<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1994
COMMISSION FILE NUMBER 1-10875
NOVACARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3247827
(State of incorporation) (I.R.S. Employer Identification No.)
1016 W. NINTH AVENUE, KING OF PRUSSIA, PA 19406
(Address of principal executive office) (Zip code)
Registrant's telephone number: (610) 992-7200
(Former name, former address and former fiscal year, if changed since last
report.)
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
----- -----
As of February 10, 1995, NovaCare, Inc. had 64,453,558 shares of common stock,
$.01 par value, outstanding.
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<PAGE> 2
NOVACARE, INC. AND SUBSIDIARIES
FORM 10-Q - QUARTER ENDED DECEMBER 31, 1994
INDEX
<TABLE>
<CAPTION>
FORM 10-Q FORM 10-Q FORM 10-Q
PART NO. ITEM NO. DESCRIPTION PAGE NO.
- - - ---------- ---------- ----------- --------
<S> <C> <C> <C>
I FINANCIAL INFORMATION
1 Financial Statements
- Condensed Consolidated Balance Sheets as of
December 31, 1994 and June 30, 1994 1
- Condensed Consolidated Statements of Operations
for the Three Months Ended December 31, 1994 and
1993 2
- Condensed Consolidated Statements of Operations
for the Six Months Ended December 31, 1994 and
1993 3
- Condensed Consolidated Statements of Cash Flows
for the Six Months Ended December 31, 1994 and
1993 4
- Notes to Condensed Consolidated Financial Statements 5-8
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-14
II OTHER INFORMATION
4 Submission of Matters to a Vote of Security Holders 15
6 Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
i
<PAGE> 3
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of December 31, 1994 and June 30, 1994
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1994
-------------- --------------
ASSETS (UNAUDITED) (See Note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 30,281 $ 38,024
Marketable securities . . . . . . . . . . . . . . . . . . . . . 24,928 35,104
Accounts receivable, net . . . . . . . . . . . . . . . . . . . 241,201 215,727
Other current assets . . . . . . . . . . . . . . . . . . . . . 55,633 46,150
-------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . 352,043 335,005
Marketable securities, net . . . . . . . . . . . . . . . . . . . 22,429 53,318
Property and equipment, net . . . . . . . . . . . . . . . . . . . 85,914 81,356
Excess cost of net assets acquired, net . . . . . . . . . . . . . 414,628 342,938
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 44,930 37,924
-------------- --------------
$ 919,944 $ 850,541
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and credit agreements . . . . $ 44,304 $ 61,518
Accounts payable and accrued expenses . . . . . . . . . . . . . 80,946 72,997
Income taxes payable . . . . . . . . . . . . . . . . . . . . . -- 6,166
-------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . 125,250 140,681
Long-term debt and credit agreements, net of current portion . . 340,030 283,084
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . 736 993
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . 10,055 8,638
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . 1,711 1,441
-------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . . 477,782 434,837
-------------- --------------
Commitments and contingencies . . . . . . . . . . . . . . . . . . -- --
Stockholders' equity:
Common stock, $.01 par value; authorized 200,000,000 shares,
issued 64,695,594 shares at December 31, 1994 and 64,227,735
shares at June 30, 1994 . . . . . . . . . . . . . . . . . . 647 643
Additional paid-in capital . . . . . . . . . . . . . . . . . . 247,376 240,619
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 196,160 176,225
-------------- --------------
444,183 417,487
Less: Common stock in treasury (at cost), 16,851 shares at
December 31, 1994 and 16,851 shares at June 30, 1994 (305) (305)
Deferred compensation (543) (662)
Valuation allowance on securities available for sale (1,173) (816)
-------------- --------------
Total stockholders' equity 442,162 415,704
-------------- --------------
$ 919,944 $ 850,541
============== ==============
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
1
<PAGE> 4
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ 232,201 $ 196,132
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . 166,757 131,792
-------------- --------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . 65,444 64,340
Selling, general and administrative expenses . . . . . . . . . . 41,368 35,374
Merger and other nonrecurring expenses . . . . . . . . . . . . . -- 5,754
-------------- --------------
Income from operations . . . . . . . . . . . . . . . . . . . 24,076 23,212
Investment income . . . . . . . . . . . . . . . . . . . . . . . . 458 1,408
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . (6,461) (4,601)
Amortization of excess cost of net assets acquired . . . . . . . (2,766) (1,808)
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . (116) (139)
-------------- --------------
Income before income taxes . . . . . . . . . . . . . . . . . 15,191 18,072
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 6,304 8,735
-------------- --------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,887 $ 9,337
============== ==============
Net income per common share . . . . . . . . . . . . . . . . $ .14 $ .14
============== ==============
Weighted average number of common shares outstanding . . . . . . 64,899 64,705
============== ==============
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
2
<PAGE> 5
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-----------------------------------
1994 1993
-------------- ---------------
<S> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ 463,011 $ 372,563
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . 330,337 252,559
-------------- ---------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . 132,674 120,004
Selling, general and administrative expenses . . . . . . . . . . 82,793 65,150
Merger and other nonrecurring expenses . . . . . . . . . . . . . -- 5,754
-------------- ---------------
Income from operations . . . . . . . . . . . . . . . . . . . 49,881 49,100
Investment income . . . . . . . . . . . . . . . . . . . . . . . . 1,309 3,146
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . (12,113) (8,203)
Amortization of excess cost of net assets acquired . . . . . . . (5,505) (3,180)
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . (270) (260)
-------------- ---------------
Income before income taxes . . . . . . . . . . . . . . . . . 33,302 40,603
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 13,367 17,571
-------------- ---------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,935 $ 23,032
============== ===============
Net income per common share . . . . . . . . . . . . . . . . $ .31 $ .36
============== ===============
Weighted average number of common shares outstanding . . . . . . 65,144 64,265
============== ===============
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
3
<PAGE> 6
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-------------------------------------
1994 1993
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,935 $ 23,032
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 14,683 9,241
Minority interest . . . . . . . . . . . . . . . . . . . . . 270 260
Deferred income taxes . . . . . . . . . . . . . . . . . . . (895) --
Increase in assets, net of effects from acquisitions:
Accounts receivable, net . . . . . . . . . . . . . . . . (16,368) (23,465)
Other current assets . . . . . . . . . . . . . . . . . . (3,826) (4)
Decrease in liabilities, net of effects from acquisitions:
Accounts payable and accrued expenses . . . . . . . . . (3,135) (183)
Income taxes payable . . . . . . . . . . . . . . . . . . (10,195) (5,428)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (189) (1,223)
--------------- --------------
Net cash flows provided by operating activities . . . . 280 2,230
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Marketable securities:
Purchases of marketable securities . . . . . . . . . . . . . -- (137,059)
Proceeds from sales of marketable securities . . . . . . . . 41,755 158,189
--------------- --------------
Net cash proceeds from marketable securities . . . . . . 41,755 21,130
--------------- --------------
Acquisitions of businesses:
Payments for business acquired, net of cash acquired . . . . (57,840) (74,499)
Additional payments for businesses acquired in prior years . (6,553) (2,121)
--------------- --------------
Net cash outlay for acquisitions of businesses . . . . . (64,393) (76,620)
--------------- --------------
Additions to property and equipment . . . . . . . . . . . . . . . (10,057) (8,039)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,116) (8,113)
--------------- --------------
Net cash flows used in investing activities . . . . . . (36,811) (71,642)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt and credit agreements . . . . . . 63,241 29,920
Payment of long-term debt and credit agreements . . . . . . . (37,023) (13,774)
Proceeds from common stock issued . . . . . . . . . . . . . . 2,570 1,169
--------------- --------------
Net cash flows provided by financing activities . . . . 28,788 17,315
--------------- --------------
Net decrease in cash and cash equivalents . . . . . . . . . . . . (7,743) (52,097)
Cash and cash equivalents, beginning of period . . . . . . . . . 38,024 98,138
--------------- --------------
Cash and cash equivalents, end of period . . . . . . . . . . . . $ 30,281 $ 46,041
=============== ==============
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
4
<PAGE> 7
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(In thousands, except per share data)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of
NovaCare, Inc. (the "Company") are unaudited. The balance sheet as of June
30, 1994 is condensed from the audited balance sheet of NovaCare, Inc. at
that date. These statements have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission and should
be read in conjunction with the Company's consolidated financial statements
and the notes thereto for the year ended June 30, 1994. Certain
information and footnote disclosures normally in the financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations. In the
opinion of Company management, the condensed consolidated financial
statements for the unaudited interim periods presented include all
adjustments (consisting of only normal recurring adjustments) necessary to
present a fair statement of the results for such interim periods.
Operating results for the three and six-month periods ended December
31, 1994 are not necessarily indicative of the results that may be expected
for a full year or any portion thereof.
2. BUSINESS ACQUISITIONS
During the six months ended December 31, 1994, the Company acquired 23
businesses which provide outpatient rehabilitation services, one business
which provides orthotic and prosthetic rehabilitation services and two
businesses which provide contract therapy services. During the six months
ended December 31, 1993, the Company acquired a business which owned five
medical rehabilitation hospitals and five outpatient facilities. In
addition, the Company acquired three businesses which provide outpatient
rehabilitation services, two businesses which provide orthotic and
prosthetic services and one business which provides contract therapy
services. All acquisitions were accounted for as purchases and,
accordingly, the aggregate purchase price was allocated to assets and
liabilities acquired based on their fair values at the date of acquisition.
The following unaudited pro forma consolidated results of operations of
the Company give effect to each of the acquisitions as if they occurred on
July 1, 1993:
<TABLE>
<CAPTION>
For the six months ended
December 31,
---------------------------------
1994 1993
------------- -------------
<S> <C> <C>
Net revenues . . . . . . . . . . . . $ 468,469 $ 448,205
Net income . . . . . . . . . . . . . 20,334 28,328
Net income per share . . . . . . . . $ .31 $ .44
</TABLE>
The above pro forma information is not necessarily indicative of the
results of operations that would have occurred had the acquisitions been
made as of July 1, 1993, or of the results which may occur in the future.
5
<PAGE> 8
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1994
(In thousands, except per share data)
(Unaudited)
Information with respect to businesses acquired in purchase transactions
was as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
DECEMBER 31,
1994
------------------------
<S> <C>
Cash paid (net of cash acquired) . . . . . . . . . . . . $ 57,840
Notes issued . . . . . . . . . . . . . . . . . . . . . . 12,100
Other consideration . . . . . . . . . . . . . . . . . . 197
-----------
70,137
Liabilities assumed . . . . . . . . . . . . . . . . . . 4,132
-----------
74,269
Fair value of assets acquired . . . . . . . . . . . . . 8,943
-----------
Cost in excess of fair value of net assets acquired $ 65,326
===========
</TABLE>
The results of operations of businesses acquired have been included in
the consolidated results of the Company from the effective date of each
acquisition.
Certain purchase agreements require additional payments if specific
financial targets and non-financial conditions are met. Aggregate
contingent payments in connection with these acquisitions at December 31,
1994 of approximately $8,839 in cash and 1,531 shares of common stock have
not been included in the initial determination of cost of the businesses
acquired since the amount of such contingent consideration, if any, is not
presently determinable. For the six months ended December 31, 1994, the
Company paid $6,553 in cash and issued 283,599 shares of common stock in
connection with businesses acquired in prior years.
3. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"). SFAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns.
Income taxes paid during the six-month periods ended December 31, 1994
and 1993 amounted to $20,013 and $24,094 respectively.
4. INVESTMENTS IN CASH EQUIVALENTS AND MARKETABLE SECURITIES
Investments in cash equivalents and marketable securities at December
31, 1994 and June 30, 1994 consist of professionally managed portfolios
including U.S. Treasury securities, money market funds and short- and
medium-term tax- exempt municipal bonds. As of June 30, 1994, NovaCare
adopted Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities ("SFAS 115"). The effect
of SFAS 115 is dependent upon classification of the investment and, in
certain cases, determination as to the nature of the decline in market
value below the cost basis of an investment. Investments with maturities
of greater than one year are classified as non-current. Realized gains and
losses on the sales of securities are computed using the specific
identification method.
Investments in U.S. Treasury securities accounted for 51% and 56% of
the total investments at December 31, 1994 and June 30, 1994, respectively.
As of December 31, 1994, the U.S. Treasury securities collateralized the
Company's reverse repurchase agreements and cannot be liquidated for
general business purposes. Securities of no other issuer exceeded 10% of
total investments at December 31, 1994 or June 30, 1994.
6
<PAGE> 9
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1994
(In thousands, except per share data)
(Unaudited)
5. RECEIVABLES
Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, June 30,
1994 1994
-------------- --------------
<S> <C> <C>
Accounts receivable . . . . . . . . . . . . . . . . . . . . $ 268,839 $ 246,169
Due from Medicare . . . . . . . . . . . . . . . . . . . . . 10,458 2,289
Less: Allowance for uncollectible accounts . . . . . . . . . (25,787) (17,692)
Reserve for Medicare denials and other allowances . . (12,309) (15,039)
-------------- --------------
$ 241,201 $ 215,727
============== ==============
<CAPTION>
6. PROPERTY AND EQUIPMENT
The components of property and equipment were as follows:
DECEMBER 31, June 30,
1994 1994
-------------- --------------
<S> <C> <C>
Land and buildings . . . . . . . . . . . . . . . . . . . . . $ 32,721 $ 32,367
Property, equipment and furniture . . . . . . . . . . . . . 78,762 68,360
Leasehold improvements . . . . . . . . . . . . . . . . . . . 12,200 11,183
-------------- --------------
123,683 111,910
Less: Accumulated depreciation and amortization . . . . . . (37,769) (30,554)
-------------- --------------
$ 85,914 $ 81,356
============== ==============
<CAPTION>
7. LONG-TERM DEBT AND CREDIT AGREEMENTS
Long-term debt and credit agreements consisted of the following:
DECEMBER 31, June 30,
1994 1994
-------------- ------------
<S> <C> <C>
Convertible subordinated debentures (5.5%), due January 2000 $ 175,000 $ 175,000
Revolving credit facility (LIBOR plus 1.125%), expiring
November 28, 1997 . . . . . . . . . . . . . . . . . . . . 124,549 69,563
Reverse repurchase agreements (6.2%), payable through . . . .
January 3, 1995 . . . . . . . . . . . . . . . . . . . . . . 24,439 43,281
Subordinated promissory notes (5% to 10%), payable through
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . 35,157 30,580
West Virginia commercial development revenue bonds
(9.5% to 12%), payable through 2015 . . . . . . . . . . . . 17,715 17,715
Notes (5% to 12%), payable through November 2000 . . . . . . 2,814 3,736
Capitalized lease obligations, payable through 2000 . . . . 4,660 4,680
Other obligations (8% to 10%), payable through September 2016 -- 47
-------------- ------------
384,334 344,602
Less: Current portion . . . . . . . . . . . . . . . . . . . 44,304 61,518
-------------- ------------
$ 340,030 $ 283,084
============== ============
</TABLE>
7
<PAGE> 10
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1994
(In thousands, except per share data)
(Unaudited)
In November 1994, the Company amended the revolving credit facility
agreement increasing the amount available to $175,000. The funds have been
and will be used to refinance other indebtedness, as well as for general
corporate purposes, including acquisitions. At December 31, 1994, the
interest rate on amounts borrowed on the revolving credit facility was
7.625%. The amended revolving credit facility agreement requires the
maintenance of minimum working capital and net worth amounts, as well as
certain financial ratios. At December 31, 1994, the Company was in
compliance with these requirements.
During the three months ended December 31, 1994, the Company entered
into reverse repurchase agreements with primary government dealers. In the
reverse repurchase agreements, the Company sold U.S. government securities
subject to an agreement to repurchase those securities at a mutually agreed
upon date and price, which approximates market. These transactions were
accounted for as loans to the Company collateralized by the underlying
securities which are held by the primary government dealers. The
agreements required the Company to maintain investments in U.S. government
securities with market value, including accrued interest, to be at least
102% of the dollar amount sold as collateral. The repurchase obligations
outstanding on December 31, 1994 matured January 3, 1995.
Interest paid on debt for the six months ended December 31, 1994 and
1993 amounted to $9,246 and $7,988, respectively.
8. CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the
amount of ultimate liability, if any, with respect to these actions will
not have a materially adverse affect on the financial position or results
of operations of the Company.
9. SUBSEQUENT EVENT
On February 6, 1995, the Company announced the execution of a
definitive agreement to sell its rehabilitation hospitals to HEALTHSOUTH
Corporation. Under the terms of the agreement, HEALTHSOUTH will pay the
Company total consideration of approximately $235 million, including
approximately $215 million of cash and $20 million of assumed debt. The
transaction is subject to a U.S. Justice Department and Federal Trade
Commission review under the Hart-Scott-Rodino Antitrust Improvements Act of
1976. The transaction is expected to close in April 1995.
8
<PAGE> 11
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In thousands)
THE COMPANY
NovaCare, Inc. is a leading national provider of medical rehabilitation
services. These services include providing rehabilitation therapy and subacute
services on a contract basis to health care institutions, primarily nursing
facilities; operating acute medical rehabilitation hospitals; providing
outpatient rehabilitation services through contracts with healthcare
institutions and a national network of clinics; and delivering orthotic and
prosthetic ("O&P") rehabilitation services through a national network of
patient care centers.
NovaCare provides multidisciplinary medical rehabilitation services on a
contract basis to health care institutions, primarily nursing homes, including
those operated by most of the nation's largest chains. As of December 31,
1994, NovaCare provided these services through 5,330 contracts in 2,128
facilities located in 40 states. NovaCare's 11 rehabilitation hospitals
provide acute rehabilitation care on a multidisciplinary, physician-directed
basis to severely disabled patients. Five community re-entry programs treat
post-acute brain injured patients in community-based settings. Orthotic and
prosthetic rehabilitation services are provided by orthotists and prosthetists,
referred to as practitioners, through 130 patient care centers in 26 states.
Orthotic rehabilitation is the fitting and fabrication of custom-made braces
and support devices for treatment of musculoskeletal conditions. Prosthetic
rehabilitation is the fitting and fabrication of custom-made artificial limbs.
NovaCare provides outpatient physical and occupational therapy services at 347
clinics in 27 states. These services are provided by licensed physical and
occupational therapists who develop individual treatment plans involving
manual, aquatic and electrical modalities and controlled exercise strengthening
programs to rehabilitate patients with musculoskeletal injuries or after
surgery. NovaCare also manages 31 subacute programs for nursing facilities on
a contract basis and operates subacute units in five of its medical
rehabilitation hospitals.
BUSINESS STRATEGY
NovaCare is a provider of rehabilitative care and management services to
the health care industry. NovaCare's objective is to be the rehabilitation
industry leader in lower-cost, post-acute settings, establish a meaningful
presence in selected local markets and obtain regional and national contracts
with employers, managed care organizations, and other insurers. In pursuing
this strategy, NovaCare seeks to maintain flexibility in the constantly
changing health care industry by limiting its investment in fixed assets.
NovaCare's strategy is designed to capitalize upon (1) growing demand for
rehabilitation services particularly in lower- cost, post-acute settings, (2)
highly fragmented competition and (3) the lack of professional management,
information systems and access to capital, which is characteristic of much of
the industry.
9
<PAGE> 12
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
(In thousands)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
- - - ------------------------------------------------
DECEMBER 31, 1994 AND 1993
- - - --------------------------
NET REVENUES
For the three months ended December 31, 1994, the Company's net revenues
increased 18% to $232,201 from $196,132 for the same period a year ago. The
increase in net revenues was attributable principally to net revenues from
businesses acquired since December 31, 1993. Additionally, revenues increased
as a result of successful recruiting of contract therapy staff offset by higher
therapist turnover which resulted in a 13% increase in the number of
therapists, and an increase in average medical rehabilitation hospital
occupancy rates to 66% from 64%.
GROSS PROFIT
Gross profit, defined as net revenues less cost of services (primarily
salaries, benefits, and travel expenses for the Company's medical professional
staff and supervisory personnel, manufactured materials and hospital facility
costs), increased during the three months ended December 31, 1994 to $65,444 as
compared to $64,340 for the same period a year ago. Gross profit as a
percentage of revenues decreased to 28% from 33% as a result of decreased
productivity and higher costs in the contract therapy business. These factors
were offset by higher average daily census, increased revenue per patient day,
decreased costs in the Company's hospitals and an increased percentage of
revenues attributable to the higher margin outpatient rehabilitation business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of net
revenues were 18% for the three months ended December 31, 1994 and 1993,
respectively. The absolute dollar increase of $5,994, or 17%, was due
principally to increased administrative staff in support of the Company's
revenue growth, marketing and sales programs, and expenses of businesses
acquired.
MERGER AND OTHER NONRECURRING EXPENSES
Merger and other nonrecurring expenses, which were 3% of net revenues for
the three months ended December 31, 1993, were associated with the merger with
RehabClinics, Inc. in February 1994.
INCOME FROM OPERATIONS
As a result of the foregoing, operating margins decreased to 10% of net
revenues in the second quarter of fiscal 1995 from 12% in the second quarter
of the prior year.
INVESTMENT INCOME
Investment income consists of interest, dividends and net gains on the sale
of the Company's portfolio of short- and medium-term investments. Investment
income decreased $950 or 67% in the second quarter of fiscal 1995 versus the
same period last year due principally to lower amounts invested, as a result of
funds expended for acquisitions.
10
<PAGE> 13
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
(In thousands)
INTEREST EXPENSE
Interest expense related primarily to interest incurred on the
Company's convertible subordinated debentures, the revolving credit facility,
and business acquisition financing. Interest expense for the three months
ended December 31, 1994 increased $1,860, or 40%, compared to the same period
last year. The increase was due principally to debt incurred and assumed in
connection with business acquisitions and investments in information systems.
AMORTIZATION OF EXCESS COST OF NET ASSETS ACQUIRED
In the second quarter of fiscal 1995, amortization of excess cost of
net assets acquired increased $958, or 53%, versus the corresponding period of
the prior year as a result of businesses acquired after the second quarter of
fiscal 1994.
INCOME TAXES
The effective income tax rate of the Company was 42% for the second
quarter of fiscal 1995 compared to 48% for the same period in fiscal 1994. The
decrease in the Company's effective rate was due principally to non-deductible
merger expenses incurred in fiscal 1994 offset somewhat by an increase in
non-deductible amortization of excess cost of net assets acquired and a
decrease in tax-exempt interest income.
The Company's second quarter fiscal 1995 and 1994 effective income tax
rates differed from the federal statutory tax rate primarily due to the
amortization of excess cost of net assets acquired, and nonrecurring merger
expenses in fiscal 1994, which are not fully deductible for tax purposes,
offset somewhat by non-taxable interest income.
NET INCOME
As a result of the foregoing, net income decreased to $8,887 in the
second quarter of fiscal 1995 from $9,337 in the second quarter of fiscal 1994.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
- - - ----------------------------------------------
DECEMBER 31, 1994 AND 1993
- - - --------------------------
NET REVENUES
For the six months ended December 31, 1994, the Company's net revenues
increased 24% to $463,011 from $372,563 for the same period a year ago. The
increase in net revenues was attributable principally to net revenues from
businesses acquired since December 31, 1993. Additionally, revenues increased
as a result of successful recruiting of contract therapy staff, offset somewhat
by higher therapist turnover and an increase in average medical rehabilitation
hospital occupancy rates to 66% from 63%.
GROSS PROFIT
Gross profit, defined as net revenues less cost of services (primarily
salaries, benefits, and travel expenses for the Company's medical professional
staff and supervisory personnel, manufactured materials and hospital facility
costs), increased during the six months ended December 31, 1994 to $132,674 as
compared to $120,004 for the same period a year ago. Gross profit as a
percentage of revenues decreased to 29% from 32% as a result of a decrease in
therapist productivity in contract therapy and an increased use of independent
contractors, and increases in compensation and benefits. These factors were
offset by higher average daily census, increased revenue per patient day,
decreased costs in the Company's hospitals, and an increased percentage of
revenues attributable to the higher margin outpatient rehabilitation business.
11
<PAGE> 14
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
(In thousands)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of net
revenues increased to 18% for the six months ended December 31, 1994 as
compared to 17% for the same period a year ago. The absolute dollar increase
of $17,643, or 27%, was due principally to increased administrative staff in
support of the Company's revenue growth, marketing and sales programs, expenses
incurred while implementing a new service delivery model in the contract
therapy business and expenses of businesses acquired.
MERGER AND OTHER NONRECURRING EXPENSES
Merger and other nonrecurring expenses, which were 2% of net revenues
for the six months ended December 31, 1993, were associated with the merger
with RehabClinics, Inc. in February 1994.
INCOME FROM OPERATIONS
As a result of the foregoing, operating margins decreased to 11% of net
revenues for the first six months of fiscal 1995 from 13% in the first six
months of the prior year.
INVESTMENT INCOME
Investment income consists of interest, dividends and net gains on the
sale of the Company's portfolio of short- and medium-term investments.
Investment income decreased $1,837 or 58% in the first six months of fiscal
1995 versus the same period last year due principally to lower amounts
invested, as a result of funds expended for acquisitions.
INTEREST EXPENSE
Interest expense related primarily to interest incurred on the
Company's convertible subordinated debentures, the revolving credit facility
and business acquisition financing. Interest expense for the six months ended
December 31, 1994 increased $3,910, or 48%, compared to the same period last
year. The increase was due principally to debt incurred and assumed in
connection with business acquisitions and investments in information systems.
AMORTIZATION OF EXCESS COST OF NET ASSETS ACQUIRED
In the first six months of fiscal 1995, amortization of excess cost of
net assets acquired increased $2,325, or 73%, versus the corresponding period
of the prior year as a result of businesses acquired after the second quarter
of fiscal 1994.
INCOME TAXES
The effective income tax rate of the Company was 40% for the six-month
period ended December 31, 1994 compared to 43% for the same period in fiscal
1994. The decrease in the Company's effective rate was due principally to
non-deductible merger expenses incurred in the second quarter of fiscal 1994
offset by an increase in non-deductible amortization of excess cost of net
assets acquired and a decrease in tax-exempt interest income.
The Company's effective income tax rates for the six months ended
December 31, 1994 and 1993 differed from the federal statutory tax rate
primarily due to the amortization of excess cost of net assets acquired and
non-recurring merger expenses in fiscal 1994, which are not fully deductible
for tax purposes, offset somewhat by non-taxable interest income.
12
<PAGE> 15
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
(In thousands)
NET INCOME
As a result of the foregoing, net income decreased to $19,935 in the
first six months of fiscal 1995 from $23,032 in the first six months of fiscal
1994.
LIQUIDITY AND CAPITAL RESOURCES
- - - -------------------------------
Net cash flows provided by operating activities were $280 and $2,230
for the six months ended December 31, 1994 and 1993, respectively. The
principal reasons for the decrease were the decreases in net income, accounts
payable and accrued expenses, income taxes payable, and the increases in other
current assets; offset by an increase in depreciation and amortization, which
are non-cash charges, and a slightly lower increase in accounts receivable as
compared with the prior year. The decreases in accounts payable and income
taxes payable were principally due to the timing of payments. The increases in
other current assets were principally due to increases in restricted cash held
in escrow for the commercial development revenue bonds and relocation loans to
various employees of the Company.
Cash, cash equivalents and marketable securities decreased to $77,638
from $126,446 at June 30, 1994. This decrease resulted principally from cash
expenditures for business acquisitions, additional investments in information
systems, and property and equipment additions, offset somewhat by borrowings
under the revolving credit facility.
The Company's business strategy comprehends expansion of the Company's
activities through internal growth and selected acquisitions. The funds
required to support these programs are expected to be provided by existing
working capital and cash flows from operations, supplemented by financing in
the form of revolving credit facilities, private placements, leasing
arrangements or a combination thereof. In May 1994, the Company entered into a
$115,000 revolving credit facility with a syndicate of banks which was used to
refinance certain bank debt, as well as for general corporate purposes,
including acquisitions. In November 1994, the facility was amended and the
amount available under the facility was increased to $175,000.
NovaCare's medical rehabilitation hospitals have been financed
principally pursuant to real estate lease arrangements with certain real estate
investment trusts with regard to land and buildings and through the issuance of
commercial development bonds. NovaCare's medical rehabilitation hospital
property lease arrangements are operating leases with terms ranging from 10 to
13 years and provide for increasing rental payments contingent upon the revenue
growth of the related facility. The leases also contain renewal options which
permit extended terms of the base lease periods. The commercial development
revenue bonds are payable through 2015 and have interest rates ranging from
9.5% to 12%.
The Company's current ratios and its working capital are set forth for the
dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, June 30,
1994 1994
---------------- -------------
<S> <C> <C>
Current ratio 2.81:1 2.38:1
Working capital $ 226,793 $ 194,324
</TABLE>
The increase in the current ratio at December 31, 1994 from June 30,
1994 is attributable principally to a decrease in the current portion of
long-term debt resulting from the pay down of a portion of the short-term
reverse repurchase agreements held at June 30, 1994 offset by a decrease in
cash and marketable securities. The decrease in cash and marketable securities
resulted from the sale and maturity of certain marketable securities for
payment of acquisitions and reduction of debt. Working capital increased at
December 31, 1994 from June 30, 1994 due principally to a decrease in the
current portion of long- term debt and an increase in accounts receivable, as a
result of business growth, offset somewhat by an increase in accounts payable
and a decrease in cash and marketable securities. NovaCare's investment
strategy is to invest excess cash in A, A1 or P1 rated or better fixed income
governmental and corporate securities, U.S. government securities (including
guaranteed and agency issues), bankers' acceptances and repurchase agreements.
13
<PAGE> 16
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
(In thousands)
At December 31, 1994, debt as a percentage of total capitalization
(i.e. total debt and stockholders' equity) was 47% compared with 45% at June
30, 1994. The increase was due to higher outstanding indebtedness resulting
from funds borrowed for acquisitions, as well as indebtedness assumed in
connection with acquisitions. NovaCare believes that its cash and cash
equivalents, marketable securities and cash flows from operations will be
sufficient to meet its planned working capital and capital investment needs in
fiscal 1995. Additionally, NovaCare believes it has the capacity to obtain
additional financing sufficient to meet NovaCare's acquisition-related
investment needs beyond those forecasted for the near term.
