<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, 1999
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, 1999, NovaCare, Inc. had 63,155,560 shares of common stock, $.01
par value, outstanding.
<PAGE> 2
NOVACARE, INC. AND SUBSIDIARIES
FORM 10-Q - QUARTER ENDED MARCH 31, 1999
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, 1999 and June 30, 1998 1
- Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1999 and
1998 2
- Condensed Consolidated Statements of Operations
for the Nine Months Ended March 31, 1999 and 1998 3
- Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended March 31, 1999 and
1998 4
- Notes to Condensed Consolidated Financial
Statements 5-10
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-19
II OTHER INFORMATION
6 Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
i
<PAGE> 3
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND JUNE 30, 1998 (In
thousands, except per share data)
<TABLE>
<CAPTION>
MARCH 31, June 30,
1999 1998
----------- -----------
(UNAUDITED) (See Note 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 23,804 $ 32,760
Accounts receivable, net of allowances at March 31, 1999 and at
June 30, 1998 of $42,774 and $55,060, respectively .................... 301,369 338,328
Inventories ............................................................. 45,135 38,207
Income tax receivable ................................................... 27,869 --
Deferred income taxes ................................................... 14,580 14,580
Other current assets .................................................... 27,771 27,978
----------- -----------
Total current assets ................................................ 440,528 451,853
Property and equipment, net ................................................ 64,541 80,857
Excess cost of net assets acquired, net .................................... 719,592 767,729
Investments in joint ventures .............................................. 15,203 14,881
Other assets, net .......................................................... 49,965 40,722
----------- -----------
$ 1,289,829 $ 1,356,042
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of financing arrangements ............................... $ 540,696 $ 32,074
Accounts payable and accrued expenses ................................... 160,796 193,025
Income taxes payable .................................................... -- 981
----------- -----------
Total current liabilities ........................................... 701,492 226,080
Financing arrangements, net of current portion ............................. 55,267 476,308
Deferred income taxes ...................................................... 41,684 41,067
Other ...................................................................... 6,200 13,608
----------- -----------
Total liabilities ................................................... 804,643 757,063
----------- -----------
Minority interest in consolidated subsidiaries ............................. 27,501 18,306
Commitments and contingencies .............................................. -- --
Shareholders' equity:
Common stock, $.01 par value; authorized 200,000 shares;
issued 68,371 shares at March 31, 1999 and issued 67,935 shares at
June 30, 1998 ......................................................... 684 679
Additional paid-in capital .............................................. 274,285 273,157
Retained earnings ....................................................... 225,388 350,255
----------- -----------
500,357 624,091
Less:Common stock in treasury (at cost), 5,307 shares at March 31, 1999
and 5,401 shares at June 30, 1998 ..................................... (42,672) (43,418)
----------- -----------
Total shareholders' equity .......................................... 457,685 580,673
----------- -----------
$ 1,289,829 $ 1,356,042
=========== ===========
</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,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
Net revenues ........................................ $ 437,307 $ 451,767
Cost of services .................................... 386,997 358,199
--------- ---------
Gross profit .................................... 50,310 93,568
Selling, general and administrative expenses ........ 51,945 52,551
Provision for uncollectible accounts ................ 8,378 6,009
Amortization of excess cost of net assets acquired .. 6,301 5,230
Provision for restructure, net ...................... 111,947 --
--------- ---------
(Loss) income from operations .................. (128,261) 29,778
Investment income ................................... 127 171
Interest expense .................................... (9,667) (7,628)
Minority interest ................................... (886) (467)
--------- ---------
(Loss) income before income taxes ............... (138,687) 21,854
Income taxes ........................................ (26,645) 9,209
--------- ---------
Net (loss) income ............................... $(112,042) $ 12,645
========= =========
Net (loss) income per share - basic ............. $ (1.78) $ .21
========= =========
Net (loss) income per share - assuming dilution . $ (1.78) $ .20
========= =========
</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,
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net revenues ........................................ $ 1,398,830 $ 1,207,283
Cost of services .................................... 1,183,863 948,985
----------- -----------
Gross profit .................................... 214,967 258,298
Selling, general and administrative expenses ........ 158,223 147,589
Provision for uncollectible accounts ................ 23,439 15,957
Amortization of excess cost of net assets acquired .. 18,789 14,495
Provision for restructure, net ...................... 129,747 23,500
----------- -----------
Income from operations ......................... (115,231) 56,757
Gain from issuance of subsidiary stock .............. 1,506 38,128
Investment income ................................... 423 617
Interest expense .................................... (28,373) (20,117)
Minority interest ................................... (2,355) (887)
----------- -----------
(Loss) income before income taxes ............... (144,030) 74,498
Income taxes ........................................ (19,163) 31,057
----------- -----------
Net (loss) income ............................... $ (124,867) $ 43,441
=========== ===========
Net (loss) income per share - basic ............. $ (1.99) $ .71
=========== ===========
Net (loss) income per share - assuming dilution . $ (1.99) $ .69
=========== ===========
</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,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ......................................................... $(124,867) $ 43,441
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Provision for restructure, net ....................................... 129,747 23,500
Gain from issuance of subsidiary stock ............................... (1,506) (38,128)
Depreciation and amortization ........................................ 42,543 37,165
Provision for uncollectible accounts ................................. 23,439 15,957
Minority interest .................................................... 2,355 887
Deferred income taxes ................................................ 617 5,856
Changes in assets and liabilities, net of effects from acquisitions:
Accounts and notes receivable .................................... 10,564 (66,440)
Inventories ...................................................... (6,960) (10,595)
Other current assets ............................................. (475) (5,982)
Accounts payable and accrued expenses ............................ (56,940) 15,761
Income taxes payable ............................................. (28,850) 11,089
Other, net ....................................................... (3,825) (1,071)
--------- ---------
Net cash flows (used in) provided by operating activities ....... (14,158) 31,440
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for businesses acquired, net of cash acquired .................... (56,434) (144,677)
Net additions to property and equipment ................................... (28,767) (20,818)
Other, net ................................................................ 857 (2,497)
--------- ---------
Net cash flows (used in) investing activities .................... (84,344) (167,992)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from financing arrangements ...................................... 351,280 364,140
Payment of financing arrangements ......................................... (263,420) (259,389)
Proceeds from common stock issued ......................................... 1,681 4,855
Proceeds from the issuance of subsidiary stock ............................ 5 45,719
--------- ---------
Net cash flows provided by financing activities .................. 89,546 155,325
--------- ---------
Net (decrease) increase in cash and cash equivalents ...................... (8,956) 18,773
Cash and cash equivalents, beginning of period ............................ 32,760 22,716
--------- ---------
Cash and cash equivalents, end of period .................................. $ 23,804 $ 41,489
========= =========
Supplemental disclosures of cash flow information:
Interest paid ....................................................... $ 28,622 $ 15,130
========= =========
Income taxes paid ................................................... $ 9,162 $ 14,196
========= =========
</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, 1999
(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, 1998 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, 1998. 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.
Operating results for the three-and nine-month periods ended March
31, 1999 are not necessarily indicative of the results that may be
expected for a full year or any portion thereof.
2. PROVISION FOR RESTRUCTURE, NET
In the nine-months ended March 31, 1999, the Company recorded a net
provision for restructure of $129,747 composed of the following:
<TABLE>
<S> <C>
Long-term care services...................................... $ 98,647
Outpatient services.......................................... 31,100
------------
Net restructure provision............................... $ 129,747
============
</TABLE>
LONG-TERM CARE SERVICES
In the second quarter of fiscal 1998 the Company recorded a
provision for restructure of $23,500 based on an evaluation of the impact
of changes in the Medicare reimbursement system mandated by the Balanced
Budget Act of 1997 (the "BBA") on the Company's long-term care services
segment. The provision related principally to severance costs associated
with personnel changes required by the Company's revised operating model
in the long-term care services segment.
During the second quarter of fiscal 1999 it became apparent that a
portion of this fiscal 1998 charge would not be required. A significant
portion of the employee base covered by the restructure reserve
voluntarily resigned to seek new employment or obtained employment with
customers when these customer facilities converted to in-house therapy
programs. Accordingly, the Company determined that $6,750 was required to
complete the conversion of the Company's long-term care services segment
to the revised operating model and reversed $13,300 of the remaining
balance of the December 31, 1997 restructure reserve at that date.
In the third quarter of fiscal 1999, the Company continued to
experience a significant reduction in revenues in the long-term care
services segment. This decline resulted from a combination of, reduced
patient volume (related to, fewer therapy patients per customer facility,
contract cancellations and fewer treatments per patient) and lower prices
reflecting reduced reimbursement rates under the BBA. In order to mitigate
the effect of these trends, the Company is in the process of implementing
a restructure plan which involves a complete exit of selected long-term
care markets with low customer and therapist concentration. These markets
are generally in the Western United States and include California,
Colorado, Texas and the Northwest. The Company intends to concentrate its
efforts in markets that are believed to have sufficient patient density to
support profitable operations.
5
<PAGE> 8
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(In thousands, except per share data)
(Unaudited)
Despite implementation of the revised operating plan, the Company
has determined that it will be unable to recover its investment in
long-lived assets in the long-term care services segment. Accordingly, the
Company recorded a provision for restructure of $111,947 in the three
months ended March 31,1999 to write-off all of its investment in these
assets and to provide for the costs of exiting the selected markets,
consisting principally of employee severance costs.
The third quarter provision for restructure consists of the
following:
<TABLE>
<S> <C>
Write down of excess cost of net assets acquired, net....... $ 73,716
Write down of property and equipment........................ 20,748
Employee severance and other................................ 17,483
-----------
Total fiscal 1999 provision, net........................ $ 111,947
===========
</TABLE>
The Company continues to evaluate its alternatives with respect to
the long-term care services segment, which could involve: (i) further
efforts to reduce costs and improve patient density in the segment's
remaining markets, (ii) a complete exit of all long-term care services
markets, or (iii) a sale of the remaining long-term care services segment.
The Company believes that the maximum additional loss that might be
incurred under the preceding scenarios (ii) and (iii) would be
approximately $52,000.
OUTPATIENT SERVICES
During the second quarter of fiscal 1999, the Company decided to
exit certain non-strategic markets being served by its outpatient physical
therapy and rehabilitation and occupational health business ("PROH"). The
markets consist of 40 PROH clinics. The decision resulted in a write-down
of the value of the related assets to estimated net realizable value. The
related provision for restructure is as follows:
<TABLE>
<S> <C>
Write down of excess cost of net assets acquired, net........ $ 28,300
Employee severance and other................................. 2,800
-----------
Total provision for restructure.......................... $ 31,100
===========
</TABLE>
The estimated net realizable value of PROH assets (principally
excess cost of net assets acquired, net) was determined by reference to
the Company's experience with purchases and sales of comparable assets
over the past several years and in consultation with financial advisors.
The clinics to be disposed of had annualized net revenues of approximately
$16,600 and annualized operating profit of approximately $200. The
annualized pre-tax effect of suspending depreciation and amortization on
these assets is approximately $800. At March 31, 1999, two of the clinics
have been sold for proceeds totaling $483. The net book value of the
remaining assets to be sold is approximately $6,300. All clinics are
expected to be sold by September 30, 1999.
6
<PAGE> 9
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(In thousands, except per share data)
(Unaudited)
3. NET (LOSS) INCOME PER SHARE
The following table sets forth the computation and reconciliation of
net (loss) income per share-basic and net (loss) income per share-assuming
dilution:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------- --------------------------
1999 1998 1999 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET (LOSS) INCOME ......................... $ (112,042) $ 12,645 $(124,867) $ 43,441
========== ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
WEIGHTED AVERAGE SHARES OUTSTANDING -
BASIC ................................. 62,930 61,486 62,738 61,275
Stock options ........................... -- 1,755 -- 1,908
Contingently issuable shares - assuming
dilution .............................. -- 43 -- 43
---------- --------- --------- ---------
WEIGHTED AVERAGE SHARES OUTSTANDING -
ASSUMING DILUTION ..................... 62,930 63,284 62,738 63,226
========== ========= ========= =========
NET (LOSS) INCOME PER SHARE - BASIC ..... $ (1.78) $ .21 $ (1.99) $ .71
========= ========= ========= =========
NET (LOSS) INCOME PER SHARE - ASSUMING
DILUTION .............................. $ (1.78) $ .20 $ (1.99) $ .69
========== ========= ========= =========
</TABLE>
The Company did not include convertible subordinated debentures,
equivalent to 6,567 shares of common stock, or options to purchase 9,653
and 216 shares of common stock for the three-month periods and 7,066 and
79 shares of common stock for the nine-month periods ended March 31, 1999
and 1998, respectively, because their effects are anti-dilutive. There
were no transactions that occurred subsequent to March 31, 1999 that would
have materially changed the number of shares used in computing net income
per share-basic or net income per share-assuming dilution.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, June 30,
1999 1998
-------------- ------------
<S> <C> <C>
Accounts payable..................................................... $ 27,146 $ 19,679
Accrued compensation and benefits.................................... 67,876 87,985
Accrued costs of productivity and cost improvement programs.......... 22,879 23,748
Accrued workers' compensation and health claims...................... 16,804 25,000
Deferred and contingent purchase price obligations................... 7,379 8,756
Accrued interest..................................................... 4,885 7,080
Other................................................................ 13,827 20,777
-------------- -------------
$ 160,796 $ 193,025
============== =============
</TABLE>
7
<PAGE> 10
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(In thousands, except per share data)
(Unaudited)
5. FINANCING ARRANGEMENTS
Financing arrangements consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, June 30,
1999 1998
-------------- --------------
<S> <C> <C>
Revolving credit facility (LIBOR plus 3%), due
December 31, 1999............................................... $ 337,000 $ 227,500
Convertible subordinated debentures (5.5%), due January 2000......... 175,000 175,000
Subordinated promissory notes (5% to 10%), through 2007.............. 80,770 98,318
$25,000 revolving credit facility of subsidiary, due
November 17, 2000............................................... -- --
Other................................................................ 3,193 7,564
-------------- --------------
595,963 508,382
Less: current portion............................................... 540,696 32,074
-------------- --------------
$ 55,267 $ 476,308
============== ==============
</TABLE>
The Company has a revolving credit facility with a syndicate of
lenders. The facility is collateralized by substantially all the common
stock of the Company's subsidiaries and accounts receivable.
Maximum amounts which may be borrowed under the revolving credit
facility are the lesser of (a) projected borrowings plus $10,000 or (b)
$375,000 through May 31, 1999; $400,000 from June 1 through July 9, 1999;
and $50,000 from the earlier of the sale of the Company's orthotic and
prosthetic business ("O&P") (see note 8) or July 10, 1999. All financial
covenants have been eliminated.
NovaCare Employee Services, Inc. ("NCES") has a revolving credit
facility with a syndicate of lenders. As of March 31, 1999 and 1998, there
were no borrowings or letters of credit outstanding.
6. 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,
1999 of approximately $70,423 in cash and common stock of NCES 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, 1999 and March
31, 1998, the Company paid $10,991 and $27,594 in cash and common stock of
NCES, respectively, and issued 53 and 65 shares, respectively, of the
Company's common stock in connection with businesses acquired in prior
years.
7. OPERATING SEGMENTS
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related
Information" in fiscal 1998. Segment information is presented for
outpatient services, long-term care services and employee services,
consistent with the Company's reporting, organization and management
structure.
8
<PAGE> 11
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(In thousands, except per share data)
(Unaudited)
Operating results and other financial data are presented for the
principal operating segments of the Company as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------ ------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES:
Outpatient services .............. $ 145,572 $ 130,928 $ 448,726 $ 370,194
Long-term care services .......... 68,616 176,309 332,261 497,335
Employee services ................ 384,029 338,367 1,170,228 907,875
----------- ----------- ----------- -----------
Total ........................ 598,217 645,604 1,951,215 1,775,404
Intrasegment elimination -
employee services ............. (160,910) (193,837) (552,385) (568,121)
----------- ----------- ----------- -----------
Consolidated revenues ........ $ 437,307 $ 451,767 $ 1,398,830 $ 1,207,283
=========== =========== =========== ===========
GROSS PROFIT:
Outpatient services .............. $ 42,078 $ 37,463 $ 131,757 $ 110,144
Long-term care services .......... 2,365 51,651 65,772 140,212
Employee services ................ 16,717 11,302 47,379 29,042
----------- ----------- ----------- -----------
Total ........................ 61,160 100,416 244,908 279,398
Intrasegment elimination -
employee services ............. (7,690) (3,725) (20,118) (12,367)
Depreciation ..................... (3,160) (3,123) (9,823) (8,733)
----------- ----------- ----------- -----------
Consolidated gross profit .... $ 50,310 $ 93,568 $ 214,967 $ 258,298
=========== =========== =========== ===========
(LOSS) INCOME FROM OPERATIONS:
Outpatient services .............. $ 12,938 $ 12,310 $ 46,305 $ 42,025
Long-term care services .......... (12,540) 33,431 18,826 89,772
Employee services ................ 4,872 2,840 13,128 7,253
----------- ----------- ----------- -----------
Total ........................ 5,270 48,581 78,259 139,050
Unallocated selling, general and
administrative expenses ....... (21,584) (18,803) (63,743) (58,793)
Provision for restructure ........ (111,947) -- (129,747) (23,500)
----------- ----------- ----------- -----------
Consolidated (loss) income
from operations ........... $ (128,261) $ 29,778 $ (115,231) $ 56,757
=========== =========== =========== ===========
</TABLE>
9
<PAGE> 12
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
DEPRECIATION AND AMORTIZATION:
Outpatient services ................ $ 7,691 $ 6,621 $ 23,074 $ 18,118
Long-term care services ............ 2,939 3,063 9,336 8,808
Employee services .................. 1,315 1,041 3,901 2,736
--------- --------- --------- ---------
Total .......................... 11,945 10,725 36,311 29,662
Unallocated selling, general and
administrative expenses ......... 2,074 2,508 6,232 7,503
--------- --------- --------- ---------
Consolidated depreciation
and amortization ............ $ 14,019 $ 13,233 $ 42,543 $ 37,165
========= ========= ========= =========
EARNINGS BEFORE INTEREST, INCOME TAXES,
DEPRECIATION AND AMORTIZATION
("EBITDA"):
Outpatient services ................ $ 20,629 $ 18,931 $ 69,379 $ 60,143
Long-term care services ............ (9,601) 36,494 28,162 98,580
Employee services .................. 6,187 3,881 17,029 9,989
--------- --------- --------- ---------
Total .......................... 17,215 59,306 114,570 168,712
Unallocated selling, general and
administrative expenses ......... (19,510) (16,295) (57,511) (51,290)
Provision for restructure .......... (111,947) -- (129,747) (23,500)
--------- --------- --------- ---------
Consolidated EBITDA ............ $(114,242) $ 43,011 $ (72,688) $ 93,922
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF As of
MARCH 31, June 30,
1999 1998
---------- ----------
<S> <C> <C>
SEGMENT ASSETS:
Outpatient services ........ $ 921,858 $ 876,250
Long-term care services .... 171,612 326,872
Employee services .......... 127,078 112,583
Unallocated assets ......... 69,281 40,337
---------- ----------
$1,289,829 $1,356,042
========== ==========
</TABLE>
8. SUBSEQUENT EVENTS
On April 5, 1999, the Company announced the execution of a
definitive agreement to sell O&P to Hanger Orthopedic Group, Inc.
("Hanger"). Under the terms of the agreement, Hanger will pay the Company
total consideration of approximately $455,000, including the payment of
approximately $417,000 of cash and the assumption of approximately $38,000
of debt. The transaction is subject to certain regulatory approvals. Net
proceeds from the sale will principally be used to repay amounts borrowed
under the Company's revolving credit facility agreement.
10
<PAGE> 13
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Operating Segments
In fiscal 1998, NovaCare, Inc. (the "Company") adopted Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which requires
companies to report operating segments based upon the way a company
manages its activities. Consistent with the Company's reporting,
organization and management structure, the Company presents segment
information for outpatient services, long-term care services and employee
services. Segment information for the three-and nine-month periods ended
March 31, 1998 has been restated to conform to the requirements of SFAS
No. 131.
See Note 7 to the Condensed Consolidated Financial Statements for
financial data for each of the Company's operating segments.
Provision for Restructure, Net
In the nine-months ended March 31, 1999, the Company recorded a net
$129.7 million restructure provision composed of the following (in
thousands):
<TABLE>
<S> <C>
Long-term care services...................................... $ 98,647
Outpatient services.......................................... 31,100
------------
Net restructure provision............................... $ 129,747
============
</TABLE>
LONG-TERM CARE SERVICES
In the second quarter of fiscal 1998 the Company recorded a
restructure charge of $23.5 million based on an evaluation of the impact
of changes in the Medicare reimbursement system mandated by the Balanced
Budget Act of 1997 (the "BBA") on the Company's long-term care services
segment. The provision related principally to severance costs associated
with personnel changes required by the Company's revised operating model
in the long-term care services segment.
During the second quarter of fiscal 1999 it became apparent that a
portion of this fiscal 1998 charge would not be required. A significant
portion of the employee base covered by the restructure reserve
voluntarily resigned to seek new employment or obtained employment with
customers when these customer facilities converted to in-house therapy
programs. Accordingly, the Company determined that $6.8 million was
required to complete the conversion of the Company's long-term care
services segment to the revised operating model and reversed $13.3 million
of the remaining balance of the December 31, 1997 restructure reserve at
that date.
