,000 Visits $1.05 0 - 75,000 Units $0.50
l50,001 + Visits $0.70 75,001 + Units $0.30
REIMBURSEMENT REIMBURSEMENT
0 - l50,000 Visits $1.05 0 - 75,000 Units $0.50
l50,001 + Visits $0.70 75,001 + Units $0.30
COMPUTER COMPUTER
0 - l50,000 Visits $3.00 0 - 75,000 Units $2.00
l50,001 + Visits $2.00 75,001 + Units $1.20
TOTAL TOTAL
0 - l50,000 Visits $9.00 0 - 75,000 Units $5.00
l50,001 + Visits $6.00 75,001 + Units $3.00
AGREEMENT
AGREEMENT made as of the 1st of April, 1995, between NATIONAL HEALTH
INDUSTRIES, INC., a Delaware corporation, with its principal office at 9200
Shelbyville Road, Louisville, Kentucky 40222 (hereinafter referred to as
"Management Co."), and GALEN OF KENTUCKY, INC. d/b/a AUDUBON REGIONAL MEDICAL
CENTER, a Kentucky corporation, with its principal office at One Audubon Plaza
Drive, Louisville, Kentucky 40217 (hereinafter referred to as the "Hospital").
W I T N E S S E T H:
WHEREAS, the Hospital maintains a department which operates as a home health
agency known as "Caretenders" (the "Agency");
WHEREAS, the Hospital desires to open a new branch in Scottsburg, Indiana to
provide home health services;
WHEREAS, Management Co. and its subsidiaries (collectively, "Management Co.")
provide management services suited to and designed for the operation of home
health agencies; and
WHEREAS, Management Co. desires to provide management services to the
Agency, and the Hospital desires to procure such services from Management
Co. for the Agency, pursuant to the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. RETENTION OF MANAGEMENT CO.: AUTHORITY
Subject to the terms and conditions of this Agreement, the Hospital hereby
retains Management Co. to provide management services for the Agency, and
Management Co. hereby accepts such retention by the Hospital. Pursuant to this
Agreement, Management Co. shall have the authority and responsibility to
manage, supervise and administer the day-to-day operations of the Agency
subject at all times to the Hospital's ultimate responsibility for and
authority over the governance, management and operations of the Agency, and
Management Co.'s compliance with (a) the policies and procedures adopted by
the Hospital and the Agency from time to time, (b) specific and general
directives from the Hospital's and the Agency's governing board(s) and
management and (c) all applicable laws, rules and regulations, including,
without limitation, the Medicare Conditions of Participation for Home Health
Agencies, now set forth at 42 C.F.R. 484.1 et seq., as amended or recodified
from time to time or any substitute or successor regulations (the
"Conditions").
<PAGE>
2. OBLIGATIONS OF MANAGEMENT CO.
During the term of this Agreement, subject to the limitations set forth
in Section 1 and subject to the obligations of the Hospital set forth
herein, Management Co. shall, as requested perform the services set forth
below:
(a) Supervise the general operations of the Agency, as follows:
(i) Provide on-site consultation for management regarding policy development;
(ii) Provide strategic planning and analysis of the Agency's integration into
the Hospital's mainstream operations;
(iii) Assist in maintaining, renewing and supplementing all local, state
and federal applications, certifications, licenses, forms and permits
necessary or appropriate for the operation of the Agency;
(iv) Assist in maintaining the Agency's compliance with all governmental laws,
rules and regulations, including the Conditions;
(v) Supervise the preparation for and assist in the conduct of the Agency's
regulatory surveys and inspections, as follows:
(1) Assist the Agency in maintaining appropriate state
licensure as a home health agency. Management Co. will use
its best efforts to the Agency in remedying any
deficiencies identified by the state licensing authority.
(2) Assist the Agency in maintaining certification to
participate in Medicare, Medicaid and other reimbursement
programs in which the Agency participates. Management Co.
will use its best efforts to assist the Agency in
remedying any deficiencies identified by such programs.
(3) Assist the Agency in maintaining certification by the
Joint Commission the Accreditation of Healthcare
Organizations ("JCAHO"). Management Co. will use its best
efforts to assist the Agency in remedying any deficiencies
identified by JCAHO;
(vi) Assist in the negotiation and maintenance of the Agency's contractual
arrangements with service providers and lessors;
(vii) Supervise plant and equipment maintenance and
(viii) Assist in the design, implementation and maintenance of operating,
organizational, office and personnel policies and procedures for the Agency;
(ix) Assist and advise the Agency regarding administrative personnel matters;
and
(x) Provide assistance with other daily administrative functions, as
requested;
(xi) Provide on-site training for home care coordinators and on generally
accepted methodologies for conducting the services of the Agency;
(xii) Provide tracking, analysis and reporting for all referrals,
categorized by physician, hospital and hospital department; and
(xiii) Participate in public, marketing and educational, business plan
preparation and the development of the Agency's services by providing formats
for community awareness and other activities.
<PAGE>
(b) Assist in the development of the Agency's business, services and
relations, as follows:
(i) Provide on-site training for home care coordinators and
general on accepted methodologies for promoting the services of
the Agency;
(ii) Provide tracking, analysis and reporting for all
referrals, categorized by physician, hospital and hospital
department; and
(iii) Assist in public, marketing and educational, business
plan preparation and the development of the Agency's services
by providing formats for community awareness and other
activities.
(c) Oversee and manage the clinical staff and clinical operations of the
Agency, as follows:
(i) Assist the Agency in the recruiting of clinical personnel
and assist and advise the Agency with respect to other clinical
personnel matters;
(ii) Provide on-site consultation regarding the development and
implementation of clinical policies;
(iii) Design and assist in the implementation of Continuous
Quality Improvement Strategies (CQI) and patient satisfaction
measures for the Agency;
(iv) Assist in the development and implementation of quality
assurance and utilization review policies;
(v) Provide staff to conduct training programs and seminars
for professional and non-professional administrative and
clinical personnel of the Agency, as necessary, and provide
staff development and staff training modules for clinical
staff;
Hold staff development and departmental meetings with applicable Agency and
Management Co. personnel, as necessary;
Provide analyses and evaluations of staffing patterns in relation to patient
mix, scope of services and number of disciplines;
Assist and advise the Agency regarding the maintenance of a medical records
system, and
Perform, directly or under arrangement, medical record/utilization review
audits, as necessary.
(d) Assist the Hospital in managing the financial affairs of the Agency, as
follows:
(i) Perform all billing and collecting activities in a manner consistent with
that utilized by the Management Co. for its other agencies. Management Co.
shall perform those services in accordance with applicable Medicare and
Medicaid guidelines, including, without limitation, requirements for the
timely submission of claims;
(ii) Monitor payments to the Agency and oversee the Agency's collection
system;
(iii)Monitor and review the posting of cash receipts;
(iv) Maintain, review and monitor Medicare/Medicaid logs;
(v) Supervise the follow-up on outstanding receivables;
<PAGE>
(vi) Review and monitor transaction logs;
(vii)Consult in the processing and payment of the Agency's accounts payable
and payroll;
(viii)Assist in the preparation of the annual budget of the Agency; and
(ix) Consult with and assist the Hospital's accounting staff and outside
accountants, as necessary.
(x) Provide billing and collecting activities with monthly reconciliations
(e) Manage the aspects of the operations of the Agency that are affected by
third party reimbursement, as follows. Management Co. agrees to continue to
provide the services described in Subsections (vi) - (ix) below as may be
reasonably requested by the Agency following expiration or termination of this
Agreement by either party, without additional charge to the Hospital, until
all cost reports pertaining to patient visits provided prior to the expiration
or termination of this Agreement have been filed. Management Co. will also
provide reasonable billing, collection and computer services pertaining to
visits performed prior to the expiration or termination of this Agreement for
the period ending six (6) months after expiration or termination of this
Agreement without additional charge to the Hospital. Management Co. will,
after the date of expiration or termination of this Agreement and upon
reasonable request of the Hospital provide other services of the type and
nature specified in this Agreement in return for which Management Co. will be
compensated at a rate of one hundred fifty dollars ($150.00) per hour.
Management Co. shall not be required to provide any services under this
Agreement after the Agency has reached final settlement of all cost reports
pertaining to patient visits provided prior to the expiration or termination
of this agreement:
(i) Review and assist in preparation of monthly cost reports
for purposes of internal management information;
(ii) Review and assist the Hospital's reimbursement staff in
the preparation of all quarterly interim rate computations,
periodic reimbursement reports, annual cost reports and other
required data and reports for the Hospital's submission to the
Agency's Medicare fiscal intermediary, Medicaid and other third
party payors, as may be necessary under the provision of laws,
rules, regulations and general instructions of Medicare,
Medicaid or any other local, state, federal or other program in
which the Agency participates;
(iii) Provide on-site reimbursement consulting, as
necessary and periodic reimbursement reports;
(iv) Assist the Hospital's reimbursement staff in developing
specific reimbursement policies for the Agency;
(v) Monitor all cost cap and therapy 1imitations published by
third party payors in light of applicable requirements;
(vi) Assist in the preparation for and conduct of Medicare and
Medicaid audits, and attend all exit conferences;
(vii) Review initial reimbursement settlements and proposed
audit adjustments and prepare commentary for submission to the
relevant authorities (e.g., the Medicare fiscal intermediary),
as necessary;
(viii) Provide consultation regarding correspondence with
governmental agencies and fiscal intermediaries, and provide
primary advice and research on reimbursement matters affecting
the Agency;
<PAGE>
(ix) Provide advice and assistance to the Agency in connection
with the pursuit and prosecution of reimbursement appeals; and
(x) Assist the Agency in maintaining and updating an
appropriate charge structure.
(f) Provide the following standby services:
(i) Provide clinical, administrative or financial consulting
personnel as may be necessary from time to time to assist in
the operation of the Agency;
(ii) Provide data to the Hospital related to local, regional
and national trends in home care as well as market research
data to which Management Co. may have access; and
(iii) Participate with the Hospital in the conducting of
feasibility studies, as necessary.
(g) Throughout the term of this Agreement, Management Co. shall
submit monthly and annual progress reports to the Hospital for the
Agency. Management Co.'s progress reports will address, among other
things, Management Co.'s success in meeting defined goals and
objectives for services and the Agency's operations, as set forth in
this Agreement, the Agency's business plan or as otherwise agreed
upon by the Hospital and Management Co.
(h) Management Co. shall provide Computer Services to the Hospital
and/or Agency according to the following terms and conditions:
(i) The system as defined by this document includes the
hardware supplied by Management Co. and all system and
application software residing on the hardware as supplied;
(ii) Management Co. is responsible for the maintenance of the
system in good operating condition throughout the term of this
Agreement through routine maintenance and repair. Management
Co. will provide twenty-four (24) hour per day, seven (7) day
per week, repair and maintenance services for the Hardware;
(iii) The cost associated with the correction of hardware
malfunctions shall be borne at all times by Management Co.
(iv) Management Co. will furnish the Agency with access to any
and all updates, modifications, improvements, revisions and
enhancements to the system software.
(v) Management Co. will provide assistance with development of
the interfaces between the system and the Hospital's computer
system.
(vi) Management Co. will provide upon reasonable request by the
Hospital, from time to time, and subject to any requirements
imposed on Management Co. by its hardware and software vendors,
routine minor modifications to the system. Services related to
customization and/or major modifications will be paid for by
the Hospital at Management Co.'s standard charges for time and
materials.
(vii) Any and all customized and/or modified software shall
remain the property of Management Co. or its software vendors
as an integral part of the system.
(viii) The components of the system located in the Agency's
offices shall be used for operating the system as described in
this agreement and for no other purpose. No software other than
the software furnished by Management Co. shall be utilized on
the system without prior written consent of Management Co.
<PAGE>
(ix) The Hospital and the Agency shall ensure that the
management and data entry personnel working in the Agency's
offices cooperate with Management Co. in the discharge of
Management Co.'s duties under this Agreement and comply with
the reasonable instructions provided by Management Co. from
time to time as to the proper use and functioning of the
system.
(x) Under no circumstances shall the Hospital make any
modifications, customizations or other revisions to the System
or any component of the system without prior written consent of
Management Co.
(xi) The Hospital acknowledges that the system and all of its
component parts (including, without limitation, specifications,
manuals and other documentation) are, and shall remain, the
sole and exclusive property of Management Co. At no time during
the term of this agreement or thereafter shall the Hospital
assign, sell, license, lease, duplicate, transfer, pledge or
encumber the system or any component part of the system. Upon
termination of this agreement, all of the Hospital's rights
with respect to the system shall terminate and Management Co.
shall be entitled to remove the components of the system
located in the Agency's offices.
3. OBLIGATIONS OF THE HOSPITAL
(a) The Hospital agrees that the Agency is and will continue to be,
subject to the obligations of Management Co. to provide the
management services set forth herein, operated and maintained as a
duly certified, licensed and accredited home health agency in
accordance with: (i) the Conditions; (ii) the provisions contained
in the Medicare "Home Health Agency Manual", HIM-ll, and other
applicable Medicare or Medicaid manuals and general instructions;
(iii) any and all other applicable federal, state or local laws,
rules or regulations; and (iv) all supplements, amendments,
substitutions or additions to any of the foregoing..
(b) The Hospital shall employ for the Agency, directly or under
arrangement, adequate clinical and administrative staff who are
capable of providing all of the Agency's clinical services and
performing its administrative duties, all in conformity with the
standards now or hereafter prescribed by any law, rule or regulation
which may be applicable to the operation of the Agency, including
the Conditions. Hospital shall consult with the Management Co., from
time to time, to determine whether there is adequate clinical and
administrative staff, and shall use its best efforts to comply with
Management Co.'s recommendations. Hospital's failure to provide
adequate clinical and administrative staff will preclude the
Management Co. from performing its duties hereunder.
(c) The Hospital shall, at all times, be ultimately responsible for
the direction and control of the Agency, including, but not limited
to, all professional and ethical affairs, all fiscal affairs and all
general operating policies.
(d) The Hospital and the advisory board of the Agency shall request
and receive recommendations from Management Co. and shall duly
consider all such recommendations concerning operations of the
Agency prior to adopting any changes in the policies, procedures,
directives or bylaws applicable to the Agency. A representative of
Management Co. shall be entitled to receive notice of and to attend
all meetings of the Agency's advisory board, other than meetings or
portions thereof devoted to a review of the performance of
Management Co. hereunder. At meetings or portions thereof attended
by Management Co., representatives of Management Co. shall be
permitted to participate in discussions of Agency operations, but
shall not be entitled to vote. The Hospital shall promptly deliver
or communicate to Management Co. a copy of resolutions, directives
and authorizations which in any way affect the services provided by
Management Co. under this Agreement.
<PAGE>
4. FEES
(a) In consideration of the services to be provided by Management
Co. pursuant to this Agreement, the Hospital shall pay to Management
Co. fees as set forth in Exhibit A attached hereto.
(b) Management Co. will bill the Hospital monthly by itemized
invoice for services provided during the preceding month. The
Hospital will pay invoices for fees within thirty (30) days of
receipt. All amounts not paid to Management Co. when due should bear
interest at the rate of 1 1/2 % per month until paid in full.
(c) In the event that Hospital or any of its affiliates acquires,
operates or affiliates with another home health agency in the
counties covered by this Agreement, and Hospital or any of its
affiliates do not engage Management Co. to manage said agency(s),
the management fee payable during any contract year to Management
Co. under this Agreement shall be the greater of the fee required by
Paragraph 4(a) or One Million Four Hundred Thousand Dollars
($1,400,000) per year, beginning in the year that this provision is
triggered and for each year thereafter until the expiration or
termination of the Agreement.
(d) Disallowance of Fees. Any fees paid to Management Co. by
Hospital pursuant to this Agreement that are not allowed by the
Medicare Program because they are not comparable with marketplace
prices for similar services, shall be forgiven or repaid by
Management Co. to the Hospital, and Hospital shall have no liability
to Management Co. for such disallowed fees; provided, however, that
such forgiveness or repayment shall not occur until thirty (30) days
after the later of (1) such time as the parties have exhausted such
administrative and legal remedies that they deem appropriate to
pursue to challenge the disallowance of such fees by the Medicare
Program, or (2) the completion of any arbitration as provided
herein.
(e) Challenge of Disallowance of Fees. In any challenge to a
disallowance of Management Co.'s fees, Management Co. shall be
entitled to participate fully in the challenge through counsel of
its own choosing. In the event that one hundred percent (100%) of
the disallowed amount results from the Medicare Program's
determination that the Management Co. fees were not comparable with
marketplace prices for similar services, Management Co. shall be
entitled to assume control of the challenge in the Agency's name. If
the Hospital elects not to pursue the matter or if, in the
reasonable judgment of Management Co., the Hospital is not
vigorously pursuing the challenge, Management Co. shall be entitled
to assume control of the challenge in the Agency's name.
(f) Settlement. The Hospital shall not be entitled, without the
prior written consent of Management Co., to enter into any
settlement or compromise of any such claim, where either (i) fifty
percent (50%) or more of the disallowed amount results from the
Medicare Program's determination that the Management Co. fees were
not comparable with marketplace prices for similar services; or (ii)
where the disallowance results in an indemnification liability of
Management Co. of greater than one hundred thousand dollars
($100,000.00) to Hospital.
(g) Allocation of Settlement. In the event that a global settlement
is reached, the parties will attempt to agree on a reasonable
allocation of the total disallowances, as settled. If the parties
are unable to reach agreement on the allocation within ninety (90)
days of the settlement, either party may submit the dispute to
arbitration as provided in Section 22.
(h) Costs of Appeals. Each party shall be responsible for its own
fees and expenses, including those of its legal counsel, in pursuant
reimbursement appeals hereunder.
Effect of Termination. The rights and obligations of the parties under
Subsections (c) - (g) shall survive the termination of this Agreement.
<PAGE>
(i) Damages. Under section 4(c), Hospital may have to pay liquidated
damages to Management Co. To the extent that liquidated damages are paid
under section 4(c), Hospital will not enforce the indemnification provsion
under section 4(d) of the Management Contract.
5. PROPRIETARY MATERIALS AND INFORMATION; COVENANT NOT TO HIRE AWAY
EMPLOYEES
(a) The Hospital acknowledges and agrees that the various policy
and procedure manuals developed by Management Co. and used by
Management Co. in the provision of management services to home
health agencies, are proprietary in nature, shall be and remain
(along with any corresponding copyrights, patents or similar rights)
the sole property of Management Co. and shall not at any time be
directly or indirectly used, distributed, disclosed, copied or
otherwise employed by the Hospital, except in the operation of the
Agency under Management Co.'s management during the term of this
Agreement. Upon termination of this Agreement, the Hospital shall
return to Management Co. all such manuals (including all portions
and copies thereof) in the Hospital's possession or within its
control, shall use reasonable efforts to ensure that its employees
have not retained any such manuals or portions or copies thereof
and, upon request by Management Co., shall confirm compliance with
the foregoing in writing.
(b) The Hospital acknowledges that Management Co. has spent a great
deal of time, money and effort to recruit, hire and train qualified
personnel to provide management services to home health agencies
such as the Agency. Accordingly, during the term of this Agreement
and for a period of one (1) year thereafter, the Hospital shall not,
directly or indirectly, alone or with others, solicit, attempt to
solicit or otherwise induce or attempt to induce to leave Management
Co.'s employ, without the prior written consent of Management Co.,
any of the employees of Management Co. who performed services on
behalf of Management Co. for the Agency at any time during the term
of this Agreement.
(c) The Management Co. acknowledges that the Hospital has spent a
great deal of time, money and effort to recruit, hire and train
qualified personnel to work for the Agency. Accordingly, during the
term of this Agreement and for a period of one (1) year thereafter,
Management Co. shall not, directly or indirectly, alone or with
others, solicit, attempt to solicit or otherwise induce or attempt
to induce to leave the Hospital's employ, without the prior written
consent of the Hospital, any of the employees of the Hospital who
worked for the Agency at any time during the term of this Agreement.
(d) In the event of a breach or threatened breach of Subsections
(a) or (b) by the Hospital, the Hospital acknowledges and agrees
that Management Co. will be entitled to injunctive relief in order
to prevent the breach or continuing breach thereof, without having
to post bond, in addition to any and all other rights and remedies
available to Management Co. at law or in equity.
(e) In the event of a breach or threatened breach of Subsection (c)
by Management Co., Management Co. acknowledges and agrees that the
Hospital will be entitled to injunctive relief in order to prevent
the breach or continuing breach thereof, without having to post
bond, in addition to any and all other rights and remedies available
to the Hospital at law or in equity.
(f) The rights and obligations of the. parties under this Section 5
shall survive termination of this Agreement.
(g) Subsection (b) and (c) shall not apply to an employee who is
terminated or voluntarily leaves the employ of the Hospital or
Management Co., as the case may be, and is not employed by the other
party to this Agreement within sixty (60) days after the last day of
employment.
<PAGE>
6. OWNERSHIP AND CONFIDENTIALTY OF AGENCY INFORMATION AND DATA
Management Co. acknowledges that it will obtain and/or have access to
various confidential information concerning the business and affairs of
the Agency in connection with the performance of Management Co.'s
obligations hereunder. Such confidential information includes, but is not
limited to, patient information and records, employee and financial
information ("Confidential Information"). Management Co. agrees (1) to
hold the Confidential Information in strict confidence, (2) not to use
the Confidential Information for any purpose other than the performance
of Management Co.'s obligations hereunder, (3) not to disclose any of the
Confidential Information to any third party or any of Management Co.'s
employees, agents or representatives other than those who need to know
and/or have access to such Confidential Information in connection with
the performance of their duties on behalf of Management Co., and (4) to
return to the Hospital or destroy or delete, at the Hospital's election,
all or the relevant portions of any of the documents and other materials
embodying Confidential Information (including all copies thereof) in
Management Co.'s possession upon termination of this Agreement. The
foregoing restrictions shall not, however apply to information which (1)
is generally known to and available for use within the trade or by the
public at the time of disclosure to Management Co., (2) becomes generally
known to and available for use within the trade or by the public other
than as a result of a breach of Management Co. 's duty of confidentiality
hereunder, (3) was in the possession or knowledge of Management Co. free
of Confidentiality restrictions prior to the time of disclosure to
Management Co. by the Hospital, or becomes available to Management Co.
from a third party who or which is not bound by confidentiality
restrictions, (4) is required to be disclosed by law or pursuant to a
court order, subject to prompt prior written notice by Management Co. to
the Hospital of such potential disclosure and the Hospital's right to
prevent or otherwise limit such disclosure with the bounds of the law or
court order, or (5) is authorized to be used and/or disclosed to third
parties by the Hospital in writing, subject to execution of a
confidentiality agreement acceptable to the Hospital by the third party.
Management Co. further agrees to comply with any and all laws and
regulations and procedures relating to patient and all other information
which is disclosed to Management Co. or to which Management Co. has, and
to comply with the Hospital's applicable reasonable security and
confidentiality policies and procedures relative to the Agency's
facilities, communications and information. The Hospital shall have the
right to deny Management Co. access to the Agency's facilities,
communications and information at such times when Management Co. fails to
comply with the Hospital's applicable reasonable policies and procedures.
The provisions of this Section 6 shall survive termination of this
Agreement. Management Co. acknowledges and agrees that any breach or
threatened breach by it of the provisions of this Section would cause the
Hospital irreparable injury for which the Hospital would have no remedy
at law and that, in addition to any other remedies which it may have, the
Hospital shall be entitled to preliminary and permanent injunctive relief
against any such breach or threatened breach.
7. TERM AND TERMINATION
(a) Subject to Subsections (b) through (d) below, this Agreement
shall have a term of five (5) years beginning July 1, 1994 and
terminating on June 30, 1999. Within one hundred eighty (180) days
prior to the expiration of the term of this Agreement, the Hospital
shall notify Management Co. of the Hospital's plans regarding
management of the Agency thereafter in order to allow Management Co.
sufficient time to make appropriate plans and arrangements.
(b) The Hospital shall have the power to terminate this Agreement
as follows:
(i) If Management Co. breaches or defaults in the performance
of any material term, condition or undertaking set forth herein
and fails to cure such breach or default within thirty (30)
days of its receipt of written notice from the Hospital
describing in detail the occurrence and nature of the breach or
default, or fails to submit a plan reasonably acceptable to
Hospital for curing the breach or default within such thirty
(30) day period and to thereafter diligently cure the breach or
default pursuant to the plan if the breach or default cannot
reasonably be cured within the thirty (30) day period;
(ii) Immediately upon written notice if Management Co. becomes
insolvent, has a petition in bankruptcy filed with respect to
it which is not dismissed or discharged within thirty (30) days
or makes an assignment for the benefit of creditors;
<PAGE>
(iii) Immediately upon written notice if Management Co.
shall commit or be involved in any act involving fraud or shall
misappropriate Agency funds; and
(iv) Immediately upon written notice if Management Co. is
barred or suspended from involvement in the Medicare or
Medicaid Programs.
(c) Management Co. shall have the power to terminate this Agreement as
follows:
(i) If the Hospital breaches or defaults in the performance of
any material term, condition or undertaking set forth herein
and fails to cure such breach or default within thirty (30)
days of its receipt of written notice from Management Co.
describing in detail the occurrence and nature of the breach or
default, or fails to provide a plan reasonably acceptable to
Management Co. for curing the breach or default within such
thirty (30) day period and to thereafter diligently cure the
breach or default pursuant to the plan if the breach or default
cannot reasonably be cured within the thirty (30) day period;
provided, however, that for a breach or default involving the
payment of money, the cure period shall be limited to ten (10)
days;
(ii) Immediately upon written notice if the Hospital has a
petition in bankruptcy filed with respect to it which is not
dismissed or discharged within thirty (30) days or makes an
assignment for the benefit of creditors; and
(iii) Immediately upon written notice in the event of the
actual or threatened revocation, termination or suspension of
any certification (including Medicare and Medicaid
certification), license, permit or accreditation of the
Hospital or the Agency which shall or may materially and
adversely affect the Agency's business, or in the event of the
actual or threatened cancellation or lapsing of the Agency's
professional liability insurance.
(d) Either party shall have the power to terminate the Agreement as follows:
(i) In the event there is a change in Medicare, Medicaid or
other Federal or state statutes or regulations or in the
interpretation thereof, or in the event a claim is threatened,
made or filed by a government agency, which renders any of the
material terms of this Agreement unlawful, or asserts that any
such terms are unlawful, the parties shall promptly and in good
faith renegotiate the affected term to remedy such condition in
such a manner that will preserve, in all material respects, the
underlying economic, financia1 and business relationship of the
parties. In the event the parties cannot renegotiate the
agreement within sixty (60) days following notice of the intent
to renegotiate, either party may terminate this Agreement upon
written notice to the other.
(ii) In the event there is a material change in the methodology
of Medicare or Medicaid reimbursement for home health services,
the parties shall promptly and in good faith renegotiate the
affected term(s) to remedy such condition in such a manner that
will preserve, in all material respects, the underlying
economic, financial and business relationship of the parties.
In the event the parties cannot renegotiate the agreement
within sixty (60) days following notice of the intent to
renegotiate, either party may terminate this Agreement upon
written notice to the other.
(e) (i) Termination of this Agreement shall not release the
Hospital from its obligation to pay any sum, which may be due and
owing to Management Co. for services rendered prior to termination,
and such obligation shall survive termination.
(ii) In the event that the Agreement is terminated by Hospital
pursuant to Paragraph 7(d), Hospital shall make payment to
Management Co. in an amount equal to the fifty percent (50%) of
the management fee remaining to be paid for the term of the
Agreement had it not been terminated. For purposes of this
Subsection, the annual management fee shall be the greater of
the management fee paid pursuant to 4(a) for the year
immediately preceding the termination of the Agreement, or One
Million Four Hundred Thousand Dollars ($1,400,000.00).
<PAGE>
(iii) In the event that the Agreement is terminated by
Management Co. pursuant to Paragraphs 7(d), Management Co.
shall make payment to Hospital in an amount of Five Hundred
Thousand Dollars ($500,000.00).