As of June 30, 1994, NovaCare adopted Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities ("SFAS 115"), which requires investment securities to be classified
as held to maturity, available for sale, or trading. The adoption of SFAS 115
had no effect on NovaCare's results of operations. At December 31, 1994, a
valuation allowance in stockholders' equity of $1,173 was required to reflect
unrealized holding losses on municipal bonds classified as available for sale.
Unrealized holding losses on the municipal bond portfolio resulted from
increases in interest rates during calendar year 1994 and do not reflect an
impairment of the debtor's ability to repay the obligation.
SUBSEQUENT EVENT
On February 6, 1995, the Company announced the execution of a
definitive agreement to sell its rehabilitation hospitals to HEALTHSOUTH
Corporation. Under terms of the agreement, HEALTHSOUTH will pay the Company
total consideration of approximately $235 million, including approximately $215
million in cash and $20 million in assumed debt. The transaction is subject to
a U.S. Justice Department and Federal Trade Commission review under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. The transaction in
expected to close in April 1995. The proceeds of this transaction will be
used to enhance the Company's leading market share positions in its other
rehabilitation businesses and to pay down debt.
14
<PAGE> 17
NOVACARE, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 27, 1994, the Company held its Annual Meeting of
Stockholders for the fiscal year ended June 30, 1994. The following matters
were submitted for vote:
1. The following individuals were nominated and elected to serve as the
directors of the Company:
<TABLE>
<S> <C>
John H. Foster For: 47,759,722
Withhold Authority: 278,212
C. Arnold Renschler, M.D. For: 47,567,796
Withhold Authority: 270,138
Timothy E. Foster For: 47,565,038
Withhold Authority: 272,896
E. Martin Gibson For: 47,563,267
Withhold Authority: 274,667
Siri S. Marshall For: 47,577,117
Withhold Authority: 258,817
Stephen E. O'Neil For: 47,567,133
Withhold Authority: 268,811
George W. Siguler For: 47,568,517
Withhold Authority: 269,417
Robert G. Stone, Jr. For: 47,566,624
Withhold Authority: 271,310
Daniel C. Tosteson, M.D. For: 47,529,109
Withhold Authority: 308,825
</TABLE>
2. The holders of 40,405,558 shares voted in favor of, the holders of
2,291,928 shares voted against, the holders of 1,214,801 shares
abstained, and there were 3,294,647 broker non-votes with respect to
the adoption of the following matter:
The approval of the Company's Executive Compensation Plan.
3. The holders of 46,265,654 shares voted in favor of, the holders of
970,207 shares voted against, and the holders of 601,073 shares
abstained with respect to the ratification of the selection of Price
Waterhouse, LLP, independent certified public accountants, to serve as
independent accountants for the Company.
15
<PAGE> 18
NOVACARE, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION - CONTINUED
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(A) Exhibit
Number Exhibit Description Page Number
------ ------------------- -----------
10(a) Revolving Credit Facility Credit Agreement First Amendment
dated as of September 20, 1994 by and among NovaCare and
certain of its subsidiaries and PNC Bank, N.A., First Union National
Bank of North Carolina, Mellon Bank, N.A., NationsBank of
North Carolina, N.A., CoreStates Bank, N.A., and National
Westminster Bank, N.A.
10(b) Revolving Credit Facility Credit Agreement Second Amendment
dated as of November 28, 1994 by and among NovaCare and certain
of its subsidiaries and PNC Bank, First Union National Bank of
North Carolina, Mellon Bank, N.A., NationsBank of North Carolina,
N.A., CoreStates Bank, N.A., National Westminster Bank, N.A., and
Fleet Bank of Massachusetts, N.A.
10(c) Employment Agreement between the Company and Timothy E. Foster
dated as of December 2, 1994.
27 Financial Data Schedule
(B) During the quarter ended December 31, 1994, the Registrant did not file a report on Form 8-K.
</TABLE>
16
<PAGE> 19
NOVACARE, INC. AND SUBSIDIARIES
SIGNATURES
PURSUANT TO THE REQUIREMENTS 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.
NOVACARE, INC.
---------------------
(REGISTRANT)
FEBRUARY 14, 1994 BY /s/ TIMOTHY E. FOSTER
----------------------
TIMOTHY E. FOSTER,
PRESIDENT AND CHIEF OPERATING OFFICER
AND CHIEF FINANCIAL AND ACCOUNTING OFFICER
17
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit
Number Exhibit Description
- - - ------ -------------------
10(a) Revolving Credit Facility Credit Agreement First Amendment
dated as of September 20, 1994 by and among NovaCare and
certain of its subsidiaries and PNC Bank, N.A., First Union National
Bank of North Carolina, Mellon Bank, N.A., NationsBank of
North Carolina, N.A., CoreStates Bank, N.A., and National
Westminster Bank, N.A.
10(b) Revolving Credit Facility Credit Agreement Second Amendment
dated as of November 28, 1994 by and among NovaCare and certain
of its subsidiaries and PNC Bank, First Union National Bank of
North Carolina, Mellon Bank, N.A., NationsBank of North Carolina,
N.A., CoreStates Bank, N.A., National Westminster Bank, N.A., and
Fleet Bank of Massachusetts, N.A.
10(c) Employment Agreement between the Company and Timothy E. Foster
dated as of December 2, 1994.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10(a)
NOVACARE, INC.
1016 WEST NINTH AVENUE
KING OF PRUSSIA, PA 19406
September 20, 1994
PNC Bank, National Association,
as Agent
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Attn: Frank A. Taucher
RE: First Amendment to Credit Agreement
Dear Frank:
We refer to that certain Credit Agreement, dated as of May 27, 1994
(the "Credit Agreement"), by and among NovaCare, Inc. and certain of its
Subsidiaries, the Banks party thereto and PNC Bank, National Association
("Agent"). Capitalized terms used herein not otherwise defined herein shall
have the meanings given to them under the Credit Agreement.
BACKGROUND
Section 6.01(a) provides in part that "each of the Loan Parties is a
corporation." Section 1.01 defines "Loan Parties" to include in part each of
the Borrowers and Guarantors. NovaCare Management Business Trust ("NovaCare
Management") is a business trust organized under the laws of the Commonwealth
of Pennsylvania and is a Borrower.
Section 6.02 provides in part that "Should any of the information or
disclosures provided on any of the Schedules attached hereto become outdated or
incorrect in any material respect, the Loan Parties shall promptly provide the
Agent in writing with such revisions or updates to such Schedules as may be
necessary or appropriate to update or correct same . . .".
The parties hereto, intending to be legally bound, hereby agree as
follows:
<PAGE> 2
AGREEMENT
1. Waiver.
(a) The Banks hereby waive any violation of the first
sentence of Section 6.01(a) resulting from the execution by NovaCare Management
of the Agreement as a Borrower.
(b) The Banks hereby waive any violation of Section
8.02(b) of the Credit Agreement resulting from the acquisition of the assets of
Associated Rehabilitation Services, Inc. of which certain assets are subject to
a lien securing a $341,000 loan on certain property located in Portage, Indiana
in favor of the United States Small Business Administration, which Loan does
not constitute Assumed Indebtedness.
2. Amendments. The Credit Agreement is hereby amended as follows:
2.1 Definitions.
(a) The definitions of Pledge Agreements and
Restricted Subsidiaries contained in Section 1.01 are hereby amended and
restated to read as follows:
"Pledge Agreements shall mean the Pledge Agreement in
substantially the form attached hereto as Exhibit 1.01(P)(4) executed
and delivered by NovaCare and each other Borrower which owns stock in
any other Loan Party, Exhibit 1.01(P)(5) executed and delivered by
each Guarantor which owns stock in any other Loan Party, Exhibit
1.01(p)(6) executed and delivered by each Borrower or Guarantor which
owns any partnership interests in any other Loan Party, AND ANY OTHER
FORM OF AGREEMENT PLEDGING ANY INTERESTS IN A LOAN PARTY EXECUTED AND
DELIVERED BY THE HOLDERS OF SUCH INTERESTS, in each instance to the
Agent for the benefit of the Banks, and Pledge Agreement shall mean
separately any Pledge Agreement."
"Restricted Subsidiaries shall mean collectively Arizona Rehab,
Meridian Point AND NOVACARE MANAGEMENT."
(b) The following new definitions are hereby added
to Section 1.01:
"Beneficial Interests shall have the meaning set forth in
Section 6.01(c)."
"First Amendment shall mean the first amendment to this
Agreement."
<PAGE> 3
"NovaCare Management shall mean NovaCare Management Business
Trust, a Pennsylvania business trust."
"NovaCare Management Pledge Date shall mean the date on which
NovaCare shall have delivered or caused to be delivered to the Agent
for the benefit of the Banks each of the following documents:
(i) evidence satisfactory to the Agent in its sole
discretion that NovaCare Management is a business trust duly
organized, validly existing and in good standing under the laws of
Pennsylvania and otherwise complies with the representations and
warranties contained in Sections 6.01(a), (c), (o) and (p);.
(ii) written confirmation by NovaCare Management
that it is a Borrower under the Credit Agreement and that it is in
compliance with the terms thereof;
(iii) an amended and restated Schedule 6.01(c) which
shall, among other things, state the name of the trustee and
beneficial owners of NovaCare Management;
(iv) an opinion of counsel acceptable to the Agent
confirming the matters set forth in Sections 6.01(a), (c), (d), (e),
(f), (g), (o) and (p) with respect to NovaCare Management;
(v) a Pledge Agreement executed by the trustee and
each of the beneficial owners of NovaCare Management pledging the
Beneficial Interests to the Agent for the benefit of the Banks; and
(vi) to the extent the Beneficial Interests are
uncertificated, UCC-1 financing statements sufficient to perfect the
security interests of the Agent for the benefit of the Banks in the
Beneficial Interests."
2.2 Revolving Credit Borrowing. A new clause (iii) is
hereby added to the end of Section 2.01 of the Credit Agreement, immediately
after the words "in the aggregate $7,500,000" and before the final period, to
read as follows:
"; and (iii) no Revolving Credit Loans shall be made to NovaCare on
or before the NovaCare Management Pledge Date."
2.3 Representations and Warranties. Clauses (a), (c),
(o) and (p) of Section 6.01 are hereby amended and restated to read as follows:
-3-
<PAGE> 4
"(a) Organization and Qualification. Each of the Loan
Parties is a corporation, partnership OR BUSINESS TRUST, duly
organized, validly existing and, except as set forth on Schedule
6.01(a), in good standing under the laws of its respective
jurisdiction of organization; each Loan Party has the corporate,
partnership OR TRUST (as the case may be) power to own or lease its
respective properties and to engage in the business it presently
conducts or proposes to conduct; and each Loan Party is duly qualified
and in good standing in each jurisdiction where the property owned or
leased by it or the nature of the business transacted by it or both
makes such licensing or qualification necessary, except where the
failure to be so licensed or qualified would not constitute a Material
Adverse Change."
"(c) Subsidiaries; Excluded Entities. Schedule 6.01(c)
attached hereto states the name of each Subsidiary of NovaCare, its
jurisdiction of organization, its authorized capital stock and the
issued and outstanding shares (referred to herein collectively as the
"Subsidiary Shares") and the owners thereof if it is a corporation,
its outstanding partnership interests (the "Partnership Interests")
and the owners thereof if it is a partnership AND THE TRUSTEE AND
HOLDERS OF ITS BENEFICIAL INTERESTS (THE "BENEFICIAL INTERESTS") IF IT
IS A BUSINESS TRUST. NovaCare has good and marketable title to all of
the Subsidiary Shares, Partnership Interests AND BENEFICIAL INTERESTS
it purports to own, free and clear in each case of any Lien, except
for Liens in favor of the Agent for the benefit of the Banks, and each
other Loan Party has good and marketable title to all of the
Subsidiary Shares, Partnership Interests AND BENEFICIAL INTERESTS it
purports to own, free and clear of any Lien, except for Liens in favor
of the Agent for the benefit of the Banks. All Subsidiary Shares,
Partnership Interests AND BENEFICIAL INTERESTS have been validly
issued. All Subsidiary Shares are fully paid and nonassessable. All
capital contributions and other consideration required to be made or
paid in connection with the issuance of the Partnership Interests OR
BENEFICIAL INTERESTS have been made or paid, as the case may be.
Except as set forth on Schedule 6.01(c), there are no options,
warrants or other rights outstanding to purchase any such Subsidiary
Shares, Partnership Interests OR BENEFICIAL INTERESTS. Each
Qualifying Subsidiary, other than the Excluded Qualifying
Subsidiaries, is a Loan Party hereunder and is listed on the signature
lines or Schedule 6.01(c) as the case may be as a Guarantor or a
Borrower. Schedule 1.01(E) lists each Subsidiary, Minority Subsidiary
or Unaffiliated Managed Company which is not a Loan Party."
"(o) Security Interests. The Liens and security interests
granted to the Agent for the benefit of the Banks pursuant to the
-4-
<PAGE> 5
Pledge Agreements in the Pledged Collateral constitute and the Loan
Parties shall not take any action that would cause them not to
continue to constitute Prior Security Interests under the Uniform
Commercial Code as in effect in each applicable jurisdiction (the
"Uniform Commercial Code") or other applicable Law entitled to all the
rights, benefits and priorities provided by the Uniform Commercial
Code or such Law. Upon taking possession of any stock certificates OR
CERTIFICATES OF BENEFICIAL INTERESTS, evidencing the Pledged
Collateral which consists of stock OR CERTIFICATED BENEFICIAL
INTERESTS, AS THE CASE MAY BE, and the filing of UCC-1 financing
statements with respect to any Pledged Collateral which consists of
partnership interests OR UNCERTIFICATED BENEFICIAL INTERESTS, all such
action as is necessary or advisable to establish such rights of the
Agent will have been taken, and there will be upon execution and
delivery of the Pledge Agreement and such taking of possession and
such filing, no necessity for any further action in order to preserve,
protect and continue such rights."
"(p) Status of the Pledged Collateral. All the shares of
capital stock OR BENEFICIAL INTERESTS included in the Pledged
Collateral to be pledged pursuant to the Pledge Agreements are or will
be upon issuance duly authorized, validly issued, fully paid,
nonassessable and owned beneficially and of record by the pledgor free
and clear of any Lien or restriction on transfer, except as otherwise
provided by the Pledge Agreements and except as the right of the Banks
or the Agent to dispose of such shares OR BENEFICIAL INTERESTS may be
limited by the Securities Act of 1933, as amended, and the regulations
promulgated by the Securities and Exchange Commission thereunder and
by applicable state securities laws. There are no shareholder or
other agreements or understandings with respect to the shares of
capital stock OR BENEFICIAL INTERESTS included in the Pledged
Collateral."
2.4 Negative Covenants. (a) Clause (iv) of Section
8.02(i) is hereby amended and restated to read as follows:
"(iv) Permitted Intercompany Indebtedness, other than
Indebtedness of NOVACARE MANAGEMENT, Arizona Rehab or Meridian Point
to NovaCare or any of its Subsidiaries; and investments in the Loan
Parties, other than investments in NOVACARE MANAGEMENT, Arizona Rehab
or Meridian Point;"
(b) A new clause (ix) is hereby added to Section 8.02(i)
to read as follows:
-5-
<PAGE> 6
"(ix) Restricted Investments in, to or in respect of NovaCare
Management: (A) made prior to the effective date of the First
Amendment, or (B) made after the NovaCare Management Pledge Date; it
is understood that no Restricted Investments may be made in NovaCare
Management between the effective date of the First Amendment and the
NovaCare Management Pledge Date."
2.5 Joinder of Loan Parties. The words "or other
appropriate form acceptable to the Agent if such Subsidiary is not a
partnership or corporation" are hereby added to Section 11.18 in the following
two places: (1) clause (i)(1)(D) after the words "Exhibit ... 1.01(P)(6)" and
before the comma, and (2) clause (i)(3) after the words "Exhibit ...
1.01(P)(6)" and before the comma.
3. Schedules. The Schedules to the Credit Agreement are hereby
amended as follows:
Schedule 6.01(c).
Schedule 6.01(c) is amended and restated as set forth on
Exhibit A attached hereto and incorporated herein.
4. Full Force and Effect. All provisions of the Credit Agreement
and the other Loan Documents remain in force and effect except as expressly
waived or amended hereby.
-6-
<PAGE> 7
5. Effective Date. This letter agreement shall become effective
when it has been signed by the Loan Parties, the Agent and the Required Banks.
Yours very truly,
NOVACARE, INC. and each of the
Borrowers and Guarantors
under the Credit Agreement
By:
--------------------------
Timothy E. Foster, Vice President of
each of the entities listed
above his name on the
signature lines to the Credit
Agreement
By:
--------------------------
Joseph C. O'Neill, President of each of
the entities listed above his
name on the signature lines
to the Credit Agreement
By:
--------------------------
Andrew J. Beck, Vice President of each
of the entities listed above
his name on the signature
lines to the Credit Agreement
-7-
<PAGE> 8
ACKNOWLEDGED AND AGREED TO AS
OF THE ______ DAY OF SEPTEMBER, 1994.
PNC BANK, NATIONAL ASSOCIATION,
as a Bank and as Agent
By:
-------------------------------
Title:
----------------------------
CORESTATES BANK, N.A.
By:
-------------------------------
Title:
----------------------------
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:
-------------------------------
Title:
----------------------------
MELLON BANK, N.A.
By:
-------------------------------
Title:
----------------------------
NATIONSBANK OF NORTH CAROLINA, N.A.
By:
-------------------------------
Title:
----------------------------
NATIONAL WESTMINSTER BANK USA
By:
-------------------------------
Title:
----------------------------
-8-
<PAGE> 9
EXHIBIT A
SCHEDULE 6.01(c)
SUBSIDIARIES
I. Subsidiary Corporations
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Affiliated Physical Arizona G 120,091 common shares, 35,600 Mill River III,
Therapists, Ltd. $1 par value 83,067 Inc.
preferred shares, $1
par value
American Health Pennsylvania -- 10,000 common shares, 200 RHCA
Enterprises, Ltd. $10.00 par value
Applied Orthotic/Prosthetic New Hampshire -- 300 shares, 150 NovaCare O&P East
Technologies, Inc. no par value
Arizona Rehabilitation Delaware B 10,000 common shares, 1,000 Rehab Systems
Hospital, Inc. $.10 par value Financial
10,000 preferred Corporation
shares, $.10 par value
Arizona Therapy, Limb and Arizona -- 100,000 common shares, 19,231 NovaCare O&P West
Brace, Inc. $10.00 par value
Atlantic Rehabilitation New Jersey G 1,000 shares, no par 20 Mill River III,
Services, Inc. value Inc.
NovaCare Bakersfield Regional Delaware B 10,000 common shares, 1,000 Rehab Systems
Rehabilitation Hospital, Inc. $.10 par value Financial
10,000 preferred Corporation
shares, $.10 par value
Barnhart Prosthetic and Orthotic Oregon -- 500 shares, no par 100 NovaCare O&P West
Center, Inc. value
Boca Rehab Agency, Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
Buendel Physical Therapy, Inc. Florida G 750 common shares, 100 Mill River III,
$10.00 par value Inc.
Burge-Lloyd Surgical Co. Nevada -- 2,500 common shares, no 375 NovaCare O&P West
par value
</TABLE>
<PAGE> 10
2
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Cannon & Associates, Inc. Delaware G 10,000 common shares, 3,000 NovaCare, Inc.
no par value (PA)
1,286 cumulative
redeemable preferred
shares, $.01 par value
Cenla Physical Therapy Louisiana G 10,000 shares, 2,000 Mill River III,
& Rehabilitation Agency, Inc. no par value Inc.
Center for Physical Therapy and New Mexico G 500,000 common shares, 1,000 Mill River III,
Sports Rehabilitation, Inc. no par value Inc.
CenterTherapy, Inc. Minnesota G 50,000 Class A voting 475 Class A Mill River III,
shares, $.01 par value, voting Inc.
50,000 Class B non-
voting shares, $.01 par
value
Coastal Orthopedics Services, Inc. Massachusetts -- 15,000 common shares, 3,600 NovaCare O&P East
no par value
Commonwealth Prosthetics Kentucky -- 3,000 shares, no par 1,332 NovaCare O&P East
& Orthotics, Inc. value
Coplin Physical Therapy Minnesota G 2,500 common shares, no 100 Mill River III,
Associates, Inc. par value Inc.
CR Services Corp. Delaware G 1,000 common shares, 100 NovaCare, Inc.
$.01 par value (DE)
Crowley Physical Therapy Clinic, Louisiana G 10,000 common shares, 500 Mill River III,
Inc. no par value Inc.
Custom Prosthetics of Arizona, Arizona -- 100,000 common shares, 10,000 NovaCare O&P West
Inc. no par value
</TABLE>
<PAGE> 11
3
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Douglas Avery and Virginia G 500 Series A Voting 100 Mill River III,
Associates, Ltd. Common Shares, $10.00 Inc.
par value
300 Series B Non-Voting
Common Shares, $.01 par
value
NovaCare Easton & Moran Physical California G 1,000 Common Shares, no 1,000 Rehab Systems
Therapy, Inc. par value Company
FD Capital Corporation Delaware G 1,000 common shares, 100 NovaCare, Inc.
$.01 par value (DE)
Fillauer Orthotic & Prosthetic Tennessee -- 1,000 common shares, 10 NovaCare O&P East
Services, Inc. $1.00 par value
Florida Footcare Centers, Inc. Florida -- 500 shares, $1.00 par 100 NovaCare O&P East
value
Florida Footcare Orthotic & Florida -- 500 shares, $1.00 par 100 NovaCare O&P East
Prosthetic Centers of Palm Beach, value
Inc.
Florida Orthotic & Prosthetic Florida -- 500 shares, $1.00 par 300 NovaCare O&P East
Centers of Broward, Inc. value
Francis Naselli, Jr. & Stewart Pennsylvania G 1,000 common shares, no 1,000 Mill River III,
Rich Physical Therapists, Inc. par value Inc.
Gaines Brace & Limb, Inc. Colorado -- 1,000 common shares, no 400 NovaCare O&P
par value
Galaxy Service Corporation Illinois -- 1,200 Class A common RCI (S.P.O.R.T.),
shares, no par value Inc. (60%)
</TABLE>
<PAGE> 12
4
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Gulf Breeze Physical Therapy, Inc. Florida G 7,500 common shares, $1 200 Mill River III,
par value Inc.
Hand Therapy and Rehabilitation California G 10,000 common shares, 6,000 Mill River III,
Associates, Inc. no par value Inc.
Hand Therapy Associates, Inc. Arizona G 1,000,000 common 250 Mill River III,
shares, $10 par value Inc.
Hawley Physical Therapy, Inc. California G 100,000 common shares, 20,000 Mill River III,
no par value Inc.
Heartland Rehabilitation, Inc. Indiana G 1,000 common shares, no 100 NovaCare, Inc.
par value (PA)
Indianapolis Physical Therapy and Indiana G 400,000 common shares, 267,808 Mill River III,
Sports Medicine, Inc. no par value Inc.
Irwin Lehrhoff & Associates, Inc. Texas G 1,000 shares, $1.00 par 1,000 NovaCare, Inc.
(TX) value (PA)
Irwin Lehrhoff & Associates, Inc. Oregon G 5,000 common shares 1,000 NovaCare, Inc.
(OR) $1.00 par value (PA)
Irwin Lehrhoff & Associates, Inc. Illinois G 10,000 common shares, 1,000 NovaCare, Inc.
(IL) no par value (PA)
Isle Acquisition Corp. Delaware -- 1,000 Common Shares, 1,000 NovaCare O&P East
$.01 par value
Jana B. Mason, L.P.T., Inc. Kentucky G 2,000 common shares, no 1,100 NovaCare, Inc.
par value (PA)
Jana B. Mason Therapy Associates, Kentucky G 1,000 common shares, no 100 NovaCare, Inc.
Inc. par value (PA)
Jim All, Inc. Texas -- 1,000,000 shares, $1.00 1,000 NovaCare O&P West
par value
</TABLE>
<PAGE> 13
5
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Karg Prosthetics Co., Inc. California -- 75,000 shares, $1.00 3,000 NovaCare O&P West
par value
Kesinger Physical Therapy, Inc. California G 10,000 common shares, 1,000 Mill River III,
no par value Inc.
Knoxville Orthopedic Appliance Tennessee -- 2,000 common shares, no 100 NovaCare O&P East
Co., Inc. par value
Life Dimensions, Inc. Nevada G 2,500 common shares, no 100 NovaCare, Inc.
par value (PA)
Life Dimensions of California, California G 1,000 shares, no par 50 NovaCare, Inc.
Inc. value (PA)
Lux Artificial Limb & Brace Texas -- 2,000 common shares, 2,000 NovaCare O&P West
Company $10 par value
Lynn M. Carlson, Inc. Arizona G 1,000,000 common 6,400 Mill River III,
shares, $1 par value Inc.
McFarlen & Associates, Inc. Texas -- 100,000 common shares, 1,000 NovaCare O&P West
$.10 par value
Medical Rehabilitation Corporation Maryland B 10,000 common shares, 1,000 RHCA
of Maryland $.01 par value
NovaCare Meridian Point Arizona B 100,000 common shares, 10,000 Rehab Systems
Rehabilitation Hospital, Inc. no par value Financial
Corporation
Mid-Kansas Therapy Services, Inc. Kansas G 500,000 common shares, 10,851 Mill River III,
$1 par value Inc.
Mill River I, Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value
Mill River II, Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value
Mill River III, Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value
Mill River IV, Inc. Delaware G 1,000 common shares 1,000 RehabClinics, Inc.
$.01 par value
Mill River Management, Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value
Mitchell Tannenbaum I, Inc. Illinois G 1,000 common shares, 100 RCI (S.P.O.R.T.),
no par value Inc.
Mitchell Tannenbaum II, Inc. Illinois G 1,000 common shares, 100 RCI (S.P.O.R.T.),
no par value Inc.
</TABLE>
<PAGE> 14
6
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Mitchell Tannenbaum III, Inc. Illinois G 1,000 common shares, 100 RCI (S.P.O.R.T.),
no par value Inc.
Mobility Orthotics & Prosthetics, Virginia -- 5,000 shares, $1.00 par 5,000 NovaCare O&P East
Inc. value
Monmouth Rehabilitation, Inc. New Jersey G 100 shares, no par 80 Mill River III,
value Inc.
NACC, Inc. Delaware B 1,000 common shares, 25 Rehab Systems
$.01 par value Company
25 NovaCare O&P
125 NovaCare, Inc.
(PA)
National Rehab Services California G 1,000,000 common 5,000 NovaCare, Inc.
shares, no par value (PA)
National Rehabilitation Corp. Michigan -- 50,000 common shares, 5,000 RHCA
$1.00 par value
New Mexico Physical Therapists, New Mexico G 50,000 common shares, 559 Mill River III,
Inc. $1.00 par value Inc.
Newport Orthopedic and Prosthetic California -- 200,000 common shares, 2,250 NovaCare O&P West
Center, Inc. $1.00 par value
Northside Physical Therapy, Inc. Ohio G 500 common shares, 100 Mill River III,
without par value Inc.
NovaCare Northside Therapy, Inc. Minnesota G 2,500 shares, $10.00 100 NovaCare, Inc.
par value (PA)
NovaCare (Arizona), Inc. Arizona G 1,000 shares, no par 1,000 NovaCare, Inc.
value (PA)
NovaCare (Colorado), Inc. Delaware G 1,000 common shares, 1,000 NovaCare, Inc.
$.01 par value (PA)
NovaCare (Illinois), Inc. Illinois G 1,000 shares, no par 1,000 NovaCare, Inc.
value (PA)
NovaCare (Texas), Inc. Texas G 100 common shares, $.01 100 NovaCare, Inc.
par value (PA)
</TABLE>
<PAGE> 15
7
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
NovaCare, Inc. Pennsylvania G 5,000 common shares, no 1,000 NovaCare, Inc.
par value (DE)
NovaCare Management Services, Inc. Delaware G 1,000 common shares, 100 NovaCare, Inc.
$.01 par value (DE)
NovaCare Management Business Trust Pennsylvania G N/A N/A N/A
NovaCare Orthotics & Prosthetics, Delaware G 1,000 common shares, 1,000 NovaCare, Inc.
Inc. $.01 par value (DE)
NovaCare Orthotics & Prosthetics Delaware G 1,000 common shares, 1,000 NovaCare O&P
East, Inc. $.01 par value Holdings
NovaCare Orthotics & Prosthetics Delaware G 1,000 shares, $.01 par 1,000 NovaCare O&P
Holdings, Inc. value
NovaCare Orthotics & Prosthetics California G 5,000,000 shares, $.10 689,681 NovaCare O&P
West, Inc. par value Holding
NovaCare Rehab Agency of Northern California G 9,000 common shares, 100 NovaCare, Inc.
California, Inc. $1.00 par value (PA)
NovaCare Rehab Agency of Southern California G 9,000 common shares, 100 NovaCare, Inc.
California, Inc. $1.00 par value (PA)
NovaCare Rehabilitation Agency of Wisconsin G 9,000 shares, $1.00 par 10 NovaCare, Inc.
Wisconsin, Inc. value (PA)
NovaCare Rehab Agency of Tennessee G 1,000 common shares, 1,000 NovaCare, Inc.
Tennessee, Inc. $.01 par value (PA)
NovaCare Rehabilitation Hospital Delaware B 1,000 common shares, 1,000 Common Rehab Systems
of North Texas, Inc. $1.00 par value Financial
1,000 preferred shares Corporation
$1.00 par value
NovaCare Service Corp. Delaware G 1,000 common shares, 1,000 NovaCare, Inc. (DE)
</TABLE>
<PAGE> 16
8
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
$.01 par value
NovaCare SMC, Inc. Maryland G 1,000 shares, no par 1,000 Medical
value Rehabilitation
Corporation of
Maryland
O & P Services Corp. Delaware G 1,000 Common Shares, 100 NovaCare O&P
$.01 par value
Ortho Rehab Associates, Inc. Florida G 1,000 common shares, 100 Mill River III,
$1.00 par value Inc.
Ortho-Care, Inc. California -- 500,000 shares, no par 5,000 NovaCare O&P West
value
Orthopedic and Sports Physical California G 100,000 common shares, 3,000 Mill River III,
Therapy of Cupertino, Inc. no par value Inc.
OSI Midwest, Inc. Nebraska -- 10,000 common shares, 7,651 NovaCare O&P
$1.00 par value Holdings
Peters, Starkey & Todrank Physical California G 50,000 common shares, 91 Mill River III,
Therapy Corporation no par value Inc.
