<PAGE> 1
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 MARCH 31, 1998
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
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 April 30, 1998, NovaCare, Inc. had 61,828,313 shares of common stock, $.01
par value, outstanding.
<PAGE> 2
NOVACARE, INC. AND SUBSIDIARIES
FORM 10-Q - QUARTER ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
PART NO. ITEM NO. DESCRIPTION PAGE NO.
- -------- -------- ----------- --------
<S> <C> <C> <C>
I FINANCIAL INFORMATION
1 Financial Statements
- Condensed Consolidated Balance
Sheets as of March 31, 1998 and
June 30, 1997 1
- Condensed Consolidated Statements of
Operations for the Three Months Ended
March 31, 1998 and 1997 2
- Condensed Consolidated Statements of
Operations for the Nine Months Ended
March 31, 1998 and 1997 3
- Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
March 31, 1998 and 1997 4
- Notes to Condensed Consolidated
Financial Statements 5-9
2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10-15
II OTHER INFORMATION
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 MARCH 31, 1998 AND JUNE 30, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31, June 30,
1998 1997
----------- -----------
ASSETS (Unaudited) (See Note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................... $ 41,489 $ 22,716
Accounts receivable, net of allowances at March 31, 1998 and at ......... 336,059 256,477
June 30, 1997 of $41,050 and $33,263, respectively
Inventories ............................................................. 31,716 18,450
Deferred income taxes ................................................... 22,667 13,939
Other current assets .................................................... 26,014 18,313
----------- -----------
Total current assets ................................................. 457,945 329,895
Property and equipment, net ............................................... 77,580 69,740
Excess cost of net assets acquired, net ................................... 710,525 568,027
Investments in joint ventures ............................................. 15,097 12,719
Other assets, net ......................................................... 39,760 33,923
----------- -----------
$ 1,300,907 $ 1,014,304
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of financing arrangements ............................... $ 25,746 $ 15,978
Accounts payable and accrued expenses ................................... 171,333 135,272
Income taxes payable .................................................... 12,299 5,069
----------- -----------
Total current liabilities ............................................ 209,378 156,319
Financing arrangements, net of current portion ............................ 471,047 326,700
Deferred income taxes ..................................................... 33,002 14,779
Other ..................................................................... 13,015 4,851
----------- -----------
Total liabilities .................................................... 726,442 502,649
----------- -----------
Minority interest in consolidated subsidiaries ............................ 16,691 3,649
Commitments and contingencies ............................................. -- --
Shareholders' equity:
Common stock, $.01 par value; authorized 200,000 shares; issued 67,257 shares
at March 31, 1998 and issued 66,630 shares at
June 30, 1997 .......................................................... 672 666
Additional paid-in capital .............................................. 265,545 259,915
Retained earnings ....................................................... 335,781 292,340
----------- -----------
601,998 552,921
Less: Common stock in treasury (at cost), 5,473 shares at March 31, 1998
and 5,590 shares at June 30, 1997 ..................................... (44,224) (44,915)
----------- -----------
Total shareholders' equity ........................................... 557,774 508,006
----------- -----------
$ 1,300,907 $ 1,014,304
=========== ===========
</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>
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
--------- ---------
<S> <C> <C>
Net revenues ...................................... $ 451,767 $ 290,454
Cost of services .................................. 358,199 221,015
--------- ---------
Gross profit ................................... 93,568 69,439
Selling, general and administrative expenses ...... 52,551 40,274
Provision for uncollectible accounts .............. 6,009 4,291
Amortization of excess cost of net assets acquired 5,230 3,652
--------- ---------
Income from operations.......................... 29,778 21,222
Investment income ................................. 171 167
Interest expense .................................. (7,628) (3,776)
Minority interest ................................. (467) (93)
--------- ---------
Income before income taxes ..................... 21,854 17,520
Income taxes ...................................... 9,209 7,427
--------- ---------
Net income ..................................... $ 12,645 $ 10,093
========= =========
Net income per share - basic ................... $ .21 $ .17
========= =========
Net income per share - assuming dilution ....... $ .20 $ .16
========= =========
</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>
FOR THE NINE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
----------- ---------
<S> <C> <C>
Net revenues ...................................... $ 1,207,283 $ 734,896
Cost of services .................................. 948,985 548,767
----------- ---------
Gross profit ................................... 258,298 186,129
Selling, general and administrative expenses ...... 147,589 107,064
Provision for uncollectible accounts .............. 15,957 14,757
Amortization of excess cost of net assets acquired 14,495 9,273
Provision for restructure ......................... 23,500 --
----------- ---------
Income from operations ......................... 56,757 55,035
Gain from issuance of subsidiary stock ............ 38,128 --
Investment income ................................. 617 1,543
Interest expense .................................. (20,117) (10,224)
Minority interest ................................. (887) (185)
----------- ---------
Income before income taxes ..................... 74,498 46,169
Income taxes ...................................... 31,057 19,316
----------- ---------
Net income ..................................... $ 43,441 $ 26,853
=========== =========
Net income per share - basic ................... $ .71 $ .44
=========== =========
Net income per share - assuming dilution ....... $ .69 $ .43
=========== =========
</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, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................ $ 43,441 $ 26,853
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Provision for restructure .......................................... 23,500 --
Gain from issuance of subsidiary stock ............................. (38,128) --
Depreciation and amortization ...................................... 37,165 27,104
Provision for uncollectible accounts ............................... 15,957 14,757
Minority interest .................................................. 887 185
Deferred income taxes .............................................. 5,856 382
Changes in assets and liabilities, net of effects from acquisitions:
Accounts and notes receivable ................................... (66,440) (35,095)
Inventories ..................................................... (10,595) (453)
Other current assets ............................................ (5,982) (420)
Accounts payable and accrued expenses ........................... 15,761 (539)
Income taxes payable ............................................ 11,089 1,768
Other, net ...................................................... (1,071) (1,067)
--------- ---------
Net cash flows provided by operating activities ................. 31,440 33,475
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for businesses acquired, net of cash acquired ................ (144,677) (142,718)
Net additions to property and equipment ............................... (20,818) (14,747)
Other, net ............................................................ (2,497) (1,409)
--------- ---------
Net cash flows (used in) investing activities ................... (167,992) (158,874)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from financing arrangements .................................. 364,140 119,700
Payment of financing arrangements ..................................... (259,389) (54,766)
Proceeds from the issuance of subsidiary stock ........................ 45,719 --
Proceeds from common stock issued ..................................... 4,855 2,690
Payment for purchase of treasury stock ................................ -- (23,250)
--------- ---------
Net cash flows provided by financing activities ................. 155,325 44,374
--------- ---------
Net increase (decrease) in cash and cash equivalents .................. 18,773 (81,025)
Cash and cash equivalents, beginning of period ........................ 22,716 95,724
--------- ---------
Cash and cash equivalents, end of period .............................. $ 41,489 $ 14,699
========= =========
Supplemental disclosures of cash flow information:
Interest paid .................................................... $ 15,130 $ 11,314
========= =========
Income taxes paid ................................................ $ 14,196 $ 21,142
========= =========
</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
MARCH 31, 1998
(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, 1997 is
condensed from the audited balance sheet of the Company 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, 1997. Certain information and footnote disclosures
normally included in 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. Certain amounts in the fiscal 1997 condensed
consolidated financial statements have been reclassified to conform with
fiscal 1998 presentation.
Operating results for the three and nine-month periods ended March 31,
1998 are not necessarily indicative of the results that may be expected for a
full year or any portion thereof.
2. PROVISION FOR RESTRUCTURE
In the second quarter of fiscal 1998, the Company recorded a provision for
restructure based on an evaluation of changes in the Medicare reimbursement
system recently mandated by the Balanced Budget Act. In response to these
changes, the Company will convert its long-term care contract rehabilitation
model from one characterized by a high concentration of one-on-one therapy,
with licensed professionals treating individual patients, to a model which:
(i) relies more heavily on well-trained therapy assistants and aides closely
supervised by licensed professionals, and (ii) employs simultaneous therapy,
wherein licensed professionals, along with well-trained therapy assistants
and aides, treat multiple patients on a group basis.
The provision of $23,500 ($13,865, net of tax) reflects principally
employee severance costs, which represent the accumulation of termination
benefits set forth in the Company's severance policy, related to changes in
workforce composition dictated by the revised operating model.
3. GAIN FROM ISSUANCE OF SUBSIDIARY STOCK
In the second quarter of fiscal 1998, a subsidiary of the Company,
NovaCare Employee Services, Inc. ("NCES"), completed an initial public
offering, converted its mandatory redeemable common stock, and issued common
stock to former owners of acquired companies. As a result of these common
stock transactions, the Company's percentage ownership of NCES decreased to
71.5% from 98.7% at June 30, 1997. The initial public offering included 5,750
shares of NCES common stock issued at $9.00 per share. Proceeds received by
NCES, net of underwriting and issuance costs, were $45,719. Mandatory
redeemable common stock was converted into 813 common shares, valued at $4.82
per share. The issuance of common stock to former owners included 723 shares
valued at $8.29 per share.
The Company recorded a gain of $38,128 ($22,495, net of tax) for the
difference between the Company's historical cost of its investment in NCES
and its portion of NCES equity at March 31, 1998. The Company will continue
to record NCES investment adjustments through its statement of operations as
NCES's equity changes as a result of capital transactions.
5
<PAGE> 8
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(In thousands, except per share data)
(Unaudited)
4. NET INCOME PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
became effective for periods ending after December 15, 1997. This statement
revised the calculation of earnings per share from the "primary" and "fully
diluted" methods previously employed, to the "basic" and "assuming dilution"
methods. The Company had not previously presented fully diluted earnings per
share because the result was not materially different than the primary
calculation. Under the new statement, earnings per share-basic represents
earnings divided by the weighted average number of shares outstanding during
the period. Earnings per share-assuming dilution represents the basic
weighted average shares outstanding adjusted for the effects of stock options
and contingently issuable shares under certain acquisition agreements. The
calculation of the Company's earnings per share-assuming dilution closely
resembles that used in prior calculations of primary earnings per share.
In accordance with this statement, the Company has replaced its disclosure
of primary net income per share with net income per share-basic and net
income per share-assuming dilution.
The following table sets forth the computation and reconciliation of net
income per share-basic and net income per share-assuming dilution:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
--------------------- ---------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET INCOME ...................... $12,645 $10,093 $43,441 $26,853
======= ======= ======= =======
WEIGHTED AVERAGE SHARES
OUTSTANDING:
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC .......... 61,486 60,668 61,275 61,052
Stock options ................. 1,755 1,545 1,908 1,123
Contingently issuable
shares - assuming dilution ... 43 120 43 121
------- ------- ------- -------
WEIGHTED AVERAGE SHARES
OUTSTANDING - ASSUMING
DILUTION ..................... 63,284 62,333 63,226 62,296
======= ======= ======= =======
NET INCOME PER SHARE - BASIC .. $ .21 $ .17 $ .71 $ .44
======= ======= ======= =======
NET INCOME PER SHARE - ASSUMING
DILUTION ..................... $ .20 $ .16 $ .69 $ .43
======= ======= ======= =======
</TABLE>
The Company did not include convertible subordinated debentures,
equivalent to 6,567 shares of common stock, or options to purchase 216 and 79
shares of common stock for the three and nine months ended March 31, 1998,
respectively, because their effects are antidilutive. There were no
transactions that occurred subsequent to March 31, 1998 that would have
materially changed the number of shares used in computing net income per
share-basic or net income per share-assuming dilution.
6
<PAGE> 9
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(In thousands, except per share data)
(Unaudited)
5. ACQUISITIONS
During the nine months ended March 31, 1998 and 1997, the Company acquired
33 and 16 outpatient rehabilitation businesses, 29 and 25 orthotic and
prosthetic businesses, and one and four employee services businesses,
respectively. Also, in each of the nine month periods ended March 31, 1998
and 1997, the Company acquired three occupational health businesses. All
acquisitions were accounted for as purchases and, accordingly, the aggregate
purchase price was allocated to assets and liabilities 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, 1996:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
MARCH 31,
---------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net revenues ........................... $ 1,331,973 $ 1,133,334
Net income ............................. 46,117 34,184
Net income per share - basic ........... .75 .56
Net income per share - assuming dilution $ .73 $ .55
</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, 1996, or the results that may occur in the future.