8. INSURANCE AND INDEMNITY
(a) Management Co. shal1 carry and maintain in force insurance to
cover liabilities arising out of the services provided by Management
Co. hereunder, including general liability insurance with limits of
at least One Million ($1,000,000) per occurrence and Two Million
($2,000,000) in the aggregate and workers' compensation insurance
with the limits required by law. The Hospital shall carry and
maintain in force insurance to cover liabilities arising out of the
operation of the Agency, including liability, general liability
insurance and workers' insurance, in reasonable amounts given the
nature of the Agency's business.
(b) The Hospital shall indemnify and hold harmless Management Co.
(including its directors, officers, employees and agents,
individually and collectively) from and against any and all claims,
liabilities, damages, fines, penalties, taxes, costs and expenses,
including reasonable attorneys' fees and of settlement, which any
such party may suffer, sustain or become subject to as a result of:
(i) the negligence or other wrongful conduct (including, without
limitation, misrepresentation, fraud, willful misconduct, violations
of law or breach of contract) of the Hospital, the Agency or their
directors, officers, employees or agents in the operation of the
Agency's business or the performance of the Hospital's obligations
hereunder; (ii) any existing or future debts, liabilities or
obligations of the Hospital relative to the Agency; or (iii) any
acts or omissions of Management Co. or any of its officers,
employees or agents taken or not taken pursuant to the directives of
the Hospital or the Agency, their governing board(s), officers or
employees.
(c) Management Co. shall indemnify and hold harmless the Hospital
(including its directors, officers, employees and agents,
individua1ly and collectively) from and against any and all claims,
liabilities, damages, fines, penalties, taxes, costs and expenses,
including reasonable attorneys' fees and costs of settlement, which
any such party may suffer, sustain or become subject to as a result
of the negligence or other wrongful conduct (including, without
limitation, misrepresentation, fraud, willful, violations of law or
breach of contract) of the Management Co. or its directors,
officers, employees or agents in the performance of Management Co.'s
obligations hereunder.
(d) The obligations of the parties under Subsections (b) and (c)
shall survive termination of this Agreement.
9. ASSIGNMENT
Neither party may assign any of its rights or obligations under this
Agreement to any other person, firm or corporation without the express
written consent of the other party; provided, however, that Management
Co. may delegate some or all of its duties described in Section 2 to any
of its subsidiaries and, to that extent, such subsidiaries are third
party beneficiaries of this Agreement; and further provided that the
Hospital may assign all of its rights and obligations under this
Agreement upon written notice to Management Co. (a) to any affiliate of
the Hospital which acquires the Agency pursuant to a corporate
reorganization, or, (b) to a third party purchaser of all or
substantially all of the assets of the Hospital or the Agency or a third
party which acquires control of the Hospital or the Agency pursuant to a
merger, consolidation or other similar transaction, and any such
affiliate, purchaser or other acquirer shall assume and agree to be bound
by the terms of this Agreement. Agreement shall inure to the benefit of
and be binding upon the legal representatives, permitted assigns and
successors of the parties hereto.
<PAGE>
10. NOTICES
Notices required hereunder shall be in writing and delivered in person or
sent by Certified Mail, postage prepaid, to the President and Chief
Executive Officer of the Hospital or the President of Management Co. at
the appropriate address set forth in the preamble of this Agreement or
such other addresses as either party may designate in writing to the
other party in accordance with this Section 10. If mailed, such notices
shall be effective as of the date of delivery or the date of attempted
delivery if delivery is refused.
11. ACCESS TO BOOKS AND RECORDS
(a) For a period of four (4) years following the last date
Management Co. furnishes services pursuant to this Agreement,
Management Co. shall make available upon written request of the
Secretary of the United States Department of Health and Human
Services, the United States Comptroller General and their duly
authorized representatives, all contracts, books, documents and
records of Management Co. to the extent required by 42 U.S.C.
1395x(v)(1)(I) (as amended or recodified from time to time or any
substitute or successor statute) and lawful regulations promulgated
thereunder. Management Co. shall notify the Hospital within ten (10)
days of its receipt of such a request and of Management Co.'s
proposed response to the request.
(b) If Management Co. carries out any of its duties under this
Agreement through a subcontract with a value of $10,000.00 or more
over a twelve (12) month period with a related organization, such
subcontract shall contain a clause to the effect that until four (4)
years after the furnishing of such services pursuant to such
subcontract, such related organization shall make available, upon
written request of the Secretary of the United States Department of
Health and Human Services, the United Comptroller General or any of
their duly authorized representatives, the sub-contract and the
books, documents and records of such organization to the extent
required by 42 U.S.C. 1395x(v)(l)(I) (as amended or recodified from
time to time or any substitute or successor statute) and lawful
regulations promulgated thereunder.
12. ENTIRE AGREEMENT
This instrument contains the entire agreement of the parties with respect
to the subject matter hereof. Any and all prior agreements, promises,
inducements, negotiations or representations not expressly set forth in
this Agreement are superseded hereby and are void and of no force and
effect.
13. AMENDMENTS
Agreement cannot be altered or amended except pursuant to an instrument
in writing signed by both of the parties hereto.
14. SEVERABlLlTY
In the event that any provision of this Agreement is rendered illegal,
invalid or unenforceable by a federal or state law, rule or regulation,
or declared illegal, invalid or unenforceable by any court of competent
jurisdiction, the remaining provisions hereof shall remain in full force
and effect.
15. HEADINGS
Headings are used herein solely for the convenience of the parties and
are not part of this Agreement.
<PAGE>
16. APPLICABLE LAW
This Agreement shall be construed and interpreted in accordance with the
laws of the Commonwealth of Kentucky, notwithstanding its conflict of
laws rules.
17. WAIVER OF BREACH
The waiver by a party of a breach of or default under any term or
provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach or default under the same
or any other term or provision of this Agreement by that party.
18. STATUS OF RELATIONSHIP
It is understood and agreed that the parties to this Agreement are
independent contractors, and nothing herein shall be construed to
establish a partnership or joint venture relationship between the
parties. Each party has sole responsibility for the payment of each of
its employee's wages, payroll taxes and benefits. By virtue hereof,
neither party assumes, directly or by implication, the debts,
obligations, taxes or liabilities of the other party.
19. FORCE MAJEURE
If either the Hospital or Management Co. is delayed or prevented from
fulfilling any of its obligations under this Agreement by force majeure,
such party shall not be liable under this Agreement for the delay or
failure. "Force Majeure" means any cause beyond the reasonable control of
a party, including but not limited to an act of God, act or omission of
civil or military authorities of a state or nation, fire, strike, flood,
riot, war, delay of transportation, or inability due to any of these
causes to provide or obtain necessary labor, materials or facilities.
20. EXCLUSIVITY
The relationship between Management Co. and the Hospital with respect to
the Agency shall be exclusive in that neither Management Co. nor any of
its subsidiaries will, directly or indirectly, during the term of this
Agreement, manage, own or affiliate or consult with any home health
agency providing services in any of the counties for which the Agency (or
any additional agency managed by Management Co. pursuant to Section 21)
has a license to provide home health services. Such exclusivity will not,
however, apply (a) after termination or non-renewal of this Agreement,
(b) to management services provided by Management Co. to home health
agencies not doing business inside the identified geographic area, (c) to
management services provided by Management Co. to entities other than
home health agencies, (d) any other business ventures of Management Co.
not encompassed within the foregoing provision, or (e) to Management
Co.'s ownership, operation, or management of, consulting for or
affiliation with House Calls of America, Inc.
21. ADDITIONAL COUNTIES AND HOME HEALTH AGENCIES
The Hospital hereby grants Management Co. the right to manage, pursuant
to the terms set forth herein, the operations of the Agency in any
additional counties added to the Hospital's license and any additional
home health agencies acquired by the Hospital during the term of this
Agreement. The parties will execute such amendments to this Agreement as
may be necessary or appropriate to document Management Co.'s management
of such additional counties or agencies.
22. DISPUTE RESOLUTION
Any material dispute between the parties arising under this Agreement
which is not resolved by good faith negotiation (including, without
limitation, disputes under Subsection 4(d), Section 19 or Exhibit A) may
be submitted by either party to binding arbitration in Louisville,
Kentucky in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award may be
entered in any court with jurisdiction thereof. The costs of arbitration
shall be borne by the parties in proportions decided by the
arbitrator(s).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
NATIONAL HEALTH INDUSTRIES, INC.
By: _________________________________
Title:________________________________
GALEN OF KENTUCKY, INC. d/b/a
AUDUBON REGIONAL MEDICAL CENTER
By:___________________________________
Title:__________________________________
<PAGE>
Exhibit A
MANAGEMENT FEES
Development Fee
The Hospital will pay to the Management Company a one-time fee of Twenty Five
Thousand Dollars ($25,000) for the development, administration and initial
management services provided in the establishment of the new agency in
Scottsburg, Indiana.
Management Fee
The Hospital will pay the Management Company a fee per home health visit based
on the following fee schedule:
Home Health Visit
0-10,000 visits $ 11.50 per visit
10,000+ visits $ 6.00 per visit
AGREEMENT
AGREEMENT made as of the 15th of February, 1995, between NATIONAL HEALTH
INDUSTRIES, INC., a Delaware corporation, with its principal office at 9200
Shelbyville Road, Louisville, Kentucky 40222 (hereinafter referred to as
"Management Co."), and GALEN OF KENTUCKY, INC. d/b/a SOUTHWEST HOSPITAL, , a
Kentucky corporation, with its principal office at 9820 Third Street Road,
Louisville, KY 40272 (hereinafter referred to as the "Hospital").
W I T N E S S E T H:
WHEREAS, the Hospital maintains a department which operates as a home health
agency known as "Caretenders". (the "Agency");
WHEREAS, Management Co. and it's subsidiaries (collectively, "Management Co.")
provide management services suited to and designed for the operation of home
health agencies; and
WHEREAS, Management Co. desires to provide management services to the
Agency, and the Hospital desires to procure such services from Management
Co. for the Agency, pursuant to the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. RETENTION OF MANAGEMENT CO.: AUTHORITY
Subject to the terms and conditions of this Agreement, the Hospital hereby
retains Management Co. to provide management services for the Agency, and
Management Co. hereby accepts such retention by the Hospital. Pursuant to this
Agreement, Management Co. shall have the authority and responsibility to
manage, supervise and administer the day-to-day operations of the Agency
subject at all times to the Hospital's ultimate responsibility for and
authority over the governance, management and operations of the Agency, and
Management Co.'s compliance with (a) the policies and procedures adopted by
the Hospital and the Agency from time to time, (b) specific and general
directives from the Hospital's and the Agency's governing board(s) and
management and (c) all applicable laws, rules and regulations, including,
without limitation, the Medicare Conditions of Participation for Home Health
Agencies, now set forth at 42 C.F.R. 484.1 et seq., as amended or recodified
from time to time or any substitute or successor regulations (the
"Conditions").
2. OBLIGATIONS OF MANAGEMENT CO.
During the term of this Agreement, subject to the limitations set forth
in Section 1 and subject to the obligations of the Hospital set forth
herein, Management Co. shall, as requested perform the services set forth
below:
(a) Supervise the general operations of the Agency, as follows:
(i) Provide on-site consultation for management regarding policy development;
(ii) Provide strategic planning and analysis of the Agency's integration into
the Hospital's mainstream operations;
(iii) Assist in maintaining, renewing and supplementing all local, state
and federal applications, certifications, licenses, forms and permits
necessary or appropriate for the operation of the Agency;
<PAGE>
(iv) Assist in maintaining the Agency's compliance with all governmental laws,
rules and regulations, including the Conditions;
(v) Supervise the preparation for and assist in the conduct of the Agency's
regulatory surveys and inspections, as follows:
(1) Assist the Agency in maintaining appropriate state licensure as a home
health agency. Management Co. will use its best efforts to the Agency in
remedying any deficiencies identified by the state licensing authority.
(2) Assist the Agency in maintaining certification to participate in
Medicare, Medicaid and other reimbursement programs in which the Agency
participates. Management Co. will use its best efforts to assist the Agency in
remedying any deficiencies identified by such programs.
(3) Assist the Agency in maintaining certification by the Joint Commission
the Accreditation of Healthcare Organizations ("JCAHO"). Management Co. will
use its best efforts to assist the Agency in remedying any deficiencies
identified by JCAHO;
(vi) Assist in the negotiation and maintenance of the Agency's contractual
arrangements with service providers and lessors;
(vii)Supervise plant and equipment maintenance and
(viii)Assist in the design, implementation and maintenance of operating,
organizational, office and personnel policies and procedures for the Agency;
(ix) Assist and advise the Agency regarding administrative personnel
matters;and
(x) Provide assistance with other daily administrative functions, as
requested;
(xi) Provide on-site training for home care coordinators and on generally
accepted methodologies for conducting the services of the Agency;
(xii)Provide tracking, analysis and reporting for all referrals,
categorized by physician, hospital and hospital department; and
(xiii)Participate in public, marketing and educational, business plan
preparation and the development of the Agency's services by providing formats
for community awareness and other activities.
(b) Assist in the development of the Agency's business, services and
relations, as follows:
(i) Provide on-site training for home care coordinators and
general on accepted methodologies for promoting the services of
the Agency;
(ii) Provide tracking, analysis and reporting for all
referrals, categorized by physician, hospital and hospital
department; and
(iii) Assist in public, marketing and educational, business
plan preparation and the development of the Agency's services
by providing formats for community awareness and other
activities.
<PAGE>
(c) Oversee and manage the clinical staff and clinical operations of the
Agency, as follows:
(i) Assist the Agency in the recruiting of clinical personnel and assist and
advise the Agency with respect to other clinical personnel matters;
(ii) Provide on-site consultation regarding the development and implementation
of clinical policies;
(iii)Design and assist in the implementation of Continuous Quality
Improvement Strategies (CQI) and patient satisfaction measures for the Agency;
(iv) Assist in the development and implementation of quality assurance and
utilization review policies;
(v) Provide staff to conduct training programs and seminars for professional
and non-professional administrative and clinical personnel of the Agency, as
necessary, and provide staff development and staff training modules for
clinical staff;
Hold staff development and departmental meetings with applicable Agency and
Management Co. personnel, as necessary;
Provide analyses and evaluations of staffing patterns in relation to patient
mix, scope of services and number of disciplines;
Assist and advise the Agency regarding the maintenance of a medical records
system, and
Perform, directly or under arrangement, medical record/utilization review
audits, as necessary.
(d) Assist the Hospital in managing the financial affairs of the Agency, as
follows:
(i) Perform all billing and collecting activities in a manner consistent with
that utilized by the Management Co. for its other agencies. Management Co.
shall perform those services in accordance with applicable Medicare and
Medicaid guidelines, including, without limitation, requirements for the
timely submission of claims;
(ii) Monitor payments to the Agency and oversee the Agency's collection
system;
(iii)Monitor and review the posting of cash receipts;
(iv) Maintain, review and monitor Medicare/Medicaid logs;
(v) Supervise the follow-up on outstanding receivables;
(vi) Review and monitor transaction logs;
(vii)Consult in the processing and payment of the Agency's accounts payable
and payroll;
(viii)Assist in the preparation of the annual budget of the Agency; and
(ix) Consult with and assist the Hospital's accounting staff and outside
accountants, as necessary.
(x) Provide billing and collecting activities with monthly reconciliations.
<PAGE>
(e) Manage the aspects of the operations of the Agency that are
affected by third party reimbursement, as follows. Management Co.
agrees to continue to provide the services described in Subsections
(vi) - (ix) below as may be reasonably requested by the Agency
following expiration or termination of this Agreement by either
party, without additional charge to the Hospital, until all cost
reports pertaining to patient visits provided prior to the
expiration or termination of this Agreement have been filed.
Management Co. will also provide reasonable billing, collection and
computer services pertaining to visits performed prior to the
expiration or termination of this Agreement for the period ending
six (6) months after expiration or termination of this Agreement
without additional charge to the Hospital. Management Co. will,
after the date of expiration or termination of this Agreement and
upon reasonable request of the Hospital provide other services of
the type and nature specified in this Agreement in return for which
Management Co. will be compensated at a rate of one hundred fifty
dollars ($150.00) per hour. Management Co. shall not be required to
provide any services under this Agreement after the Agency has
reached final settlement of all cost reports pertaining to patient
visits provided prior to the expiration or termination of this
agreement:
(i) Review and assist in preparation of monthly cost reports
for purposes of internal management information;
(ii) Review and assist the Hospital's reimbursement staff in
the preparation of all quarterly interim rate computations,
periodic reimbursement reports, annual cost reports and other
required data and reports for the Hospital's submission to the
Agency's Medicare fiscal intermediary, Medicaid and other third
party payors, as may be necessary under the provision of laws,
rules, regulations and general instructions of Medicare,
Medicaid or any other local, state, federal or other program in
which the Agency participates;
(iii) Provide on-site reimbursement consulting, as
necessary and periodic reimbursement reports;
(iv) Assist the Hospital's reimbursement staff in developing
specific reimbursement policies for the Agency;
(v) Monitor all cost cap and therapy 1imitations published by
third party payors in light of applicable requirements;
(vi) Assist in the preparation for and conduct of Medicare and
Medicaid audits, and attend all exit conferences;
(vii) Review initial reimbursement settlements and proposed
audit adjustments and prepare commentary for submission to the
relevant authorities (e.g., the Medicare fiscal intermediary),
as necessary;
(viii) Provide consultation regarding correspondence with
governmental agencies and fiscal intermediaries, and provide
primary advice and research on reimbursement matters affecting
the Agency;
(ix) Provide advice and assistance to the Agency in connection
with the pursuit and prosecution of reimbursement appeals; and
(x) Assist the Agency in maintaining and updating an
appropriate charge structure.
(f) Provide the following standby services:
(i) Provide clinical, administrative or financial consulting
personnel as may be necessary from time to time to assist in
the operation of the Agency;
(ii) Provide data to the Hospital related to local, regional
and national trends in home care as well as market research
data to which Management Co. may have access; and
(iii)Participate with the Hospital in the conducting of
feasibility studies, as necessary.
<PAGE>
(g) Throughout the term of this Agreement, Management Co. shall
submit monthly and annual progress reports to the Hospital for the
Agency. Management Co.'s progress reports will address, among other
things, Management Co.'s success in meeting defined goals and
objectives for services and the Agency's operations, as set forth in
this Agreement, the Agency's business plan or as otherwise agreed
upon by the Hospital and Management Co.
(h) Management Co. shall provide Computer Services to the Hospital
and/or Agency according to the following terms and conditions:
(i) The system as defined by this document includes the
hardware supplied by Management Co. and all system and
application software residing on the hardware as supplied;
(ii) Management Co. is responsible for the maintenance of the
system in good operating condition throughout the term of this
Agreement through routine maintenance and repair. Management
Co. will provide twenty-four (24) hour per day, seven (7) day
per week, repair and maintenance services for the Hardware;
(iii) The cost associated with the correction of hardware
malfunctions shall be borne at all times by Management Co.
(iv) Management Co. will furnish the Agency with access to any
and all updates, modifications, improvements, revisions and
enhancements to the system software.
(v) Management Co. will provide assistance with development of
the interfaces between the system and the Hospital's computer
system.
(vi) Management Co. will provide upon reasonable request by the
Hospital, from time to time, and subject to any requirements
imposed on Management Co. by its hardware and software vendors,
routine minor modifications to the system. Services related to
customization and/or major modifications will be paid for by
the Hospital at Management Co.'s standard charges for time and
materials.
(vii) Any and all customized and/or modified software shall
remain the property of Management Co. or its software vendors
as an integral part of the system.
(viii) The components of the system located in the Agency's
offices shall be used for operating the system as described in
this agreement and for no other purpose. No software other than
the software furnished by Management Co. shall be utilized on
the system without prior written consent of Management Co.
(ix) The Hospital and the Agency shall ensure that the
management and data entry personnel working in the Agency's
offices cooperate with Management Co. in the discharge of
Management Co.'s duties under this Agreement and comply with
the reasonable instructions provided by Management Co. from
time to time as to the proper use and functioning of the
system.
(x) Under no circumstances shall the Hospital make any
modifications, customizations or other revisions to the System
or any component of the system without prior written consent of
Management Co.
(xi) The Hospital acknowledges that the system and all of its
component parts (including, without limitation, specifications,
manuals and other documentation) are, and shall remain, the
sole and exclusive property of Management Co. At no time during
the term of this agreement or thereafter shall the Hospital
assign, sell, license, lease, duplicate, transfer, pledge or
encumber the system or any component part of the system. Upon
termination of this agreement, all of the Hospital's rights
with respect to the system shall terminate and Management Co.
shall be entitled to remove the components of the system
located in the Agency's offices.
<PAGE>
3. OBLIGATIONS OF THE HOSPITAL
(a) The Hospital agrees that the Agency is and will continue to be,
subject to the obligations of Management Co. to provide the
management services set forth herein, operated and maintained as a
duly certified, licensed and accredited home health agency in
accordance with: (i) the Conditions; (ii) the provisions contained
in the Medicare "Home Health Agency Manual", HIM-ll, and other
applicable Medicare or Medicaid manuals and general instructions;
(iii) any and all other applicable federal, state or local laws,
rules or regulations; and (iv) all supplements, amendments,
substitutions or additions to any of the foregoing..
(b) The Hospital shall employ for the Agency, directly or under
arrangement, adequate clinical and administrative staff who are
capable of providing all of the Agency's clinical services and
performing its administrative duties, all in conformity with the
standards now or hereafter prescribed by any law, rule or regulation
which may be applicable to the operation of the Agency, including
the Conditions. Hospital shall consult with the Management Co., from
time to time, to determine whether there is adequate clinical and
administrative staff, and shall use its best efforts to comply with
Management Co.'s recommendations. Hospital's failure to provide
adequate clinical and administrative staff will preclude the
Management Co. from performing its duties hereunder.
(c) The Hospital shall, at all times, be ultimately responsible for
the direction and control of the Agency, including, but not limited
to, all professional and ethical affairs, all fiscal affairs and all
general operating policies.
(d) The Hospital and the advisory board of the Agency shall request
and receive recommendations from Management Co. and shall duly
consider all such recommendations concerning operations of the
Agency prior to adopting any changes in the policies, procedures,
directives or bylaws applicable to the Agency. A representative of
Management Co. shall be entitled to receive notice of and to attend
all meetings of the Agency's advisory board, other than meetings or
portions thereof devoted to a review of the performance of
Management Co. hereunder. At meetings or portions thereof attended
by Management Co., representatives of Management Co. shall be
permitted to participate in discussions of Agency operations, but
shall not be entitled to vote. The Hospital shall promptly deliver
or communicate to Management Co. a copy of resolutions, directives
and authorizations which in any way affect the services provided by
Management Co. under this Agreement.
4. FEES
(a) In consideration of the services to be provided by Management
Co. pursuant to this Agreement, the Hospital shall pay to Management
Co. fees as set forth in Exhibit A attached hereto.
(b) Management Co. will bill the Hospital monthly by itemized
invoice for services provided during the preceding month. The
Hospital will pay invoices for fees within thirty (30) days of
receipt. All amounts not paid to Management Co. when due should bear
interest at the rate of 1 1/2 % per month until paid in full.
(c) In the event that Hospital or any of its affiliates acquires,
operates or affiliates with another home health agency in the
counties covered by this Agreement, and Hospital or any of its
affiliates do not engage Management Co. to manage said agency(s),
the management fee payable during any contract year to Management
Co. under this Agreement shall be the greater of the fee required by
Paragraph 4(a) or One Million Four Hundred Thousand Dollars
($1,400,000) per year, beginning in the year that this provision is
triggered and for each year thereafter until the expiration or
termination of the Agreement.
<PAGE>
(d) Disallowance of Fees. Any fees paid to Management Co. by
Hospital pursuant to this Agreement that are not allowed by the
Medicare Program because they are not comparable with marketplace
prices for similar services, shall be forgiven or repaid by
Management Co. to the Hospital, and Hospital shall have no liability
to Management Co. for such disallowed fees; provided, however, that
such forgiveness or repayment shall not occur until thirty (30) days
after the later of (1) such time as the parties have exhausted such
administrative and legal remedies that they deem appropriate to
pursue to challenge the disallowance of such fees by the Medicare
Program, or (2) the completion of any arbitration as provided
herein.
(e) Challenge of Disallowance of Fees. In any challenge to a
disallowance of Management Co.'s fees, Management Co. shall be
entitled to participate fully in the challenge through counsel of
its own choosing. In the event that one hundred percent (100%) of
the disallowed amount results from the Medicare Program's
determination that the Management Co. fees were not comparable with
marketplace prices for similar services, Management Co. shall be
entitled to assume control of the challenge in the Agency's name. If
the Hospital elects not to pursue the matter or if, in the
reasonable judgment of Management Co., the Hospital is not
vigorously pursuing the challenge, Management Co. shall be entitled
to assume control of the challenge in the Agency's name.
(f) Settlement. The Hospital shall not be entitled, without the
prior written consent of Management Co., to enter into any
settlement or compromise of any such claim, where either (i) fifty
percent (50%) or more of the disallowed amount results from the
Medicare Program's determination that the Management Co. fees were
not comparable with marketplace prices for similar services; or (ii)
where the disallowance results in an indemnification liability of
Management Co. of greater than one hundred thousand dollars
($100,000.00) to Hospital.
(g) Allocation of Settlement. In the event that a global settlement
is reached, the parties will attempt to agree on a reasonable
allocation of the total disallowances, as settled. If the parties
are unable to reach agreement on the allocation within ninety (90)
days of the settlement, either party may submit the dispute to
arbitration as provided in Section 22.
(h) Costs of Appeals. Each party shall be responsible for its own
fees and expenses, including those of its legal counsel, in pursuant
reimbursement appeals hereunder.
Effect of Termination. The rights and obligations of the parties under
Subsections (c) - (g) shall survive the termination of this Agreement.
(i) Damages. Hospital and Management Co. entered into a Management
Contract dated July 1, 1994. Under section 4(c), Hospital may have to
pay liquidated damages to Management Co. To the extent that liquidated
damages are paid under section 4(c), Hospital will not enforce the
indemnification provsion under section 4(d) of the Management Contract.
5. PROPRIETARY MATERIALS AND INFORMATION; COVENANT NOT TO HIRE AWAY
EMPLOYEES
(a) The Hospital acknowledges and agrees that the various policy
and procedure manuals developed by Management Co. and used by
Management Co. in the provision of management services to home
health agencies, are proprietary in nature, shall be and remain
(along with any corresponding copyrights, patents or similar rights)
the sole property of Management Co. and shall not at any time be
directly or indirectly used, distributed, disclosed, copied or
otherwise employed by the Hospital, except in the operation of the
Agency under Management Co.'s management during the term of this
Agreement. Upon termination of this Agreement, the Hospital shall
return to Management Co. all such manuals (including all portions
and copies thereof) in the Hospital's possession or within its
control, shall use reasonable efforts to ensure that its employees
have not retained any such manuals or portions or copies thereof
and, upon request by Management Co., shall confirm compliance with
the foregoing in writing.
<PAGE>
(b) The Hospital acknowledges that Management Co. has spent a great
deal of time, money and effort to recruit, hire and train qualified
personnel to provide management services to home health agencies
such as the Agency. Accordingly, during the term of this Agreement
and for a period of one (1) year thereafter, the Hospital shall not,
directly or indirectly, alone or with others, solicit, attempt to
solicit or otherwise induce or attempt to induce to leave Management
Co.'s employ, without the prior written consent of Management Co.,
any of the employees of Management Co. who performed services on
behalf of Management Co. for the Agency at any time during the term
of this Agreement.
(c) The Management Co. acknowledges that the Hospital has spent a
great deal of time, money and effort to recruit, hire and train
qualified personnel to work for the Agency. Accordingly, during the
term of this Agreement and for a period of one (1) year thereafter,
Management Co. shall not, directly or indirectly, alone or with
others, solicit, attempt to solicit or otherwise induce or attempt
to induce to leave the Hospital's employ, without the prior written
consent of the Hospital, any of the employees of the Hospital who
worked for the Agency at any time during the term of this Agreement.
(d) In the event of a breach or threatened breach of Subsections
(a) or (b) by the Hospital, the Hospital acknowledges and agrees
that Management Co. will be entitled to injunctive relief in order
to prevent the breach or continuing breach thereof, without having
to post bond, in addition to any and all other rights and remedies
available to Management Co. at law or in equity.