Phoenix Limb Shop, Inc. Arizona -- 1,000,000 common 98,947 NovaCare O&P West
shares, no par value
1,000,000 preferred
shares, $1.00 par value
Physical Focus Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
Physical Rehabilitation Partners, Louisiana G 5,000 common shares, no 106.12 Mill River III,
Inc. par value Inc.
Physical Therapy Institute, Inc. Louisiana G 500 common shares, no 500 Mill River III,
par value Inc.
Physio West Rehabilitation California G 100,000 common shares, 1,000 NovaCare, Inc.
Services, Inc. no par value (PA)
Quad City Management, Inc. Iowa G 100,000 common shares, 1,000 Mill River III, Inc.
</TABLE>
<PAGE> 17
9
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
no par value
R. Press, Inc. Orthotics and Connecticut -- 5,000 shares, $10.00 100 NovaCare O&P East
Prosthetics par value
R.E. Huck Co. California -- 25,000 shares, $1.00 2,154 NovaCare O&P West
par value
RCI (Colorado), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RCI (Exertec), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RCI (Illinois), Inc. Delaware G 100 common shares, 100 Mill River III,
no par value Inc.
RCI (Michigan), Inc. Delaware G 1,000 Shares, $.01 par 1,000 Mill River III,
value Inc.
RCI (S.P.O.R.T.), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RCI (WRS), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RCI Nevada, Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
Rebound Oklahoma, Inc. Oklahoma G 500 shares, $1.00 par 500 Mill River III,
value Inc.
Rehab Advantage California G 100,000 common shares, 1,000 NovaCare, Inc.
no par value (PA)
Rehab Concepts, Inc. Florida G 100 common shares, 75 NovaCare, Inc.
$1.00 par value (PA)
Rehab Managed Care of Arizona, Delaware B 1,000 common shares, 100 Rehab Systems
Inc. $.01 par value Company
Rehab Provider Network - Indiana, Indiana G 1,000 common shares, 1,000 Mill River III,
Inc. $.01 par value Inc.
</TABLE>
<PAGE> 18
10
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Rehab Provider Network - Delaware, Delaware G 1,000 common shares, 1,000 Mill River III,
Inc. $.01 par value Inc.
Rehab Provider Network - Louisiana G 1,000 common shares, 1,000 Mill River III,
Louisiana, Inc. $.10 par value Inc.
Rehab Provider Network - New New Jersey G 1,000 common shares, 1,000 Mill River III,
Jersey, Inc. $.01 par value Inc.
Rehab Provider Network - Pennsylvania G 1,000 common shares, 1,000 Mill River III,
Pennsylvania, Inc. $.01 par value Inc.
Rehab Provider Network - California G 100 common shares, $.10 100 Mill River III,
California, Inc. par value Inc.
Rehab Provider Network Florida G 1,000 common shares, 1,000 Mill River III,
of Florida, Inc. $.01 par value Inc.
Rehab Systems Company Delaware B 1,000 shares, $.01 par 1,000 NovaCare, Inc.
value (DE)
Rehab Systems Financial Delaware G 3,000 shares, $1.00 par 625 Rehab Systems
Corporation value Company
1,000 Rehab Systems
Company
Rehab World, Inc. Delaware G 1,000 common shares, 1,000 RHCA
$.01 par value
Rehab/Work Hardening Management Pennsylvania G 500 shares, no par 500 Mill River III,
Associates, Ltd. value Inc.
RehabWorld of West Virginia, Inc. West Virginia G 5,000 common shares, 5,000 Rehab World, Inc.
$1.00 par value
Rehab. Therapy, Inc. Colorado G 100 common shares, no 100 NovaCare, Inc.
par value (PA)
RehabClinics (COAST), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RehabClinics (New Jersey), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RehabClinics (PTA), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
</TABLE>
<PAGE> 19
11
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
RehabClinics (SPT), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RehabClinics Abilene, Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RehabClinics Dallas, Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RehabClinics, Inc. Delaware G 1,000 common shares, 1,000 NovaCare, Inc.
$.01 par value (DE)
Rehabilitation Corporation of Virginia B 10,000 common shares, 1,000 RHCA
Virginia $.01 par value
Rehabilitation Hospital Delaware B 1,000 common shares, 1,000 Rehab Systems
Corporation of America $.01 par value Company
Rehabilitation Services, Inc. California -- 1,000 shares, $1.00 par 500 NovaCare O&P West
value
Rehabilitation Services Wisconsin G 2,800 common shares, no 100 NovaCare, Inc.
of Wisconsin, Inc. par value (PA)
Rehabilitation Systems Illinois G 250,000 common shares, 1,000 NovaCare, Inc.
of Illinois Clinics, Inc. $1 par value (PA)
Rex McKinney, C.P.O., Ltd. Kansas -- 200,000 Class A 2,000 NovaCare O&P East
preferred shares, $1 Class A
par value Common
300,000 Class B
preferred shares, $1
par value
100,000 Class A common
shares, $1 par value
100,000 Class B
preferred shares, $1
par value
Robert M. Bacci, R.P.T. Physical California G 100,000 shares 5,000 Mill River III,
Therapy, Inc. no par value Inc.
S.T.A.R.T., Inc. Massachusetts G 12,500 common shares, 200 Mill River III,
no par value Inc.
Savannah Orthotics, Inc. Georgia -- 10,000 common shares, 200 NovaCare O&P East
</TABLE>
<PAGE> 20
12
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
no par value
SG Rehabilitation Agency, Inc. Pennsylvania G 100,000 common shares, 100 NovaCare, Inc.
$10.00 par value (PA)
SG Speech Associates, Pennsylvania G 100,000 common shares, 100 NovaCare, Inc.
Inc. $10.00 par value (PA)
South Carolina Center for South -- 10,000 shares, no par
Rehabilitation, Inc. Carolina value
Southwest Medical Supply Company New Mexico G 10,000 common shares, 10,000 Mill River III,
$1.00 par value Inc.
Southwest Physical Therapy, Inc. New Mexico G 500,000 shares, 12,500 Mill River III,
no par value Inc.
Southwest Therapists, Inc. New Mexico G 5 common shares, no par 5 Mill River III,
value Inc.
Sporthopedics Sports and Physical California G 10,000 common shares, 8,000 Mill River III,
Therapy Centers, Inc. no par value Inc.
Sports Therapy and Arthritis Delaware G 1,000 common shares, 1,000 Mill River III,
Rehabilitation, Inc. $.01 par value Inc.
Star Physical Therapy Inc. Florida G 1,000 shares, $1.00 par 60 Mill River III,
value Inc.
The Center for Physical Therapy New Mexico G 500,000 shares, no par 1,000 Mill River III,
and Rehabilitation, Inc. value Inc.
Theodore Dashnaw Physical Therapy, California G 100 common shares, no 30 Mill River III,
Inc. par value Inc.
Thornton Orthopedic, Inc. of Colorado -- 100 common shares, 100 common NovaCare O&P
Boulder $200 par value shares,
100 common shares, no $200 par value
par value
1,000 preferred
shares, no par value
10,000 common shares,
$.10 par value
10,000 preferred
shares, $.10 par value
</TABLE>
<PAGE> 21
13
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
NovaCare Tri-State Regional Indiana B 1,000 common shares, no 1,000 Rehab Systems
Rehabilitation Hospital, Inc. par value Financial
1,000 preferred shares, Corporation
no par value
Tucson Regional Rehabilitation Delaware B 10,000 common shares, 1,000 Rehab Systems
Hospital, Inc. $.10 par value Financial
10,000 preferred Corporation
shares, $.10 par value
Union Square Center for California G 1,000 shares, no par 500 Mill River III,
Rehabilitation & Sports Medicine, value Inc.
Inc.
Vanguard Rehabilitation, Inc. Arizona G 1,000,000 common 64,500 Mill River III,
shares, $1.00 par value Inc.
Wayzata Physical Therapy Center, Minnesota G 2,500 common shares, no 1,000 Mill River III,
Inc. par value Inc.
Webb's - K.E. Karlson Co. Oregon -- 1,000 common shares, no 705 NovaCare O&P West
par value
West Side Physical Therapy Kansas G 100,000 common shares, 1,250 Mid-Kansas Therapy
Services, Inc. no par value Services, Inc.
West Suburban Health Partners, Minnesota G 25,000 common shares, 990 Mill River III,
Inc. $1.00 par value Inc.
West Virginia Rehabilitation West Virginia B 5,000 shares, $1.00 par 800 Class R Rehab Systems
Hospital, Inc. value Company
West Virginia Rehabilitation Pennsylvania -- 100 Class A common 90 Class A RHCA
Services, Inc. shares, $.01 par value 10 Class B
100 Class B common
shares, $.01 par value
Western Rehab Services, Inc. Arizona G 100,000 common shares, 1,000 NovaCare, Inc.
no par value (PA)
Worker Rehabilitation Services, Illinois -- 10,000 common shares, RCI (WRS), Inc.
Inc. no par value (60%)
Young's Orthopedic Service, Inc. California -- 10,000 shares, no par 5,000 NovaCare O&P West
value
</TABLE>
<TABLE>
<CAPTION>
II. PARTNERSHIP INTERESTS
---------------------
Name Jurisdiction Partnership Interest
---- ------------ --------------------
<S> <C> <C>
Northwest Suburban Worker Rehabilitation Services Limited Illinois 66 2/3% owned by RCI (WRS), Inc.
Partnership
West Suburban Worker Rehabilitation Illinois 66 2/3% owned by RCI (WRS), Inc.
Services Limited Partnership
Galaxy North Limited Partnership Illinois 60% owned by RCI (S.P.O.R.T.), Inc.
Galaxy West Limited Partnership Illinois 60% owned by RCI (S.P.O.R.T.), Inc.
McFarlen & Associates I Texas 99.9% owned by OSI Midwest, Inc.
McFarlen & Associates II Texas 99.9% owned by OSI Midwest, Inc.
McFarlen & Associates III Texas 99.9% owned by OSI Midwest, Inc.
McFarlen & Associates IV Texas 99.9% owned by OSI Midwest, Inc.
Orthomedics - Voner (Rancho) California 50% owned by NovaCare Orthotics & Prosthetics
Holdings, Inc.
Orthomedics - Voner (Whittier) California 50% owned by NovaCare Orthotics & Prosthetics
Holdings, Inc.
</TABLE>
<PAGE> 22
14
III. Options to Purchase
1. RCI (WRS), Inc., a Delaware corporation owns 66 2/3% of Worker
Rehabilitation Services, Inc., an Illinois Corporation ("WRS").
WRS is a general and limited partner of Northwest Suburban Worker
Rehabilitation Services Limited Partnership, an Illinois limited
partnership currently owning a 66 2/3% interest. RCI (WRS), Inc.
will acquire the remaining corporate and partnership interests on
December 30, 1994 and December 30, 1995 in the amount of 16 2/3% and
16 2/3% each year.
2. RCI (WRS), Inc., a Delaware corporation owns 66 2/3% of Worker
Rehabilitation Services, Inc., an Illinois Corporation ("WRS").
WRS is a general and limited partner of West Suburban Worker
Rehabilitation Services Limited Partnership, an Illinois limited
partnership currently owning a 66 2/3% interest. RCI (WRS), Inc.
will acquire the remaining corporate and partnership interests on
December 30, 1994 and December 30, 1995 in the amount of 16 2/3% and
16 2/3% each year.
3. RCI (S.P.O.R.T.), Inc., a Delaware corporation owns 60% of Galaxy
Service Corporation, an Illinois corporation ("GSC"). GSC owns a
75% participating general partnership interest in Galaxy North
Limited Partnership, an Illinois limited partnership (the
"Partnership"). GSC will acquire the remaining 40% interest in GSC
on December 31, 1994 and December 31, 1995 in the amount of 20% each
year and the remaining 10% limited partnership interests in the
Partnership December 31, 1994 and December 31, 1995 in amount of 5%
per year.
4. RCI (S.P.O.R.T.), Inc., a Delaware corporation owns 60% of Galaxy
Service Corporation, an Illinois corporation ("GSC"). GSC owns a
75% participating general partnership interest in Galaxy Worth
Limited Partnership, an Illinois limited partnership (the
"Partnership"). GSC will acquire the remaining 40% interest in GSC
on December 31, 1994 and December 31, 1995 in the amount of 20% each
year and the remaining 10% limited partnership interests in the
Partnership December 31, 1994 and December 31, 1995 in amount of 5%
per year.
5. Orthomedics - Voner (Rancho), a California general partnership. A
50% interest is held NovaCare Orthotics & Prosthetics Holdings, a
Delaware wholly owned subsidiary of NovaCare Orthotics &
Prosthetics, Inc., a Delaware wholly owned subsidiary of NovaCare,
Inc. (Delaware). The remaining 50% is owned by Mr. Voner.
6. Orthomedics - Voner (Whittier), a California general partnership. A
50% interest is held NovaCare Orthotics & Prosthetics Holdings, a
Delaware wholly owned subsidiary of NovaCare Orthotics &
Prosthetics, Inc., a Delaware wholly owned subsidiary of NovaCare,
Inc. (Delaware). The remaining 50% is owned by Mr. Voner.
<PAGE> 1
EXHIBIT 10(b)
DRAFT 11/23/94
NOVACARE, INC.
1016 WEST NINTH AVENUE
KING OF PRUSSIA, PA 19406
November 28, 1994
PNC Bank, National Association,
as Agent
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Attn: Frank A. Taucher
RE: Second Amendment to Credit Agreement (the "Second Amendment")
Dear Frank:
We refer to that certain Credit Agreement, dated as of May 27, 1994,
as amended (the "Credit Agreement"), by and among NovaCare, Inc. and certain of
its Subsidiaries, the Banks party thereto and PNC Bank, National Association,
as agent for the Banks ("Agent"). Defined terms used herein not otherwise
defined herein shall have the meanings given to them under the Credit
Agreement.
The Borrowers and Guarantors, the Banks and the Agent hereby desire to
amend the Credit Agreement as hereinafter provided;
The parties hereto in consideration of their mutual covenants and
agreements hereinafter set forth, and intending to be legally bound hereby,
covenant and agree as follows:
AGREEMENT
1. Amendment of Credit Agreement
The parties hereto do hereby modify and amend the
Credit Agreement as follows:
<PAGE> 2
a. Cover page is hereby amended by deleting in line 1
the number "$115,000,000" and inserting in lieu
thereof the number "$175,000,000".
b. Recital paragraph 1, page 1, is hereby amended by
deleting in line 3 the number "$115,000,000" and
inserting in lieu thereof the number "$175,000,000".
c. The definitions of "Fixed Charges" and "Fixed Charge
Coverage Ratio" in Section 1.01 are hereby deleted in
their entirety.
d. The definitions in Section 1.01 of the Credit
Agreement of the following terms are hereby deleted
in their entirety and the following new terms are
hereby inserted in lieu thereof:
Business Day shall mean a day on which commercial
banks are open for business in Pittsburgh,
Pennsylvania and New York, New York.
Consolidated Cash Flow From Operations for any period
of determination shall mean (i) the sum of net
income, depreciation, amortization, other non-cash
charges to net income, interest expense and income
tax expense, minus (ii) non-cash credits to net
income, in each case of NovaCare and its Subsidiaries
for such period determined and consolidated in
accordance with GAAP.
Expiration Date shall mean with respect to the
Revolving Credit Commitment, November 28, 1997
e. The following definitions are hereby
inserted in Section 1.01 in alphabetical order:
Consolidated Earnings Available for Fixed Charges
shall mean, for any period of determination, the sum
of net income, interest expense, income tax expense
and expenses under operating leases, in each case of
NovaCare and its Subsidiaries for such period
determined and consolidated in accordance with GAAP.
Consolidated Fixed Charges shall mean, for any period
of determination, the sum of interest expense plus
expenses under operating leases, in each case of
NovaCare and its Subsidiaries
<PAGE> 3
for such period determined and consolidated in
accordance with GAAP.
Effective Date shall mean, November 28, 1994.
f. The definition of "Euro-Rate" is hereby amended by
deleting the words "at approximately 11:00 a.m.
London time" in the tenth and eleventh lines.
g. The definition of "Permitted Purchase" is hereby
amended by deleting the "." at the end of such
definition and inserting in lieu thereof "; and" and
the following:
(E) the Purchase Price for such acquisition,
when aggregated with the Purchase Price of all other
Permitted Purchases which occurred during the period
beginning on the Effective Date through and including
the date of determination, shall be limited to an
aggregate of $160,000,000.
h. The definition of "Permitted Pooling" is hereby
amended by deleting the word "and" at the end of
clause (J) of such definition, by deleting the "." at
the end of clause (K) of such definition and
inserting in lieu thereof "; and", and the following:
(L) the Pooling Consideration for such
acquisition, when aggregated with the Pooling
Consideration of all other Permitted Poolings which
occurred during the period beginning on the Effective
Date through and including the date of determination,
shall be limited to an aggregate of $500,000,000.
i. The chart at the end of Section 4.01(a)(ii) shall be
deleted and the following shall be inserted in lieu
thereof:
<TABLE>
<CAPTION>
Ratio of Consolidated
Funded Debt to Consolidated
Cash Flow from Operations Applicable Interest Rate
----------------------------- ---------------------------
<S> <C>
Greater than or equal to Euro-Rate plus 1-1/8%
2.50 to 1.0 but less than
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
3.00 to 1.0
Greater than or equal to Euro-Rate plus 1-1/16%
2.00 to 1.0 but less than
2.50 to 1.0
Greater than or equal to Euro-Rate plus 7/8%
1.50 to 1.0 but less than
2.00 to 1.0
Greater than or equal to Euro-Rate plus 11/16%
1.00 to 1.0 but less than
1.50 to 1.0
Less than 1.00 to 1.0 Euro-Rate plus 1/2%
</TABLE>
j. Section 8.01(m)(iii) (Certificate of the Borrower) is
hereby amended by deleting the words "Concurrently
with" in the second line and inserting in lieu
thereof "No later than ten (10) business days
following the due date of".
k. Section 8.02(j) (Dividends and Related Distributions)
is hereby amended by inserting in the tenth line,
immediately following the words "dividends paid by
NovaCare", "or payments by NovaCare for stock
repurchases or redemptions."
l. The chart at the end of Section 8.02(n) (Funded Debt
to Cash Flow From Operations) shall be deleted and
the following shall be inserted in lieu thereof:
<TABLE>
<CAPTION>
Ratio of Consolidated
Funded Debt to Consolidated
Period Cash Flow From Operations
------ ----------------------------
<S> <C>
7/1/94 through 6/30/95 3.00 to 1.00
7/1/95 through 6/30/96 2.75 to 1.00
7/1/96 and thereafter 2.50 to 1.00
</TABLE>
m. Section 8.02(o) (Minimum Fixed Charge Coverage Ratio)
shall be deleted in its entirety and the following
shall be inserted in lieu thereof:
<PAGE> 5
(o) Minimum Fixed Charge Coverage Ratio.
The Loan Parties shall not permit the ratio of
Consolidated Earnings Available For Fixed Charges to
Consolidated Fixed Charges, calculated as of the end
of each fiscal quarter for the four fiscal quarters
then ended, to be less than the ratio set forth below
during the period specified below:
<TABLE>
<CAPTION>
Ratio of Consolidated
Earnings Available For
Fixed Charges to
Period Consolidated Fixed Charges
------ --------------------------
<S> <C>
7/1/94 through 6/30/96 2.5 to 1.0
7/1/96 and thereafter 3.0 to 1.0
</TABLE>
2. Amendment of Schedules/Exhibits
The schedules/exhibits to the Credit Agreement are
hereby amended and restated as follows:
a. Schedule 1.01(B) of the Credit Agreement is hereby
deleted in its entirety and Schedule 1.01(B) attached
hereto as Exhibit A is hereby inserted in lieu
thereof.
b. Schedule 1.01(E) of the Credit Agreement is hereby
deleted in its entirety and Schedule 1.01(E) attached
hereto as Exhibit B is hereby inserted in lieu
thereof.
c. Schedule 1.01(P)(1) of the Credit Agreement is hereby
deleted in its entirety and Schedule 1.01(P)(1)
attached hereto as Exhibit C is hereby inserted in
lieu thereof.
d. Schedule 6.01(c) of the Credit Agreement is hereby
deleted in its entirety and Schedule 6.01(c) attached
hereto as Exhibit D is hereby inserted in lieu
thereof.
e. Exhibit 1.01(P)(1)(E) of the Credit Agreement is
hereby deleted in its entirety and Exhibit
1.01(P)(1)(E) attached hereto as Exhibit E is hereby
inserted in lieu thereof.
<PAGE> 6
f. Exhibit 1.01(P)(1)(F) of the Credit Agreement is
hereby deleted in its entirety and Exhibit
1.01(P)(1)(F) attached hereto as Exhibit F is hereby
inserted in lieu thereof.
g. Exhibit 1.01(P)(1)(G) of the Credit Agreement is
hereby deleted in its entirety and Exhibit
1.01(P)(1)(G) attached hereto as Exhibit G is hereby
inserted in lieu thereof.
h. Exhibit 1.01(P)(2) of the Credit Agreement is hereby
deleted in its entirety and Exhibit 1.01(P)(2)
attached hereto as Exhibit H is hereby inserted in
lieu thereof.
i. Exhibit 8.01(m)(iii) of the Credit Agreement is
hereby deleted in its entirety and Exhibit
8.01(m)(iii) attached hereto as Exhibit I is hereby
inserted in lieu thereof.
3. Joinder of New Bank
a. Fleet Bank of Massachusetts, N.A. ("New
Bank"), intending to be legally bound hereby, is a
party to this Second Amendment and hereby agrees as
follows:
New Bank (i) confirms that it has received a copy of
the Credit Agreement, together with copies of the
financial statements and financial information
referred to in Sections 6.01(i), 8.01(m)(i) and
8.01(m)(ii) of the Credit Agreement, and such other
documents and information as it has deemed
appropriate to make its own credit analysis and
decision to enter into the Credit Agreement; (ii)
agrees that it is and will, independently and without
reliance upon the Agent, or any other Bank, and based
on such documents and information as it shall deem
appropriate at the time, continue to make its own
credit decisions in taking or not taking action under
the Credit Agreement; (iii) appoints and authorizes
the Agent to take such actions on its behalf and to
exercise such powers under the Loan Documents as are
delegated to the Agent by the terms thereof; (iv)
agrees that it will become a party to and be bound by
the Credit Agreement on the Amendment Effective Date
(as defined in Section 6 hereof), including without
limitation the provisions of Sections 11.11 and
11.12, as if it were an original Bank thereunder and
will have the rights and obligations of a Bank
thereunder and will perform in accordance
<PAGE> 7
with their terms all of the obligations which by the
terms of the Credit Agreement and the other Loan
Documents are required to be performed by it as a
Bank; and (v) specifies as its address for notices
the office set forth beneath its name on the
signature page hereof.
b. As of the Amendment Effective Date, as
hereafter defined, New Bank shall be a party to the
Credit Agreement and have the rights and obligations
of a Bank thereunder and under the other Loan
Documents.
4. Waivers
a. Mill River I, Inc., Mill River II, Inc. and Mill
River IV, Inc. (collectively, the "Mill River
Subsidiaries") are Guarantors under the Credit
Agreement. On or about May 31, 1994 the assets of
these corporations were transferred to other
Qualifying Subsidiaries of NovaCare, Inc. which are
Borrowers or Guarantors under the Credit Agreement.
No assets remained in the Mill River Subsidiaries,
and the Mill River Subsidiaries were therefore
dissolved. The Banks hereby consent to such
dissolution and hereby waive any violation of Section
8.02(d) of the Credit Agreement resulting from the
dissolution of the Mill River Subsidiaries.
b. The Compliance Certificate required to be delivered
by NovaCare to the Banks pursuant to Section
8.01(m)(iii) for the quarter ended September 30, 1994
was due on November 15, 1994 and has not yet been
delivered by NovaCare to the Banks. In order to
provide NovaCare additional time to prepare such
Compliance Certificate for the quarter ended
September 30, 1994 and to include in such Compliance
Certificate calculations of the financial covenants
as provided therein after giving effect to this
Second Amendment, the Banks hereby extend the date of
delivery by NovaCare to the Banks of the Compliance
Certificate for the fiscal quarter ended September
30, 1994 until December 5, 1994.
5. Representations, Covenants, Events of Default
The Borrowers and Guarantors hereby represent to the
Agent and the Banks that: the representations and warranties
contained in
<PAGE> 8
Article VI of the Credit Agreement or elsewhere in the Credit
Agreement or anywhere in the Loan Documents remain true and
accurate on and as of the date hereof (except for
representations and warranties which relate solely to an
earlier date or time, which representations and warranties
were true and correct on and as of the specific dates or times
referred to therein); the Borrowers and Guarantors have
performed and are in compliance with all covenants contained
in Article VIII of the Credit Agreement after giving effect to
this Second Amendment or elsewhere in the Credit Agreement or
anywhere in the Loan Documents; and no Event of Default or
Potential Default has occurred and is continuing.
<PAGE> 9
6. Conditions of Effectiveness; Amendment Effective Date
The effectiveness of this Second Amendment is
expressly conditioned upon the occurrence and completion of
all of the following on or before November 28, 1994: (i) the
Agent's receipt of counterparts of this Second Amendment duly
executed by the Borrowers and Guarantors and the Banks; (ii)
the Agent's receipt of Revolving Credit Notes duly executed by
the Borrowers in the form of Exhibit J attached hereto; (iii)
the Agent's receipt of a Confirmation of Guaranty duly
executed by the Guarantors in the form of Exhibit K attached
hereto; (iv) the Agent's receipt of a written opinion of
Haythe & Curley, counsel for the Borrowers and Guarantors,
addressed to the Agent for the benefit of the Banks, opining
to such matters with respect to the transactions contemplated
herein as the Agent may reasonably request, in form and
substance satisfactory to the Agent and Buchanan Ingersoll
Professional Corporation, as counsel for the Agent; (v) the
Agent's receipt of a written opinion of counsel for NovaCare
Management Business Trust addressed to the Agent for the
benefit of the Banks, opining to such matters with respect to
the transactions contemplated herein as the Agent may
reasonably request, in form and substance satisfactory to the
Agent and Buchanan Ingersoll Professional Corporation, as
counsel for the Agent; (vi) the Agent's receipt of a
certificate signed by the Secretary or Assistant Secretary of
the Borrowers and Guarantors, certifying as to all action
taken by the Borrowers and Guarantors to authorize the
execution, delivery and performance of this Second Amendment;
(vii) receipt by each Bank of the nonrefundable arrangement
fee and the nonrefundable closing fee equal to the amount set
forth next to such Bank's name on Schedule 1.01(B); (viii)
with respect to each new Borrower or Guarantor (a "Joining
Subsidiary"), if any, documentation as required under Section
11.18 of the Credit Agreement, including without limitation
the completion of the following: (1) executing and delivering
to the Agent (A) in the case of a Joining Subsidiary which
becomes a Borrower, a Revolving Credit Note in the form of
Exhibit 1.01(R) payable to each Bank, (B) a joinder to the
Credit Agreement in form satisfactory to the Agent, (C) a
counterpart signature page to the Guaranty Agreement executed
by certain Loan Parties which is in the form of Exhibit 1.01
(G)(1), in the case of a Joining Subsidiary which becomes a
Borrower and Exhibit 1.01(G)(2), in the case of a Joining
Subsidiary which becomes a Guarantor, (D) if it owns stock or
other ownership interests in any Qualifying Subsidiary, a
joinder to the Pledge Agreement executed by certain Loan
Parties which is in the form of Exhibit 1.01(P)(4), 1.01(P)(5)
or 1.01(P)(6), as applicable, and delivering, as applicable,
<PAGE> 10
the original certificates evidencing such stock or other
ownership interest if it is certificated with appropriate
stock powers or other assignments signed in blank and UCC-1
financing statements necessary to perfect the security
interests of the Agent for the benefit of the Banks therein,
(E) a joinder to the Subordination Agreement (Intercompany)
executed by certain Loan Parties which is in the form of
Exhibit 1.01(S) and (F) a joinder to the Agency Agreement
executed by certain Loan Parties appointing NovaCare as agent;
(2) delivering to the Agent an opinion of counsel reasonably
satisfactory to the Agent regarding such Joining Subsidiary
and such joinder; and (3) delivering to the Agent certified
copies of its organizational documents and other documents as
requested by the Agent; (4) the Loan Party which owns the
stock or other ownership interest of the Joining Subsidiary
shall execute and deliver to the Agent for the benefit of the
Banks a Pledge Agreement in the form of Exhibit 1.01(P)(4),
1.01(P)(5) or 1.01(P)(6), as applicable, and the original
certificates evidencing such stock or other ownership interest
if it is certificated with appropriate stock powers or other
assignments signed in blank and UCC-1 financing statements
necessary to perfect the security interests of the Agent for
the benefit of the Banks therein; (ix) the Agent's receipt of
all documents and information which constitute conditions
precedent to the effectiveness of the First Amendment to the
Credit Agreement; (x) the Agent's receipt of a completed
certificate duly executed by NovaCare, Inc., in form and
substance satisfactory to the Agent, certifying compliance of
the Loan Parties with the Funded Debt to Cash Flow From
Operations ratio as set forth in Section 8.02(n) of the Credit
Agreement, as amended by this Second Amendment.
This Second Amendment shall be dated as of and shall
be effective as of the date and year first above written
subject to satisfaction of all conditions precedent to
effectiveness as set forth in this Section 6 (the "Amendment
Effective Date"); provided, however, that upon the
effectiveness of this Second Amendment, the financial
covenants as set forth in Section 8.02(n) (Funded Debt to Cash
Flow From Operations) and Section 8.02(o) (Minimum Fixed
Charge Coverage Ratio) will be deemed to be amended and
restated as provided in this Second Amendment effective as of
the fiscal quarter ended September 30, 1994, calculated for
the four fiscal quarters then ended.
<PAGE> 11
7. Full Force and Effect
No novation is intended by this Second Amendment and
except as expressly modified and amended by this Second
Amendment, the Credit Agreement and the other Loan Documents
are hereby ratified and confirmed and shall remain in full
force and effect without modification.
8. Costs, Expenses, Disbursements
The Borrowers hereby agree to reimburse the Agent and
the Banks on demand for all costs, expenses and disbursements
relating to this Second Amendment which are payable by the
Borrowers as provided in Section 10.05 of the Credit
Agreement.