Information with respect to businesses acquired in purchase transactions
for the nine months ended March 31, 1998 was as follows:
<TABLE>
<S> <C>
Cash paid (net of cash acquired) ............................. $117,083
Notes issued ................................................. 43,788
Other consideration .......................................... 26,901
--------
187,772
Fair value of assets acquired, principally accounts receivable
and property and equipment ................................ 33,312
--------
Cost in excess of fair value of net assets acquired .......... $154,460
========
</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.
7
<PAGE> 10
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(In thousands, except per share data)
(Unaudited)
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, June 30,
1998 1997
-------- --------
<S> <C> <C>
Accounts payable ....................... $ 20,271 $ 13,647
Accrued compensation and benefits ...... 79,294 65,564
Accrued restructure costs .............. 25,513 5,286
Deferred and contingent purchase price
obligations............................. 4,862 25,624
Accrued workers' compensation and health
claims.................................. 18,230 8,471
Accrued interest ....................... 4,873 1,002
Other .................................. 18,290 15,678
-------- --------
$171,333 $135,272
======== ========
</TABLE>
As of March 31, 1998, accrued restructure costs consist of $22,745
related to a change in the Company's long-term care contract rehabilitation
service delivery model and $2,768 related to cost improvement programs
implemented in prior years.
7. FINANCING ARRANGEMENTS
Financing arrangements consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, June 30,
1998 1997
-------- --------
<S> <C> <C>
Convertible subordinated debentures (5.5%), due January 2000 ... $175,000 $175,000
$275,000 revolving credit facility (EuroDollar rate plus 0.5% to
1.125%), due November 28, 1999 ............................... 230,500 109,600
Subordinated promissory notes (5% to 10%), through 2007 ........ 86,864 56,859
$25,000 revolving credit facility (Prime rate plus 0.125% to
1.125%), due November 17, 2000 .............................. -- --
Other .......................................................... 4,429 1,219
-------- --------
496,793 342,678
Less: current portion ......................................... 25,746 15,978
-------- --------
$471,047 $326,700
======== ========
</TABLE>
The Company established a revolving credit facility with a syndicate of
lenders in fiscal 1996, which is collateralized by substantially all of the
Company's subsidiaries' common stock. On September 30, 1997, the credit
agreement was amended to increase the available line of credit from $190,000
to $275,000. As of March 31, 1998, $40,200 of the line of credit was
available after reduction for letters of credit totaling $4,300 and
borrowings.
In November 1997, NCES entered into a $25,000 three-year revolving credit
facility with a syndicate of lenders. The credit facility provides for
interest to be charged at a variable rate, depending on certain financial
ratios, equal to: (i) the EuroDollar rate plus a range of 1.375% to 2.50% or
(ii) the lead lender's prime rate plus a range of .125% to 1.25%. Loans made
under the credit facility are collaterized by a pledge of all of: (i) NCES's
subsidiaries' common stock, (ii) the assets of NCES and its subsidiaries, and
(iii) the Company's interest in the common stock of NCES. As of March 31,
1998, $23,859 of the NCES line of credit was available after reduction for a
letter of credit of $1,141.
8
<PAGE> 11
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(In thousands, except per share data)
(Unaudited)
8. MINORITY INTEREST
Minority interest resulted from investments in the following entities:
<TABLE>
<CAPTION>
MARCH 31, June 30,
1998 1997
------- ------
<S> <C> <C>
NovaCare Employee Services, Inc. $16,301 $3,334
All other entities ............. 390 315
------- ------
$16,691 $3,649
======= ======
</TABLE>
In the second quarter of fiscal 1998, NCES issued 5,750 shares of its
common stock to third parties through an initial public offering, 813 shares
through the conversion of mandatory redeemable stock and 723 shares in
connection with an acquisition. As a result of these issuances, the Company's
ownership percentage in NCES decreased from approximately 98.7% at June 30,
1997 to 71.5% at March 31, 1998.
The Company recognized a gain on its investment in NCES's equity (see Note
3) and a minority interest liability for the portion of NCES's equity owned
by outside investors. The Company also recognized a minority interest
liability for the portion of NCES's net income attributable to those
investors.
9. COMMITMENTS AND 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
material adverse effect on the financial position or results of operations of
the Company.
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 March 31, 1998 of
approximately $82,723 in cash and NCES common stock and 55 shares of common
stock of the Company 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 nine months
ended March 31, 1998 and 1997, the Company paid $27,594 and $13,971 in cash,
respectively, and issued 65 and 338 shares, respectively, of common stock in
connection with businesses acquired in prior years.
9
<PAGE> 12
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
In the third quarter of fiscal 1998 NovaCare, Inc. (the Company) continued
to experience significant growth through strategic acquisitions and internal
growth of its existing businesses. During the nine months ended March 31,
1998 and 1997, the Company purchased 33 and 16 outpatient rehabilitation
businesses, 29 and 25 orthotic and prosthetic ("O&P") businesses, and one and
four professional employer organization businesses, respectively. Also, in
each of the nine month periods ended March 31, 1998 and 1997, the company
acquired three occupational health businesses.
Beginning in the second quarter of fiscal 1997, the Company has operated
in two service industries, rehabilitation services and employee services.
Rehabilitation services include: (i) providing rehabilitation therapy and
rehabilitation program consulting and management services on a contract basis
to health care institutions, primarily long-term care facilities, and (ii)
providing outpatient, orthotic and prosthetic and occupational health
rehabilitation services through a national network of patient care centers.
Employee services are generally provided to small and medium-sized businesses
and are comprehensive, fully-integrated outsourcing solutions to human
resource management, including payroll management, workers' compensation,
risk management, benefits administration, unemployment services and human
resource consulting services. Effective January 24, 1997, employee services
were provided to the rehabilitation services segment of the Company.
The following are the results of operations for the three and nine-month
periods ended March 31, 1998 and 1997. Other operating expenses include
selling, general and administrative expenses, provision for uncollectible
accounts and amortization of excess cost of net assets acquired.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------- ----------------------------
(TABLE IN THOUSANDS) 1998 1997 1998 1997
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
NET REVENUES
Rehabilitation services .... $ 307,237 $ 238,710 $ 867,529 $ 672,258
Employee services .......... 338,367 151,076 907,875 161,970
Elimination ................ (193,837) (99,332) (568,121) (99,332)
--------- --------- ----------- ---------
TOTAL NET REVENUES ...... 451,767 290,454 1,207,283 734,896
--------- --------- ----------- ---------
GROSS PROFIT
Rehabilitation services .... 85,991 66,070 241,623 181,918
Employee services .......... 11,302 4,728 29,042 5,570
Elimination ................ (3,725) (1,359) (12,367) (1,359)
--------- --------- ----------- ---------
TOTAL GROSS PROFIT ...... 93,568 69,439 258,298 186,129
OTHER OPERATING EXPENSES ....... 63,790 48,217 178,041 131,094
PROVISION FOR RESTRUCTURE ...... -- -- 23,500 --
--------- --------- ----------- ---------
INCOME FROM OPERATIONS .. 29,778 21,222 56,757 55,035
GAIN FROM ISSUANCE OF SUBSIDIARY
STOCK ...................... -- -- 38,128 --
INTEREST EXPENSE, NET .......... (7,457) (3,609) (19,500) (8,681)
MINORITY INTEREST EXPENSE ...... (467) (93) (887) (185)
--------- --------- ----------- ---------
INCOME BEFORE INCOME TAX $ 21,854 $ 17,520 $ 74,498 $ 46,169
========= ========= =========== =========
</TABLE>
10
<PAGE> 13
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
Net revenues for the three months ended March 31, 1998 were $451.8 million,
an increase of $161.3 million (56%) over the three months ended March 31, 1997.
Gross profit for the fiscal third quarter was $93.6 million, an increase of
$24.1 million (35%) over the same period in 1997. These increases resulted
principally from acquisitions and internal growth.
Other operating expenses were $63.8 million in the third quarter of fiscal
1998, an increase of $15.6 million (32%) over fiscal 1997. The higher expenses
are primarily associated with acquisitions completed in fiscal 1997 and the
first nine months of fiscal 1998, as well as additional selling, general and
administrative costs incurred in the expansion of the Company's employee
services business. As a percentage of net revenues, other operating expenses
decreased to 14.1% in the third quarter of fiscal 1998 from 16.6% in fiscal
1997. This decrease resulted principally from an increase in employee services
revenues, where these operating expenses are typically a smaller percentage of
net revenues than in rehabilitation services.
Depreciation expense was $8.0 million, an increase of $1.8 million (30%) over
fiscal 1997, primarily due to the full-year effect of assets acquired in fiscal
1997 and ongoing capital investments. Amortization of goodwill was $5.2 million,
an increase of $1.6 million (43%) over fiscal 1997 as a result of businesses
acquired subsequent to March 31,1997.
Interest expense, net of investment income, increased to $7.5 million in
fiscal 1998 from $3.6 million in fiscal 1997 as a result of increased borrowings
principally associated with the Company's acquisitions, as discussed under
"Liquidity and Capital Resources."
Income tax expense for the three months ended March 31, 1998 was 42.1% of
pre-tax income, a decrease from 42.4% of pre-tax income in fiscal 1997, as a
result of a lower effective state income tax rate.
OPERATING RESULTS BY BUSINESS
Rehabilitation Services
Net revenues for the three months ended March 31, 1998 were $307.2 million,
an increase of $68.5 million (29%) from the three months ended March 31, 1997.
Gross profit was $86.0 million, an increase of $19.9 million (30%) over fiscal
1997. Gross profit as a percentage of net revenues was 28.0%, an increase of
0.3% from 27.7% in the prior year.
The increase in net revenues resulted principally from: (i) net revenues from
acquired businesses, (ii) higher contract rehabilitation net revenues from new
contract sales and price increases, and (iii) an increase in outpatient
rehabilitation and O&P net revenues attributable to internal growth.
The increase in gross profit resulted primarily from: (i) acquisitions in
fiscal 1997 and 1998, (ii) contract sales and price increases in contract
rehabilitation, and (iii) internal growth in the Company's outpatient
rehabilitation and O&P businesses. The improved pricing in contract
rehabilitation caused the increase in gross profit percentage.
Employee Services
The Company's employee services segment provides human resource management
services to third party clients and the Company's rehabilitation services
segment. Intercompany activity is eliminated in consolidation. Net revenues for
the three months ended March 31, 1998 were $338.4 million (before the
intercompany elimination of $193.8 million), an increase of $187.3 million over
fiscal 1997 revenues of $151.1 million (before the intercompany elimination of
$99.3 million). Gross profit for the fiscal third quarter was $11.3 million, an
increase of $6.6 million over fiscal 1997. The increases in net revenues and
gross profit resulted principally from: (i) a full three-months of service
provided to the rehabilitation segment in fiscal 1998 compared to two months in
fiscal 1997,
11
<PAGE> 14
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 (CONTINUED)
(ii) a full three months of results for three of the Company's acquisitions
which occurred effective February 1, 1997,
(iii) the acquisition of one employee services business in the second quarter
of fiscal 1998, and (iv) internal growth. The acquisitions and growth in
operations increased the weighted average number of worksite employees to 46,363
for the three months ended March 31, 1998 compared to 22,285 for the three
months ended March 31, 1997.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1998
Net revenues for the nine months ended March 31, 1998 were $1.21 billion, an
increase of $472.4 million (64%) over the nine months ended March 31, 1997.
Gross profit was $258.3 million, an increase of $72.2 million (39%) over last
year. Both of these increases resulted from acquisitions and internal growth.
Other operating expenses were $178.0 million for the nine months ended March
31, 1998, an increase of $46.9 million (36%) over fiscal 1997. The higher
expenses are primarily associated with acquisitions completed in fiscal 1997 and
1998, as well as additional selling, general and administrative costs incurred
in the expansion of the Company's employee services business. As a percentage of
net revenues, other operating expenses decreased to 14.7% in fiscal 1998 from
17.8% in fiscal 1997. This decrease resulted principally from an increase in
employee services revenues, where these operating expenses are typically a
smaller percentage of net revenues than in rehabilitation services.
Depreciation expense was $22.7 million in fiscal 1998, an increase of $4.8
million (27%) over fiscal 1997, primarily due to the full-year effect of assets
acquired in fiscal 1997 and ongoing capital investments. Amortization of
goodwill was $14.5 million in fiscal 1998, an increase of $5.2 million (56%)
over fiscal 1997, resulting from businesses acquired subsequent to March 31,
1997.