(e) In the event of a breach or threatened breach of Subsection (c)
by Management Co., Management Co. acknowledges and agrees that the
Hospital will be entitled to injunctive relief in order to prevent
the breach or continuing breach thereof, without having to post
bond, in addition to any and all other rights and remedies available
to the Hospital at law or in equity.
(f) The rights and obligations of the. parties under this Section 5
shall survive termination of this Agreement.
(g) Subsection (b) and (c) shall not apply to an employee who is
terminated or voluntarily leaves the employ of the Hospital or
Management Co., as the case may be, and is not employed by the other
party to this Agreement within sixty (60) days after the last day of
employment.
6. OWNERSHIP AND CONFIDENTIALTY OF AGENCY INFORMATION AND DATA
Management Co. acknowledges that it will obtain and/or have access to
various confidential information concerning the business and affairs of
the Agency in connection with the performance of Management Co.'s
obligations hereunder. Such confidential information includes, but is not
limited to, patient information and records, employee and financial
information ("Confidential Information"). Management Co. agrees (1) to
hold the Confidential Information in strict confidence, (2) not to use
the Confidential Information for any purpose other than the performance
of Management Co.'s obligations hereunder, (3) not to disclose any of the
Confidential Information to any third party or any of Management Co.'s
employees, agents or representatives other than those who need to know
and/or have access to such Confidential Information in connection with
the performance of their duties on behalf of Management Co., and (4) to
return to the Hospital or destroy or delete, at the Hospital's election,
all or the relevant portions of any of the documents and other materials
embodying Confidential Information (including all copies thereof) in
Management Co.'s possession upon termination of this Agreement.
<PAGE>
The foregoing restrictions shall not, however apply to information which
is generally known to and available for use within the trade or by the
public at the time of disclosure to Management Co., (2) becomes generally
known to and available for use within the trade or by the public other
than as a result of a breach of Management Co. 's duty of confidentiality
hereunder, (3) was in the possession or knowledge of Management Co. free
of Confidentiality restrictions prior to the time of disclosure to
Management Co. by the Hospital, or becomes available to Management Co.
from a third party who or which is not bound by confidentiality
restrictions, (4) is required to be disclosed by law or pursuant to a
court order, subject to prompt prior written notice by Management Co. to
the Hospital of such potential disclosure and the Hospital's right to
prevent or otherwise limit such disclosure with the bounds of the law or
court order, or (5) is authorized to be used and/or disclosed to third
parties by the Hospital in writing, subject to execution of a
confidentiality agreement acceptable to the Hospital by the third party.
Management Co. further agrees to comply with any and all laws and
regulations and procedures relating to patient and all other information
which is disclosed to Management Co. or to which Management Co. has, and
to comply with the Hospital's applicable reasonable security and
confidentiality policies and procedures relative to the Agency's
facilities, communications and information. The Hospital shall have the
right to deny Management Co. access to the Agency's facilities,
communications and information at such times when Management Co. fails to
comply with the Hospital's applicable reasonable policies and procedures.
The provisions of this Section 6 shall survive termination of this
Agreement. Management Co. acknowledges and agrees that any breach or
threatened breach by it of the provisions of this Section would cause the
Hospital irreparable injury for which the Hospital would have no remedy
at law and that, in addition to any other remedies which it may have, the
Hospital shall be entitled to preliminary and permanent injunctive relief
against any such breach or threatened breach.
7. TERM AND TERMINATION
(a) Subject to Subsections (b) through (d) below, this Agreement
shall have a term of five (5) years beginning July 1, 1994 and
terminating on June 30, 1999. Within one hundred eighty (180) days
prior to the expiration of the term of this Agreement, the Hospital
shall notify Management Co. of the Hospital's plans regarding
management of the Agency thereafter in order to allow Management Co.
sufficient time to make appropriate plans and arrangements.
(b) The Hospital shall have the power to terminate this Agreement as follows:
(i) If Management Co. breaches or defaults in the performance
of any material term, condition or undertaking set forth herein
and fails to cure such breach or default within thirty (30)
days of its receipt of written notice from the Hospital
describing in detail the occurrence and nature of the breach or
default, or fails to submit a plan reasonably acceptable to
Hospital for curing the breach or default within such thirty
(30) day period and to thereafter diligently cure the breach or
default pursuant to the plan if the breach or default cannot
reasonably be cured within the thirty (30) day period;
(ii) Immediately upon written notice if Management Co. becomes
insolvent, has a petition in bankruptcy filed with respect to
it which is not dismissed or discharged within thirty (30) days
or makes an assignment for the benefit of creditors;
(iii) Immediately upon written notice if Management Co.
shall commit or be involved in any act involving fraud or shall
misappropriate Agency funds; and
(iv) Immediately upon written notice if Management Co. is
barred or suspended from involvement in the Medicare or
Medicaid Programs.
(c) Management Co. shall have the power to terminate this Agreement as
follows:
(i) If the Hospital breaches or defaults in the performance of
any material term, condition or undertaking set forth herein
and fails to cure such breach or default within thirty (30)
days of its receipt of written notice from Management Co.
describing in detail the occurrence and nature of the breach or
default, or fails to provide a plan reasonably acceptable to
Management Co. for curing the breach or default within such
thirty (30) day period and to thereafter diligently cure the
breach or default pursuant to the plan if the breach or default
cannot reasonably be cured within the thirty (30) day period;
provided, however, that for a breach or default involving the
payment of money, the cure period shall be limited to ten (10)
days;
<PAGE>
(ii) Immediately upon written notice if the Hospital has a
petition in bankruptcy filed with respect to it which is not
dismissed or discharged within thirty (30) days or makes an
assignment for the benefit of creditors; and
(iii) Immediately upon written notice in the event of the
actual or threatened revocation, termination or suspension of
any certification (including Medicare and Medicaid
certification), license, permit or accreditation of the
Hospital or the Agency which shall or may materially and
adversely affect the Agency's business, or in the event of the
actual or threatened cancellation or lapsing of the Agency's
professional liability insurance.
(d) Either party shall have the power to terminate the Agreement as
follows:
(i) In the event there is a change in Medicare, Medicaid or
other Federal or state statutes or regulations or in the
interpretation thereof, or in the event a claim is threatened,
made or filed by a government agency, which renders any of the
material terms of this Agreement unlawful, or asserts that any
such terms are unlawful, the parties shall promptly and in good
faith renegotiate the affected term to remedy such condition in
such a manner that will preserve, in all material respects, the
underlying economic, financia1 and business relationship of the
parties. In the event the parties cannot renegotiate the
agreement within sixty (60) days following notice of the intent
to renegotiate, either party may terminate this Agreement upon
written notice to the other.
(ii) In the event there is a material change in the methodology
of Medicare or Medicaid reimbursement for home health services,
the parties shall promptly and in good faith renegotiate the
affected term(s) to remedy such condition in such a manner that
will preserve, in all material respects, the underlying
economic, financial and business relationship of the parties.
In the event the parties cannot renegotiate the agreement
within sixty (60) days following notice of the intent to
renegotiate, either party may terminate this Agreement upon
written notice to the other.
(e) (i) Termination of this Agreement shall not release the
Hospital from its obligation to pay any sum, which may be due and
owing to Management Co. for services rendered prior to termination,
and such obligation shall survive termination.
(ii) In the event that the Agreement is terminated by Hospital
pursuant to Paragraph 7(d), Hospital shall make payment to
Management Co. in an amount equal to the fifty percent (50%) of
the management fee remaining to be paid for the term of the
Agreement had it not been terminated. For purposes of this
Subsection, the annual management fee shall be the greater of
the management fee paid pursuant to 4(a) for the year
immediately preceding the termination of the Agreement, or One
Million Four Hundred Thousand Dollars ($1,400,000.00).
(iii) In the event that the Agreement is terminated by
Management Co. pursuant to Paragraphs 7(d), Management Co.
shall make payment to Hospital in an amount of Five Hundred
Thousand Dollars ($500,000.00).
8. INSURANCE AND INDEMNITY
(a) Management Co. shal1 carry and maintain in force insurance to
cover liabilities arising out of the services provided by Management
Co. hereunder, including general liability insurance with limits of
at least One Million ($1,000,000) per occurrence and Two Million
($2,000,000) in the aggregate and workers' compensation insurance
with the limits required by law. The Hospital shall carry and
maintain in force insurance to cover liabilities arising out of the
operation of the Agency, including liability, general liability
insurance and workers' insurance, in reasonable amounts given the
nature of the Agency's business.
<PAGE>
(b) The Hospital shall indemnify and hold harmless Management Co.
(including its directors, officers, employees and agents,
individually and collectively) from and against any and all claims,
liabilities, damages, fines, penalties, taxes, costs and expenses,
including reasonable attorneys' fees and of settlement, which any
such party may suffer, sustain or become subject to as a result of:
(i) the negligence or other wrongful conduct (including, without
limitation, misrepresentation, fraud, willful misconduct, violations
of law or breach of contract) of the Hospital, the Agency or their
directors, officers, employees or agents in the operation of the
Agency's business or the performance of the Hospital's obligations
hereunder; (ii) any existing or future debts, liabilities or
obligations of the Hospital relative to the Agency; or (iii) any
acts or omissions of Management Co. or any of its officers,
employees or agents taken or not taken pursuant to the directives of
the Hospital or the Agency, their governing board(s), officers or
employees.
(c) Management Co. shall indemnify and hold harmless the Hospital
(including its directors, officers, employees and agents,
individua1ly and collectively) from and against any and all claims,
liabilities, damages, fines, penalties, taxes, costs and expenses,
including reasonable attorneys' fees and costs of settlement, which
any such party may suffer, sustain or become subject to as a result
of the negligence or other wrongful conduct (including, without
limitation, misrepresentation, fraud, willful, violations of law or
breach of contract) of the Management Co. or its directors,
officers, employees or agents in the performance of Management Co.'s
obligations hereunder.
(d) The obligations of the parties under Subsections (b) and (c)
shall survive termination of this Agreement.
9. ASSIGNMENT
Neither party may assign any of its rights or obligations under this
Agreement to any other person, firm or corporation without the express
written consent of the other party; provided, however, that Management
Co. may delegate some or all of its duties described in Section 2 to any
of its subsidiaries and, to that extent, such subsidiaries are third
party beneficiaries of this Agreement; and further provided that the
Hospital may assign all of its rights and obligations under this
Agreement upon written notice to Management Co. (a) to any affiliate of
the Hospital which acquires the Agency pursuant to a corporate
reorganization, or, (b) to a third party purchaser of all or
substantially all of the assets of the Hospital or the Agency or a third
party which acquires control of the Hospital or the Agency pursuant to a
merger, consolidation or other similar transaction, and any such
affiliate, purchaser or other acquirer shall assume and agree to be bound
by the terms of this Agreement. Agreement shall inure to the benefit of
and be binding upon the legal representatives, permitted assigns and
successors of the parties hereto.
10. NOTICES
Notices required hereunder shall be in writing and delivered in person or
sent by Certified Mail, postage prepaid, to the President and Chief
Executive Officer of the Hospital or the President of Management Co. at
the appropriate address set forth in the preamble of this Agreement or
such other addresses as either party may designate in writing to the
other party in accordance with this Section 10. If mailed, such notices
shall be effective as of the date of delivery or the date of attempted
delivery if delivery is refused.
<PAGE>
11. ACCESS TO BOOKS AND RECORDS
(a) For a period of four (4) years following the last date
Management Co. furnishes services pursuant to this Agreement,
Management Co. shall make available upon written request of the
Secretary of the United States Department of Health and Human
Services, the United States Comptroller General and their duly
authorized representatives, all contracts, books, documents and
records of Management Co. to the extent required by 42 U.S.C.
1395x(v)(1)(I) (as amended or recodified from time to time or any
substitute or successor statute) and lawful regulations promulgated
thereunder. Management Co. shall notify the Hospital within ten (10)
days of its receipt of such a request and of Management Co.'s
proposed response to the request.
(b) If Management Co. carries out any of its duties under this
Agreement through a subcontract with a value of $10,000.00 or more
over a twelve (12) month period with a related organization, such
subcontract shall contain a clause to the effect that until four (4)
years after the furnishing of such services pursuant to such
subcontract, such related organization shall make available, upon
written request of the Secretary of the United States Department of
Health and Human Services, the United Comptroller General or any of
their duly authorized representatives, the sub-contract and the
books, documents and records of such organization to the extent
required by 42 U.S.C. 1395x(v)(l)(I) (as amended or recodified from
time to time or any substitute or successor statute) and lawful
regulations promulgated thereunder.
12. ENTIRE AGREEMENT
This instrument contains the entire agreement of the parties with respect
to the subject matter hereof. Any and all prior agreements, promises,
inducements, negotiations or representations not expressly set forth in
this Agreement are superseded hereby and are void and of no force and
effect.
13. AMENDMENTS
Agreement cannot be altered or amended except pursuant to an instrument
in writing signed by both of the parties hereto.
14. SEVERABlLlTY
In the event that any provision of this Agreement is rendered illegal,
invalid or unenforceable by a federal or state law, rule or regulation,
or declared illegal, invalid or unenforceable by any court of competent
jurisdiction, the remaining provisions hereof shall remain in full force
and effect.
15. HEADINGS
Headings are used herein solely for the convenience of the parties and
are not part of this Agreement.
16. APPLICABLE LAW
This Agreement shall be construed and interpreted in accordance with the
laws of the Commonwealth of Kentucky, notwithstanding its conflict of
laws rules.
17. WAIVER OF BREACH
The waiver by a party of a breach of or default under any term or
provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach or default under the same
or any other term or provision of this Agreement by that party.
<PAGE>
18. STATUS OF RELATIONSHIP
It is understood and agreed that the parties to this Agreement are
independent contractors, and nothing herein shall be construed to
establish a partnership or joint venture relationship between the
parties. Each party has sole responsibility for the payment of each of
its employee's wages, payroll taxes and benefits. By virtue hereof,
neither party assumes, directly or by implication, the debts,
obligations, taxes or liabilities of the other party.
19. FORCE MAJEURE
If either the Hospital or Management Co. is delayed or prevented from
fulfilling any of its obligations under this Agreement by force majeure,
such party shall not be liable under this Agreement for the delay or
failure. "Force Majeure" means any cause beyond the reasonable control of
a party, including but not limited to an act of God, act or omission of
civil or military authorities of a state or nation, fire, strike, flood,
riot, war, delay of transportation, or inability due to any of these
causes to provide or obtain necessary labor, materials or facilities.
20. EXCLUSIVITY
The relationship between Management Co. and the Hospital with respect to
the Agency shall be exclusive in that neither Management Co. nor any of
its subsidiaries will, directly or indirectly, during the term of this
Agreement, manage, own or affiliate or consult with any home health
agency providing services in any of the counties for which the Agency (or
any additional agency managed by Management Co. pursuant to Section 21)
has a license to provide home health services. Such exclusivity will not,
however, apply (a) after termination or non-renewal of this Agreement,
(b) to management services provided by Management Co. to home health
agencies not doing business inside the identified geographic area, (c) to
management services provided by Management Co. to entities other than
home health agencies, (d) any other business ventures of Management Co.
not encompassed within the foregoing provision, or (e) to Management
Co.'s ownership, operation, or management of, consulting for or
affiliation with House Calls of America, Inc.
21. ADDITIONAL COUNTIES AND HOME HEALTH AGENCIES
The Hospital hereby grants Management Co. the right to manage, pursuant
to the terms set forth herein, the operations of the Agency in any
additional counties added to the Hospital's license and any additional
home health agencies acquired by the Hospital during the term of this
Agreement. The parties will execute such amendments to this Agreement as
may be necessary or appropriate to document Management Co.'s management
of such additional counties or agencies.
22. DISPUTE RESOLUTION
Any material dispute between the parties arising under this Agreement
which is not resolved by good faith negotiation (including, without
limitation, disputes under Subsection 4(d), Section 19 or Exhibit A) may
be submitted by either party to binding arbitration in Louisville,
Kentucky in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award may be
entered in any court with jurisdiction thereof. The costs of arbitration
shall be borne by the parties in proportions decided by the
arbitrator(s).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
NATIONAL HEALTH INDUSTRIES, INC.
By: _________________________________
Title:________________________________
GALEN OF KENTUCKY, INC. d/b/a
SOUTHWEST HOSPITAL
By:___________________________________
Title:__________________________________
<PAGE>
MANAGEMENT FEES
CHARGE/VISIT AND
CHARGE/WAIVER UNIT
Home Health
Services (Visits) Services Waiver Units
GENERAL MANAGEMENT GENERAL MANAGEMENT
0 - 30,000 Visits $8.00 0 - 5,000 Units $1.30
30,001 + Visits $5.33 5,000 + Units $2.67
COMPUTER COMPUTER
0 - 30,000 $1.00 0 - 5,000 Units $0.50
30,001 + Visits $0.67 5,000 + $0.33
TOTAL TOTAL
0 - 30,000 Visits $9.00 0 - 5,000 Units $5.00
30,001 + Visits $6.00 5,001 + Units $3.00
ASSETS PURCHASE AGREEMENT
This is an Assets Purchase Agreement dated as of January 26, 1998 (the
"Agreement"), by and among (i) Adult Daycare of America, Inc., a Delaware
corporation (the "Buyer"), (ii) Home Care Solutions, Inc., a Connecticut
corporation (the "Seller"), and (iii) Thomas R. Nolan (the "Shareholder").
The Seller and the Shareholder are referred to collectively as the "Selling
Parties".
Recitals
A. The Seller is engaged in the business of providing home care, companion,
chore, personal and health care services (the "Business") based in Danbury,
Connecticut, serving the State of Connecticut (the "Territory").
B. The Seller desire to sell and the Buyer desires to purchase certain
assets used in the Business.
THE PARTIES, INTENDING TO BE LEGALLY BOUND, AGREE AS FOLLOWS:
Article 1 - Purchase and Sale of Assets
1.1 Purchased Assets. The Seller hereby agrees to sell, assign, transfer
and convey to the Buyer, and the Buyer hereby agrees to purchase from the
Seller, all of the assets of the Seller used in the Business (the "Purchased
Assets"), other than the excluded assets described on Schedule 1.1. The
Purchased Assets include without limitation the following assets and
properties:
(a) All furniture, fixtures, machinery, equipment and other tangible
personal property (to the extent such property is owned by the Seller);
(b) All of the Seller's goodwill relating to the Business; all customer and
client lists and files, records and similar sales and marketing information in
the Seller's possession relating to the Business; records of the customers and
clients serviced by the Business and in the Seller's possession; personnel
records; and the Seller's right and interest in the trade names, trademarks,
trade secrets, licenses, know-how, specifications, telephone numbers,
literature, and all other intangible property relating to the Business,
including without limitation, all of the Seller's right, title and interest in
and to the name "Home Care Solutions";
(c) All transferable licenses, permits, licenses, certificates,
authorizations, accreditations, orders, ratings and approvals of all federal,
state, or local governmental or regulatory authorities which relate to the
Business and which are held by the Seller, but only to the extent the same
are transferable; and
<PAGE>
(d) Any and all rights of the Seller which by their terms are
transferable and which arise under or pursuant to warranties, representations
and guarantees made by suppliers in connection the Purchased Assets.
1.2 No Assumption of Liabilities. Except for prospective obligations under
the Assumed Contracts, the Seller shall retain, and the Buyer shall have no
obligation or liability with respect to, any liabilities or obligations,
actual or contingent, of the Seller or the Business, or any claims by any
person, firm or organization, arising out of any liabilities or obligations of
the Seller, or the operation of the Business prior to the Closing.
Notwithstanding anything in this Agreement to the contrary, the Buyer is not
assuming or taking any of the Purchased Assets or the Business subject to (i)
any liabilities or obligations of the Seller or the Business to the Seller's
shareholders, or (ii) any liabilities or obligations of the Seller or the
Business to any affiliate or related entity of the Seller.
1.3 Assumed Contracts. The Seller will assign or cause to be assigned to the
Buyer, and the Buyer will assume (i) the Seller's prospective obligation to
provide services to the Seller's customers and clients, (ii) the Seller's
prospective obligations under the contracts and leases described on Schedule
1.3, (iii) the Shareholder's or the Seller's confidentiality agreements with
prospective purchaser's of the Seller's assets or stock (collectively, the
"Assumed Contracts").
1.4 Employees. The Seller agrees that the Buyer will not be obligated to
hire any of the Seller's employees, but that the Buyer, in its sole
discretion, may hire some or all of such employees on such terms as the Buyer
and the employees so hired may agree. The Seller acknowledges that the Buyer
is not purchasing, recognizing, assuming or otherwise acquiring any rights,
obligations, assets or liabilities under, arising from or resulting from any
employment agreement or arrangement in existence between the Seller and any
employee, or any person employed to consult with or perform services for the
Seller, or otherwise. The Buyer will not be responsible to the Seller or to
any current or former employee of the Sellers for any employee benefits
(whether earned, accrued or vested) due to the Seller's employees with respect
to their employment prior to the Closing.
1.5 Confidentiality, Nonsolicitation and Noncompetition Agreement. Each of
the Selling Parties agrees to enter into a Confidentiality, Nonsolicitation
and Noncompetition Agreement at the Closing, in the form of the agreement
attached as Annex A (the "Noncompetition Agreement").
1.6 Right to Use "Home Care Solutions" Name. The Buyer will have the right,
by giving the Seller written notice, to require the Seller to change its
corporate name to a name dissimilar to the "Home Care Solutions" name and to
otherwise require the Seller to cease using the name "Home Care Solutions" or
any other confusingly similar derivation of "Home Care Solutions".
Article 2 - Purchase Price and Payment
2.1 Purchase Price. In consideration of the transfer of the Purchased
Assets and the Business, and the entering into of the Noncompetition
Agreement, the Buyer agrees to pay the Seller $1,000,000.00 in cash in the
aggregate, payable at the Closing by wire transfer to an account designated by
the Seller ( the "Purchase Price").
2.2 Proration Expenses. The Buyer and the Seller agree that the expenses
described on Schedule 2.2 will be prorated among the parties and will adjust
the Purchase Price as described on Schedule 2.2.
2.3 Allocation of Purchase Price. The Purchase Price will be allocated
among the Purchased Assets as set forth on Schedule 2.3. Schedule 2.3 will be
prepared by the Seller.
Article 3 - The Closing
3.1 Time and Place. The Closing ("Closing") shall take place on
February 2, 1998 (the "Closing Date"), or on such earlier date as each of the
conditions to the parties' obligations to close is either satisfied or waived.
The Closing will be effective as of 12:01 a.m. on February 1, 1998.
3.2 Execution and Delivery of Documents of Title by the Seller.
(a) At the Closing, the Seller shall execute and deliver to the Buyer
such conveyances, bills of sale, certificates of title, assignments,
assurances and other instruments and documents as the Buyer may reasonably
request in order to effect the sale, conveyance, and transfer of the Purchased
Assets from the Seller to the Buyer, and the Buyer will execute such
instruments and agreements as the Seller may reasonably request to effect an
assumption of the Assumed Contracts by the Buyer. Such instruments and
documents shall be sufficient to convey to the Buyer good title to the
Purchased Assets and to effect an assumption of the Assumed Contracts by the
Buyer. Also at the Closing, the parties shall cause the Noncompetition
Agreement and the Lease to be executed and delivered as of the Closing.
(b) The Sellers agree that they will, from time to time after the Closing
Date, take such additional action and execute and deliver such further
documents as the Buyer may reasonably request in order to effectively sell,
transfer and convey the Purchased Assets to the Buyer and to place the Buyer
in position to operate and control all of the Purchased Assets.
<PAGE>
Article 4 - Representations and Warranties of the Selling Parties
As a material inducement to the Buyer to enter into and perform this
Agreement, each of the Selling Parties represents and warrants to the Buyer as
follows:
4.1 Authority.
(a) Each of the Selling Parties has full legal power and capacity to execute
and deliver this Agreement and the Noncompetition Agreement, and to perform
such Selling Party's respective obligations under this Agreement and the
documents contemplated by this Agreement. This Agreement and the
Noncompetition Agreement constitute valid and legally binding obligations of
each of the Selling Parties, enforceable in accordance with their terms. The
execution and delivery of this Agreement and the instruments called for by
this Agreement by or on behalf of the Seller and the consummation of the
transactions contemplated hereunder and thereunder, subject to the terms of
this Agreement, have each been duly authorized by all necessary corporate
action, including the requisite Board of Director and shareholder approvals.
(b) The execution and delivery of this Agreement and the Noncompetition
Agreement, the consummation of the transactions contemplated hereby and
thereby, and the performance and fulfillment of their respective obligations
and undertakings hereunder and thereunder by the Selling Parties will not, (i)
violate any provision of, or result in the breach of or accelerate or permit
the acceleration of any performance required by the terms of, any contract,
agreement, arrangement or undertaking to which any of the Selling Parties is a
party or by which any of them may be bound; any judgment, decree, writ,
injunction, order or award of any arbitration panel, court or governmental
authority; or any applicable law, ordinance, rule or regulation of any
governmental body; or the Seller's Certificate of Incorporation or Bylaws;
(ii) result in the creation of any claim, lien, charge or encumbrance upon any
of the properties or assets (whether real or personal, tangible or intangible)
of the Seller; (iii) terminate or cancel, or result in the termination or
cancellation of, any agreement or undertaking to which the Seller is a party;
or (iv) in any way affect or violate the terms or conditions of, or result in
the cancellation, modification, revocation or suspension of, any of the
Seller's permits or licenses.
(c) The Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Connecticut with full power and
authority (corporate or otherwise) to execute, deliver and perform its
obligations under this Agreement.
4.2 Financial Statements. The Financial Statements have been
prepared from the books and records of account of the Business and presents
fairly the results of operations and the financial condition of the Business
as of the date of such financial information. For purposes of this Agreement,
"Financial Statements" means the Seller's income statements and balance sheets
for the past three fiscal years, along with any interim financial statements
for periods after the Seller's last fiscal year-end.
<PAGE>
4.3 Environmental Standards. The Seller has operated the Business in
material compliance with all limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
or required under the common law or any federal, state, local or foreign law,
regulations, ordinances, permits, licenses, consent decrees, orders and
clearances relating to pollution, the environment, or the use, storage,
transportation or disposal of pollutants, dangerous substances, toxic
substances, hazardous wastes, medical wastes, infectious wastes or hazardous
substances.
4.4 Tax Matters.
(a) As used in this Agreement, the term "Code" means the Internal Revenue
Code of 1986, as amended. The term "Tax" means any federal, state, local or
foreign tax, including any interest, penalty, or addition thereto, whether
disputed or not. The term "Tax Return" means any return, declaration, report,
claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
(b) The Seller has filed all Tax Returns that it was required to file as of
the Closing Date; all such Tax Returns were correct and complete in all
material respects; all Taxes owed by the Seller which are due as of the
Closing Date have been paid; the Seller currently is not the beneficiary of
any extension of time within which to file any Tax Return; no claim has ever
been made by an authority in a jurisdiction where the Seller does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction; and
there are no liens on any of the assets of the Seller that arose in connection
with any failure (or alleged failure) to pay any Tax.
(c) There is no dispute or claim concerning any Tax liability of the Seller
either (A) claimed or raised by any authority in writing, or (B) as to which
the Shareholders have knowledge based upon personal contact with any agent of
such authority. The Seller has not been informed in writing that the Tax
Returns of the Seller are to be examined by the Internal Revenue Service or
any other state or local taxing authority for past years. There are no unpaid
Tax deficiencies; no examinations are pending; and, to the best of the
Seller's knowledge, no basis for any Tax deficiencies exists.
(d) The Seller has not waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) The Seller has remitted all sales and use taxes due to any state or
local jurisdiction.
(f) Proper and accurate amounts have been withheld by the Seller from its
employees for all periods in full and complete compliance with the tax
withholding provisions of applicable federal, state and local law. Proper and
accurate federal, state and local returns have been filed by the Seller for
all periods for which returns were due with respect to employee income tax
withholding, social security and unemployment taxes and the amounts shown
thereon to be due and payable have been paid in full.
<PAGE>
(g) The Seller's recent sales tax audit by the State of Connecticut has been
completed and the Seller has no deficiency or other liability to the State of
Connecticut with respect to those years under audit. The Purchased Assets are
subject to no tax lien arising out of the State of Connecticut's sales tax
audit.