9. Counterparts
This Second Amendment may be executed by different
parties hereto in any number of separate counterparts, each of
which, when so executed and delivered shall be an original and
all of such counterparts shall together constitute one and the
same instrument.
10. Governing Law
This Second Amendment shall be deemed to be a
contract under the laws of the Commonwealth of Pennsylvania
and for all purposes shall be governed by and construed and
enforced in accordance with the internal laws of the
Commonwealth of Pennsylvania without regard to its conflict of
laws principles.
<PAGE> 12
Yours very truly,
NOVACARE, INC. and each of the
Borrowers and Guarantors
under the Credit Agreement
<TABLE>
<S> <C>
By:
--------------------------
Timothy E. Foster, Vice President
of each of the entities listed on
Schedule 6.01(c) other than those
listed below
By:
--------------------------
Joseph C. O'Neill, President
of each of the entities listed above
his name on the signature lines to
the Credit Agreement
By:
--------------------------
Andrew J. Beck, Vice President
of Mill River III, Inc., a Delaware
corporation
</TABLE>
<PAGE> 13
ACKNOWLEDGED AND AGREED TO AS
OF THE ___ DAY OF NOVEMBER, 1994.
PNC BANK, NATIONAL ASSOCIATION,
as a Bank and as Agent
By:
-----------------------------
Title:
--------------------------
CORESTATES BANK, N.A.
By:
-----------------------------
Title:
--------------------------
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:
-----------------------------
Title:
--------------------------
MELLON BANK, N.A.
By:
-----------------------------
Title:
--------------------------
NATIONSBANK OF NORTH CAROLINA, N.A.
By:
-----------------------------
Title:
--------------------------
NATIONAL WESTMINSTER BANK USA
By:
-----------------------------
Title:
--------------------------
<PAGE> 14
FLEET BANK OF MASSACHUSETTS, N.A.
By:
-----------------------------
Title:
--------------------------
Address for Notices:
Health Care and Non Profit Group
Fleet Center MA BOF 04A
75 State Street
Boston, MA 02109-1810
Telecopier No. (617) 346-1634
Attention: Ms. Lynn Wiatrowski
Telephone No. (617) 346-1629
<PAGE> 15
EXHIBIT A
SCHEDULE 1.01(B)
COMMITMENTS OF BANKS; ARRANGEMENT AND CLOSING FEES
<TABLE>
<CAPTION>
Revolving Second
Participation Credit Amendment
Bank Percentage Commitment Closing Fee
- - - ---- ---------- ---------- -----------
<S> <C> <C> <C>
PNC Bank, National 22.857143 $ 40,000,000 $15,000
Association
First Union National 15.714286 $ 27,500,000 $11,250
Bank of North Carolina
Mellon Bank, N.A. 15.714286 $ 27,500,000 $11,250
NationsBank of 11.428571 $ 20,000,000 $ 7,500
North Carolina, N.A.
CoreStates Bank, N.A. 11.428571 $ 20,000,000 $ 7,500
National Westminster 14.285714 $ 25,000,000 $15,000
Bank USA
Fleet Bank of 8.571429 $ 15,000,000 $22,500
Massachusetts, N.A.
TOTAL 100.000000% $175,000,000 $90,000
============ ============ =======
</TABLE>
<PAGE> 16
EXHIBIT B
SCHEDULE 1.01(E)
EXCLUDED ENTITIES
<TABLE>
<CAPTION>
NAME JURISDICTION
==============================================================================================
<S> <C>
1. Excluded Qualifying Subsidiaries
--------------------------------
American Health Enterprises, Ltd. Pennsylvania
Applied Orthotic/Prosthetic Technologies, Inc. New Hampshire
Arizona Therapy, Limb & Brace, Inc. Arizona
Barnhart Prosthetic and Orthotic Center, Inc. Oregon
Burge-Lloyd Surgical Co. Nevada
Coastal Orthopedics Services, Inc. Massachusetts
Commonwealth Prosthetics & Orthotics, Inc. Kentucky
CRH, Inc. Maryland
Custom Prosthetics of Arizona, Inc. Arizona
Fillauer Orthotic & Prosthetic Services, Inc. Tennessee
Florida Footcare Centers, Inc. Florida
Florida Footcare Orthotic & Prosthetic Centers of
Palm Beach, Inc. Florida
Florida Orthotic & Prosthetic Centers of Broward,
Inc. Florida
Gaines Brace & Limb, Inc. Colorado
Isle Acquisition Corp. Delaware
Jim All, Inc. Texas
Karg Prosthetics Co., Inc. California
Knoxville Orthopedic Appliance Co., Inc. Tennessee
Lux Artificial Limb & Brace Company Texas
Marilyn Hawker, Inc. Arizona
McFarlen & Associates I Texas
McFarlen & Associates II Texas
McFarlen & Associates III Texas
McFarlen & Associates IV Texas
McFarlen & Associates, Inc. Texas
Mobility Orthotics & Prosthetics, Inc. Virginia
Newport Orthopedic and Prosthetic Center, Inc. California
Ortho-Care, Inc. California
OSI Midwest, Inc. Nebraska
Phoenix Limb Shop, Inc. Arizona
</TABLE>
<PAGE> 17
2
<TABLE>
<CAPTION>
NAME JURISDICTION
==============================================================================================
<S> <C>
R. Press, Inc. Orthotics and Prosthetics Connecticut
R.E. Huck Co. California
Rehabilitation Services, Inc. California
Rex McKinney, C.P.O., Ltd. Kansas
Savannah Orthotics, Inc. Georgia
South Carolina Center for Rehabilitation, Inc. South Carolina
Thornton Orthopedic, Inc. of Boulder Colorado
Webb's-K.E. Karlson Co. Oregon
West Virginia Rehabilitation Services, Inc. Pennsylvania
Young's Orthopedic Service, Inc. California
2. Other Excluded Entities
-----------------------
ASK Colorado Health Care Services, P.C. Colorado
C.O.A.S.T. Institute Physical Therapy, Inc. California
Galaxy North Limited Partnership Illinois
Galaxy Service Corporation Illinois
Galaxy West Limited Partnership Illinois
Medstat, P.C. Illinois
NC Occupational Therapy, P.C. New York
NC Physical Therapy, P.C. New York
Northwest Suburban Worker Rehabilitation Services
Limited Partnership Illinois
NovaCare Speech Therapy & Audiology, Inc. California
Orthomedics - Voner (Rancho) California
Orthomedics - Voner (Whittier) California
Quad City Regional Spine Institute, P.C. Iowa
Sprint Physical Therapy, P.C. Colorado
Start to Finish Physical Therapy, P.C. Massachusetts
West Suburban Worker Rehabilitation Services
Limited Partnership Illinois
Worker Rehabilitation Services, Inc. Illinois
Therex, P.C. Colorado
</TABLE>
<PAGE> 18
EXHIBIT C
SCHEDULE 1.01(P)(1)
PERMITTED INVESTMENTS
250,000 Units Phoenix, AZ Housing Mutual Benefit Life
6.3% Maturity 10/01/08 $162,500 Market Value
INVESTMENTS IN LOW INCOME HOUSING PARTNERSHIPS
<TABLE>
<CAPTION>
TOTAL
CURRENT COMMITTED
INVESTMENT INVESTMENT
------------- --------------
<S> <C> <C>
Boston Financial Institutional Tax Credit Fund IV 3,650,000 3,650,000
Boston Financial Institutional Tax Credit Fund V 1,560,000 1.560,000
USA Metropolitan Tax Credit Fund 2,325,000 2.325,000
Columbia Housing Partners Corporate Tax Credit III 1,327,939 3.983,817
</TABLE>
<PAGE> 19
EXHIBIT D
SCHEDULE 6.01(c)
SUBSIDIARIES
I. Subsidiary Corporations
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Affiliated Physical Arizona G 120,091 common shares, 35,600 Mill River III,
Therapists, Ltd. $1 par value 83,067 Inc.
preferred shares, $1
par value
American Health Pennsylvania -- 10,000 common shares, 200 RHCA
Enterprises, Ltd. $10.00 par value
Applied Orthotic/Prosthetic New Hampshire -- 300 shares, 150 NovaCare O&P East
Technologies, Inc. no par value
Arizona Rehabilitation Delaware B 10,000 common shares, 1,000 Rehab Systems
Hospital, Inc. $.10 par value Financial
10,000 preferred Corporation
shares, $.10 par value
Arizona Therapy, Limb and Arizona -- 100,000 common shares, 19,231 NovaCare O&P West
Brace, Inc. $10.00 par value
Atlantic Rehabilitation New Jersey G 1,000 shares, no par 20 Mill River III,
Services, Inc. value Inc.
NovaCare Bakersfield Regional Delaware B 10,000 common shares, 1,000 Rehab Systems
Rehabilitation Hospital, Inc. $.10 par value Financial
10,000 preferred Corporation
shares, $.10 par value
Barnhart Prosthetic and Orthotic Oregon -- 500 shares, no par 100 NovaCare O&P West
Center, Inc. value
Boca Rehab Agency, Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
Buendel Physical Therapy, Inc. Florida G 750 common shares, 100 Mill River III,
$10.00 par value Inc.
Burge-Lloyd Surgical Co. Nevada -- 2,500 common shares, no 375 NovaCare O&P West
par value
</TABLE>
<PAGE> 20
2
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Cannon & Associates, Inc. Delaware G 10,000 common shares, 3,000 NovaCare, Inc.
no par value (PA)
1,286 cumulative
redeemable preferred
shares, $.01 par value
Cenla Physical Therapy Louisiana G 10,000 shares, 2,000 Mill River III,
& Rehabilitation Agency, Inc. no par value Inc.
Center for Physical Therapy and New Mexico G 500,000 common shares, 1,000 Mill River III,
Sports Rehabilitation, Inc. no par value Inc.
CenterTherapy, Inc. Minnesota G 50,000 Class A voting 475 Class A Mill River III,
shares, $.01 par value, voting Inc.
50,000 Class B non-
voting shares, $.01 par
value
Douglas C. Claussen, R.P.T., California G 50,000 shares, no par 10,187 Mill River III,
Physical Therapy, Inc. value Inc.
Coastal Orthopedics Services, Inc. Massachusetts -- 15,000 common shares, 3,600 NovaCare O&P East
no par value
Commonwealth Prosthetics Kentucky -- 3,000 shares, no par 1,332 NovaCare O&P East
& Orthotics, Inc. value
Coplin Physical Therapy Minnesota G 2,500 common shares, no 100 Mill River III,
Associates, Inc. par value Inc.
CR Services Corp. Delaware G 1,000 common shares, 100 NovaCare, Inc.
$.01 par value (DE)
CRH, Inc. Maryland -- 10,000 shares, $.01 par 10,000 RHCA
value
Crowley Physical Therapy Clinic, Louisiana G 10,000 common shares, 500 Mill River III,
Inc. no par value Inc.
Custom Prosthetics of Arizona, Arizona -- 100,000 common shares, 10,000 NovaCare O&P West
Inc. no par value
</TABLE>
<PAGE> 21
3
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Douglas Avery and Virginia G 500 Series A Voting 100 Mill River III,
Associates, Ltd. Common Shares, $10.00 Inc.
par value
300 Series B Non-Voting
Common Shares, $.01 par
value
NovaCare Easton & Moran Physical California G 1,000 Common Shares, no 1,000 Rehab Systems
Therapy, Inc. par value Company
FD Capital Corporation Delaware G 1,000 common shares, 100 NovaCare, Inc.
$.01 par value (DE)
Fillauer Orthotic & Prosthetic Tennessee -- 1,000 common shares, 10 NovaCare O&P East
Services, Inc. $1.00 par value
Florida Footcare Centers, Inc. Florida -- 500 shares, $1.00 par 100 NovaCare O&P East
value
Florida Footcare Orthotic & Florida -- 500 shares, $1.00 par 100 NovaCare O&P East
Prosthetic Centers of Palm Beach, value
Inc.
Florida Orthotic & Prosthetic Florida -- 500 shares, $1.00 par 300 NovaCare O&P East
Centers of Broward, Inc. value
Francis Naselli, Jr. & Stewart Pennsylvania G 1,000 common shares, no 1,000 Mill River III,
Rich Physical Therapists, Inc. par value Inc.
Gaines Brace & Limb, Inc. Colorado -- 1,000 common shares, no 400 NovaCare O&P
par value
Galaxy Service Corporation Illinois -- 1,200 Class A common RCI (S.P.O.R.T.),
shares, no par value Inc. (60%)
Georgia Physical Therapy, Inc. Georgia G 100,000 shares, 1,000 Mill River III,
$.50 par value Inc.
Georgia Physical Therapy of West Georgia G 5,000,000 common 1,000,200 Mill River III,
Georgia, Inc. shares, $.01 par value Inc.
Greater Sacremento Physical California G 100,000 common shares 38,250 Mill River III, Inc.
Therapy No par value 11,250 Peters, Starkey &
</TABLE>
<PAGE> 22
4
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Associates, Inc. Todrank Physical
Therapy Corporation
Gulf Breeze Physical Therapy, Inc. Florida G 7,500 common shares, $1 200 Mill River III,
par value Inc.
Gulf Coast Hand Specialists, Inc. Florida G 7,500 common shares, 100 Mill River III,
$1.00 par value Inc.
Hand Therapy and Rehabilitation California G 10,000 common shares, 6,000 Mill River III,
Associates, Inc. no par value Inc.
Hand Therapy Associates, Inc. Arizona G 1,000,000 common 250 Mill River III,
shares, $10 par value Inc.
Hawley Physical Therapy, Inc. California G 100,000 common shares, 20,000 Mill River III,
no par value Inc.
Heartland Rehabilitation, Inc. Indiana G 1,000 common shares, no 100 NovaCare, Inc.
par value (PA)
Indianapolis Physical Therapy and Indiana G 400,000 common shares, 267,808 Mill River III,
Sports Medicine, Inc. no par value Inc.
Irwin Lehrhoff & Associates, Inc. Texas G 1,000 shares, $1.00 par 1,000 NovaCare, Inc.
(TX) value (PA)
Irwin Lehrhoff & Associates, Inc. Oregon G 5,000 common shares 1,000 NovaCare, Inc.
(OR) $1.00 par value (PA)
Irwin Lehrhoff & Associates, Inc. Illinois G 10,000 common shares, 1,000 NovaCare, Inc.
(IL) no par value (PA)
Isle Acquisition Corp. Delaware -- 1,000 Common Shares, 1,000 NovaCare O&P East
$.01 par value
Jana B. Mason, L.P.T., Inc. Kentucky G 2,000 common shares, no 1,100 NovaCare, Inc.
par value (PA)
Jana B. Mason Therapy Associates, Kentucky G 1,000 common shares, no 100 NovaCare, Inc.
Inc. par value (PA)
Jim All, Inc. Texas -- 1,000,000 shares, $1.00 1,000 NovaCare O&P West
par value
</TABLE>
<PAGE> 23
5
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Karg Prosthetics Co., Inc. California -- 75,000 shares, $1.00 3,000 NovaCare O&P West
par value
Kesinger Physical Therapy, Inc. California G 10,000 common shares, 1,000 Mill River III,
no par value Inc.
Knoxville Orthopedic Appliance Tennessee -- 2,000 common shares, no 100 NovaCare O&P East
Co., Inc. par value
Life Dimensions, Inc. Nevada G 2,500 common shares, no 100 NovaCare, Inc.
par value (PA)
Life Dimensions of California, California G 1,000 shares, no par 50 NovaCare, Inc.
Inc. value (PA)
Lux Artificial Limb & Brace Texas -- 2,000 common shares, 2,000 NovaCare O&P West
Company $10 par value
Lynn M. Carlson, Inc. Arizona G 1,000,000 common 6,400 Mill River III,
shares, $1 par value Inc.
McFarlen & Associates, Inc. Texas -- 100,000 common shares, 1,000 NovaCare O&P West
$.10 par value
Medical Rehabilitation Corporation Maryland B 10,000 common shares, 1,000 RHCA
of Maryland $.01 par value
NovaCare Meridian Point Arizona B 100,000 common shares, 10,000 Rehab Systems
Rehabilitation Hospital, Inc. no par value Financial
Corporation
NovaCare Outpatient Kansas G 500,000 common shares, 10,851 Mill River III,
Rehabilitation, Inc. $1 par value Inc.
Mill River III, Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value
Mill River Management, Inc. Delaware G 1,000 common shares, 1,000 RehabClinics, Inc.
$.01 par value
Mitchell Tannenbaum I, Inc. Illinois G 1,000 common shares, 100 RCI (S.P.O.R.T.),
no par value Inc.
Mitchell Tannenbaum II, Inc. Illinois G 1,000 common shares, 100 RCI (S.P.O.R.T.),
no par value Inc.
</TABLE>
<PAGE> 24
6
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Mitchell Tannenbaum III, Inc. Illinois G 1,000 common shares, 100 RCI (S.P.O.R.T.),
no par value Inc.
Mobility Orthotics & Prosthetics, Virginia -- 5,000 shares, $1.00 par 5,000 NovaCare O&P East
Inc. value
Monmouth Rehabilitation, Inc. New Jersey G 100 shares, no par 80 Mill River III,
value Inc.
NACC, Inc. Delaware B 1,000 common shares, 25 Rehab Systems
$.01 par value Company
25 NovaCare O&P
125 NovaCare, Inc.
(PA)
National Rehab Services California G 1,000,000 common 5,000 NovaCare, Inc.
shares, no par value (PA)
New Mexico Physical Therapists, New Mexico G 50,000 common shares, 559 Mill River III,
Inc. $1.00 par value Inc.
Newport Orthopedic and Prosthetic California -- 200,000 common shares, 2,250 NovaCare O&P West
Center, Inc. $1.00 par value
Northside Physical Therapy, Inc. Ohio G 500 common shares, 100 Mill River III,
without par value Inc.
NovaCare Northside Therapy, Inc. Minnesota G 2,500 shares, $10.00 100 NovaCare, Inc.
par value (PA)
NovaCare (Arizona), Inc. Arizona G 1,000 shares, no par 1,000 NovaCare, Inc.
value (PA)
NovaCare (Colorado), Inc. Delaware G 1,000 common shares, 1,000 NovaCare, Inc.
$.01 par value (PA)
NovaCare (Illinois), Inc. Illinois G 1,000 shares, no par 1,000 NovaCare, Inc.
value (PA)
NovaCare (Texas), Inc. Texas G 100 common shares, $.01 100 NovaCare, Inc.
par value (PA)
</TABLE>
<PAGE> 25
7
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
NovaCare, Inc. Pennsylvania G 5,000 common shares, no 1,000 NovaCare, Inc.
par value (DE)
NovaCare Management Services, Inc. Delaware G 1,000 common shares, 100 NovaCare, Inc.
$.01 par value (DE)
NovaCare Management Business Trust Pennsylvania G N/A N/A N/A
NovaCare Orthotics & Prosthetics, Delaware G 1,000 common shares, 1,000 NovaCare, Inc.
Inc. $.01 par value (DE)
NovaCare Orthotics & Prosthetics Delaware G 1,000 common shares, 1,000 NovaCare O&P
East, Inc. $.01 par value Holdings
NovaCare Orthotics & Prosthetics Delaware G 1,000 shares, $.01 par 1,000 NovaCare O&P
Holdings, Inc. value
NovaCare Orthotics & Prosthetics California G 5,000,000 shares, $.10 689,681 NovaCare O&P
West, Inc. par value Holding
NovaCare Rehab Agency of Northern California G 9,000 common shares, 100 NovaCare, Inc.
California, Inc. $1.00 par value (PA)
NovaCare Rehab Agency of Oklahoma, Oklahoma G 1,000 common shares, 1,000 NovaCare, Inc.
Inc. $.01 par value (PA)
NovaCare Rehab Agency of Southern California G 9,000 common shares, 100 NovaCare, Inc.
California, Inc. $1.00 par value (PA)
NovaCare Rehab Agency of Virginia, Virginia G 1,000 common shaer, 1,000 NovaCare, Inc.
Inc $.01 par value (PA)
NovaCare Rehabilitation Agency of Wisconsin G 9,000 shares, $1.00 par 10 NovaCare, Inc.
Wisconsin, Inc. value (PA)
NovaCare Rehab Agency of Tennessee G 1,000 common shares, 1,000 NovaCare, Inc.
Tennessee, Inc. $.01 par value (PA)
NovaCare Rehabilitation Hospital Delaware B 1,000 common shares, 1,000 Common Rehab Systems
of North Texas, Inc. $1.00 par value Financial
1,000 preferred shares Corporation
$1.00 par value
NovaCare Service Corp. Delaware G 1,000 common shares, 1,000 NovaCare, Inc. (DE)
</TABLE>
<PAGE> 26
8
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
$.01 par value
NovaCare SMC, Inc. Maryland G 1,000 shares, no par 1,000 Medical
value Rehabilitation
Corporation of
Maryland
O & P Services Corp. Delaware G 1,000 Common Shares, 100 NovaCare O&P
$.01 par value
Ortho Rehab Associates, Inc. Florida G 1,000 common shares, 100 Mill River III,
$1.00 par value Inc.
Ortho-Care, Inc. California -- 500,000 shares, no par 5,000 NovaCare O&P West
value
Orthopedic and Sports Physical California G 100,000 common shares, 3,000 Mill River III,
Therapy of Cupertino, Inc. no par value Inc.
OSI Midwest, Inc. Nebraska -- 10,000 common shares, 7,651 NovaCare O&P
$1.00 par value Holdings
Peters, Starkey & Todrank Physical California G 50,000 common shares, 91 Mill River III,
Therapy Corporation no par value Inc.
Phoenix Limb Shop, Inc. Arizona -- 1,000,000 common 98,947 NovaCare O&P West
shares, no par value
1,000,000 preferred
shares, $1.00 par value
Physical Focus Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
Physical Rehabilitation Partners, Louisiana G 5,000 common shares, no 106.12 Mill River III,
Inc. par value Inc.
Physical Therapy Institute, Inc. Louisiana G 500 common shares, no 500 Mill River III,
par value Inc.
Physio West Rehabilitation California G 100,000 common shares, 1,000 NovaCare, Inc.
Services, Inc. no par value (PA)
Quad City Management, Inc. Iowa G 100,000 common shares, 1,000 Mill River III, Inc.
</TABLE>
<PAGE> 27
9
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
no par value
R. Press, Inc. Orthotics and Connecticut -- 5,000 shares, $10.00 100 NovaCare O&P East
Prosthetics par value
R.E. Huck Co. California -- 25,000 shares, $1.00 2,154 NovaCare O&P West
par value
RCI (Colorado), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RCI (Exertec), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RCI (Illinois), Inc. Delaware G 100 common shares, 100 Mill River III,
no par value Inc.
RCI (Michigan), Inc. Delaware G 1,000 Shares, $.01 par 1,000 Mill River III,
value Inc.
RCI (S.P.O.R.T.), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RCI (WRS), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RCI Nevada, Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
Rebound Oklahoma, Inc. Oklahoma G 500 shares, $1.00 par 500 Mill River III,
value Inc.
Redwood Pacific Therapies, Inc. California G 100,000 common shares, 15,120 Mill River III,
no par value Inc.
Rehab Advantage California G 100,000 common shares, 1,000 NovaCare, Inc.
no par value (PA)
Rehab Concepts, Inc. Florida G 100 common shares, 75 NovaCare, Inc.
$1.00 par value (PA)
Rehab Managed Care of Arizona, Delaware B 1,000 common shares, 100 Rehab Systems
Inc. $.01 par value Company
Rehab Provider Network - Indiana, Indiana G 1,000 common shares, 1,000 Mill River III,
Inc. $.01 par value Inc.
</TABLE>
<PAGE> 28
10
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Rehab Provider Network - Delaware, Delaware G 1,000 common shares, 1,000 Mill River III,
Inc. $.01 par value Inc.
Rehab Provider Network - Louisiana G 1,000 common shares, 1,000 Mill River III,
Louisiana, Inc. $.10 par value Inc.
Rehab Provider Network - New New Jersey G 1,000 common shares, 1,000 Mill River III,
Jersey, Inc. $.01 par value Inc.
Rehab Provider Network - Pennsylvania G 1,000 common shares, 1,000 Mill River III,
Pennsylvania, Inc. $.01 par value Inc.
Rehab Provider Network - California G 100 common shares, $.10 100 Mill River III,
California, Inc. par value Inc.
Rehab Provider Network Florida G 1,000 common shares, 1,000 Mill River III,
of Florida, Inc. $.01 par value Inc.
Rehab Systems Company Delaware B 1,000 shares, $.01 par 1,000 NovaCare, Inc.
value (DE)
Rehab Systems Financial Delaware G 3,000 shares, $1.00 par 625 Rehab Systems
Corporation value Company
1,000 Rehab Systems
Company
Rehab World, Inc. Delaware G 1,000 common shares, 1,000 RHCA
$.01 par value
Rehab/Work Hardening Management Pennsylvania G 500 shares, no par 500 Mill River III,
Associates, Ltd. value Inc.
RehabWorld of West Virginia, Inc. West Virginia G 5,000 common shares, 5,000 Rehab World, Inc.
$1.00 par value
Rehab. Therapy, Inc. Colorado G 100 common shares, no 100 NovaCare, Inc.
par value (PA)
RehabClinics (COAST), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RehabClinics (New Jersey), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RehabClinics (PTA), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
</TABLE>
<PAGE> 29
11
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
RehabClinics (SPT), Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RehabClinics Abilene, Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RehabClinics Dallas, Inc. Delaware G 1,000 common shares, 1,000 Mill River III,
$.01 par value Inc.
RehabClinics, Inc. Delaware G 1,000 common shares, 1,000 NovaCare, Inc.
$.01 par value (DE)
Rehabilitation Corporation of Virginia B 10,000 common shares, 1,000 RHCA
Virginia $.01 par value
Rehabilitation Hospital Delaware B 1,000 common shares, 1,000 Rehab Systems
Corporation of America $.01 par value Company
Rehabilitation Services, Inc. California -- 1,000 shares, $1.00 par 500 NovaCare O&P West
value
Rehabilitation Services Wisconsin G 2,800 common shares, no 100 NovaCare, Inc.
of Wisconsin, Inc. par value (PA)
Rehabilitation Systems Illinois G 250,000 common shares, 1,000 NovaCare, Inc.
of Illinois Clinics, Inc. $1 par value (PA)
Rex McKinney, C.P.O., Ltd. Kansas -- 200,000 Class A 2,000 NovaCare O&P East
preferred shares, $1 Class A
par value Common
300,000 Class B
preferred shares, $1
par value
100,000 Class A common
shares, $1 par value
100,000 Class B
preferred shares, $1
par value
Robert M. Bacci, R.P.T. Physical California G 100,000 shares 5,000 Mill River III,
Therapy, Inc. no par value Inc.
S.T.A.R.T., Inc. Massachusetts G 12,500 common shares, 200 Mill River III,
no par value Inc.
Savannah Orthotics, Inc. Georgia -- 10,000 common shares, 200 NovaCare O&P East
</TABLE>
<PAGE> 30
12
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
no par value
SG Rehabilitation Agency, Inc. Pennsylvania G 100,000 common shares, 100 NovaCare, Inc.
$10.00 par value (PA)
SG Speech Associates, Pennsylvania G 100,000 common shares, 100 NovaCare, Inc.
Inc. $10.00 par value (PA)
South Carolina Center for South -- 10,000 shares, no par
Rehabilitation, Inc. Carolina value
Southwest Medical Supply Company New Mexico G 10,000 common shares, 10,000 Mill River III,
$1.00 par value Inc.
Southwest Physical Therapy, Inc. New Mexico G 500,000 shares, 12,500 Mill River III,
no par value Inc.
Southwest Therapists, Inc. New Mexico G 5 common shares, no par 5 Mill River III,
value Inc.
Sporthopedics Sports and Physical California G 10,000 common shares, 8,000 Mill River III,
Therapy Centers, Inc. no par value Inc.
Sports Therapy and Arthritis Delaware G 1,000 common shares, 1,000 Mill River III,
Rehabilitation, Inc. $.01 par value Inc.
Star Physical Therapy Inc. Florida G 1,000 shares, $1.00 par 60 Mill River III,
value Inc.
Stephenson-Holtz, Inc. California G 100,000 common shares 10,000 Mill River III,
no par value Inc.
The Center for Physical Therapy New Mexico G 500,000 shares, no par 1,000 Mill River III,
and Rehabilitation, Inc. value Inc.
Theodore Dashnaw Physical Therapy, California G 100 common shares, no 30 Mill River III,
Inc. par value Inc.
Thornton Orthopedic, Inc. of Colorado -- 100 common shares, 100 common NovaCare O&P
Boulder $200 par value shares,
100 common shares, no $200 par value
par value
1,000 preferred
shares, no par value
10,000 common shares,
$.10 par value
10,000 preferred
shares, $.10 par value
</TABLE>
<PAGE> 31
13
<TABLE>
<CAPTION>
Borrower/ Authorized No. Shares
Subsidiary Jurisdiction Guarantor Capital Issued Shareholder(s)
---------- ------------ --------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
NovaCare Tri-State Regional Indiana B 1,000 common shares, no 1,000 Rehab Systems
Rehabilitation Hospital, Inc. par value Financial
1,000 preferred shares, Corporation
no par value
Tucson Regional Rehabilitation Delaware B 10,000 common shares, 1,000 Rehab Systems
Hospital, Inc. $.10 par value Financial
10,000 preferred Corporation
shares, $.10 par value
Union Square Center for California G 1,000 shares, no par 500 Mill River III,
Rehabilitation & Sports Medicine, value Inc.
Inc.
Vanguard Rehabilitation, Inc. Arizona G 1,000,000 common 64,500 Mill River III,
shares, $1.00 par value Inc.
Wayzata Physical Therapy Center, Minnesota G 2,500 common shares, no 1,000 Mill River III,
Inc. par value Inc.
Webb's - K.E. Karlson Co. Oregon -- 1,000 common shares, no 705 NovaCare O&P West
par value
NovaCare Outpatient Rehabilitation Kansas G 100,000 common shares, 1,250 Mid-Kansas Therapy
I, Inc. no par value Services, Inc.
West Suburban Health Partners, Minnesota G 25,000 common shares, 990 Mill River III,
Inc. $1.00 par value Inc.