In the third quarter of fiscal 1999, the Company continued to
experience a significant reduction in revenues in the long-term care
services segment. This decline resulted from a combination of, reduced
patient volume (related to, fewer therapy patients per customer facility,
contract cancellations and fewer treatments per patient) and lower prices
reflecting reduced reimbursement rates under the BBA. In order to mitigate
the effect of these trends, the Company is in the process of implementing
a restructure plan which involves a complete exit of selected long-term
care markets with low customer and therapist concentration. These markets
are generally in the Western United States and include California,
Colorado, Texas and the Northwest. The Company intends to concentrate its
efforts in markets that are believed to have sufficient patient density to
support profitable operations.
11
<PAGE> 14
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Despite implementation of the revised operating plan, the Company
has determined that it will be unable to recover its investment in
long-lived assets in the long-term care services segment. Accordingly, the
Company recorded a provision for restructure of $111.9 million in the
three months ended March 31,1999 to write-off all of its investment in
these assets and to provide for the costs of exiting the selected markets,
consisting principally of employee severance costs.
The third quarter provision for restructure consists of the
following (in thousands):
<TABLE>
<S> <C>
Write down of excess cost of net assets acquired, net....... $ 73,716
Write down of property and equipment........................ 20,748
Employee severance and other................................ 17,483
-----------
Total fiscal 1999 provision, net........................ $ 111,947
===========
</TABLE>
The provision for restructure, net for the long-term care services
segment for the nine months ended March 31, 1999 totaled $98.6 million,
consisting of the fiscal 1999 third quarter provision and the reversal of
the fiscal 1998 provision in the second quarter of fiscal 1999.
The Company continues to evaluate its alternatives with respect to
the long-term care services segment, which could involve: (i) further
efforts to reduce costs and improve patient density in the segment's
remaining markets, (ii) a complete exit of all long-term care services
markets, or (iii) a sale of the remaining long-term care services segment.
The Company believes that the maximum additional loss that might be
incurred under the preceding scenarios (ii) and (iii) would be
approximately $52.0 million.
OUTPATIENT SERVICES
During the second quarter of fiscal 1999, the Company decided to
exit certain non-strategic markets being served by its outpatient physical
therapy and rehabilitation and occupational health business ("PROH"). The
markets consist of 40 PROH clinics. The decision resulted in a write-down
of the value of the related assets to estimated net realizable value. The
related provision for restructure is as follows (in thousands):
<TABLE>
<S> <C>
Write down of excess cost of net assets acquired, net........ $ 28,300
Employee severance and other................................. 2,800
-----------
Total provision for restructure.......................... $ 31,100
===========
</TABLE>
The estimated net realizable value of PROH assets (principally
excess cost of net assets acquired, net) was determined by reference to
the Company's experience with purchases and sales of comparable assets
over the past several years and in consultation with financial advisors.
The clinics to be disposed of had annualized net revenues of approximately
$16.6 million and annualized operating profit of approximately $0.2
million. The annualized pre-tax effect of suspending depreciation and
amortization on these assets is approximately $0.8 million. At March 31,
1999, two of the clinics have been sold for proceeds totaling $0.5
million. The net book value of the remaining assets to be sold is
approximately $6.3 million. All clinics are expected to be sold by
September 30, 1999.
Regulatory Changes
In the three- and nine-month periods ended March 31, 1999, the
long-term care services segment experienced a decline in earnings compared
with the corresponding periods of fiscal 1998. This reduced operating
performance (as discussed below in the long-term care services section of
"Results of Operations") resulted principally from: (i) lower Medicare
reimbursement rates due to salary equivalency guidelines implemented by
the Health Care Financing Administration ("HCFA") effective April 1998 and
a prospective payment system ("PPS") for Medicare Part A services
effective for customer Medicare cost reporting years beginning July 1,
1998 and thereafter, (ii) an approximately 36% decline in the number of
rehabilitation patients per Company-served long-term care facility,
12
<PAGE> 15
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
resulting from the regulatory uncertainty surrounding the level of
reimbursement for therapy services for Medicare patients under the BBA,
and (iii) conversion of certain nursing home chain customers to in-house
therapy programs.
In the fourth quarter of fiscal 1998, HCFA implemented salary
equivalency reimbursement guidelines for occupational therapy and speech
language pathology services and revised guidelines for physical therapy
services. The net effect of these guidelines was to reduce the long-term
care services segment's reimbursement rates and gross profit percentage
from previous levels. Additionally, the BBA requires a change from these
salary equivalency guidelines for therapy services to a PPS for Medicare
Part A services effective for Medicare cost reporting periods beginning
July 1, 1998 and thereafter and a fee schedule with annual maximum
payments per patient for Medicare Part B services effective January 1,
1999.
By changing Medicare reimbursement to long-term care facilities from
a cost basis to a fixed fee, the BBA is a fundamental change in the
economic assumptions underlying patient care in long-term care facilities.
Due to the extensive nature of the reimbursement changes specified by the
BBA, the ultimate effect these changes may have on the demand for services
and management's inability to predict what portion of the PPS and fee
schedule rates that the Company will continue to receive based on
negotiated terms of service contracts with its customers, the Company is
unable to determine the final impact that the BBA will have on its
financial position or results of operations.
Sale of Orthotics and Prosthetic Services Business
On April 5, 1999, the Company announced the execution of a
definitive agreement to sell its orthotic and prosthetic services business
("O&P") to Hanger Orthopedic Group, Inc. ("Hanger"). Under the terms of
the agreement, Hanger will pay the Company total consideration of
approximately $455 million, including the payment of approximately $417
million of cash and the assumption of approximately $38 million of debt.
The transaction is subject to certain regulatory approvals. The net
proceeds from the sale will be used principally to repay amounts borrowed
under the Company's revolving credit facility agreement.
Corporate and Capital Structure Changes
In addition to the sale of the O&P business, the Company continues
to evaluate its strategic alternatives for obtaining capital to fund its
ongoing working capital needs, satisfy its remaining debt obligations and
maximize shareholder value. Such alternatives include the evaluation of
the long-term care services segment as discussed above, replacing current
debt with long-term financing through a high-yield debt offering or
private placement or the sale of one or more of the Company's remaining
businesses. The feasibility and timing of these alternatives will depend
on a variety of capital markets, tax, regulatory and operations issues.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 VS. MARCH
31, 1998
Consolidated net revenues were $437.3 million, a decrease of $14.5
million (3%) over fiscal 1998, reflecting a decline in long-term care
services segment revenue which was only partially offset by expansion in
the Company's outpatient services and employee services segments. The
revenue decline in long-term care services was substantially due to
regulatory changes which resulted in: (i) lower pricing, (ii) fewer
patients on caseload, (iii) contract cancellations, and (iv) lower
utilization per patient. Growth in the outpatient services segment
resulted primarily from the effect of fiscal 1998 and fiscal 1999
acquisitions. Growth in the employee services segment was due to a
combination of acquisitions completed subsequent to March 31, 1998,
internal growth, and the entry into new markets. The Company made no
acquisitions in the third quarter of fiscal year 1999, compared with 11
outpatient physical therapy and rehabilitation businesses, 8 O&P
businesses and two occupational health businesses in the third quarter
of last year.
13
<PAGE> 16
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Consolidated gross profit (excluding depreciation expense) was $53.5
million, a decrease of $43.2 million (45%) from fiscal 1998. The decrease
in gross profit was due to lower net revenues in the long-term care
services segment, which was only partially offset by lower salaries and
wages. This gross profit decrease in long-term care services was partially
offset by acquisitions in the outpatient services and employee services
segments and also same market growth and the entry into new markets in the
employee services segment. Gross profit as a percentage of net revenue
("gross profit margin") declined to 12% compared with 21% last year, due
primarily to lower gross profit margins in the long-term care services
segment.
Other operating expenses, excluding the provision for restructure,
which consist of selling, general and administrative expenses,
depreciation, amortization of excess cost of net assets acquired and
provision for uncollectible accounts were $69.8 million, an increase of
$2.9 million (4%) over fiscal 1998. The increase results principally from
businesses acquired during fiscal 1998 and fiscal 1999. As a percentage of
net revenues, other operating expenses increased to 16% from 15% in fiscal
1998 because the decrease in net revenues from long-term care services was
significantly greater than the decrease in other operating expenses.
Depreciation expense and amortization of excess cost of net assets
acquired ("amortization") was $14.0 million in the third quarter of fiscal
1999, an increase of $800,000 (6%) over fiscal 1998 as a result of
businesses acquired subsequent to March 31, 1998.
Interest expense, net of investment income, was $9.5 million, an
increase of $2.1 million (28%), over fiscal 1998 as a result of increased
borrowings principally associated with the Company's acquisitions, as
discussed under "Liquidity and Capital Resources."
Income tax benefit for the three months ended March 31, 1999 was
approximately 19% of pre-tax loss as compared to income tax expense of
42.1% on pre-tax income for the same period in fiscal 1998. The decreased
rate resulted from (i) non-deductible components of the provision for
restructure, (ii) non-deductible amortization, and (iii) the inability to
use loss carrybacks in certain states.
OPERATING RESULTS BY SEGMENT
Outpatient Services
Net revenues for the outpatient services segment were $145.6
million, an increase of $14.6 million (11%) over fiscal 1998. The increase
in net revenues was due principally to the effect of fiscal 1998 and
fiscal 1999 acquisitions and an increase in same market volumes, partially
offset by a decrease in pricing.
Gross profit (excluding depreciation) was $42.1 million, an increase
of $4.6 million (12%) over the third quarter of fiscal 1998 resulting
principally from the inclusion of businesses acquired in fiscal 1998 and
fiscal 1999. The decrease in prices was principally offset by the increase
in patient volume. Gross profit margin was 29%, unchanged from the third
quarter of fiscal 1998.
Income from operations was $12.9 million, an increase of $600,000
(5%) over last year. The increase resulted from the higher gross profit
noted above, offset partially by higher provision for uncollectible
accounts, amortization, and selling, general and administrative expenses.
14
<PAGE> 17
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Long-term Care Services
Net revenues for long-term care services were $68.6 million, a
decrease of $107.7 million (61%) from the third quarter of fiscal 1998.
The decrease in net revenues resulted from an overall pricing and patient
volume decline. The pricing and patient volume decreases resulted from:
(i) overall lower reimbursement rates adopted through the implementation
of salary equivalency and the BBA, (ii) decreased Medicare patient census
in facilities served due to the uncertainty of long-term care providers
with respect to the reimbursement economics of Medicare patients under the
BBA, and (iii) the loss of chain contracts that brought their
rehabilitation services in-house, partially offset by new contract sales
to small and medium-sized long-term care providers.
Gross profit (excluding depreciation expense) was $2.4 million, a
decrease of $49.3 million (95%) from last year. The gross profit margin
was 3% compared to 29% last year. The decline in gross profit and gross
profit margin resulted from the lower pricing and patient volume
experienced in fiscal 1999 as a result of regulatory changes, which was
only partially offset by lower salary and wage costs per employee.
Long-term care services incurred a loss from operations (excluding
provision for restructure) of $12.5 million, compared with income from
operations of $33.4 million for the third quarter of fiscal 1998. The
decrease was due to the decline in gross profit, partially offset by lower
selling, general and administrative expenses.
Employee Services
Employee services net revenues were $384.0 million (before an
intercompany elimination of $160.9 million related to services provided to
the outpatient services and long-term care services segments), an increase
of $45.7 million (13%) over last year's revenues of $338.4 million (before
an intercompany elimination of $193.8 million). The increase in net
revenues reflects an increase of $78.6 million in third-party net revenues
due to acquisitions, same market growth and the entry into new markets.
Revenues earned by the employee services segment under a contract with the
Company's outpatient services and long-term care services segment (the
"NovaCare Contract") decreased principally as a result of a 18% decrease
in the average number of worksite employees, primarily in the long-term
care services segment.
Gross profit was $16.7 million, an increase of $5.4 million (48%)
over the third quarter of fiscal 1998. The gross profit margin was 4%
compared to 3% in the third quarter of fiscal 1998. The increase in gross
profit and gross profit margin resulted from the increase in net revenues
described above and higher margin services under the NovaCare Contract.
Income from operations was $4.9 million, an increase of $2.0 million
(72%) over last year. The increase resulted from the improvement in gross
profit noted above, partially offset by higher selling, general and
administrative expenses related to acquisitions and additional costs
incurred to support internal growth.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1999 VS. MARCH
31, 1998
Consolidated net revenues were $1.40 billion, an increase of $191.5
million (16%) over fiscal 1998, as continued expansion in the Company's
outpatient services and employee services operating segments more than
offset the decline in long-term care services segment revenues. Growth in
the outpatient services segment resulted primarily from acquisitions and
same market growth. Employee services growth was due primarily to
acquisitions, same market growth and the entry into new markets. The
revenue decline in long-term care services was substantially due to
regulatory changes. The Company acquired six outpatient physical therapy
and rehabilitation businesses and two employee services businesses in the
first nine months of fiscal 1999, compared to 33 outpatient physical
therapy and rehabilitation businesses, 29 O&P businesses, three
occupational health business, and one employee services businesses in the
first nine months of last year.
15
<PAGE> 18
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Consolidated gross profit (excluding depreciation expense) was
$224.8 million, a decrease of $42.2 million (16%) over fiscal 1998. Gross
profit margin declined to 16% compared to 22% last year. The gross profit
and gross profit margin declines were due principally to the impact of
regulatory changes in the long-term care services segment.
Other operating expenses, excluding the restructure provision, which
include selling, general and administrative expenses, depreciation,
amortization of excess cost of net assets acquired and provision for
uncollectible accounts, were $210.3 million, an increase of $23.5 million
(13%) over fiscal 1998. The increase relates principally to businesses
acquired during fiscal 1998 and fiscal 1999. As a percentage of net
revenues, other operating expenses remained unchanged from the prior year
at 15%.
Depreciation expense and amortization was $42.5 million in the first
nine months of fiscal 1999, an increase of $5.4 million (14%) over fiscal
1998 primarily as a result of businesses acquired subsequent to March 31,
1998.
During the nine months ended March 31, 1999 and 1998, the Company
recognized pre-tax gains of $1.5 million and $38.1 million, respectively,
for the difference between the Company's historical cost of its investment
in NCES and its portion of NCES equity for the periods then ended. The
gains resulted from NCES shares issued in connection with acquisitions
and, in the prior year, the issuance of 5.8 million NCES shares in
connection with NCES' initial public offering in November 1997. Proceeds
from the NCES initial public offering, net of underwriters' fees and
issuance costs, were $45.7 million.
Interest expense, net of investment income, was $28.0 million, an
increase of $8.5 million (43%) over fiscal 1998 as a result of increased
borrowings principally associated with the Company's acquisitions, as
discussed under "Liquidity and Capital Resources."
Income tax benefit for the nine months ended March 31, 1999 was
13.3% of pre-tax loss compared to income tax expense of 41.7% on pre-tax
income in the prior year. The decreased rate was due to (i) non-deductible
components of the provision for restructure, (ii) non-deductible
amortization, and (iii) the inability to use loss carrybacks in certain
states.
OPERATING RESULTS BY SEGMENT
Outpatient Services
Net revenues for the outpatient services segment were $448.7
million, an increase of $78.5 million (21%) over fiscal 1998. The increase
in net revenues was due to the effect of fiscal 1998 and fiscal 1999
acquisitions and also an increase in same-market volume in outpatient
physical therapy and occupational health rehabilitation, partially offset
by a decrease in pricing.
Gross profit (excluding depreciation expense) was $131.8 million, an
increase of $21.6 million (20%) over the first nine months of fiscal 1998
resulting primarily from the inclusion of businesses acquired in fiscal
1998 and fiscal 1999. Gross profit margin declined slightly to 29% from
30% during fiscal 1998, principally due to pricing pressure in outpatient
physical therapy and occupational rehabilitation.
Income from operations (excluding provision for restructure) was
$46.3 million, an increase of $4.3 million (10%) over last year. The
increase resulted from the higher gross profit noted above, offset
partially by higher selling, general and administrative expenses and
higher amortization expense, provision for uncollectible accounts and
depreciation. The increase in these costs was principally the result of
expenses associated with acquired businesses.
Long-term Care Services
Net revenues for long-term care services were $332.3 million, a
decrease of $165.1 million (33%) from the first nine months of fiscal
1998. The decrease in net revenues resulted from the overall pricing and
patient volume decline. The pricing and patient volume decreases resulted
from: (i) the overall lower reimbursement rates adopted through the
implementation of salary equivalency and the BBA, (ii) decreased Medicare
patient census in facilities served due to the uncertainty of long-term
care providers with respect to the reimbursement economics of Medicare
patients under the BBA, and (iii) the loss of chain contracts that brought
their rehabilitation services in-house, partially offset by new contract
sales to small and medium-sized long-term care providers.
16
<PAGE> 19
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Gross profit (excluding depreciation expense) was $65.8 million, a
decrease of $74.4 million (53%) from last year. The gross profit margin
was 20%, compared with 28% in fiscal 1998. The decline in gross profit and
gross profit margin resulted from the lower pricing and patient volume
experienced in fiscal 1999 as a result of regulatory changes which was
only partially offset by lower salary and wage costs per employee.
Income from operations (excluding provision for restructure) was
$18.8 million, a decrease of $70.9 million (79%) from last year. The lower
income from operations was due to the decline in gross profit, partially
offset by lower selling, general and administrative expenses.
Employee Services
Employee services net revenues were $1.17 billion (before an
intercompany elimination of $552.4 million related to services provided
under the NovaCare contract), an increase of $262.4 million (29%) over
last year's revenues of $907.9 million (before an intercompany elimination
of $568.1 million). This increase in net revenues is due to an increase in
third-party net revenues due to acquisitions, same market growth and the
entry into new markets.
Gross profit was $47.4 million, an increase of $18.3 million over
fiscal 1998. The gross profit margin was 4% compared to 3% in fiscal 1998.
The increase in gross profit and gross profit margin resulted from the
increase in net revenue described above and higher margin services under
the NovaCare Contract.
Income from operations was $13.1 million, an increase of $5.9
million (81%) over last year. The increase resulted from the improvement
in gross profit noted above, partially offset by higher selling, general
and administrative expenses related to acquisitions and additional costs
incurred to support same market growth.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, cash and cash equivalents totaled $23.8 million,
a decrease of $9.0 million from June 30, 1998. During the nine months
ended March 31, 1999, the Company used $14.2 million of cash in operating
activities. The unfavorable cash flow from operating activities in fiscal
1999 resulted principally from the net loss and the timing of payments for
accounts payable and accrued expenses, partially offset by non-cash
charges.
The Company also used $84.3 million of cash in investing activities
in the first nine months of fiscal 1999, of which $56.4 million related to
acquisitions and $28.8 million was for capital expenditures. Capital
expenditures consisted principally of information systems software and
hardware costs in support of regulatory change in the long-term care
services segment and equipment and leasehold improvements in start-up
operations in the outpatient services segment.
To finance these cash requirements, the Company borrowed a net
$109.5 million under its revolving credit facility and reduced its cash
balances by $9.0 million. At March 31, 1999, the Company had borrowings of
$337.0 million outstanding under the revolving credit facility and NCES
had no borrowings or letters of credit outstanding under its $25.0 million
credit facility.
The Company has negotiated a series of amendments to the revolving
credit facility. The final amendment, dated April 19, 1999 expires on
December 31, 1999. The facility is collateralized by substantially all the
common stock of the Company's subsidiaries and accounts receivable.
Maximum amounts which may be borrowed under the revolving credit facility
are the lesser of (a) projected borrowings plus $10.0 million or (b)
$375.0 million through May 31, 1999; $400.0 million from June 1 through
July 9, 1999; and $50.0 million from the earlier of the sale of the
Company's O&P business or July 10, 1999. All financial covenants have been
eliminated.
17
<PAGE> 20
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
In order to improve its overall cash flow and reduce its outstanding
borrowings, the Company will sell its O&P business and evaluate the future
of its long-term care services segment and its strategic alternatives as
described under "Overview". The Company has deferred all significant
acquisitions and has reduced its budget for capital expenditures.
YEAR 2000 READINESS
During the quarter ended March 31, 1999, NovaCare continued to
address issues associated with the "Year 2000" problem. The Year 2000
problem occurs because, historically, certain computer programs have been
written using two digits, rather than four digits, to define the
applicable year. The Company's financial and management operating systems,
microprocessors embedded in physical therapy, office or other equipment
("embedded chips") or computer systems used by third parties (such as
financial institutions, customers or suppliers) could malfunction when
dates occurring after December 31, 1999 are recognized as twentieth
century dates (e.g. 1900) rather than twenty-first century dates (e.g.
2000).
NovaCare is currently in the process of implementing its
comprehensive response to the Year 2000 problem. At March 31, 1999, the
Company had completed its inventory of financial and management operating
systems, developed strategic and tactical plans for correcting potential
problems and had completed over two-thirds of the field testing required
to determine the state of Year 2000 readiness for these systems. NovaCare
anticipates that the remainder of this testing will be completed by June
30, 1999, with all significant software modifications to these systems
completed by that date. In some cases, Year 2000 readiness is being
addressed through the development of programs that enhance or provide new
functionality to these financial and management operating systems. These
enhanced systems are also expected to be complete by June 30, 1999. The
Company anticipates completion of computer hardware replacements,
modifications and upgrades by September 30, 1999.
NovaCare has completed approximately two-thirds of its assessment
regarding embedded chips. Completion of this assessment is anticipated by
June 30, 1999, with all significant modifications to physical therapy,
office or other equipment completed by September 30, 1999. The Company
believes that the total cost of correcting equipment with embedded chips
which are not Year 2000 ready will not exceed $0.1 million and that parts
will be available to correct problems. The Company has contacted 190
suppliers who were deemed critical to the operation of the Company's
business and has received assurances from those suppliers that the
suppliers' business, financial and management operating systems that
affect NovaCare either were or would be Year 2000 ready by December 31,
1999.