In the second quarter of fiscal 1998, the Company recorded a provision for
restructure based on an evaluation of changes in the Medicare reimbursement
system recently mandated by the Balanced Budget Act. In response to these
changes, the Company will convert its long-term care contract rehabilitation
model from one characterized by a high concentration of one-on-one therapy, with
licensed professionals treating individual patients, to a model which: (i)
relies more heavily on well-trained therapy assistants and aides closely
supervised by licensed professionals, and (ii) employs simultaneous therapy,
wherein licensed professionals, along with well-trained therapy assistants and
aides, treat multiple patients on a coordinated basis.
The provision for restructure of $23.5 million ($13.9 million net of tax)
reflects principally employee severance costs, which represent the accumulation
of termination benefits set forth in the Company's severance policy, related to
changes in workforce composition dictated by the revised operating model.
Also in the second quarter, a subsidiary of the Company, NovaCare Employee
Services, Inc. ("NCES"), completed an initial public offering, converted its
mandatory redeemable common stock, and issued common stock to former owners of
an acquired company. As a result of these common stock transactions, the
Company's percentage ownership decreased to 71.5% from 98.7% at June 30, 1997.
The initial public offering included 5.8 million shares of NCES common stock
issued at $9.00 per share. Proceeds received by NCES, net of underwriting and
issuance costs, were $45.7 million. Mandatory redeemable common stock was
converted into 813,000 common shares, valued at $4.82 per share. The issuance of
common stock to former owners included 723,000 shares valued at $8.29 per share.
The Company recorded a gain of $38.1 million ($22.5 million, net of tax) for
the difference between the Company's historical cost of its investment in NCES
and its portion of NCES equity at December 31, 1997. The
12
<PAGE> 15
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1998 (CONTINUED)
Company will continue to record NCES investment adjustments through its
statement of operations as NCES's equity changes as a result of capital
transactions.
Interest expense, net of investment income, was $19.5 million in fiscal 1998,
an increase of $10.8 million over fiscal 1997, as a result of increased
borrowings principally associated with the Company's acquisitions as discussed
under "Liquidity and Capital Resources."
Income tax expense as a percentage of pre-tax income was 41.7% in fiscal 1998
compared to 41.8% in fiscal 1997.
OPERATING RESULTS BY BUSINESS
Rehabilitation Services
Net revenues for the nine months ended March 31, 1998 were $867.5 million, an
increase of $195.3 million (29%) over the nine months ended March 31, 1997.
Gross profit was $241.6 million, an increase of $59.7 million (33%) over last
year. Gross profit as a percentage of revenues was 27.9%, an increase of 0.8%
from 27.1% in fiscal 1997.
The increase in net revenues resulted principally from: (i) net revenues from
acquired businesses (ii) higher contract rehabilitation net revenues from new
contract sales and price increases, and (iii) an increase in outpatient
rehabilitation and O&P net revenues attributable to internal growth.
The increase in gross profit was primarily due to: (i) acquisitions in fiscal
1997 and fiscal 1998, (ii) contract sales and price increases in contract
rehabilitation, and (iii) lower costs and improved productivity in outpatient
rehabilitation. The increase in gross profit margin resulted from price
increases in contract rehabilitation and improved productivity in outpatient
rehabilitation.
Employee Services
In the first quarter of fiscal 1998, the Company's temporary therapist
staffing business was sold by rehabilitation services to employee services.
Revenues for the nine months ended March 31, 1998 were $907.9 million (before
the intercompany elimination of $568.1 million), an increase of $745.9 million
over fiscal 1997 revenues of $162.0 million (before the intercompany elimination
of $99.3 million). Gross profit was $29.0 million, an increase of $23.5 million
over fiscal 1997. The increases in revenues and gross profit resulted
principally from: (i) a full nine-months of services provided to the Company's
rehabilitation segment in fiscal 1998 compared to two months in fiscal 1997,
(ii) the inclusion of nine months results for four of the Company's fiscal 1997
acquisitions compared to two months for three acquisitions and six months for a
fourth acquisition, (iii) the acquisition of one employee services business in
the second quarter of fiscal 1998, and (iv) internal growth. Results for fiscal
1997 include only six months of operations, from the inception of this business
on October 1, 1996 to March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended March 31, 1998, the Company's cash and cash
equivalents increased by $18.8 million to $41.5 million. The increase in cash
and cash equivalents resulted principally from: (i) a $104.7 million net
increase in the Company's financing arrangements, (ii) the receipt of proceeds
from NCES's initial public offering
13
<PAGE> 16
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
totaling $45.7 million, and (iii) cash provided by operations of $31.4 million;
partially offset by payments to acquire new businesses of $144.7 million and
additions to property and equipment of $20.8 million.
Cash provided by operations of $31.4 million was $2.0 million less than the
prior year. This decrease, excluding the effects of the gain on NCES stock and
provision for restructure, is principally due to an increase in accounts
receivable which resulted from sales volume increases and an increase in days
outstanding in the Company's rehabilitation business, partially offset by higher
net income, an increase in accounts payable and accrued expenses, and higher
depreciation and amortization expense.
The Company used $20.8 million for capital expenditures for the nine months
ended March 31, 1998 compared with $14.7 million for the same period in 1997.
Capital expenditures generally relate to costs incurred in connection with
internally developed software, equipment and leasehold improvements in startup
outpatient rehabilitation services, leasehold renovations and equipment
replacement needed for technological efficiency in clinical and administrative
activities in support of clinical programs and outcomes, cost reduction
initiatives and future growth plans.
In November 1997 NCES entered into a $25.0 million three-year revolving
credit facility with a syndicate of lenders. The credit facility provides for
interest to be charged at a variable rate, depending on certain financial
ratios, equal to: (i) the EuroDollar rate plus a range of 1.375% to 2.50% or
(ii) the lead lender's prime rate plus a range of .125% to 1.25%. Loans made
under the credit facility are collateralized by a pledge of all of: (i) the
common stock of NCES's subsidiaries, (ii) the assets of NCES and its
subsidiaries, and (iii) the Company's interest in the common stock of NCES. In
addition to the NCES line of credit, the Company maintains a separate $275.0
million line of credit. As of March 31, 1998, $23.9 million and $40.2 million of
NCES's and the Company's credit facilities, respectively, were available after
reductions for letters of credit totaling $5.4 million and borrowings.
NCES, through an initial public offering, sold approximately 5.8 million
shares of common stock to third parties. Total proceeds received by NCES, net of
underwriter's discount and offering costs, totaled $45.7 million.
The Company believes that cash flows generated by the Company's operations,
together with its existing cash and availability of credit under the credit
facilities, will be sufficient to meet the Company's short- and long-term cash
needs.
REIMBURSEMENT AND GOVERNMENT RELATIONS
On January 30, 1998 the Health Care Financing Administration ("HCFA"), the
federal agency responsible for the rules governing Medicare and Medicaid, issued
specific salary equivalency reimbursement guidelines for long-term care contract
rehabilitation occupational therapy and speech-language pathology services and
revisions to the existing guidelines for physical therapy services. The rules
specify that on April 1, 1998, occupational therapy and speech-language
pathology services guidelines became effective and physical therapy guidelines
were increased in consideration of the substantial increases in salary and
services standards since these guidelines were last revised.
Prior to April 1, 1998, contract rehabilitation for occupational therapy and
speech-language pathology services were evaluated based upon the reasonableness
of costs incurred by the provider under a "prudent buyer" standard.
14
<PAGE> 17
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
REIMBURSEMENT AND GOVERNMENT RELATIONS (CONTINUED)
The Balanced Budget Act of 1997 (the "Act"), enacted in August 1997, made
several changes in the way Medicare will reimburse nursing homes and other
providers for their services. Commencing July 1, 1998, these changes will take
effect for nursing homes at different times throughout calendar years 1998 and
1999, depending on the starting date for each facility's cost reporting year. By
the middle of 1999, the Act mandates that each facility be reimbursed, in part,
under a comprehensive prospective payment system, which will include payment for
therapy services in a single all-inclusive per diem payment. Therapy services
not covered by the prospective payment system will be covered by a fee schedule
with total charges being subject to an annual cap.
The Act also mandates changes to the payment structure for services provided
through certified rehabilitation agencies. Implementation of these changes will
be complete by January 1999. As with nursing homes, rehabilitation agencies will
change from the current cost-based system to a system based on a fee schedule
with an annual cap.
On May 12, 1998, HCFA issued proposed regulations and per diem payment
schedules which are subject to a 60 day comment period. The Company is unable to
predict with certainty that the proposed regulations and reimbursement schedules
will become final.
The Company is actively involved in trade groups assessing the regulations
and payment schedules. By changing Medicare reimbursement to nursing homes from
a cost basis to a fixed fee, the Act will make a fundamental change in the
economic assumptions underlying patient care in nursing homes.
It cannot be predicted at this time what effect the changes that salary
equivalency and the Act will have on the demand for therapy services. Management
is taking steps that it believes will help to mitigate any adverse economic
impact of these changes. There can be no assurance, however, that these changes
will not have a material adverse effect on the future operations of the Company.
YEAR 2000 COMPLIANCE
The Company is in the process of assessing the effects of Year 2000 software
issues on its present information technology structure. As of March 31, 1998,
that assessment, including a determination of the exposure of the Company's
business processes to these issues and the need for and estimated costs
associated with any necessary conversions had not been completed.
CAUTIONARY STATEMENT
Except for historical information, matters discussed above including, but
not limited to, statements concerning future growth, are forward-looking
statements that are based on management's estimates, assumptions and
projections. Important factors that could cause results to differ materially
from those expected by management include reimbursement system changes,
including customer response to the establishment of salary equivalency
guidelines for certain therapies and the change from cost-based reimbursement to
fee schedules and per diem payments, the number and productivity of clinicians,
pricing of payer contracts, management retention and development, management's
success in integrating acquired businesses and in developing and introducing new
products and lines of business, adverse Internal Revenue Service rulings with
respect to the employer status of employee services businesses and the Company's
ability to implement the employee services business model.
15
<PAGE> 18
NOVACARE, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(A) Exhibit
Number Exhibit Description Page Number
------ ------------------- -----------
<S> <C> <C>
10 (a) Employment agreement dated as of March 18, 1998, between
the Company and Ronald G. Hiscock
10 (b) Revolving Credit Facility Agreement dated as of November 17, 1997
by and among NovaCare and certain of its subsidiaries and PNC Bank
N.A., Corestates Bank, N.A., First Union National Bank, Fleet National
Bank, Mellon Bank, N.A., The Bank of New York, SunTrust Bank, Central
Florida, N.A., Bank One, Kentucky, N.A., The Fuji Bank, Limited, New
York Branch, Crestar Bank, Bank of Tokyo-Mitsubishi Trust Company,
AmSouth Bank
10 (c) Revolving Credit Facility Agreement dated as of February 24, 1998
by and among NovaCare and certain of its subsidiaries and PNC Bank
N.A., Corestates Bank, N.A., First Union National Bank, Fleet National
Bank, Mellon Bank, N.A., The Bank of New York, SunTrust Bank, Central
Florida, N.A., Bank One, Kentucky, N.A., The Fuji Bank, Limited, New
York Branch, Crestar Bank, Bank of Tokyo-Mitsubishi Trust Company,
AmSouth Bank
10 (d) Revolving Credit Facility Agreement dated as of February 27, 1998
by and among NovaCare and certain of its subsidiaries and PNC Bank
N.A., Corestates Bank, N.A., First Union National Bank, Fleet National
Bank, Mellon Bank, N.A., The Bank of New York, SunTrust Bank, Central
Florida, N.A., Bank One, Kentucky, N.A., The Fuji Bank, Limited, New
York Branch, Crestar Bank, Bank of Tokyo-Mitsubishi Trust Company,
AmSouth Bank
10 (e) Revolving Credit Facility Agreement dated as of March 30, 1998
by and among NovaCare and certain of its subsidiaries and PNC Bank
N.A., Corestates Bank, N.A., First Union National Bank, Fleet National
Bank, Mellon Bank, N.A., The Bank of New York, SunTrust Bank, Central
Florida, N.A., Bank One, Kentucky, N.A., The Fuji Bank, Limited, New
York Branch, Crestar Bank, Bank of Tokyo-Mitsubishi Trust Company,
AmSouth Bank
27 Financial Data Schedule
</TABLE>
16
<PAGE> 19
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)
MAY 15, 1998 BY /s/ ROBERT E. HEALY, JR.
------------------------
ROBERT E. HEALY, JR.,
SENIOR VICE PRESIDENT,
FINANCE & ADMINISTRATION AND
CHIEF FINANCIAL OFFICER
BY /s/ BARRY E. SMITH
------------------------
BARRY E. SMITH,
VICE PRESIDENT,
CONTROLLER AND
CHIEF ACCOUNTING OFFICER
17
<PAGE> 1
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 18th day of March, 1998 by and
between NOVACARE, INC., a Delaware corporation (the "Company"), and RONALD G.