West Virginia Rehabilitation West Virginia B 5,000 shares, $1.00 par 800 Class R Rehab Systems
Hospital, Inc. value Company
West Virginia Rehabilitation Pennsylvania -- 100 Class A common 90 Class A RHCA
Services, Inc. shares, $.01 par value 10 Class B
100 Class B common
shares, $.01 par value
Western Rehab Services, Inc. Arizona G 100,000 common shares, 1,000 NovaCare, Inc.
no par value (PA)
Worker Rehabilitation Services, Illinois -- 10,000 common shares, RCI (WRS), Inc.
Inc. no par value (60%)
Young's Orthopedic Service, Inc. California -- 10,000 shares, no par 5,000 NovaCare O&P West
value
</TABLE>
<TABLE>
<CAPTION>
II. PARTNERSHIP INTERESTS
---------------------
Name Jurisdiction Partnership Interest
---- ------------ --------------------
<S> <C> <C>
Northwest Suburban Worker Rehabilitation Services Limited Illinois 66 2/3% owned by RCI (WRS), Inc.
Partnership
West Suburban Worker Rehabilitation Illinois 66 2/3% owned by RCI (WRS), Inc.
Services Limited Partnership
Galaxy North Limited Partnership Illinois 60% owned by RCI (S.P.O.R.T.), Inc.
Galaxy West Limited Partnership Illinois 60% owned by RCI (S.P.O.R.T.), Inc.
Land Park Physical Therapy California 50% owned by Mill River III, Inc.
50% owned by Union Square Center for
Rehabilitation & Sports Medicine, Inc.
Advanced Orthopedic Services, Ltd. Texas 99% limited partnership interest owned by
RehaClinics Dallas, Inc.
who is also the general partner
1% limited partnership interest owned by
Mill River III, Inc.
McFarlen & Associates I Texas 99.9% owned by OSI Midwest, Inc.
McFarlen & Associates II Texas 99.9% owned by OSI Midwest, Inc.
McFarlen & Associates III Texas 99.9% owned by OSI Midwest, Inc.
McFarlen & Associates IV Texas 99.9% owned by OSI Midwest, Inc.
Orthomedics - Voner (Rancho) California 50% owned by NovaCare Orthotics & Prosthetics
Holdings, Inc.
Orthomedics - Voner (Whittier) California 50% owned by NovaCare Orthotics & Prosthetics
Holdings, Inc.
</TABLE>
<PAGE> 32
14
III. Options to Purchase
1. RCI (WRS), Inc., a Delaware corporation owns 66 2/3% of Worker
Rehabilitation Services, Inc., an Illinois Corporation ("WRS").
WRS is a general and limited partner of Northwest Suburban Worker
Rehabilitation Services Limited Partnership, an Illinois limited
partnership currently owning a 66 2/3% interest. RCI (WRS), Inc.
will acquire the remaining corporate and partnership interests on
December 30, 1994 and December 30, 1995 in the amount of 16 2/3% and
16 2/3% each year.
2. RCI (WRS), Inc., a Delaware corporation owns 66 2/3% of Worker
Rehabilitation Services, Inc., an Illinois Corporation ("WRS").
WRS is a general and limited partner of West Suburban Worker
Rehabilitation Services Limited Partnership, an Illinois limited
partnership currently owning a 66 2/3% interest. RCI (WRS), Inc.
will acquire the remaining corporate and partnership interests on
December 30, 1994 and December 30, 1995 in the amount of 16 2/3% and
16 2/3% each year.
3. RCI (S.P.O.R.T.), Inc., a Delaware corporation owns 60% of Galaxy
Service Corporation, an Illinois corporation ("GSC"). GSC owns a
75% participating general partnership interest in Galaxy North
Limited Partnership, an Illinois limited partnership (the
"Partnership"). GSC will acquire the remaining 40% interest in GSC
on December 31, 1994 and December 31, 1995 in the amount of 20% each
year and the remaining 10% limited partnership interests in the
Partnership December 31, 1994 and December 31, 1995 in amount of 5%
per year.
4. RCI (S.P.O.R.T.), Inc., a Delaware corporation owns 60% of Galaxy
Service Corporation, an Illinois corporation ("GSC"). GSC owns a
75% participating general partnership interest in Galaxy Worth
Limited Partnership, an Illinois limited partnership (the
"Partnership"). GSC will acquire the remaining 40% interest in GSC
on December 31, 1994 and December 31, 1995 in the amount of 20% each
year and the remaining 10% limited partnership interests in the
Partnership December 31, 1994 and December 31, 1995 in amount of 5%
per year.
5. Orthomedics - Voner (Rancho), a California general partnership. A
50% interest is held NovaCare Orthotics & Prosthetics Holdings, a
Delaware wholly owned subsidiary of NovaCare Orthotics &
Prosthetics, Inc., a Delaware wholly owned subsidiary of NovaCare,
Inc. (Delaware). The remaining 50% is owned by Mr. Voner.
6. Orthomedics - Voner (Whittier), a California general partnership. A
50% interest is held NovaCare Orthotics & Prosthetics Holdings, a
Delaware wholly owned subsidiary of NovaCare Orthotics &
Prosthetics, Inc., a Delaware wholly owned subsidiary of NovaCare,
Inc. (Delaware). The remaining 50% is owned by Mr. Voner.
<PAGE> 33
EXHIBIT E
EXHIBIT 1.01 (P)(1)(E)
[TO BE USED IF POOLING
CONSIDERATION IS
LESS THAN $250 MILLION]
PERMITTED POOLINGS NOTICE CERTIFICATE
____________________, 19__
PNC BANK, NATIONAL ASSOCIATION
as Agent for the Banks party
to the Credit Agreement Referred to Below
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Ladies and Gentlemen:
I refer to the Credit Agreement dated as of May ___, 1994 (as
amended, supplemented or modified from time to time, the "Credit Agreement")
among NOVACARE, INC., a Delaware corporation ("NovaCare"), each of the other
Borrowers and the Guarantors that are parties thereto (the "Loan Parties"), the
Banks party thereto and PNC BANK, NATIONAL ASSOCIATION, as Agent for such
Banks. This Certificate is delivered pursuant to clause (E) of the definition
of Permitted Poolings contained in Section 1.01 of the Credit Agreement in
connection with the proposed pooling of interests described below. Unless
otherwise defined herein, terms defined in the Credit Agreement are used herein
with the same meanings.
I, __________________________, [President/Chief Executive
Officer/Chief Financial Officer] of NovaCare, do hereby certify as of the date
hereof, as follows:
(1) Description of Proposed Pooling. NovaCare desires to
engage in a pooling of interests (the "Proposed Pooling") under the terms set
forth below. The Proposed Pooling shall be a Permitted Pooling.
(a) The Pooling Partner is ______________________
[name], a ___________________________________
[type of entity and jurisdiction of
organization].
(b) The Proposed Pooling is scheduled to close
on __________________, 19___
(the "Pooling Date").
(c) The assets and businesses of the Pooling
Partner are located in _____________________
[list locations and describe assets or
business in those locations].
(d) The Proposed Pooling is an [Asset
Acquisition/Stock Acquisition] structured as
follows (describe structure of the pooling):
____________________________________________.
(2) (A) Pooling Consideration (Clauses (A) and (E) of
definition of Permitted Pooling). The
Proposed Pooling shall be accounted for under
GAAP
<PAGE> 34
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 2
as a "pooling of interests." The consideration to be paid by
the Loan Parties in connection with the Proposed Pooling
consists solely of shares of stock of NovaCare, cash payments
in lieu of fractional shares and cash payments to dissenting
shareholders. The Pooling Consideration is $________ which is
less than $250,000,000, the maximum Pooling Consideration
permitted under clause (E) of the definition of Permitted
Pooling. The Pooling Consideration is computed as follows:
(i) NovaCare is issuing shares of its capital stock as follows:
<TABLE>
<CAPTION>
Market Value
Per Share as
of ________,
19__ (must
be within 120
# days of the Total
Class Shares Issue Pooling Date) Value
----- ------ ----- ------------- -----
<S> <C>
$
---------- ---------- ---------- ------------- -------
$
---------- ---------- ---------- ------------- -------
Total $
=======
(ii) Cash in lieu of fractional shares or with respect to
dissenters' rights to the extent that the amount thereof
can be determined on or before the date which is fifteen
(15) Business Days prior to the Pooling Date $
-------
(iii) Sum of (i) and (ii) (must be less than or equal to
$250,000,000) $
=======
</TABLE>
(B) Permitted Pooling Compliance. (Clause (L)
of the definition of Permitted Pooling) On
the Pooling Date and after giving effect to
the proposed acquisition, the Pooling
Consideration, when aggregated with the
Pooling Consideration of all other Permitted
Poolings which occurred during the period
beginning on the Effective Date through and
including the date of determination, is
$____________, which is less than or equal to
the amount of $500,000,000.
(3) Lines of Business (Clause (B) of definition of
Permitted Pooling). The Pooling Partner is engaged in the business of
_______________________________________________. ________% (must exceed 70%)
of the net revenues of the Pooling Partner during its last completed fiscal
year were derived from Permitted Lines of Business. The balance of such net
revenues, _____%, were derived from rehabilitation services businesses other
than the ownership or operation of acute care facilities or the sale,
distribution or
<PAGE> 35
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 3
manufacture of pharmaceutical products, except that up to $1 million of such
net revenues may have been derived from sources other than rehabilitation
services.
(4) Events of Default or Potential Default (Paragraph (C)
of definition of Permitted Pooling). On the Pooling Date and after giving
effect to the Proposed Pooling and any new Revolving Credit Loans to be
requested or debt to be assumed in connection therewith, no event shall have
occurred and be continuing which constitutes an Event of Default or Potential
Default.
(5) Joinder of Pooling Partner and its Subsidiaries and
Pledge of their Stock (Paragraph (D) of definition of Permitted Pooling). The
following is a complete list of the corporations, partnerships or other
entities: (i) whose stock or other ownership interests will be acquired by one
or more Loan Parties in the Proposed Pooling, (ii) which have been or will be
formed by the Loan Parties pursuant to the Proposed Pooling, (iii) which are
Subsidiaries or Minority Subsidiaries of the entities listed in (i) and (ii)
above:
<TABLE>
<CAPTION>
Is the
Person who Entity
Type of holds its Joining
Entity and Stock or Percentage the
Jurisdic- other of total Credit
Name of tion of ownership ownership Agreement
Entity Organization Interests held (yes/no)
------ ------------ --------- ---- --------
<S> <C> <C> <C> <C>
-------- ---------- ---------- --------- --------
-------- ---------- ---------- --------- --------
-------- ---------- ---------- --------- --------
</TABLE>
We are simultaneously delivering to the Agent Guaranty Agreements, Pledge
Agreements, an opinion of counsel and certified copies of organizational
documents, pursuant to which each entity listed above which is a Qualified
Subsidiary shall join the Credit Agreement as a Guarantor and the stock of such
Qualified Subsidiary shall be pledged to the Agent for the benefit of the
Banks, in each instance on the Pooling Date. (The procedures for such joinders
are described in Section 11.18 of the Credit Agreement. A Qualifying
Subsidiary is an entity of which NovaCare or NovaCare's Subsidiaries hold 80%
or more of the ownership interests as more fully set forth in the Credit
Agreement.)
(6) Financial Covenant Compliance (Paragraph (E) of
definition of Permitted Pooling). On the Pooling Date and after giving effect
to the Proposed Pooling and any new Revolving Credit Loans to be requested in
connection therewith, but otherwise on the basis of the most recent financial
statements of NovaCare and its Subsidiaries delivered pursuant to Section
8.01(m) of the Credit Agreement and of the Pooling Partner and its Subsidiaries
as attached hereto pursuant to Paragraph (9), the Loan Parties shall be in
compliance with the following financial covenants on a pro forma basis for the
effects of the Proposed Pooling:
(A) Funded Debt to Capitalization. (Section
8.02(m)). On the Pooling Date, the ratio of
(i) Consolidated Funded Debt to (ii)
Capitalization shall be _________ to 1.0.
Such ratio must not be more than the
following ratios for the following periods:
<PAGE> 36
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 4
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date through
June 30, 1995 .55 to 1.0
July 1, 1995 and
thereafter .50 to 1.0
</TABLE>
(a) Consolidated Funded Debt, the
numerator of the foregoing ratio, is
determined as follows:
Indebtedness of NovaCare and its
Subsidiaries to persons other than
NovaCare and its Subsidiaries on the
Pooling Date in respect of, without
duplication:
<TABLE>
<S> <C> <C>
(i) Borrowed money $
-------
(ii) Amounts raised under or liabilities in respect of any note
purchase or acceptance credit facility $
-------
(iii) Reimbursement obligations under any letter of credit, currency
swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device $
-------
(iv) Other transactions (including without limitation forward sale or
purchase agreements, capitalized leases and conditional sales
agreements) having the commercial effect of a borrowing of money
entered into to finance operations or capital requirements (but
not including trade payables and accrued expenses incurred in
the ordinary course of business which are not represented by a
promissory note) $
-------
(v) Any guaranty of indebtedness for borrowed money $
-------
(vi) Sum of (i) through (v) equals Consolidated Funded Debt $
-------
</TABLE>
(b) Capitalization, the denominator of
the foregoing ratio, is determined
as follows as of the Pooling Date:
<PAGE> 37
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 5
<TABLE>
<S> <C> <C>
(i) Consolidated Funded Debt (amount from clause (vi) of Paragraph
(a) above) $
-------
(ii) Consolidated Net Worth, which is total stockholders' equity of
NovaCare and its Subsidiaries as of the Pooling Date $
-------
(iii) Sum of (i) and (ii) equals Capitalization $
-------
</TABLE>
(B) Funded Debt to Cash Flow From Operations.
(Section 8.02(n)). The ratio of (i)
Consolidated Funded Debt on the Pooling Date
to (ii) Consolidated Cash Flow from
Operations for the four fiscal quarters
ending immediately prior to the Pooling Date
is _______ to 1.0. Such ratio must not be
more than the following ratios for the
following periods:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
July 1, 1994 through
June 30, 1995 3.00 to 1.00
July 1, 1995 through
June 30, 1996 2.75 to 1.00
July 1, 1996 and
thereafter 2.50 to 1.00
</TABLE>
<TABLE>
<S> <C> <C>
(a) Consolidated Funded Debt, the numerator of the foregoing ratio (amount from
clause (vi) of Paragraph 6(A)(a) above) $
-------
(b) Consolidated Cash Flow from Operations, the
denominator of the foregoing ratio, for the
four fiscal quarters ending immediately prior
to the Pooling Date is determined as follows:
(i) Net Income $
-------
(ii) Depreciation $
-------
(iii) Amortization $
-------
(iv) Other non-cash charges to net income $
-------
(v) Interest Expense $
-------
(vi) Income Tax Expense $
-------
(vii) Sum of (i), (ii), (iii), (iv), (v) and (vi) $
-------
</TABLE>
<PAGE> 38
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 6
<TABLE>
<S> <C> <C>
(viii) Non-cash credits to net income $
-------
(ix) Item (vii) reduced by item (viii) equals Consolidated Cash Flow from
Operations $
-------
</TABLE>
(7) Indebtedness Assumed (Sections 8.02(a)(vii)).
(c) Proposed Pooling. The following is a list of
Indebtedness of the Pooling Partner and its
Subsidiaries (if any) which will be assumed
or otherwise will remain outstanding
following the Proposed Pooling:
<TABLE>
<CAPTION>
Collateral
Entity which security
will be liable securing the Amount
therefor after Indebtedness of
Creditor Pooling (if any) Indebtedness
-------- ------- -------- ------------
<S> <C> <C> <C>
$
---------------- -------------- ---------- -------
$
---------------- -------------- ---------- -------
$
---------------- -------------- ---------- -------
Total $
=======
</TABLE>
We are simultaneously sending you copies of
the agreements governing the Indebtedness
listed above.
(d) Aggregate Limit (Section 8.02(a)(vii)). The
sum of the Indebtedness to be assumed in
connection with the Proposed Pooling
described in paragraph (a) above together
with Indebtedness assumed by the Loan Parties
in connection with Permitted Poolings during
the current fiscal year is $________ which is
less than $100,000,000, the maximum amount
permitted to be assumed during the current
fiscal year. The amount of such Indebtedness
is computed as follows:
<TABLE>
<S> <C> <C>
(i) Total from paragraph (a) above $
--------
</TABLE>
(ii) Indebtedness either (1) previously
assumed by acquiring Loan Parties in
Permitted Poolings during the
current fiscal year, or (2) of
Pooling Partners and their
Subsidiaries whose stock or other
ownership interests were previously
acquired in Permitted Poolings
during the current fiscal year,
including, in the case of both (1)
and (2), any Indebtedness which has
been repaid since the date of the
pooling as well as debt which
remains outstanding on the date of
this certificate:
<PAGE> 39
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 7
<TABLE>
<CAPTION>
Loan Party
which assumed Collateral
Indebtedness or securing
Pooling Partner Date of the
whose stock Permitted Indebted- Amount of
was acquired Pooling ness (if any) Indebtedness
------------ ------- ------------- ------------
<S> <C> <C> <C>
$
---------------- ---------- ------------- --------------
$
---------------- ---------- ------------- --------------
$
---------------- ---------- ------------- --------------
Total $
--------------
</TABLE>
<TABLE>
<S> <C> <C>
(iii) Sum of (i) plus (ii) (may not exceed $100,000,000) $
==============
</TABLE>
(e) Lease Obligations. Listed below are the
future minimum lease payments under each
non-cancellable lease of the Pooling Partner
and its Subsidiaries (if any) (i) which will
be assumed or otherwise will remain
outstanding after the Proposed Pooling, and
(ii) under which the annual lease payments
exceed $250,000:
<TABLE>
<CAPTION>
Future Minimum
Lessor Expiration Date Lease Payments
------ --------------- --------------
<S> <C> <C>
---------------------- --------------- --------------
---------------------- --------------- --------------
---------------------- --------------- --------------
Total $
=============
</TABLE>
(8) Attached Financial Statements. Attached hereto are
true and correct copies of (i) the consolidated balance sheets and income
statements of Pooling Partner and its Subsidiaries for the prior three fiscal
years and the interim statements ending on ______________, (ii) any financial
projections with respect to the Pooling Partner and its Subsidiaries received
from Pooling Partner or prepared by the Loan Parties, and (iii) any revised
budgets, and accompanying forecasts and projections prepared by NovaCare
projecting its and its Subsidiaries' operations on a consolidated basis and
separately for each line of business which have not previously been delivered
to the Banks.
(9) Representations and Warranties. After giving effect
to the Proposed Pooling, any new Revolving Credit Loans to be requested or debt
to be assumed in connection therewith, the representations and warranties
contained in Article VI of the Credit Agreement will be true on and as of the
Pooling Date with the same effect as though such representations and warranties
had been made on and as of the Pooling Date (except representations and
warranties which expressly relate solely to an earlier date or time, which
representations and warranties shall have been true and correct on and as of
the specific dates or times referred to therein) and the Loan Parties shall
have performed and complied with all covenants and conditions of the Credit
Agreement.
<PAGE> 40
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 8
IN WITNESS WHEREOF, the undersigned has executed this
Certificate this _____ day of ___________, 19__.
NOVACARE, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 41
LIST OF ENCLOSURES
NovaCare is enclosing the following with this Certificate:
<TABLE>
<CAPTION>
Check if
Enclosed
--------
<S> <C> <C>
1. Joinder documentation described in Paragraph 5
--------
2. Agreements governing assumed Indebtedness described in Paragraph 7(a)
--------
3. Financial Statements of the Pooling Partner and its Subsidiaries described in Paragraph
8(i)
--------
4. Financial projections of the Pooling Partner and its Subsidiaries described in Paragraph
8(ii)
--------
5. Budget, forecasts and projections described in Paragraph 8(iii)
--------
</TABLE>
<PAGE> 42
ENCLOSURE #2
ASSUMED INDEBTEDNESS AGREEMENTS
NovaCare to attach agreements governing assumed Indebtedness
described in Paragraph 7(a).
<PAGE> 43
EXHIBIT F
[TO BE USED IF (I) POOLING
CONSIDERATION EXCEEDS $250
MILLION AND (II) NOVACARE HAS
NOT MADE ANY OTHER POOLINGS FOR
CONSIDERATION EXCEEDING $250
MILLION DURING CURRENT FISCAL
YEAR]
EXHIBIT 1.01(P)(1)(F)
PERMITTED POOLINGS APPROVAL CERTIFICATE - AGENT
____________________, 19__
PNC BANK, NATIONAL ASSOCIATION
as Agent for the Banks party
to the Credit Agreement Referred to Below
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Ladies and Gentlemen:
I refer to the Credit Agreement dated as of May ___, 1994 (as
amended, supplemented or modified from time to time, the "Credit Agreement")
among NOVACARE, INC., a Delaware corporation ("NovaCare"), each of the other
Borrowers and the Guarantors that are parties thereto (the "Loan Parties"), the
Banks party thereto and PNC BANK, NATIONAL ASSOCIATION, as Agent for such
Banks. This Certificate is delivered pursuant to clause (F) of the definition
of Permitted Poolings contained in Section 1.01 of the Credit Agreement in
connection with the proposed pooling of interests described below. Unless
otherwise defined herein, terms defined in the Credit Agreement are used herein
with the same meanings.
I, __________________________, [President/Chief Executive
Officer/Chief Financial Officer] of NovaCare, do hereby certify as of the date
hereof, as follows:
(1) Description of Proposed Pooling. NovaCare desires to
engage in a pooling of interests (the "Proposed Pooling") under the terms set
forth below. The Proposed Pooling shall be a Permitted Pooling.
(a) The Pooling Partner is ______________________
[name], a ___________________________________
[type of entity and jurisdiction of
organization].
(b) The Proposed Pooling is scheduled to close on __________________, 19___
(the "Pooling Date").
(c) The assets and businesses of the Pooling
Partner are located in _____________________
[list locations and describe assets or
business in those locations].
<PAGE> 44
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 2
(d) The Proposed Pooling is an [Asset
Acquisition/Stock Acquisition] structured as
follows (describe structure of the pooling):
____________________________________________.
(2) (A) Pooling Consideration (Clauses (A) and (F) of
definition of Permitted Pooling). The
Proposed Pooling shall be accounted for under
GAAP as a "pooling of interests." The
consideration to be paid by the Loan Parties
in connection with the Proposed Pooling
consists solely of shares of stock of
NovaCare, cash payments in lieu of fractional
shares and cash payments to dissenting
shareholders. The Pooling Consideration is
$________ which is more than $250,000,000.
The Pooling Consideration is computed as
follows:
(i) NovaCare is issuing shares of its capital stock as follows:
<TABLE>
<CAPTION>
Market Value
Per Share as
of ________,
19__ (must
be within 120
# days of the Total
Class Shares Issue Pooling Date) Value
----- ------ ----- ------------- -----
<S> <C> <C> <C> <C>
$
---------- ---------- ---------- ------------- --------
$
---------- ---------- ---------- ------------- -------
Total $
=======
</TABLE>
<TABLE>
<S> <C> <C>
(ii) Cash in lieu of fractional shares or with respect to dissenters' rights
to the extent that the amount thereof can be determined on or before the
date which is fifteen (15) Business Days prior to the Pooling Date $
-------
(iii) Sum of (i) and (ii) (must be less than or equal to $250,000,000) $
=======
</TABLE>
(B) Permitted Pooling Compliance. (Clause (L) of
the definition of Permitted Pooling) On the
Pooling Date and after giving effect to the
proposed acquisition, the Pooling
Consideration, when aggregated with the
Pooling Consideration of all other Permitted
Poolings which occurred during the period
beginning on the Effective Date through and
including the date of determination, is
$______, which is less than or equal to the
amount of $500,000,000.
(3) Lines of Business (Clause (B) of definition of
Permitted Pooling). The Pooling Partner is engaged in the business of
________________________________________________________________________.
________% (must exceed 70%) of the net revenues of the Pooling Partner during
its last completed fiscal year were derived from Permitted Lines of Business.
The balance of such net revenues, _____%, were derived from rehabilitation
<PAGE> 45
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 3
services businesses other than the ownership or operation of acute care
facilities or the sale, distribution or manufacture of pharmaceutical products,
except that up to $1 million of such net revenues may have been derived from
sources other than rehabilitation services.
(4) Events of Default or Potential Default (Paragraph (C)
of definition of Permitted Pooling). On the Pooling Date and after giving
effect to the Proposed Pooling and any new Revolving Credit Loans to be
requested or debt to be assumed in connection therewith, no event shall have
occurred and be continuing which constitutes an Event of Default or Potential
Default.
(5) Joinder of Pooling Partner and its Subsidiaries and
Pledge of their Stock (Paragraph (D) of definition of Permitted Pooling). The
following is a complete list of the corporations, partnerships or other
entities: (i) whose stock or other ownership interests will be acquired by one
or more Loan Parties in the Proposed Pooling, (ii) which have been or will be
formed by the Loan Parties pursuant to the Proposed Pooling, (iii) which are
Subsidiaries or Minority Subsidiaries of the entities listed in (i) and (ii)
above:
<TABLE>
<CAPTION>
Is the
Person who Entity
Type of holds its Joining
Entity and Stock or Percentage the
Jurisdic- other of total Credit
Name of tion of ownership ownership Agreement
Entity Organization Interests held (yes/no)
------ ------------ --------- ---- --------
<S> <C> <C> <C> <C>
-------- ---------- ---------- --------- --------
-------- ---------- ---------- --------- --------
-------- ---------- ---------- --------- --------
</TABLE>
We are simultaneously delivering to the Agent Guaranty Agreements, Pledge
Agreements, an opinion of counsel and certified copies of organizational
documents, pursuant to which each entity listed above which is a Qualified
Subsidiary shall join the Credit Agreement as a Guarantor and the stock of such
Qualified Subsidiary shall be pledged to the Agent for the benefit of the
Banks, in each instance on the Pooling Date. (The procedures for such joinders
are described in Section 11.18 of the Credit Agreement. A Qualifying
Subsidiary is an entity of which NovaCare or NovaCare's Subsidiaries hold 80%
or more of the ownership interests as more fully set forth in the Credit
Agreement.)
(6) Financial Covenant Compliance (Paragraph (F) of
definition of Permitted Pooling). On the Pooling Date and after giving effect
to the Proposed Pooling and any new Revolving Credit Loans to be requested in
connection therewith, but otherwise on the basis of the most recent financial
statements of NovaCare and its Subsidiaries delivered pursuant to Section
8.01(m) of the Credit Agreement and of the Pooling Partner and its Subsidiaries
as attached hereto pursuant to Paragraph (9), the Loan Parties shall be in
compliance with the following financial covenants on a pro forma basis for the
effects of the Proposed Pooling:
(A) Funded Debt to Capitalization. (Section
8.02(m)). On the Pooling Date, the ratio of
(i) Consolidated Funded Debt to (ii)
Capitalization shall be _________ to 1.0.
Such ratio must not be more than the
following ratios for the following periods:
<PAGE> 46
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 4
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date through
June 30, 1995 .55 to 1.0
July 1, 1995 and
thereafter .50 to 1.0
</TABLE>
(a) Consolidated Funded Debt, the numerator of
the foregoing ratio, is determined as
follows:
Indebtedness of NovaCare and its
Subsidiaries to persons other than
NovaCare and its Subsidiaries on the
Pooling Date in respect of, without
duplication:
<TABLE>
<S> <C> <C>
(i) Borrowed money $
-------
(ii) Amounts raised under or liabilities in respect of any note
purchase or acceptance credit facility $
-------
(iii) Reimbursement obligations under any letter of credit, currency
swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device $
-------
(iv) Other transactions (including without limitation forward sale or
purchase agreements, capitalized leases and conditional sales
agreements) having the commercial effect of a borrowing of money
entered into to finance operations or capital requirements (but
not including trade payables and accrued expenses incurred in
the ordinary course of business which are not represented by a
promissory note) $
-------
(v) Any guaranty of indebtedness for borrowed money $
-------
(vi) Sum of (i) through (v) equals Consolidated Funded Debt $
-------
</TABLE>
(b) Capitalization, the denominator of
the foregoing ratio, is determined
as follows as of the Pooling Date:
<PAGE> 47
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 5
<TABLE>
<S> <C> <C>
(i) Consolidated Funded Debt (amount from clause (vi) of Paragraph
(a) above) $
-------
(ii) Consolidated Net Worth, which is total stockholders' equity of NovaCare
and its Subsidiaries as of the Pooling Date $
-------
(iii) Sum of (i) and (ii) equals Capitalization $
-------
</TABLE>
(B) Funded Debt to Cash Flow From Operations. (Section
8.02(n)). The ratio of (i) Consolidated Funded Debt
on the Pooling Date to (ii) Consolidated Cash Flow
from Operations for the four fiscal quarters ending
immediately prior to the Pooling Date is _______ to
1.0. Such ratio must not be more than the following
ratios for the following periods:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
July 1, 1994 through
June 30, 1995 3.00 to 1.00
July 1, 1995 through
June 30, 1996 2.75 to 1.00
July 1, 1996 and
thereafter 2.50 to 1.00
</TABLE>
<TABLE>
<S> <C> <C>
(a) Consolidated Funded Debt, the numerator of the foregoing ratio (amount from
clause (vi) of Paragraph 6(A)(a) above) $
-------
(b) Consolidated Cash Flow from Operations, the
denominator of the foregoing ratio, for the
four fiscal quarters ending immediately prior
to the Pooling Date is determined as follows:
(i) Net Income $
-------
(ii) Depreciation $
-------
(iii) Amortization $
-------
(iv) Other non-cash charges to net income $
-------
(v) Interest Expense $
-------
(vi) Income Tax Expense $
-------
(vii) Sum of (i), (ii), (iii), (iv), (v) and (vi) $
-------
(viii) Non-cash credits to net income $
-------
</TABLE>
<PAGE> 48
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 6
<TABLE>
<S> <C> <C>
(ix) Item (vii) reduced by item (viii) equals
Consolidated Cash Flow from Operations $
-------
</TABLE>
(7) Indebtedness Assumed (Sections 8.02(a)(vii)).