4.5 Title. The Seller has and will transfer to the Buyer at the Closing
good title to all of the assets included among the Purchased Assets, free and
clear of any mortgages, security interests, pledges, liens, claims or
encumbrances.
4.6 The Purchased Assets.
(a) The Seller has good title to all of the Purchased Assets, free and clear
of any claims, liens, charges, mortgages, security interests or encumbrances
whatsoever. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated by this Agreement, will not
result in the creation of any lien or encumbrance on the Purchased Assets.
(b) Except as set forth in Schedule 4.6(b), the Purchased Assets, the
Assumed Contracts, and the real and personal property to be leased pursuant to
the Lease are (A) sufficient and adequate in all material respects to carry on
the Seller 's business as presently conducted, and (B) comply in all material
respects with the terms and conditions of all existing licenses, permits,
approvals, leases, franchises, charters and other agreements or authorizations
effecting or relating to any such Asset, and comply in all material respects
with all applicable federal, state and local laws, ordinances, rules and
regulations (including without limitation, fire, safety, environmental and
pollution control).
(c) The Seller owns no machinery, equipment, furniture, furnishings, office
supplies, vehicles, tools, supplies or computer hardware (collectively,
"FFE"). The Seller leases all FFE necessary for the operation of the
Business from TR Nolan Associates, Inc., pursuant to lease agreements included
among the Assumed Contracts. All of the FFE leased from TR Nolan Associates,
Inc. is in good condition and repair, ordinary wear and tear excepted; and (D)
is in the state of maintenance, repair and operating condition required for
the proper operation and use thereof in the ordinary course of business. The
FFE leased from TR Nolan Associates, Inc. constitutes all of the machinery,
equipment, furniture, furnishings, office supplies, vehicles, tools, supplies
and computer hardware used in the operation of the Seller's business.
(d) The operation of the Business does not require the Seller to hold any
inventory.
(e) The Seller does not currently own and has never owned real estate.
<PAGE>
(f) No instrument of record, easement, license, grant, applicable zoning or
building law, ordinance, administrative regulation, urban redevelopment law or
other impediment of any kind prohibits or materially interferes with, limits
or impairs, or would, if not permitted by a prior nonconforming use, prohibit
or materially interfere with, limit or impair, the use, operation, maintenance
of or access to, or materially affects the value of, the Seller 's leased real
property, as now used, operated or maintained by the Seller . No notice of
any violation of any applicable zoning or building law or ordinance or
administrative regulation has been received by the Seller, and the Seller does
not know of any threat of any such notice. No condemnation proceeding has
been instituted or is to the Selling Parties' knowledge threatened with
respect to any of the Seller's leased real property.
(g) Prior to or in conjunction with the Closing, the Seller will have fully
disclosed to the Buyer all customer lists, trade secrets, pro-cesses,
inven-tions, formulas, methods, know-how and other propri-etary informa-tion
used or developed by the Seller or its employees in connection with the
Business. The Seller has not disclosed or per-mitted the disclosure of any
such proprietary information to any other person (other than prospective
purchasers of the Seller's stock or assets, all of whom have executed
confidentiality agreements in favor of the Shareholder and/or the Seller), and
the use by the Seller of such proprietary information does not violate any
other person's pro-prietary rights.
(h) The Seller has not caused or permitted any hazardous substance, as that
term is now defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (42 U.S.C. 9601, et seq.), medical wastes or
petroleum substances to be disposed on, under or at the premises of the
Business, or any part thereof, and no part thereof has ever been used by the
Seller as a permanent storage or disposal site for any such hazardous
substances, medical wastes, or petroleum substances.
4.7 Insurance. The Seller has provided the Buyer with a true and
correct list of all policies of insurance which insure the Purchased Assets or
the Business, setting forth the types and amounts of coverage. Such policies
will remain in effect until the Closing Date. Schedule 4.7 is a true and
correct list of all claims against such insurance policies during the past
two years.
4.8 Disclosure. No representation or warranty made by the Selling Parties
in this Agreement and no statement made in or any amount set forth on any
schedule called for by and incorporated into this Agreement is false or
misleading in any material respect or omits to state any fact necessary to
make any such representation or statements not misleading in any material
respect.
<PAGE>
4.9 Governmental and Industrial Approvals. Except as set forth in Schedule
4.9, there are no permits, licenses, accreditations, authorizations, orders,
ratings or approvals of any federal, state, local or foreign governmental or
regulatory bodies necessary under current laws and regulations for the
Seller's operation of the Business as presently conducted.
4.10 Intentionally Omitted.
4.11 Contracts and Commitments. Except for the Assumed Contracts, the
Seller is not a party to any written or material oral contract or commitment
relating to the Business, and neither the Business nor the Purchased Assets
are the subject of any contract or commitment. Each of the Assumed Contracts
is the valid and binding agreement of the parties to such contracts, and no
party to the Assumed Contracts is in default under such contracts, subject to
bankruptcy, insolvency and other laws affecting creditors' rights generally.
Except as set forth on Schedule 4.11, no consents are required in connection
with the consummation of the transactions contemplated by this Agreement. The
Selling Parties have not been made aware of any decision by the parties to the
Assumed Contracts of any intention to terminate or not renew such Assumed
Contracts. The Selling Parties have no knowledge of any facts relating to the
Assumed Contracts that would have a material adverse affect on the Buyer's
operation of the Business after the Closing Date.
4.12 No Violation of Law. Except as disclosed on Schedule 4.12, the Seller
is not in default or violation of, has received no notice of default or
violation of, and none of the Selling Parties has knowledge of any fact or
event which with the lapse of time or giving of notice would constitute a
default or violation of, any statute, ordinance, regulation, order, writ,
injunction or decree of any court or governmental agency or authority
applicable to the Business or the Purchased Assets.
4.13 Litigation. Except as disclosed on Schedule 4.13, there are no
actions, suits, claims, demands, investigations or proceedings pending, or, to
the Selling Parties' knowledge, after due inquiry, threatened before any
court, commission, agency or other administrative authority against, or
affecting the Business or the Purchased Assets or which would in any way
affect the transactions contemplated by this Agreement, and, after due
inquiry, the Seller is not the subject of any order or decree relating to or
affecting the Business or the Purchased Assets other than those of general
application. The Seller has not been subject to any bankruptcy or other
insolvency proceedings.
4.14 Labor. There is no collective bargaining or other union contract
relating to the Business to which the Seller is a party. To the Selling
Parties' knowledge, after due inquiry, there is not pending or threatened
against the Seller any grievance, labor dispute, organizational activity,
union trouble, strike or work stoppage which materially affects or which may
materially disrupt the Buyer or the Business. The Seller has complied with
all applicable laws, rules and regulations pertaining to the employment of
labor, including those relating to wages, hours, collective bargaining and the
payment of or withholding of taxes. The Seller has withheld all amounts
required by law or agreement to be withheld from the wages or salaries of the
Business' employees and they are not liable for any arrears of wages or any
tax or penalties for failure to comply with any of the foregoing.
<PAGE>
4.15 Employment Contracts. There are no written or oral contracts for
employment of any personnel of the Business.
4.16 Employee Benefit and Retirement Plans. Except as disclosed on Schedule
4.16, the Seller does not now maintain any "employee pension benefit plan" or
any "employee welfare benefit plan" (as defined respectively in Section 3(2)
and 3(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) on behalf of the Business's employees, and the Seller does not
maintain any retirement plans, bonus arrangements, life insurance or medical
insurance programs or any other fringe benefit arrangements for any employees
whether written or unwritten.
4.17 Employees and Independent Contractors. The Seller has provided the
Buyer prior to the Closing Date with a true and correct list including the
name, salary or compensation (including without limitation all commission,
override or bonus arrangements), vacation and sick leave policies or other
benefits, job description and original employment or contract date of all
current employees and independent contractors of the Business based upon the
most recently processed information, and the accrued and/or earned vacation
time of all employees and, to the Selling Parties' knowledge, the dates and
information concerning any previous salary or compensation change or
adjustment and the reasons therefor for each such current employee.
4.18 Workers' Compensation. The Seller is in full compliance with all
workers' compensation laws with respect to the Business and has workers'
compensation insurance coverage in full force and effect with respect to the
Business, where any such non-compliance or lack of coverage would have a
material adverse effect on the Buyer's ownership, possession or use of the
Business or the Purchased Assets, or on the consummation of the transactions
contemplated under this Agreement.
4.19 Adverse Action. The Seller has not received any written notice of any
judicial or administrative action against the Seller, the Business or the
Purchased Assets.
4.20 Consents. Except as described on Schedule 4.20, no consents,
approvals or authorizations of, or declaration, filing or registration with,
any governmental or regulatory authority is required in connection with the
execution and delivery of this Agreement by the Seller and consummation by the
Seller of the transactions contemplated hereby.
4.21 Commissions. Neither of the Selling Parties has authorized any person
to act in such a manner as to give rise to any valid claim against the Buyer
for a brokerage commission, finder's fee, or similar payment as a result of
the transactions contemplated under this Agreement. The Selling Parties shall
defend, indemnify and hold harmless the Buyer from any claim for commissions
or fees alleged to have arisen from a contractual relationship or cooperation
in connection with the transactions contemplated under this Agreement.
<PAGE>
4.22 Licenses, Permits and Payment Programs. The Seller has obtained and
holds all required licenses, permits, certificates, and authorizations
necessary for the Seller to operate the Business as conducted prior to the
Closing. A copy of each of the foregoing is attached to Schedule 4.22.
Article 5 - Representations of the Buyer
As a material inducement to the Seller to enter into this Agreement, the
Buyer hereby represents and warrants to the Seller as follows:
5.1 Authority.
(a) The execution and delivery of this Agreement and the instruments called
for by this Agreement by or on behalf of the Buyer and the consummation of the
transactions contemplated hereunder and thereunder, subject to the terms of
this Agreement, have each been duly authorized by all necessary corporate
actions. This Agreement and each of the instruments called for by this
Agreement will be a valid and binding obligation of the Buyer, each
enforceable against the Buyer in accordance with their respective terms.
(b) The Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware with full power and authority
(corporate or otherwise) to execute, deliver and perform its obligations under
this Agreement and the documents contemplated by this Agreement.
5.2 No Violation of Law; Other Agreements. Neither the execution and
delivery of this Agreement or the instruments called for by this Agreement,
nor consummation of the transaction herein or therein contemplated, nor
compliance with the terms, conditions and provisions hereof or thereof, will
conflict with or violate any provision of law or of the Certificate of
Incorporation or Bylaws of the Buyer, or result in a violation or default in
any provision or any regulation, order, writ, injunction or decree of any
court or governmental agency or authority, or of any agreement or instrument
to which the Buyer is a party or by which the Buyer is bound or subject.
5.3 Commissions. The Buyer has not authorized any person to act in such a
manner as to give rise to any valid claim against the Seller for a brokerage
commission, finder's fee, or similar payment as a result of the transactions
contemplated under this Agreement. The Buyer shall defend, indemnify and hold
harmless the Seller from any claim for commissions or fees alleged to have
arisen from a contractual relationship or cooperation in connection with the
transactions contemplated under this Agreement.
<PAGE>
5.4 Litigation. There is no action, suit, claim, demand, investigation or
proceedings pending or, to the knowledge of the Buyer, threatened by any
corporation, person or entity against the Buyer or which would in any way
affect the transactions contemplated by this Agreement. No order, writ,
injunction or decree has been issued by, or to the knowledge of the Buyer,
requested of, any court or governmental agency which reasonably could be
expected to result in any adverse change in the business, property or assets
or in the condition, financial or otherwise, of the Buyer or which could
reasonably be expected to adversely affect the transactions contemplated by
this Agreement. The Buyer has not been subject to any bankruptcy or other
insolvency proceedings.
Article 6 - Covenants of the Selling Parties
6.1 Conduct of Business. From the date of this Agreement until the Closing
Date, the Seller shall operate the Business and otherwise conduct its business
relating to the Business only in the ordinary course of business, and in
substantial compliance with all statutory and regulatory requirements of any
applicable federal, state or local authority, and shall enter into no material
contract or other transaction relating to the Business other than in the
ordinary course of business without the prior written consent of the Buyer.
Between the date hereof and the Closing Date, the Seller shall use its best
efforts to retain its present employees and preserve the goodwill and business
of its customers, suppliers, and others having business relations with it, and
shall conduct the financial operations of the Business in accordance with its
existing business practices. From the date of this Agreement to the Closing
Date, the Seller shall not do any of the following in connection with its
ownership and operation the Business and the Purchased Assets without the
Buyer's prior written consent:
(a) cancel or permit any insurance, bond, surety instrument or letter of
credit to lapse or terminate, except in the ordinary course of business or
unless renewed or replaced by like coverage;
(b) default in any respect under any loan, material contract, agreement,
lease or commitment;
(c) enter into any contract, agreement, lease or other commitment,
except in the ordinary course of business;
(d) sell or agree to sell the Business or any of the Purchased Assets;
(e) hire any employees, increase any compensation to employees,
enter into any employment arrangement, agreement or undertaking, or pay or
promise to pay any fringe benefit, bonus or special compensation to employees,
except in the ordinary course of business;
<PAGE>
(f) impede the Buyer, its counsel, accountants and other representatives
from reasonable access, during normal business hours and upon reasonable
advance notice, to the Business and the Purchased Assets so that the Buyer may
have the opportunity to investigate same; or
(g) encumber any of the Purchased Assets or incur any liabilities with
respect to the Business, except in the ordinary course of business.
6.2 Sales, Etc. The Seller shall not sell, lease, remove or otherwise
dispose of any of the Purchased Assets, which are located or used in the
Business (except for retirements and replacements in the ordinary course of
business, provided that all items which are retired or replaced are
contemporaneously replaced by items of substantially equivalent value), or
liquidate or dissolve.
6.3 Insurance. The Seller shall maintain the insurance described in Article
4.
6.4 Notice. From the date hereof to the Closing Date, the Seller shall
promptly advise the Buyer of the occurrence of any governmental inspections,
investigations, citations with respect to the Business or the Purchased
Assets, and of which the Seller has received written notification.
6.5 Access to Personnel and Records. From the date of this Agreement until
the Closing Date, the Seller and the Business shall give the Buyer, and the
Buyer's counsel, accountants, consultants and other agents and
representatives, reasonable access, during normal business hours and upon
reasonable request, to its properties, books, contracts, commitments and
records relating to the Assets and the operations of the Business.
6.6 Financial Information. The Seller shall provide the Buyer with such
financial information relating to the operations of the Business as the Buyer
may reasonably request.
6.7 Collection Practices. The Seller shall not deviate from its current
lawful practices with respect to the collection of accounts receivable from
the customers of the Business and clients to the extent that any such change
in collection practices would impair or adversely affect the ability of the
Business to continue its relationships with those customers and clients after
Closing.
6.8 Cooperation. From the date hereof to the Closing Date, each of the
Selling Parties shall cooperate in good faith with the Buyer in order to
obtain all governmental, regulatory and other third party consents and
approvals which are necessary or desirable to consummate the transactions
contemplated under this Agreement. Each of the Selling Parties agrees to
cooperate fully with Buyer with respect to the Buyer's due diligence
investigation of the Seller's Business.
<PAGE>
The Shareholder agrees to vote all of such Shareholder's shares of the
Seller's stock in favor of the transactions contemplated by this Agreement.
The Shareholder also agrees to use such Shareholder's best efforts to cause
each of the conditions to the Buyer's obligation to close the transactions
contemplated by this Agreement set forth in Article 8 to be satisfied on or
prior to the Closing Date.
6.9 Approval of Transfer. From the date hereof to the Closing Date, the
Seller shall use its best efforts, including the filing and submission of all
necessary and appropriate applications and documents, to obtain the approvals
and consents of all applicable governmental and regulatory authorities and the
landlord, and any other third party identified as necessary in order to
transfer the Purchased Assets to the Buyer.
6.10 Consents. The Selling Parties shall use their best efforts to procure
the consents of any third parties necessary for the assignment to the Buyer of
any contract, agreement or lease hereunder.
6.11 No-Shop Clause. From and after the date of the execution and delivery
of this Agreement by the Selling Parties until the Closing or the termination
of this Agreement (unless the Closing Date is extended beyond such date by the
parties), neither of the Selling Parties shall, without the prior written
consent of the Buyer: (i) offer for sale any material portion of the Business
or assets, (ii) solicit offers to buy all or any material portion of the
Business, (iii) hold discussions with any party (other than the Buyer) looking
toward such an offer or solicitation or looking toward a merger or
consolidation of the Seller, or (iv) enter into any agreement with any party
(other than the Buyer) with respect to the sale or other disposition of any
material portion of the Business or the Seller's stock, or with respect to any
merger, consolidation, or similar transaction involving the Seller or the
Seller's stock.
Article 7 - Covenants of the Buyer
7.1 Access to Records. For a period extending to the greater of five years
from and after the Closing Date or the date of final settlement of cost
reports for any period prior to the Closing Date, the Buyer shall retain the
records of the clients and customers serviced by the Business on and prior to
the Closing Date, and will give the Seller, and the Seller's counsel,
accountants, consultants and other agents and representatives, full and
complete access, during reasonable business hours and upon reasonable request.
7.2 Cooperation. From the date hereof until the Closing Date, the Buyer
shall cooperate in good faith with the Seller in order to obtain all
governmental, regulatory and other third party consents and approvals which
are necessary or desirable to consummate the transactions contemplated under
this Agreement.
<PAGE>
7.3 Approval of Transfer. From the date hereof until the Closing Date, the
Buyer shall use its best efforts, including the filing and submission of all
necessary and appropriate applications and documents, to obtain the approvals
and consents of all applicable governmental and regulatory authorities and
other third parties required or necessary in order to transfer the Purchased
Assets to the Buyer.
7.4 Publicity. Except as required by applicable law, without the prior
written consent of the Selling Parties, the Buyer will not disclose or
publish, or permit the disclosure or publication of, any information
concerning the execution and delivery of this Agreement, or the transactions
contemplated by this Agreement. The Selling Parties acknowledge that the
Buyer's parent is a publicly traded corporation and disclosure of the entering
into and terms of this Agreement may be required by applicable securities
disclosure and exchange laws, regulations and rules.
7.5 Sales Tax Clearance Certificate. The Seller agrees to obtain as soon as
possible after the Closing and deliver to the Buyer a State of Connecticut
sales tax clearance release for the Seller for the period through the Closing
Date.
Article 8 - Conditions Precedent to the Buyer's Obligations
The Buyer's obligation to close shall be subject to the satisfaction of
the following conditions before or at Closing, unless waived by the
Buyer:
8.1 Representations and Warranties True at Closing. The representations,
warranties and covenants made by the Seller in this Agreement shall be true in
all material respects at and as of Closing as if made on and as of Closing.
8.2 Compliance with Agreement. The Seller shall have performed and complied
in all material respects with all of its covenants and obligations under this
Agreement which are to be performed or complied with by it before or at
Closing.
8.3 The Seller's Certificate. The Seller shall have delivered to Buyer a
certificate stating that (i) the representations, warranties and covenants
made by the Seller in the Agreement are true in all material respects at and
as of Closing as if made on and as of Closing, and (ii) the Seller has
performed and complied in all material respects with all of its covenants and
obligations under this Agreement which are to be performed or complied with by
it before or at Closing.
8.4 Adverse Proceedings. No suit, action, claim or governmental proceeding
shall be pending against, and no order, decree or judgment of any court,
agency or other governmental authority shall have been rendered against the
parties or any party hereto which would render it unlawful, as of the Closing
Date, to effect the transactions contemplated by this Agreement in accordance
with its terms or otherwise have a material adverse effect on the Buyer's
ownership, use or enjoyment of the Purchased Assets.
<PAGE>
8.5 Approvals. All necessary federal, state and local governmental and
regulatory and other third party consents, waivers, and other approvals or
determinations required to be obtained with respect to the sale and/or
transfer of the Purchased Assets to the Buyer and Buyer's operation of the
Business thereafter shall have been obtained, with the form and substance of
such consents, etc. satisfactory to the Buyer in its reasonable discretion.
The consents to assignment of the Assumed Contracts must be in a form
satisfactory to the Buyer.
8.6 Closing Documents. The Selling Parties must have delivered the
Noncompetition Agreement, and the other documents required to be delivered by
the Selling Parties to the Buyer pursuant to this Agreement shall be executed
in a form reasonably acceptable to the Buyer.
8.7 Opinion of Counsel. The Seller's counsel must have delivered a
satisfactory opinion of counsel to the Buyer, substantially in the form of the
opinion attached as Annex B.
8.8 The Lease. The Buyer must have entered into a lease with 85 West Street
Associates and TR Nolan Associates, Inc. of the premises currently occupied by
the Seller, and the personal property used by the Seller in the operation of
the Business, such lease to be in the form attached to this Agreement as Annex
C (the "Lease").
8.9 Jeffrey G. Nolan Noncompetition Agreement. Jeffrey G. Nolan must have
entered into the Confidentiality, Nonsolicitation and Noncompetition Agreement
in the form of the agreement attached as Annex E (the "Jeffrey Nolan
Noncompetition Agreement").
8.10 Termination of New Milford Bank & Trust Co. Lien. The New Milford Bank
& Trust Co. lien must be terminated.
Article 9 - Conditions Precedent to the Seller's Obligations
The Seller's obligation to close shall be subject to the satisfaction of
the following conditions prior to or at Closing, unless waived by the
Seller:
9.1 Representations and Warranties True at Closing. The representations and
warranties made by the Buyer in this Agreement shall be true in all material
respects at and as of Closing with the same effect as though such
representations and warranties had been made or given on and as of Closing.
9.2 Compliance with Agreement. The Buyer shall have performed and complied
in all material respects with all its covenants and obligations under this
Agreement which are to be performed or complied with by it before or at the
Closing.
<PAGE>
9.3 Buyer's Certificate. The Buyer shall have delivered to the Seller a
certificate stating that (i) the representations, warranties and covenants
made by the Buyer in the Agreement are true in all material respects at and as
of Closing as if made on and as of the Closing, and (ii) the Buyer has
performed and complied in all material respects with all of its covenants and
obligations under this Agreement which are to be performed or complied with by
it before or at Closing.
9.4 Adverse Proceedings. No suit, action, claim or governmental proceeding
shall be pending against, and no order, decree or judgment of any court,
agency or other governmental authority shall have been rendered against the
parties or any party hereto which would render it unlawful, as of the Closing
Date, to effect the transactions contemplated by this Agreement in accordance
with its terms.
9.5 Approvals. All necessary federal, state and local governmental and
regulatory and other third party consents, waivers, and other approvals and
determinations required to be obtained with respect to the sale and/or
transfer of the Assets to the Buyer shall have been obtained.
9.6 Closing Documents and Payment of Consideration. The documents required
to be delivered by Buyer to Seller pursuant to this Agreement shall be
executed and delivered in a form reasonably acceptable to the Seller, and the
Buyer must have paid the Purchase Price and the consideration contemplated
under the Noncompetition Agreement.
9.7 Opinion of Counsel. The Buyer's counsel must have delivered to the
Selling Parties a satisfactory opinion of counsel, substantially in the form
of the opinion attached as Annex D.
9.8 Lease. The Buyer must have executed and delivered the Lease.
Article 10 - Termination of Agreement
10.1 Termination Events. This Agreement may, by notice given prior to or at
the Closing, be terminated:
(a) by either the Buyer or the Seller if a material breach of any provision
of this Agreement has been committed by the other party and such breach has
not been either cured or waived prior to the Closing Date or any extension
thereof;
(b) (i) by the Buyer if any of the conditions in Article 8 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of the Buyer to comply with
its obligations under this Agreement) and the Buyer has not waived such
condition on or before the Closing Date; or
<PAGE>
(ii) by the Seller, if any of the conditions in Article 9 has not been
satisfied of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of the Seller to comply
with their obligations under this Agreement) and the Seller has not waived
such condition on or before the Closing Date;
(c) by mutual consent of the Buyer and the Seller; or
(d) by either the Buyer or the Seller if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before February
6, 1998, or such later date as the parties may agree upon.
10.2 Effect of Termination. Each party's right of termination under
paragraph 10.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant to
paragraph 10.1, all further obligations of the parties under this Agreement
will terminate; provided, however, that if this Agreement is terminated by a
party because of the breach of the Agreement by the other party or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure to comply
with its obligations under this Agreement, the terminating party's right to
pursue all legal remedies will survive such termination unimpaired.
Article 11 - Indemnification
11.1 Survival; Right to Indemnification not Affected by Knowledge.
(a) All representations, warranties, covenants and obligations in this
Agreement will survive the Closing. The representations of the parties in
paragraphs 4.1, 4.5 and 5.1 will survive indefinitely. The representation of
the Seller in paragraph 4.4 will survive for the applicable statute of
limitations. All other representations and warranties of the parties will
survive for a period of two years after the Closing Date.
(b) The right to indemnification, payment of damages or other remedy based
on the representations, warranties, covenants, and obligations of the parties
will not be affected by any investigation conducted with respect to, or any
knowledge acquired (or capable of being acquired) at any time, whether before
or after the execution and delivery of this Agreement or the Closing Date,
with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation.
<PAGE>
11.2 Indemnification of the Buyer. Each of the Selling Parties, jointly and
severally, agrees to indemnify, defend, and hold the Buyer harmless from and
against, and agrees to pay to the Buyer the full amount of, any loss, claim,
damage, liability or expense (including reasonable attorneys' fees) resulting
to the Buyer, either directly or indirectly, from (i) any inaccuracy in any
representation or warranty, or any breach of any covenant or agreement, made
by the Seller, or actions, suits, proceedings, claims, demands, assessments,
judgments, costs and expenses (including reasonable attorneys' fees) relating
to the foregoing, (ii) any liability arising out of the sales tax audit of the
Seller by the State of Connecticut, (iii) the claims described on Schedule
4.13, (iv) any claims by the Seller's employees that such employees are
entitled as a result of representations made by the Seller's management prior
to the Closing Date to any additional compensation, bonuses or benefits
arising out of the transactions contemplated by this Agreement, (v) any audit
or investigation by Medicaid or federal Medicare authorities concerning the
operation of the Seller's business before the Closing or any amounts paid to
the Seller before the Closing, or any assessment, adjustments or offsets made
against the Seller or its Assets as a result of such an audit or
investigation, (vi) any federal or state income tax audit or payment of any
tax deficiency, additional tax due, interest or penalties, in each case with
respect to tax periods ending on or before the Closing Date, or (vii) any
default by the Selling Parties under their Noncompetition Agreement, or any
default by Jeffrey Nolan under the Jeffrey Nolan Noncompetition Agreement.
11.3 Indemnity of the Seller. The Buyer agrees to indemnify, defend and
hold the Seller harmless from and against, and agrees to pay to the Seller the
full amount of, any loss, claim, damage, liability or expense (including
reasonable attorneys' fees) resulting to the Seller, either directly or
indirectly, from (i) any inaccuracy in any representation or warranty, or any
breach of any covenant or agreement, made by the Buyer and contained in this
Agreement, or actions, suits, proceedings, claims, demands, assessments,
judgments, costs and expenses (including reasonable attorneys' fees) relating
to the foregoing, (ii) any claim arising out of or related to the conduct of
the Business after the Closing, (iii) the Buyer's failure to pay, discharge or
perform any liabilities or obligations assumed by the Buyer with respect to
the Assumed Contracts or otherwise, or (iv) any breach by the Buyer of its
obligations under this Agreement or the Lease.
11.4 Indemnification Limitations. Except for indemnification claims arising
from a breach of a representation and warranty in paragraphs 4.1, 4.5 and 5.1,
or the indemnification obligations set forth in items (ii) through (vii) in
paragraph 11.2, no claim for indemnification under this Agreement will be made
by either party unless and until the aggregate amount of indemnifiable losses
exceeds $25,000.00, and then for only the amount in excess of $25,000.00.