The Company is in the process of developing contingency plans in the
event of a business disruption related to the Year 2000 problem. NovaCare
has a contract with a disaster recovery company for restoring data for
mission critical business systems, as well as serving as an alternative
data processing site. A back-up to this primary contingency plan involves
manual systems that could be implemented within the Company or between the
Company and its customers or suppliers while the issue is diagnosed and
repaired. NovaCare expects to complete these plans and implement them in
the field prior to December 31, 1999. However, there can be no assurance
that these contingency plans will identify all Year 2000 issues that could
occur, either within the Company's control or in the systems of its
customers or suppliers, or that the plans will partially or completely
ameliorate Year 2000 issues.
NovaCare has spent $2.7 million in fiscal 1999 related to Year 2000
readiness, of which $0.1 million was for capitalized equipment and
software. The Company anticipates $1.4 million of expenditures during the
remainder of fiscal 1999, of which $0.7 million relates to capitalized
equipment and software for systems that are not Year 2000 ready. During
fiscal 2000, the Company anticipates expenditures of up to $2.0 million,
including up to $1.7
18
<PAGE> 21
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
million of capital, to complete remediation of computer hardware and
embedded chip equipment which are not Year 2000 ready and to complete and
roll out contingency plans. The Company has increased its overall
technology budget to accommodate Year 2000 issues and has not delayed
other projects critical to the Company's business.
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, the ability of the Company, its customers and suppliers
to complete assessment, testing and remediation of Year 2000 issues, the
ability of the Company to improve its cash flow from operations, 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.
19
<PAGE> 22
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) Revolving Credit Facility Agreement Eighteenth Amendment
dated as of December 18, 1998 by and among NovaCare and
certain of its subsidiaries and PNC Bank N.A, First
Union National Bank, Fleet National Bank, Mellon Bank,
N.A., Nations 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,
Bank of America NT and SA, Comerica Bank, Credit
Lyonnais (New York Branch), Cooperative Centrale
Raiffersen-Boerenleenbank B.A., "Rabobank Nederland"
(New York Branch), The Tokai Bank, Limited (New York
Branch), Toronto Dominion (Texas), Inc.
10(b) Revolving Credit Facility Agreement Nineteenth Amendment
dated as of March 31, 1999 by and among NovaCare and
certain of its subsidiaries and PNC Bank N.A, First
Union National Bank, Fleet National Bank, Mellon Bank,
N.A., Nations 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,
Bank of America NT and SA, Comerica Bank, Credit
Lyonnais (New York Branch), Cooperative Centrale
Raiffersen-Boerenleenbank B.A., "Rabobank Nederland"
(New York Branch), The Tokai Bank, Limited (New York
Branch), Toronto Dominion (Texas), Inc.
10(c) Revolving Credit Facility Agreement Twentieth Amendment
dated as of April 19, 1999 by and among NovaCare and
certain of its subsidiaries and PNC Bank N.A, First
Union National Bank, Fleet National Bank, Mellon Bank,
N.A., Nations 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,
Bank of America NT and SA, Comerica Bank, Credit
Lyonnais (New York Branch), Cooperative Centrale
Raiffersen-Boerenleenbank B.A., "Rabobank Nederland"
(New York Branch), The Tokai Bank, Limited (New York
Branch), Toronto Dominion (Texas), Inc.
27 Financial Data Schedule
</TABLE>
(B) Current Reports on From 8-K:
On April 7, 1999, the Company filed a Current Report on Form 8-K
dated April 2, 1999 with the Securities and Exchange Commission reporting
information under Item 5, Other Events.
20
<PAGE> 23
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 17, 1999 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
21
<PAGE> 1
Exhibit 10 (a)
NOVACARE, INC.
1016 WEST NINTH AVENUE
KING OF PRUSSIA, PA 19406
December 18, 1998
PNC Bank, National Association,
as Agent
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Attn: Marcie Knittel, Vice President
RE: Eighteenth Amendment to Credit Agreement (the "Eighteenth
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 4.01 [Interest Rate Options] is hereby amended by
deleting in its entirety subsection (a)(ii) [Revolving Credit Base Rate Option]
and inserting in lieu thereof, the following:
"(i) Revolving Credit Base Rate Option: A fluctuating rate
per annum (computed on the basis of a year of 365 or 366 days, as the case may
be, and actual days elapsed) equal to (i) the Base Rate plus .25% for periods in
which the ratio of Consolidated Funded Debt to Consolidated Cash Flow from
Operations is greater than 4.0 to 1.0 and (ii) the Base Rate for periods in
which the ratio of Consolidated Funded Debt to Consolidated Cash Flow from
Operations is less than or equal to 4.0 to 1.0, such interest rate to change
automatically from time to time effective as of the effective date of each
change in the Base Rate."
<PAGE> 2
(b) Section 4.01 [Interest Rate Options] is hereby amended by
deleting the line in subsection (a)(ii) [Revolving Credit Euro-Rate Option]
which reads:
"Greater than 4.0 to 1.0 Euro-Rate plus 1.50%"
and inserting in lieu thereof, the following:
"Greater than 4.25 to 1.0 Euro-Rate plus 1.75%
Greater than 4.0 to 1.0 Euro-Rate plus 1.50%"
but less than or equal to 4.25 to 1.0
and by deleting the line in subsection (a)(ii) which reads:
"Greater than 4.0 to 1.0 Euro-Rate plus 1.375%"
and inserting in lieu thereof, the following:
"Greater than 4.25 to 1.0 Euro-Rate plus 1.75%
Greater than 4.0 to 1.0 Euro-Rate plus 1.375%"
but less than or equal to 4.25 to 1.0
(c) Section 8.02 [Negative Covenants] is hereby amended by
deleting in its entirety subsection (n) [Funded Debt to Cash Flow From
Operations] and inserting in lieu thereof, the following:
"(n) Funded Debt to Cash Flow From Operations. 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 the ratio set forth below during the period specified
below:
<TABLE>
<CAPTION>
RATIO OF CONSOLIDATED FUNDED
DEBT TO CONSOLIDATED CASH
PERIOD FLOW FROM OPERATIONS
------ --------------------
<S> <C> <C>
Through 9/30/1998 4.25 to 1.0
10/1/1998 through 12/31/1998 4.50 to 1.0
1/1/99 through 6/30/2000 4.25 to 1.0
7/1/2000 and thereafter 3.75 to 1.0"
</TABLE>
(d) Section 8.02 [Negative Covenants] is hereby amended by
deleting in its entirety subsection (o) [Minimum Fixed Charge Coverage Ratio]
and inserting in lieu thereof, the following:
-2-
<PAGE> 3
"(o) Minimum Fixed Charge Coverage Ratio. The Loan Parties
shall not permit the ratio of Consolidated Earnings Available for
Fixed Charges to Consolidated Fixed Charges, calculated as of the
end of each fiscal quarter for the four fiscal quarters then
ended, to be less than 1.30 to 1.0 for the fiscal quarter ending
September 30, 1998, 1.20 to 1.0 for the fiscal quarter ending
December 31, 1998 or 1.30 for any fiscal quarter ending after
January 1, 1999."
2. Amendment Schedules.
(a) Schedules. The following Schedules to the Credit Agreement
are hereby amended and restated in their entirety in the forms of such Schedules
attached hereto:
Schedule 1.1(E) Excluded Entities
Schedule 6.01(c) Subsidiaries
3. Closing Fees.
The Borrowers jointly and severally agree to reimburse the Agent
and the Banks on demand for all costs, expenses and disbursements relating to
this Eighteenth Amendment which are payable by the Borrower as provided in
Section 10.05 of the Credit Agreement. In addition, the Borrowers shall pay to
the Agent for the benefit of the applicable Banks the fees identified in Exhibit
I hereto as the "Amendment Fee".
4. Conditions of Effectiveness.
The effectiveness of this Eighteenth Amendment is expressly
conditioned upon the occurrence and completion of all of the following: (i)
receipt by the Agent on behalf of the Banks of the nonrefundable fees equal to
the aggregate of the amounts set forth on Exhibit I hereto; and (ii) the Agent's
receipt of counterparts of this Eighteenth Amendment duly executed by the
Borrowers, the Guarantors, the Agent and the Banks.
This Eighteenth Amendment shall be dated as of and shall be effective
as of the date and year first above written subject to satisfaction of all
conditions precedent to effectiveness as set forth in this Section 4, which date
shall be the Eighteenth Amendment Effective Date.
5. Consent of Required Banks, Approval of Increase in Revolving
Credit Commitments.
Pursuant to Section 11.01 of the Credit Agreement, this
Eighteenth Amendment shall require the written consent of the Required Banks.
6. Full Force and Effect.
Each of the following documents, as amended through and
including this Eighteenth Amendment, shall remain in full force and effect on
and after the date of this Amendment:
-3-
<PAGE> 4
(a) the Credit Agreement, except as expressly modified and
amended by this Eighteenth Amendment,
(b) each of the Schedules attached to the Credit Agreement
except for the Schedules which are being amended and restated hereby;
(c) each of the Exhibits attached to the Credit Agreement except
for the Exhibit which is being amended and restated hereby; and
the Notes, the Guaranty Agreements, the Pledge Agreements, the
Agent's Fee Letter, the Subordination Agreement (Intercompany), the Borrower
Agency Agreement and all other Loan Documents.
On and after the date hereof, each reference in the Credit
Agreement to "this Agreement", "hereunder" or words of like import shall mean
and be a reference to the Credit Agreement, as previously amended and as amended
by this Eighteenth Amendment, and each reference in each other Loan Document to
the "Credit Agreement" shall mean and be a reference to the Credit Agreement, as
previously amended and as amended by this Eighteenth Amendment. No novation is
intended by this Eighteenth Amendment.
The parties hereto do not amend or waive any provisions of the
Agreement or the other Loan Documents except as expressly set forth herein.
7. Counterparts.
This Eighteenth 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 Eighteenth 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.
[INTENTIONALLY BLANK]
-4-
<PAGE> 5
[Signature Page 1 of 19 to Eighteenth 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
BORROWERS and GUARANTORS listed on
Schedule A attached hereto
By: /s/ Richard S. Binstein By: /s/ Richard A. McDonald
----------------------- -----------------------------
Richard S. Binstein, Secretary Richard A. McDonald, the Vice
President of each Borrower and
Guarantor listed on Schedule A
attached hereto which is a
corporation and of each general
partner of each Guarantor listed
on Schedule A attached hereto
which is a partnership
[Seal]
ATTEST: NOVAFUNDS, INC., a Delaware
corporation, and each of the
GUARANTORS listed on Schedule B
attached hereto
By: /s/ Andrew T. Panaccione By: /s/ Robert C. Campbell
------------------------ ---------------------------
Andrew T. Panaccione, Secretary Robert C. Campbell, the Vice
President of each Borrower and
Guarantor listed on Schedule B
attached hereto
[Seal]
<PAGE> 6
[Signature Page 2 of 19 to Eighteenth Amendment]
AGENT:
PNC BANK, NATIONAL ASSOCIATION, as Agent
By: /s/ Justin J. Falgione
-------------------------------------
Title: AVP
----------------------------------
BANKS:
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Justin J. Falgione
-------------------------------------
Title: AVP
---------------------------------
<PAGE> 7
[Signature Page 3 of 19 to Eighteenth Amendment]
FIRST UNION NATIONAL BANK
By: /s/ James H. Hebengeter
-------------------------------------
Name: James H. Hebengeter
-----------------------------------
Title: SR. V. P.
----------------------------------
<PAGE> 8
[Signature Page 4 of 19 to Eighteenth Amendment]
FLEET NATIONAL BANK
By: /s/ Toby B. Shea
-------------------------------------
Name: Toby B. Shea
----------------------------------
Title: ASST. VICE PRESIDENT
----------------------------------
<PAGE> 9
[Signature Page 5 of 19 to Eighteenth Amendment]
MELLON BANK, N.A.
By: /s/ Colleen McCullum
-----------------------------------
Name: Colleen McCullum
---------------------------------
Title: ASSISTANT VICE PRESIDENT
--------------------------------
<PAGE> 10
[Signature Page 6 of 19 to Eighteenth Amendment]
NATIONSBANK, N.A.
By: /s/ Kevin Wagley
-------------------------------------
Name: KEVIN WAGLEY
----------------------------------
Title: VICE PRESIDENT
---------------------------------
<PAGE> 11
[Signature Page 7 of 19 to Eighteenth Amendment]
THE BANK OF NEW YORK
By: /s/ Thomas C. McCrohan
----------------------------------
Name: Thomas C. McCrohan
--------------------------------
Title: Assistant Vice President
--------------------------------
<PAGE> 12
[Signature Page 8 of 19 to Eighteenth Amendment]
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /s/ Harold Bitler
---------------------------------
Name: Harold Bitler
--------------------------------
Title: First Vice President
-------------------------------
<PAGE> 13
[Signature Page 9 of 19 to Eighteenth Amendment]
BANK ONE, KENTUCKY, NA
By: /s/ Todd D. Munson
---------------------------------
Name: TODD D. MUNSON
-------------------------------
Title: SENIOR VICE PRESIDENT
------------------------------
<PAGE> 14
[Signature Page 10 of 19 to Eighteenth Amendment]
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By: /s/ Kazuyuki Nishimura
--------------------------------
Name: Kazuyuki Nishimura
------------------------------
Title: Senior Vice President
------------------------------
<PAGE> 15
[Signature Page 11 of 19 to Eighteenth Amendment]
CRESTAR BANK
By: /s/ Leesa McShane
--------------------------------
Name: Leesa McShane
-------------------------------
Title: VP
------------------------------
<PAGE> 16
[Signature Page 12 of 19 to Eighteenth Amendment]
BANK OF TOKYO - MITSUBISHI TRUST
COMPANY
By: /s/ John E. Beckwith
--------------------------------
Name: JOHN E. BECKWITH
-------------------------------
Title: Vice President & Manager
------------------------------
<PAGE> 17
[Signature Page 13 of 19 to Eighteenth Amendment]
AMSOUTH BANK
By: /s/ J. Ken DiFatta
--------------------------------
Name: J. KEN DiFATTA
-------------------------------
Title: ASSISTANT VICE PRESIDENT
-------------------------------
<PAGE> 18
[Signature Page 14 of 19 to Eighteenth Amendment]
BANK OF AMERICA NT & SA
By: /s/ Kevin Workey
-------------------------------
Name: Kevin Workey
------------------------------
Title: Vice President
------------------------------
<PAGE> 19
[Signature Page 15 of 19 to Eighteenth Amendment]
COMERICA BANK
By: /s/ Kimberly S. Reich
--------------------------------
Name: Kimberly S. Reich
------------------------------
Title: Vice President
-----------------------------
<PAGE> 20
[Signature Page 16 of 19 to Eighteenth Amendment]
CREDIT LYONNAIS NEW YORK BRANCH
By:
--------------------------------
Name:
-------------------------------
Title:
------------------------------
[SIGNATURE PAGE NOT EXECUTED BY BANK]
<PAGE> 21
[Signature Page 17 of 19 to Eighteenth Amendment]
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By: /s/ M. Christina Debler
---------------------------------
Name: M. Christina Debler
---------------------------------
Title: Vice President
--------------------------------
By: /s/ W. Pieter C. Kodde
----------------------------------
Name: W. Pieter C. Kodde
---------------------------------
Title: Vice President
--------------------------------
<PAGE> 22
[Signature Page 18 of 19 to Eighteenth Amendment]
THE TOKAI BANK, LIMITED NEW YORK BRANCH
By: /s/ Shinichi Nakatani
----------------------------------
Name: Shinichi Nakatani
---------------------------------
Title: Assistant General Manager
--------------------------------
<PAGE> 23
[Signature Page 19 of 19 to Eighteenth Amendment]
TORONTO DOMINION (TEXAS), INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
[SIGNATURE PAGE NOT EXECUTED BY BANK]
<PAGE> 24
STATE OF GEORGIA
COUNTY OF FULTON
On the 16th day of December, 1998 personally appeared Harold Bitler,
as the First Vice President of SunTrust Bank, Central Florida, National
Association, and before me executed the attached Eighteenth Amendment Waiver and
Consent dated as of _____________, 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/ Christine Alford
----------------------------------------------------
Signature of Notary Public, State of Georgia
---------------
Christine Alford
----------------------------------------------------
(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 June 29, 2001
<PAGE> 25
SCHEDULE A
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
NovaCare, Inc. (a Delaware corporation) B
NovaCare, Inc. (a Pennsylvania corporation) B
RehabClinics, Inc. B
Rehab Managed Care of Arizona, Inc. B
A.D. Craig Company G
Advanced Orthopedic Technologies, Inc. (a Nevada corporation) G
Advanced Orthopedic Technologies, Inc. (a New York corporation) G
Advance Orthotics, Inc. G
Advanced Orthotics and Prosthetics, Inc. G
Advanced Orthopedic Systems, Inc. G
Advanced Orthopedic Technologies (Clayton), Inc. G
Advanced Orthopedic Technologies (Lett), Inc. G
Advanced Orthopedic Technologies (New Jersey), Inc. G
Advanced Orthopedic Technologies (New Mexico), Inc. G
Advanced Orthopedic Technologies (New York), Inc. G
Advanced Orthopedic Technologies (OTI), Inc. G
Advanced Orthopedic Technologies (Parmeco), Inc. G
Advanced Orthopedic Technologies (SFV), Inc. G
Advanced Orthopedic Technologies (Virginia), Inc. G
Advanced Orthopedic Technologies (West Virginia), Inc. G
Advanced Orthopedic Technologies Management Corp. G
Affiliated Physical Therapists, Ltd. G
American Rehabilitation Center, Inc. G
American Rehabilitation Clinic, Inc. G
American Rehabilitation Systems, Inc. G
Artificial Limb and Brace Center G
Athens Sports Medicine Clinic, Inc. G
Ather Sports Injury Clinic, Inc. G
Atlanta Prosthetics, Inc. G
Atlantic Health Group, Inc. G
Atlantic Rehabilitation Services, Inc. G
<PAGE> 26
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
Boca Rehab Agency, Inc. G
Bowman-Shelton Orthopedic Service, Incorporated G
Buendel Physical Therapy, Inc. G
C.E.R. - West, Inc. G
Cahill Orthopedic Laboratory, Inc. G
Cannon & Associates, Inc. G
Cenla Physical Therapy & Rehabilitation Agency, Inc. G
Center for Evaluation & Rehabilitation, Inc. G
Center for Physical Therapy and Sports Rehabilitation, Inc. G
CenterTherapy, Inc. G
Certified Orthopedic Appliance Co., Inc. G
Central Missouri Rehabilitation Services, Inc. G
Central Missouri Therapy, Inc. G
Central Valley Prosthetics & Orthotics, Inc. G
Champion Physical Therapy, Inc. G
CMC Center Corporation G
Coplin Physical Therapy Associates, Inc. G
Crowley Physical Therapy Clinic, Inc. G
Dale Clark Prosthetics, Inc. G
Douglas Avery and Associates, Ltd. G
Douglas C. Claussen, R.P.T., Physical Therapy, Inc. G
E.A. Warnick-Pomeroy Co., Inc. G
Elk County Physical Therapy, Inc. G
Fine, Bryant & Wah, Inc. G
Francis Naselli, Jr. & Stewart Rich Physical Therapists, Inc. G
Frank J. Malone & Son, Inc. G
Fresno Orthopedic Company G
Gallery Physical Therapy Center, Inc. G
Georgia Health Group, Inc. G
Georgia Physical Therapy of West Georgia, Inc. G
Georgia Physical Therapy, Inc. G
Greater Sacramento Physical Therapy Associates, Inc. G
Grove City Physical Therapy and Sports Medicine, Inc. G
<PAGE> 27
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
Gulf Breeze Physical Therapy, Inc. G
Gulf Coast Hand Specialists, Inc. G
Hand Therapy and Rehabilitation Associates, Inc. G
Hand Therapy Associates, Inc. G
Hangtown Physical Therapy, Inc. G
Hawley Physical Therapy, Inc. G
Heartland Rehabilitation, Inc. G
High Desert Institute of Prosthetics & Orthotics G
Human Performance and Fitness, Inc. G
Indianapolis Physical Therapy and Sports Medicine, Inc. G
Industrial Health Care Company, Inc. G
J.E. Hanger, Incorporated G
JOYNER SPORTS SCIENCE INSTITUTE, Inc. G
JOYNER SPORTSMEDICINE INSTITUTE, INC. G
Kentucky Rehabilitation Services, Inc. G
Kesinger Physical Therapy, Inc. G
Kroll's, Inc. G
Lynn M. Carlson, Inc. G
McKinney Prosthetics/Orthotics, Inc. G
Mark Butler Physical Therapy Center, Inc. G
Meadowbrook Orthopedics, Inc. G
Medical Arts O&P Services, Inc. G
Medical Plaza Physical Therapy, Inc. G
Metro Rehabilitation Services, Inc. G
Michigan Therapy Centre, Inc. G
MidAtlantic Health Group, Inc. G
Mill River Management, Inc. G
Mitchell Tannenbaum I, Inc. G
Mitchell Tannenbaum II, Inc. G
Mitchell Tannenbaum III, Inc. G
Monmouth Rehabilitation, Inc. G
New England Health Group, Inc. G
New Mexico Physical Therapists, Inc. G
<PAGE> 28
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
Northland Regional Orthotic and Prosthetic Center, Inc. G
Northside Physical Therapy, Inc. G
NovaCare (Arizona), Inc. G