(c) Proposed Pooling. The following is a list of
Indebtedness of the Pooling Partner and its
Subsidiaries (if any) which will be assumed
or otherwise will remain outstanding
following the Proposed Pooling:
<TABLE>
<CAPTION>
Collateral
Entity which security
will be liable securing the Amount
therefor after Indebtedness of
Creditor Pooling (if any) Indebtedness
-------- ------- -------- ------------
<S> <C> <C> <C>
$
---------------- -------------- ---------- -------
$
---------------- -------------- ---------- -------
$
---------------- -------------- ---------- -------
Total $
=======
</TABLE>
We are simultaneously sending you copies of
the agreements governing the Indebtedness
listed above.
(d) Aggregate Limit (Section 8.02(a)(vii)). The
sum of the Indebtedness to be assumed in
connection with the Proposed Pooling
described in paragraph (a) above together
with Indebtedness assumed by the Loan Parties
in connection with Permitted Poolings during
the current fiscal year is $________ which is
less than $100,000,000, the maximum amount
permitted to be assumed during the current
fiscal year. The amount of such Indebtedness
is computed as follows:
<TABLE>
<S> <C> <C>
(i) Total from paragraph (a) above $
--------
</TABLE>
(ii) Indebtedness either (1) previously
assumed by acquiring Loan Parties in
Permitted Poolings during the
current fiscal year, or (2) of
Pooling Partners and their
Subsidiaries whose stock or other
ownership interests were previously
acquired in Permitted Poolings
during the current fiscal year,
including, in the case of both (1)
and (2), any Indebtedness which has
been repaid since the date of the
pooling as well as debt which
remains outstanding on the date of
this certificate:
<PAGE> 49
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 7
<TABLE>
<CAPTION>
Loan Party
which assumed Collateral
Indebtedness or securing
Pooling Partner Date of the
whose stock Permitted Indebted- Amount of
was acquired Pooling ness (if any) Indebtedness
------------ ------- ------------- ------------
<S> <C> <C> <C>
$
---------------- ---------- ------------- ------------
$
---------------- ---------- ------------- ------------
$
---------------- ---------- ------------- ------------
Total $
------------
</TABLE>
<TABLE>
<S> <C> <C>
(iii) Sum of (i) plus (ii) (may not exceed $
$100,000,000) ------------
</TABLE>
(e) Lease Obligations. Listed below are the
future minimum lease payments under each
non-cancellable lease of the Pooling Partner
and its Subsidiaries (if any) which (i) will
be assumed or otherwise will remain
outstanding after the Proposed Pooling, and
(ii) under which the annual lease payments
exceed $250,000:
<TABLE>
<CAPTION>
Future Minimum
Lessor Expiration Date Lease Payments
------ ----------- --------------
<S> <C> <C>
---------------------- --------------- --------------
---------------------- --------------- --------------
---------------------- --------------- --------------
Total $
=============
</TABLE>
(8) Attached Financial Statements. Attached hereto are
true and correct copies of (i) the consolidated balance sheets and income
statements of Pooling Partner and its Subsidiaries for the prior three fiscal
years and the interim statements ending on ______________, (ii) any financial
projections with respect to the Pooling Partner and its Subsidiaries received
from Pooling Partner or prepared by the Loan Parties, and (iii) any revised
budgets, and accompanying forecasts and projections prepared by NovaCare
projecting its and its Subsidiaries' operations on a consolidated basis and
separately for each line of business which have not previously been delivered
to the Banks.
(9) Representations and Warranties. After giving effect
to the Proposed Pooling, any new Revolving Credit Loans to be requested or debt
to be assumed in connection therewith, the representations and warranties
contained in Article VI of the Credit Agreement will be true on and as of the
Pooling Date with the same effect as though such representations and warranties
had been made on and as of the Pooling Date (except representations and
warranties which expressly relate solely to an earlier date or time, which
representations and warranties shall have been true and correct on and as of
the specific dates or times referred to therein) and the Loan Parties shall
have performed and complied with all covenants and conditions of the Credit
Agreement.
<PAGE> 50
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 8
IN WITNESS WHEREOF, the undersigned has executed this
Certificate this _____ day of ___________, 19__.
NOVACARE, INC.
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
ACKNOWLEDGED AND AGREED TO
THIS _____ DAY OF ____________, 19___
PNC BANK, NATIONAL ASSOCIATION,
as Agent
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 51
LIST OF ENCLOSURES
NovaCare is enclosing the following with this Certificate:
<TABLE>
<CAPTION>
Check if
Enclosed
--------
<S> <C> <C>
1. Joinder documentation described in Paragraph 5
--------
2. Agreements governing assumed Indebtedness described in Paragraph 7(a)
--------
3. Financial Statements of the Pooling Partner and its Subsidiaries described in Paragraph
8(i)
--------
4. Financial projections of the Pooling Partner and its Subsidiaries described in Paragraph
8(ii)
--------
5. Budget, forecasts and projections described in Paragraph 8(iii)
--------
</TABLE>
<PAGE> 52
EXHIBIT G
[TO BE USED IF (I) POOLING CONSIDERATION EXCEEDS $250 MILLION AND (II)
NOVACARE HAS MADE ONE OR MORE POOLINGS FOR CONSIDERATION EXCEEDING $250
MILLION DURING CURRENT FISCAL YEAR]
EXHIBIT 1.01(P)(1)(G)
PERMITTED POOLINGS APPROVAL CERTIFICATE - REQUIRED BANKS
____________________, 19__
PNC BANK, NATIONAL ASSOCIATION
as Agent for the Banks party
to the Credit Agreement Referred to Below
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Ladies and Gentlemen:
I refer to the Credit Agreement dated as of May ___, 1994 (as
amended, supplemented or modified from time to time, the "Credit Agreement")
among NOVACARE, INC., a Delaware corporation ("NovaCare"), each of the other
Borrowers and the Guarantors that are parties thereto (the "Loan Parties"), the
Banks party thereto and PNC BANK, NATIONAL ASSOCIATION, as Agent for such
Banks. This Certificate is delivered pursuant to clause (G) of the definition
of Permitted Poolings contained in Section 1.01 of the Credit Agreement in
connection with the proposed pooling of interests described below. Unless
otherwise defined herein, terms defined in the Credit Agreement are used herein
with the same meanings.
I, __________________________, [President/Chief Executive
Officer/Chief Financial Officer] of NovaCare, do hereby certify as of the date
hereof, as follows:
(1) Description of Proposed Pooling. NovaCare desires to
engage in a pooling of interests (the "Proposed Pooling") under the terms set
forth below. The Proposed Pooling shall be a Permitted Pooling.
(a) The Pooling Partner is ______________________
[name], a ___________________________________
[type of entity and jurisdiction of
organization].
(b) The Proposed Pooling is scheduled to close
on __________________, 19___ (the "Pooling
Date").
(c) The assets and businesses of the Pooling
Partner are located in _____________________
[list locations and describe assets or
business in those locations].
<PAGE> 53
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 2
(d) The Proposed Pooling is an [Asset
Acquisition/Stock Acquisition] structured as
follows (describe structure of the pooling):
____________________________________________.
(2) (A) Pooling Consideration (Clauses (A) and (G) of
definition of Permitted Pooling). The
Proposed Pooling shall be accounted for under
GAAP as a "pooling of interests." The
consideration to be paid by the Loan Parties
in connection with the Proposed Pooling
consists solely of shares of stock of
NovaCare, cash payments in lieu of fractional
shares and cash payments to dissenting
shareholders. The Pooling Consideration is
$________ which exceeds $250,000,000. The
Pooling Consideration is computed as follows:
(i) NovaCare is issuing shares of its
capital stock as follows:
<TABLE>
<CAPTION>
Market Value
Per Share as
of ________,
19__ (must
be within 120
# days of the Total
Class Shares Issue Pooling Date) Value
----- ------ ----- ------------- -----
<S> <C> <C> <C> <C>
$
---------- ---------- ---------- ------------- -------
$
---------- ---------- ---------- ------------- -------
Total $
=======
</TABLE>
<TABLE>
<S> <C> <C>
(ii) Cash in lieu of fractional shares or with respect to
dissenters' rights to the extent that the amount thereof
can be determined on or before the date which is fifteen
(15) Business Days prior to the Pooling Date $
-------
(iii) Sum of (i) and (ii) (must be less than or equal to
$250,000,000) $
=======
(B) Permitted Pooling Compliance (Clause (L) of
the definition of Permitted Pooling) On the
Pooling Date and after giving effect to the
proposed acquisition, the Pooling
Consideration, when aggregated with the
Pooling Consideration of all other Permitted
Poolings which occurred during the period
beginning on the Effective Date through and
including the date of determination, is
$___________, which is less than or equal to
the amount of $500,000,000.
</TABLE>
<PAGE> 54
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 3
(3) Lines of Business (Clause (B) of definition of
Permitted Pooling). The Pooling Partner is engaged in the business of
______________________________________. ________% (must exceed 70%) of the net
revenues of the Pooling Partner during its last completed fiscal year were
derived from Permitted Lines of Business. The balance of such net revenues,
_____%, were derived from rehabilitation services businesses other than the
ownership or operation of acute care facilities or the sale, distribution or
manufacture of pharmaceutical products, except that up to $1 million of such
net revenues may have been derived from sources other than rehabilitation
services.
(4) Events of Default or Potential Default (Paragraph (C)
of definition of Permitted Pooling). On the Pooling Date and after giving
effect to the Proposed Pooling and any new Revolving Credit Loans to be
requested or debt to be assumed in connection therewith, no event shall have
occurred and be continuing which constitutes an Event of Default or Potential
Default.
(5) Joinder of Pooling Partner and its Subsidiaries and
Pledge of their Stock (Paragraph (D) of definition of Permitted Pooling). The
following is a complete list of the corporations, partnerships or other
entities: (i) whose stock or other ownership interests will be acquired by one
or more Loan Parties in the Proposed Pooling, (ii) which have been or will be
formed by the Loan Parties pursuant to the Proposed Pooling, (iii) which are
Subsidiaries or Minority Subsidiaries of the entities listed in (i) and (ii)
above:
<TABLE>
<CAPTION>
Is the
Person who Entity
Type of holds its Joining
Entity and Stock or Percentage the
Jurisdic- other of total Credit
Name of tion of ownership ownership Agreement
Entity Organization Interests held (yes/no)
------ ------------ --------- ---- --------
<S> <C> <C> <C> <C>
-------- ---------- ---------- --------- --------
-------- ---------- ---------- --------- --------
-------- ---------- ---------- --------- --------
</TABLE>
We are simultaneously delivering to the Agent Guaranty Agreements, Pledge
Agreements, an opinion of counsel and certified copies of organizational
documents, pursuant to which each entity listed above which is a Qualified
Subsidiary shall join the Credit Agreement as a Guarantor and the stock of such
Qualified Subsidiary shall be pledged to the Agent for the benefit of the
Banks, in each instance on the Pooling Date. (The procedures for such joinders
are described in Section 11.18 of the Credit Agreement. A Qualifying
Subsidiary is an entity of which NovaCare or NovaCare's Subsidiaries hold 80%
or more of the ownership interests as more fully set forth in the Credit
Agreement.)
(6) Financial Covenant Compliance (Paragraph (G) of
definition of Permitted Pooling). On the Pooling Date and after giving effect
to the Proposed Pooling and any new Revolving Credit Loans to be requested in
connection therewith, but otherwise on the basis of the most recent financial
statements of NovaCare and its Subsidiaries delivered pursuant to Section
8.01(m) of the Credit Agreement and of the Pooling Partner and its Subsidiaries
as attached hereto pursuant to Paragraph (9), the Loan Parties shall be in
compliance with the following financial covenants on a pro forma basis for the
effects of the Proposed Pooling:
<PAGE> 55
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 4
(A) Funded Debt to Capitalization. (Section
8.02(m)). On the Pooling Date, the ratio of
(i) Consolidated Funded Debt to (ii)
Capitalization shall be _________ to 1.0.
Such ratio must not be more than the
following ratios for the following periods:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date through
June 30, 1995 .55 to 1.0
July 1, 1995 and
thereafter .50 to 1.0
</TABLE>
(a) Consolidated Funded Debt, the
numerator of the foregoing ratio,
is determined as follows:
Indebtedness of NovaCare and its
Subsidiaries to persons other than
NovaCare and its Subsidiaries on the
Pooling Date in respect of, without
duplication:
<TABLE>
<S> <C> <C>
(i) Borrowed money $
-------
(ii) Amounts raised under or liabilities in respect of any note
purchase or acceptance credit facility $
-------
(iii) Reimbursement obligations under any letter of credit, currency
swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device $
-------
(iv) Other transactions (including without limitation forward sale or
purchase agreements, capitalized leases and conditional sales
agreements) having the commercial effect of a borrowing of money
entered into to finance operations or capital requirements (but
not including trade payables and accrued expenses incurred in
the ordinary course of business which are not represented by a
promissory note) $
-------
(v) Any guaranty of indebtedness for borrowed money $
-------
(vi) Sum of (i) through (v) equals Consolidated Funded Debt $
-------
</TABLE>
<PAGE> 56
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 5
(b) Capitalization, the denominator of
the foregoing ratio, is determined
as follows as of the Pooling Date:
<TABLE>
<S> <C> <C>
(i) Consolidated Funded Debt (amount from clause (vi) of Paragraph
(a) above) $
-------
(ii) Consolidated Net Worth, which is total stockholders' equity of
NovaCare and its Subsidiaries as of the Pooling Date $
-------
(iii) Sum of (i) and (ii) equals Capitalization $
-------
</TABLE>
(B) Funded Debt to Cash Flow From Operations.
(Section 8.02(n)). The ratio of (i)
Consolidated Funded Debt on the Pooling Date
to (ii) Consolidated Cash Flow from
Operations for the four fiscal quarters
ending immediately prior to the Pooling Date
is _______ to 1.0. Such ratio must not be
more than the following ratios for the
following periods:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C> <C>
July 1, 1994 through
June 30, 1995 3.00 to 1.00
July 1, 1995 through
June 30, 1996 2.75 to 1.00
July 1, 1996 and
thereafter 2.50 to 1.00
</TABLE>
<TABLE>
<S> <C>
(a) Consolidated Funded Debt, the numerator of the foregoing ratio (amount from
clause (vi) of Paragraph 6(A)(a) above) $
-------
</TABLE>
(b) Consolidated Cash Flow from Operations, the
denominator of the foregoing ratio, for the
four fiscal quarters ending immediately prior
to the Pooling Date is determined as follows:
<TABLE>
<S> <C> <C>
(i) Net Income $
-------
(ii) Depreciation $
-------
(iii) Amortization $
-------
(iv) Other non-cash charges to net income $
-------
(v) Interest Expense $
-------
</TABLE>
<PAGE> 57
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 6
<TABLE>
<S> <C> <C>
(vi) Income Tax Expense $
-------
(vii) Sum of (i), (ii), (iii), (iv), (v) and (vi) $
-------
(viii) Non-cash credits to net income $
-------
(ix) Item (vii) reduced by item (viii) equals Consolidated Cash Flow from
Operations $
-------
</TABLE>
(7) Indebtedness Assumed (Sections 8.02(a)(vii)).
(c) Proposed Pooling. The following is a list of
Indebtedness of the Pooling Partner and its
Subsidiaries (if any) which will be assumed
or otherwise will remain outstanding
following the Proposed Pooling:
<TABLE>
<CAPTION>
Collateral
Entity which security
will be liable securing the Amount
therefor after Indebtedness of
Creditor Pooling (if any) Indebtedness
-------- ------- -------- ------------
<S> <C> <C> <C>
$
---------------- -------------- ---------- -------
$
---------------- -------------- ---------- -------
$
---------------- -------------- ---------- -------
Total $
=======
</TABLE>
We are simultaneously sending you copies of
the agreements governing the Indebtedness
listed above.
(d) Aggregate Limit (Section 8.02(a)(vii)). The
sum of the Indebtedness to be assumed in
connection with the Proposed Pooling
described in paragraph (a) above together
with Indebtedness assumed by the Loan Parties
in connection with Permitted Poolings during
the current fiscal year is $________ which is
less than $100,000,000, the maximum amount
permitted to be assumed during the current
fiscal year. The amount of such Indebtedness
is computed as follows:
<TABLE>
<S> <C> <C>
(i) Total from paragraph (a) above $
-------
(ii) Indebtedness either (1) previously assumed by acquiring Loan Parties in
Permitted Poolings during the current fiscal year, or (2) of Pooling
Partners and their Subsidiaries whose stock or other ownership interests
were previously acquired in Permitted Poolings during the current fiscal
year, including, in the case of both (1) and (2), any Indebtedness which
has been repaid since the date of the pooling as well as debt which
</TABLE>
<PAGE> 58
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 7
remains outstanding on the date of this
certificate:
<TABLE>
<CAPTION>
Loan Party
which assumed Collateral
Indebtedness or securing
Pooling Partner Date of the
whose stock Permitted Indebted- Amount of
was acquired Pooling ness (if any) Indebtedness
------------ ------- ------------- ------------
<S> <C> <C> <C>
$
---------------- ---------- ------------- ----------
$
---------------- ---------- ------------- ----------
$
---------------- ---------- ------------- ----------
Total $
----------
</TABLE>
<TABLE>
<S> <C> <C>
(iii) Sum of (i) plus (ii) (may not exceed $100,000,000) $
-------
</TABLE>
(e) Lease Obligations. Listed below are the
future minimum lease payments under each
non-cancellable lease of the Pooling Partner
and its Subsidiaries (if any) (i) which will
be assumed or otherwise will remain
outstanding after the Proposed Pooling, and
(ii) under which the annual lease payments
exceed $250,000:
<TABLE>
<CAPTION>
Future Minimum
Lessor Expiration Date Lease Payments
------ ---------------- --------------
<S> <C> <C>
---------------------- --------------- --------------
---------------------- --------------- --------------
---------------------- --------------- --------------
Total $
=============
</TABLE>
(8) Attached Financial Statements. Attached hereto are
true and correct copies of (i) the consolidated balance sheets and income
statements of Pooling Partner and its Subsidiaries for the prior three fiscal
years and the interim statements ending on ______________, (ii) any financial
projections with respect to the Pooling Partner and its Subsidiaries received
from Pooling Partner or prepared by the Loan Parties, and (iii) any revised
budgets, and accompanying forecasts and projections prepared by NovaCare
projecting its and its Subsidiaries' operations on a consolidated basis and
separately for each line of business which have not previously been delivered
to the Banks.
(9) Representations and Warranties. After giving effect
to the Proposed Pooling, any new Revolving Credit Loans to be requested or debt
to be assumed in connection therewith, the representations and warranties
contained in Article VI of the Credit Agreement will be true on and as of the
Pooling Date with the same effect as though such representations and warranties
had been made on and as of the Pooling Date (except representations and
warranties which expressly relate solely to an earlier date or time, which
representations and warranties shall have been true and correct on and as of
the specific dates or times referred to therein) and the
<PAGE> 59
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 8
Loan Parties shall have performed and complied with all covenants and
conditions of the Credit Agreement.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate this _____ day of ___________, 19__.
NOVACARE, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
NovaCare is enclosing the following with this Certificate:
<TABLE>
<S> <C> <C>
1. Joinder documentation described in Paragraph 5
--------
2. Agreements governing assumed Indebtedness described in Paragraph 7(a)
--------
3. Financial Statements of the Pooling Partner and its Subsidiaries described in Paragraph
8(i)
--------
4. Financial projections of the Pooling Partner and its Subsidiaries described in Paragraph
8(ii)
--------
5. Budget, forecasts and projections described in Paragraph 8(iii)
--------
</TABLE>
<PAGE> 60
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 9
ACKNOWLEDGED AND AGREED TO BY EACH BANK
WHICH HAS EXECUTED THIS CERTIFICATE
BELOW AS OF THE _________ DAY OF
_____________________, 19___.
PNC BANK, NATIONAL ASSOCIATION
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
CORESTATES BANK, N.A.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
MELLON BANK, N.A.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
NATIONSBANK OF NORTH CAROLINA, N.A.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 61
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 10
NATIONAL WESTMINSTER BANK USA
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
FLEET BANK OF MASSACHUSETTS, N.A.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 62
EXHIBIT H
[TO BE USED FOR CERTAIN PERMITTED
PURCHASES]
EXHIBIT 1.01(P)(2)
PERMITTED PURCHASES APPROVAL CERTIFICATE -
REQUIRED BANKS
_______________, 19__
PNC BANK, NATIONAL ASSOCIATION
as Agent for the Banks party
to the Credit Agreement Referred to Below
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Ladies and Gentlemen:
I refer to the Credit Agreement dated as of May _____, 1994
(as amended, supplemented or modified from time to time, the "Credit
Agreement") among NOVACARE, INC., a Delaware corporation ("NovaCare"), each of
the other Borrowers and the Guarantors that are parties thereto (the "Loan
Parties"), the Banks party thereto and PNC BANK, NATIONAL ASSOCIATION, as Agent
for such Banks. This Certificate is delivered pursuant to clause (D) of the
definition of Permitted Purchase contained in Section 1.01 of the Credit
Agreement in connection with the proposed purchase transaction described below.
Unless otherwise defined herein, terms defined in the Credit Agreement are used
herein with the same meanings.
I, ______________, [President/Chief Executive Officer/Chief
Financial Officer] of NovaCare, do hereby certify as of the date hereof, as
follows:
(1) Description of Proposed Permitted Purchase. NovaCare
desires that ____________________ [List Loan Party(s) that will be making the
Acquisition] (the "Acquiring Loan Party") [acquire the assets/acquire the stock
or other ownership interest/merge with/or merge into] ____________________
[Insert name of entity whose assets are being acquired or whose stock or other
ownership interest is being acquired] (the "Seller") (the "Acquisition").
(i) The Seller is ____________________ [type of
entity and jurisdiction of organization].
(ii) The Acquisition is scheduled to close on
____________________, 19___ (the "Purchase
Date").
(iii) The assets and businesses of the Seller are
located in ____________________ [list
locations and describe assets or business in
those locations].
(iv) The Acquisition shall be an [Asset
Acquisition/Stock Acquisition] (see Section
1.01 of the Credit Agreement for definition
of these terms).
<PAGE> 63
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 2
(2) Purchase Price; Assumed Indebtedness. (Clause (D) of
definition of Permitted Purchase).
(A) Purchase Price. The Purchase Price in
connection with the proposed Acquisition is
$_______________ computed in accordance with
GAAP as set forth below.
<TABLE>
<S> <C> <C>
(i) Cash to be paid at Closing $
-------
(ii) Amount of deferred payments $
-------
(iii) Stock, securities or other consideration to be given by Loan Parties
(describe): ____________________ $
-------
(iv) Other amounts to be added or subtracted (describe): _________________ $
-------
Total $
=======
</TABLE>
(B) Assumed Indebtedness - This Acquisition. The
following is a list of (1) the Indebtedness
to be assumed by the Loan Parties in
connection with the Acquisition, and (2) the
Indebtedness of the Seller which shall remain
outstanding following the Acquisition (this
number (2) applies only if the Acquisition is
a Stock Acquisition):
<TABLE>
<CAPTION>
Collateral
security
Obligor securing the
on the Indebtedness Amount of
Creditor Indebtedness (if any) Indebtedness
-------- ------------ -------- ------------
<S> <C> <C> <C>
---------------- -------------- ---------- $
-------
---------------- -------------- ---------- $
-------
---------------- -------------- ---------- $
-------
Total $
=======
</TABLE>
We are simultaneously sending you copies of
the agreements governing the Indebtedness
listed above.
(C) Assumed Indebtedness - Aggregate Limitations
(Section 8.02(a)(vi)). The amount of
Indebtedness of the Loan Parties described in
Section 8.02(a)(vi) of the Credit Agreement
shall be $__________ on the Purchase Date
which is less than $20,000,000, the maximum
permitted amount. The amount of such
Indebtedness is computed as follows:
<TABLE>
<S> <C> <C>
(i) Purchase Money Security Interests entered into in the ordinary course of
business $
-------
</TABLE>
<PAGE> 64
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 3
(ii) Indebtedness Assumed in Permitted
Purchases - Indebtedness (including
extensions and renewals thereof)
either (1) assumed by Loan Parties
pursuant to acquisitions of the
assets of other persons (by
purchase, merger or otherwise) in
Permitted Purchases (including the
proposed Acquisition) between the
Closing Date and the Purchase Date
or (2) of corporations, partnerships
or other entities whose stock,
partnership interests or other
ownership interests were acquired by
Loan Parties (by purchase, merger or
otherwise) in Permitted Purchases
between the Closing Date and the
Purchase Date, which in the case of
either (1) or (2) above remains
outstanding on the Purchase Date:
<TABLE>
<S> <C> <C>
(a) Indebtedness assumed in the proposed Acquisition (from paragraph
(B) above) $
--------
(b) Indebtedness assumed in prior Permitted Purchases:
</TABLE>
<TABLE>
<CAPTION>
Loan Party Collateral
which is securing
now liable Date of the
on the Permitted Indebtedness Indebtedness
Indebtedness Purchase (if any) Outstanding
------------ -------- -------- -----------
<S> <C> <C> <C>
$
---------------- ---------- ------------- ----------
$
---------------- ---------- ------------- ----------
$
---------------- ---------- ------------- ----------
Total $
----------
</TABLE>
<TABLE>
<S> <C> <C>
(c) Sum of (a) plus (b) $
=======
(iii) Sum of Lines (i) and (ii)(c) (may not exceed $20,000,000) $
=======
</TABLE>
(D) Lease Obligations. Listed below are the
future minimum lease payments under each
non-cancellable lease of the Seller and its
Subsidiaries (if any) (i) which will be
assumed or otherwise will remain outstanding
after the Acquisition, and (ii) under which
the annual lease payments exceed $250,000:
<TABLE>
<CAPTION>
Future Minimum
Lessor Expiration Date Lease Payments
------ ----------------- --------------
<S> <C> <C>
---------------------- --------------- --------------
---------------------- --------------- --------------
---------------------- --------------- --------------
Total $
=============
</TABLE>
<PAGE> 65
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 4
(3) Lines of Business (Clause (A) of definition of
Permitted Purchase). The Seller is engaged in the business of
_____________________________________________, which complies with Section
8.02(g) of the Credit Agreement.
(4) Events of Default or Potential Default (Paragraph (B)
of definition of Permitted Purchase). On the Purchase Date and after giving
effect to the Acquisition and any new Revolving Credit Loans to be requested or
debt to be assumed in connection therewith, no event shall have occurred and be
continuing which constitutes an Event of Default or Potential Default.
(5) Joinder of the Seller and its Subsidiaries and Pledge
of their Stock (Paragraph (C) of definition of Permitted Purchase). The
following is a complete list of the corporations, partnerships or other
entities: (i) whose stock or other ownership interests will be acquired by one
or more Loan Parties in the Acquisition, (ii) which have been or will be formed
by the Loan Parties pursuant to the Acquisition, (iii) which are Subsidiaries
or Minority Subsidiaries of the entities listed in (i) and (ii) above:
<TABLE>
<CAPTION>
Is the
Person who Entity
Type of holds its Joining
Entity and Stock or Percentage the
Jurisdic- other of total Credit
Name of tion of ownership ownership Agreement
Entity Organization Interests held (yes/no)
------ ------------ --------- ---- --------
<S> <C> <C> <C> <C>
-------- ---------- ---------- --------- --------
-------- ---------- ---------- --------- --------
-------- ---------- ---------- --------- --------
</TABLE>
We are simultaneously delivering to the Agent Guaranty Agreements, Pledge
Agreements, an opinion of counsel and certified copies of organizational
documents, pursuant to which each entity listed above which is a Qualified
Subsidiary shall join the Credit Agreement as a Guarantor and the stock of such
Qualified Subsidiary shall be pledged to the Agent for the benefit of the
Banks, in each instance on the Purchase Date. (The procedures for such
joinders are described in Section 11.18 of the Credit Agreement. A Qualifying
Subsidiary is an entity of which NovaCare or NovaCare's Subsidiaries hold 80%
or more of the ownership interests as more fully set forth in the Credit
Agreement.)
(6) Financial Covenant Compliance (Paragraph (E) of
definition of Permitted Purchase). On the Purchase Date and after giving
effect to the Acquisition and any new Revolving Credit Loans to be requested or
debt to be assumed in connection therewith, but otherwise on the basis of the
most recent financial statements of NovaCare and its Subsidiaries delivered
pursuant to Section 8.01(m) of the Credit Agreement and of the Seller and its
Subsidiaries as attached hereto pursuant to Paragraph (8), the Loan Parties
shall be in compliance with the following financial covenants:
(A) Funded Debt to Capitalization. (Section
8.02(m)). On the Purchase Date, the ratio of
(i) Consolidated Funded Debt to (ii)
Capitalization shall be __________ to 1.0.
Such ratio must not be more than the
following ratios for the following periods:
<PAGE> 66
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 5
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date through
June 30, 1995 .55 to 1.0
July 1, 1995 and
thereafter .50 to 1.0
</TABLE>
(a) Consolidated Funded Debt, the
numerator of the foregoing ratio,
is determined as follows:
Indebtedness of NovaCare and its
Subsidiaries to persons other than
NovaCare and its Subsidiaries on the
Purchase Date in respect of, without
duplication:
<TABLE>
<S> <C> <C>
(i) Borrowed money $
-------
(ii) Amounts raised under or liabilities in respect of any note
purchase or acceptance credit facility $
-------
(iii) Reimbursement obligations under any letter of credit, currency
swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device $
-------
(iv) Other transactions (including without limitation forward sale or
purchase agreements, capitalized leases and conditional sales
agreements) having the commercial effect of a borrowing of money
entered into to finance operations or capital requirements (but
not including trade payables and accrued expenses incurred in
the ordinary course of business which are not represented by a
promissory note) $
-------
(v) any guaranty of indebtedness for borrowed money $
-------
(vi) Sum of (i) through (v) equals Consolidated Funded Debt $
-------
</TABLE>
(b) Capitalization, the denominator of
the foregoing ratio, is determined
as follows as of the Purchase Date:
<PAGE> 67
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 6
<TABLE>
<S> <C> <C>
(i) Consolidated Funded Debt (amount from clause (vi) of Paragraph
(a) above) $
-------
(ii) Consolidated Net Worth, which is total stockholders' equity of
NovaCare and its Subsidiaries as of the Purchase Date $
-------
(iii) Sum of (i) and (ii) equals Capitalization $
-------
</TABLE>
(B) Funded Debt to Cash Flow From Operations.