The Seller's liability to the Buyer for indemnification will not exceed the
Purchase Price. Except for claims made prior to the expiration of the
applicable survival period, (i) the Buyer's right to indemnification with
respect to a breach of a representation and warranty shall terminate upon
expiration of the applicable survival period in paragraph 11.1(a), (ii) the
Buyer's right to indemnification with respect to the indemnification
obligations set forth in items (ii) through (iv) in paragraph 11.2 will
survive indefinitely, (iii) the Buyer's right to indemnification with respect
to the indemnification obligation set forth in item (vi) of paragraph 11.2
will expire upon expiration of the applicable statute of limitations, and (iv)
the Buyer's right to indemnification with respect to the indemnification
obligation set forth in item (vii) of paragraph 11.2 will expire upon
expiration of the term of the applicable noncompetition agreement.
<PAGE>
11.5 Notice of Claim. If any claim is made against a party hereto that, if
sustained, would give rise to a right of indemnity under this Article 11, the
party having the claim made against it ("Indemnitee") shall give the other
party ("Indemnitor") notice thereof (specifying the nature and amount of the
claim and giving Indemnitor the right to contest the claim) within 15 days of
becoming aware of such claim ("Notice of Claim").
11.6 Right to Contest. Indemnitee shall afford Indemnitor the
opportunity, at Indemnitor's own expense, to assume the defense or settlement
of any such claim, with its own counsel. In connection therewith, the
Indemnitee shall cooperate fully to make available all pertinent information
under its control and shall have the right to join in the defense, at its own
expense, with its own counsel. If Indemnitor does not elect to undertake the
defense of a claim on the terms provided below, Indemnitee shall be entitled
to undertake the defense or settlement of the claim at the expense of and for
the account and risk of Indemnitor. Indemnitor shall have the right to assume
the entire defense of a claim hereunder provided that (i) Indemnitor gives
written notice of such desire (the "Notice of Defense") to Indemnitee within
15 days after Indemnitor's receipt of the Notice of Claim; (ii) Indemnitor's
defense of such claim shall be without cost to Indemnitee or prejudice to
Indemnitee's rights under this Article 11; (iii) counsel chosen by Indemnitor
to defend such claim shall be reasonably acceptable to Indemnitee; and (iv)
Indemnitor shall bear all costs and expenses in connection with the defense
and settlement of such claim; (v) Indemnitee shall have the right to receive
periodic reports from Indemnitor and Indemnitor's counsel; and (vi) Indemnitor
will not, without Indemnitee's written consent, settle or compromise any claim
or consent to any entry of judgment which does not include the unconditional
release by claimant or plaintiff of all liability with respect to the claim.
11.7 Exclusive Remedy. Subject to the next succeeding sentence, all claims
made by virtue of the representations, warranties, covenants and agreements
contained in, or otherwise made in connection with, this Agreement shall be
made under, and subject to the limitations set forth in, this Article 11,
which, from and after the Closing Date, will be the exclusive remedy for any
party hereto for any breach of this Agreement or other claim arising hereunder
or in connection with the transactions contemplated hereby or the conduct of
the Business, and each party hereby waives the right to assert any other
remedy. The immediately preceding sentence will not limit any right of any
party under the Lease or the Noncompetition Agreement or any right of any
party hereto to seek equitable relief (including, without limitation, specific
performance) in respect of any breach of any covenant or other agreement
contained herein or in the Noncompetition Agreement or Jeffrey Nolan
Noncompetition Agreement, and will not limit the Seller's right to seek
damages under this Article 11 for a default in the Buyer's obligation, subject
to the terms and conditions of this Agreement, to pay the Purchase Price.
<PAGE>
Article 12 - Other Provisions
12.1 Notices. All notices, consents, waivers, and other communications under
this Agreement must be in writing and will be deemed to have been duly given
when (a) delivered by hand (with written confirmation of receipt), (b) sent by
facsimile (with written confirmation of receipt), provided that a copy is
mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to any of the Selling Parties:
Thomas R. Nolan
85 West Street
Danbury, Connecticut 06810
Facsimile No.: (203) 792-8508
with a copy to:
Tyler Cooper & Alcorn, LLP
City Place 35th Floor
Hartford, Connecticut 06103
Attention: Thomas S. Marrion
Facsimile No.: (860) 278-3802
If to the Buyer:
100 Mallard Creek Road
Suite 400
Louisville, Kentucky 40207
Attention: President
Facsimile No.: (502) 891-8067
with a copy to:
Brown, Todd & Heyburn PLLC
400 West Market Street, 32nd Floor
Louisville, Kentucky 40202-3363
Attention: Scott W. Dolson
Facsimile No.: (502) 581-1087
<PAGE>
12.2 Waivers. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement will
operate as a waiver of such right, power, or privilege, and no single or
partial exercise of any such right, power, or privilege will preclude any
other or further exercise of such right, power, or privilege or the exercise
of any other right, power, or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of
the claim or right unless in writing signed by the other party; (b) no waiver
that may be given by a party will be applicable except in the specific
instance for which it is given; and (c) no notice to or demand on one party
will be deemed to be a waiver of any obligation of such party or of the right
of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement.
12.3 Expenses. Each party will be responsible for its respective expenses
incurred in connection with the transactions contemplated by this Agreement.
12.4 Headings; Interpretation. The headings in this Agreement have been
included solely for ease of reference and will not be considered in the
interpretation or construction of this Agreement. All references herein to
the masculine, neuter or singular will be construed to include the masculine,
feminine, neuter or plural, as appropriate.
12.5 Annexes and Schedules. The Schedules to this Agreement are incorporated
herein by reference and expressly made a part hereof.
12.6 Entire Agreement. All prior negotiations and agreements by and among
the parties hereto with respect to the subject matter hereof are superseded by
this Agreement, and there are no representations, warranties, understandings
or agreements with respect to the subject matter hereof other than those
expressly set forth in this Agreement or on any Schedule delivered in
connection with this Agreement. No change, modification, addition or
amendment of this Agreement shall be enforceable unless in writing and signed
by the party against whom enforcement is sought.
12.7 Governing Law. This Agreement will be governed by, and construed and
interpreted in accordance with, the laws of the Commonwealth of Kentucky,
without regard to or application of its conflicts of law principles.
12.8 Brokers. The parties covenant and agree with one another that they have
not dealt with any broker or finder in connection with any of the transactions
contemplated in this Agreement and, insofar as they know, no broker or other
person is entitled to a commission or finders' fee in connection with these
transactions. Each party will indemnify and hold the other parties harmless
from and against any claim by any agent or broker claiming by or through it
for any fee or other compensation due or allegedly due that broker or agent.
<PAGE>
12.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
12.10 Severability. If any provision of this Agreement or its application
will be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of all other applications of that provision, and
of all other provisions and applications hereof, will not in any way be
affected or impaired. If any court will determine that any provision of this
Agreement is in any way unenforceable, such provision will be reduced to
whatever extent is necessary to make such provision enforceable.
12.11 Benefit and Binding Effect. This Agreement will be binding upon and
will inure to the benefit of the parties to this Agreement and, as applicable,
their respective heirs, executors, administrators, personal representatives,
successors and assigns; provided, however, that no party to this Agreement
will assign his or its rights or obligations hereunder without the express
written consent of the other parties, which consent will not be unreasonably
withheld. Nothing expressed or referred to in this Agreement will be
construed to give any person other than the parties to this Agreement any
legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their successors and assigns.
12.12 Submission to Jurisdiction. The parties to this Agreement hereby
irrevocably submit to the non-exclusive jurisdiction of any State or Federal
court sitting in Jefferson County, Kentucky and Hartford County, Connecticut
in any action or proceeding arising out of or relating to this Agreement, and
hereby irrevocably agree that all claims in respect of such action or
proceeding may be heard and determined in such court. The parties acknowledge
and agree that the Buyer may bring and maintain an action in the courts in
Jefferson County, Kentucky and the Seller may bring and maintain an action in
the courts in Hartford County, Connecticut. The parties hereby irrevocably
waive, to the fullest extent they may effectively do so, the defense of an
inconvenient forum to the maintenance of such action or proceeding. The
parties irrevocably consent to the service of any and all process in any such
action or proceeding by the delivery of copies of such process at their
respective addresses specified in paragraph 18. The parties agree that a
final judgment in any such action or proceeding may be enforced in other
jurisdictions by suit on the judgement or in any other manner provided by law.
12.13 Further Assurances. From time to time after the Closing at another
party's request and without further consideration, a party will execute and
deliver such further instruments of conveyance, assignment and transfer, and
take such other actions as the requesting party may reasonably request, in
order to more effectively convey and transfer any of the Assets. In addition,
any monies collected by a party which are due and payable to another party
will be promptly remitted to such party upon receipt thereof.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as
of the date first set forth above, but actually on the dates set forth below.
ADULT DAYCARE OF AMERICA, INC.
By___________________________________
Title:_________________________________
Date:_________________________________
HOME CARE SOLUTIONS, INC.
By__________________________________
Title:________________________________
Date:________________________________
_____________________________________
Thomas R. Nolan
Date:_________________________________
<PAGE>
LIST OF ANNEXES AND SCHEDULES
Annex A - Noncompetition Agreement
Annex B - Opinion of Seller's Counsel
Annex C - Lease
Annex D - Opinion of Buyer's Counsel
Annex E - Jeffrey Nolan Noncompetition Agreement
Schedule 1.1 - Excluded Assets
Schedule 1.3 - Contracts
Schedule 2.2 - Prorated Expenses
Schedule 2.3 - Purchase Price Allocation
Schedule 4.6(b) - Operation of Business
Schedule 4.7 - Insurance
Schedule 4.9 - Governmental Approvals
Schedule 4.11 - Contracts, Consents
Schedule 4.12 - Violations of Law
Schedule 4.13 - Litigation
Schedule 4.16 - ERISA Matters
Schedule 4.20 - Consent
Schedule 4.22 - Licenses, Etc.
AMENDMENT NO. 1 TO THE ASSETS PURCHASE AGREEMENT
This is an Amendment No. 1 to the Assets Purchase Agreement dated as of
January 26, 1998 (the "Agreement"), by and among (i) Adult Daycare of America,
Inc., a Delaware corporation (the "Buyer"), (ii) Home Care Solutions, Inc., a
Connecticut corporation (the "Seller"), and (iii) Thomas R. Nolan (the
"Shareholder"). The Seller and the Shareholders will be referred to
collectively as the "Selling Parties").
THE PARTIES INTENDING TO BE LEGALLY BOUND, AGREE AS FOLLOWS:
1. Article 4 of the Agreement is amended to add the following
representation: "4.23 Solvency. The Seller is currently solvent and will be
solvent after the consummation of the transactions contemplated by this
Agreement. The consummation of the transactions contemplated by this
Agreement will not constitute a fraudulent conveyance."
2. Article 11 is amended to add the following indemnification obligation of
each of the Selling Parties to paragraph 11.2: "(viii) any claim against the
Buyer by creditors of the Seller, or a trustee in bankruptcy with respect to
the Seller." The indemnification obligation in the previous sentence will
survive the Closing indefinitely and will not be subject to the
indemnification limitations in paragraph 11.4 of the Agreement.
3. The Agreement, as modified by this Amendment No. 1, remains in full force
and effect and is a binding obligation of the parties to such Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of February 1,
1998.
ADULT DAYCARE OF AMERICA, INC.
By___________________________________
Todd Lyles, Vice-President
HOME CARE SOLUTIONS, INC.
By__________________________________
Thomas R. Nolan, President
_____________________________________
Thomas R. Nolan
AMENDED AND RESTATED
ASSETS PURCHASE AGREEMENT
This is an Amended and Restated Assets Purchase Agreement dated as of November
20, 1997 (the "Agreement"), by and among (i) Caretenders Visiting Services of
Southwest Florida, Inc., a Kentucky corporation (the "Buyer"), (ii) Debtor in
Possession, Metro Home Care Incorporated, a Florida corporation (the
"Seller"), (iii) Metro Home Health Management, Inc. ("Metro") and (iv) George
W. Shannon III, Janet Muth Shannon and Jerry M. Hollander, Jr. (each a
"Shareholder" and collectively, the "Shareholders"). The Seller, Metro and
the Shareholders are referred to collectively as the "Selling Parties".
Recitals
A. The parties to this Agreement entered into an Assets Purchase Agreement
dated October 21, 1997 (the "Original Agreement"). This Agreement amends,
restates and supersedes the Original Agreement in its entirety.
B. The Seller is engaged in the business of operating a home health agency
(the "Business") based in Fort Myers, Florida, serving Sarasota, De Soto,
Charlotte, Glades, Hendry, Lee and Collier Counties, Florida (the
"Territory").
C. The Seller is the holder of a license issued by the Agency for Health
Care Administration of the State of Florida, and a Medicare provider agreement
issued by the U.S. Department of Health and Human Services, all of which
authorize the Seller to provide Medicare certified home health care services
and home and community based waiver services in the Territory (collectively,
the "Licenses").
D. Metro Home Care Incorporated filed for reorganization on November 6,
1997, in the United States Bankruptcy Court for the Middle District of Florida
(the "Bankruptcy Court"), Case No. 97-18449-9P1. Metro Home Care Incorporated
is operating as a debtor in possession and no trustee has been appointed.
E. Pursuant to the terms of a Management Agreement dated as of November 20,
1997, among the Seller and the Buyer (the "Management Agreement"), the Buyer
has assumed the management of the Business. On November 20, 1997, the
Bankruptcy Court approved the Seller's application to employ the Buyer as the
manager of the Business.
F. Subject to the satisfaction of various conditions set forth in this
Agreement and Bankruptcy Court approval, the Debtor has agreed to sell and the
Buyer has agreed to purchase the assets used in the Business.
<PAGE>
THE PARTIES, INTENDING TO BE LEGALLY BOUND, AGREE AS FOLLOWS:
Article 1 - Purchase and Sale of Assets
1.1 Purchased Assets. The Seller hereby agrees to sell, assign, transfer
and convey to the Buyer, and the Buyer hereby agrees to purchase from the
Seller, all of the assets of the Seller used in the Business (the "Purchased
Assets"), other than the excluded assets described on Schedule 1.1. The
Purchased Assets include without limitation the following assets and
properties:
(a) All furniture, fixtures, machinery, equipment and other tangible
personal prop-erty, including such items as are described on Schedule 1.1(a),
together with all manu-facturers' warranties pertaining to the same, to the
extent that such warranties may exist and be assignable;
(b) All of the Seller's goodwill relating to the Business; all customer,
patient and lists and files, records and similar sales and marketing
information in the Seller's possession relating to the Business; medical
records of the patients serviced by the Business and in the Seller's
possession; personnel records; and the Seller's right and interest in the
trade names, trademarks, trade secrets, licenses, know-how, specifications,
literature, and all other intangible property which relate specifically to the
Business;
(c) All transferable Licenses, permits, licenses, certificates,
authorizations, accreditations, orders, ratings and approvals of all federal,
state, or local governmental or regulatory authorities which relate to the
Business and which are held by the Seller, but only to the extent the same are
transferable, including without limitation the provider agreement relating to
the Seller's right to participate in the Medicare Program, and all rights of
the Seller to reimbursement or other payments from HCFA for the period prior
to the Closing Date;
(d) Any and all rights of the Seller which by their terms are
transferable and which arise under or pursuant to warranties, representations
and guarantees made by suppliers in connection the Purchased Assets;
(e) All accounts receivable arising out of the operation of the Business
(the "Accounts Receivable"). The Selling Parties agree to cooperate with the
Buyer in connection with the Buyer's efforts to collect the Accounts
Receivable. The Selling Parties agree to immediately remit to the Buyer any
payments received by any of the Selling Parties that constitute Accounts
Receivable; and
(f) All raw materials, supplies, packaging materials, purchased products,
fin-ished goods and all other goods, merchandise and materials owned by the
Sel-ler.
<PAGE>
1.2 Assumed Liabilities.
(a) Subject to the limitation in paragraph 1.2(b), the Buyer will assume the
following liabilities: (i) accounts payable described on Schedule 1.2(a)
(which Schedule will include all accounts payable relating to the operation of
the Seller's Business and arising in the ordinary course of the Seller's
Business) (the "Accounts Payable"); (ii) accrued payroll for services
performed by the Seller's employees in connection with the operation of the
Business; (iii) promissory notes relating to the Seller's purchase of
furniture, fixtures and equipment included among the Purchased Assets
described on Schedule 1.2(a); and (iii) prospective obligations under the
Assumed Contracts.
(b) Except for liabilities assumed pursuant to paragraph 1.2(a), and for the
prospective obligations under the contracts and leases referred to in
paragraph 1.3, the Seller will retain, and the Buyer will have no obligation
or liability with respect to, any liabilities or obligations, actual or
contingent, of the Seller or the Business, or any claims by any person, firm
or organization, arising out of any liabilities or obligations of the Seller,
or the operation of the Business prior to the Closing. Notwithstanding
anything in this Agreement to the contrary, the Buyer is not assuming or
taking any of the Purchased Assets or the Business subject to (i) any
liabilities or obligations of the Seller or the Business to the Seller's
shareholders, or (ii) any liabilities or obligations of the Seller or the
Business to any affiliate or related entity of the Seller (collectively, the
"Affiliated Corporations"), including without limitation, the following
affiliated corporations: Metro Home Health Care Agency, Inc. (a Louisiana
corporation); Metro Home Health Care Agency, Inc. (a Texas corporation); Metro
Home Health Care Agency, Inc. (a New Mexico corporation); Metro Home Health
Care Agency, Inc. (an Arizona corporation); Metro Home Health Care Agency,
Inc. (a Colorado corporation); Metro Home Health Care Agency, Northshore, Inc.
(a Louisiana corporation); and Metro Home Health Management, Inc. (a Florida
corporation).
1.3 Assumed Contracts and Leases. The Buyer will assume (i) the Seller's
prospective obligation to provide services to the Seller's patients, (ii) the
Seller's prospective obligations under the equipment leases listed on Schedule
1.3 , and (iii) the Punta Gorda Lease (collectively, the "Assumed Contracts").
1.4 Employees.
(a) The Buyer agrees to offer employment to each of the Seller's employees.
The Buyer will offer Mark Rogers, Debbie Moriconi, Paula Wunderlich, Colletta
Dunn, Karen Townley, and Vicki Bartlow employment for a term of at least six
months and Kim Eckland, Isabel McIntre, Neva Schneider, Sue Alessi, Troy
Mitchell and Kelly Studenwalt employment for a term of at least three months,
in each case with compensation comparable to those received by such employee
prior to the Closing.
<PAGE>
Each such employee with execute a written employment agreement setting forth
the terms of such employment arrangement and in addition will execute an
agreement substantially similar to the Confidentiality, Nonsolicitation and
Noncompetition Agreement, except that the term of the agreement's
noncompetition covenant shall continue until the later of (i) the date 12
months from the Closing Date, with respect to those employees with six month
employment terms, or the date six months from the Closing Date, with respect
to those employees with three month employment terms, or (ii) with respect to
those employees with six month employment terms, the date six months after
termination of employment (whether voluntary or involuntary), and with respect
to those employees with three month employment terms, the date three months
after termination of employment (whether voluntary or involuntary).
Notwithstanding the preceding sentence, if an employee is terminated without
cause, then such employee's Confidentiality, Nonsolicitation and
Noncompetition Agreement will terminate effective as of such date of
employment termination.
(b) The Buyer and Janet Shannon will enter into a consulting arrangement,
effective as of the Closing Date, whereby Janet Shannon will provide full-time
administrative consulting and/or physical therapy services for a period of up
to six months for aggregate compensation of $8,333.33 per month. Janet
Shannon may terminate her services prior to the end of the six month period
upon the giving of 30 days advance written notice. Janet Shannon acknowledges
that she will not be treated as an employee for tax and other purposes.
(c) The Seller acknowledges that the Buyer is not purchasing, recognizing,
assuming or otherwise acquiring any rights, obligations, assets or liabilities
under, arising from or resulting from any employment agreement or arrangement
in existence between the Seller and any employee, or any person employed to
consult with or perform services for the Seller, or otherwise, except for the
accrued payroll liability assumed pursuant to paragraph 1.2(a)(ii). The
Seller agrees that the Buyer shall not be obligated to hire any of the
Seller's employees, but that the Buyer, in its sole discretion, may hire some
or all of such employees on such terms as the Buyer and the employees so hired
may agree.
(d) Except as included on Schedule 1.2(a), the Buyer shall not be responsible
to the Seller or to any current or former employee of the Seller for any
employee benefits (whether earned, accrued or vested) due to the Seller's
employees with respect to their employment prior to the Closing.
1.5 Confidentiality, Nonsolicitation and Noncompetition Agreement. Each of
the Selling Parties agrees to enter into a Confidentiality, Nonsolicitation
and Noncompetition Agreement at or prior to the Closing, in the form of the
Confidentiality, Nonsolicitation and Noncompetition Agreement attached as
Annex A (the "Noncompetition Agreement").
1.6 Acquisition or Lease of the Seller's Business Premises.
(a) The Buyer and George Shannon agree that they will enter into a contract
of sale regarding the Seller's business premises at 15550 McGregor Boulevard,
Fort Myers, Florida (the "Premises"), pursuant to which George Shannon will
transfer good and marketable title to the Premises to the Buyer free from
liens and encumbrances except those relating to the indebtedness offsetting
the purchase price (as described in the next sentence). Subject to
satisfaction of customary conditions to closing (including the Buyer's due
diligence investigation), the Buyer will agree to purchase the Premises for
$400,000.00, minus the amount of the debt that the Premises is taken subject
to (e.g., approximately $392,000.00 as of the date of this Agreement) and
closing costs. The contract of sale relating to the Premises will be
substantially on the terms of the Contract of Sale attached as Annex B (the
"Contract of Sale").
<PAGE>
(b) From the Closing Date until the closing of the purchase of the Premises
described in paragraph 1.6(a), the Buyer will lease the Premises from George
Shannon on the same terms and conditions as currently enjoyed by the Seller
(as described in writing by George Shannon to the Buyer prior to the execution
of this Agreement).
(c) If the Buyer does not purchase the Premises due to a failure in a
condition to the Buyer's obligation to close, then the Buyer and George
Shannon agree that the Buyer will lease the Premises pursuant to a triple net
lease arrangement, with a lease rate of $9.00 per square foot, for a term of
not less than three years.
(d) The Buyer will assume the existing lease (i.e., with rental rate of
$1821.13 per month, plus sales tax) of the Punta Gorda building at 260 Olympia
from Acme Partnership (a copy of which has been provided by the Seller to the
Buyer prior to the date of this Agreement), except that the term of the lease
will be amended to provide that the term will extend for two years from the
Closing Date (the "Punta Gorda Lease").
1.7 Transition Assistance. From the date of the Closing through December 31,
1997, the Buyer will cause the employees of the Business to spend up to 25% of
their working time (at the written request of the Seller) providing transition
services to the Affiliated Corporations. The Buyer will be compensated by
Metro or the applicable Affiliated Corporation at the rate of three times the
base salary of the employees utilized by the Seller, plus reimbursement for
all out-of-pocket expenses (e.g., travel, telephone) incurred in connection
with the providing of such services. In addition, the Buyer will provide the
Seller, as Metro's cost, with other transition management services for a
period of six months after the Closing Date. Metro, the Seller and the Buyer
agree that the Buyer will bill Metro bi-weekly for the cost of the employee
services and out-of-pocket expenses provided pursuant to this paragraph 1.7,
and Metro shall pay or cause the Affiliated Corporations to pay in full the
amount billed by the Buyer within seven days after the date of the bill. The
Buyer will have no obligation to provide further services pursuant to this
paragraph 1.7 if Metro or the applicable Affiliated Corporation fails to pay
any bill within seven days after the date of the bill.
1.8 Right to Use "Metro" Name. The Buyer will have the right, by giving the
Seller written notice, to require the Seller to change its corporate name to a
name dissimilar to the "Metro" name and to otherwise require the Seller to
cease using the name "Metro" or any other confusingly similar derivation of
"Metro".
<PAGE>
Article 2 - Purchase Price and Payment
2.1 Purchase Price. In consideration of the transfer of the Purchased
Assets and the Business, the Buyer agrees to pay the following (collectively,
the "Purchase Price") :
(a) $125,000.00 in cash at the Closing, payable to the Seller by wire
transfer (to be used by the Seller for funding of the bankruptcy plan (i.e.,
administrative expenses, payment of priority claims, and payment of claims not
assumed by the Buyer);
(b) $1,100,000.00 in cash at the Closing, payable to Capital Healthcare
Financing, a division of Capital Factors, Inc. ("Capital"), in consideration
of Capital's release of its claim against the Seller (but not against any of
the Affiliated Corporations) and its lien on, and security interest in, the
Purchased Assets;
(c) $370,000.00 in cash at the Closing, payable to Capital, in consideration
of Capital's post-petition loan to the Seller to fund the Seller's November 7,
1997 payroll, plus interest in such amount at the annual rate of 2% above the
prime rate as published in The Wall Street Journal, accruing from November 7,
1997, through the Closing Date; and
(d) The amount of any post-Closing payments by the Buyer to HCFA as payment
for settlement of the Seller's cost reporting periods through and including
the Closing Date.
2.2 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Purchased Assets as set forth on Schedule 2.2. The Seller
and the Buyer agree that all tax and information returns shall be prepared on
a basis consistent with such allocation of the Purchase Price.
Article 3 - The Closing
3.1 Time and Place. The Closing ("Closing") shall take place on or
before December 31, 1997 (the "Closing Date"), or on such earlier or later
date as each of the conditions to the parties' obligations to close are
satisfied or waived.
3.2 Execution and Delivery of Documents of Title by the Seller.
(a) At the Closing, the Seller shall execute and deliver to the Buyer
such conveyances, bills of sale, certificates of title, assignments,
assurances and other instruments and documents as the Buyer may reasonably
request in order to effect the sale, conveyance, and transfer of the Purchased
Assets from the Seller to the Buyer. Such instruments and documents shall be
sufficient to convey to the Buyer good title to the Purchased Assets. Also at
the Closing, the parties shall cause the following items to be executed and
delivered the Noncompetition Agreement.
(b) The Seller agrees that it will, from time to time after the Closing
Date, take such additional action and execute and deliver such further
documents as the Buyer may reasonably request in order to effectively sell,
transfer and convey the Purchased Assets to the Buyer and to place the Buyer
in position to operate and control all of the Purchased Assets.
<PAGE>
Article 4 - Representations and Warranties of the Selling Parties
As a material inducement to the Buyer to enter into and perform this
Agreement, each of the Selling Parties represents and warrants to the Buyer as
follows:
4.1 Authority as to Execution.
(a) Each of the Selling Parties has full legal capacity to execute and
deliver this Agreement and the Noncompetition Agreement, and to perform such
Selling Party's respective obligations under this Agreement and the
Noncompetition Agreement. This Agreement and the Noncompetition Agreement
constitute valid and legally binding obligations of each of the Selling
Parties, enforceable in accordance with their terms. The execution and
delivery of this Agreement and the instruments called for by this Agreement by
or on behalf of the Seller and the consummation of the transactions
contemplated hereunder and thereunder, subject to the terms of this Agreement,
have each been duly authorized by all necessary corporate action, including
the requisite Board of Director, shareholder and Bankruptcy Court approvals.
(b) The execution and delivery of this Agreement and the Noncompetition
Agreement, the consummation of the transactions contemplated hereby and
thereby, and the performance and fulfillment of their respective obligations
and undertakings hereunder and thereunder by the Selling Parties will not, (i)
violate any provision of, or result in the breach of or accelerate or permit
the acceleration of any performance required by the terms of, any contract,
agreement, arrangement or undertaking to which any of the Selling Parties is a
party or by which any of them may be bound; any judgment, decree, writ,
injunction, order or award of any arbitration panel, court or governmental
authority; or any applicable law, ordinance, rule or regulation of any
governmental body; (ii) result in the creation of any claim, lien, charge or
encumbrance upon any of the properties or assets (whether real or personal,
tangible or intangible) of the Seller; (iii) terminate or cancel, or result in
the termination or cancellation of, any agreement or undertaking to which the
Seller is a party; or (iv) in any way affect or violate the terms or
conditions of, or result in the cancellation, modification, revocation or
suspension of, any of the Seller's permits or licenses.
(c) The Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Florida with full power and
authority (corporate or otherwise) to execute, deliver and perform its
obligations under this Agreement.
4.2 Financial Statements. Any financial information provided by the
Selling Parties to the Buyer in connection with the transactions contemplated
by this Agreement has been prepared from the books and records of account of
the Business and presents fairly the results of operations and the financial
condition of the Business as of the date of such financial information.