HISCOCK (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive has been employed in the Outpatient
Division of the Company, and the Company wishes to continue to employ the
Executive and the Executive wishes to continue to serve the Company, upon the
terms and conditions set forth below.
NOW, THEREFORE, in consideration of the promises and the
mutual agreements set forth below, the parties agree as follows:
1. EMPLOYMENT, TERM.
1.1 Employment. The Company agrees to employ the Executive in
the position, 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 the date hereof and shall terminate on the second
anniversary of the date hereof, unless extended or sooner terminated in
accordance with this Agreement.
1.3 Automatic Extension. As of the first anniversary date
hereof, and as of each subsequent anniversary (each, an "Automatic Renewal
Date"), unless either party shall have given 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.
2. POSITION, DUTIES.
The Executive shall serve the Company in the position of
President and General Manager of the Outpatient Division. The Executive shall
perform, faithfully and diligently, such duties, and shall have such
responsibilities, appropriate to said position, as shall be assigned to him from
time to time by the Chief Executive Officer, the President and Chief Operating
Officer and the Board of Directors of the Company. The Executive shall report to
the Chief Executive Officer or the President and Chief Operating Officer of the
Company. The Executive shall devote his full business time and attention to the
performance of his duties and responsibilities hereunder.
3. SALARY, INCENTIVE BONUS, STOCK OPTIONS.
3.1 Salary. During the term of this Agreement, the Company
shall pay to the Executive, and the Executive shall accept, a base salary at the
rate of $320,000 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 and approved by the Compensation Committee of the Board of
Directors of the Company in their sole discretion, taking account of the
performance
<PAGE> 2
2
of the Outpatient Division, the Company and the Executive, and other factors
generally considered relevant to the salaries of executives holding similar
positions with enterprises comparable to the Company.
3.2 Bonus.
(a) In addition to the base salary provided for in
Section 3.1, the Executive shall participate in the Company's Executive
Incentive Compensation Plan (the "Plan"), as approved by the Compensation
Committee of the Board of Directors, in each fiscal year of the Company ending
during the term of this Agreement. The current target bonus for Executive is 50%
of base salary; however, the determination as to the amount, if any, of the
bonus which the Executive has earned shall be in the sole discretion of the
Company based upon the terms and conditions of the Plan. The bonus shall be
payable upon or within a reasonable period of time after the receipt of the
Company's audited financial statements for the applicable fiscal year in
accordance with the Company's normal practices.
(b) In the event of the termination of employment of
the Executive pursuant to Section 6.1 (Death), Section 6.2 (Disability), Section
6.4 (Without Cause), or Section 7 (Change of Control) of this Agreement, and
provided that all of the terms and conditions of the Plan are satisfied
including, but not limited to, the attainment of stated objectives, the
Executive (or his estate or other legal representative) shall be entitled to a
pro-rated 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)
or Section 6.5 (Voluntary Termination) 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 takes place.
3.3 Stock Options.
(a) In the event of a Change in Control (hereinafter
defined), all options to purchase shares of the common stock, $.01 par value, of
the Company (the "Common Stock") awarded to the Executive shall become fully
vested as of the date of such Change in Control.
(b) For purposes of this Agreement, a Change of
Control shall be deemed to exist if:
(i) a person, 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 (A) acquires twenty percent (20%) or more
of the combined voting power of the outstanding securities of the Company having
the right to vote on 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 (B) 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
(ii) Continuing Directors shall for any
reason cease to constitute a majority of the Board of Directors of the Company;
or
(iii) all or substantially all of the
business and/or assets of the Company are disposed of by the Company to a party
or parties other than a subsidiary or other affiliate of the Company,
<PAGE> 3
3
pursuant to a partial or complete liquidation of the Company, sale of assets
(including stock of a subsidiary of the Company) or otherwise.
(c) 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.
(d) Executive may participate in future awards of
options to purchase Common Stock in a manner consistent with any stock option
plan adopted by the Company. The determination as to the amount of options, if
any, shall be at the sole discretion of the Board of Directors of the Company.
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 in accordance with the Company's policies.
5. BENEFITS.
5.1 Benefit Plans. During the term of this Agreement, the
Executive will be eligible to participate in all employee benefit plans and
programs (including, without limitation Supplemental Benefits Plan, 401(k) Plan,
medical, dental, life, and disability plans of the Company) offered by the
Company from time to time to its senior executives, subject to the provisions of
such plans and programs as in effect from time to time.
5.2 Vacation. The Executive shall be entitled to four (4)
weeks vacation per annum.
6. TERMINATION OF EMPLOYMENT.
6.1 Death. In the event of the death of the Executive, the
Company shall pay to the estate or other legal representative of the Executive
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. Rights and benefits of the estate or other legal representative of
the Executive (a) with respect to stock options shall be determined in
accordance with the applicable option grant and (b) under the benefit plans and
programs of the Company, shall be determined in accordance with the provisions
of such plans and programs.
6.2 Disability. If the Executive shall become incapacitated by
reason of sickness, accident or other physical or mental disability and shall be
entitled to payment of benefits under the Company's Supplemental Benefits Plan
long term disability provision, the employment of the Executive hereunder may be
terminated by the Company or the Executive. Rights and benefits of the Executive
(a) with respect to stock options shall be determined in accordance with the
applicable option grant 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.
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. Rights and benefits of the Executive or his
<PAGE> 4
4
transferee (a) with respect to stock options shall be determined in accordance
with the applicable option grant 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 include (a) the Executive's
willful and continuing failure to discharge his duties and responsibilities
under this Agreement or (b) any material act of dishonesty involving the Company
or (c) conviction of (i) a felony or (ii) any crime or offense involving moral
turpitude.
6.4 Termination by the Company Without Cause. 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
Cause) or 6.5 (Voluntary Termination), the Company shall pay to the Executive
severance pay in the form of salary continuation for a period of twelve (12)
months 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) and the bonus
provided for in Section 3.2 (at the bonus level for the fiscal year preceding
such termination). Except in the case of termination pursuant to Section 7
(Termination Pursuant to a Change in Control), the Executive shall be obligated
to seek other employment and any amounts earned from such other employment
(whether as an employee, a consultant or otherwise) shall be offset against the
severance payments referred to in this Section 6.4 for the first twelve (12)
months following the termination of Executive's employment. During the twelve
(12) month severance pay period referred to in this Section 6.4, the Company
shall continue to provide life, disability, medical, and dental coverage for the
Executive at the levels which were being provided to the Executive immediately
prior to the termination of his employment (or such other benefits as shall be
provided to senior executives of the Company in lieu of such benefits from time
to time during such twelve (12) month period) on the same basis, including
Company payment of premiums and Company contributions, as such benefits are
provided to other senior executives of the Company. In addition, the Executive
will be provided with outplacement Benefits commensurate with those provided to
other executives of the Company through a vendor selected by the Company. Rights
and benefits of the Executive or his transferee (a) with respect to stock
options shall be determined in accordance with the applicable option grant 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.
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, 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. Rights and benefits of the Executive or his transferee (a)
with respect to stock options shall be determined in accordance with the
applicable stock option grant and (b) under the benefit plans and programs of
the Company, shall be determined in accordance with the provisions of such plans
and programs.
7. TERMINATION PURSUANT TO A CHANGE IN CONTROL.
7.1 Constructive Termination. If, within a twenty-four (24)
month period following a Change in Control, there occurs:
(a) a termination of the Executive, other than
pursuant to Section 6.1 (Death), 6.2 (Disability), 6.3 (Due Cause) or 6.5
(Voluntary Termination) of this Agreement; or,
(b) a material diminution of the Executive's
responsibilities, as compared with the
<PAGE> 5
5
Executive's responsibilities immediately prior to the Change in Control; or,
(c) any reduction in the Executive's annual base
salary or any change to the amount of the bonus for which the Executive is
eligible as of the date immediately prior to the Change in Control; or,
(d) any failure to provide the Executive with
benefits as favorable as those provided to similarly situated executives of the
Company under the Company's Supplemental Benefits, 401(k), medical, dental,
life, and disability Plans; or,
(e) any material breach of the Agreement by the
Company;
then, at the option of the Executive, exercisable by the Executive within thirty
(30) days after the occurrence of any of the foregoing events, the Executive may
resign from employment with the Company by delivering a notice in writing (the
"Notice of Termination") to the Company, and, in such event, the Executive shall
be entitled to the severance provisions of Section 6.4.
7.2 Termination in connection with Relocation. If, after a
Change in Control, the executive's principal site of employment is relocated to
a site 50 miles or more from the Executive's principal site of employment as of
the date immediately prior to the Change of Control, then at the option of the
Executive, exercisable by the Executive within sixty (60) days after the
occurrence of the aforesaid relocation, the Executive may resign from employment
with the Company by delivering the Notice of Termination to the Company and, in
the event that said Notice of Termination is delivered to the Company during the
period beginning with the first day of thirteenth (13th) month and ending on the
last day of twenty-fourth (24th) month following a Change in Control, then the
Executive shall be entitled to the severance provisions of Section 6.4;
provided, however, that under no circumstances shall Executive be entitled to
the severance provisions of Section 6.4 if the Notice of Termination is
delivered within the first twelve (12) months immediately following a Change in
Control.
8. CONFIDENTIAL INFORMATION.
8.1 Nondisclosure. Unless the Executive secures the Company's
written consent, the Executive will not disclose, use, disseminate, lecture upon
or publish Confidential Information of which he becomes informed during his
employment, whether or not developed by him.
8.2 Confidential Information Defined. "Confidential
Information" means information disclosed to the Executive or known by him as a
result of his employment by the Company, not generally known in the
Rehabilitation Provider or Professional Employer Organization industry, about
the Company's services, products or customers, including, but not limited to,
clinical programs, procedures and protocols, research, operating models,
finance, strategic planning, client retention, data processing, insurance plans,
risk management, marketing, contracting and selling.
<PAGE> 6
6
9. INTERFERENCE WITH THE COMPANY.
The Executive will not, (a) for a period of one (1) year after
termination of his employment with the Company, directly or indirectly, (i)
engage, whether as principal, agent, investor, representative, stockholder
(other than as the holder of not more than five percent (5%) of the stock or
equity of any corporation the capital stock of which is publicly traded),
employee, consultant, volunteer or otherwise, with or without pay, in any
activity or business venture, anywhere within the continental United States,
which is competitive with the business of the Company Group (as hereinafter
defined) on the date of termination, (ii) solicit or entice or endeavor to
solicit or entice away from the Company any director, officer, employee, agent
or consultant, of the Company, either on his own account or for any person,
firm, corporation or other organization, whether or not the person solicited
would commit any breach of such person's contract of employment by reason of
leaving the Company's service, (iii) solicit or entice or endeavor to solicit or
entice away any of the clients or customers of the Company, either on his own
account or for any other person, firm, corporation or organization, or (iv)
employ any person who was a director, officer or employee of the Company, at any
time during the year preceding termination of his employment with the Company,
unless such person's employment was terminated by the Company, or any person who
is or may be likely to be in possession of any Confidential Information, or (b)
at any time take any action or make any statement which would impair the good
will of the Company or the business reputation or good name of the Company, or
be otherwise detrimental to the Company, including any action or statement
intended to benefit a competitor of the Company. Because the remedy at law for
any breach of the foregoing provisions of this Section 8 would be inadequate,
the Executive hereby consents, in case of any such breach, to the granting by
any court of competent jurisdiction of specific enforcement, including, but not
limited to pre-judgment injunctive relief, of such provisions, as provided for
in Section 8 hereof. For purposes of this Agreement, the "Company Group" means,
collectively, NovaCare, Inc., and the subsidiaries, affiliates and parent
entities of NovaCare, Inc.
The parties agree that if, in any proceeding, the court or
other authority shall refuse to enforce the covenants set forth in this Section
9 because such covenants cover too extensive a geographic area or too long a
period of time, any such covenant shall be deemed appropriately amended and
modified in keeping with the intention of the parties to the maximum extent
permitted by law.
10. INJUNCTIVE RELIEF.
Notwithstanding the provisions of Section 9 hereof, in the
event of my breach or threatened breach of the provisions of Section 8 or 9 of
this Agreement, the Executive hereby consents and agrees that the Company shall
be entitled, in order to maintain the status quo ante pending the outcome of
arbitration under Section 15 hereof, to an injunction or similar equitable
relief 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 such provision, without the necessity of
showing any actual damage or that money damages would not afford an adequate
remedy and without the necessity of posting any bond or other security. The
Executive agrees that the Executive shall not use the availability of
arbitration in Section 15 hereof as grounds for the dismissal of any injunctive
actions instituted by the Company pursuant to this Section 10.