NovaCare (Colorado), Inc. G
NovaCare (Texas), Inc. G
NovaCare Management Company, Inc. G
NovaCare Management Services, Inc. G
NovaCare Northside Therapy, Inc. G
NovaCare Occupational Health Services, Inc. G
NovaCare Orthotics & Prosthetics East, Inc. G
NovaCare Orthotics & Prosthetics Holdings, Inc. G
NovaCare Orthotics & Prosthetics West, Inc. G
NovaCare Orthotics & Prosthetics, Inc. G
NovaCare Outpatient Rehabilitation East, Inc. G
NovaCare Outpatient Rehabilitation I, Inc. G
NovaCare Outpatient Rehabilitation West, Inc. G
NovaCare Outpatient Rehabilitation, Inc. G
NovaCare Rehab Agency of Alabama, Inc. G
NovaCare Rehab Agency of Arkansas, Inc. G
NovaCare Rehab Agency of Florida, Inc. G
NovaCare Rehab Agency of Georgia, Inc. G
NovaCare Rehab Agency of Illinois, Inc. G
NovaCare Rehab Agency of Kansas, Inc. G
NovaCare Rehab Agency of Lubbock, Inc. G
NovaCare Rehab Agency of Michigan, Inc. G
NovaCare Rehab Agency of Missouri, Inc. G
NovaCare Rehab Agency of New Jersey, Inc. G
NovaCare Rehab Agency of North Carolina, Inc. G
NovaCare Rehab Agency of Northern California, Inc. G
NovaCare Rehab Agency of Ohio, Inc. G
NovaCare Rehab Agency of Oklahoma, Inc. G
NovaCare Rehab Agency of Oregon, Inc. G
NovaCare Rehab Agency of Pennsylvania, Inc. G
<PAGE> 29
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
NovaCare Rehab Agency of Reno, Inc. G
NovaCare Rehab Agency of San Antonio, Inc. G
NovaCare Rehab Agency of San Diego, Inc. G
NovaCare Rehab Agency of South Carolina, Inc. G
NovaCare Rehab Agency of Southern California, Inc. G
NovaCare Rehab Agency of Tennessee, Inc. G
NovaCare Rehab Agency of Virginia, Inc. G
NovaCare Rehab Agency of Washington, Inc. G
NovaCare Rehab Agency of Wyoming, Inc. G
NovaCare Rehabilitation Agency of Wisconsin, Inc. G
NovaCare Rehabilitation, Inc. G
NovaCare Service Corp. G
Opus Care, Inc. G
Ortho East, Inc. G
Ortho Rehab Associates, Inc. G
Ortho-Fab Laboratories, Inc. G
Orthopedic Appliances, Inc. G
Orthopedic and Sports Physical Therapy of Cupertino, Inc. G
Orthopedic Rehabilitative Services, Ltd. G
Orthotic & Prosthetic Rehabilitation Technologies, Inc. G
Orthotic and Prosthetic Associates, Inc. G
Orthotic Specialists, Inc. G
Peter Trailov R.P.T. Physical Therapy Clinic,
Orthopaedic Rehabilitation & Sports Medicine, Ltd. G
Peters, Starkey & Todrank Physical Therapy Corporation G
Physical Focus Inc. G
Physical Rehabilitation Partners, Inc. G
Physical Restoration Laboratories, Inc. G
Physical Therapy Clinic of Lee's Summit, Inc. G
Physical Therapy Enterprises, Inc. G
Physical Therapy Institute, Inc. G
Physical Therapy Services of the Jersey Cape, Inc. G
Pro Active Therapy, Inc. G
Professional Orthotics and Prosthetics, Inc. G
<PAGE> 30
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
Professional Orthotics and Prosthetics, Inc. of Santa Fe G
Professional Therapeutic Services, Inc. G
Progressive Orthopedic G
Prosthetics-Orthotics Associates, Inc. G
Protech Orthotic and Prosthetic Center, Inc. G
Quad City Management, Inc. G
RCI (Colorado), Inc. G
RCI (Exertec), Inc. G
RCI (Illinois), Inc. G
RCI (Michigan), Inc. G
RCI (S.P.O.R.T.), Inc. G
RCI (WRS), Inc. G
RCI Nevada, Inc. G
Rebound Oklahoma, Inc. G
Redwood Pacific Therapies, Inc. G
Rehab Provider Network of Florida, Inc. G
Rehab Provider Network - New Jersey, Inc. G
Rehab Provider Network - California, Inc. G
Rehab Provider Network - Delaware, Inc. G
Rehab Provider Network - Georgia, Inc. G
Rehab Provider Network - Illinois, Inc. G
Rehab Provider Network - Indiana, Inc. G
Rehab Provider Network - Maryland, Inc. G
Rehab Provider Network - Michigan, Inc. G
Rehab Provider Network - Ohio, Inc. G
Rehab Provider Network - Oklahoma, Inc. G
Rehab Provider Network - Virginia, Inc. G
Rehab Provider Network - Washington, D.C., Inc. G
Rehab Provider Network - Pennsylvania, Inc. G
Rehab Provider Network of Colorado, Inc. G
Rehab Provider Network of Nevada, Inc. G
Rehab Provider Network of New Mexico, Inc. G
Rehab Provider Network of North Carolina, Inc. G
<PAGE> 31
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
Rehab Provider Network of Texas, Inc. G
Rehab Provider Network of Wisconsin, Inc. G
Rehab World, Inc. G
Rehab/Work Hardening Management Associates, Ltd. G
RehabClinics (COAST), Inc. G
RehabClinics (GALAXY), Inc. G
RehabClinics (New Jersey), Inc. G
RehabClinics (PTA), Inc. G
RehabClinics (SPT), Inc. G
RehabClinics Abilene, Inc. G
RehabClinics Dallas, Inc. G
RehabClinics Pennsylvania, Inc. G
Rehabilitation Fabrication, Inc. G
Rehabilitation Management, Inc. G
Reid Medical Systems, Inc. G
Robert M. Bacci, R.P.T. Physical Therapy, Inc. G
Robin Aids Prosthetics, Inc. G
S.T.A.R.T., Inc. G
Salem Orthopedic & Prosthetic, Inc. G
San Joaquin Orthopedic, Inc. G
Scott G. Knoche, Inc. G
SG Rehabilitation Agency, Inc. G
SG Speech Associates, Inc. G
Sierra Nevada Physical Therapy Corporation G
South Jersey Physical Therapy Associates, Inc. G
South Jersey Rehabilitation and Sports Medicine Center, Inc. G
Southern Illinois Prosthetic & Orthotic, Ltd. G
Southern Illinois Prosthetic & Orthotic of Missouri, Ltd. G
Southpointe Fitness Center, Inc. G
Southwest Emergency Associates, Inc. G
Southwest Medical Supply Company G
Southwest Physical Therapy, Inc. G
Southwest Therapists, Inc. G
<PAGE> 32
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
Sporthopedics Sports and Physical Therapy Centers, Inc. G
Sports Therapy and Arthritis Rehabilitation, Inc. G
Star Physical Therapy Inc. G
Stephenson-Holtz, Inc. G
T.D. Rehab Systems, Inc. G
Texoma Health Care Center, Inc. G
The Center for Physical Therapy and Rehabilitation, Inc. G
The Orthopedic Sports and Industrial Rehabilitation Network, Inc. G
Theodore Dashnaw Physical Therapy, Inc. G
Treister, Inc. G
Tucson Limb & Brace, Inc. G
Union Square Center for Rehabilitation & Sports Medicine, Inc. G
University Orthotic and Prosthetic Consultants, Ltd. G
Valley Group Physical Therapists, Inc. G
Vanguard Rehabilitation, Inc. G
Wayzata Physical Therapy Center, Inc. G
West Side Physical Therapy, Inc. G
West Suburban Health Partners, Inc. G
Western Missouri Rehabilitation Services, Inc. G
Western Rehab Services, Inc. G
Worker Rehabilitation Services, Inc. G
Yuma Rehabilitation Center, Inc. G
A.D. Craig (A.D. Craig Company is general partner) G
Advanced Orthopedic Services, Ltd.
(RehabClinics Dallas, Inc. is general partner) G
Craig Weymouth Enterprises
(A.D. Craig Company is general partner) G
Land Park Physical Therapy (Union Square Center for
Rehabilitation & Sports Medicine, Inc. is general partner) G
NovaPartners (IND), LP (NovaCare, Inc.
(a Pennsylvania corporation) is general partner) G
<PAGE> 33
SCHEDULE B
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
NovaFunds, Inc. B
NC Cash Management, Inc. G
NC Resources, Inc. G
NovaMark, Inc. G
NovaStock, Inc. G
<PAGE> 34
EXHIBIT I
AMENDMENT FEES TO BANKS APPROVING AMENDMENT
<TABLE>
<CAPTION>
Bank Amendment Fee*
---- --------------
<S> <C>
PNC Bank, National Association $20,000
First Union National Bank $15,500
Fleet National Bank $15,500
Mellon Bank, N.A $15,500
NationsBank, N.A $15,500
Bank One, Kentucky, NA $11,375
Credit Lyonnais New York Branch $ 0
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch $11,375
Toronto Dominion (Texas), Inc. $ 0
The Bank of New York $10,000
SunTrust Bank, Central Florida, N.A $10,000
AmSouth Bank $ 7,500
Bank of America NT & SA $ 7,500
Bank of Tokyo - Mitsubishi Trust Company $ 7,500
Comerica Bank $ 7,500
Crestar Bank $ 7,500
The Fuji Bank, Limited New York Branch $ 7,500
The Tokai Bank, Limited New York Branch $ 7,500
</TABLE>
*fee paid only to banks approving the Amendment
<PAGE> 1
EXHIBIT 10(b)
NOVACARE, INC.
1016 WEST NINTH AVENUE
KING OF PRUSSIA, PA 19406
March 31, 1999
PNC Bank, National Association,
as Agent
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Attn: Frank Taucher, Senior Vice President
RE: Nineteenth Amendment to Credit Agreement (the "Nineteenth Amendment")
Dear Frank:
We refer to that certain Credit Agreement, dated as of May 27, 1994, as
amended (the "Credit Agreement"), by and among NovaCare, Inc. ("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 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. Temporary Waiver of Certain Provisions of Credit Agreement.
The Agent on behalf of the Banks hereby waives for the period
commencing on April 1, 1999 and ending at 11:59 P.M. on April 19, 1999 (the
"Waiver Period") the following provisions :
(a) compliance with subsection (l) [Minimum Net Worth],
subsection (n) [Funded Debt to Cash Flow From Operations] and
subsection (o) [Minimum Fixed Charge Coverage Ratio] of Section 8.02
[Negative Covenants] of the Credit Agreement;
(b) the making by the Loan Parties of the representation and
warranty contained in the second sentence of subsection (i)(B)
[Financial Projections] of Section 6.01 [Representations and
Warranties] of the Credit Agreement;
(c) the making by the Loan Parties of the representation and
warranty contained in the last sentence ["Since June 30, 1997 no
Material Adverse
<PAGE> 2
Change has occurred"] of subsection (i)(C) [Accuracy of Financial
Statements] of Section 6.01 [Representations and Warranties] of the
Credit Agreement; and
(d) the Loan Parties non-compliance with the provisions of the
Credit Agreement set forth in the foregoing subsections (a) through
and including (c) of this Section 1 constituting a Potential Default
during the Waiver Period.
2. Amendments to Credit Agreement.
(a) Section 1.01 [Certain Definitions] of the Credit Agreement is hereby
amended by the deletion of the definition of the term "Permitted Investment in
Excluded Entities" and the addition of the following new definitions:
"Collateral shall mean the Pledged Collateral and the Other
Collateral."
"Other Collateral shall mean the property of the Loan Parties in
which security interests are to be granted under the Security Agreement
and the Patent, Trademark and Copyright Security Agreement."
"Patent, Trademark and Copyright Security Agreement shall mean the
Patent, Trademark and Copyright Security Agreement in substantially the
form attached hereto as Exhibit 1.01(P)(8) executed by the Loan Parties."
"Security Agreement" shall mean the Security Agreement in
substantially the form attached hereto as Exhibit 1.01(P)(9) executed by
the Loan Parties."
(b) Section 1.01 [Certain Definitions] of the Credit Agreement is hereby
amended by restating in its entirety the definition of the terms "Loan
Documents" and "Loan Document" and "Pledge Agreements" and "Pledge Agreement" to
read as follows:
"Loan Documents shall mean this Agreement, the Notes, the Guaranty
Agreements, the Pledge Agreements, the Agent's Fee Letter, the
Subordination Agreement (Intercompany), the Borrower Agency Agreement, the
Patent, Trademark and Copyright Security Agreement, the Security Agreement
and any other instruments, certificates or documents delivered or
contemplated to be delivered hereunder or thereunder or in connection
herewith or therewith, as the same may be supplemented or amended from
time to time in accordance herewith or therewith, and Loan Document shall
mean any of the Loan Documents."
"Pledge Agreements shall mean the Pledge Agreement in substantially
the form attached hereto as Exhibit 1.01(P)(4) executed and delivered by
NovaCare and each other Borrower which owns stock in any other Loan Party,
Exhibit 1.01(P)(5) executed and delivered by each Guarantor which owns
stock in any other Loan Party, Exhibit 1.01(P)(6) executed and delivered
by each Borrower or Guarantor which owns any partnership interests in any
other Loan Party, the Pledge Agreement (Stock of NCES) in substantially
the form attached hereto as Exhibit 1.01(P)(7) executed and delivered by
NC Resources, Inc., a Delaware corporation, and any other form of
agreement, in form and substance acceptable to the Agent, pledging any
interests in a Loan Party (including,
-2-
<PAGE> 3
without limitation, ownership interests in any Loan Party which is a
limited liability company) or the equity interests in an Excluded Entity
owned by any Loan Party executed and delivered by the holders of such
interests, in each instance to the Agent for the benefit of the Banks, and
Pledge Agreement shall mean separately any Pledge Agreement."
(c) Clause (xi) and subclause (2) of clause (xi) of the definition of the
term Permitted Liens in Section 1.01 [Certain Definitions] of the Credit
Agreement is hereby amended by substituting for the term "Pledged Collateral"
the word "Collateral" in each place in such clause (xi) and subclause (2) where
the term "Pledged Collateral" appears.
(d) The first sentence of Section 2.03 [Commitment Fees; Closing Fees] of
the Credit Agreement is amended and restated in its entirety to read as follows:
"The Borrowers, jointly and severally, agree to pay to the Agent for
the account of each Bank, as consideration for such Bank's Revolving
Credit Commitment hereunder, a commitment fee (the "Commitment Fee") equal
to
(x) during the period commencing on April 1, 1999 and ending
at 11:59 P.M. on April 19, 1999, a rate per annum (computed on the
basis of a year of 365 days or 366 days, as the case may be, and
actual days elapsed) equal to 0.500% of the average daily difference
between the unborrowed amount of such Bank's Revolving Credit
Commitment as the same may be constituted from time to time and such
Bank's Ratable Share of Letters of Credit Outstanding, and
(y) during all times other than the period set forth in the
preceding clause (x), the per annum rate (computed on the basis of a
year of 365 days or 366 days, as the case may be, and actual days
elapsed) set forth below as the "Applicable Commitment Fee", on the
average daily difference between the unborrowed amount of such
Bank's Revolving Credit Commitment as the same may be constituted
from time to time and such Bank's Ratable Share of Letters of Credit
Outstanding."
(e) Clause (i) [Revolving Credit Base Rate Option] of subsection (a)
[Revolving Credit Interest Rate Options] of section 4.01 [Interest Rate Options]
is amended and restated in its entirety to read as follows:
"(i) Revolving Credit Base Rate Option. A fluctuating rate per annum
(computed on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed) equal to
(x) during the period commencing on April 1, 1999 and ending
at 11:59 P.M. on April 19, 1999, the Base Rate plus 1.50%, and
(y) during all times other than the period set forth in the
preceding clause (x), the Base Rate."
-3-
<PAGE> 4
(f) The first sentence of clause (ii) [Revolving Credit Euro-Rate Option]
of subsection (a) [Revolving Credit Interest Rate Options] of section 4.01
[Interest Rate Options] is amended and restated in its entirety to read as
follows:
"A rate per annum (computed on the basis of a year of 360 days and
actual days elapsed), equal to the Euro-Rate plus
(x) during the period commencing on April 1, 1999 and ending
at 11:59 P.M. on April 19, 1999, 3.00%, and
(y) during all times other than the period set forth in the
preceding clause (x), the applicable percentage (the "Applicable
Percentage Over Euro-Rate") set forth below based upon the ratio of
(a) Consolidated Funded Debt to (b) Consolidated Cash Flow from
Operations."
(g) The introductory language of Section 4.02 [Interest Periods] which
precedes clause (a) thereof of the Credit Agreement is amended and restated in
its entirety to read as follows:
"At any time when NovaCare, as agent for the Borrowers, shall
select, convert to or renew a Revolving Credit Euro-Rate Option, NovaCare
shall notify the Agent thereof at least three (3) Business Days prior to
the effective date of such Revolving Credit Euro-Rate Option by delivering
a Revolving Credit Loan Request. The interest period during which such
Interest Rate Option shall apply shall be for a period of one month
("Euro-Rate Interest Period"), provided, that:"
(h) Section 4.03 [Interest After Default] of the Credit Agreement is
amended and restated in its entirety to read as follows:
"4.03 Interest After Default To the extent permitted by Law, upon
the occurrence and during the continuation of an Event of Default, any
principal, interest, fee or other amount payable hereunder shall bear
interest for each day thereafter until paid in full (before and after
judgment) at a rate per annum which shall be equal to three hundred fifty
(350) basis points (3.50% per annum) above the Base Rate. Each Borrower
acknowledges that such increased interest rate reflects, among other
things, the fact that such Revolving Credit Loans or other amounts have
become a substantially greater risk given their default status and that
the Banks are entitled to additional compensation for such risk."
(i) Subsection (o) [Security Interests] of section 6.01 [Representations
and Warranties] of the Credit Agreement is amended and restated in its entirety
to read as follows:
"(o) Security Interests. The Liens and security interests granted to
the Agent for the benefit of the Banks pursuant to the Patent, Trademark
and Copyright Security Agreement, the Pledge Agreements and the Security
Agreement in the Collateral constitute and will continue to constitute
Prior Security Interests [other than the security interest in the stock of
NovaCare Employee Services, Inc. ("NCES") which is subject to the prior
security interest granted to PNC Bank, National Association to secure
loans and other obligations under a Credit Agreement dated as of November
17, 1997 among
-4-
<PAGE> 5
NCES, the guarantors parties thereto and the banks parties thereto] under
the Uniform Commercial Code as in effect in each applicable jurisdiction
(the "Uniform Commercial Code") or other applicable Law entitled to all
the rights, benefits and priorities provided by the Uniform Commercial
Code or such Law. Upon the filing of financing statements relating to said
security interests in each office and in each jurisdiction where required
in order to perfect the security interests described above, taking
possession of any stock certificates, certificates of Beneficial Interests
or certificates of Members Interests evidencing the Pledged Collateral
which consists of stock, certificated Beneficial Interests or certificated
Member Interests, as the case may be, and recordation of the Patent,
Trademark and Copyright Security Agreement in the United States Patent and
Trademark Office and United States Copyright Office, as applicable, all
such action as is necessary or advisable to establish such rights of the
Agent will have been taken, and there will be upon execution and delivery
of the Patent, Trademark and Copyright Security Agreement, the Pledge
Agreement and the Security Agreement, such filings and such taking of
possession, no necessity for any further action in order to preserve,
protect and continue such rights, except the filing of continuation
statements with respect to such financing statements within six months
prior to each five-year anniversary of the filing of such financing
statements. All filing fees and other expenses in connection with each
such action have been or will be paid by the Borrower."
(j) The introductory language of clause (ii) of subsection (d)
[Liquidations, Mergers, Consolidations, Acquisitions] of section 8.02 [Negative
Covenants] which precedes subclause (A) thereof of the Credit Agreement is
amended and restated in its entirety to read as follows:
"(ii) any Loan Party may acquire prior to (but not on or after)
April 1, 1999, whether by purchase or by merger, (A) all of the ownership
interests of another Person or (B) substantially all of the assets of
another Person or of a business or division of another Person (each a
"Permitted Acquisition"), provided that each of the following requirements
is met:"
(k) Clause (v) of subsection (i) [Loans and Investments] of section 8.02
[Negative Covenants of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
"(v) Restricted Investments existing as of March 25, 1999 in the
Excluded Entities listed on Schedule 8.02(i)(v) in amounts not to exceed
the per entity amount as of March 25, 1999 which is specified on such
Schedule for such entity; provided, however, that on and after the
Spin-Off Consummation, no Restricted Investments shall be made by NovaCare
or any Subsidiary of NovaCare in NovaCare Employee Services, Inc."
(l) Subsection (j) [Dividends and Related Distributions] of section 8.02
[Negative Covenants] of the Credit Agreement is hereby amended and restated in
its entirety to read as follows:
"(j) Dividends and Related Distributions. The Loan Parties shall not
make or pay, or agree to become or remain liable to make or pay, any
dividend or other distribution of any nature (whether in cash, property,
securities or otherwise) on account
-5-
<PAGE> 6
of or in respect of its shares of capital stock or on account of the
purchase, redemption, retirement or acquisition of its shares of capital
stock (or warrants, options or rights therefor), except dividends payable
by any Subsidiary of NovaCare to NovaCare or to any other Loan Party."