(Section 8.02(n)). The ratio of (i)
Consolidated Funded Debt on the Purchase Date
to (ii) Consolidated Cash Flow from
Operations for the four fiscal quarters
ending immediately prior to the Purchase Date
is __________ to 1.0. Such ratio must not be
more than the following ratios for the
following periods:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
July 1, 1994 through
June 30, 1995 3.00 to 1.00
July 1, 1995 through
June 30, 1996 2.75 to 1.00
July 1, 1996 and
thereafter 2.50 to 1.00
</TABLE>
<TABLE>
<S> <C> <C>
(a) Consolidated Funded Debt, the numerator of the foregoing ratio (amount
from clause (vi) of Paragraph 6(A)(a) above) $
-------
(b) Consolidated Cash Flow from
Operations, the denominator of the
foregoing ratio, for the four fiscal
quarters ending immediately prior to
the Purchase Date is determined as
follows:
(i) Net Income $
-------
(ii) Depreciation $
-------
(iii) Amortization $
-------
(iv) Other non-cash charges to net income $
-------
(v) Interest Expense $
-------
(vi) Income Tax Expense $
-------
</TABLE>
<PAGE> 68
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 7
<TABLE>
<S> <C> <C>
(vii) Sum of (i), (ii), (iii), (iv), (v) and (vi) $
-------
(viii) Non-cash credits to net income $
-------
(ix) Item (vii) reduced by item (viii) equals Consolidated Cash Flow
from Operations $
-------
</TABLE>
(7) Permitted Purchase Compliance. (Clause (E) of
definition of Permitted Purchase). On the Purchase Date and after giving
effect to the Acquisition, the Purchase Price for such Acquisition, when
aggregated with the Purchase Price of all other Permitted Purchases which
occurred during the period beginning on the Effective Date through and
including the date of determination is $_______________, which is less than or
equal to the amount of $160,000,000.
(8) Attached Financial Statements. Attached hereto are
true and correct copies of (i) the consolidated balance sheets and income
statements of Seller and its Subsidiaries for their immediately preceding
fiscal year and all other financial statements delivered by the Seller in
connection with the Acquisition which consist of the following
_______________________________ [list]; (ii) any financial projections with
respect to the Seller and its Subsidiaries received from the Seller or prepared
by the Loan Parties; and (iii) any revised budgets, and accompanying forecasts
and projections prepared by NovaCare projecting its and its Subsidiaries'
operations on a consolidated basis and separately for each line of business
which have not previously been delivered to the Banks.
(9) Representations and Warranties. After giving effect
to the Acquisition, any new Revolving Credit Loans to be requested or debt to
be assumed in connection therewith, the representations and warranties
contained in Article VI of the Credit Agreement shall be true on and as of the
Purchase Date with the same effect as though such representations and
warranties had been made on and as of the Purchase Date (except representations
and warranties which expressly relate solely to an earlier date or time, which
representations and warranties shall have been true and correct on and as of
the specific dates or times referred to therein) and the Loan Parties shall
have performed and complied with all covenants and conditions of the Credit
Agreement.
<PAGE> 69
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 8
IN WITNESS WHEREOF, the undersigned has executed this
Certificate this _____ day of ___________, 19__.
NOVACARE, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
NovaCare is enclosing the following with this Certificate:
<TABLE>
<CAPTION>
NovaCare to
Check if
Enclosed
--------
<S> <C> <C>
1. Agreements governing assumed Indebtedness described in Paragraph 2(B) -------
2. Joinder documentation described in Paragraph 5 -------
3. Financial Statements of the Seller and its
Subsidiaries described in Paragraph 8(i) -------
4. Financial projections of the Seller and its
Subsidiaries described in Paragraph 8(ii) -------
5. Budget, forecasts and projections described in
Paragraph 8(iii) -------
</TABLE>
<PAGE> 70
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 9
ACKNOWLEDGEMENT BY BANKS:
NovaCare to initial either (a) or (b) below as applicable:
<TABLE>
<CAPTION>
Initial
Applicable
Line
----------
<S> <C> <C>
(a) Each Bank shall be deemed to approve of this
certification unless it notifies NovaCare in wiring
within seven (7) Business Days after it receives a
copy of this certification that it disapproves of this
certification because both of the following
are true:
(1) the Purchase Price listed in Paragraph 2(A) of
this certificate is less than or equal to $30,000,000
and
(2) the amount of the Assumed Indebtedness set forth
in Paragraph 2(B) of this certificate is less than
or equal to $15,000,000 ----------
(b) Each Bank shall be deemed to approve of this
certification only by notifying NovaCare in writing
of its approval because either of the following is true:
(1) the Purchase Price set forth in Paragraph 2(A)
of this certificate is greater than $30,000,000
or
(2) the amount of Assumed Indebtedness set forth in
Paragraph 2(B) of this certificate is greater
than $15,000,000 ----------
</TABLE>
<PAGE> 71
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 10
Banks to Sign and Initial Approval or Disapproval:
<TABLE>
<CAPTION>
Approve Disapprove
------- ----------
<S> <C> <C>
PNC BANK, NATIONAL ASSOCIATION
By:
--------------------------------------- ----------------- -----------------
Name:
------------------------------------
Title:
------------------------------------
CORESTATES BANK, N.A.
By:
---------------------------------------- ----------------- -----------------
Name:
--------------------------------------
Title:
-------------------------------------
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By:
---------------------------------------- ----------------- -----------------
Name:
--------------------------------------
Title:
-------------------------------------
MELLON BANK, N.A.
By:
---------------------------------------- ----------------- -----------------
Name:
--------------------------------------
Title:
-------------------------------------
NATIONSBANK OF NORTH CAROLINA, N.A.
By:
---------------------------------------- ----------------- -----------------
Name:
--------------------------------------
Title:
-------------------------------------
NATIONAL WESTMINSTER BANK USA
By:
---------------------------------------- ----------------- -----------------
Name:
--------------------------------------
Title:
-------------------------------------
FLEET BANK OF MASSACHUSETTS, N.A.
By:
---------------------------------------- ----------------- -----------------
Name:
--------------------------------------
Title:
-------------------------------------
</TABLE>
<PAGE> 72
EXHIBIT I
EXHIBIT 8.01(m)(iii)
COMPLIANCE CERTIFICATE
____________________, 19__
PNC BANK, NATIONAL ASSOCIATION
as Agent for the Banks party
to the Credit Agreement Referred to Below
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Ladies and Gentlemen:
I refer to the Credit Agreement dated as of May ____,
1994 (as amended, supplemented or modified from time to time, the "Credit
Agreement") among NOVACARE, INC., a Delaware corporation ("NovaCare"), and the
other Borrowers and the Guarantors under such Credit Agreement (collectively,
the "Loan Parties"), the Banks party thereto and PNC BANK, NATIONAL
ASSOCIATION, as Agent for such Banks. Unless otherwise defined herein, terms
defined in the Credit Agreement are used herein with the same meanings.
I, ______________________________, [President/Chief Executive
Officer/Chief Financial Officer] of NovaCare, do hereby certify pursuant to
Section 8.01(m)(iii) of the Credit Agreement on behalf of NovaCare as of the
[fiscal quarter/year ended _______________, 19___] the "Report Date"), as
follows:
(1) Minimum Current Ratio. (Section 8.02(k)). The ratio
of (i) consolidated current assets of NovaCare and
its Subsidiaries to (ii) consolidated current
liabilities of NovaCare and its Subsidiaries
calculated as of the Report Date is __________ to 1.0
which is not less than the permitted ratio of 2.0 to
1.0.
(2) Minimum Net Worth. (Section 8.02(l)). As of the
Report Date, the Consolidated Net Worth is
$__________ which is not less than the Minimum Net
Worth Requirement which is $__________. Such amounts
are computed as follows:
(A) Consolidated Net Worth as of the Report Date:
<TABLE>
<S> <C>
Total stockholders' equity of NovaCare
and its Subsidiaries $
-------
</TABLE>
(B) Minimum Net Worth Requirement as of the Report Date:
<TABLE>
<S> <C>
(i) $375,250,000
</TABLE>
(ii) Seventy-five percent (75%) of
Consolidated Net Income of NovaCare
and its Subsidiaries for each fiscal
quarter in which net income was
earned (as opposed to a net loss)
from March 31, 1994 through (and
including) the Report Date computed
as follows:
<PAGE> 73
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 2
<TABLE>
<S> <C> <C>
(a) consolidated net income $
-------
(b) Less: increases in net income resulting
from changes in GAAP after
Closing Date [$ ]
-------
(c) Plus: decreases in net
income resulting from
changes in GAAP after
Closing Date $
-------
(d) Subtotal sum of (a), (b)
and (c) $
-------
(e) Line (d) times 75% $
-------
(iii) One hundred percent (100%) of all proceeds received by NovaCare in
connection with the sale of shares of its capital stock after deducting
any expenses associated with such sale (including proceeds from
conversion of the Subordinated Debentures) during the period from March
31, 1994 through (and including) the Report Date $
-------
(iv) Sum of (i), (ii) and (iii) equals Minimum Net Worth Requirement $
-------
</TABLE>
(3) Funded Debt to Capitalization. (Section 8.02(m)).
As of the Report Date, the ratio of (i) Consolidated
Funded Debt to (ii) Capitalization is __________ to
1.0. Such ratio must not be more than the following
ratios for the following periods:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date through
June 30, 1995 .55 to 1.0
July 1, 1995 and
thereafter .50 to 1.0
</TABLE>
(A) Consolidated Funded Debt, the numerator of
the foregoing ratio, is determined as follows:
Indebtedness of NovaCare and its Subsidiaries
on the Report Date to persons other than
NovaCare and its Subsidiaries in respect of,
without duplication:
<PAGE> 74
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 3
<TABLE>
<S> <C> <C>
(i) Borrowed money $
-------
(ii) Amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility $
-------
(iii) Reimbursement obligations under any letter of credit, currency swap
agreement, interest rate swap, cap, collar or floor agreement or other
interest rate management device $
-------
(iv) Other transactions (including without limitation forward sale or purchase
agreements, capitalized leases and conditional sales agreements) having
the commercial effect of a borrowing of money entered into to finance
operations or capital requirements (but not including trade payables and
accrued expenses incurred in the ordinary course of business which are
not represented by a promissory note) $
-------
(v) any guaranty of indebtedness for borrowed money $
-------
(vi) Sum of (i) through (v) equals Consolidated Funded Debt $
-------
</TABLE>
(B) Capitalization, the denominator of the
foregoing ratio, is determined as follows:
<TABLE>
<S> <C> <C>
(i) Consolidated Funded Debt (amount from clause (vi) of Paragraph (A) above) $
-------
(ii) Consolidated Net Worth, which is total stockholders' equity of NovaCare
and its Subsidiaries as of the Report Date $
-------
(iii) Sum of (i) and (ii) equals Capitalization $
-------
</TABLE>
(4) Funded Debt to Cash Flow From Operations. (Section
8.02(n)). The ratio of (i) Consolidated Funded Debt
on the Report Date to (ii) Consolidated Cash Flow
from Operations for the four fiscal quarters ending
on the Report Date is __________ to 1.0. Such ratio
must not be more than the following ratios for the
following periods:
<PAGE> 75
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 4
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
July 1, 1994 through
June 30, 1995 3.00 to 1.00
July 1, 1995 through
June 30, 1996 2.75 to 1.00
July 1, 1996 and
thereafter 2.50 to 1.00
</TABLE>
<TABLE>
<S> <C> <C>
(A) Consolidated Funded Debt, the numerator of the foregoing ratio (amount from
Paragraph 3(A) above) $
-------
</TABLE>
(B) Consolidated Cash Flow from Operations, the
denominator of the foregoing ratio, for the
four fiscal quarters ending on the Report
Date is determined as follows:
<TABLE>
<S> <C> <C>
(i) Net Income $
-------
(ii) Depreciation $
-------
(iii) Amortization $
-------
(iv) Other non-cash charges to net income $
-------
(v) Interest Expense $
-------
(vi) Income Tax Expense $
-------
(vii) Sum of (i), (ii), (iii), (iv), (v) and (vi) $
-------
(viii) Non-cash credits to net income $
-------
(ix) Item (vii) reduced by item (viii) equals Consolidated Cash Flow from
Operations $
-------
</TABLE>
(5) Minimum Fixed Charge Coverage Ratio. (Section
8.02(o)). The ratio of (i) Consolidated Earnings
Available for Fixed Charges to (ii) Consolidated
Fixed Charges for the four fiscal quarters ending on
the Report Date is __________ to 1.0. Such ratio
must not be less than the following ratios for the
following periods:
<PAGE> 76
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 5
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
July 1, 1994 through
June 30, 1996 2.5 to 1.0
July 1, 1996 and
thereafter 3.0 to 1.0
</TABLE>
(A) Consolidated Earnings Available for Fixed
Charges, the numerator of the foregoing ratio
is determined as follows:
<TABLE>
<S> <C> <C>
(i) Net income $
-------
(ii) Interest expense $
-------
(iii) Income tax expense $
-------
(iv) Operating lease expense $
-------
(v) The sum of (i) through (iv) $
-------
</TABLE>
(B) Consolidated Fixed Charges, the denominator
of the foregoing ratio, for the four fiscal
quarters ending on the Report Date, is
determined as follows:
<TABLE>
<S> <C> <C>
(i) Interest expense $
-------
(ii) Operating lease expense $
-------
(iii) The sum of (i) and (ii) $
-------
</TABLE>
(6) Indebtedness Under and Investments in Repurchase
Agreements and Reverse Repurchase Agreements
(Sections 8.02(a)(ii) and 8.02(i)). As of the Report
Date:
(a) Reverse Repurchase Agreements (Section
8.02(a)(iv)). The Loan Parties had
$__________ of Permitted Reverse Repurchase
Agreements outstanding which is less than
__________, the permitted amount as follows:
<TABLE>
<CAPTION>
Report Date Permitted Amount
----------- ----------------
<S> <C>
Between Closing Date and
August 31, 1994 $50,000,000
After August 31, 1994 $25,000,000
</TABLE>
(b) Repurchase Agreements (Section 8.02(i) and
definition of "Permitted Investments"). The
Loan Parties had $__________ of repurchase
<PAGE> 77
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 6
agreements outstanding which is less than the
permitted amount of $50,000,000.
(7) Indebtedness Assumed in Permitted Acquisitions;
Purchase Money Security Interests (Sections
8.02(a)(vi) and (vii)).
(a) Permitted Purchases and Purchase Money
Security Interests (Section 8.02(a)(vi)).
The amount of Indebtedness of the Loan
Parties described in Section 8.02(a)(vi) of
the Credit Agreement is $__________ on the
Report Date which is less than $20,000,000,
the maximum permitted amount. The amount of
such Indebtedness is computed as follows:
<TABLE>
<S> <C> <C>
(i) Purchase Money Security Interests entered into in the ordinary course of
business $
-------
</TABLE>
(ii) Permitted Purchases - Indebtedness
(including extensions and renewals
thereof) either (1) assumed by Loan
Parties pursuant to acquisitions of
the assets of other persons (by
purchase, merger or otherwise) in
Permitted Purchases between the
Closing Date and the Report Date or
(2) of corporations, partnerships or
other entities whose stock,
partnership interests or other
ownership interests were acquired by
Loan Parties (by purchase, merger or
otherwise) in Permitted Purchases
between the Closing Date and the
Report Date, which in the case of
either (1) or (2) above remains
outstanding on the Report Date:
<TABLE>
<CAPTION>
Loan Party Collateral
which is securing
now liable Date of the
on the Permitted Indebtedness Indebtedness
Indebtedness Purchase (if any) Outstanding
------------ -------- -------- -----------
<S> <C> <C> <C>
$
---------------- ---------- ------------- ----------
$
---------------- ---------- ------------- ----------
$
---------------- ---------- ------------- ----------
Total $
----------
</TABLE>
<TABLE>
<S> <C> <C>
(iii) Sum of Lines (i) and (ii) (may not exceed $20,000,000) $
=======
</TABLE>
(b) Permitted Poolings (Section 8.02(a)(vii)).
The amount of Indebtedness of the Loan
Parties described in Section 8.02(a)(vii) of
the Credit Agreement incurred during the
current fiscal year was $__________ which is
less than $100,000,000, the maximum amount
permitted to be incurred during the current
fiscal year. The amount of such Indebtedness
is computed as follows:
<PAGE> 78
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 7
Indebtedness either (1) assumed by acquiring
Loan Parties in Permitted Poolings during the
current fiscal year, or (2) of Pooling
Partners and their Subsidiaries whose stock
or other ownership interests were acquired in
Permitted Poolings during the current fiscal
year, including in the case of both (1) and
(2) any Indebtedness which has been repaid
since the date of the pooling as well as
Indebtedness which remains outstanding on the
date of this certificate.
<TABLE>
<CAPTION>
Loan Party
which assumed Collateral
Indebtedness or securing
Pooling Partner Date of the
whose stock Permitted Indebted- Amount of
was acquired Pooling ness (if any) Indebtedness
------------ ------- ------------- ------------
<S> <C> <C> <C>
$
---------------- ---------- ------------- ----------
$
---------------- ---------- ------------- ----------
$
---------------- ---------- ------------- ----------
</TABLE>
<TABLE>
<S> <C>
Total (may not exceed $100,000,000) $
----------
</TABLE>
(8) Permitted Additional Institutional Indebtedness
(Section 8.02(a)(ix) and definition of "Permitted
Additional Institutional Indebtedness"). The
following is a list of Permitted Additional
Institutional Indebtedness outstanding on the Report
Date:
<TABLE>
<CAPTION>
Documen-tation
governing
debt
has been
delivered
Loan to Agent**
Lender Party Amount (yes/no)
------ ----- ------ --------
<S> <C> <C> <C>
$
---------------- ---------- ------------- ----------
$
---------------- ---------- ------------- ----------
$
---------------- ---------- ------------- ----------
</TABLE>
**Documentation governing Indebtedness should
be enclosed with the certificate if it has
not previously been delivered to Agent
(9) Permitted Additional Subordinated Indebtedness in
Excess of $5,000,000 (Section 8.02(a)(x) and
definition of "Permitted Additional Subordinated
Indebtedness"). The following is a list of all
Permitted Additional Subordinated Indebtedness
outstanding on the Report Date which individually
exceeds $5,000,000:
<PAGE> 79
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 8
<TABLE>
<CAPTION>
Documen-tation
governing
debt
has been
delivered
Loan to Agent**
Lender Party Amount (yes/no)
------ ----- ------ --------
<S> <C> <C> <C>
$
---------------- ---------- ------------- ----------
$
---------------- ---------- ------------- ----------
$
---------------- ---------- ------------- ----------
</TABLE>
**Documentation governing Indebtedness should
be enclosed with the certificate if it has
not previously been delivered to Agent
(10) Permitted Acquisitions. (Section 8.02(d)) The Loan
Parties made the following Permitted Acquisitions
during the quarter ending on the Report Date:
<TABLE>
<CAPTION>
Type of
Transaction
(Permitted
Purchase/ Purchase Price/
Seller/ Permitted Date of Pooling
Pooling Partner Pooling) Closing Consideration
--------------- -------- ------- -------------
<S> <C> <C> <C>
-------------------- ------------------- --------------- -------------------
-------------------- ------------------- --------------- -------------------
-------------------- ------------------- --------------- -------------------
</TABLE>
(11) Permitted Investment in Excluded Entities; Restricted
Investments in Arizona Rehab and Meridian Point
(Sections 8.02(f) and (i)). The Loan Parties'
Restricted Investments: (a) of the type described in
clauses (i) or (ii) of the definition of Restricted
Investments, in West Virginia Rehabilitation
Services, Inc. ("WVRS") and American Health
Enterprises, Ltd. ("AHE") collectively are $_______,
which is less than $600,000; and (b) of the type
described in clauses (iii) and (iv) of the definition
of Restricted Investments, in WVRS and AHE
collectively are $_______ which, together with the
actual investment set forth in the preceding clause
(a) is less than $30,000,000. The Loan Parties'
Restricted Investments in each of the Excluded
Entities other than WVRS and AHE is less than
$10,000,000 and its aggregate Restricted Investments
in all Excluded Entities other than WVRS and AHE is
$__________ which is less than $30,000,000. The
foregoing is computed below. The table below lists
as of the Report Date each Subsidiary and Minority
Subsidiary which is not a Borrower or Guarantor
(whether or not the Loan Parties have made an
investment therein) and each Unaffiliated Managed
Company in which the Loan Parties have made an
investment. The sum of the amounts described in the
following clauses (a) and (b) is $__________, which
is less than or equal to $7,500,000: (a) the Loan
<PAGE> 80
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 9
Parties' Restricted Investments in Arizona
Rehabilitation Hospital, Inc. ("Arizona Rehab") are
$__________; and (b) the Revolving Credit Loans
outstanding to Arizona Rehab are $__________. The
sum of the amount described in the following clauses
(a) and (b) is $__________, which is less than or
equal to $7,500,000: (a) the Loan Parties' Restricted
Investments in Meridian Point Rehabilitation
Hospital, Inc. ("Meridian Point") are $__________;
and (b) the Revolving Credit Loans outstanding to
Meridian Point are $__________.
<TABLE>
<CAPTION>
(iv)
Other
(i) obligations Total
Investments (iii) to or for Restricted
in or (ii) Guaranties the benefit Investments
contributions Loans to on behalf of of (Sum of
Excluded to Excluded Excluded Excluded Excluded columns (i)
Entity Entity Entity Entity Entity thru (iv))
------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
A. WVRS and AHE
- - - ---------------
West Virginia
Rehabilitation
Services, Inc. $
-------------- ------------ ----------- --------- ----------
American Health
Enterprises,
Ltd. $
-------------- ------------ ----------- --------- ----------
</TABLE>
<TABLE>
<S> <C>
Total (must be less than $30,000,000) $
----------
</TABLE>
B. All Other Excluded Entities
- - - ------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
$
--------------- -------------- ------------ ----------- --------- ----------
$
--------------- -------------- ------------ ----------- --------- ----------
$
--------------- -------------- ------------ ----------- --------- ----------
</TABLE>
<TABLE>
<S> <C>
Total (must be less than $30,000,000; amount for
each entity must be less than $10,000,000) $
----------
</TABLE>
(12) Events of Default or Potential Default. No event has
occurred and is continuing which constitutes an Event
of Default or Potential Default.
(13) Representations and Warranties. The representations
and warranties contained in Article VI of the Credit
Agreement are true on and as of the date hereof with
the same effect as though such representations and
warranties had been made on and as of the date hereof
(except representations and warranties which
expressly relate solely to an earlier date or time,
which representations and warranties shall have been
true and correct on and as of the specific dates or
times referred to therein) and the
<PAGE> 81
PNC BANK, NATIONAL ASSOCIATION
_______________, 19___
Page 10
Loan Parties have performed and complied with all
covenants and conditions hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate this ______ day of _________, 19_____.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
<PAGE> 82
EXHIBIT J
FORM OF
REVOLVING CREDIT NOTE
$______________ Pittsburgh, Pennsylvania
November ___, 1994
FOR VALUE RECEIVED, the undersigned, __________________, a
___________________ corporation (herein called the "Borrower"), hereby promises
to pay to the order of ________________________ (the "Bank") the lesser of (i)
the principal sum of ____________ U.S. Dollars (U.S. $_______________) or (ii)
the aggregate unpaid principal balance of all Revolving Credit Loans made by
the Bank to the Borrower pursuant to that certain Credit Agreement dated as of
May 27, 1994, as amended, between [NovaCare, Inc., a Delaware corporation
("NovaCare")], certain Subsidiaries of NovaCare as identified on Schedule
6.01(c) thereto, the Banks party thereto and PNC Bank, National Association, as
Agent (as it may hereafter from time to time be amended, restated, modified or
supplemented, the "Credit Agreement"), payable on such dates as set forth in
the Credit Agreement with the entire outstanding balance, together with
interest thereon, due and payable on the Expiration Date.
The Borrower shall pay interest on the unpaid principal balance
hereof from time to time outstanding from the date hereof at the rate or rates
per annum specified by the Borrower pursuant to Section 4.01 of, or as
otherwise provided in, the Credit Agreement.
Upon the occurrence and during the continuation of an Event of
Default, the Borrower shall pay interest on the entire principal amount of the
then outstanding Loans evidenced by this Revolving Credit Note and all other
obligations due and payable by the Borrower to the Bank pursuant to the Credit
Agreement and the other Loan Documents at a rate per annum as set forth in
Section 4.03 of, or as otherwise provided for in, the Credit Agreement. Such
interest rate will accrue before and after any judgment has been entered.
Interest on this Note will be payable in such manner and on such
dates as set forth in the Credit Agreement.
Subject to the provisions of the Credit Agreement, payment of
both principal and interest shall be made without setoff, counterclaim or other
deduction of any nature at the office
<PAGE> 83
of the Agent located at One PNC Plaza, Fifth Avenue and Wood Street,
Pittsburgh, Pennsylvania 15265, in lawful money of the United States of
America in immediately available funds.
This Revolving Credit Note is one of the Revolving Credit Notes
referred to in, and is entitled to the benefits of, the Credit Agreement and
other Loan Documents, including the representations, warranties, covenants,
conditions, security interests or Liens contained or granted therein. The
Credit Agreement among other things contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events upon the terms and
conditions therein specified.
All capitalized terms used herein shall, unless otherwise
defined herein, have the same meanings given to such terms in the Credit
Agreement.
Except as otherwise provided in the Credit Agreement, the
Borrower waives presentment, demand, notice, protest and all other demands and
notices in connection with the delivery, acceptance, performance, default or
enforcement of this Revolving Credit Note and the Credit Agreement.
This Revolving Credit Note shall bind the Borrower and its
successors and assigns, and the benefits hereof shall inure to the benefit of
the Bank and its successors and assigns. All references herein to the
"Borrower" and the "Bank" shall be deemed to apply to the Borrower and the
Bank, respectively, and their respective successors and assigns.
This Revolving Credit Note and any other documents delivered in
connection herewith and the rights and obligations of the parties hereto and
thereto shall for all purposes be governed by and construed and enforced in
accordance with the internal laws of the Commonwealth of Pennsylvania without
giving effect to its conflicts of law principles.
-2-
<PAGE> 84
[SIGNATURE PAGE 1 OF 1 TO THE REVOLVING CREDIT NOTE]
IN WITNESS WHEREOF, the undersigned has executed this Revolving
Credit Note by its duly authorized officers with the intention that it
constitute a sealed instrument.
ATTEST: [ ]
-------------------------
By:
- - - ------------------------------ ----------------------
Title: Title:
[Seal]
-3-
<PAGE> 85
EXHIBIT K
CONFIRMATION OF GUARANTY
November __, 1994
To: Those Guarantors Listed
on Schedule 6.01(c) of
the Credit Agreement (as
hereinafter defined)
Reference is made to that certain Credit Agreement, dated as of May 27, 1994,
as amended (the "Credit Agreement"), by and among NovaCare, Inc. and certain of
its Subsidiaries, the Banks party thereto and PNC Bank, National Association
("Agent"). All terms used herein unless otherwise defined herein shall have
the meanings as set forth in the Credit Agreement.
NovaCare, Inc. and certain of its Subsidiaries, the Banks and the Agent have
entered into that certain First Amendment attached hereto as Exhibit A (the
"First Amendment").
On the date hereof, NovaCare, Inc. and certain of its Subsidiaries, the Banks
and the Agent shall enter into that certain Second Amendment to Credit
Agreement (the "Second Amendment"), a copy of which is attached hereto as
Exhibit B.
Pursuant to the Credit Agreement, on May 27, 1994 you entered into the Loan
Documents to which you are a party.
This letter agreement will confirm that you have read and understand the First
Amendment and Second Amendment. You agree and acknowledge that, among other
things, that on and after the effective date of the Second Amendment, the
Revolving Credit Commitment will be increased from $115,000,000 to $175,000,000
and the Expiration Date will be extended as provided in the Second Amendment.
You hereby ratify and confirm each of the Loan Documents to which you are a
party by signing below as indicated.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION,
as Agent
By:
----------------------------
<PAGE> 86
Intending to be legally bound
hereby, the undersigned have
accepted and agreed to the
foregoing as of the date and
year first above written.
NOVACARE, INC. and each of
the Borrowers and Guarantors
under the Credit Agreement
By:
-------------------------------
Timothy E. Foster, Vice President
of each of the entities listed
on Schedule 6.01(c) other than
those listed below
By:
-------------------------------
Joseph C. O'Neil, President of
each of the entities listed
above his name on the signature
lines to the Credit Agreement
By:
-------------------------------
Andrew J. Beck, Vice President
of Mill River III, Inc., a
Delaware corporation
-2-
<PAGE> 1
EXHIBIT 10(c)
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 2nd day of December, 1994 by and between
NOVACARE, INC., a Delaware corporation (the "Company"), and TIMOTHY E. FOSTER
(the "Executive").
W I T N E S E T H:
WHEREAS, the Executive has served as Senior Vice President-Finance
and Administration and Chief Financial Officer of the Company since 1988; and
WHEREAS, the Executive has been appointed President and Chief
Operating Officer of the Company effective October 27, 1994, and the Company
and the Executive wish to set forth the terms and conditions on which he will
serve in such position.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto hereby agree as follows:
1. EMPLOYMENT, TERM, AUTOMATIC EXTENSION.
1.1 Employment. The Company agrees to employ the Executive, and
the Executive agrees to serve in the employ of the Company, for the term set
forth in Section 1.2, in the positions and with the responsibilities, duties
and authority set forth in Section 2 and on the other terms and conditions set
forth in this Agreement.
1.2 Term. The term of the Executive's employment under this
Agreement shall commence on December 2, 1994 and shall terminate on December
31, 1998, unless extended or sooner terminated in accordance with this
Agreement.
1.3 Automatic Extension. As of December 31, 1997, and as of
December 31 of each subsequent year (each, an "Automatic Renewal Date"), unless
either party shall have given a notice of non-extension prior to such Automatic
Renewal Date, the term of this Agreement shall be extended automatically for a
period of one year to the anniversary of the expiration date of the
then-current term of this Agreement. Once a notice of non-extension shall have
been given by either party, there shall be no further automatic extension of
this Agreement.