11. SUCCESSORS AND ASSIGNS.
11.1 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
<PAGE> 7
7
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.
11.2 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.
12. 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 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.
13. ENTIRE AGREEMENT.
This Agreement contains all the understandings and
representations between the parties pertaining to the subject matter hereof and
supersedes all undertakings and agreements, whether oral or in writing,
previously entered into by them.
14. 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 of any breach by the other party 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 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.
<PAGE> 8
8
15. ARBITRATION.
The Company and the Executive will attempt amicably to resolve
disagreements and disputes hereunder or in connection with the employment of
Executive by negotiation. If the matter is not amicably resolved through
negotiation, within thirty (30) days after written notice from either party, any
controversy, dispute or disagreement arising out of or relating to this
Agreement, or the breach thereof, will be subject to exclusive, final and
binding arbitration, which will be conducted in Philadelphia, Pennsylvania in
accordance with the Labor Arbitration Rules of Procedure of the American
Arbitration Association. Either party may bring a court action to compel
arbitration under this Agreement or to enforce an arbitration award.
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:
Ronald G. Hiscock
26 Mooney Lane
Chester Springs, Pennsylvania 19425
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 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
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.
<PAGE> 9
9
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.
* * *
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
NOVACARE, INC.
By /s/ Timothy E. Foster
--------------------------------------
Timothy E. Foster
Chief Executive Officer
/s/ Ronald G. Hiscock
--------------------------------------
Ronald G. Hiscock
<PAGE> 1
EXHIBIT 10.B
NOVACARE, INC.
1016 WEST NINTH AVENUE
KING OF PRUSSIA, PA 19406
November 17, 1997
PNC Bank, National Association,
as Agent
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Attn: Marcie Knittel, Vice President
RE: Thirteenth Amendment to Credit Agreement (the "Thirteenth
Amendment")
Dear Marcie:
We refer to that certain Credit Agreement, dated as of May 27, 1994, as
amended (the "Credit Agreement"), by and among NovaCare, Inc. ("NovaCare") 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 as amended hereby.
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:
(a) Section 1.01 [Certain Definitions] is hereby amended by
inserting between the definitions of "Multiple Employer Plan" and "Notes" the
following new definition of "NESI Credit Facility", as follows:
"NESI Credit Facility" shall have the meaning assigned to that
term in Section 8.02 (d)."
<PAGE> 2
(b) Section 1.01 [Certain Definitions] is hereby amended by
deleting in its entirety the definition of "NovaCare Employee Services, Inc."
and inserting in lieu thereof, the following:
"NovaCare Employee Services, Inc. shall mean collectively
NovaCare Employee Services, Inc., a corporation organized and existing
under the laws of the State of Delaware and all of its Subsidiaries
(whether now existing or hereafter formed or acquired)."
(c) Section 1.01 [Certain Definitions] is hereby amended by
deleting the period at the end of clause (xi)(3) of the definition of "Permitted
Liens", inserting in lieu thereof a ";" and inserting immediately thereafter the
following new clause (xii):
"(xii) For periods on or after the Spin-Off Consummation: (1)
a pledge by NovaCare of the issued and outstanding capital stock of
NovaCare Employee Services, Inc., a Delaware corporation, owned by
NovaCare, such pledge to be in favor of the lenders under the NESI
Credit Facility for so long as loans are outstanding or commitments are
in effect under such facility, and (2) a pledge by NovaCare Employee
Services, Inc., a Delaware corporation and its Subsidiaries of the
issued and outstanding capital stock of the Subsidiaries of NovaCare
Employee Services, Inc., a Delaware corporation, such pledge to be in
favor of the lenders under the NESI Credit Facility for so long as
loans are outstanding or commitments are in effect under such
facility."
(d) Section 1.01 [Certain Definitions] is hereby amended by
deleting in its entirety the definition of "Permitted Line of Business" and
inserting in lieu thereof, the following:
"Permitted Line of Business shall mean, for any period through
but not including the date of the Spin-Off Consummation, the business
engaged in by NovaCare and its Subsidiaries as described in the Annual
Report, SEC Form 10-K of NovaCare and its Subsidiaries, dated June 30,
1997 (the "Existing Business"), and for periods on and after the date
of the Spin-Off Consummation, the Existing Business but expressly
excluding and prohibiting the ownership or operation of Professional
Employment Organizations, other than the continued ownership of by
NovaCare of common stock of NovaCare Employee Services, Inc., a
Delaware corporation, in accordance with Section 8.02(i)."
(e) Section 1.01 [Certain Definitions] is hereby amended by
deleting in its entirety the definition of "Spin-Off" and inserting in lieu
thereof, the following:
"Spin-Off shall mean that certain transaction pursuant to
which the following shall have occurred: (i) NovaCare shall have either
completed a spin-off of a percentage of its ownership interests in, or
caused the issuance, through an initial public offering of stock, of
additional shares of capital stock of NovaCare Employee Services, Inc.,
a Delaware corporation and as a result of such
2
<PAGE> 3
transaction, NovaCare, after giving effect thereto, shall own at least
65% of all of the issued and outstanding equity interests of NovaCare
Employee Services, Inc., a Delaware corporation, and (ii) NovaCare
Employee Services, Inc., a Delaware corporation shall repay all
outstanding Indebtedness as of the Spin-Off Consummation, together with
accrued interest thereon, of NovaCare Employee Services, Inc., a
Delaware corporation to NovaCare."
(f) Section 8.02 (i) [Loans and Investments] is hereby amended
by deleting the last sentence of clause (v) in its entirety and inserting in
lieu thereof, the following:
"Notwithstanding anything contained in this Section 8.02(i) to
the contrary, neither NovaCare nor any other Loan Party shall at any
time on or after the Spin-Off Consummation make any loan or advance to,
purchase, acquire or own any stock, bonds, notes or securities of, or
any other investment or interest in, or make any capital contribution
to, or agree, become or remain liable to do any of the foregoing with
respect to NovaCare Employee Services, Inc., a Delaware corporation,
other than the continued ownership of NovaCare's equity interest of
common stock of NovaCare Employee Services, Inc., a Delaware
corporation, as owned as of the Spin-Off Consummation.
2. Amendment to Schedules.
(a) Schedules. Schedule 1.01(e) [Excluded Entities] and
Schedule 6.01(c) [Subsidiaries] to the Agreement are hereby amended and restated
in their entirety in the form of such Schedules attached hereto as Exhibit I and
Exhibit II, respectively.
3. Conditions of Effectiveness.
The effectiveness of this Thirteenth Amendment is expressly conditioned
upon (i) the Agent's receipt of counterparts of this Thirteenth Amendment duly
executed by the Borrowers, the Guarantors, the Banks, and (ii) the consummation
of the Spin-Off.
This Thirteenth Amendment shall be dated as of and shall be effective
as of the date and year first above written which shall be the date of
satisfaction of all conditions precedent to effectiveness as set forth in this
Section 3.
4. Consent of All Banks; Release of Certain Collateral.
Pursuant to Section 11.01(c) of the Credit Agreement, this Thirteenth
Amendment shall require the written consent of all of the Banks. Pursuant to the
Tenth Amendment to the Credit Agreement, among the Loan Parties, the Agent and
the Banks, dated as of March 31, 1997, the Banks authorized the Agent to
automatically release the pledge of the stock of NovaCare Employee Services,
Inc., a Delaware corporation effective upon the Spin-Off Consummation. The Banks
hereby authorize the Agent to automatically release the pledge of the stock of
the Subsidiaries of NovaCare Employee Services, Inc., also effective upon the
Spin-Off
3
<PAGE> 4
Consummation, in order that all such shares may be pledged to the lenders under
the NESI Credit Facility.
5. Full Force and Effect.
Except as expressly modified and amended by this Thirteenth Amendment,
the Credit Agreement and the other Loan Documents are hereby ratified and
confirmed and shall remain in full force and effect.
6. 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 Thirteenth
Amendment which are payable by the Borrowers as provided in Section 10.05 of the
Credit Agreement.
7. Counterparts.
This Thirteenth 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.
8. Governing Law.
This Thirteenth 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.
4
<PAGE> 5
[Signature Page 1 of 8 to Thirteenth Amendment]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Amendment as of the day and year first above
written.
BORROWERS AND GUARANTORS:
ATTEST: NOVACARE, INC., a Delaware corporation, and
each of the other BORROWERS listed on
Schedule 6.01(c) of the Credit Agreement
(which Schedule is attached hereto as
Exhibit II) and each of the GUARANTORS
listed on Schedule 6.01(c) of the Credit
Agreement (which Schedule is attached hereto
as Exhibit II), other than those listed
below
By: /s/ Barry E. Smith By: /s/ Richard A. McDonald
----------------------- ----------------------------
Name: Richard A. McDonald
[Seal] Title: the Vice President
of each Borrower and Guarantor listed on
Schedule 6.01(c) of the Credit Agreement
(which Schedule is attached hereto as
Exhibit II), other than those listed below,
which is a corporation and of each general
partner of each Borrower and Guarantor which
is a partnership
Address for Notices for each of the
foregoing Borrowers and Guarantors:
1016 West Ninth Avenue
King of Prussia, PA 19406
Telecopier No. (610) 992-3328
Attention: Chief Financial Officer
Telephone No. (610) 992-7200
<PAGE> 6
[Signature Page 2 of 8 to Thirteenth Amendment]
AGENT:
PNC BANK, NATIONAL ASSOCIATION, as Agent
By: /s/ Marcie D. Knittel
-----------------------------
Title: Vice President
Address for Notices:
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Telecopier No. (412) 762-2784
Attention: Regional Healthcare Group
Telephone No. (412) 762-8343
BANKS:
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Marcie D. Knittel
----------------------------
Title: Vice President
Address for Notices:
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Telecopier No. (412) 762-2784
Attention: Regional Healthcare Group
Telephone No. (412) 762-8343
<PAGE> 7
[Signature Page 3 of 8 to Thirteenth Amendment]
CORESTATES BANK, N.A.
By: /s/ Jennifer W. Leibowitz
-------------------------------------
Name: Jennifer W. Leibowitz
Title: Vice President
Address for Notices:
1339 Chestnut Street
P.O. Box 7618
FC 1-8-3-22
Philadelphia, PA 19101
Telecopier No. (215) 973-2738
Attention: Jennifer W. Leibowitz
Assistant Vice President
Telephone No. (215) 786-3972
FIRST UNION NATIONAL BANK
By: /s/ Joseph H. Towell
---------------------------------
Name: Joseph H. Towell
Title: Senior Vice President
Address for Notices:
One First Union Center
301 S. College Street
Charlotte, NC 28288-0735
Telecopier No. (704) 383-9144
Attention: Terence Moore
Assistant Vice President
Telephone No. (704) 383-5212
<PAGE> 8
[Signature Page 4 of 8 to Thirteenth Amendment]
FLEET NATIONAL BANK
By: /s/ Toby B. Shea
------------------------------
Name: Toby B. Shea
Title: Assistant Vice President
Address for Notices:
Health Care and Institutions Group
Fleet Center MA BOF 04A
75 State Street
Boston, MA 02109-1810
Telecopier No. (617) 346-0610
Attention: Maryann S. Smith
Vice President
Telephone No. (617) 346-1594
MELLON BANK, N.A.
By: /s/ Colleen Cunnife
------------------------------
Name: Colleen Cunnife
Title: Assistant Vice President
Address for Notices:
Healthcare Banking
Plymouth Meeting/Exec. Campus
610 W. Germantown Pike
Suite 200/AIM #19E-0246
Plymouth Meeting, PA 19462
Telecopier No. (610) 941-4136
Attention: Colleen Cunniffe
Assistant Vice President
Telephone No. (610) 941-8426
<PAGE> 9
[Signature Page 5 of 8 to Thirteenth Amendment]
NATIONSBANK, N.A.