(m) Subsection (i) of section 11.18 [Joinder of Loan Parties] is hereby
and amended and restated in its entirety to read as follows:
"(i) All Subsidiaries (other than those which are Excluded
Qualifying Subsidiaries) of NovaCare acquired or created on or after the
Closing Date shall join this Agreement as a Guarantor or a Borrower (a
"Joining Subsidiary") on the date of their acquisition or creation by
completing all of the following by such date: (1) executing and delivering
to the Agent (A) in the case of a Joining Subsidiary which becomes a
Borrower, a Revolving Credit Note in the form of Exhibit 1.01(R) payable
to each Bank, (B) a joinder to this Agreement in form satisfactory to the
Agent, (C) a Guaranty Agreement in the form of Exhibit 1.01(G)(1), in the
case of a Joining Subsidiary which becomes a Borrower and Exhibit
1.01(G)(2), in the case of a Joining Subsidiary which becomes a Guarantor,
and (D) a Patent, Trademark and Copyright Security Agreement in the form
of Exhibit 1.01(P)(8) and a Security Agreement in the Form of Exhibit
1.01(P)(9) and, if it owns stock or other ownership interests in any
Subsidiary, a Pledge Agreement in the form of Exhibit 1.01(P)(4),
1.01(P)(5), 1.01(P)(6) or 1.01(P)(7) or other appropriate form acceptable
to the Agent if such Subsidiary is not a partnership or corporation, as
applicable, and delivering, as applicable, the original certificates
evidencing such stock or other ownership interest if it is certificated
with appropriate stock powers or other assignments signed in blank and
UCC-1 financing statements necessary to perfect the security interests of
the Agent for the benefit of the Banks therein; (2) delivering to the
Agent an opinion of counsel reasonably satisfactory to the Agent regarding
such Joining Subsidiary and such joinder; and (3) delivering to the Agent
certified copies of its organizational documents and other documents as
requested by the Agent. The Loan Party which owns the stock or other
ownership interest of the Joining Subsidiary shall execute and deliver to
the Agent for the benefit of the Banks a Pledge Agreement in the form of
Exhibit 1.01(P)(4), 1.01(P)(5), 1.01(P)(6) or 1.01(P)(7) or other
appropriate form acceptable to the Agent if such Subsidiary is not a
partnership or corporation, as applicable, and the original certificates
evidencing such stock or other ownership interest if it is certificated
with appropriate stock powers or other assignments signed in blank and
UCC-1 financing statements necessary to perfect the security interests of
the Agent for the benefit of the Banks therein. Notwithstanding the
provisions of this Section 11.18(i) to the contrary, for periods after the
Spin-Off Consummation, NovaCare Employee Services, Inc. shall not be
required to join this Agreement as a Guarantor or Borrower."
3. Other Matters.
(a) The Loan Parties have previously delivered to the Agent for the
benefit of the Banks the Pledge Agreement (Stock of NCES), the Patent, Trademark
and Copyright Security Agreement, the Security Agreement and financing
statements duly executed by the Loan Parties.
-6-
<PAGE> 7
(b) During the Waiver Period, the Borrowers shall not request Revolving
Credit Loans or Letters which would result in the Revolving Facility Usage
exceeding $355,000,000 and the Banks shall not be obligated to fund any
Revolving Credit Loans or to issue and Letter of Credit which would result in
the Revolving Facility Usage exceeding $355,000,000.
(c) Each Loan Party acknowledges that it has no claim, counterclaim,
setoff, action or cause of action of any kind or nature whatsoever against all
or any of the Agent, the Banks or any of the Agent's or the Bank's directors,
officers, employees, agents, attorneys, legal representatives, successors and
assigns (the Agent, the Banks and their directors, officers, employees, agents,
attorneys, legal representatives, successors and assigns are collectively
referred to as the "Lender Group"), that directly or indirectly arise out of or
are based upon or in any manner connected with any "Prior Event" (as defined
below), and each Loan Party hereby releases the Lender Group from any liability
whatsoever should any nonetheless exist with respect to such claims. As used
herein the term "Prior Event" means any transaction, event, circumstance,
action, failure to act or occurrence of any sort or type, whether known or
unknown, which occurred, existed, was taken, permitted or begun prior to the
execution of this Nineteenth Amendment and occurred, existed, was taken,
permitted or begun in accordance with, pursuant to or by virtue of any terms of
this Nineteenth Amendment or any Loan Document or oral or written agreement
relating to any of the foregoing.
(d) Schedule 8.02(i)(v) [Permitted Investments in Excluded Entities] is
hereby added to the Credit Agreement. Exhibit 2.05 [Revolving Credit Loan
Requests] is amended and restated in its entirety to read as attached hereto.
The following new Exhibits are hereby added to the Credit Agreement in the form
of such Exhibit attached hereto:
Exhibit 1.01(P)(7) Pledge Agreement (Stock of NCES)
Exhibit 1.01(P)(8) Patent, Trademark and Copyright
Security Agreement
Exhibit 1.01(P)(9) Security Agreement
4. Closing Fees and Post-Closing Matters.
The Borrowers jointly and severally agree to reimburse the Agent on
demand for all costs, expenses and disbursements relating to this Nineteenth
Amendment which are payable by the Borrower as provided in Section 10.05 of the
Credit Agreement. In addition, the Borrowers shall pay to the Agent for the
benefit of the applicable Banks the fees identified in Exhibit I hereto as the
"Amendment Fee". The Borrowers shall promptly deliver such certificates,
resolutions and opinions in form and substance satisfactory to the Agent as the
Agent shall have reasonably requested from time to time.
5. Conditions of Effectiveness.
The effectiveness of this Nineteenth Amendment is expressly
conditioned upon the occurrence and completion of all of the following: (i)
receipt by the Agent on behalf of the
-7-
<PAGE> 8
Banks of the nonrefundable fees equal to the aggregate of the amounts set forth
on Exhibit I hereto; (ii) receipt by PNC Capital Markets, Inc. of the
nonrefundable fee due pursuant to that certain fee letter dated as of this date
(iii) payment by the Borrower of all costs, expenses and disbursements submitted
on or before the date hereof to the Borrower pursuant to section 4 hereof, and
(iv) the Agent's receipt of counterparts of this Nineteenth Amendment duly
executed by the Borrowers, the Guarantors, the Agent and the Required Banks.
This Nineteenth Amendment shall be dated as of and shall be effective as
of the date and year first above written subject to satisfaction of all
conditions precedent to effectiveness as set forth in this Section 5, which date
shall be the Nineteenth Amendment Effective Date.
6. Consent of Required Banks, Approval of Increase in Revolving Credit
Commitments.
Pursuant to Section 11.01 of the Credit Agreement, this Nineteenth
Amendment shall require the written consent of the Required Banks, which shall
be evidenced by the Required Banks execution and delivery to the Agent of
counterparts of this Nineteenth Amendment.
7. Full Force and Effect.
Each of the following documents, as amended through and including
this Nineteenth Amendment, shall remain in full force and effect on and after
the date of this Amendment:
(a) the Credit Agreement, except as expressly modified and
amended by this Nineteenth Amendment,
(b) each of the Schedules attached to the Credit Agreement;
(c) each of the Exhibits attached to the Credit Agreement; and
the Notes, the Guaranty Agreements, the Pledge Agreements, the
Agent's Fee Letter as modified by a fee letter dated this date, the
Subordination Agreement (Intercompany), the Borrower Agency Agreement and all
other Loan Documents.
On and after the date hereof, each reference in the Credit Agreement
to "this Agreement", "hereunder" or words of like import shall mean and be a
reference to the Credit Agreement, as previously amended and as amended by this
Nineteenth Amendment, and each reference in each other Loan Document to the
"Credit Agreement" shall mean and be a reference to the Credit Agreement, as
previously amended and as amended by this Nineteenth Amendment. No novation is
intended by this Nineteenth Amendment.
The parties hereto do not amend or waive any provisions of the
Credit Agreement or the other Loan Documents except as expressly set forth
herein.
-8-
<PAGE> 9
8. Counterparts.
This Nineteenth 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.
9. Governing Law.
This Nineteenth 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]
-9-
<PAGE> 10
[Signature Page 1 of 19 to Nineteenth 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 BORROWERS and GUARANTORS
listed on Schedule A attached hereto
By: /s/ Richard S. Binstein By: /s/ Richard A. McDonald
------------------------------ ------------------------------
Richard S. Binstein, Secretary Richard A. McDonald, the Vice
President of each Borrower and
Guarantor listed on Schedule A
attached hereto which is a
corporation and of each general
partner of each Guarantor listed on
Schedule A attached hereto which is
a partnership
[Seal]
ATTEST: NOVAFUNDS, INC., a Delaware corporation,
and each of the Guarantors listed on
Schedule B attached hereto
By: /s/ Andrew T. Panaccione By: /s/ Robert C. Campbell
------------------------------ ------------------------------
Andrew T. Panaccione, Secretary Robert C. Campbell, the Vice
President of each Borrower and
Guarantor listed on Schedule B
attached hereto
[Seal]
<PAGE> 11
[Signature Page 2 of 19 to Nineteenth Amendment]
AGENT:
PNC BANK, NATIONAL ASSOCIATION, as Agent
By: /s/ Roland Taub
Title: SVP
BANKS:
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Roland Taub
Title: SVP
<PAGE> 12
[Signature Page 3 of 19 to Nineteenth Amendment]
FIRST UNION NATIONAL BANK
By: /s/ Elizabeth D. Morris
Name: Elizabeth D. Morris
Title: Vice President
<PAGE> 13
[Signature Page 4 of 19 to Nineteenth Amendment]
FLEET NATIONAL BANK
By: /s/ Maryann S. Smith
Name: MARYANN S. SMITH
Title: VICE PRESIDENT
<PAGE> 14
[Signature Page 5 of 19 to Nineteenth Amendment]
MELLON BANK, N.A.
By:____________________________________
Name:__________________________________
Title:_________________________________
[SIGNATURE PAGE NOT EXECUTED BY BANK]
<PAGE> 15
[Signature Page 6 of 19 to Nineteenth Amendment]
NATIONSBANK, N.A.
By: /s/ Kevin Wagley
Name: KEVIN WAGLEY
Title: VICE PRESIDENT
<PAGE> 16
[Signature Page 7 of 19 to Nineteenth Amendment]
THE BANK OF NEW YORK
By: /s/ Peter H. Abdill
Name: Peter H. Abdill
Title: Vice President
<PAGE> 17
[Signature Page 8 of 19 to Nineteenth Amendment]
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /s/ Cynthia D. Eggers
Name: Cynthia D. Eggers
Title: Vice President
<PAGE> 18
[Signature Page 9 of 19 to Nineteenth Amendment]
BANK ONE, KENTUCKY, NA
By: /s/ Patricia S. Carpin
Name: Patricia S. Carpin
Title: Vice President
<PAGE> 19
[Signature Page 10 of 19 to Nineteenth Amendment]
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By: /s/ Teiji Teramoto
Name: Teiji Teramoto
Title: Vice President and Manager
<PAGE> 20
[Signature Page 11 of 19 to Nineteenth Amendment]
CRESTAR BANK
By: /s/ Leesa McShane
Name: Leesa McShane
Title: VP
<PAGE> 21
[Signature Page 12 of 19 to Nineteenth Amendment]
BANK OF TOKYO - MITSUBISHI TRUST COMPANY
By: /s/ Douglas J. Weir
Name: Douglas J. Weir
Title: Vice President
<PAGE> 22
[Signature Page 13 of 19 to Nineteenth Amendment]
AMSOUTH BANK
By: /s/ J. Ken DiFatta
Name: J. KEN DiFATTA
Title: ASSISTANT VICE PRESIDENT
<PAGE> 23
[Signature Page 14 of 19 to Nineteenth Amendment]
BANK OF AMERICA NT & SA
By: /s/ Kevin Wagley
Name: KEVIN WAGLEY
Title: VICE PRESIDENT
<PAGE> 24
[Signature Page 15 of 19 to Nineteenth Amendment]
COMERICA BANK
By: /s/ Kimberly S. Reich
Name: KIMBERLY S. REICH
Title: VICE PRESIDENT
<PAGE> 25
[Signature Page 16 of 19 to Nineteenth Amendment]
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Henry Reukauf
Name: Henry Reukauf
Title: Vice President
<PAGE> 26
[Signature Page 17 of 19 to Nineteenth Amendment]
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK NEDERLAND",
NEW YORK BRANCH
By: /s/ Ellen Polensky
Name: Ellen Polensky
Title: Vice President
By: /s/ Robet S. Bucklin
Name: Robert S. Bucklin
Title: Chief Corporate Banking Officer
<PAGE> 27
[Signature Page 18 of 19 to Nineteenth Amendment]
THE TOKAI BANK, LIMITED NEW YORK BRANCH
By: /s/ Shinichi Nakatani
Name: Shinichi Nakatani
Title: Assistant General Manager
<PAGE> 28
[Signature Page 19 of 19 to Nineteenth Amendment]
TORONTO DOMINION (TEXAS), INC.
By: /s/ Jimmy Simlen
Name: Jimmy Simlen
Title: Vice President
<PAGE> 29
STATE OF GEORGIA
COUNTY OF FULTON
On the 31st day of March, 1999 personally appeared Cynthia D. Eggers, as
the Vice President of SunTrust Bank, Central Florida, National Association, and
before me executed the attached Nineteenth Amendment dated as of March 31, 1999
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/ Christine B. Alford
-------------------------------------------------------------
Signature of Notary Public, State of Georgia
-------------------------
/s/ Christine B. Alford
-------------------------------------------------------------
(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 June 29, 2001
<PAGE> 30
SCHEDULE A
<TABLE>
<CAPTION>
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
<S> <C>
NovaCare, Inc. (a Delaware corporation) B
NovaCare, Inc. (a Pennsylvania corporation) B
RehabClinics, Inc. B
Rehab Managed Care of Arizona, Inc. B
A.D. Craig Company G
Advanced Orthopedic Technologies, Inc. (a Nevada corporation) G
Advanced Orthopedic Technologies, Inc. (a New York corporation) G
Advance Orthotics, Inc. G
Advanced Orthotics and Prosthetics, Inc. G
Advanced Orthopedic Systems, Inc. G
Advanced Orthopedic Technologies (Clayton), Inc. G
Advanced Orthopedic Technologies (Lett), Inc. G
Advanced Orthopedic Technologies (New Jersey), Inc. G
Advanced Orthopedic Technologies (New Mexico), Inc. G
Advanced Orthopedic Technologies (New York), Inc. G
Advanced Orthopedic Technologies (OTI), Inc. G
Advanced Orthopedic Technologies (Parmeco), Inc. G
Advanced Orthopedic Technologies (SFV), Inc. G
Advanced Orthopedic Technologies (Virginia), Inc. G
Advanced Orthopedic Technologies (West Virginia), Inc. G
Advanced Orthopedic Technologies Management Corp. G
Affiliated Physical Therapists, Ltd. G
American Rehabilitation Center, Inc. G
American Rehabilitation Clinic, Inc. G
American Rehabilitation Systems, Inc. G
Artificial Limb and Brace Center G
Athens Sports Medicine Clinic, Inc. G
Ather Sports Injury Clinic, Inc. G
Atlanta Prosthetics, Inc. G
Atlantic Health Group, Inc. G
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
<S> <C>
Atlantic Rehabilitation Services, Inc. G
Boca Rehab Agency, Inc. G
Bowman-Shelton Orthopedic Service, Incorporated G
Buendel Physical Therapy, Inc. G
C.E.R. - West, Inc. G
Cahill Orthopedic Laboratory, Inc. G
Cannon & Associates, Inc. G
Cenla Physical Therapy & Rehabilitation Agency, Inc. G
Center for Evaluation & Rehabilitation, Inc. G
Center for Physical Therapy and Sports Rehabilitation, Inc. G
CenterTherapy, Inc. G
Certified Orthopedic Appliance Co., Inc. G
Central Missouri Rehabilitation Services, Inc. G
Central Missouri Therapy, Inc. G
Central Valley Prosthetics & Orthotics, Inc. G
Champion Physical Therapy, Inc. G
CMC Center Corporation G
Coplin Physical Therapy Associates, Inc. G
Crowley Physical Therapy Clinic, Inc. G
Dale Clark Prosthetics, Inc. G
Douglas Avery and Associates, Ltd. G
Douglas C. Claussen, R.P.T., Physical Therapy, Inc. G
E.A. Warnick-Pomeroy Co., Inc. G
Elk County Physical Therapy, Inc. G
Fine, Bryant & Wah, Inc. G
Francis Naselli, Jr. & Stewart Rich Physical Therapists, Inc. G
Frank J. Malone & Son, Inc. G
Fresno Orthopedic Company G
Gallery Physical Therapy Center, Inc. G
Georgia Health Group, Inc. G
Georgia Physical Therapy of West Georgia, Inc. G
Georgia Physical Therapy, Inc. G
Greater Sacramento Physical Therapy Associates, Inc. G
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
<S> <C>
Grove City Physical Therapy and Sports Medicine, Inc. G
Gulf Breeze Physical Therapy, Inc. G
Gulf Coast Hand Specialists, Inc. G
Hand Therapy and Rehabilitation Associates, Inc. G
Hand Therapy Associates, Inc. G
Hangtown Physical Therapy, Inc. G
Hawley Physical Therapy, Inc. G
Heartland Rehabilitation, Inc. G
High Desert Institute of Prosthetics & Orthotics G
Human Performance and Fitness, Inc. G
Indianapolis Physical Therapy and Sports Medicine, Inc. G
Industrial Health Care Company, Inc. G
J.E. Hanger, Incorporated G
JOYNER SPORTS SCIENCE INSTITUTE, Inc. G
JOYNER SPORTSMEDICINE INSTITUTE, INC. G
Kentucky Rehabilitation Services, Inc. G
Kesinger Physical Therapy, Inc. G
Kroll's, Inc. G
Lynn M. Carlson, Inc. G
McKinney Prosthetics/Orthotics, Inc. G
Mark Butler Physical Therapy Center, Inc. G
Meadowbrook Orthopedics, Inc. G
Medical Arts O&P Services, Inc. G
Medical Plaza Physical Therapy, Inc. G
Metro Rehabilitation Services, Inc. G
Michigan Therapy Centre, Inc. G
MidAtlantic Health Group, Inc. G
Mill River Management, Inc. G
Mitchell Tannenbaum I, Inc. G
Mitchell Tannenbaum II, Inc. G
Mitchell Tannenbaum III, Inc. G
Monmouth Rehabilitation, Inc. G
New England Health Group, Inc. G
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
<S> <C>
New Mexico Physical Therapists, Inc. G
Northland Regional Orthotic and Prosthetic Center, Inc. G
Northside Physical Therapy, Inc. G
NovaCare (Arizona), Inc. G
NovaCare (Colorado), Inc. G
NovaCare (Texas), Inc. G
NovaCare Management Company, Inc. G
NovaCare Management Services, Inc. G
NovaCare Northside Therapy, Inc. G
NovaCare Occupational Health Services, Inc. G
NovaCare Orthotics & Prosthetics East, Inc. G
NovaCare Orthotics & Prosthetics Holdings, Inc. G
NovaCare Orthotics & Prosthetics West, Inc. G
NovaCare Orthotics & Prosthetics, Inc. G
NovaCare Outpatient Rehabilitation East, Inc. G
NovaCare Outpatient Rehabilitation I, Inc. G
NovaCare Outpatient Rehabilitation West, Inc. G
NovaCare Outpatient Rehabilitation, Inc. G
NovaCare Rehab Agency of Alabama, Inc. G
NovaCare Rehab Agency of Arkansas, Inc. G
NovaCare Rehab Agency of Florida, Inc. G
NovaCare Rehab Agency of Georgia, Inc. G
NovaCare Rehab Agency of Illinois, Inc. G
NovaCare Rehab Agency of Kansas, Inc. G
NovaCare Rehab Agency of Lubbock, Inc. G
NovaCare Rehab Agency of Michigan, Inc. G
NovaCare Rehab Agency of Missouri, Inc. G
NovaCare Rehab Agency of New Jersey, Inc. G
NovaCare Rehab Agency of North Carolina, Inc. G
NovaCare Rehab Agency of Northern California, Inc. G
NovaCare Rehab Agency of Ohio, Inc. G
NovaCare Rehab Agency of Oklahoma, Inc. G
NovaCare Rehab Agency of Oregon, Inc. G
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
<S> <C>
NovaCare Rehab Agency of Pennsylvania, Inc. G
NovaCare Rehab Agency of Reno, Inc. G
NovaCare Rehab Agency of San Antonio, Inc. G
NovaCare Rehab Agency of San Diego, Inc. G
NovaCare Rehab Agency of South Carolina, Inc. G
NovaCare Rehab Agency of Southern California, Inc. G
NovaCare Rehab Agency of Tennessee, Inc. G
NovaCare Rehab Agency of Virginia, Inc. G
NovaCare Rehab Agency of Washington, Inc. G
NovaCare Rehab Agency of Wyoming, Inc. G
NovaCare Rehabilitation Agency of Wisconsin, Inc. G
NovaCare Rehabilitation, Inc. G
NovaCare Service Corp. G
Opus Care, Inc. G
Ortho East, Inc. G
Ortho Rehab Associates, Inc. G
Ortho-Fab Laboratories, Inc. G
Orthopedic Appliances, Inc. G
Orthopedic and Sports Physical Therapy of Cupertino, Inc. G
Orthopedic Rehabilitative Services, Ltd. G
Orthotic & Prosthetic Rehabilitation Technologies, Inc. G
Orthotic and Prosthetic Associates, Inc. G
Orthotic Specialists, Inc. G
Peter Trailov R.P.T. Physical Therapy Clinic, Orthopaedic G
Rehabilitation & Sports Medicine, Ltd.