<PAGE> 2
2
2. POSITION, DUTIES.
The Executive shall serve in the positions of President and Chief
Operating Officer of the Company. The Executive shall perform, faithfully and
diligently, such duties, and shall have such responsibilities, appropriate to
said positions, as shall be assigned to him from time to time by the Chief
Executive Officer and the Board of Directors of the Company. The Executive
shall report to the Chief Executive Officer of the Company. The Executive
shall devote his full time and attention to the performance of his duties and
responsibilities hereunder; provided, however, that the Executive shall be
entitled to devote time to personal business matters during non-business hours
or during business hours to the extent they do not unreasonably interfere with
his duties hereunder.
3. SALARY, INCENTIVE BONUS, STOCK OPTIONS.
3.1 Salary. During the term of this Agreement, in consideration
of the performance by the Executive of the services set forth in Section 2 and
his observance of the other covenants set forth herein, the Company shall pay
to the Executive, and the Executive shall accept, a base salary at the rate of
$425,000 per annum, payable in accordance with the standard payroll practices
of the Company. The Executive shall be entitled to such increases in base
salary during the term hereof as shall be determined by the Chief Executive
Officer of the Company and approved by the Compensation Committee of the Board
of Directors of the Company in their sole discretion, taking account of the
performance of the Company and the Executive, the size of the Company from time
to time, and other factors generally considered relevant to the salaries of
officers holding similar positions with enterprises comparable to the Company.
In no event shall the base salary of the Executive be decreased during the term
of this Agreement.
3.2 Incentive Bonus. (a) In addition to the base salary
provided for in Section 3.1, the Company shall pay to the Executive an
incentive bonus with respect to each fiscal year of the Company ending during
the term of this Agreement in accordance with this Section 3.2. The incentive
bonus for each fiscal year shall be an amount equal to the product of the Net
Income (as hereinafter defined) of the Company multiplied by the Applicable
Percentage (as hereinafter defined); provided that no incentive bonus shall be
payable with respect to a fiscal year in which Net Income is less than ninety
percent (90%) of Budgeted Net Income (as hereinafter defined).
<PAGE> 3
3
For purposes of this Section 3.2:
(i) the term "Net Income" shall mean, for any fiscal
year of the Company, the consolidated after-tax profit of the Company and its
wholly-owned subsidiaries for such year, without regard to extraordinary
non-operating profits and losses such as gain from sale of operating units, as
shown in the audited financial statements of the Company for such fiscal year.
In the event of any change in the fiscal year of the Company, appropriate
adjustments shall be made to the provisions of this Section 3.2 in order to
carry out the essential intent and principles of this Section 3.2;
(ii) the term "Applicable Percentage" shall mean, for
the fiscal year of the Company ending June 30, 1995, three tenths of one
percent (0.3%) of the Net Income for such fiscal year, and for each subsequent
fiscal year of the Company, one half of one percent (0.5%) of Net Income for
such fiscal year; provided that in any Fiscal Year in which Net Income is
between 90% and 99% of Budgeted Net Income, the Applicable Percentage shall be
the Applicable Percentage for such Fiscal Year determined without regard to
this proviso multiplied by the "Adjustment Percentage" in the table below
opposite the percentage (rounded down to the nearest complete percentage point)
of Budgeted Net Income attained as Net Income in such Fiscal Year:
<TABLE>
<CAPTION>
Percentage of Budgeted
Net Income Attained Adjustment Percentage
---------------------- ---------------------
<S> <C>
90% 45%
91% 51%
92% 56%
93% 62%
94% 67%
95% 73%
96% 78%
97% 84%
98% 89%
99% 95%
</TABLE>
and;
(iii) the term "Budgeted Net Income" shall mean, for
any fiscal year of the Company, net income as set forth in the annual business
plan of the Company for such fiscal year as prepared by the Company's
management and approved by the Board of Directors of the Company; it being
agreed that for the fiscal
<PAGE> 4
4
year ending June 30, 1995, Budgeted Net Income shall mean the net income set
forth in the revised business plan approved by the Board of Directors on
[ ].
(b) In the event of the termination of employment of the
Executive pursuant to Section 6.1 (Death), 6.2 (Disability), Section 6.4
(Without Cause), 6.5 (Voluntary Termination), 6.6 (Constructive Termination) or
6.7 (Change of Control) of this Agreement, the Executive (or his estate or
other legal representative) shall be entitled to a bonus for the fiscal year in
which such termination takes place in an amount equal to the product of (i) the
bonus for such fiscal year determined pursuant to Section 3.2, multiplied by
(ii) a fraction, the numerator of which is the number of days from the
beginning of such fiscal year to the date of termination, and the denominator
of which is 365. In the event of the termination of employment of the
Executive pursuant to Section 6.3 (Due Cause) of this Agreement, the Executive
shall not be entitled to a bonus for the fiscal year of the Company in which
such termination takes place. The Executive shall not be entitled to a bonus
for any fiscal year of the Company subsequent to the fiscal year in which the
termination of his employment pursuant to Section 6.1 (Death), 6.2
(Disability), 6.3 (Due Cause) or 6.5 (Voluntary Termination) takes place.
(c) The bonus payable to the Executive (or his estate or
other legal representative) for any fiscal year of the Company pursuant to this
Section 3.2 shall be paid by the Company within ten (10) days of receipt by the
Company of the audited financial statements of the Company for such fiscal
year.
3.3 Stock Options. (a) On December 2, 1994, the Company
granted to the Executive, under the Company's 1986 Stock Option Plan, options
to purchase 25,000 shares of the Company's common stock par value $.01 per
share ("Common Stock"), at an exercise price of $7.25 per share, which is the
market value of the Common Stock on the date of grant (the "Options"). The
Options:
(i) have a term of ten (10) years from the
applicable dates of grant;
(ii) become exercisable as to 20% of the shares
covered thereby on the first anniversary of the applicable dates of grant and
as to an additional 20% of such shares on each of the next four anniversaries
of such applicable dates of grant;
<PAGE> 5
5
(iii) in the event of termination pursuant to Section
6.3 (Due Cause) or Section 6.6 (Constructive Termination), remain exercisable
for a period of three (3) months, commencing on the date of termination of
employment, but only as to those shares as to which the Options were
exercisable at the date of termination; and
(iv) become exercisable in full upon a Change in
Control of the Company (as defined in Section 6.7), whether or not the
employment of the Executive shall be terminated, and upon the termination of
the employment of the Executive pursuant to Section 6.1 (Death), Section 6.2
(Disability) or Section 6.4 (Without Due Cause) and, in any such case, shall
remain exercisable for three months after the termination date, except that in
the event of termination by reason of death, they shall remain exercisable for
twelve (12) months after the termination date.
(b) The Executive shall be eligible for annual grants of options
to purchase an additional 50,000 shares of Common Stock under the Company's
executive compensation plan.
The Options are or shall be evidenced by a Stock Option Agreement or other
appropriate documentation embodying the foregoing terms and other standard
terms and conditions not inconsistent with the foregoing terms.
4. EXPENSE REIMBURSEMENT.
During the term of this Agreement, the Company shall reimburse the
Executive for all reasonable and necessary out-of-pocket expenses incurred by
him in connection with the performance of his duties hereunder, upon the
presentation of proper accounts therefor in accordance with the Company's
policies.
5. BENEFITS, PERQUISITES.
5.1 Generally. During the term of this Agreement, the Executive
will be eligible to participate in all employee benefit plans and programs
offered by the Company from time to time to its employees of comparable
seniority, subject to the provisions of such plans and programs as in effect
from time to time.
5.2 Perquisites. (a) During the term of this Agreement, the
Company shall provide the Executive with the use of the Company's private
corporate jet for personal travel in connection with two vacations annually;
provided that the Company
<PAGE> 6
6
shall have no obligation to provide the Executive with the use of a private
corporate jet under this Section 5.2 during any period that the Company does
not own or lease a private corporate jet.
(b) During the term of this Agreement, the Company shall
also provide the Executive with the following: (i) a telephone in his
automobile (for which the Company shall pay for all installation, service and
other charges), (ii) first class airfare for travel in connection with the
performance of his duties hereunder, (iii) a corporate credit card of the
Executive's choosing and (iv) a four-week paid vacation each year.
6. TERMINATION OF EMPLOYMENT.
6.1 Death. In the event of the death of the Executive, the
Company shall (i) pay to the estate or other legal representative of the
Executive (a) the base salary provided for in Section 3.1 (at the annual rate
then in effect) accrued to the date of the Executive's death and not
theretofore paid to the Executive and (b) any incentive bonus which shall be or
become payable pursuant to Section 3.2. Rights and benefits of the estate or
other legal representative or transferee of the Executive (a) with respect to
the Options shall be determined in accordance with Section 3.3 and (b) under
the benefit plans and programs of the Company shall be determined in accordance
with the provisions of such plans and programs. Neither the estate or other
legal representative of the Executive nor the Company shall have any further
rights or obligations under this Agreement, except as provided in Section 15.
6.2 Disability. If the Executive shall become incapacitated by
reason of sickness, accident or other physical or mental disability and shall
be unable to perform his normal duties hereunder for a period of six (6)
consecutive months, then, at any time following the conclusion of such six (6)
month period, the employment of the Executive hereunder may be terminated by
the Company or the Executive, upon thirty (30) days' notice to the other. In
the event of such termination, the Company shall (a) pay to the Executive the
base salary provided for in Section 3.1 (at the annual rate then in effect)
accrued to the date of such termination and not theretofore paid and (b) pay to
the Executive any bonus which shall be or become payable under Section 3.2.
Rights and benefits of the Executive or his transferee (a) with respect to the
Options shall be determined in accordance with Section 3.3 and (b) under the
other benefit plans and programs of the Company shall be determined in
accordance with the terms and provisions of such plans and programs.
<PAGE> 7
7
Neither the Executive nor the Company shall have any further rights or
obligations under this Agreement, except as provided in Sections 7, 8, 9 and
15.
6.3 Due Cause. The employment of the Executive hereunder may be
terminated by the Company at any time for Due Cause (as hereinafter defined).
In the event of such termination, the Company shall pay to the Executive the
base salary provided for in Section 3.1 (at the annual rate then in effect)
accrued to the date of such termination and not theretofore paid to the
Executive. The Company shall also pay to the Executive any bonus which shall
be or become payable to the Executive under Section 3.2 with respect to any
fiscal year of the Company ended prior to the date of such termination. Rights
and benefits of the Executive or his transferee (a) with respect to the Options
shall be determined in accordance with Section 3.3 and (b) under the benefit
plans and programs of the Company shall be determined in accordance with the
provisions of such plans and programs. For purposes hereof, "Due Cause" shall
mean (i) willful, gross neglect or willful, gross misconduct in the Executive's
discharge of his duties and responsibilities under this Agreement, or (ii) the
Executive's conviction of a felony; provided, however, that the Executive shall
be given written notice by the Chief Executive Officer of the Company that it
intends to terminate the Executive's employment for Due Cause, which written
notice shall specify the act or acts upon which the Chief Executive Officer of
the Company intends so to terminate the Executive's employment, and the
Executive shall then be given the opportunity, within fifteen (15) days of his
receipt of such notice, to have a meeting with the Chief Executive Officer of
the Company to discuss such act or acts. If the basis of such written notice
is other than an act or acts described in clause (ii), the Executive shall be
given seven (7) days after such meeting within which to cease or correct the
performance (or nonperformance) giving rise to such written notice and, upon
failure of the Executive within such seven (7) days to cease or correct such
performance (or nonperformance), the Executive's employment by the Company
shall automatically be terminated hereunder for Due Cause. Neither the
Executive nor the Company shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8, 9 and 15.
6.4 Termination by the Company Without Cause. (a) The Company
may terminate the Executive's employment at any time for whatever reason it
deems appropriate or without reason; provided, however, that in the event that
such termination is not pursuant to Section 6.1 (Death), 6.2 (Disability), 6.3
(Due
<PAGE> 8
8
Cause) or 6.5 (Voluntary Termination), the Company shall pay to the Executive:
(A) on the date of termination, the base salary
provided for in Section 3.1 (at the annual rate then in effect) accrued to the
date of termination and not theretofore paid to the Executive;
(B) severance pay, in the form of salary
continuation for a period ("Severance Pay Period") of two (2) years commencing
on the date of termination, at a rate equal to the base salary provided for in
Section 3.1 (at the annual rate then in effect);
(C) any incentive bonus which shall be or become
payable to the Executive pursuant to Section 3.2;
(D) on a date (the "Payment Date") within ten (10)
days of receipt by the Company of the audited financial statements of the
Company for the fiscal year in which such termination shall have occurred, an
amount equal to the Final Bonus (as hereinafter defined) and, on the first
anniversary of the Payment Date, an amount equal to one-half of the Final
Bonus. As used herein, (X) if the date of termination of the Executive's
employment shall occur during the first six months of any fiscal year of the
Company, the term "Final Bonus" shall mean an amount equal to the bonus earned
by the Executive for the last completed fiscal year of the Company preceding
the date of termination of his employment and (Y) if the date of termination of
the Executive's employment shall occur during the last six months of any fiscal
year of the Company, the term "Final Bonus" shall mean an amount equal to the
greater of (i) the bonus earned by the Executive for the last completed fiscal
year of the Company preceding the date of termination of his employment or (ii)
the bonus for the fiscal year in which the termination of employment occurs, as
determined pursuant to Section 3.2(a) and before prorating pursuant to Section
3.2(b).
(b) During the Severance Pay Period, the Executive shall
diligently seek other full-time employment which is suitable and appropriate in
light of his background, experience, seniority and stature. Amounts payable to
the Executive pursuant to Section 6.4(a)(B) and 6.4(a)(D) shall be offset by
amounts earned from other employment (whether as an employee, a consultant or
otherwise) during the Severance Pay Period (provided that the Executive shall
in no event be required to refund any amounts which he has previously received
from the Company).
<PAGE> 9
9
(c) Rights and benefits of the Executive or his transferee (a)
with respect to the Options shall be determined in accordance with Section 3.3
and (b) under the other benefit plans and programs of the Company shall be
determined in accordance with the provisions of such plans and programs.
Neither the Executive nor the Company shall have any further rights or
obligations under this Agreement, except as provided in Sections 7, 8, 9 and
15.
6.5 Voluntary Termination. The Executive may terminate his
employment with the Company at any time upon thirty (30) days' prior written
notice to the Company. In the event of such termination (unless such
termination is within one year following a Change in Control of the Company, in
which case the provisions of Section 6.7 hereof shall be applicable), the
Company shall pay to the Executive the base salary provided for in Section 3.1
(at the annual rate then in effect) accrued to the date of such termination and
not theretofore paid to the Executive. The Company shall also pay to the
Executive any bonus which shall be or become payable pursuant to Section 3.2.
Rights and benefits of the Executive or his transferee (a) with respect to the
Options shall be determined in accordance with Section 3.3 and (b) under the
benefit plans and programs of the Company shall be determined in accordance
with the provisions of such plans and programs. Neither the Executive nor the
Company shall have any further rights or obligations under this Agreement,
except as provided in Sections 7, 8, 9 and 15.
6.6 Constructive Termination. Anything herein to the contrary
notwithstanding, if, without the Executive's consent, the Company:
(A) demotes the Executive to a lesser position than
provided in Section 2;
(B) causes a material change in the nature or scope
of the authorities, powers, functions, duties, or responsibilities attached to
the Executive's position as described in Section 2;
(C) decreases the Executive's base salary, changes
the bonus formula provided for in Section 3 or eliminates any of the benefits
or perquisites provided for in Section 5; or
(D) fails to cause the election of the Executive to
the Board of Directors of the Company;
<PAGE> 10
10
then, within thirty (30) days after learning of the action (or inaction), the
Executive may advise the Company in writing that the action (or inaction)
constitutes a termination of his employment by the Company pursuant to Section
4.4 (Without Cause), in which event the Company shall have thirty (30) days
(the "Correction Period") in which to correct such action (or inaction). If
the Company does not correct such action (or inaction) during the Correction
Period, such action (or inaction) shall (unless consented to in writing by the
Executive) constitute a termination of the Executive's employment by the
Company pursuant to Section 6.4 (Without Cause) effective on the first business
day following the end of the Correction Period.
6.7 Termination of Employment Following a Change in
Control. Anything herein to the contrary notwithstanding, the Executive may
terminate his employment with the Company during the one (1) year period
following a Change in Control, and such termination shall constitute a
termination of the Executive's employment by the Company pursuant to Section
6.4 (Without Cause); provided, however, that the amounts referred to in
paragraphs (A) and (B) of Section 6.4 shall be paid to the Executive in a lump
sum on the date of termination and the amounts referred to in paragraph (D) of
Section 6.4 shall be paid to the Executive in a lump sum on the Payment Date;
and further provided that the Executive shall be under no obligation to seek
other employment and shall be under no obligation to offset any amounts earned
from such other employment (whether as an employee, a consultant or otherwise)
against such payments. For purposes of this Agreement, a Change in Control of
the Company shall be deemed to have occurred if:
(A) a "person" (meaning an individual, a
partnership, or other group or association as defined in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, other than the Executive or a
group including the Executive), either (i) acquires twenty percent (20%) or
more of the combined voting power of the outstanding securities of the Company
having a right to vote in elections of directors and such acquisition shall not
have been approved within sixty (60) days following such acquisition by a
majority of the Continuing Directors (as hereinafter defined) then in office or
(ii) acquires fifty percent (50%) or more of the combined voting power of the
outstanding securities of the Company having a right to vote in elections of
directors; or
(B) Continuing Directors shall for any reason cease
to constitute a majority of the Board of Directors of the Company; or
<PAGE> 11
11
(C) all or substantially all of the business and/or
assets of the Company is disposed of by the Company to a party or parties other
than a subsidiary or other affiliate of the Company, pursuant to a partial or
complete liquidation of the Company, sale of assets (including stock of a
subsidiary of the Company) or otherwise.
For purposes of this Agreement, the term "Continuing Director"
shall mean a member of the Board of Directors of the Company who either was a
member of the Board of Directors on the date hereof or who subsequently became
a Director and whose election, or nomination for election, was approved by a
vote of at least two-thirds of the Continuing Directors then in office.
6.8 Acceleration of Payments. In the event that the Company
shall fail to pay to the Executive any amount payable pursuant to this Section
6 at the time such payment is due, all amounts to be paid to the Executive (or
his estate or legal representative) pursuant to this Section 6, Section 3 and
any other provision of this Agreement shall become immediately due and payable
without any further action by the Executive (or his estate or legal
representative).
7. CONFIDENTIAL INFORMATION.
7.1 Nondisclosure. The Executive shall, during the term of this
Agreement and at all times thereafter, treat as confidential and, except as
required in the performance of his duties and responsibilities under this
Agreement, not disclose, publish or otherwise make available to the public or
to any individual, firm or corporation any confidential information (as
hereinafter defined).
7.2 Confidential Information Defined. For the purposes hereof,
the term "confidential information" shall mean all information acquired by the
Executive in the course of the Executive's employment with the Company in any
way concerning the products, projects, activities, business or affairs of the
Company or the Company's customers, including, without limitation, all
information concerning trade secrets and the products or projects of the
Company and/or any improvements therein, all sales and financial information
concerning the Company, all customer and supplier lists, all information
concerning projects in research and development or marketing plans for any such
products or projects, and all information in any way concerning the products,
projects, activities, business or affairs of customers of the Company which is
furnished to the Executive by the Company or any of its agents or customers, as
<PAGE> 12
12
such; provided, however, that the term "confidential information" shall not
include information which (a) becomes generally available to the public other
than as a result of a disclosure by the Executive, (b) was available to the
Executive on a non-confidential basis prior to his employment with the Company
or (c) becomes available to the Executive on a non-confidential basis from a
source other than the Company or any of its agents or customers provided that
such source is not bound by a confidentiality agreement with the Company or any
of such agents or customers.
8. INTERFERENCE WITH THE COMPANY.
8.1 Restrictions. The Executive acknowledges that the services
to be rendered by him to the Company are of a special and unique character. In
order to induce the Company to enter into this Agreement, and in consideration
of his employment hereunder, the Executive agrees, for the benefit of the
Company, that he will not, during the period of his employment with the Company
and thereafter, for the Applicable Period (as hereinafter defined) commencing
on the date of termination of his employment with the Company:
(a) engage, directly or indirectly, whether as principal,
consultant, employee, partner, stockholder, limited partner or other investor
(other than an investment of (i) not more than five percent (5%) of the stock
or equity of any corporation the capital stock of which is publicly traded or
(ii) not more than five percent (5%) of the ownership interest of any
partnership or other entity) or otherwise, within the United States of America,
with any firm or person in any activity or business venture which is in
competition with any line or lines of business being conducted by the Company
or any subsidiary of the Company at the date of termination of the Executive's
employment with the Company, accounting for ten percent (10%) or more of the
Company's consolidated gross sales, revenues or earnings before taxes for the
fiscal year ended immediately prior to the conduct in question (the
"Competition Restriction"); or
(b) solicit or entice or endeavor to solicit or entice
away from the Company any person who was an "officer" (as such term is used in
Rule 16a-1 under Section 16 of the Securities Exchange Act of 1934) of the
Company, either for his own account or for any individual, firm or corporation,
whether or not such person would commit any breach of his contract of
employment by reason of leaving the service of the Company (the "Solicitation
Restriction"); or
<PAGE> 13
13
(c) employ, directly or indirectly, any person who was an
officer (as defined above) of the Company at any time during the one year
period ending on the date of termination of the Executive's employment with the
Company, except that this restriction shall not apply in the case of any person
whose employment shall have been terminated by the Company (the "Hiring
Restriction").
8.2 Time Periods. As used in this Section 8, the term
"Applicable Period" shall mean:
(a) twelve (12) months in the case of a termination of
employment pursuant to Section 6.3 (Due Cause);
(b) twenty-four (24) months as to the Competition and
Solicitation Restrictions and twelve (12) months as to the Hiring Restriction
in the case of a termination of employment pursuant to Section 6.4 (Without Due
Cause) or Section 6.6 (Constructive Termination);
(c) twenty-four (24) months as to the Competition
Restriction and twelve (12) months as to the Solicitation and Hiring
Restrictions in the case of a termination pursuant to Section 6.7 (Change in
Control); and
(d) twenty-four (24) months as to the Competition and
Solicitation Restrictions and twelve (12) months as to the Hiring Restriction
in the case of a termination pursuant to Section 6.2 (Disability) or Section
6.5 (Voluntary Termination), but only if the Company gives notice to the
Executive within thirty (30) days of the date of termination of employment of
its intention to enforce such restrictions against the Executive, and subject
to the Company's continued payment to the Executive during such twenty-four
(24) month period of the base salary provided for in Section 3.1 (at the annual
rate in effect at the date of termination).
9. EQUITABLE RELIEF.
In the event of a breach or threatened breach by the Executive of
any of the provisions of Sections 7 or 8 of this Agreement, the Executive
hereby consents and agrees that the Company shall be entitled to an injunction
or similar equitable relief from any court of competent jurisdiction
restraining the Executive from committing or continuing any such breach or
threatened breach or granting specific performance of any act required to be
performed by the Executive under any of such provisions, without the necessity
of showing any actual damage or
<PAGE> 14
14
that money damages would not afford an adequate remedy and without the
necessity of posting any bond or other security. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies at law or
in equity which it may have.
10. SUCCESSORS AND ASSIGNS.
10.1 Assignment by the Company. The Company shall require any
successors (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform if no such
succession had taken place. As used in this Section, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law and this Agreement shall be
binding upon, and inure to the benefit of, the Company, as so defined.
10.2 Assignment by the Executive. The Executive may not assign
this Agreement or any part thereof without the prior written consent of a
majority of the Board of Directors of the Company; provided, however, that
nothing herein shall preclude one or more beneficiaries of the Executive from
receiving any amount that may be payable following the occurrence of his legal
incompetency or his death and shall not preclude the legal representative of
his estate from receiving such amount or from assigning any right hereunder to
the person or persons entitled thereto under his will or, in the case of
intestacy, to the person or persons entitled thereto under the laws of
intestacy applicable to his estate. The term "beneficiaries", as used in this
Agreement, shall mean a beneficiary or beneficiaries so designated to receive
any such amount or, if no beneficiary has been so designated, the legal
representative of the Executive (in the event of his incompetency) or the
Executive's estate.
11. GOVERNING LAW.
This Agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the laws of the Commonwealth of
Pennsylvania applicable to contracts to be performed entirely within such
state. In the event that a court of any jurisdiction shall hold any of the
provisions of this Agreement to be wholly or partially unenforceable for any
reason, such determination shall not bar or in any way affect the Company's
right to relief as provided for herein in the courts of
<PAGE> 15
15
any other jurisdiction. Such provisions, as they relate to each jurisdiction,
are, for this purpose, severable into diverse and independent covenants.
Service of process on the parties hereto at the addresses set forth herein
shall be deemed adequate service of such process.
12. ENTIRE AGREEMENT.
This Agreement contains all the understandings and representations
between the parties hereto pertaining to the subject matter hereof and
supersedes all undertakings and agreements, whether oral or in writing, if any
there be, previously entered into by them with respect thereto.
13. AMENDMENT, MODIFICATION, WAIVER.
No provision of this Agreement may be amended or modified unless
such amendment or modification is agreed to in writing and signed by the
Executive and by a duly authorized representative of the Company other than the
Executive. Except as otherwise specifically provided in this Agreement, no
waiver by either party hereto of any breach by the other party hereto of any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar provision or condition at
the same or any prior or subsequent time, nor shall the failure of or delay by
either party hereto in exercising any right, power or privilege hereunder
operate as a waiver thereof to preclude any other or further exercise thereof
or the exercise of any other such right, power or privilege.
14. ARBITRATION.
Any controversy or claim arising out of or relating to this
Agreement, or any breach thereof, shall, except as provided in Section 9, be
settled by arbitration in accordance with the rules of the American Arbitration
Association then in effect and judgment upon such award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The
arbitration shall be held in the area where the Company then has its principal
place of business. The arbitration award shall include attorneys' fees and
costs to the prevailing party.
15. ADVANCE OF DEFENSE EXPENSES.
In the event of any action, proceeding or claim against the
Executive arising out of his serving or having served in his capacity as an
officer and/or director of the Company, which in
<PAGE> 16
16
the Executive's reasonable judgment requires him to retain counsel (such choice
of counsel to be made in his reasonable discretion) or otherwise expend his
personal funds for his defense in connection therewith, the Company shall be
obligated to advance to the Executive (or pay directly to his counsel)
reasonable counsel fees and other costs associated with the Executive's defense
of such action, proceeding or claim; provided, however, that in such event the
Executive shall first agree in writing, without posting bond or collateral, to
repay all sums paid or advanced to him pursuant to this Section 15 in the event
that the final disposition of such action, proceeding or claim is one for which
the Executive would not be entitled to indemnification pursuant to the
provisions of the laws of the State of Delaware or the Certificate of
Incorporation or By-laws of the Company.
16. NOTICES.
Any notice to be given hereunder shall be in writing and delivered
personally or sent by certified mail, postage prepaid, return receipt
requested, addressed to the party concerned at the address indicated below or
at such other address as such party may subsequently designate by like notice:
If to the Company:
NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Chief Executive Officer
If to the Executive:
Timothy E. Foster
1235 Page Terrace
Villanova, Pennsylvania 19085
17. SEVERABILITY.
Should any provision of this Agreement be held by a court or
arbitration panel of competent jurisdiction to be enforceable only if modified,
such holding shall not affect the validity of the remainder of this Agreement,
the balance of which shall continue to be binding upon the parties hereto with
any such modification to become a part hereof and treated as though originally
set forth in this Agreement. The parties further agree that any such court or
arbitration panel is expressly authorized to modify any such unenforceable
provision of this
<PAGE> 17
17
Agreement in lieu of severing such unenforceable provision from this Agreement
in its entirety, whether by rewriting the offending provision, deleting any or
all of the offending provision, adding additional language to this Agreement,
or by making such other modifications as it deems warranted to carry out the
intent and agreement of the parties as embodied herein to the maximum extent
permitted by law. The parties expressly agree that this Agreement as so
modified by the court or arbitration panel shall be binding upon and
enforceable against each of them. In any event, should one or more of the
provisions of this Agreement be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions hereof, and if such provision or provisions are not
modified as provided above, this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been set forth herein.
18. WITHHOLDING.
Anything to the contrary notwithstanding, all payments required to
be made by the Company hereunder to the Executive or his beneficiaries,
including his estate, shall be subject to withholding of such amounts relating
to taxes as the Company may reasonably determine it should withhold pursuant to
any applicable law or regulation. In lieu of withholding such amounts, in
whole or in part, the Company, may, in its sole discretion, accept other
provision for payment of taxes as permitted by law, provided it is satisfied in
its sole discretion that all requirements of law affecting its responsibilities
to withhold such taxes have been satisfied.
19. SURVIVORSHIP.
The respective rights and obligations of the parties hereunder
shall survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
20. TITLES.
Titles of the sections and paragraphs of this Agreement are
intended solely for convenience and no provision of this Agreement is to be
construed by reference to the title of any section or paragraph.
<PAGE> 18
18
21. COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which taken together shall constitute one and
the same instrument.
* * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
NOVACARE, INC.
By
---------------------------------
John H. Foster
Chairman of the Board
-----------------------------------
Timothy E. Foster
The foregoing Agreement has been
Approved by the Compensation Committee
of the Board of Directors:
- - - ----------------------------------
Robert G. Stone
Chairman of Compensation Committee
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1994 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1994
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) STATEMENTS IN FORM 10-
Q FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1994.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 30,281
<SECURITIES> 47,357
<RECEIVABLES> 279,297
<ALLOWANCES> 38,096
<INVENTORY> 8,737
<CURRENT-ASSETS> 352,043
<PP&E> 123,683
<DEPRECIATION> 37,769
<TOTAL-ASSETS> 919,944
<CURRENT-LIABILITIES> 125,250
<BONDS> 340,030
<COMMON> 647
0
0
<OTHER-SE> 441,515
<TOTAL-LIABILITY-AND-EQUITY> 919,944
<SALES> 0
<TOTAL-REVENUES> 463,011
<CGS> 330,337
<TOTAL-COSTS> 74,978
<OTHER-EXPENSES> 4,466<F1>
<LOSS-PROVISION> 7,815
<INTEREST-EXPENSE> 12,113
<INCOME-PRETAX> 33,302
<INCOME-TAX> 13,367
<INCOME-CONTINUING> 19,935
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,935
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
<FN>
<F1>Other Expenses represents amortization of excess cost at net assets acquired
plus minority interest offset by interest income.
</FN>
</TABLE>