<PAGE>
4.3 Environmental Standards. The Seller has operated the Business in full
compliance with all limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
or required under the common law or any federal, state, local or foreign law,
regulations, ordinances, permits, licenses, consent decrees, orders and
clearances relating to pollution, the environment, or the use, storage,
transportation or disposal of pollutants, dangerous substances, toxic
substances, hazardous wastes, medical wastes, infectious wastes or hazardous
substances.
4.4 Taxes. The Seller has timely filed all federal, state, local and
other tax returns and paid all taxes shown as due on such returns or otherwise
due from, assessed against or owed by the Seller solely with respect to the
Purchased Assets or the Business, the failure of which returns to be filed or
the failure of which taxes to be paid could result in a lien upon any of the
Purchased Assets or with respect to which the Buyer could have successor
liability under applicable laws. Present taxes which the Seller is required
by law to withhold or collect with respect to the Business have been withheld
or collected and have been paid over to the proper governmental authorities or
are properly held by the Seller for such payment. No deficiency for any taxes
or claim for additional tax assessment by any taxing authority, which if
unsatisfied could result in a lien upon any of the Purchased Assets or could
result in the Buyer incurring successor liability under applicable laws, has
been proposed, asserted, or assessed against the Seller, nor has the Seller
granted any extension or waiver of any limitation period applicable to any tax
claims relating to the Business which has not been closed.
4.5 Title. The Seller has and will transfer to the Buyer at the Closing
good title to all of the assets included among the Purchased Assets, free and
clear of any mortgages, security interests, pledges, liens, claims or
encumbrances. Except as disclosed on Schedule 1.1(a), none of the Purchased
Assets are leased.
4.6 Property, Equipment and Operations.
(a) The Purchased Assets are, in all material respects, in serviceable
condition for their intended purposes in the operation of the Business,
ordinary wear and tear excepted. The Purchased Assets are all of the assets
which are reasonably necessary for the operation of the Business by the Buyer.
(b) The Seller has not caused or permitted any hazardous substance, as that
term is now defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (42 U.S.C. 9601, et seq.), medical wastes or
petroleum substances to be disposed on, under or at the premises of the
Business, or any part thereof, and no part thereof has ever been used by the
Seller as a permanent storage or disposal site for any such hazardous
substances, medical wastes, or petroleum substances.
4.7 Insurance. The Seller has provided the Buyer with a true and
correct list of all policies of insurance which insure the Purchased Assets or
the Business, setting forth the types and amounts of coverage. Such policies
will remain in effect until the Closing Date. Schedule 4.7 is a true and
correct list of all claims against such insurance policies during the past
two years.
<PAGE>
4.8 Disclosure. No representation or warranty made by the Selling Parties
in this Agreement and no statement made in or any amount set forth on any
schedule called for by and incorporated into this Agreement is false or
misleading in any material respect or omits to state any fact necessary to
make any such representation or statements not misleading in any material
respect.
4.9 Governmental and Industrial Approvals. Other than the Licenses, there
are no permits, licenses, accreditations, authorizations, orders, ratings or
approvals of any federal, state, local or foreign governmental or regulatory
bodies necessary under current laws and regulations for the Seller's
operation of the Business as presently conducted. Except as described on
Schedule 4.9, the Licenses are in full force and effect and, to the best of
the Seller's knowledge and belief, after due inquiry, (i) no default or
violation exists under any of the Licenses, (ii) no suspension or cancellation
of any of the Licenses is threatened, and (iii) there is no reason to believe
that but for the transaction contemplated by this Agreement on expiration the
Licenses would not be renewed.
4.10 Compliance with Healthcare Regulations. Except as disclosed on
Schedule 4.10, the Seller has timely filed all requisite cost reports, claims
and other reports required to be filed in connection with all state and
Federal Medicare and Medicaid programs due on or before the date hereof, all
of which to the Seller's knowledge, are complete and correct. True and
correct copies of all such reports for the most recent fiscal years of the
Seller have been furnished to Buyer on or before the date hereof. Except as
specifically described on Schedule 4.10, there are no claims, actions,
appeals, reviews or audits pending before any commission, board or agency
(including, without limitation, any intermediary or carrier, the Provider
Reimbursement Review Board or the Administrator of the Health Care Financing
Administration) with respect to any state or Federal Medicare or Medicaid cost
reports or claims filed by the Seller on or before the date hereof, or any
pending disallowances by any commission, board or agency in connection with
any audit of such cost reports, which could adversely or materially affect any
of the Purchased Assets, the operation or the utility thereof, or the
consummation of the transactions contemplated hereby, and Seller has attached
to Schedule 4.10 true and correct copies of any such claims, actions or
appeals.
4.11 Contracts and Commitments. Except for the Assumed Contracts, the
Seller is not a party to any contract or commitment relating to the Business,
and neither the Business nor the Purchased Assets are the subject of any
contract or commitment. Each of the Assumed Contracts are valid and binding
agreements of the parties to such contracts, and no party to the Assumed
Contracts is in default under such contracts.
4.12 No Violation of Law. Except as disclosed on Schedule 4.12, the Seller
is not in default or violation of, have received no notice of default or
violation of, and have no knowledge of any fact or event which with the lapse
of time or giving of notice would constitute a default or violation of any
statute, ordinance, regulation, order, writ, injunction or decree of any court
or governmental agency or authority applicable to the Business or the
Purchased Assets.
<PAGE>
4.13 Litigation. Except as disclosed on Schedule 4.13, there are no
actions, suits or proceedings, pending, or, to the Selling Parties' knowledge,
after due inquiry, threatened before any court, commission, agency or other
administrative authority against, or affecting the Business or the Purchased
Assets and, after due inquiry, the Seller is not the subject of any order or
decree relating to or affecting the Business or the Purchased Assets other
than those of general application.
4.14 Labor. There is no collective bargaining or other union contract
relating to the Business to which the Seller is a party. To the Selling
Parties' knowledge, after due inquiry, there is not pending or threatened
against the Seller any grievance, labor dispute, organizational activity,
union trouble, strike or work stoppage which materially affects or which may
materially disrupt the Buyer or the Business. The Seller has complied with
all applicable laws, rules and regulations pertaining to the employment of
labor, including those relating to wages, hours, collective bargaining and the
payment of or withholding of taxes. The Seller has withheld all amounts
required by law or agreement to be withheld from the wages or salaries of the
Business' employees and they are not liable for any arrears of wages or any
tax or penalties for failure to comply with any of the foregoing.
4.15 Employment Contracts. There are no written or oral contracts for
employment of any personnel of the Business.
4.16 Employee Benefit and Retirement Plans. Except as disclosed on Schedule
4.16, the Seller does not now maintain any "employee pension benefit plan" or
any "employee welfare benefit plan" (as defined respectively in Section 3(2)
and 3(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") on behalf of the Business's employees, and the Seller does not
maintain any retirement plans, bonus arrangements, life insurance or medical
insurance programs or any other fringe benefit arrangements (collectively
"fringe benefit arrangements") for any employees whether written or unwritten.
4.17 Employees and Independent Contractors. The Seller has provided the
Buyer prior to the Closing Date with a true and correct list including the
name, salary or compensation (including without limitation all commission,
override or bonus arrangements), vacation and sick leave policies or other
benefits, job description and original employment or contract date of all
current employees and independent contractors of the Business based upon the
most recently processed information, and the accrued and/or earned vacation
time of all employees and, to the Selling Parties' knowledge, the dates and
information concerning any previous salary or compensation change or
adjustment and the reasons therefor for each such current employee.
4.18 Worker's Compensation. The Seller is in full compliance with all
worker's compensation laws with respect to the Business and have worker's
compensation insurance coverage in full force and effect with respect to the
Business, where any such non-compliance or lack of coverage would have a
material adverse effect on the Buyer's ownership, possession or use of the
Business or the Purchased Assets, or on the consummation of the transactions
contemplated under this Agreement.
<PAGE>
4.19 Adverse Action. The Seller has not received any written notice of any
judicial or administrative action against the Seller, the Business or the
Purchased Assets.
4.20 Consents. Except as described on Schedule 4.20, no consents,
approvals or authorizations of, or declaration, filing or registration with,
any governmental or regulatory authority is required in connection with the
execution and delivery of this Agreement by the Seller and consummation by the
Seller of the transactions contemplated hereby.
4.21 Commissions. None of the Selling Parties has authorized any person to
act in such a manner as to give rise to any valid claim against the Buyer for
a brokerage commission, finder's fee, or similar payment as a result of the
transactions contemplated under this Agreement. The Selling Parties shall
defend, indemnify and hold harmless the Buyer from any claim for commissions
or fees alleged to have arisen from a contractual relationship or cooperation
in connection with the transactions contemplated under this Agreement.
4.22 Licenses, Permits and Payment Programs. The Seller has obtained and
holds all required licenses, permits, certificates, and authorizations
necessary for the Seller to operate the Business as conducted prior to the
Closing. A copy of each of the foregoing is attached to Schedule 4.22. The
Business is certified for participation in, and is a party to valid provider
agreements for payment by, the federal Medicare program (the "Program").
Except as described on Schedule 4.22, neither the Seller nor the Business has
received any notice of any pending, or to the best of Seller's knowledge, any
threatened investigations by, or loss of participation in, any of the Program.
Article 5 - Representations of the Buyer
As a material inducement to the Seller to enter into this Agreement, the
Buyer hereby represents and warrants to the Seller as follows:
5.1 Authority as to Execution. The execution and delivery of this Agreement
and the instruments called for by this Agreement by or on behalf of the Buyer
and the consummation of the transactions contemplated hereunder and
thereunder, subject to the terms of this Agreement, have each been duly
authorized by all necessary corporate actions. This Agreement and each of the
instruments called for by this Agreement will be a valid and binding
obligation of the Buyer, each enforceable against the Buyer in accordance with
their respective terms.
5.2 Organization and Corporate Authority. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Kentucky with full power and authority (corporate or
otherwise) to execute, deliver and perform its obligations under this
Agreement.
<PAGE>
5.3 No Violation of Law; Other Agreements. Neither the execution and
delivery of this Agreement or the instruments called for by this Agreement,
nor consummation of the transaction herein or therein contemplated, nor
compliance with the terms, conditions and provisions hereof or thereof, will
conflict with or violate any provision of law or of the Articles of
Incorporation or Bylaws of the Buyer, or result in a violation or default in
any provision or any regulation, order, writ, injunction or decree of any
court or governmental agency or authority, or of any agreement or instrument
to which the Buyer is a party or by which the Buyer is bound or subject.
5.4 Commissions. The Buyer has not authorized any person to act in such a
manner as to give rise to any valid claim against the Seller for a brokerage
commission, finder's fee, or similar payment as a result of the transactions
contemplated under this Agreement. The Buyer shall defend, indemnify and hold
harmless the Seller from any claim for commissions or fees alleged to have
arisen from a contractual relationship or cooperation in connection with the
transactions contemplated under this Agreement.
5.5 Adequate Funds. The Buyer has adequate funds to pay the Purchase Price
and otherwise perform the terms of this Agreement.
Article 6 - Covenants of the Selling Parties
6.1 Conduct of Business. From the date of this Agreement until the Closing
Date, the Seller shall operate the Business and otherwise conduct its business
relating to the Business only in the ordinary course of business, and in
substantial compliance with all statutory and regulatory requirements of any
applicable federal, state or local authority, and shall enter into no material
contract or other transaction relating to the Business other than in the
ordinary course of business without the prior written consent of Buyer.
Between the date hereof and the Closing Date, the Seller shall use its best
efforts to retain its present employees and preserve the goodwill and business
of its customers, suppliers, and others having business relations with it, and
shall conduct the financial operations of the Business in accordance with its
existing business practices. From the date of this Agreement to the Closing
Date, the Seller shall not do any of the following in connection with its
ownership and operation the Business and the Purchased Assets without the
Buyer's prior written consent:
(a) cancel or permit any insurance, bond, surety instrument or letter of
credit to lapse or terminate, except in the ordinary course of business or
unless renewed or replaced by like coverage;
(b) default in any respect under any loan, material contract, agreement,
lease or commitment;
(c) enter into any contract, agreement, lease or other commitment,
except in the ordinary course of business;
<PAGE>
(d) sell or agree to sell the Business or any of the Purchased Assets;
(e) hire any employees, increase any compensation to employees,
enter into any employment arrangement, agreement or undertaking, or pay or
promise to pay any fringe benefit, bonus or special compensation to employees,
except in the ordinary course of business;
(f) impede the Buyer, its counsel, accountants and other representatives
from reasonable access, during normal business hours and upon reasonable
advance notice, to the Business and the Purchased Assets so that the Buyer may
have the opportunity to investigate same; and
(g) encumber any of the Purchased Assets or incur any liabilities with
respect to the Business, except in the ordinary course of business.
6.2 Sales, Etc. The Seller shall not sell, lease, remove or otherwise
dispose of any of the Purchased Assets, which are located or used in the
Business (except for retirements and replacements in the ordinary course of
business, provided that all items which are retired or replaced are
contemporaneously replaced by items of substantially equivalent value), or
liquidate or dissolve.
6.3 Insurance. The Seller shall maintain the insurance described in Article
4.
6.4 Notice. From the date hereof to the Closing Date, the Seller shall
promptly advise the Buyer of the occurrence of any governmental inspections,
investigations, citations with respect to the Business or the Purchased
Assets, and of which the Seller has received written notification.
6.5 Access to Personnel and Records. From the date of this Agreement until
the Closing Date, the Seller and the Business shall give the Buyer, and the
Buyer's counsel, accountants, consultants and other agents and
representatives, reasonable access, during normal business hours and upon
reasonable request, to its properties, books, contracts, commitments and
records relating to the Purchased Assets and the operations of the Business.
6.6 Financial Information. The Seller shall provide the Buyer with such
financial information relating to the operations of the Business as the Buyer
may reasonably request.
6.7 Collection Practices. The Seller shall not deviate from its current
lawful practices with respect to the collection of accounts receivable from
the Business's patients to the extent that any such change in collection
practices would impair or adversely affect the Business's ability to continue
its relationships with those patients after Closing.
<PAGE>
6.8 Cooperation. From the date hereof to the Closing Date, each of the
Selling Parties shall cooperate in good faith with the Buyer in order to
obtain all governmental, regulatory and other third party consents and
approvals which are necessary or desirable to consummate the transactions
contemplated under this Agreement, including without limitation, obtaining the
release from Capital referred to in paragraph 8.10. Each of the Selling
Parties agrees to cooperate fully with Buyer with respect to the Buyer's due
diligence investigation of the Seller's Business. Each of the Shareholders
agrees to vote all of such Shareholder's shares of the Seller's stock in favor
of the transactions contemplated by this Agreement. Each of the Shareholders
also agrees to use such Shareholder's best efforts to cause each of the
conditions to the Buyer's obligation to close the transactions contemplated by
this Agreement set forth in Article 8 to be satisfied on or prior to the
Closing Date.
6.9 Approval of Transfer. From the date hereof to the Closing Date, the
Seller shall use its best efforts, including the filing and submission of all
necessary and appropriate applications and documents, to obtain the approvals
and consents of all applicable governmental and regulatory authorities and the
landlord, and any other third party identified as necessary in order to
transfer the Purchased Assets to the Buyer.
6.10 Consents. The Selling Parties shall use their best efforts to procure
the consents of any third parties necessary for the assignment to the Buyer of
any contract, agreement or lease hereunder.
Article 7 - Covenants of the Buyer
7.1 Access to Records. For a period extending to the greater of five years
from and after the Closing Date or the date of final settlement of cost
reports for any period prior to the Closing Date, the Buyer shall retain the
patient and medical records of the patients serviced by the Business on and
prior to the Closing Date, and will give the Seller, and the Seller's counsel,
accountants, consultants and other agents and representatives, full and
complete access, during reasonable business hours and upon reasonable request.
7.2 Cooperation. From the date hereof until the Closing Date, the Buyer
shall cooperate in good faith with the Seller in order to obtain all
governmental, regulatory and other third party consents and approvals which
are necessary or desirable to consummate the transactions contemplated under
this Agreement.
7.3 Approval of Transfer. From the date hereof until the Closing Date, the
Buyer shall use its best efforts, including the filing and submission of all
necessary and appropriate applications and documents, to obtain the approvals
and consents of all applicable governmental and regulatory authorities and
other third parties required or necessary in order to transfer the Purchased
Assets to the Buyer.
Article 8 - Conditions Precedent to the Buyer's Obligations
The Buyer's obligation to close shall be subject to the satisfaction of the
following conditions before or at Closing, unless waived by the Buyer:
<PAGE>
8.1 Representations and Warranties True at Closing. The representations,
warranties and covenants made by the Seller in this Agreement shall be true in
all material respects at and as of Closing as if made on and as of Closing.
8.2 Compliance with Agreement. The Seller shall have performed and complied
with all of its covenants and obligations under this Agreement in all material
respects which are to be performed or complied with by it before or at
Closing.
8.3 The Seller's Certificate. The Seller shall have delivered to Buyer a
certificate stating that (i) the representations, warranties and covenants
made by the Seller in the Agreement are true at and as of Closing as if made
on and as of Closing, and (ii) the Seller has performed and complied with all
of its covenants and obligations under this Agreement in all material respects
which are to be performed or complied with by it before or at Closing.
8.4 Adverse Proceedings. No suit, action, claim or governmental proceeding
shall be pending against, and no order, decree or judgment of any court,
agency or other governmental authority shall have been rendered against the
parties or any party hereto which would render it unlawful, as of the Closing
Date, to effect the transactions contemplated by this Agreement in accordance
with its terms or otherwise have a material adverse effect on the Buyer's
ownership, use or enjoyment of the Purchased Assets.
8.5 Approvals. All necessary federal, state and local governmental and
regulatory and other third party consents, waivers, and other approvals or
determinations required to be obtained with respect to the sale and/or
transfer of the Purchased Assets to the Buyer and Buyer's operation of the
Business thereafter shall have been obtained (including without limitation
approval from HCFA), with the form and substance of such consents, etc.
satisfactory to the Buyer in its sole discretion, including without
limitation, approval by the Bankruptcy Court.
8.6 Closing Documents. The documents required to be delivered by the
Selling Parties to the Buyer pursuant to this Agreement shall be executed in a
form reasonably acceptable to the Buyer.
8.7 Board of Directors Approval. The Boards of Directors of Caretenders
Health Corp. must have approved the transactions contemplated by this
Agreement.
8.8 Due Diligence Investigation. The Buyer and its agents must have
completed its due diligence investigation of the Seller, the Purchased Assets
and Business, including without limitation, the validity and collectibility of
the Seller's accounts receivable, and the magnitude of the potential
reimbursement liability to HCFA, with the results of such investigation
satisfactory to the Buyer in its sole discretion.
8.9 Key Employees. The Buyer must have entered into employment agreements
with those employees identified in paragraph 1.4, on terms and conditions as
described in paragraph 1.4 and as otherwise satisfactory to the Buyer in its
sole discretion.
<PAGE>
8.10 Release from Capital. Capital must have released all liens and
encumbrances on the Purchased Assets in favor of Capital and its affiliates
and divisions. Capital and the Buyer must have entered into a mutual release,
pursuant to which Capital releases any and all claims against the Seller (but
not against any of the Affiliated Corporations), the Buyer and the Purchased
Assets.
8.11 Agreement with HCFA. The Buyer and HCFA must have entered into an
agreement setting forth among other things HCFA's agreement to process claims
of the Business, substantially in the form of the agreement attached as Annex
C.
8.12 The Premises. The Buyer and the George Shannon must, simultaneously
with the Closing, with respect to the Premises, enter into the Contract of
Sale and otherwise perform as contemplated by paragraph 1.6.
8.13 Punta Gorda Lease. The Buyer and Acme Partnership must have entered
into the lease arrangement (assignment of the existing lease with a modified
lease term) described in paragraph 1.6(d) with respect to the Punta Gorda
facility.
8.14 Release of Intercompany Obligations. The Seller shall have obtained
from each of the Affiliated Corporations a release of any and all intercompany
obligations or liabilities.
8.15 Release of the Buyer. Each of the Selling Parties (other than the
Seller with respect to the Buyer's obligations under this Agreement) and the
Affiliated Corporations must have executed general releases in favor of the
Buyer, the terms of which must be satisfactory to the Buyer, which release
shall include, without limitation, (i) a release of the Buyer from any
obligation or liability with respect to intercompany liabilities or
obligations with respect to the Affiliated Corporations, (ii) a release of the
Buyer from and against any liabilities or obligations to the Shareholders with
respect to shareholder loans or obligations, and (iii) a release of the Buyer
from and against any liabilities or obligations that the Business or Purchased
Assets may be subject to.
Article 9 - Conditions Precedent to the Seller's Obligations
The Seller's obligation to close shall be subject to the satisfaction of
the following conditions prior to or at Closing, unless waived by the
Seller:
9.1 Representations and Warranties True at Closing. The representations and
warranties made by the Buyer in this Agreement shall be true in all material
respects at and as of Closing with the same effect as though such
representations and warranties had been made or given on and as of Closing.
9.2 Compliance with Agreement. The Buyer shall have performed and complied
with all its covenants and obligations under this Agreement in all material
respects which are to be performed or complied with by it before or at the
Closing.
<PAGE>
9.3 Buyer's Certificate. The Buyer shall have delivered to the Seller a
certificate stating that (i) the representations, warranties and covenants
made by the Buyer in the Agreement are true at and as of Closing as if made on
and as of the Closing, and (ii) the Buyer has performed and complied with all
of its covenants and obligations under this Agreement in all material respects
which are to be performed or complied with by it before or at Closing.
9.4 Adverse Proceedings. No suit, action, claim or governmental proceeding
shall be pending against, and no order, decree or judgment of any court,
agency or other governmental authority shall have been rendered against the
parties or any party hereto which would render it unlawful, as of the Closing
Date, to effect the transactions contemplated by this Agreement in accordance
with its terms.
9.5 Approvals. All necessary federal, state and local governmental and
regulatory and other third party consents, waivers, and other approvals and
determinations required to be obtained with respect to the sale and/or
transfer of the Purchased Assets to the Buyer shall have been obtained.
9.6 Closing Documents. The documents required to be delivered by Buyer to
Seller pursuant to this Agreement shall be executed and delivered in a form
reasonably acceptable to the Seller.
9.7 The Seller's Premises. The Buyer and George Shannon must,
simultaneously with the Closing, with respect to the Premises, enter into the
Contract of Sale and otherwise perform as contemplated by paragraph 1.6.
9.8 The Seller's Employees. The Buyer must have offered employment to the
Seller's employees and offered employment agreements to those employees
described in paragraph 1.4. Notwithstanding the above, the failure of an
employee to accept employment or enter into an employment agreement with the
Buyer will not be condition to the Seller's obligations under this Agreement.
Article 10 - Termination of Agreement
10.1 Termination.
(a) This Agreement and the transactions contemplated hereby may be
terminated or abandoned at any time before the Closing Date:
(i) by mutual consent of the Seller and the Buyer;
<PAGE>
(ii) by the Buyer, if there has been a material misrepresentation in
this Agreement by the Seller, or a material breach by the Seller of any
of their warranties or covenants set forth herein, or a failure of any
condition to which the obligations of the Buyer are subject; or
(iii) by the Seller, if there has been a material misrepresentation in
this Agreement by the Buyer, or a material breach by the Buyer of any of
the warranties or covenants of the Buyer set forth herein, or a failure
of any condition to which the obligations of the Seller are subject.
(b) This Agreement will be terminated if Closing does not occur on or before
January 31, 1998, unless extended by mutual agreement of the parties.
Article 11 - Indemnification
11.1 Survival of Representations and Warranties. All of the
representations, warranties and covenants and indemnities made by the Selling
Parties and the Buyer under this Agreement shall survive the closing of the
transactions contemplated by this Agreement.
11.2 Indemnification of the Buyer
(1) General. Each of Metro and the Shareholders shall indemnify, defend and
hold the Buyer harmless from and against, and reimburse the Buyer on demand
for, any damage, loss, cost or expense (including reasonable attorneys' fees)
incurred by the Buyer resulting from (i) any breach of the Selling Parties'
representations, warranties or covenants in this Agreement, or from any
misrepresentation in, or omission by the Selling Parties under this Agreement,
and (ii) any brokerage or similar fee due to any agent of the Selling Parties.
(2) Audits, Investigations, Refund Obligations and Other Pre-Closing
Liabilities. Each of Metro and the Shareholders shall indemnify, defend and
hold the Buyer harmless from and against, and reimburse the Buyer on demand
for, any actual damage, loss, cost, refund obligation, or expense (including
reasonable attorneys' fees incurred in defending any claim for such damage,
loss, cost or expense) resulting from, or in any way related to, any of the
following: (i) any audit or investigation by Medicaid or federal Medicare
authorities or third party payors concerning the operation of the Business by
the Seller before Closing or any amounts paid to the Seller before Closing;
(ii) any assessment, adjustments, suspensions or offsets made against the
Buyer or the Purchased Assets as a result of such an audit or investigation;
(iii) any costs of defense of, and any judgment against the Buyer with respect
to, any litigation relating to the operation of the Business before Closing;
(iv) any mortgage, security interest, lease, obligation, claim, liability,
debt, lien, charge or encumbrance relating to matters prior to Closing
asserted against the Purchased Assets, other than the Permitted Obligations;
and (v) any other personal liability, property damage, personal injury, cost,
claim, expense or assessment asserted against the Buyer or the Purchased
Assets as a result of, or with respect to, the operation of the Business
before the Closing.
<PAGE>
11.3 Indemnification of the Selling Parties.
(1) General. The Buyer shall indemnify and hold the Shareholders harmless
against, and reimburse the Selling Parties on demand for, any actual damage,
loss, cost or expense (including reasonable attorneys' fees) incurred by the
Selling Parties resulting from (i) any breach of the Buyer's representations,
warranties, or covenants contained in this Agreement, or from any
misrepresentation in, or omission by the Buyer under this Agreement, and (ii)
any brokerage or similar fee due to any agent of the Buyer.
(2) Audits, Investigations, Refund Obligations and Other Post-Closing
Liabilities. The Buyer shall indemnify and hold the Shareholders harmless
from and against, and reimburse the Selling Parties on demand for, any actual
damage, loss, cost, refund obligation or expense (including reasonable
attorneys' fees incurred in defending any claim for such damage, loss, cost or
expense) resulting from, or in any way related to, any of the following: (i)
any audit or investigation by Medicaid or federal Medicare authorities or
third party payors concerning the operation of the Business by the Buyer after
Closing or any amounts paid to the Buyer after Closing (excluding amounts paid
for services delivered prior to the Closing); (ii) any assessment,
adjustments, suspensions or offsets made against the Selling Parties as a
result of such an audit or investigation; (iii) any costs of defense of, and
any judgment against the Selling Parties with respect to, any litigation
relating to the operation of the Business after Closing; (iv) any mortgage,
security interest, lease, obligation, claim, liability, debt, lien, charge or
encumbrance relating to matters after Closing asserted against the Purchased
Assets; and (v) any other personal liability, property damage, personal
injury, cost, claim, expense or assessment asserted against the Selling
Parties as a result of, or with respect to, the operation of the Business by
the Buyer after Closing, including but not limited to any liability, damage,
injury, cost, claim, expense or assessment asserted against the Selling
Parties as a result of any breach of or default under any of the contracts,
leases or agreements assigned to the Buyer in connection with the consummation
of the transactions contemplated under this Agreement.
11.4 Notice of Claim. If any claim is made against a party hereto that, if
sustained, would give rise to a right of indemnity under this Article 11, the
party having the claim made against it ("Indemnitee") shall give the other
party ("Indemnitor") notice thereof (specifying the nature and amount of the
claim and giving Indemnitor the right to contest the claim) within 15 days of
becoming aware of such claim ("Notice of Claim").
11.5 Right to Contest. Indemnitee shall afford Indemnitor the
opportunity, at Indemnitor's own expense, to assume the defense or settlement
of any such claim, with its own counsel. In connection therewith, the
Indemnitee shall cooperate fully to make available all pertinent information
under its control and shall have the right to join in the defense, at its own
expense, with its own counsel. If Indemnitor does not elect to undertake the
defense of a claim on the terms provided below, Indemnitee shall be entitled
to undertake the defense or settlement of the claim at the expense of and for
the account and risk of Indemnitor.