Peters, Starkey & Todrank Physical Therapy Corporation G
Physical Focus Inc. G
Physical Rehabilitation Partners, Inc. G
Physical Restoration Laboratories, Inc. G
Physical Therapy Clinic of Lee's Summit, Inc. G
Physical Therapy Enterprises, Inc. G
Physical Therapy Institute, Inc. G
Physical Therapy Services of the Jersey Cape, Inc. G
Pro Active Therapy, Inc. G
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
<S> <C>
Professional Orthotics and Prosthetics, Inc. G
Professional Orthotics and Prosthetics, Inc. of Santa Fe G
Professional Therapeutic Services, Inc. G
Progressive Orthopedic G
Prosthetics-Orthotics Associates, Inc. G
Protech Orthotic and Prosthetic Center, Inc. G
Quad City Management, Inc. G
RCI (Colorado), Inc. G
RCI (Exertec), Inc. G
RCI (Illinois), Inc. G
RCI (Michigan), Inc. G
RCI (S.P.O.R.T.), Inc. G
RCI (WRS), Inc. G
RCI Nevada, Inc. G
Rebound Oklahoma, Inc. G
Redwood Pacific Therapies, Inc. G
Rehab Provider Network of Florida, Inc. G
Rehab Provider Network - New Jersey, Inc. G
Rehab Provider Network - California, Inc. G
Rehab Provider Network - Delaware, Inc. G
Rehab Provider Network - Georgia, Inc. G
Rehab Provider Network - Illinois, Inc. G
Rehab Provider Network - Indiana, Inc. G
Rehab Provider Network - Maryland, Inc. G
Rehab Provider Network - Michigan, Inc. G
Rehab Provider Network - Ohio, Inc. G
Rehab Provider Network - Oklahoma, Inc. G
Rehab Provider Network - Virginia, Inc. G
Rehab Provider Network - Washington, D.C., Inc. G
Rehab Provider Network - Pennsylvania, Inc. G
Rehab Provider Network of Colorado, Inc. G
Rehab Provider Network of Nevada, Inc. G
Rehab Provider Network of New Mexico, Inc. G
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
<S> <C>
Rehab Provider Network of North Carolina, Inc. G
Rehab Provider Network of Texas, Inc. G
Rehab Provider Network of Wisconsin, Inc. G
Rehab World, Inc. G
Rehab/Work Hardening Management Associates, Ltd. G
RehabClinics (COAST), Inc. G
RehabClinics (GALAXY), Inc. G
RehabClinics (New Jersey), Inc. G
RehabClinics (PTA), Inc. G
RehabClinics (SPT), Inc. G
RehabClinics Abilene, Inc. G
RehabClinics Dallas, Inc. G
RehabClinics Pennsylvania, Inc. G
Rehabilitation Fabrication, Inc. G
Rehabilitation Management, Inc. G
Reid Medical Systems, Inc. G
Robert M. Bacci, R.P.T. Physical Therapy, Inc. G
Robin Aids Prosthetics, Inc. G
S.T.A.R.T., Inc. G
Salem Orthopedic & Prosthetic, Inc. G
San Joaquin Orthopedic, Inc. G
Scott G. Knoche, Inc. G
SG Rehabilitation Agency, Inc. G
SG Speech Associates, Inc. G
Sierra Nevada Physical Therapy Corporation G
South Jersey Physical Therapy Associates, Inc. G
South Jersey Rehabilitation and Sports Medicine Center, Inc. G
Southern Illinois Prosthetic & Orthotic, Ltd. G
Southern Illinois Prosthetic & Orthotic of Missouri, Ltd. G
Southpointe Fitness Center, Inc. G
Southwest Emergency Associates, Inc. G
Southwest Medical Supply Company G
Southwest Physical Therapy, Inc. G
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
<S> <C>
Southwest Therapists, Inc. G
Sporthopedics Sports and Physical Therapy Centers, Inc. G
Sports Therapy and Arthritis Rehabilitation, Inc. G
Star Physical Therapy Inc. G
Stephenson-Holtz, Inc. G
T.D. Rehab Systems, Inc. G
Texoma Health Care Center, Inc. G
The Center for Physical Therapy and Rehabilitation, Inc. G
The Orthopedic Sports and Industrial Rehabilitation Network, Inc. G
Theodore Dashnaw Physical Therapy, Inc. G
Treister, Inc. G
Tucson Limb & Brace, Inc. G
Union Square Center for Rehabilitation & Sports Medicine, Inc. G
University Orthotic and Prosthetic Consultants, Ltd. G
Valley Group Physical Therapists, Inc. G
Vanguard Rehabilitation, Inc. G
Wayzata Physical Therapy Center, Inc. G
West Side Physical Therapy, Inc. G
West Suburban Health Partners, Inc. G
Western Missouri Rehabilitation Services, Inc. G
Western Rehab Services, Inc. G
Worker Rehabilitation Services, Inc. G
Yuma Rehabilitation Center, Inc. G
A.D. Craig (A.D. Craig Company is general partner) G
Advanced Orthopedic Services, Ltd. (RehabClinics Dallas, G
Inc. is general partner)
Craig Weymouth Enterprises (A.D. Craig Company is general G
partner)
Land Park Physical Therapy (Union Square Center for Rehabilitation G
& Sports Medicine, Inc. is general partner)
NovaPartners (IND), LP (NovaCare, Inc. (a Pennsylvania G
corporation) is general partner)
</TABLE>
<PAGE> 38
SCHEDULE B
BORROWER ("B")/
ENTITY GUARANTOR ("G")
------ ---------------
NovaFunds, Inc. B
NC Cash Management, Inc. G
NC Resources, Inc. G
NovaMark, Inc. G
NovaStock, Inc. G
<PAGE> 39
SCHEDULE 8.02(i)(v)
Restricted Investments in Excluded Entities
Name of Restricted Investment
Excluded Entity as of March 25,1999
--------------- -------------------
<PAGE> 40
EXHIBIT I
AMENDMENT FEES TO BANKS APPROVING AMENDMENT
<TABLE>
<CAPTION>
Bank Amendment Fee*
---- --------------
<S> <C>
PNC Bank, National Association $ 60,000
First Union National Bank $ 46,500
Fleet National Bank $ 46,500
Mellon Bank, N.A $ 46,500
NationsBank, N.A $ 46,500
Bank One, Kentucky, NA $ 34,125
Credit Lyonnais New York Branch $ 34,125
Cooperatieve Centrale Raiffeisen-Boerenleenbank $ 34,125
B.A., "Rabobank Nederland", New York Branch
Toronto Dominion (Texas), Inc. $ 34,125
The Bank of New York $ 30,000
SunTrust Bank, Central Florida, N.A $ 30,000
AmSouth Bank $ 22,500
Bank of America NT & SA $ 22,500
Bank of Tokyo - Mitsubishi Trust Company $ 22,500
Comerica Bank $ 22,500
Crestar Bank $ 22,500
The Fuji Bank, Limited New York Branch $ 22,500
The Tokai Bank, Limited New York Branch $ 22,500
</TABLE>
* fee paid only to banks approving the Amendment
<PAGE> 1
Exhibit 10(c)
NOVACARE, INC.
1016 WEST NINTH AVENUE
KING OF PRUSSIA, PA 19406
Dated as of April 19, 1999
PNC Bank, National Association,
as Agent
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Attn: Frank Taucher, Senior Vice President
RE: Twentieth Amendment to Credit Agreement (the "Twentieth Amendment")
Dear Frank:
We refer to that certain Credit Agreement, dated as of May 27, 1994, as
amended (the "Credit Agreement"), by and among NovaCare, Inc. ("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 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. Amendments to Credit Agreement.
(a) Section 1.01 [Certain Definitions] of the Credit Agreement is hereby
amended by the deletion of the definition of the terms "Consolidated Cash Flow
from Operations," "Consolidated Funded Debt," "Consolidated Earnings Available
for Fixed Charges," "Consolidated Fixed Charges," "Minimum Net Worth
Requirement," "Permitted Additional Institutional Indebtedness," and "Permitted
Additional Subordinated Indebtedness" and the addition of the following new
definitions:
"Facility Usage Default shall have the meaning assigned to such term
in Section 8.01(m)(vii)."
"Forecast Extension shall have the meaning assigned to such term in
Section 8.01(m)(vii)."
<PAGE> 2
"Forecast Reconciliation shall have the meaning assigned to such
term in Section 8.01 (m)(vii)."
"Initial Cash Flow Forecast shall mean that certain cash flow
forecast, delivered to the Agent and the Banks on April 9, 1999, detailing for
each week in the thirteen week period beginning April 12, 1999, the projected
cash flow of NovaCare and its Subsidiaries, without regard to either any updates
thereto or any Forecast Extensions thereto."
"Long Term Care Business shall mean with respect to NovaCare and its
Subsidiaries the business of providing rehabilitation therapy and health
consulting services on a contract basis to health care institutions, primary
long term care facilities and acute care hospitals."
"Net Cash Proceeds shall mean, with respect to any transaction, an
amount equal to the cash proceeds received by NovaCare or any of its
Subsidiaries from or in respect of such transaction (including, when received,
any cash proceeds received as income or other cash proceeds of any non-cash
proceeds of such transaction), less any amounts approved by the Agent which are
considered appropriate by the chief financial officer of the Borrowers to
provide reserves in accordance with GAAP for payment of indemnities or
liabilities that may be incurred in connection with such sale or disposition. At
such time as any reserved amount described above is no longer required to be
held in reserve, the balance thereof, after payment of the related liabilities
or indemnities, shall be used to make a mandatory prepayment of the Revolving
Credit Loans and a mandatory permanent reduction of the Commitments in
accordance with Section 5.05. It is expressly agreed that taxes, commissions,
investment banking fees or other transaction costs shall not reduce cash
proceeds received by NovaCare or any of its Subsidiaries for purposes of
determining the Net Cash Proceeds from any transaction."
"O&P Sale Agreement shall mean that certain Stock Purchase Agreement
by and among NovaCare, NC Resources, Hangar Orthopedic Group, Inc., and HPO
Acquisition Corp., dated as of April 2, 1999, as thereafter amended as permitted
by Section 8.02(e), which provides for an O&P Sale."
"O&P Sale Date shall mean the date of the O&P Sale."
"O&P Sale shall mean that certain transaction pursuant to which
NovaCare and its Subsidiaries shall have sold all of their ownership interests
in the Orthotics and Prosthetics Business."
"O&P Sale Termination Date shall mean the date which is the tenth
day following the termination, for any reason, of the O&P Sale Agreement."
"Orthotics and Prosthetics Business shall mean with respect to
NovaCare and its Subsidiaries the business of providing orthotic rehabilitation
and prosthetic rehabilitation services usually on an outpatient basis which
currently is conducted through NovaCare Orthotic and Prosthetics, Inc. and its
Subsidiaries."
-2-
<PAGE> 3
"Projected Facility Usage shall have the meaning assigned to such
term in Section 8.01 (m)(vii)."
"Reduced Facility shall mean that certain revolving credit facility,
resulting from the amendment and restatement of this Agreement on terms and
conditions (including, without limitation a borrowing base and affirmation of
the security interest in all assets of the Loan Parties) approved by the Agent
and the Required Banks (other than the amount of such facility which shall
require the approval of the Supermajority Required Banks), applicable for the
period commencing on the date provided therein through and including the
Expiration Date, with maximum Commitments during such period not to exceed
$90,000,000 or such lesser amount (which shall not be less than $50,000,000) as
the amount of such facility shall be approved by the Supermajority Required
Banks."
"Required Report Date shall have the meaning assigned to such term
in Section 8.01(m)(vii).
"Rolling Cash Flow Forecast shall mean the Initial Cash Flow
Forecast, together with each Forecast Extension thereto delivered in accordance
with Section 8.01(m)(vii)."
"Supermajority Required Banks shall mean (i) if there are no
Revolving Credit Loans outstanding Banks whose Revolving Credit Commitments
aggregate at least 66 2/3% of the Revolving Credit Commitments of all of the
Banks, or (ii) if there are Revolving Credit Loans outstanding, Banks whose
Revolving Credit Loans outstanding aggregate at least 66 2/3% of the total
amount of the Revolving Credit Loans outstanding hereunder."
"Twentieth Amendment Effective Date shall mean as of April 19, 1999
which is the effective date of the Twentieth Amendment to this Agreement."
"U.S. shall mean the United States of America."
(b) Section 1.01 [Certain Definitions] of the Credit Agreement is hereby
amended by restating in its entirety the definition of the terms "Commitments,"
"Expiration Date," "Material Adverse Change," "Revolving Credit Commitment," and
"Revolving Facility Usage" to read as follows:
"Commitments shall mean Revolving Credit Commitments, and Commitment shall
mean Revolving Credit Commitment, as such amounts may be reduced or increased
from time to time in accordance with this Agreement."
"Expiration Date shall mean, with respect to the Revolving Credit
Commitments, December 31, 1999."
"Material Adverse Change shall mean any set of circumstances or events
which (a) has or could reasonably be expected to have any material adverse
effect whatsoever upon the validity or enforceability of this Agreement or any
other Loan Document, (b) is or could reasonably be
-3-
<PAGE> 4
expected to be material and adverse to the business, properties, assets,
financial condition, results of operations or prospects of the Loan Parties
taken as a whole, (c) impairs materially or could reasonably be expected to
impair materially the ability of any one or more Loan Parties to duly and
punctually pay or perform Indebtedness in principal amount in excess of
$1,000,000 in the aggregate, (d) impairs materially or could reasonably be
expected to impair materially the ability of the Agent or any of the Banks, to
the extent permitted, to enforce its legal remedies pursuant to this Agreement
or any other Loan Document, or (e) has impaired or could impair in the judgment
of the Required Banks the Borrowers' ability to make mandatory repayments of the
Loans in order that the Revolving Facility Usage does not exceed on and after
the date specified in Section 5.05(c) the maximum Revolving Facility Usage
permitted by or the reduced Commitments set forth in such Section."
"Revolving Credit Commitment shall mean as to any Bank at any time, the
amount initially set forth opposite its name on Schedule 1.01(B) hereto in the
column labeled "Amount of Commitment for Revolving Credit Loans," and thereafter
on Schedule 1 to the most recent Assignment and Assumption Agreement, and
Revolving Credit Commitments shall mean the aggregate Revolving Credit
Commitments of all of the Banks, as such amounts may be reduced or increased
from time to time in accordance with this Agreement."
"Revolving Facility Usage shall mean at any time the aggregate of the
Revolving Credit Loans outstanding and the Letters of Credit Outstanding."
(c) Section 2.01 [Revolving Credit Borrowing] is hereby renamed
"[Revolving Credit Borrowing; Limitations on Revolving Facility Usage]."
Further, the first sentence of Section 2.01 is hereby amended by inserting "(a)"
before the first word thereof. Section 2.01 is further amended by inserting the
following new subsection "(b)" as a new paragraph after the third sentence of
such Section:
"(b) Notwithstanding the provisions of subsection (a) above, the
following limitations on the Revolving Facility Usage shall apply. During
the period commencing on April 19, 1999 through and including 11:59 p.m.
on May 31, 1999, the Borrowers shall not request Revolving Credit Loans or
the issuance of Letters of Credit which would result in the Revolving
Facility Usage exceeding $375,000,000, and the Banks shall not be
obligated to fund any Revolving Credit Loans or to issue any Letter of
Credit which would result in the Revolving Facility Usage exceeding
$375,000,000. During the period commencing on June 1, 1999 through and
including the earlier of the O&P Sale and 11:59 p.m. on July 9, 1999, the
Borrowers shall not request Revolving Credit Loans or the issuance of
Letters of Credit which would result in the Revolving Facility Usage
exceeding $400,000,000, and the Banks shall not be obligated to fund any
Revolving Credit Loans or to issue any Letter of Credit which would result
in the Revolving Facility Usage exceeding $400,000,000. During the period
commencing on the earlier of the O&P Sale and July 10, 1999 through and
including the Expiration Date, the Borrowers shall not request Revolving
Credit Loans or the issuance of Letters of Credit which would result in
the Revolving Facility Usage exceeding $50,000,000, and the Banks shall
not be obligated to fund any Revolving Credit Loans or to issue any Letter
of Credit which would result in the
-4-
<PAGE> 5
Revolving Facility Usage exceeding $50,000,000. The Borrowers shall make a
mandatory repayment of principal, whether or not the Agent has given
notice to such effect, in order that the Revolving Facility Usage during
any period does not exceed the amount during such period as specified
above."
(d) The first sentence of Section 2.03 [Commitment Fees; Closing Fees]
of the Credit Agreement is amended and restated in its entirety to read as
follows:
"The Borrowers, jointly and severally, agree to pay to the Agent for
the account of each Bank, as consideration for such Bank's Revolving
Credit Commitment hereunder, a commitment fee (the "Commitment Fee") equal
to, during the period commencing on April 19, 1999 and thereafter, a rate
per annum (computed on the basis of a year of 365 days or 366 days, as the
case may be, and actual days elapsed) equal to 0.500% of the average daily
difference between the unborrowed amount of such Bank's Revolving Credit
Commitment as the same may be constituted from time to time and such
Bank's Ratable Share of Letters of Credit Outstanding."
The second and third sentences of Section 2.03 and the table immediately
following the third sentence are hereby deleted.
(e) Clause (iii) of Section 2.08 is amended and restated in its entirety
to read as follows:
"(iii) general corporate purposes, provided, however, that no
portion of the Revolving Credit Loans shall be used directly or indirectly
for the purpose of prepaying, purchasing, repaying or redeeming any
Subordinated Indebtedness."
(f) Clause (a) of Section 2.09 [Letter of Credit Subfacility] is amended
and restated in its entirety to read as follows:
"(a) NovaCare as agent for any Borrower may request the issuance
of, on the terms and conditions hereinafter set forth, standby letters of
credit (together with all letters of credit issued hereunder prior to the
Twentieth Amendment Effective Date each a "Letter of Credit" and
collectively, "Letters of Credit") by delivering to the Agent a completed
application and agreement for letters of credit in such form as the Agent
may specify from time to time by no later than 10:00 a.m., Pittsburgh
time, at least three (3) Business Days, or such shorter period as may be
agreed to by the Agent, in advance of the proposed date of issuance.
Subject to the terms and conditions hereof and in reliance on the
agreements of the other Banks set forth in this Section 2.09, the Agent
will issue a Letter of Credit provided that each Letter of Credit shall
(A) have a maximum maturity of
-5-
<PAGE> 6
twelve (12) months from the date of issuance, and (B) in no event expire
later than ten (10) Business Days prior to the Expiration Date and
providing that in no event shall (i) the Letters of Credit Outstanding
exceed, at any one time, $5,000,000, or (ii) the Revolving Facility Usage
exceed, at any one time, the Revolving Credit Commitments. Schedule 2.09
hereto lists letters of credit which PNC Bank issued for the accounts of
certain of the Loan Parties prior to the date hereof and which shall
remain outstanding after the Closing Date (the "Existing Letters of
Credit"). Each Existing Letter of Credit shall be a Letter of Credit
hereunder on and after the Closing Date and the provisions of this Section
2.09 shall apply to such Existing Letter of Credit. Schedule 2.09(B)
hereto lists each Letter of Credit, existing on the Twentieth Amendment
Effective Date the term of which expires later than ten (10) Business Days
prior to the Expiration Date (the "Collateralized Letters of Credit"). On
the Twentieth Amendment Effective Date the Loan Parties shall deposit
cash, as cash collateral, to an account owned by the Agent for the benefit
of the Banks from which account the Agent alone shall have sole power of
withdrawal (the "Letter of Credit Cash Collateral Account") in an amount
equal to 105% of the maximum amount available to be drawn under the
Collateralized Letters of Credit. Each Loan Party hereby agrees and
directs the Agent to apply, from the Letter of Credit Cash Collateral
Account, the amount of each of the Collateralized Letters of Credit upon
presentation thereof for draw, and to also apply from the Letter of Credit
Cash Collateral Account any other amounts necessary to reimburse the Agent
and the Banks for any other payments made or to be made or costs or
interest incurred (including, without limitation, interest, fees, and the
amount that the Agent estimates will be necessary to cover expenses and
legal fees) in connection with such of the Collateralized Letters of
Credit presented for draw by the Agent under such Collateralized Letters
of Credit. Each of the Loan Parties to secure the Reimbursement
Obligations and all of the other obligations of the Loan Parties under the
Loan Documents hereby pledges all of its rights and interests in the
Letter of Credit Cash Collateral Account and all proceeds arising
therefrom to the Agent for the benefit of the Banks.
Subsections (b), (d), (e), (f), (g), (j), (k) and (l) of Section
2.09 [Letter of Credit Subfacility] are amended by deleting the word
"Borrower" for each occurrence of such term and inserting in lieu thereof
the word "Borrowers". Subsection (d) of Section 2.09 is hereby further
amended by deleting the word "fails" in the third sentence and inserting
in lieu thereof the word "fail". Subsection (f) of Section 2.09 is hereby
further amended by deleting the words "the Borrower's" in the first
sentence and inserting in lieu thereof the words "any Borrowers'".
(g) Clause (i) [Revolving Credit Base Rate Option] of subsection (a)
[Revolving Credit Interest Rate Options] of Section 4.01 [Interest Rate Options]
is amended and restated in its entirety to read as follows:
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"(i) Revolving Credit Base Rate Option. A fluctuating rate per annum
(computed on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed) equal to, the Base Rate plus 1.50% such rate to
change automatically from time to time effective as of the effective date
of each change in the Base Rate."
(h) The first sentence of clause (ii) [Revolving Credit Euro-Rate
Option] of subsection (a) [Revolving Credit Interest Rate Options] of Section
4.01 [Interest Rate Options] is amended and restated in its entirety to read as
follows:
"A rate per annum (computed on the basis of a year of 360 days and
actual days elapsed), equal to the Euro-Rate plus 3.00%."
The remainder of Section 4.01(a)(ii) and the two tables in such Section
are deleted in their entirety.
(i) In Section 5.05 the word "[Reserved]" is hereby deleted and the
following is inserted in lieu thereof:
"Mandatory Repayments; Mandatory Commitment Reduction.