By: /s/ Kevin Wagley
-----------------------------
Name: Kevin Wagley
Title: Vice President
Address for Notices:
Healthcare Finance Group
One NationsBank Plaza
Fifth Floor
Nashville, TN 37239-1697
Telecopier No. (615) 749-4640
Attention: Kevin Wagley
Vice President
Telephone No. (615) 749-3802
THE BANK OF NEW YORK
By: /s/ Peter H. Abdill
-----------------------------
Name: Peter H. Abdill
Title: Vice President
Address for Notices:
Northeast Division
One Wall Street
21st Floor
New York, NY 10286
Telecopier No. (212) 635-7978
Attention: Peter Abdill
Vice President
Telephone No. (212) 635-6987
<PAGE> 10
[Signature Page 6 of 8 to Thirteenth Amendment]
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /s/ Janet P. Sammons
----------------------------
Name: Janet P. Sammons
Title: Vice President
Address for Notices:
Healthcare Banking Group
0-1101, Tower 10
200 South Orange Avenue
Orlando, FL 32801
Telecopier No. (407) 237-5489
Attention: Jeffrey R. Dickson
First Vice President
Telephone No. (407) 237-4541
BANK ONE, KENTUCKY, NA
By: /s/ Todd D. Munson
----------------------------
Name: Todd D. Munson
Title: Senior Vice President
Address for Notices:
Internal Zip KY1-2216
416 West Jefferson Street
Louisville, KY 40202
Telecopier No. (502) 566-2367
Attention: Todd Munson
Sr. Vice President
Telephone No. (502) 566-2640
<PAGE> 11
[Signature Page 7 of 8 to Thirteenth Amendment]
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By: /s/ Stephen Chin
----------------------------
Name: Stephen Chin
Title: Vice President
Address for Notices:
Two World Trade Center
New York, New York 10048
Telecopier No. (212) 898-2907
Attention: Robert O'Brien
Assistant Vice President
Telephone No. (212) 898-2442
CRESTAR BANK
By: /s/ Leesa McShane
----------------------------
Name: Leesa McShane
Title: Vice President
Address for Notices:
120 East Baltimore Street
25th Floor
Baltimore, MD 21203-7307
Telecopier No. (410) 986-1670
Attention: Leesa McShane
Vice President
Telephone No. (410) 986-1672
<PAGE> 12
[Signature Page 8 of 8 to Thirteenth Amendment]
BANK OF TOKYO - MITSUBISHI TRUST COMPANY
By: /s/ Douglas J. Weir
----------------------------
Name: Douglas J. Weir
Title: Vice President
Address for Notices:
US Corp. Banking Division
1251 Avenue of the Americas
New York, New York 10020-1104
Telecopier No. (212) 782-4935
Attention: Ned Komar
Vice President
Telephone No. (212) 782-4584
AMSOUTH BANK
By: /s/ J. Ken DiFatta
----------------------------
Name: J. Ken DiFatta
Title: Commercial Banking Officer
Address for Notices:
1900 5th Avenue North
Birmingham, AL 35203
Telecopier No. (205) 326-4790
Attention: Ken DiFatta
Commercial Banking Officer
Telephone No. (205) 801-0358
<PAGE> 13
STATE OF GEORGIA
COUNTY OF FULTON
On the 3rd day of November, 1997 personally appeared
Janet P. Sammons, as the Vice President of SunTrust Bank, Central
Florida, National Association, and before me executed the attached Thirteenth
Amendment and Consent dated as of November 17, 1997 to the Credit Agreement
between NovaCare, Inc., with SunTrust Bank, Central Florida, National
Association, as Lender.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal, in
the state and county aforesaid.
/s/ Tonya Adams
----------------------------------------
Signature of Notary Public, State of Georgia
Tonya Adams
(Print, Type or Stamp Commissioned Name of Notary
Public) Personally known X; OR Produced
Identification Type of identification produced:
_________________________________________________
_________________________________________________
<PAGE> 1
NOVACARE, INC.
1016 WEST NINTH AVENUE
KING OF PRUSSIA, PA 19406
February 24, 1998
PNC Bank, National Association,
as Agent
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Attn: Marcie Knittel, Vice President
RE: Fourteenth Amendment to Credit Agreement (the "Fourteenth
Amendment") Dear Marcie:
We refer to that certain Credit Agreement, dated as of May 27, 1994, as
amended (the "Credit Agreement"), by and among NovaCare, Inc. ("NovaCare") 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 as amended hereby.
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:
(a) Section 8.02(d) [Liquidations, Mergers,
Consolidations, Acquisitions] is hereby amended by deleting in its entirety
subsection (ii)(g) and inserting in lieu thereof, the following:
<PAGE> 2
"(g) the Consideration paid by the Loan
Parties for each Permitted Acquisition shall not exceed Thirty Million
Dollars ($30,000,000), and after giving effect to such Permitted
Acquisition, the Consideration paid by the Loan Parties for all
Permitted Acquisitions made during the current fiscal year of the Loan
Parties shall not exceed Two Hundred Twenty-Five Million Dollars
($225,000,000) in the fiscal year of the Loan Parties ending June 30,
1998 and One Hundred Fifty Million Dollars ($150,000,000) in each
fiscal of the Loan Parties thereafter (the "Annual Permitted
Acquisition Amount") provided that in no event shall the portion of the
Annual Permitted Acquisition Amount utilized to make Permitted
Acquisitions of physician practices in the specialty of occupational
medicine exceed Forty Million Dollars ($40,000,000) in any fiscal year
and in no event shall the portion of the Annual Permitted Acquisition
Amount utilized to make Permitted Acquisitions of Professional
Employment Organizations in any fiscal year prior to the fiscal year
during which the Spin-Off Consummation occurs exceed Forty-Five Million
Dollars ($45,000,000). Notwithstanding anything in this Agreement to
the contrary, for periods on or after March 31, 1997, no portion of the
Annual Permitted Acquisition Amount shall be utilized to make Permitted
Acquisitions of Professional Employment Organizations, and"
2. Conditions of Effectiveness.
The effectiveness of this Fourteenth Amendment is expressly conditioned
upon (i) the Agent's receipt of counterparts of this Fourteenth Amendment duly
executed by the Borrowers, the Guarantors, the Banks.
This Fourteenth Amendment shall be dated as of and shall be effective
as of the date and year first above written which shall be the date of
satisfaction of all conditions precedent to effectiveness as set forth in this
Section 2.
3. Consent of Required Banks.
Pursuant to Section 11.01 of the Credit Agreement, this Fourteenth
Amendment shall require the written consent of the Required Banks.
4. Full Force and Effect.
Except as expressly modified and amended by this Fourteenth Amendment,
the Credit Agreement and the other Loan Documents are hereby ratified and
confirmed and shall remain in full force and effect.
2
<PAGE> 3
5. 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 Fourteenth
Amendment which are payable by the Borrowers as provided in Section 10.05 of the
Credit Agreement.
6. Counterparts.
This Fourteenth 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.
7. Governing Law.
This Fourteenth 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.
3
<PAGE> 4
[Signature Page 1 of 8 to Fourteenth Amendment]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Amendment as of the day and year first above
written.
BORROWERS AND GUARANTORS:
ATTEST: NOVACARE, INC., a Delaware corporation,
and each of the other BORROWERS listed on
Schedule 6.01(c) of the Credit Agreement
(which Schedule is attached hereto as
Exhibit I) and each of the GUARANTORS
listed on Schedule 6.01(c) of the Credit
Agreement (which Schedule is attached
hereto as Exhibit I), other than those
listed below
By: /s/ Richard Binstein By: /s/ Richard A. McDonald
[Seal] Richard A. McDonald [Name], the Vice
President and Treasurer [Title] of
each Borrower and Guarantor listed on
Schedule 6.01(c) of the Credit Agreement
(which Schedule is attached hereto as
Exhibit II), other than those listed
below, which is a corporation and of each
general partner of each Borrower and
Guarantor which is a partnership
Address for Notices for each of the
foregoing Borrowers and Guarantors:
1016 West Ninth Avenue
King of Prussia, PA 19406
Telecopier No. (610) 992-3328
Attention: Chief Financial Officer
Telephone No. (610) 992-7200
<PAGE> 5
[Signature Page 2 of 8 to Fourteenth Amendment]
AGENT:
PNC BANK, NATIONAL ASSOCIATION, as
Agent
By: /s/ Justin J. Falgione
---------------------------------
Title: Asst. Vice President
-------------------------------
Address for Notices:
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Telecopier No. (412) 762-2784
Attention: Regional Healthcare Group
Telephone No. (412) 762-8343
BANKS:
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Justin J. Falgione
----------------------------------
Title: Asst. Vice President
-------------------------------
Address for Notices:
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Telecopier No. (412) 762-2784
Attention: Regional Healthcare Group
Telephone No. (412) 762-8343
<PAGE> 6
[Signature Page 3 of 8 to Fourteenth Amendment]
CORESTATES BANK, N.A.
By: /s/ Dierdre L. McAleer
-------------------------------------
Name: Dierdre L. McAleer
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
1339 Chestnut Street
P.O. Box 7618
FC 1-8-3-22
Philadelphia, PA 19101
Telecopier No. (215) 973-2738
Attention: Jennifer W. Leibowitz
Assistant Vice President
Telephone No. (215) 786-3972
FIRST UNION NATIONAL BANK
By: /s/ Joseph H. Towell
-------------------------------------
Name: Joseph H. Towell
-----------------------------------
Title: Senior Vice President
-----------------------------------
Address for Notices:
One First Union Center
301 S. College Street
Charlotte, NC 28288-0735
Telecopier No. (704) 383-9144
Attention: Terence Moore
Assistant Vice President
Telephone No. (704) 383-5212
<PAGE> 7
[Signature Page 4 of 8 to Fourteenth Amendment]
FLEET NATIONAL BANK
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address for Notices:
Health Care and Institutions Group
Fleet Center MA BOF 04A
75 State Street
Boston, MA 02109-1810
Telecopier No. (617) 346-0610
Attention: Maryann S. Smith
Vice President
Telephone No. (617) 346-1594
MELLON BANK, N.A.
By: /s/ Colleen Tuncuffe
-------------------------------------
Name: Colleen Tuncuffe
-----------------------------------
Title: AVP
----------------------------------
Address for Notices:
Healthcare Banking
Plymouth Meeting/Exec. Campus
610 W. Germantown Pike
Suite 200/AIM #19E-0246
Plymouth Meeting, PA 19462
Telecopier No. (610) 941-4136
Attention: Colleen Cunniffe
Assistant Vice President
Telephone No. (610) 941-8426
<PAGE> 8
[Signature Page 5 of 8 to Fourteenth Amendment]
NATIONSBANK, N.A.
By: /s/ Kevin Wagley
-------------------------------------
Name: Kevin Wagley
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
Healthcare Finance Group
One NationsBank Plaza
Fifth Floor
Nashville, TN 37239-1697
Telecopier No. (615) 749-4640
Attention: Kevin Wagley
Vice President
Telephone No. (615) 749-3802
THE BANK OF NEW YORK
By: /s/ Peter H. Abdill
-------------------------------------
Name: Peter H. Abdill
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
Northeast Division
One Wall Street
21st Floor
New York, NY 10286
Telecopier No. (212) 635-7978
Attention: Peter Abdill
Vice President
Telephone No. (212) 635-6987
<PAGE> 9
[Signature Page 6 of 8 to Fourteenth Amendment]
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /s/ Janet P. Sammons
-------------------------------------
Name: Janet P. Sammons
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
Healthcare Banking Group
0-1101, Tower 10
200 South Orange Avenue
Orlando, FL 32801
Telecopier No. (407) 237-5489
Attention: Jeffrey R. Dickson
First Vice President
Telephone No. (407) 237-4541
BANK ONE, KENTUCKY, NA
By: /s/ Todd D. Munson
-------------------------------------
Name: Todd D. Munson
-----------------------------------
Title: Senior Vice President
---------------------------------
Address for Notices:
Internal Zip KY1-2216
416 West Jefferson Street
Louisville, KY 40202
Telecopier No. (502) 566-2367
Attention: Todd Munson
Sr. Vice President
Telephone No. (502) 566-2640
<PAGE> 10
[Signature Page 7 of 8 to Fourteenth Amendment]
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By: /s/ Stephen Chin
-------------------------------------
Name: Stephen Chin
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
Two World Trade Center
New York, New York 10048
Telecopier No. (212) 898-2907
Attention: Robert O'Brien
Assistant Vice President
Telephone No. (212) 898-2442
CRESTAR BANK
By: /s/ Leesa McShane
-------------------------------------
Name: Leesa McShane
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
120 East Baltimore Street
25th Floor
Baltimore, MD 21203-7307
Telecopier No. (410) 986-1670
Attention: Leesa McShane
Vice President
Telephone No. (410) 986-1672
<PAGE> 11
[Signature Page 8 of 8 to Fourteenth Amendment]
BANK OF TOKYO - MITSUBISHI TRUST COMPANY
By: /s/ Douglas J. Weir
-------------------------------------
Name: Douglas J. Weir
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
US Corp. Banking Division
1251 Avenue of the Americas
New York, New York 10020-1104
Telecopier No. (212) 782-4935
Attention: Ned Komar
Vice President
Telephone No. (212) 782-4584
AMSOUTH BANK
By: /s/ J. Ken DiFetta
-------------------------------------
Name: J. Ken DiFetta
-----------------------------------
Title: Commercial Banking Officer
----------------------------------
Address for Notices:
1900 5th Avenue North
Birmingham, AL 35203
Telecopier No. (205) 326-4790
Attention: Ken DiFatta
Commercial Banking Officer
Telephone No. (205) 801-0358
<PAGE> 12
STATE OF GEORGIA
COUNTY OF FULTON
On the 17th day of February, 1998 personally appeared Janet Sammons, as
the Vice President of SunTrust Bank, Central Florida, National Association, and
before me executed the attached Fourteenth Amendment and Consent dated as of
2/24, 1998 to the Credit Agreement between NovaCare, Inc., with SunTrust Bank,
Central Florida, National Association, as Lender.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal, in
the state and county aforesaid.