<PAGE>
Indemnitor shall have the right to assume the entire defense of a claim
hereunder provided that (i) Indemnitor gives written notice of such desire
(the "Notice of Defense") to Indemnitee within 15 days after Indemnitor's
receipt of the Notice of Claim; (ii) Indemnitor's defense of such claim shall
be without cost to Indemnitee or prejudice to Indemnitee's rights under this
Article 11; (iii) counsel chosen by Indemnitor to defend such claim shall be
reasonably acceptable to Indemnitee; and (iv) Indemnitor shall bear all costs
and expenses in connection with the defense and settlement of such claim; (v)
Indemnitee shall have the right to receive periodic reports from Indemnitor
and Indemnitor's counsel; and (vi) Indemnitor will not, without Indemnitee's
written consent, settle or compromise any claim or consent to any entry of
judgment which does not include the unconditional release by claimant or
plaintiff of all liability with respect to the claim.
Article 12 - Other Provisions
12.1 Further Assurances. The parties agree to execute and deliver any and
all papers and documents which may be reasonably necessary to carry out the
terms of this Agreement.
12.2 Entire Agreement; Amendment. All schedules hereto shall be deemed to
be incorporated into and made part of this Agreement. This Agreement together
with the schedules, contains the entire agreement between the parties and
there are no agreements, representations, or warranties which are not set
forth herein. This Agreement may not be amended or revised except by a
writing signed by the parties to this Agreement. This Agreement amends,
restates and supersedes the Original Agreement in its entirety.
12.3 Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns; provided, however, that other than an assignment by the Buyer of its
rights under this Agreement to an affiliate of the Buyer which does not
relieve the Buyer of its obligations under this Agreement, neither this
Agreement nor any rights hereunder shall be assignable nor transferable
without the prior written consent of the other party. This Agreement is not
intended and shall not be construed to create any rights in any parties other
than the Buyer and the Selling Parties and no person shall assert any rights
as a third party beneficiary.
12.4 Separate Counterparts. This Agreement may be executed in several
identical counterparts, all of which when taken together shall constitute but
one instrument, and it shall not be necessary in any court of law to introduce
more than one executed counterpart in proving this Agreement.
12.5 Transaction Costs. Each party to this Agreement shall be
responsible for its own costs for any legal, accounting and other services, if
any, attendant to the transactions contemplated by this Agreement. Each party
hereto agrees to indemnify and hold the other party harmless from any claim or
demand for commission or other compensation by any broker, finder or similar
agent, whether or not a current or former employee of such party, claiming to
have been employed by such party in connection with the transactions
contemplated by this Agreement and to bear the cost of legal expenses incurred
in defending against any such claim.
<PAGE>
12.6 Notices. Any notice, request, instruction or documents required or
permitted hereunder shall be in writing and shall be deemed given if delivered
personally or by certified mail, U.S. mail, national recognized overnight
courier service or sent by telex, telecopy or other telecommunication device
capable of creating a written record (and promptly confirmed by hard copy
delivery) to a party at the address set forth below:
(i) If to any of the Selling Parties:
c/o Metro Home Care Incorporated
15550 McGregor Boulevard
Fort Myers, Florida 33908
Fax: (941 481 5522)
With a copies to:
Russell M. Blain
Stichter, Riedel, Blain & Prosser, P.A.
110 E. Madison Street, Suite 200
Tampa, Florida 33602
Capital Healthcare Financing
Attention: Michael Levine
120 East Palmetto Park Road, 5th Floor
Boca Raton, Florida 33432
Lance H. Baker
Ruden, McCloskey, Smith, Schuster & Russell
Post Office Box 1900
Ft. Lauderdale, Florida 33302-1900
(ii) If to the Buyer:
100 Mallard Creek Road
Suite 400
Louisville, Kentucky 40207
Fax: (502) 423-9501
Attn: President
With a copies to:
Brown, Todd & Heyburn PLLC
3200 Providian Center
Louisville, Kentucky 40202-3363
Fax: (502) 581-1087
Attn: Scott W. Dolson
<PAGE>
Capital Healthcare Financing
Attention: Michael Levine
120 East Palmetto Park Road, 5th Floor
Boca Raton, Florida 33432
Lance H. Baker
Ruden, McCloskey, Smith, Schuster & Russell
Post Office Box 1900
Ft. Lauderdale, Florida 33302-1900
unless and until notice of another or different address shall be given as
provided herein.
12.7 Severability. The provisions of this Agreement are severable, and
the invalidity of any provision shall not affect the validity of any other
provision.
12.8 Captions. The captions herein have been inserted solely for
convenience of reference and in no way define, limit or describe the scope or
substance of any provision of this Agreement.
12.9 Gender. All pronouns used herein shall include both the masculine
and feminine gender as the context requires.
12.10 Governing Law; Joint Preparation. The execution, interpretation,
and performance of this Agreement shall be governed by the laws of the
Commonwealth of Kentucky, without regard to or application of its conflicts of
law principles. This Agreement shall be deemed to have been prepared jointly
by the parties. Any ambiguity herein shall not be interpreted against either
party and shall be interpreted as if each of the parties hereto had prepared
this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
CARETENDERS VISITING SERVICES OF SOUTHWEST FLORIDA,
INC.
By_______________________________________
Title:_____________________________________
<PAGE>
DEBTOR IN POSSESSION,
METRO HOME CARE INCORPORATED
By_______________________________________
Title:_____________________________________
METRO HOME HEALTH MANAGEMENT, INC.
By_______________________________________
Title:_____________________________________
_________________________________________
George W. Shannon, III
_________________________________________
Janet Muth Shannon
_________________________________________
Jerry M. Hollander, Jr.
<PAGE>
LIST OF ANNEXES AND SCHEDULES
Annex A - Noncompetition Agreement
Annex B - Contract of Sale
Annex C - Agreement with HCFA
Schedule 1.1 - Excluded Assets
Schedule 1.1(a) - List of Equipment, Etc.; Leased Assets
Schedule 1.2(a) - Liabilities
Schedule 1.3 - Assumed Contracts
Schedule 2.2 - Allocation of Purchase Price
Schedule 4.7 - Insurance
Schedule 4.9 - Governmental Approvals
Schedule 4.10 - Regulatory Compliance
Schedule 4.12 - Violations of Law
Schedule 4.13 - Litigation
Schedule 4.16 - ERISA Matters
Schedule 4.20 - Consent
Schedule 4.22 - Licenses, Etc.
ASSETS PURCHASE AGREEMENT
This is an Assets Purchase Agreement dated as of January 9, 1998 (the
"Agreement"), by and among (i) Caretenders Visiting Services of Southeast
Florida, Inc., a Kentucky corporation (the "Buyer"), and (ii) Visiting Nurse
Association of Palm Beach County, Inc., a Florida nonprofit corporation,
Visiting Nurse Services of Palm Beach County, Inc., a Florida nonprofit
corporation, Visiting Nurse Extracare, Inc., a Florida nonprofit corporation,
and Visiting Nurse Corporation of South Florida, Inc., a Florida nonprofit
corporation (individually a "Selling Party" and collectively, the "Selling
Parties").
Recitals
A. The Selling Parties are engaged in the business of operating a home
health agency (the "Business") in Palm Beach, Broward, Indian River, Martin,
St. Lucie, and Okeechobee Counties, Florida (the "Territory").
B. The Selling Parties are the holders of one or more licenses issued by the
Agency for Health Care Administration of the State of Florida, Medicare
provider agreements issued by the U.S. Department of Health and Human
Services, and Medicaid provider agreements issued by the Agency for Health
Care Administration of the State of Florida, all of which authorize the Seller
to provide Medicare and Medicaid certified home health care services in the
Territory (collectively, the "Licenses").
C. The Selling Parties desire to sell and the Buyer desires to purchase the
assets used in the Business.
THE PARTIES, INTENDING TO BE LEGALLY BOUND, AGREE AS FOLLOWS:
Article 1 - Purchase and Sale of Assets
1.1 Purchased Assets. The Selling Parties hereby agree to sell, assign,
transfer and convey to the Buyer, and the Buyer hereby agrees to purchase from
the Selling Parties, all of the assets of the Selling Parties used in the
Business (the "Purchased Assets"), other than the excluded assets described on
Schedule 1.1. The Purchased Assets include without limitation the following
assets and properties:
(a) All furniture, fixtures, machinery, equipment and other tangible personal
property, including such items as are described on Schedule 1.1(a), together
with all manufacturers' warranties pertaining to the same, to the extent that
such warranties may exist and be assignable;
(b) All of the Selling Parties' goodwill relating to the Business; all
customer and patient lists and files, records and similar sales and marketing
information in the Selling Parties' possession relating to the Business;
medical records of the patients serviced by the Business and in the Selling
Parties' possession; personnel records; and the Selling Parties' right and
interest in the trade names, trademarks, trade secrets, licenses, know-how,
specifications, literature, and all other intangible property which relate
specifically to the Business, including without limitation all rights to the
name "Visiting Nurse Association of Palm Beach County";
<PAGE>
(c) All transferable Licenses, permits, licenses, certificates,
authorizations, accreditations, orders, ratings and approvals of all federal,
state, or local governmental or regulatory authorities which relate to the
Business and which are held by the Selling Parties, but only to the extent the
same are transferable, including without limitation any provider agreements
relating to the Selling Parties' right to participate in the Medicare and
Medicaid Programs, and all rights of the Selling Parties to reimbursement or
other payments from HCFA for the period prior to the Closing Date;
(d) Any and all rights of the Selling Parties which by their terms are
transferable and which arise under or pursuant to warranties, representations
and guarantees made by suppliers in connection with the Purchased Assets;
(e) All accounts receivable arising out of the operation of the Business (the
"Accounts Receivable"). The Selling Parties agree to reasonably cooperate
with the Buyer, at the Buyer's expense, in connection with the Buyer's efforts
to collect the Accounts Receivable. The Selling Parties agree to immediately
remit to the Buyer any payments received after the Closing by any of the
Selling Parties that constitute Accounts Receivable;
(f) All raw materials, supplies, packaging materials, purchased products,
finished goods and all other goods, merchandise and materials owned by the
Selling Parties; and
(g) The Selling Parties' real property leases at (i) 560 Village Boulevard
#250, West Palm Beach, Florida, and (ii) 6600 North Andrews Avenue, Suite 250,
Fort Lauderdale, Florida (collectively, the "Real Property Leases").
1.2 Assumed Liabilities.
(a) The Buyer will assume the following liabilities: (i) the accounts
payable arising in the ordinary course of the Selling Parties' operation of
the Business (the "Accounts Payable"), letters of credit and independent
contractor obligations, all as described on Schedule 1.2(a); (ii) accrued
payroll for services performed by the Selling Parties' employees in connection
with the Business, including all related obligations for withholdings, all as
described on Schedule 1.2(a); (iii) the promissory notes described on Schedule
1.2(a); (iv) prospective obligations under equipment leases for equipment
included among the Purchased Assets; (v) prospective obligations under the
Real Property Leases; (vi) any liabilities or obligations of the Selling
Parties arising with respect to the Medicare provider agreements with the U.S.
Department of Health and Human Services ("HCFA"), so long as those liabilities
or obligations (A) arose in operation of the Business in the ordinary course,
and (B) relate to the Selling Parties' 1995 through 1998 cost reporting
periods; and (vii) up to $149,000.00 in the aggregate for expenses incurred by
the Selling Parties with respect to the payment by the Selling Parties of paid
time off to employees employed in the Business (collectively, the "Assumed
Liabilities").
<PAGE>
(b) Except for the Assumed Liabilities, the Selling Parties agree to retain,
and the Buyer will have no obligation or liability with respect to, except as
otherwise provided in this Agreement, any liabilities or obligations, actual
or contingent, of the Selling Parties or the Business, or any claims by any
person, firm or organization, arising out of any liabilities or obligations of
the Selling Parties, or the operation of the Business prior to the Closing.
The Selling Parties acknowledge that the Buyer is not assuming, nor is it
responsible for the Selling Parties' liabilities and obligations under, the
employment agreement with Ann Zielinski.
1.3 Assumed Contracts and Leases. The Buyer will assume (i) the Selling
Parties' prospective obligations to provide services to the Selling Parties'
patients, (ii) the Selling Parties' prospective obligations under the
equipment leases referred to in paragraph 1.2(a)(iv), (iii) the Selling
Parties' prospective obligations under the contracts described on Schedule
1.3, and (iv) the Selling Parties' prospective obligations under the Real
Property Leases (collectively, the "Assumed Contracts").
1.4 Employees. Except for the Assumed Liabilities, the Selling Parties
acknowledge that the Buyer is not purchasing, recognizing, assuming or
otherwise acquiring any rights, obligations, assets or liabilities under,
arising from or resulting from any employment agreement or arrangement in
existence between the Selling Parties and any employee, or any person employed
to consult with or perform services for the Selling Parties, or otherwise,
except for the accrued payroll liability assumed pursuant to paragraph
1.2(a)(ii). The Selling Parties agree that the Buyer will not be obligated to
hire any of the Selling Parties' employees, but that the Buyer, in its sole
discretion, may hire some or all of such employees on such terms as the Buyer
and the employees so hired may agree. The Buyer will not be responsible to
the Selling Parties or to any current or former employee of the Selling
Parties for any employee benefits (whether earned, accrued or vested) due to
the Selling Parties' employees with respect to their employment prior to the
Closing. The Buyer agrees that all employees of the Selling Parties hired by
the Buyer and currently participating in a health insurance plan will be
provided with health insurance coverage with any waiting period requirement
waived. The Buyer agrees to make an offer of employment to Ann Zielinski,
with the terms of such employment to be mutually agreeable terms.
1.5 Confidentiality, Nonsolicitation and Noncompetition Agreement. Each of
the Selling Parties agrees to enter into a Confidentiality, Nonsolicitation
and Noncompetition Agreement at or prior to the Closing, in the form of the
Confidentiality, Nonsolicitation and Noncompetition Agreement attached as
Annex A (the "Noncompetition Agreement").
1.6 Right to Use Name. The name "Visiting Nurse" and all variations thereof
held by the Selling Parties is included among the Purchased Assets. Each of
the Selling Parties agrees that, at the Buyer's expense, it will change its
name to a name dissimilar to "Visiting Nurse" immediately after the Closing
and will assign to the Buyer at the Closing all of its right, title and
interest in and to the name "Visiting Nurse", provided, however, that the
Selling Parties make no representation or warranty regarding the Selling
Parties' right to the name "Visiting Nurse."
<PAGE>
1.7 Release. The Buyer agrees to execute and deliver a Release of Visiting
Nurse Foundation of Palm Beach County, Inc., in the form of the Release
attached as Annex B (the "Release")
1.8 The Schedules. The parties are executing this Agreement prior to the
delivery of the Selling Parties' Schedules. The Selling Parties agree to
deliver complete Schedules to the Buyer on or before January 13, 1998. Upon
delivery of the complete Schedules to the Buyer, the Buyer will have until the
end of the first full business day after receipt of complete Schedules by UPS
or Federal Express to accept the Schedules or reject the Schedules on the
basis that such Schedules contain disclosure of material adverse facts that
were not previously disclosed to the Buyer by the Selling Parties If the
Buyer notifies the Selling Parties in writing that the Buyer rejects the
Schedules on such basis, then the obligations of the parties to this Agreement
will terminate with the exception that the Selling Parties will be obligated
to immediately return the Deposit in full to the Buyer. If the Buyer fails to
notify the Selling Parties that the Buyer has rejected the Schedules on or
before the third business day after receipt of such Schedules, then the
Schedules will be deemed to be accepted by the Buyer.
Article 2 - Purchase Price and Payment
2.1 Purchase Price. In consideration of the transfer of the Purchased Assets
and the Business, the Buyer agrees to pay the following (collectively, the
"Purchase Price") :
(a) $25,000.00 in cash upon execution of this Agreement, to be held by
Quarles & Brady in its trust account (the "Deposit"). After the Closing, the
Deposit will be used towards reimbursement of those expenses of the Selling
Parties referred to in paragraph 2.3. Should the Closing not occur as a
result of the material breach of this Agreement by the Buyer and (i) the
Selling Parties have not materially breached this Agreement, and (ii) all
conditions to the Buyer's obligation to close in Article 8 are satisfied prior
to January 31, 1998 unless the failure to satisfy a condition was a result of
the Buyer's breach of this Agreement, then the Selling Parties may retain the
Deposit and the Selling Parties agree that the Buyer will have no further
liability under or as a result of this Agreement; in all other cases, if the
Agreement is terminated pursuant to Article 10 or otherwise, then the Selling
Parties agree to immediately return the Deposit to the Buyer;
(b) The amount of any post-Closing payments by the Buyer to HCFA as payment
for settlement of the Selling Parties' 1995 through 1997 cost reporting
periods through and including the Closing Date. The Buyer acknowledges that
the Selling Parties have previously received payments in the aggregate not
more than $159,204.36 from HCFA with respect to the amounts reported on the
Selling Parties' 1996 cost reports as being paid into the Selling Parties'
employee profit sharing plan and that the Selling Parties have not contributed
such amounts to the profit sharing plan. The Buyer agrees that it will assume
the obligation to either pay, in its discretion, such amount to HCFA in
reimbursement of the payments previously received by the Selling Parties, or
to the Selling Parties' employees (subject to the Buyer's determination in its
sole discretion that it will not be required to reimburse such amount to
HCFA).
<PAGE>
(c) The assumption of the Assumed Liabilities; and
(d) The additional consideration described in paragraph 2.3.
2.2 Allocation of Purchase Price. The Purchase Price will be allocated
among the Purchased Assets as set forth on Schedule 2.2. The Selling Parties
and the Buyer agree that all tax and information returns will be prepared on a
basis consistent with such allocation of the Purchase Price.
2.3 Additional Consideration. The Buyer agrees to reimburse the Selling
Parties, upon the presentation of reasonable documentation, for the following
expenses: (i) up to $50,000.00 in the aggregate of expenses incurred by the
Selling Parties in connection with the winding up of the business operations
of one or more of the Selling Parties; (ii) up to $50,000.00 in the aggregate
of attorney's fees incurred by the Selling Parties through the Closing Date;
(iii) up to $25,000.00 in the aggregate of amounts reimbursed by the Selling
Parties to state and local health care agencies (excluding HCFA) for
liabilities arising out of the operation of the Business through the Closing
Date; and (iv) the prorated expense amounts described on Schedule 2.3, which
expenses shall have arisen in the ordinary course of the Selling Parties'
business and with respect to which reasonable documentation will be provided
to the Buyer prior to the Closing.
Article 3 - The Closing
3.1 Time and Place. The closing ("Closing") will take place on or
before January 31, 1998, on a date mutually agreed upon by the parties and
upon satisfaction or waiver of each of the conditions to the parties'
obligations to close (the "Closing Date")
3.2 Execution and Delivery of Documents by the Selling Parties and the
Buyer.
(a) At the Closing, the Selling Parties will execute and deliver to the
Buyer such conveyances, bills of sale, certificates of title, assignments,
assurances and other instruments and documents as the Buyer may reasonably
request in order to effect the sale, conveyance, and transfer of the Purchased
Assets from the Selling Parties to the Buyer. Such instruments and documents
must be sufficient to convey to the Buyer good title to the Purchased Assets.
Also at the Closing, the parties will cause the Noncompetition Agreement to be
executed and delivered.
(b) The Selling Parties agree that they will, from time to time after the
Closing Date, take such additional action and execute and deliver such further
documents as the Buyer may reasonably request in order to effectively sell,
transfer and convey the Purchased Assets to the Buyer and to place the Buyer
in position to operate and control all of the Purchased Assets.
<PAGE>
(c) At the Closing, the Buyer will execute and deliver to the Selling Parties
and to other appropriate parties such assignments, assumptions, undertakings
and other instruments and documents as are necessary to effect the Buyer's
assumption of the Assumed Liabilities and the Assumed Contracts. Also at the
Closing, the Buyer will execute the Release.
Article 4 - Representations and Warranties of the Selling Parties
As a material inducement to the Buyer to enter into and perform this
Agreement, each of the Selling Parties represents and warrants to the Buyer as
follows:
4.1 Authority as to Execution.
(a) Each of the Selling Parties has full legal capacity to execute and
deliver this Agreement and the Noncompetition Agreement, and to perform such
Selling Party's respective obligations under this Agreement and the
Noncompetition Agreement. This Agreement and the Noncompetition Agreement
constitute valid and legally binding obligations of each of the Selling
Parties, enforceable in accordance with their terms. The execution and
delivery of this Agreement and the instruments called for by this Agreement by
or on behalf of the Selling Parties and the consummation of the transactions
contemplated hereunder and thereunder, subject to the terms of this Agreement,
have each been duly authorized by all necessary corporate action, including
the requisite Board of Director and shareholder approvals.
(b) Except as disclosed on Schedule 4.1, the execution and delivery of this
Agreement and the Noncompetition Agreement, the consummation of the
transactions contemplated hereby and thereby, and the performance and
fulfillment of their respective obligations and undertakings hereunder and
thereunder by the Selling Parties will not, (i) violate any provision of, or
result in the breach of or accelerate or permit the acceleration of any
performance required by the terms of, any contract, agreement, arrangement or
undertaking to which any of the Selling Parties is a party or by which any of
them may be bound; any judgment, decree, writ, injunction, order or award of
any arbitration panel, court or governmental authority; or any applicable law,
ordinance, rule or regulation of any governmental body; (ii) result in the
creation of any claim, lien, charge or encumbrance upon any of the properties
or assets (whether real or personal, tangible or intangible) of the Selling
Parties; (iii) terminate or cancel, or result in the termination or
cancellation of, any agreement or undertaking to which a Selling Party is a
party; or (iv) in any way affect or violate the terms or conditions of, or
result in the cancellation, modification, revocation or suspension of, any of
the Selling Parties' permits or licenses.
(c) Each of the Selling Parties is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida with full
power and authority (corporate or otherwise) to execute, deliver and perform
its obligations under this Agreement.
<PAGE>
4.2 Dismissal of Bankruptcy Proceedings. The bankruptcy petitions of
Visiting Nurse Association of Palm Beach County, Inc., Visiting Nurse Services
of Palm Beach County, Inc. and Visiting Nurse Extracare, Inc. filed with the
United States Bankruptcy Court for the Southern District of Florida, (Case
Nos. 97-35478, 97-35479 and 97-35480) were dismissed on December 19, 1997 by
the Court.
4.3 Environmental Standards. The Selling Parties have, to the best of the
Selling Parties' knowledge, operated the Business in full compliance with all
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in or required under the
common law or any federal, state, local or foreign law, regulations,
ordinances, permits, licenses, consent decrees, orders and clearances relating
to pollution, the environment, or the use, storage, transportation or disposal
of pollutants, dangerous substances, toxic substances, hazardous wastes,
medical wastes, infectious wastes or hazardous substances (collectively, the
"Environmental Laws").
4.4 Taxes. The Selling Parties, to the best of the Selling Parties'
knowledge, has timely filed all federal, state, local and other tax returns
and paid all taxes shown as due on such returns or otherwise due from,
assessed against or owed by the Selling Parties solely with respect to the
Purchased Assets or the Business, the failure of which returns to be filed or
the failure of which taxes to be paid could result in a lien upon any of the
Purchased Assets or with respect to which the Buyer could have successor
liability under applicable laws. Present taxes which the Selling Parties
are required by law to withhold or collect with respect to the Business have
been, to the best of the Selling Parties' knowledge, withheld or collected and
have been paid over to the proper governmental authorities or are properly
held by the Selling Parties for such payment. No deficiency for any taxes or
claim for additional tax assessment by any taxing authority, which if
unsatisfied could result in a lien upon any of the Purchased Assets or could
result in the Buyer incurring successor liability under applicable laws, has
been, to the best of the Selling Parties' knowledge, proposed, asserted, or
assessed against the Seller, nor have the Selling Parties granted any
extension or waiver of any limitation period applicable to any tax claims
relating to the Business which has not been closed.
4.5 Title. Except as described on Schedule 4.5, the Selling Parties
have and will transfer to the Buyer at the Closing good title to all of the
assets included among the Purchased Assets, free and clear of any mortgages,
security interests, pledges, liens, claims or encumbrances. Except as
disclosed on Schedule 1.1(a), none of the Purchased Assets are leased.
4.6 Property, Equipment and Operations.
(a) The furniture, fixtures and equipment included in the Purchased
Assets are, in all material respects, in serviceable condition for their
intended purposes in the operation of the Business, ordinary wear and tear
excepted. The Purchased Assets are, to the best of the Selling Parties'
knowledge, all of the assets which are reasonably necessary for the operation
of the Business by the Buyer.
<PAGE>
(b) The Selling Parties have not, to the best of the Selling Parties'
knowledge, caused or permitted any hazardous substance, as that term is now
defined in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. 9601, et seq.), medical wastes or petroleum
substances to be disposed on, under or at the premises of the Business, or any
part thereof, and, to the best of the Selling Parties' knowledge, no part
thereof has ever been used by the Selling Parties as a permanent storage or
disposal site for any such hazardous substances, medical wastes, or petroleum
substances.
4.7 Insurance. The Selling Parties have provided the Buyer with a
true and correct list of all policies of insurance which insure the Purchased
Assets or the Business, setting forth the types and amounts of coverage. The
Selling Parties will use their best effort to ensure that such policies will
remain in effect until the Closing Date. Schedule 4.7 is a true and correct
list of all claims against such insurance policies during the past two years.
4.8 Disclosure. No representation or warranty made by the Selling Parties
in this Agreement and no statement made in or any amount set forth on any
schedule called for by and incorporated into this Agreement is false or
misleading in any material respect or omits to state any fact necessary to
make any such representation or statements not misleading in any material
respect.
4.9 Governmental and Industrial Approvals. Except as described on Schedule
4.9, there are no permits, licenses, accreditations, authorizations, orders,
ratings or approvals of any federal, state, local or foreign governmental or
regulatory bodies necessary under current laws and regulations for the Selling
Parties' operation of the Business as presently conducted. Except as
described on Schedule 4.9, the Licenses are in full force and effect and, to
the best of the Selling Parties' knowledge, except as described on Schedule
4.9, (i) no default or violation exists under any of the Licenses, (ii) no
suspension, notice of deficiency, or cancellation of any of the Licenses has
been received or is threatened, and (iii) there is no reason to believe that
but for the transaction contemplated by this Agreement on expiration the
Licenses would not be renewed.
4.10 Compliance with Healthcare Regulations. Except as disclosed on
Schedule 4.10, the Selling Parties have timely filed all requisite cost
reports, claims and other reports required to be filed in connection with all
state and Federal Medicare and Medicaid programs due on or before the date
hereof, all of which to the best of the Selling Parties' knowledge, are
complete and correct. True and correct copies of all such reports for the
most recent fiscal years of the Selling Parties have been furnished to Buyer
on or before the date hereof. Except as specifically described on Schedule
4.10, there are no claims, actions, appeals, reviews or audits pending before
any commission, board or agency (including, without limitation, any
intermediary or carrier, the Provider Reimbursement Review Board or the
Administrator of the Health Care Financing Administration) with respect to any
state or Federal Medicare or Medicaid cost reports or claims filed by the
Selling Parties on or before the date hereof, or any pending disallowances by
any commission, board or agency in connection with any audit of such cost
reports, which could adversely or materially affect any of the Purchased
Assets, the operation or the utility thereof, or the consummation of the
transactions contemplated hereby, and the Selling Parties have made available
to the Buyer true and correct copies of any such claims, actions or appeals.
<PAGE>
4.11 Contracts and Commitments. Except for the Real Property Leases
and the Assumed Contracts, and as described on Schedule 4.11, the Selling
Parties are not a party to any contract or commitment relating to the
Business, and neither the Business nor the Purchased Assets are the subject of
any contract or commitment. Each of the Real Property Leases and the Assumed
Contracts are valid and binding agreements of the parties to such contracts,
and, to the best of the Selling Parties' knowledge, no party to the Real
Property Leases or the Assumed Contracts is in default under such contracts.