(a) O&P Sale. Notwithstanding the ability, if any, of any Borrower
to borrow hereunder, NovaCare shall cause Net Cash Proceeds of the O&P
Sale to be paid by the purchaser of the Orthotics and Prosthetics Business
on the O&P Sale Date, in an amount, directly to the Agent as a mandatory
repayment of the Loans, such that (i) all outstanding Loans, together with
accrued interest thereon are repaid in full and (ii) a deposit is made in
an account with the Agent, as cash collateral, for all outstanding Letters
of Credit (other than those Letters of Credit listed on Schedule 2.09(B)
for which cash collateral, in accordance with Section 2.09, was provided
to the Agent on the Twentieth Amendment Effective Date).
(b) Other Asset Sales. To the extent that NovaCare or any
Subsidiary of NovaCare sells or transfers assets (other than as
contemplated by the Initial Cash Flow Forecast ) (i) with a Sale Price for
an individual sale or transfer transaction in excess of $250,000 or (ii)
with a Sale Price for an individual sale or transfer transaction which
together with the Sale Price for all sale or transfer transactions that
occurred in the same calendar month would result in the aggregate Sales
Prices for all sale and transfer transactions in such month exceeding
$750,000, then NovaCare shall cause the entire Net Cash Proceeds from all
of such sale or transfer transactions to be used immediately to make a
mandatory repayment of the Loans in an amount equal to the Net Cash
Proceeds from each sale and/or transfer transaction(s) and the amount of
such repayment shall automatically and permanently reduce the Commitments.
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<PAGE> 8
(c) Mandatory Commitment Reduction. The aggregate Commitments
shall be automatically and permanently reduced to $90,000,000 on the
earlier of the O&P Sale and July 10, 1999. The Borrowers shall make
mandatory repayments of the Loans, whether or not the Agent has given
notice to such effect, so that the Revolving Facility Usage on such date
of reduction of the Commitments does not exceed $50,000,000.
(d) Application Among Interest Rate Options. All repayments
required pursuant to this Section 5.05 shall first be applied among the
Loans subject to the Base Rate Option, then to Loans subject to a
Euro-Rate Option. In accordance with Section 5.06(b) [Indemnity], the Loan
Parties shall indemnify the Banks for any loss or expense, including loss
of margin, incurred with respect to any such repayments applied against
Loans subject to a Euro-Rate Option on any day other than the last day of
the applicable Interest Period."
(j) The second sentence of Section 6.01(i)(C) [Accuracy of Financial
Statements] is hereby amended and restated in its entirety to read as follows:
"Except as set forth on Schedule 6.01(i)(C), since June 30, 1997, no
Material Adverse Change has occurred."
(k) Section 8.01(k) [Further Assurances], is hereby amended and restated
in its entirety to read as follows:
Further Assurances. Each Loan Party shall, from time to time, at its
expense, faithfully preserve and protect the Agent's Lien on and Prior Security
Interest in the Collateral as a continuing first priority perfected Lien, and
shall do such other acts and things as the Agent in its sole discretion
reasonably may deem necessary or advisable from time to time in order to (i)
preserve, perfect and protect the Liens granted under the Loan Documents, (ii)
exercise and enforce its rights and remedies thereunder with respect to the
Collateral, (iii) cause all of the equity interests of all Loan Parties (other
than NovaCare) owned by another Loan Party to be pledged on a first priority
perfected basis to the Agent for the benefit of the Banks, and (iv) provide any
additional security interests, liens and pledges in any assets of the Loan
Parties as the Agent may specify from time to time.
(l) Section 8.01(1)(B) [Permitted Additional Subordinated Indebtedness]
is hereby deleted in its entirety.
(m) Subsection 8.01(m) [Certificates of Borrowers; Other Reports and
Information] is hereby amended by adding new clauses (vii), (viii), (ix), (x),
and (xi) as follows:
"(vii) Rolling Cash Flow Forecast. The Borrowers have delivered to
the Agent and the Banks the Initial Cash Flow Forecast, which is based
upon various assumptions of NovaCare's management and represents
reasonable possible results in light of the condition of the business of
NovaCare and its Subsidiaries as
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<PAGE> 9
of the Twentieth Amendment Effective Date and as foreseeable as of such
date including the intentions of NovaCare's management. Such forecast
shall accurately reflect the liabilities of NovaCare and its Subsidiaries
during the period thereof. Beginning on April 23, 1999 and every two weeks
thereafter (for example, without limitation, May 7, 1999, May 21, 1999,
June 4, 1999, June 18, 1999, etc.) (the date of each two week anniversary
being a "Required Report Date"), the Borrowers shall deliver to the Agent
and the Banks: (i) updates for periods following the applicable Required
Report Date, to the Rolling Cash Flow Forecast, if needed, to give effect
to any differences in actual results of operations of NovaCare and its
Subsidiaries, (ii) a cash flow forecast of NovaCare and its Subsidiaries
for an additional two week period immediately following the period which
is the last day of the Rolling Cash Flow Forecast then provided to the
Agent and the Banks so that at all times the Agent and the Banks have a
Rolling Cash Flow Forecast covering a thirteen week period (each such two
week extension to the Rolling Cash Flow Forecast being a "Forecast
Extension"), and (iii) a reconciliation (each a "Forecast Reconciliation")
showing the difference between the actual Revolving Facility Usage on such
Required Report Date and the Revolving Facility Usage projected for such
date as set forth in the Initial Cash Flow Forecast (each projected amount
of a Revolving Facility Usage being the "Projected Facility Usage"), and
the difference between the actual line item amount as of such Required
Report Date and the projected line item amount as set forth in the Initial
Cash Flow Forecast (on a line by line basis with an explanation of
significant variances). If a Forecast Reconciliation shows that on any
Required Report Date the actual Revolving Facility Usage exceeded the
lesser of (i) the Revolving Facility Usage permitted by Section 2.01, and
(ii) the sum of $10,000,000 plus the applicable Projected Facility Usage,
then such event shall constitute a "Facility Usage Default." NovaCare
shall work with its accountants, PricewaterhouseCoopers LLP (or successor
thereto in accordance with this Agreement), so that such accountants shall
be reasonably available as the Agent or any Bank (or any financial advisor
to the Agent and the Banks) may request to review the Rolling Cash Flow
Forecast and the updates thereto.
(viii) Certain Projections. On or before June 1, 1999, NovaCare
shall deliver to the Agent and the Banks a cash flow forecast and
financial projections of NovaCare and its Subsidiaries for the period
beginning on July 1, 1999 and ending on the Expiration Date. Such forecast
and projections shall be based upon various assumptions of NovaCare's
management and represent reasonable possible results in light of the
condition of the business of NovaCare and its Subsidiaries as of such date
and as foreseeable as of such date including the intentions of NovaCare's
management. Such forecast and projections shall include any other
information reasonably requested by the Agent or any Bank, including,
without limitation, for purposes of determining the terms and provisions
of the Reduced Facility. NovaCare shall work with its accountants,
PricewaterhouseCoopers LLP, (or successor thereto in accordance with this
Agreement), so that such accountants shall be reasonably available as the
Agent
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<PAGE> 10
or any Bank (or any financial advisor to the Agent and the Banks) may
request to review such forecast and projections.
(ix) Repayment Plan. On or before September 15, 1999, NovaCare
shall deliver to the Agent and the Banks a formalized plan satisfactory to
the Required Banks for the repayment of the Revolving Facility Usage on
the Expiration Date. NovaCare shall work with its accountants,
PricewaterhouseCoopers LLP, (or successor thereto in accordance with this
Agreement), so that such accountants shall be reasonably available as the
Agent or any Bank (or any financial advisor to the Agent and the Banks)
may request to review such plan.
(x) Changes in Management. Within five (5) Business Days following
any change in employment status or the terms of employment of Timothy E.
Foster, James W. McLane or Robert E. Healy, Jr., NovaCare shall provide
notice thereof to the Agent and the Banks.
(xi) Termination of the O&P Sale Agreement. Promptly upon (i) any
Loan Party becoming aware that a termination could reasonably be
anticipated to occur, for any reason, of the O&P Sale Agreement or (ii)
the occurrence of the termination, for any reason, of the O&P Sale
Agreement, provide notice to the Agent and the Banks."
(n) Section 8.01 [Affirmative Covenants] is hereby amended to insert the
following new subsections "(n)" and "(o)":
"(n) Matters Regarding Certain Key Employees. On or before May 31,
1999, the Loan Parties shall have provided evidence to the Agent and the Banks
that the Loan Parties have entered into binding arrangements with Timothy E.
Foster, James W. McLane and Robert E. Healy, Jr., key management of the Loan
Parties, for the retention by the Loan Parties of such persons through at least
the Expiration Date.
(o) Cooperation with Agent. Each Loan Party shall and shall cause
its Subsidiaries and its independent public accountants to cooperate with the
Agent, the Banks and the financial advisors of the Agent and the Banks with
respect to review of the business affairs, finances, accounts and valuations of
the Loan Parties and their Subsidiaries."
(o) Subsection (a) [Indebtedness] of Section 8.02 [Negative Covenants]
is amended and restated to read as follows:
"(a) Indebtedness. Each Loan Party and its Subsidiaries shall not
at any time create, incur, assume or suffer to exist any Indebtedness, except:
(i) Indebtedness under the Loan Documents;
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<PAGE> 11
(ii) Existing Indebtedness which was set forth in the balance
sheet of the Loan Parties as of December 31, 1998; and
(iii) Permitted Intercompany Indebtedness provided, however,
that neither NovaCare nor any Subsidiary of NovaCare shall make any loans or
advances to NovaCare Employee Services, Inc."
(p) Subsection (c) [Guaranties] of Section 8.02 [Negative Covenants] is
hereby amended and restated to read as follows:
"(c) Guaranties. Each Loan Party shall not at any time,
directly or indirectly, become or be liable in respect of any Guaranty, or
assume, guarantee, become surety for, endorse or otherwise agree, become or
remain directly or contingently liable upon or with respect to any obligation or
liability of any other person which obligation or liability would be required to
be reported or noted in the financial statements of such Loan Party in
accordance with GAAP, except pursuant to (x) the Guaranty Agreement; or (y) any
Guaranty listed on Schedule 8.02(c)."
(q) Section 8.02(e) [Disposition of Assets or Subsidiaries] is hereby
amended by inserting in the first line of clause (iv) after the word "assets"
the words "for fair market value", by deleting the "." in the last line of
clause (iv) and inserting in lieu thereof a ";" and by inserting the following
new clauses (v) and (vi):
"(v) the O&P Sale so long as (v) such sale occurs substantially in
accordance with the O&P Sale Agreement, with any material changes to the
O&P Sale Agreement satisfactory to the Agent in its sole and absolute
discretion, (w) the closing of such sale is consummated on or before July
9, 1999 for Net Cash Proceeds of at least $395,000,000, (x) all of the
terms and provisions regarding payment of the Net Cash Proceeds by
NovaCare to the Agent for the benefit of the Banks and all provisions
regarding any release of collateral or any Guaranty in connection with the
sale shall be satisfactory to the Agent in its sole and absolute
discretion, (y) all investment banking and other similar fees in
connection with or related to, directly or indirectly, the O&P Sale are
paid following the payment required by the following clause (z) of this
Section 8.02(e)(v), and (z) all of the Net Cash Proceeds therefrom are
applied as a mandatory prepayment of the Loans and the Commitments are
reduced in accordance with Section 5.05; or
(vi) the sale, transfer or other disposition by NovaCare and its
Subsidiaries of the Long Term Care Business on terms and conditions
satisfactory to the Required Banks."
(r) The second sentence of Section 8.02(g) [Continuation of or Change in
Business] is hereby amended and restated in its entirety to read as follows:
"NovaCare shall not change its business materially after the Closing
Date, other than by selling, disposing or otherwise transferring the ownership
interests in the Orthotics and
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<PAGE> 12
Prosthetics Business or selling, disposing, otherwise transferring or exiting
from the Long Term Care Business, in either case in accordance with this
Agreement."
(s) Section 8.02(l) [Minimum Net Worth], Section 8.02(n) [Funded Debt to
Cash Flow from Operations] and Section 8.02(o) [Minimum Fixed Charge Coverage
Ratio] are hereby deleted in their entirety and inserted in lieu thereof after
the numerical reference to each such subsection are the words "[Intentionally
Omitted]."
(t) Section 8.02(p) [Changes in Subordinated Indebtedness Documents] is
hereby amended and restated in its entirety to read as follows:
"(p) Changes in Subordinated Indebtedness Documents. NovaCare shall
not, and shall not permit any Subsidiary to, amend or modify any
provisions of the Subordinated Indebtedness Documents without providing at
least fifteen (15) Business Days' prior written notice to the Agent and
the Banks, and obtaining the prior written consent of the Required Banks.
The Loan Parties shall not directly or indirectly make any payment or
other distribution directly or indirectly to the obligees under the
Subordinated Indebtedness, except for regularly scheduled mandatory
payments under the Subordinated Indebtedness Documents excluding any
mandatory payments required by reason of acceleration. It is expressly
agreed that no portion of the Revolving Credit Loans shall be used
directly or indirectly for the purpose of prepaying, repaying, purchasing
or redeeming any Subordinated Indebtedness."
(u) Section 9.01 [Events of Default] is hereby amended by deleting the
word "or" in the last line of clause (m), by deleting the "." in the last line
of clause (n) and inserting in lieu thereof a";" and by inserting the following
new clauses (o), (p) and (q):
"(o) A Material Adverse Change shall occur;
(p) The O&P Sale Termination Date shall occur; or
(q) A Facility Usage Default shall occur."
(v) Subsection (a) of Section 9.02 [Consequences of Event of Default] is
hereby amended by inserting in the second line immediately after the words "or
(n)" the words "through (q)".
(w) Subsection (e) of Section 9.02 [Consequences of Event of Default] is
hereby amended by deleting the word "Following" at the beginning of the first
sentence and inserting in lieu thereof the word "Upon" and deleting the word
"Pledged" preceding the word "Collateral" for each occurrence of the term
"Pledged Collateral" in such Section.
(x) Subsection (f) of Section 9.02 [Consequences of Event of Default] is
hereby amended by deleting the word "[Reserved]" and the following is inserted
in lieu thereof:
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<PAGE> 13
"(f) Upon the occurrence and during continuance of an Event of
Default, the Agent may request, without limiting the rights and remedies
of the Agent on behalf of the Banks otherwise provided hereunder and under
the other Loan Documents, that the Borrowers do any of the following: (i)
give the Agent on behalf of the Banks specific assignments of the accounts
receivable of the Borrowers and each of their Subsidiaries (other than the
Excluded Entities) after such accounts receivable come into existence, and
schedules of such accounts receivable, the form and content of such
assignment and schedules to be satisfactory to the Agent, (ii) immediately
notify the Agent if any of such accounts receivable arise out of contracts
with the U.S. Government or any department, agency or instrumentality
thereof, and execute any instruments and take any steps required by the
Agent in order that all moneys due and to become due under such contract
shall be assigned (to the extent permitted by law) to the Agent on behalf
of the Banks and notice thereof given to the government under the Federal
Assignment of Claims Act, if applicable, or any other applicable law or
regulation, in order to better secure the Agent on behalf of the Banks, in
relation to such accounts receivable, (iii) to the extent permitted by
Law, enter into such lockbox agreements and establish such lockbox
accounts as the Agent may require, with the local banks in areas in which
the Borrowers and their Subsidiaries (other than the Excluded Entities)
may be operating (in such cases, all local lockbox accounts shall be
depository transfer accounts entitled "In trust for PNC Bank, National
Association, as Agent") which shall have agreed in writing to the Agent's
requirements for the handling of such accounts and the transfer of account
funds to the Agent on behalf of the Banks, all at the Loan Parties' sole
expense, and shall direct all payments from Medicare, Medicaid, Blue Cross
and Blue Shield, private payors, health maintenance organizations, all
commercial payors and all other payors due to the Borrowers or any of
their Subsidiaries (other than the Excluded Entities), to such lockbox
accounts, (iv) notify all account debtors to make all payments due from
them to the Borrowers and their Subsidiaries (other than the Excluded
Entities) directly to a lockbox for collection pursuant to a lockbox
agreement, in form and substance acceptable to the Agent, (the "Cash
Collateral Account"), and (v) in the event any Borrower or any Subsidiary
of any Borrower (other than the Excluded Entities) or any of the
respective Affiliates, shareholders, directors, officers, employees, or
agents of any Borrower or any such Subsidiary acting for or in concert
with such Person shall receive any cash, checks, notes, drafts or other
similar items of payment relating to or constituting the Collateral (or
proceeds thereof), no later than the first Business Day following receipt
thereof, such Borrower or Subsidiary of a Borrower shall (A) deposit or
cause the same to be deposited, in kind, in the Cash Collateral Account
established by NovaCare with the Agent or such other depository as may be
designated in writing by the Agent (the "Depository"), from which account
the Agent alone shall have sole power of withdrawal, and with respect to
which the Depository shall waive any rights of set off, and (B) forward to
the Agent on a daily basis, a collection report in form and substance
satisfactory to the Agent and, at the Agent's request, copies of all such
items and
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<PAGE> 14
deposit slips related thereto. All cash, notes, checks, drafts or similar
items of payment by or for the account of the Borrowers and their
Subsidiaries (other than Excluded Entities) shall be the sole and
exclusive property of the Banks immediately upon the earlier of the
receipt of such items by the Agent or the Depository or the receipt of
such items by the Borrowers or their Subsidiaries (other than Excluded
Entities); provided, however, that for the purpose of computing interest
hereunder such items shall be deemed to have been collected and shall be
applied by the Agent on account of the Loans one (1) Business Day after
receipt by the Agent (subject to correction for any items subsequently
dishonored for any reason whatsoever). Notwithstanding anything to the
contrary herein, all such items of payment shall, solely for purposes of
determining the occurrence of an Event of Default, be deemed received upon
actual receipt by the Agent, unless the same are subsequently dishonored
for any reason whatsoever. All funds in the Cash Collateral Account,
including all payments made by or on behalf of and all credits due the
Borrowers or their Subsidiaries, may be applied and reapplied in whole or
in part to any of the Loans to the extent and in the manner the Agent
deems advisable."
(y) Subsection (g) of Section 9.02 [Consequences of Event of Default],
Section 9.03 [Notice of Sale] and Section 11.16 [Consent to Forum; Waiver of
Jury Trial] are hereby amended by deleting the word "Pledged" preceding the word
"Collateral" for each occurrence of the term "Pledged Collateral" in such
Sections.
(z) Subsections (b), (c) and (d) of Section 11.01 [Modifications,
Amendments or Waivers] are hereby amended and restated in their entirety to read
as follows:
"(b) Increase the amount of the Commitments or of any
Commitment, increase any dollar limitation set forth in Section 2.09(a)(i)
or whether or not any Revolving Credit Loans are outstanding, extend the
time for payment of principal or interest of any Revolving Credit Loan, or
reduce the principal amount of or reduce the rate of interest borne by any
Revolving Credit Loan (other than reductions, if any, of the interest rate
in effect on the Twentieth Amendment Effective Date, for purposes of
establishing the initial interest rates of the Reduced Facility, it being
expressly agreed that such reductions in the interest rate for
establishing the initial interest rates of the Reduced Facility,
notwithstanding this Section 11.01 (b) shall only require the approval of
the Required Banks, provided, that such initial interest rate is at least
equal to the Euro-Rate plus 2.0%), and prior to the effective date of the
Reduced Facility, increase the amounts of the Revolving Facility Usage;
(c) Except for sales or other transfers of assets permitted
by Section 8.02(e) (with respect to which the Agent may release such
collateral or Guaranty Agreement of a Guarantor in connection therewith
upon receipt by the Agent, to the Agent's satisfaction, of a certificate
of an Authorized Officer of NovaCare that after giving effect to such sale
or transfer no Potential Default or
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Event of Default exists or is continuing), release any collateral or other
security, including, without limitation, the Guaranties, if any, for any
Loan Party's obligations hereunder; or
(d) Amend this Section 11.01, change the definition of
Required Banks, change the definition of Supermajority Required Banks, or
change any requirement providing for the Banks, Required Banks, or
Supermajority Required Banks to authorize the taking of any action
hereunder."
(aa) Section 11.10 [Duration; Survival] is hereby amended by adding the
words "2.09 (including without limitation the Reimbursement Obligations),"
immediately after the word "Sections" in the last sentence thereof.
(bb) The second sentence of Section 11.11 [Successors and Assigns] is
hereby deleted in its entirety and the following is inserted in lieu thereof:
"Each Bank may, at its own cost, make assignments of or sell
participations in all or any part of its Revolving Credit Commitment and the
Loans made by it to one or more banks or other entities, subject, in the case of
assignment, to the consent of the Agent which shall not be unreasonably
withheld; provided that participations may be sold only to banks or other
financial institutions. Neither the consent of NovaCare nor the Agent is
required for any Bank to grant a participation in its Loans."
(cc) Clause (iii) of Section 11.12 [Confidentiality] is hereby amended by
inserting after the words "bank regulatory authority" the words ", insurance
company regulatory authority". Section 11.12 is further amended by deleting the
word "or" immediately before clause "(v)", by deleting the "." at the end of
clause (v) and inserting in lieu thereof ", or (vi) the National Association of
Insurance Commissioners or any similar organization, or any nationally
recognized rating agency that requires access to information about any Bank's
(or any permitted assignee of a Bank) investment portfolio."
2. Temporary Waiver of Certain Provisions of Credit Agreement.
The Agent on behalf of the Banks hereby extends the Waiver Period set
forth in Section 1 of the Nineteenth Amendment to Credit Agreement to end at
11:59 AM (Pittsburgh, Pennsylvania time) on April 22, 1999.