/s/ Tonya Adams
----------------------------------------------------
Signature of Notary Public, State of Georgia
Tonya Adams
(Print, Type or Stamp Commissioned Name of Notary
Public) Personally known ____X_____; OR Produced
Identification Type of identification produced:
<PAGE> 1
NOVACARE, INC.
1016 WEST NINTH AVENUE
KING OF PRUSSIA, PA 19406
February 27, 1998
PNC Bank, National Association,
as Agent
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Attn: Marcie Knittel, Vice President
RE: Fifteenth Amendment and Waiver to Credit Agreement (the
"Fifteenth Amendment")
Dear Marcie:
We refer to that certain Credit Agreement, dated as of May 27, 1994, as
amended (the "Credit Agreement"), by and among NovaCare, Inc. ("NovaCare") 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 as amended hereby.
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:
(a) Section 1.01 [Certain Definitions] is hereby
amended by deleting in its entirety the definition of Permitted Additional
Subordinated Indebtedness and inserting in lieu thereof, the following:
<PAGE> 2
"Permitted Additional Subordinated Indebtedness shall
mean Indebtedness which meets each of the following conditions: (A) the
documentation governing such Indebtedness shall provide that the rights
of the holders thereof shall be subordinate to the rights of the Agent
and the Banks with respect to the Indebtedness under the Loan Documents
in accordance with the subordination provisions contained in Exhibit
1.01(P)(3) with such revisions thereto as are reasonably satisfactory
to the Agent,(B) the agreements governing such Indebtedness shall not
contain any provisions which are more restrictive than the provisions
of this Agreement, and (C) the Loan Parties shall deliver to the Agent
on behalf of the Banks copies of drafts of the agreements described in
clauses (A) and (B) at least five (5) Business Days before they incur
such Indebtedness if the amount of such Indebtedness shall exceed
$5,000,000."
2. Waiver to Credit Agreement.
In connection with the Acquisition of Joyner Sportsmedicine
Institute, Inc. (the "Joyner Acquisition") the parties hereto do hereby waive
the dollar limitation for an individual Permitted Acquisition contained in
Section 8.02(d)(ii)(g) [Liquidations, Mergers, Consolidations, Acquisitions] for
the sole purpose of permitting the consummation of the Joyner Acquisition and
the payment of the Consideration in connection therewith which shall exceed
Thirty Million Dollars ($30,000,000):
3. Conditions of Effectiveness.
The effectiveness of this Fifteenth Amendment is expressly conditioned
upon (i) the Agent's receipt of counterparts of this Fifteenth Amendment duly
executed by the Borrowers, the Guarantors, the Banks.
This Fifteenth Amendment shall be dated as of and shall be effective as
of the date and year first above written which shall be the date of satisfaction
of all conditions precedent to effectiveness as set forth in this Section 2.
4. Consent of Required Banks.
Pursuant to Section 11.01 of the Credit Agreement, this Fifteenth
Amendment shall require the written consent of the Required Banks.
5. Full Force and Effect.
Except as expressly modified and amended by this Fifteenth Amendment,
the Credit Agreement and the other Loan Documents are hereby ratified and
confirmed and shall remain in full force and effect.
2
<PAGE> 3
6. 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 Fifteenth
Amendment which are payable by the Borrowers as provided in Section 10.05 of the
Credit Agreement.
7. Counterparts.
This Fifteenth 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.
8. Governing Law.
This Fifteenth 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.
[SIGNATURES BEGIN ON NEXT PAGE]
3
<PAGE> 4
[Signature Page 1 of 8 to Fifteenth Amendment]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Amendment as of the day and year first above
written.
BORROWERS AND GUARANTORS:
ATTEST: NOVACARE, INC., a Delaware corporation,
and each of the other BORROWERS listed on
Schedule 6.01(c) of the Credit Agreement
(which Schedule is attached hereto as
Exhibit I) and each of the GUARANTORS
listed on Schedule 6.01(c) of the Credit
Agreement (which Schedule is attached
hereto as Exhibit I), other than those
listed below
By: /s/ Richard Binstein By: /s/ Richard A. McDonald
[Seal] Richard A. McDonald [Name], the
Vice President and Treasurer
[Title] of each Borrower and Guarantor
listed on Schedule 6.01(c) of the Credit
Agreement (which Schedule is attached
hereto as Exhibit II), other than those
listed below, which is a corporation and
of each general partner of each Borrower
and Guarantor which is a partnership
Address for Notices for each of the
foregoing Borrowers and Guarantors:
1016 West Ninth Avenue
King of Prussia, PA 19406
Telecopier No. (610) 992-3328
Attention: Chief Financial Officer
Telephone No. (610) 992-7200
<PAGE> 5
[Signature Page 2 of 8 to Fifteenth Amendment]
AGENT:
PNC BANK, NATIONAL ASSOCIATION, as
Agent
By: /s/ Justin J. Falgione
----------------------------------
Title: Assistant Vice President
Address for Notices:
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Telecopier No. (412) 762-2760
Attention: Regional Healthcare Group
Telephone No. (412) 762-8343
BANKS:
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Justin J. Falgione
----------------------------------
Title: Assistant Vice President
-------------------------------
Address for Notices:
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Telecopier No. (412) 768-5149
Attention: Regional Healthcare Group
Telephone No. (412) 762-2190
<PAGE> 6
[Signature Page 3 of 8 to Fifteenth Amendment]
CORESTATES BANK, N.A.
By: /s/ Deirdre L. McAleer
-------------------------------------
Name: Deirdre L. McAleer
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
1339 Chestnut Street
P.O. Box 7618
FC 1-8-3-22
Philadelphia, PA 19101
Telecopier No. (215) 973-2738
Attention: Jennifer W. Leibowitz
Assistant Vice President
Telephone No. (215) 786-3972
FIRST UNION NATIONAL BANK
By: /s/ Joseph H. Howell
-------------------------------------
Name: Joseph H. Howell
-----------------------------------
Title: Senior Vice President
----------------------------------
Address for Notices:
One First Union Center
301 S. College Street
Charlotte, NC 28288-0735
Telecopier No. (704) 383-9144
Attention: Terence Moore
Assistant Vice President
Telephone No. (704) 383-5212
<PAGE> 7
[Signature Page 4 of 8 to Fifteenth Amendment]
FLEET NATIONAL BANK
By: /s/ Toby B. Shea
-------------------------------------
Name: Toby B. Shea
-----------------------------------
Title: Assistant Vice President
----------------------------------
Address for Notices:
Health Care and Institutions Group
One Federal Street - MA OFDO7B
Boston, MA 02110
Telecopier No. (617) 346-4666
Attention: Maryann S. Smith
Vice President
Telephone No. (617) 346-4613
MELLON BANK, N.A.
By: /s/ Colleen Cunuiffe
-------------------------------------
Name: Colleen Cunuiffe
-----------------------------------
Title: Assistant Vice President
----------------------------------
Address for Notices:
Healthcare Banking
Plymouth Meeting/Exec. Campus
610 W. Germantown Pike
Suite 200/AIM #19E-0246
Plymouth Meeting, PA 19462
Telecopier No. (610) 941-4136
Attention: Colleen Cunniffe
Assistant Vice President
Telephone No. (610) 941-8426
<PAGE> 8
[Signature Page 5 of 8 to Fifteenth Amendment]
NATIONSBANK, N.A.
By: /s/ Kevin Wagley
-------------------------------------
Name: Kevin Wagley
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
Healthcare Finance Group
One NationsBank Plaza
Fifth Floor
Nashville, TN 37239-1697
Telecopier No. (615) 749-4640
Attention: Kevin Wagley
Vice President
Telephone No. (615) 749-3802
THE BANK OF NEW YORK
By: /s/ Peter H. Abdill
-------------------------------------
Name: Peter H. Abdill
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
Northeast Division
One Wall Street
21st Floor
New York, NY 10286
Telecopier No. (212) 635-7978
Attention: Peter Abdill
Vice President
Telephone No. (212) 635-6987
<PAGE> 9
[Signature Page 6 of 8 to Fifteenth Amendment]
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /s/ Ronald K. Rueve
-------------------------------------
Name: Ronald K. Rueve
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
Healthcare Banking Group
0-1101, Tower 10
200 South Orange Avenue
Orlando, FL 32801
Telecopier No. (407) 237-5489
Attention: Jeffrey R. Dickson
First Vice President
Telephone No. (407) 237-4541
BANK ONE, KENTUCKY, NA
By: /s/ Todd D. Munson
-------------------------------------
Name: Todd D. Munson
-----------------------------------
Title: Senior Vice President
----------------------------------
Address for Notices:
Internal Zip KY1-2216
416 West Jefferson Street
Louisville, KY 40202
Telecopier No. (502) 566-8339
Attention: Todd Munson
Sr. Vice President
Telephone No. (502) 566-2640
<PAGE> 10
[Signature Page 7 of 8 to Fifteenth Amendment]
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By: /s/ Stephen Chin
-------------------------------------
Name: Stephen Chin
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
Two World Trade Center
New York, New York 10048
Telecopier No. (212) 321-9407
Attention: James Grady
Assistant Vice President
Telephone No. (212) 898-2274
CRESTAR BANK
By: /s/ Leesa McShane
-------------------------------------
Name: Leesa McShane
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
120 East Baltimore Street
25th Floor
Baltimore, MD 21203-7307
Telecopier No. (410) 986-1670
Attention: Leesa McShane
Vice President
Telephone No. (410) 986-1672
<PAGE> 11
[Signature Page 8 of 8 to Fifteenth Amendment]
BANK OF TOKYO - MITSUBISHI TRUST COMPANY
By: /s/ J. Beckwith
-------------------------------------
Name: J. Beckwith
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
US Corp. Banking Division
1251 Avenue of the Americas
New York, New York 10020-1104
Telecopier No. (212) 782-4935
Attention: Ned Komar
Vice President
Telephone No. (212) 782-4584
AMSOUTH BANK
By: /s/ Ken DiFatta
-------------------------------------
Name: Ken DiFatta
-----------------------------------
Title: Assitant Vice President
----------------------------------
Address for Notices:
1900 5th Avenue North
Birmingham, AL 35203
Telecopier No. (205) 326-4790
Attention: Ken DiFatta
Commercial Banking Officer
Telephone No. (205) 801-0358
<PAGE> 12
STATE OF GEORGIA
COUNTY OF FULTON
On the 26th day of February, 1998 personally appeared Ronald K. Rueve,
as the Vice President of SunTrust Bank, Central Florida, National Association,
and before me executed the attached Fifteenth Amendment and Consent dated as of
February 27, 1998 to the Credit Agreement between NovaCare, Inc., with SunTrust
Bank, Central Florida, National Association, as Lender.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal, in
the state and county aforesaid.
/s/ Tonya Adams
----------------------------------------------------
Signature of Notary Public, State of Georgia
Tonya Adams
(Print, Type or Stamp Commissioned Name of Notary
Public) Personally known ____XX____; OR Produced
Identification Type of identification produced:
<PAGE> 1
NOVACARE, INC.
1016 WEST NINTH AVENUE
KING OF PRUSSIA, PA 19406
March 30, 1998
PNC Bank, National Association,
as Agent
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Attn: Marcie Knittel, Vice President
RE: Sixteenth Amendment to Credit Agreement (the "Sixteenth
Amendment")
Dear Marcie:
We refer to that certain Credit Agreement, dated as of May 27, 1994, as
amended (the "Credit Agreement"), by and among NovaCare, Inc. ("NovaCare") 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 as amended hereby.