4.12 No Violation of Law. Except as disclosed on Schedule 4.12, the
Selling Parties are not in default or violation of, have received no notice of
default or violation of, and have no knowledge of any fact or event which with
the lapse of time or giving of notice would constitute a default or violation
of any statute, ordinance, regulation, order, writ, injunction or decree of
any court or governmental agency or authority applicable to the Business or
the Purchased Assets.
4.13 Litigation. Except as disclosed on Schedule 4.13, there are no
actions, suits or proceedings, pending, or, to the best of the Selling
Parties' knowledge, after due inquiry, threatened before any court,
commission, agency or other administrative authority against, or affecting the
Business or the Purchased Assets and, after due inquiry, except as disclosed
on Schedule 4.13, the Selling Parties are not the subject of any order or
decree relating to or affecting the Business or the Purchased Assets other
than those of general application.
4.14 Labor. There is no collective bargaining or other union contract
relating to the Business to which the Selling Parties are a party. To the
Selling Parties' knowledge, after due inquiry, there is not pending or
threatened against the Selling Parties any grievance, labor dispute,
organizational activity, union trouble, strike or work stoppage which
materially affects or which may materially disrupt the Buyer or the Business.
The Selling Parties have complied with all applicable laws, rules and
regulations pertaining to the employment of labor, including those relating to
wages, hours, collective bargaining and the payment of or withholding of
taxes. The Selling Parties have withheld all amounts required by law or
agreement to be withheld from the wages or salaries of the Business' employees
and they are not liable for any arrears of wages or any tax or penalties for
failure to comply with any of the foregoing.
4.15 Employment Contracts. Except for the employment agreement with Ann
Zielinski, there are no written or oral contracts for employment of any
personnel of the Business.
<PAGE>
4.16 Employee Benefit and Retirement Plans. Except as disclosed on Schedule
4.16, the Selling Parties do not now maintain any "employee pension benefit
plan" or any "employee welfare benefit plan" (as defined respectively in
Section 3(2) and 3(1) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") on behalf of the Business's employees, and, except as
disclosed on Schedule 4.16, the Selling Parties do not maintain any retirement
plans, bonus arrangements, life insurance or medical insurance programs or any
other fringe benefit arrangements (collectively "fringe benefit arrangements")
for any employees whether written or unwritten.
4.17 Employees and Independent Contractors. The Selling Parties have
provided the Buyer prior to the Closing Date with a true and correct list
including the name, salary or compensation (including without limitation all
commission, override or bonus arrangements), vacation and sick leave policies
or other benefits, job description and original employment or contract date of
all current employees and independent contractors of the Business based upon
the most recently processed information, and the accrued and/or earned
vacation time of all employees and, to the best of the Selling Parties'
knowledge, the dates and information concerning any previous salary or
compensation change or adjustment and the reasons therefor for each such
current employee.
4.18 Worker's Compensation. Except as disclosed on Schedule 4.13, the
Selling Parties are, to the best of the Selling Parties' knowledge, in full
compliance with all worker's compensation laws with respect to the Business
and have worker's compensation insurance coverage in full force and effect
with respect to the Business, where any such non-compliance or lack of
coverage would have a material adverse effect on the Buyer's ownership,
possession or use of the Business or the Purchased Assets, or on the
consummation of the transactions contemplated under this Agreement.
4.19 Adverse Action. Except as described on Schedule 4.13 and Schedule
4.19, the Selling Parties have not received any written notice of any
judicial or administrative action against the Selling Parties, the Business or
the Purchased Assets.
4.20 Consents. Except as described on Schedule 4.20, to the best of the
Selling Parties' knowledge, no consents, approvals or authorizations of, or
declaration, filing or registration with, any governmental or regulatory
authority is required in connection with the execution and delivery of this
Agreement by the Selling Parties and consummation by the Selling Parties of
the transactions contemplated hereby.
4.21 Commissions. None of the Selling Parties has authorized any person to
act in such a manner as to give rise to any valid claim against the Buyer for
a brokerage commission, finder's fee, or similar payment as a result of the
transactions contemplated under this Agreement. The Selling Parties will
defend, indemnify and hold harmless the Buyer from any claim for commissions
or fees alleged to have arisen from a contractual relationship or cooperation
in connection with the transactions contemplated under this Agreement.
<PAGE>
4.22 Licenses, Permits and Payment Programs. The Selling Parties have
obtained and hold all required licenses, permits, certificates, and
authorizations necessary for the Selling Parties to operate the Business as
conducted prior to the Closing, except that the Medicaid provider agreements
are currently pending and the Home Health Agency License is currently in
process for renewal. A copy of each of the foregoing is attached to Schedule
4.22. The Business is certified for participation in, and is a party to valid
provider agreements for payment by, the federal Medicare and Medicaid programs
(the "Programs"). Except as described on Schedule 4.22, neither the Selling
Parties nor the Business has received any notice of any pending, or to the
best of Selling Parties' knowledge, any threatened investigations by, or loss
of participation in, the Programs.
Article 5 - Representations of the Buyer
As a material inducement to the Selling Parties to enter into this Agreement,
the Buyer hereby represents and warrants to the Selling Parties as follows:
5.1 Authority as to Execution. The execution and delivery of this Agreement
and the instruments called for by this Agreement by or on behalf of the Buyer
and the consummation of the transactions contemplated hereunder and
thereunder, subject to the terms of this Agreement, have each been duly
authorized by all necessary corporate actions. This Agreement and each of the
instruments called for by this Agreement will be a valid and binding
obligation of the Buyer, each enforceable against the Buyer in accordance with
their respective terms.
5.2 Organization and Corporate Authority. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Kentucky with full power and authority (corporate or
otherwise) to execute, deliver and perform its obligations under this
Agreement and the instruments called for by this Agreement. The Buyer is a
member of the Caretenders Health Corp. consolidated group.
5.3 No Violation of Law; Other Agreements. Neither the execution and
delivery of this Agreement or the instruments called for by this Agreement,
nor consummation of the transaction herein or therein contemplated, nor
compliance with the terms, conditions and provisions hereof or thereof, will
conflict with or violate any provision of law or of the Articles of
Incorporation or Bylaws of the Buyer, or result in a violation or default in
any provision or any regulation, order, writ, injunction or decree of any
court or governmental agency or authority, or of any agreement or instrument
to which the Buyer is a party or by which the Buyer is bound or subject.
5.4 Commissions. The Buyer has not authorized any person to act in such a
manner as to give rise to any valid claim against the Selling Parties for a
brokerage commission, finder's fee, or similar payment as a result of the
transactions contemplated under this Agreement. The Buyer will defend,
indemnify and hold harmless the Selling Parties from any claim for commissions
or fees alleged to have arisen from a contractual relationship or cooperation
in connection with the transactions contemplated under this Agreement.
5.5 Adequate Funds. The Buyer has adequate funds to pay the Purchase Price
and otherwise perform the terms of this Agreement.
<PAGE>
5.6 Consents. To the best of the Buyer's knowledge, the consents listed
on Schedule 5.6 constitutes all of the consents required for the Buyer to
close the transactions contemplated by this Agreement.
5.7 Due Diligence. In the course of the Buyer's examination of the Selling
Parties' Business through the date of this Agreement, the Buyer has not become
aware of any actions or liabilities of the Selling Parties that, to the best
of the Buyer's knowledge, did not arise in the ordinary course of the Selling
Parties business or would constitute health care fraud.
Article 6 - Covenants of the Selling Parties
6.1 Conduct of Business. From the date of this Agreement until the Closing
Date, the Selling Parties agree to operate the Business and otherwise conduct
its business relating to the Business only in the ordinary course of business,
and in substantial compliance with all statutory and regulatory requirements
of any applicable federal, state or local authority, and agrees to enter into
no material contract or other transaction relating to the Business other than
in the ordinary course of business without the prior written consent of Buyer.
Between the date hereof and the Closing Date, the Selling Parties agree to use
their best efforts to retain their present employees and preserve the goodwill
and business of their customers, suppliers, and others having business
relations with them, and agree to conduct the financial operations of the
Business in accordance with its existing business practices. From the date of
this Agreement to the Closing Date, the Selling Parties agree to not do any of
the following in connection with its ownership and operation the Business and
the Purchased Assets without the Buyer's prior written consent:
(a) cancel or permit any insurance, bond, surety instrument or letter of
credit to lapse or terminate, except in the ordinary course of business or
unless renewed or replaced by like coverage;
(b) default in any respect under any loan, material contract, agreement,
lease or commitment;
(c) enter into any contract, agreement, lease or other commitment,
except in the ordinary course of business;
(d) sell or agree to sell the Business or any of the Assets;
(e) hire any employees, increase any compensation to employees,
enter into any employment arrangement, agreement or undertaking, or pay or
promise to pay any fringe benefit, bonus or special compensation to employees,
except in the ordinary course of business;
<PAGE>
(f) impede the Buyer, its counsel, accountants and other representatives from
reasonable access, during normal business hours and upon reasonable advance
notice, to the Business and the Purchased Assets so that the Buyer may have
the opportunity to investigate same; and
(g) encumber any of the Purchased Assets or incur any liabilities with
respect to the Business, except in the ordinary course of business.
6.2 Sales, Etc. The Selling Parties agree to not sell, lease, remove or
otherwise dispose of any of the Purchased Assets, which are located or used in
the Business (except for retirements and replacements in the ordinary course
of business, provided that all items which are retired or replaced are
contemporaneously replaced by items of substantially equivalent value), or
liquidate or dissolve.
6.3 Insurance. The Selling Parties agree to maintain the insurance described
in Article 4.
6.4 Notice. From the date hereof to the Closing Date, the Selling Parties
agree to promptly advise the Buyer of the occurrence of any governmental
inspections, investigations, citations with respect to the Business or the
Purchased Assets, and of which the Selling Parties have received written or
oral notification.
6.5 Access to Personnel and Records. From the date of this Agreement until
the Closing Date, the Selling Parties agree to give the Buyer, and the Buyer's
counsel, accountants, consultants and other agents and representatives,
reasonable access, during normal business hours and upon reasonable request,
to its properties, books, contracts, commitments and records relating to the
Assets and the operations of the Business.
6.6 Financial Information. The Selling Parties agree to provide the Buyer
with such financial information available to the Selling Parties relating to
the operations of the Business as the Buyer may reasonably request.
6.7 Collection Practices. The Selling Parties agree to not deviate from its
current lawful practices with respect to the collection of accounts receivable
from the Business's patients to the extent that any such change in collection
practices would impair or adversely affect the Business's ability to continue
its relationships with those patients after Closing.
6.8 Cooperation. From the date hereof to the Closing Date, each of the
Selling Parties agrees to cooperate in good faith with the Buyer in order to
obtain all governmental, regulatory and other third party consents and
approvals which are necessary or desirable to consummate the transactions
contemplated under this Agreement. Each of the Selling Parties agrees to
cooperate fully with Buyer with respect to the Buyer's due diligence
investigation of the Selling Parties' Business. Each of the Selling
Parties agrees to use its best efforts to cause each of the conditions to the
Buyer's obligation to close the transactions contemplated by this Agreement
set forth in Article 8 to be satisfied on or prior to the Closing Date.
<PAGE>
6.9 Approval of Transfer. From the date hereof to the Closing Date, each of
the Selling Parties agrees to use its best efforts, at the Buyer's expense,
including the filing and submission of all necessary and appropriate
applications and documents, to obtain the approvals and consents of all
applicable governmental and regulatory authorities and the landlord, and any
other third party identified as necessary in order to transfer the Purchased
Assets to the Buyer.
6.10 Consents. Each of the Selling Parties agrees to use its best efforts to
procure, at the Buyer's expense, the consents of any third parties necessary
for the assignment to the Buyer of any contract, agreement or lease hereunder.
6.11 No-Shop Clause. From and after the date of the execution and delivery
of this Agreement until the termination of this Agreement (unless the Closing
Date is extended beyond such date by the parties), each of the Selling Parties
agrees to not, without the prior written consent of the Buyer: (i) offer for
sale any material portion of the Business or assets, (ii) solicit offers to
buy all or any material portion of the Business, (iii) hold discussions with
any party (other than the Buyer) looking toward such an offer or solicitation
or looking toward a merger or consolidation of the Selling Parties, or (iv)
enter into any agreement with any party (other than the Buyer) with respect to
the sale or other disposition of any material portion of the Business or the
Selling Parties' membership rights, or with respect to any merger,
consolidation, or similar transaction involving the Selling Parties or the
Selling Parties' membership rights.
Article 7 - Covenants of the Buyer
7.1 Access to Records. For a period extending to the greatest of five years
from and after the Closing Date, any longer period required by law, or the
date of final settlement of cost reports for any period prior to the Closing
Date, the Buyer agrees to retain the patient and medical records of the
patients serviced by the Business on and prior to the Closing Date, and will
give the Selling Parties, and the Selling Parties' counsel, accountants,
consultants and other agents and representatives, full and complete access,
during reasonable business hours and upon reasonable request.
7.2 Cooperation. From the date hereof until the Closing Date, the Buyer
agrees to cooperate in good faith with the Selling Parties in order to obtain
all governmental, regulatory and other third party consents and approvals
which are necessary or desirable to consummate the transactions contemplated
under this Agreement.
7.3 Approval of Transfer. From the date hereof until the Closing Date, the
Buyer agrees to use its best efforts, including the filing and submission of
all necessary and appropriate applications and documents, to obtain the
approvals and consents of all applicable governmental and regulatory
authorities and other third parties required or necessary in order to transfer
the Purchased Assets to the Buyer.
<PAGE>
Article 8 - Conditions Precedent to the Buyer's Obligations
The Buyer's obligation to close is subject to the satisfaction of the
following conditions before or at Closing, unless waived by the Buyer:
8.1 Representations and Warranties True at Closing. The representations,
warranties and covenants made by the Selling Parties in this Agreement must be
true in all material respects at and as of Closing as if made on and as of
Closing.
8.2 Compliance with Agreement. The Selling Parties must have performed and
complied with all of their covenants and obligations under this Agreement in
all material respects which are to be performed or complied with by them
before or at Closing.
8.3 The Selling Parties' Certificate. Each of the Selling Parties must have
delivered to Buyer a certificate stating that (i) the representations,
warranties and covenants made by the Selling Party in the Agreement are true
in all material respects at and as of Closing as if made on and as of Closing,
and (ii) the Selling Party has performed and complied with all of its
covenants and obligations under this Agreement in all material respects which
are to be performed or complied with by it before or at Closing.
8.4 Adverse Proceedings. As of the Closing Date, no suit, action, claim or
governmental proceeding is pending or threatened against, and no order, decree
or judgment of any court, agency or other governmental authority has been
rendered against the parties or any party hereto which would render it
unlawful, as of the Closing Date, to effect the transactions contemplated by
this Agreement in accordance with its terms or otherwise have a material
adverse effect on the Buyer's ownership, use or enjoyment of the Purchased
Assets.
8.5 Approvals. Except for various equipment lessor consents, all necessary
material federal, state and local governmental and regulatory and other third
party consents, waivers, and other approvals or determinations required to be
obtained with respect to the sale and/or transfer of the Purchased Assets to
the Buyer and Buyer's operation of the Business thereafter must have been
obtained (including without limitation approval from HCFA and the Health Care
Administrator of the State of Florida), with the form and substance of such
consents, etc. satisfactory to the Buyer in its sole discretion.
8.6 Closing Documents. The documents required to be delivered by the Selling
Parties to the Buyer pursuant to this Agreement must be executed in a form
reasonably acceptable to the Buyer.
Article 9 - Conditions Precedent to the Selling Parties' Obligations
The Selling Parties' obligation to close is subject to the satisfaction of the
following conditions prior to or at Closing, unless waived by the Selling
Parties:
9.1 Representations and Warranties True at Closing. The representations and
warranties made by the Buyer in this Agreement must be true in all material
respects at and as of Closing with the same effect as though such
representations and warranties had been made or given on and as of Closing.
<PAGE>
9.2 Compliance with Agreement. The Buyer must have performed and complied
with all its covenants and obligations under this Agreement in all material
respects which are to be performed or complied with by it before or at the
Closing.
9.3 Buyer's Certificate. The Buyer must have delivered to the Selling
Parties a certificate stating that (i) the representations, warranties and
covenants made by the Buyer in the Agreement are true at and as of Closing as
if made on and as of the Closing, and (ii) the Buyer has performed and
complied with all of its covenants and obligations under this Agreement in all
material respects which are to be performed or complied with by it before or
at Closing.
9.4 Adverse Proceedings. As of the Closing Date, no suit, action, claim or
governmental proceeding is pending against, and no order, decree or judgment
of any court, agency or other governmental authority has been rendered against
the parties or any party hereto which would render it unlawful, as of the
Closing Date, to effect the transactions contemplated by this Agreement in
accordance with its terms.
9.5 Approvals. All necessary federal, state and local governmental and
regulatory and other third party consents, waivers, and other approvals and
determinations required to be obtained with respect to the sale and/or
transfer of the Assets to the Buyer must have been obtained.
9.6 Closing Documents. The documents required to be delivered by the Buyer
to the Selling Parties pursuant to this Agreement must be executed and
delivered in a form reasonably acceptable to the Selling Parties.
Article 10 - Termination of Agreement
10.1 Termination.
(a) This Agreement and the transactions contemplated hereby may be terminated
or abandoned at any time before the Closing Date:
(i) by mutual consent of the Selling Parties and the Buyer;
(ii) by the Buyer, if there has been a material misrepresentation in
this Agreement by the Selling Parties, or a material breach by the
Selling Parties of any of their warranties or covenants set forth herein,
or an uncured failure of any condition to which the obligations of the
Buyer are subject; or
(iii) by the Selling Parties, if there has been a material
misrepresentation in this Agreement by the Buyer, or a material breach by
the Buyer of any of the warranties or covenants of the Buyer set forth
herein, or an uncured failure of any condition to which the obligations
of the Selling Parties are subject.
(b) This Agreement will be terminated if Closing does not occur on or before
January 31, 1998, unless extended by mutual agreement of the parties.
<PAGE>
Article 11 - Indemnification
11.1 Survival of Representations and Warranties. All of the
representations, warranties and covenants and indemnities made by the Selling
Parties and the Buyer under this Agreement will survive the closing of the
transactions contemplated by this Agreement.
11.2 Indemnification of the Buyer
(a) General. Each of the Selling Parties, jointly and severally, will
indemnify, defend and hold the Buyer harmless from and against, and reimburse
the Buyer on demand for, any damage, loss, cost or expense (including
reasonable attorneys' fees) incurred by the Buyer resulting from (i) any
breach of the Selling Parties' representations, warranties or covenants in
this Agreement, or from any misrepresentation in, or omission by the Selling
Parties under this Agreement, (ii) any brokerage or similar fee due to any
agent of the Selling Parties, (iii) the failure to operate the Business in
full compliance with all Environmental Laws, (iv) any federal, state or local
tax liability or obligation arising with respect to the Selling Parties or the
operation of the Business prior to the Closing Date (other than withholding
taxes included among the Assumed Liabilities), and (v) any liability of the
Selling Parties not included among the Assumed Liabilities or obligation under
the Assumed Contracts arising prior to the Closing Date.
(b) Audits, Investigations, Refund Obligations and Other Pre-Closing
Liabilities. Each of the Selling Parties, jointly and severally, will
indemnify, defend and hold the Buyer harmless from and against, and reimburse
the Buyer on demand for, any actual damage, loss, cost, refund obligation, or
expense (including reasonable attorneys' fees incurred in defending any claim
for such damage, loss, cost or expense) resulting from, or in any way related
to, any of the following: (i) any audit or investigation by Medicaid or
federal Medicare authorities or third party payors concerning the operation of
the Business by the Selling Parties before Closing or any amounts paid to the
Selling Parties before Closing; (ii) any assessment, adjustments, suspensions
or offsets made against the Buyer or the Assets as a result of such an audit
or investigation; (iii) any costs of defense of, and any judgment against the
Buyer with respect to, any litigation relating to the operation of the
Business before Closing; (iv) any mortgage, security interest, lease,
obligation, claim, liability, debt, lien, charge or encumbrance relating to
matters prior to Closing asserted against the Purchased Assets; and (v) any
other personal liability, property damage, personal injury, cost, claim,
expense or assessment asserted against the Buyer or the Purchased Assets as a
result of, or with respect to, the operation of the Business before the
Closing, except that notwithstanding any of the foregoing, the Selling Parties
will have no liability under this paragraph 11.2 with respect to the Assumed
Liabilities, or prospective obligations under the Assumed Contracts.
<PAGE>
11.3 Indemnification of the Selling Parties. The Buyer will indemnify and
hold the Selling Parties harmless against, and reimburse the Selling Parties
on demand for, any actual damage, loss, cost or expense (including reasonable
attorneys' fees) incurred by the Selling Parties resulting from (i) any breach
of the Buyer's representations, warranties, or covenants contained in this
Agreement, or from any misrepresentation in, or omission by the Buyer under
this Agreement, (ii) any brokerage or similar fee due to any agent of the
Buyer, and (iii) any liability included among the Assumed Liabilities or
prospective obligation under the Assumed Contracts.
11.4 Notice of Claim. If any claim is made against a party hereto that, if
sustained, would give rise to a right of indemnity under this Article 11, the
party having the claim made against it ("Indemnitee") will give the other
party ("Indemnitor") notice thereof (specifying the nature and amount of the
claim and giving Indemnitor the right to contest the claim) within 15 days of
becoming aware of such claim ("Notice of Claim").
11.5 Right to Contest. Indemnitee agrees to afford Indemnitor the
opportunity, at Indemnitor's own expense, to assume the defense or settlement
of any such claim, with its own counsel. In connection therewith, the
Indemnitee agrees to cooperate fully to make available all pertinent
information under its control and will have the right to join in the defense,
at its own expense, with its own counsel. If Indemnitor does not elect to
undertake the defense of a claim on the terms provided below, Indemnitee will
be entitled to undertake the defense or settlement of the claim at the expense
of and for the account and risk of Indemnitor. Indemnitor will have the right
to assume the entire defense of a claim hereunder provided that (i) Indemnitor
gives written notice of such desire (the "Notice of Defense") to Indemnitee
within 15 days after Indemnitor's receipt of the Notice of Claim; (ii)
Indemnitor's defense of such claim will be without cost to Indemnitee or
prejudice to Indemnitee's rights under this Article 11; (iii) counsel chosen
by Indemnitor to defend such claim must be reasonably acceptable to
Indemnitee; and (iv) Indemnitor must bear all costs and expenses in connection
with the defense and settlement of such claim; (v) Indemnitee will have the
right to receive periodic reports from Indemnitor and Indemnitor's counsel;
and (vi) Indemnitor will not, without Indemnitee's written consent, settle or
compromise any claim or consent to any entry of judgment which does not
include the unconditional release by claimant or plaintiff of all liability
with respect to the claim.
Article 12 - Other Provisions
12.1 Further Assurances. The parties agree to execute and deliver any and
all papers and documents which may be reasonably necessary to carry out the
terms of this Agreement.
12.2 Entire Agreement; Amendment. All schedules to this Agreement are
deemed to be incorporated into and made part of this Agreement. This
Agreement together with the schedules, contains the entire agreement between
the parties and there are no agreements, representations, or warranties which
are not set forth herein. This Agreement may not be amended or revised except
by a writing signed by both parties hereto.
<PAGE>
12.3 Binding Effect; Assignment. This Agreement is binding upon and inures to
the benefit of the parties and their respective successors and assigns;
provided, however, that other than an assignment by the Buyer of its rights
under this Agreement to an affiliate of the Buyer which does not relieve the
Buyer of its obligations under this Agreement, neither this Agreement nor any
rights hereunder are assignable nor transferable without the prior written
consent of the other party. This Agreement is not intended and must not be
construed to create any rights in any parties other than the Buyer and the
Selling Parties and no person may assert any rights as a third party
beneficiary.
<PAGE>
12.4 Separate Counterparts. This Agreement may be executed in several
identical counterparts, all of which when taken together constitutes but one
instrument, and it will not be necessary in any court of law to introduce more
than one executed counterpart in proving this Agreement. This Agreement may
be executed and delivered by fax counterpart signatures, and upon exchange of
fax counterpart signatures, this Agreement will be binding upon the parties.
12.5 Transaction Costs. Except as provided for in paragraph 2.3, each
party to this Agreement agrees to be responsible for its own costs for any
legal, accounting and other services, if any, attendant to the transactions
contemplated by this Agreement. Each party hereto agrees to indemnify and
hold the other party harmless from any claim or demand for commission or other
compensation by any broker, finder or similar agent, whether or not a current
or former employee of such party, claiming to have been employed by such party
in connection with the transactions contemplated by this Agreement and to bear
the cost of legal expenses incurred in defending against any such claim. The
Buyer will bear the cost of transfer of the Licenses and any regulatory
approvals necessary to complete the transaction.
12.6 Notices. Any notice, request, instruction or documents required or
permitted hereunder must be in writing and will be deemed given if delivered
personally or by certified mail, U.S. mail, national recognized overnight
courier service or sent by telex, telecopy or other telecommunication device
capable of creating a written record (and promptly confirmed by hard copy
delivery) to a party at the address set forth below:
(i) If to the Selling Parties:
Hodgson, Ross, Andrews, Woods & Goodyear LLP
2000 Glades Road, Suite 400
Boca Raton, Florida 33431
Fax: (561) 394 3862
Attn: Chairman of the Board
With a copy to:
Quarles & Brady
One Lincoln Place
1900 Glades Road, Suite 280
Boca Raton, Florida 33431
Fax: (561) 368-1996
Attn: Ned R. Nashban
<PAGE>
(ii) If to the Buyer:
100 Mallard Creek Road
Suite 400
Louisville, Kentucky 40207
Fax: (502) 891-8067
Attn: President
With a copy to:
Brown, Todd & Heyburn PLLC
3200 Providian Center
Louisville, Kentucky 40202-3363
Fax: (502) 581-1087
Attn: Scott W. Dolson
unless and until notice of another or different address is given as provided
herein.
12.7 Severability. The provisions of this Agreement are severable, and
the invalidity of any provision will not affect the validity of any other
provision.
12.8 Captions. The captions herein have been inserted solely for
convenience of reference and in no way define, limit or describe the scope or
substance of any provision of this Agreement.
12.9 Gender. All pronouns used herein will include both the masculine
and feminine gender as the context requires.
12.10 Governing Law; Joint Preparation. The execution, interpretation,
and performance of this Agreement will be governed by the laws of the
Commonwealth of Kentucky, without regard to or application of its conflicts of
law principles. This Agreement is deemed to have been prepared jointly by the
parties. Any ambiguity in this Agreement will not be interpreted against
either party and will be interpreted as if each of the parties hereto had
prepared this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the date first above written.
<PAGE>
CARETENDERS VISITING SERVICES OF SOUTHEAST FLORIDA,
INC.
By_______________________________________
Title:_____________________________________
VISITING NURSE ASSOCIATION OF PALM
BEACH COUNTY, INC.
By_______________________________________
Title:_____________________________________
VISITING NURSE SERVICES OF PALM
BEACH COUNTY, INC.
By_______________________________________
Title:_____________________________________
VISITING NURSE EXTRACARE, INC.
By_______________________________________
Title:_____________________________________
VISITING NURSE CORPORATION OF SOUTH
FLORIDA, INC.
By_______________________________________
Title:_____________________________________
<PAGE>
LIST OF ANNEXES AND SCHEDULES
Annex A - Noncompetition Agreement
Annex B - Release
Schedule 1.1 - Excluded Assets
Schedule 1.1(a) - List of Equipment, Etc.; Leased Assets
Schedule 1.2(a) - Assumed Liabilities
Schedule 1.3 - Assumed Contracts
Schedule 2.2 - Allocation of Purchase Price
Schedule 2.3 - Prorated Expenses
Schedule 4.1 - Authority
Schedule 4.5 - Liens
Schedule 4.7 - Insurance
Schedule 4.9 - Governmental Approvals
Schedule 4.10 - Regulatory Compliance
Schedule 4.11 - Contracts
Schedule 4.12 - Violations of Law
Schedule 4.13 - Litigation
Schedule 4.16 - ERISA Matters
Schedule 4.19 - Adverse Actions
Schedule 4.20 - Consent
Schedule 4.22 - Licenses, Etc.
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