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:
(a) Section 1.01 [Certain Definitions] is hereby amended by
inserting between the definitions of "Event of Default" and "Excluded Entities"
the following new definition of "Excess Cash", as following:
<PAGE> 2
"Excess Cash shall mean as of any date of determination
the amount of cash on hand of NovaCare and its Subsidiaries, as determined
on a consolidated basis in accordance with GAAP, in excess of
$14,261,000."
(b) Section 5.05 [RESERVED] is hereby amended by deleting
"[RESERVED]" and inserting in lieu thereof, the following:
"5.05 Mandatory Prepayments.
(a) Excess Cash. For any fiscal quarter in which there is
Excess Cash determined as of the last day of such fiscal quarter, NovaCare
shall make a mandatory prepayment of principal on the Revolving Credit
Loans equal to the amount of the Excess Cash as follows:
(i) first to Revolving Credit Loans subject to the
Revolving Credit Base Rate Option, within three (3) Business Days of the
end of such fiscal quarter, and then
(ii) to Revolving Credit Loans subject to a Revolving
Credit Euro-Rate Option, on the last day of the applicable Euro-Rate
Interest Period with respect to any Revolving Credit Loans to which a
Revolving Credit Euro-Rate Option applies."
(c) Section 8.02 [Negative Covenants] is hereby amended by
deleting in its entirety subsection (n) and inserting in lieu thereof, the
following:
"(n) Funded Debt to Cash Flow From Operations.
(A) For the fiscal quarter ending March 31, 1998,
the Loan Parties shall not permit the ratio of (i) Consolidated Funded Debt
minus Excess Cash, to (ii) Consolidated Cash Flow from Operations, calculated as
of the end of each fiscal quarter for the four fiscal quarters then ended, to
exceed 3.25 to 1.0."
(B) For any fiscal quarter ending after March 31,
1998, the Loan Parties shall not permit the ratio of Consolidated Funded Debt to
Consolidated Cash Flow from Operations, calculated as of the end of each fiscal
quarter for the four fiscal quarters then ended, to exceed 3.00 to 1.0
2. Conditions of Effectiveness.
The effectiveness of this Sixteenth Amendment is expressly conditioned
upon (i) the Agent's receipt of counterparts of this Sixteenth Amendment duly
executed by the Borrowers, the Guarantors, the Banks.
2
<PAGE> 3
This Sixteenth Amendment shall be dated as of and shall be effective as of
the date and year first above written which shall be the date of satisfaction of
all conditions precedent to effectiveness as set forth in this Section 2.
3. Consent of Required Banks.
Pursuant to Section 11.01 of the Credit Agreement, this Sixteenth
Amendment shall require the written consent of the Required Banks.
4. Full Force and Effect.
Except as expressly modified and amended by this Sixteenth Amendment, the
Credit Agreement and the other Loan Documents are hereby ratified and confirmed
and shall remain in full force and effect.
5. 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 Sixteenth Amendment
which are payable by the Borrowers as provided in Section 10.05 of the Credit
Agreement.
6. Counterparts.
This Sixteenth 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.
7. Governing Law.
This Sixteenth 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.
[SIGNATURES BEGIN ON NEXT PAGE]
3
<PAGE> 4
[Signature Page 1 of 8 to Sixteenth Amendment]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Amendment as of the day and year first above
written.
BORROWERS AND GUARANTORS:
ATTEST: NOVACARE, INC., a Delaware
corporation, and each of the other
BORROWERS listed on Schedule 6.01(c)
of the Credit Agreement (which
Schedule is attached hereto as Exhibit
I) and each of the GUARANTORS listed
on Schedule 6.01(c) of the Credit
Agreement (which Schedule is attached
hereto as Exhibit I), other than those
listed below
By: /s/ Richard Binstein By: /s/ Richard A. McDonald
-------------------- -----------------------------------
Richard A. McDonald [Name],
----------------------------------------
[Seal] the Vice President and Treasurer [Title]
------------------------------------------
of each Borrower and Guarantor listed on
Schedule 6.01(c) of the Credit Agreement
(which Schedule is attached hereto as
Exhibit I), other than those listed below,
which is a corporation and of each general
partner of each Borrower and Guarantor which
is a partnership
Address for Notices for each of the
foregoing Borrowers and Guarantors:
1016 West Ninth Avenue
King of Prussia, PA 19406
Telecopier No. (610) 992-3328
Attention: Chief Financial Officer
Telephone No. (610) 992-7200
<PAGE> 5
[Signature Page 2 of 8 to Sixteenth Amendment]
AGENT:
PNC BANK, NATIONAL ASSOCIATION, as Agent
By: /s/ Justin J. Falgione
----------------------------------------
Title: Assistant Vice President
------------------------------------
Address for Notices:
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Telecopier No. (412) 762-2760
Attention: Regional Healthcare Group
Telephone No. (412) 762-8343
BANKS:
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Justin J. Falgione
----------------------------------------
Title: Assistant Vice President
------------------------------------
Address for Notices:
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Telecopier No. (412) 768-5149
Attention: Regional Healthcare Group
Telephone No. (412) 762-2190
<PAGE> 6
[Signature Page 3 of 8 to Sixteenth Amendment]
CORESTATES BANK, N.A.
By: /s/ Deirdre L. McAleer
----------------------------------------
Name: Deirdre L. McAleer
--------------------------------------
Title: Vice President
--------------------------------------
Address for Notices:
1339 Chestnut Street
P.O. Box 7618
FC 1-8-3-22
Philadelphia, PA 19101
Telecopier No. (215) 973-2738
Attention: Deidre L. McAleer
Vice President
Telephone No. (215) 786-3972
FIRST UNION NATIONAL BANK
By: /s/ Joseph H. Howell
----------------------------------------
Name: Joseph H. Howell
---------------------------------------
Title: Senior Vice President
--------------------------------------
Address for Notices:
One First Union Center
301 S. College Street
Charlotte, NC 28288-0735
Telecopier No. (704) 383-9144
Attention: Terence Moore
Assistant Vice President
Telephone No. (704) 383-5212
<PAGE> 7
[Signature Page 4 of 8 to Sixteenth Amendment]
FLEET NATIONAL BANK
By: /s/ Toby B. Shea
----------------------------------------
Name: Toby B. Shea
--------------------------------------
Title: Assistant Vice President
-------------------------------------
Address for Notices:
Health Care and Institutions Group
One Federal Street - MA OFDO7B
Boston, MA 02110
Telecopier No. (617) 346-4666
Attention: Maryann S. Smith
Vice President
Telephone No. (617) 346-4613
MELLON BANK, N.A.
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Address for Notices:
Healthcare Banking
Plymouth Meeting/Exec. Campus
610 W. Germantown Pike
Suite 200/AIM #19E-0246
Plymouth Meeting, PA 19462
Telecopier No. (610) 941-4136
Attention: Colleen Cunniffe
Assistant Vice President
Telephone No. (610) 941-8426
<PAGE> 8
[Signature Page 5 of 8 to Sixteenth Amendment]
NATIONSBANK, N.A.
By: /s/ Kevin Wagley
----------------------------------------
Name: Kevin Wagley
--------------------------------------
Title: Vice President
--------------------------------------
Address for Notices:
Healthcare Finance Group
One NationsBank Plaza
Fifth Floor
Nashville, TN 37239-1697
Telecopier No. (615) 749-4640
Attention: Kevin Wagley
Vice President
Telephone No. (615) 749-3802
THE BANK OF NEW YORK
By: /s/ Peter H. Abdill
----------------------------------------
Name: Peter H. Abdill
--------------------------------------
Title: Vice President
--------------------------------------
Address for Notices:
Northeast Division
One Wall Street
21st Floor
New York, NY 10286
Telecopier No. (212) 635-7978
Attention: Peter Abdill
Vice President
Telephone No. (212) 635-6987
<PAGE> 9
[Signature Page 6 of 8 to Sixteenth Amendment]
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /s/ Janet P. Sammons
----------------------------------------
Name: Janet P. Sammons
---------------------------------------
Title: Vice President
--------------------------------------
Address for Notices:
Healthcare Banking Group
0-1101, Tower 10
200 South Orange Avenue
Orlando, FL 32801
Telecopier No. (407) 237-5489
Attention: Karen M. George
First Vice President
Telephone No. (407) 237-4541
BANK ONE, KENTUCKY, NA
By: /s/ Todd D. Munson
----------------------------------------
Name: Todd D. Munson
---------------------------------------
Title: Senior Vice President
--------------------------------------
Address for Notices:
Internal Zip KY1-2216
416 West Jefferson Street
Louisville, KY 40202
Telecopier No. (502) 566-8339
Attention: Todd Munson
Sr. Vice President
Telephone No. (502) 566-2640
<PAGE> 10
[Signature Page 7 of 8 to Sixteenth Amendment]
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Address for Notices:
Two World Trade Center
New York, New York 10048
Telecopier No. (212) 321-9407
Attention: James Grady
Assistant Vice President
Telephone No. (212) 898-2274
CRESTAR BANK
By: /s/ Leesa McShane
________________________________________
Name: Leesa McShane
_______________________________________
Title: Vice President
______________________________________
Address for Notices:
120 East Baltimore Street
25th Floor
Baltimore, MD 21203-7307
Telecopier No. (410) 986-1670
Attention: Leesa McShane
Vice President
Telephone No. (410) 986-1672
<PAGE> 11
[Signature Page 8 of 8 to Sixteenth Amendment]
BANK OF TOKYO - MITSUBISHI TRUST COMPANY
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Address for Notices:
US Corp. Banking Division
1251 Avenue of the Americas
New York, New York 10020-1104
Telecopier No. (212) 782-4935
Attention: Ned Komar
Vice President
Telephone No. (212) 782-4584
AMSOUTH BANK
By: /s/ J. Ken DiFatta
________________________________________
Name: J. Ken DiFatta
_______________________________________
Title: Assistant Vice President
______________________________________
Address for Notices:
1900 5th Avenue North
Birmingham, AL 35203
Telecopier No. (205) 326-4790
Attention: Ken DiFatta
Commercial Banking Officer
Telephone No. (205) 801-0358
<PAGE> 12
STATE OF GEORGIA
COUNTY OF FULTON
On the 24th day of March, 1998 personally appeared Janet P. Sammons,
as the Vice President of SunTrust Bank, Central Florida, National Association,
and before me executed the attached Sixteenth Amendment and Consent dated as of
March 30, 1998 to the Credit Agreement between NovaCare, Inc., with SunTrust
Bank, Central Florida, National Association, as Lender.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal, in the
state and county aforesaid.
/s/ Mary W. Harrell
____________________________________________________
Signature of Notary Public, State of Georgia
Mary W. Harrell
(Print, Type or Stamp Commissioned Name of Notary Public)
Personally known /X/; OR Produced Identification / /
Type of identification produced:________________________
________________________________________________________
Notary Public, Dekalb County, Georgia
My Commission Expires May 12, 2001
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS IN FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998.
</LEGEND>
<CIK> 0000802843
<NAME> NOVACARE, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 41,489
<SECURITIES> 0
<RECEIVABLES> 377,109
<ALLOWANCES> 41,050
<INVENTORY> 31,716
<CURRENT-ASSETS> 457,945
<PP&E> 170,882
<DEPRECIATION> (93,302)
<TOTAL-ASSETS> 1,300,907
<CURRENT-LIABILITIES> 209,378
<BONDS> 471,047
0
0
<COMMON> 672
<OTHER-SE> 557,102
<TOTAL-LIABILITY-AND-EQUITY> 1,300,907
<SALES> 0
<TOTAL-REVENUES> 1,207,283
<CGS> 0
<TOTAL-COSTS> 1,096,574<F1>
<OTHER-EXPENSES> 137<F2>
<LOSS-PROVISION> 15,957
<INTEREST-EXPENSE> 20,117
<INCOME-PRETAX> 74,498
<INCOME-TAX> 31,057
<INCOME-CONTINUING> 43,441
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,441
<EPS-PRIMARY> .71
<EPS-DILUTED> .69
<FN>
<F1>"TOTAL COSTS" CONSIST OF COST OF SERVICES AND SELLING AND ADMINISTRATIVE
EXPENSES
<F2>"OTHER EXPENSES" CONSIST OF AMORTIZATION OF GOODWILL, MINORITY INTEREST AND
PROVISION FOR RESTRUCTURE OFFSET BY INVESTMENT INCOME AND GAIN FROM ISSUANCE OF
SUBSIDIARY STOCK.
</FN>
</TABLE>