3. Other Matters.
(a) Each Loan Party acknowledges that it has no claim, counterclaim,
setoff, action or cause of action of any kind or nature whatsoever against all
or any of the Agent, the Banks or any of the Agent's or the Banks' directors,
officers, employees, agents, attorneys, legal representatives, successors and
assigns (the Agent, the Banks and their directors, officers, employees, agents,
attorneys, legal representatives, successors and assigns are collectively
referred to as the "Lender Group"), that directly or indirectly arise out of or
are based upon or in any manner connected with any "Prior Event" (as defined
below), and each Loan Party hereby
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<PAGE> 16
releases the Lender Group from any liability whatsoever should any nonetheless
exist with respect to such claims. As used herein the term "Prior Event" means
any transaction, event, circumstance, action, failure to act or occurrence of
any sort or type, whether known or unknown, which occurred, existed, was taken,
permitted or begun prior to the execution of this Twentieth Amendment and
occurred, existed, was taken, permitted or begun in accordance with, pursuant to
or by virtue of any terms of this Twentieth Amendment or any Loan Document or
oral or written agreement relating to any of the foregoing.
(b) Each Bank, by their execution of this Twentieth Amendment, hereby
approves the Reduced Facility (as such term is defined in Section 1(a) of this
Twentieth Amendment above).
(c) Schedule 2.09 (B) [Letters of Credit Expiring Beyond the Expiration
Date], Schedule 6.01(i)(C) [Certain Events Constituting a Material Adverse
Change] and Schedule 8.02(c) [Guaranties] are hereby added to the Credit
Agreement. Schedule 6.01(c) [Subsidiaries] and Exhibit 8.01(m)(iii) [Compliance
Certificate] are amended and restated in their entirety to read as attached
hereto.
4. Closing Fees and Post-Closing Matters.
The Borrowers jointly and severally agree to reimburse the Agent on
demand for all costs, expenses and disbursements relating to this Twentieth
Amendment which are payable by the Borrower as provided in Section 10.05 of the
Credit Agreement. In addition, the Borrowers shall pay to the Agent for the
benefit of the applicable Banks the fees identified in Exhibit I hereto as the
"Amendment Fee." The Borrowers shall promptly deliver such certificates,
resolutions and opinions in form and substance satisfactory to the Agent as the
Agent shall have reasonably requested from time to time. The Borrowers jointly
and severally agree to reimburse the Agent for the benefit of the Banks on
demand for all reasonable fees and out-of-pocket expenses of Blank Rome Comisky
& McCauley LLP, counsel to the Banks (or any substitute therefor), other local
counsel engaged by the Banks, any financial advisors and other experts engaged
by the Banks. On or before May 1, 1999, the Agent shall engage a financial
advisor, at the expense of the Borrowers, to review the financial condition of
NovaCare and its Subsidiaries, to undertake valuation or other matters requested
by the Agent in connection with the sale of any Collateral or other assets of
NovaCare or any of its Subsidiaries, and to undertake such other matters as the
Agent from time to time may request.
5. Conditions of Effectiveness.
The effectiveness of this Twentieth Amendment is expressly
conditioned upon the occurrence and completion of all of the following: (i)
receipt by the Agent on behalf of the Banks of the nonrefundable fees equal to
the aggregate of the amounts set forth on Exhibit I hereto; (ii) receipt by PNC
Capital Markets, Inc. of the nonrefundable fee due pursuant to that certain fee
letter dated March 30, 1999; (iii) payment by the Borrowers of all costs,
expenses and disbursements submitted on or before the date hereof to the
Borrowers pursuant to Section 3 hereof, and (iv) the Agent's receipt of
counterparts of this Twentieth Amendment duly executed by the Borrowers, the
Guarantors, the Agent and the Banks.
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This Twentieth Amendment shall be dated as of and shall be effective
as of the date and year first above written subject to satisfaction of all
conditions precedent to effectiveness as set forth in this Section 5, which date
shall be the Twentieth Amendment Effective Date.
6. Consent of Banks.
Pursuant to Section 11.01 of the Credit Agreement, this Twentieth
Amendment shall require the written consent of the Banks, which shall be
evidenced by the Banks' execution and delivery to the Agent of counterparts of
this Twentieth Amendment.
7. Full Force and Effect.
Each of the following documents, as amended through and including
this Twentieth Amendment, shall remain in full force and effect on and after the
date of this Amendment:
(a) the Credit Agreement, except as expressly modified
and amended by this Twentieth Amendment,
(b) each of the Schedules attached to the Credit
Agreement;
(c) each of the Exhibits attached to the Credit
Agreement; and
the Notes, the Guaranty Agreements, the Security Agreement, the
Pledge Agreements, the Agent's Fee Letter, the Subordination Agreement
(Intercompany), the Borrower Agency Agreement and all other Loan Documents.
On and after the date hereof, each reference in the Credit Agreement
to "this Agreement," "hereunder" or words of like import shall mean and be a
reference to the Credit Agreement, as previously amended and as amended by this
Twentieth Amendment, and each reference in each other Loan Document to the
"Credit Agreement" shall mean and be a reference to the Credit Agreement, as
previously amended and as amended by this Twentieth Amendment. No novation is
intended by this Twentieth Amendment.
The parties hereto do not amend or waive any provisions of the
Credit Agreement or the other Loan Documents except as expressly set forth
herein.
8. Counterparts.
This Twentieth 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.
9. Governing Law.
This Twentieth 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.
-17-
<PAGE> 18
[SIGNATURES BEGIN ON NEXT PAGE]
-18-
<PAGE> 19
[Signature Page 1 of 19 to Twentieth 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 BORROWERS and GUARANTORS
listed on Schedule A attached hereto
By: /s/ Richard S. Binstein By: /s/ Richard A. McDonald
------------------------------ ----------------------------------
Richard S. Binstein, Secretary Richard A. McDonald, the Vice
President of each Borrower and
Guarantor listed on Schedule A
attached hereto which is a corporation
and of each general partner of each
Guarantor listed on Schedule A
attached hereto which is a partnership
[Seal]
ATTEST: NOVAFUNDS, INC., a Delaware corporation,
and each of the GUARANTORS listed on
Schedule B attached hereto
By: /s/ Andrew T. Panaccione By: /s/ Robert C. Campbell
------------------------------ ----------------------------------
Andrew T. Panaccione, Secretary Robert C. Campbell, the Vice President
of each Borrower and Guarantor listed
on Schedule B attached hereto
[Seal]
- ------------------------------
<PAGE> 20
[Signature Page 2 of 19 to Twentieth Amendment]
AGENT:
PNC BANK, NATIONAL ASSOCIATION, as Agent
By: /s/ Roland Taub
----------------------------------
Title: SVP
BANKS:
PNC BANK, NATIONAL ASSOCIATION
By: /s/
----------------------------------
Title: SVP
<PAGE> 21
[Signature Page 3 of 19 to Twentieth Amendment]
FIRST UNION NATIONAL BANK
By: /s/ Elizabeth D. Morris
----------------------------------
Name: Elizabeth D. Morris
Title: Vice President
<PAGE> 22
[Signature Page 4 of 19 to Twentieth Amendment]
FLEET NATIONAL BANK
By: /s/ Fred N. Manning
----------------------------------
Name: Fred N. Manning
Title: Senior Vice President
<PAGE> 23
[Signature Page 5 of 19 to Twentieth Amendment]
MELLON BANK, N.A.
By: /s/ Carl S. Tabacjar, Jr.
----------------------------------
Name: CARL S. TABACJAR, JR.
Title: ASSISTANT VICE PRESIDENT
<PAGE> 24
[Signature Page 6 of 19 to Twentieth Amendment]
NATIONSBANK, N.A.
By: /s/ Kevin Wagley
----------------------------------
Name: KEVIN WAGLEY
Title: VICE PRESIDENT
<PAGE> 25
[Signature Page 7 of 19 to Twentieth Amendment]
THE BANK OF NEW YORK
By: /s/ Peter H. Abdill
----------------------------------
Name: Peter H. Abdill
Title: Vice President
<PAGE> 26
[Signature Page 8 of 19 to Twentieth Amendment]
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /s/ Harold Bitler
----------------------------------
Name: Harold Bitler
Title: First Vice President
<PAGE> 27
[Signature Page 9 of 19 to Twentieth Amendment]
BANK ONE, KENTUCKY, NA
By: /s/ Richard Babcock
----------------------------------
Name: RICHARD BABCOCK
Title: VICE PRESIDENT
<PAGE> 28
[Signature Page 10 of 19 to Twentieth Amendment]
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By: /s/ Teiji Teramoto
----------------------------------
Name: Teiji Teramoto
Title: Vice President and Manager
<PAGE> 29
[Signature Page 11 of 19 to Twentieth Amendment]
CRESTAR BANK
By: /s/ Leesa McShane
----------------------------------
Name: Leesa McShane
Title: VP
<PAGE> 30
[Signature Page 12 of 19 to Twentieth Amendment]
BANK OF TOKYO - MITSUBISHI TRUST COMPANY
By: /s/ John R. Bicsi
----------------------------------
Name: John R. Bicsi
Title: Vice President
<PAGE> 31
[Signature Page 13 of 19 to Twentieth Amendment]
AMSOUTH BANK
By: /s/ J. Ken DiFatta
----------------------------------
Name: J. KEN DiFATTA
Title: ASSISTANT VICE PRESIDENT
<PAGE> 32
[Signature Page 14 of 19 to Twentieth Amendment]
BANK OF AMERICA NT & SA
By: /s/ Kevin Wagley
----------------------------------
Name: KEVIN WAGLEY
Title: VICE PRESIDENT
<PAGE> 33
[Signature Page 15 of 19 to Twentieth Amendment]
COMERICA BANK
By: /s/ Mark J. Herman
----------------------------------
Name: Mark J. Herman
Title: First Vice President
<PAGE> 34
[Signature Page 16 of 19 to Twentieth Amendment]
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Henry Reukauf
----------------------------------
Name: Henry Reukauf
Title: Vice President
<PAGE> 35
[Signature Page 17 of 19 to Twentieth Amendment]
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", NEW YORK BRANCH
By: /s/ Ian Reece
----------------------------------
Name: IAN REECE
Title: Senior Credit Officer
By: /s/ R. A. Matthews
----------------------------------
Name:
Title: V.P. SAR
<PAGE> 36
[Signature Page 18 of 19 to Twentieth Amendment]
THE TOKAI BANK, LIMITED NEW YORK BRANCH
By: /s/ Shinichi Nakatani
----------------------------------
Name: Shinichi Nakatani
Title: Assistant General Manager
<PAGE> 37
[Signature Page 19 of 19 to Twentieth Amendment]
TORONTO DOMINION (TEXAS), INC.
By: /s/ Jimmy Simlen
----------------------------------
Name: Jimmy Simlen
Title: Vice President
<PAGE> 38
STATE OF GEORGIA
COUNTY OF FULTON
On the 15th day of April, 1999 personally appeared Harold Bitler, as
the First Vice President of SunTrust Bank, Central Florida, National
Association, and before me executed the attached Twentieth Amendment dated as of
_____________, 1999 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/ Christine B. Alford
-----------------------------------------------------
Signature of Notary Public, State of Georgia
----------------
Christine B. Alford
-----------------------------------------------------
(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 June 29, 2001
<PAGE> 39
SCHEDULE A
<TABLE>
<CAPTION>
BORROWER ("B") /
ENTITY GUARANTOR ("G")
- -------------------------------------------------------------------------------- ----------------
<S> <C>
NovaCare, Inc. (a Delaware corporation) B
NovaCare, Inc. (a Pennsylvania corporation) B
RehabClinics, Inc. B
Rehab Managed Care of Arizona, Inc. B
A.D. Craig Company G
Advanced Orthopedic Technologies, Inc. (a Nevada corporation) G
Advanced Orthopedic Technologies, Inc. (a New York corporation) G
Advance Orthotics, Inc. G
Advanced Orthotics and Prosthetics, Inc. G
Advanced Orthopedic Systems, Inc. G
Advanced Orthopedic Technologies (Clayton), Inc. G
Advanced Orthopedic Technologies (Lett), Inc. G
Advanced Orthopedic Technologies (New Jersey), Inc. G
Advanced Orthopedic Technologies (New Mexico), Inc. G
Advanced Orthopedic Technologies (New York), Inc. G
Advanced Orthopedic Technologies (OTI), Inc. G
Advanced Orthopedic Technologies (Parmeco), Inc. G
Advanced Orthopedic Technologies (SFV), Inc. G
Advanced Orthopedic Technologies (Virginia), Inc. G
Advanced Orthopedic Technologies (West Virginia), Inc. G
Advanced Orthopedic Technologies Management Corp. G
Affiliated Physical Therapists, Ltd. G
American Rehabilitation Center, Inc. G
American Rehabilitation Clinic, Inc. G
American Rehabilitation Systems, Inc. G
Artificial Limb and Brace Center G
Athens Sports Medicine Clinic, Inc. G
Ather Sports Injury Clinic, Inc. G
Atlanta Prosthetics, Inc. G
Atlantic Health Group, Inc. G
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
BORROWER ("B") /
ENTITY GUARANTOR ("G")
- -------------------------------------------------------------------------------- ----------------
<S> <C>
Atlantic Rehabilitation Services, Inc. G
Boca Rehab Agency, Inc. G
Bowman-Shelton Orthopedic Service, Incorporated G
Buendel Physical Therapy, Inc. G
C.E.R. - West, Inc. G
Cahill Orthopedic Laboratory, Inc. G
Cannon & Associates, Inc. G
Cenla Physical Therapy & Rehabilitation Agency, Inc. G
Center for Evaluation & Rehabilitation, Inc. G
Center for Physical Therapy and Sports Rehabilitation, Inc. G
CenterTherapy, Inc. G
Certified Orthopedic Appliance Co., Inc. G
Central Missouri Rehabilitation Services, Inc. G
Central Missouri Therapy, Inc. G
Central Valley Prosthetics & Orthotics, Inc. G
Champion Physical Therapy, Inc. G
CMC Center Corporation G
Coplin Physical Therapy Associates, Inc. G
Crowley Physical Therapy Clinic, Inc. G
Dale Clark Prosthetics, Inc. G
Douglas Avery and Associates, Ltd. G
Douglas C. Claussen, R.P.T., Physical Therapy, Inc. G
E.A. Warnick-Pomeroy Co., Inc. G
Elk County Physical Therapy, Inc. G
Fine, Bryant & Wah, Inc. G
Francis Naselli, Jr. & Stewart Rich Physical Therapists, Inc. G
Frank J. Malone & Son, Inc. G
Fresno Orthopedic Company G
Gallery Physical Therapy Center, Inc. G
Georgia Health Group, Inc. G
Georgia Physical Therapy of West Georgia, Inc. G
Georgia Physical Therapy, Inc. G
Greater Sacramento Physical Therapy Associates, Inc. G
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
BORROWER ("B") /
ENTITY GUARANTOR ("G")
- -------------------------------------------------------------------------------- ----------------
<S> <C>
Grove City Physical Therapy and Sports Medicine, Inc. G
Gulf Breeze Physical Therapy, Inc. G
Gulf Coast Hand Specialists, Inc. G
Hand Therapy and Rehabilitation Associates, Inc. G
Hand Therapy Associates, Inc. G
Hangtown Physical Therapy, Inc. G
Hawley Physical Therapy, Inc. G
Heartland Rehabilitation, Inc. G
High Desert Institute of Prosthetics & Orthotics G
Human Performance and Fitness, Inc. G
Indianapolis Physical Therapy and Sports Medicine, Inc. G
Industrial Health Care Company, Inc. G
J.E. Hanger, Incorporated G
JOYNER SPORTS SCIENCE INSTITUTE, Inc. G
JOYNER SPORTSMEDICINE INSTITUTE, INC. G
Kentucky Rehabilitation Services, Inc. G
Kesinger Physical Therapy, Inc. G
Kroll's, Inc. G
Lynn M. Carlson, Inc. G
McKinney Prosthetics/Orthotics, Inc. G
Mark Butler Physical Therapy Center, Inc. G
Meadowbrook Orthopedics, Inc. G
Medical Arts O&P Services, Inc. G
Medical Plaza Physical Therapy, Inc. G
Metro Rehabilitation Services, Inc. G
Michigan Therapy Centre, Inc. G
MidAtlantic Health Group, Inc. G
Mill River Management, Inc. G
Mitchell Tannenbaum I, Inc. G
Mitchell Tannenbaum II, Inc. G
Mitchell Tannenbaum III, Inc. G
Monmouth Rehabilitation, Inc. G
New England Health Group, Inc. G
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
BORROWER ("B") /
ENTITY GUARANTOR ("G")
- -------------------------------------------------------------------------------- ----------------
<S> <C>
New Mexico Physical Therapists, Inc. G
Northland Regional Orthotic and Prosthetic Center, Inc. G
Northside Physical Therapy, Inc. G
NovaCare (Arizona), Inc. G
NovaCare (Colorado), Inc. G
NovaCare (Texas), Inc. G
NovaCare Management Company, Inc. G
NovaCare Management Services, Inc. G
NovaCare Northside Therapy, Inc. G
NovaCare Occupational Health Services, Inc. G
NovaCare Orthotics & Prosthetics East, Inc. G
NovaCare Orthotics & Prosthetics Holdings, Inc. G
NovaCare Orthotics & Prosthetics West, Inc. G
NovaCare Orthotics & Prosthetics, Inc. G
NovaCare Outpatient Rehabilitation East, Inc. G
NovaCare Outpatient Rehabilitation I, Inc. G
NovaCare Outpatient Rehabilitation West, Inc. G
NovaCare Outpatient Rehabilitation, Inc. G
NovaCare Rehab Agency of Alabama, Inc. G
NovaCare Rehab Agency of Arkansas, Inc. G
NovaCare Rehab Agency of Florida, Inc. G
NovaCare Rehab Agency of Georgia, Inc. G
NovaCare Rehab Agency of Illinois, Inc. G
NovaCare Rehab Agency of Kansas, Inc. G
NovaCare Rehab Agency of Lubbock, Inc. G
NovaCare Rehab Agency of Michigan, Inc. G
NovaCare Rehab Agency of Missouri, Inc. G
NovaCare Rehab Agency of New Jersey, Inc. G
NovaCare Rehab Agency of North Carolina, Inc. G
NovaCare Rehab Agency of Northern California, Inc. G
NovaCare Rehab Agency of Ohio, Inc. G
NovaCare Rehab Agency of Oklahoma, Inc. G
NovaCare Rehab Agency of Oregon, Inc. G
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
BORROWER ("B") /
ENTITY GUARANTOR ("G")
- -------------------------------------------------------------------------------- ----------------
<S> <C>
NovaCare Rehab Agency of Pennsylvania, Inc. G
NovaCare Rehab Agency of Reno, Inc. G
NovaCare Rehab Agency of San Antonio, Inc. G
NovaCare Rehab Agency of San Diego, Inc. G
NovaCare Rehab Agency of South Carolina, Inc. G
NovaCare Rehab Agency of Southern California, Inc. G
NovaCare Rehab Agency of Tennessee, Inc. G
NovaCare Rehab Agency of Virginia, Inc. G
NovaCare Rehab Agency of Washington, Inc. G
NovaCare Rehab Agency of Wyoming, Inc. G
NovaCare Rehabilitation Agency of Wisconsin, Inc. G
NovaCare Rehabilitation, Inc. G
NovaCare Service Corp. G
Opus Care, Inc. G
Ortho East, Inc. G
Ortho Rehab Associates, Inc. G
Ortho-Fab Laboratories, Inc. G
Orthopedic Appliances, Inc. G
Orthopedic and Sports Physical Therapy of Cupertino, Inc. G
Orthopedic Rehabilitative Services, Ltd. G
Orthotic & Prosthetic Rehabilitation Technologies, Inc. G
Orthotic and Prosthetic Associates, Inc. G
Orthotic Specialists, Inc. G
Peter Trailov R.P.T. Physical Therapy Clinic, Orthopaedic Rehabilitation & Sports G
Medicine, Ltd.
Peters, Starkey & Todrank Physical Therapy Corporation G
Physical Focus Inc. G
Physical Rehabilitation Partners, Inc. G
Physical Restoration Laboratories, Inc. G
Physical Therapy Clinic of Lee's Summit, Inc. G
Physical Therapy Enterprises, Inc. G
Physical Therapy Institute, Inc. G
Physical Therapy Services of the Jersey Cape, Inc. G
Pro Active Therapy, Inc. G
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
BORROWER ("B") /
ENTITY GUARANTOR ("G")
- -------------------------------------------------------------------------------- ----------------
<S> <C>
Professional Orthotics and Prosthetics, Inc. G
Professional Orthotics and Prosthetics, Inc. of Santa Fe G
Professional Therapeutic Services, Inc. G
Progressive Orthopedic G
Prosthetics-Orthotics Associates, Inc. G
Protech Orthotic and Prosthetic Center, Inc. G
Quad City Management, Inc. G
RCI (Colorado), Inc. G
RCI (Exertec), Inc. G
RCI (Illinois), Inc. G
RCI (Michigan), Inc. G
RCI (S.P.O.R.T.), Inc. G
RCI (WRS), Inc. G
RCI Nevada, Inc. G
Rebound Oklahoma, Inc. G
Redwood Pacific Therapies, Inc. G
Rehab Provider Network of Florida, Inc. G
Rehab Provider Network - New Jersey, Inc. G
Rehab Provider Network - California, Inc. G
Rehab Provider Network - Delaware, Inc. G
Rehab Provider Network - Georgia, Inc. G
Rehab Provider Network - Illinois, Inc. G
Rehab Provider Network - Indiana, Inc. G
Rehab Provider Network - Maryland, Inc. G
Rehab Provider Network - Michigan, Inc. G
Rehab Provider Network - Ohio, Inc. G
Rehab Provider Network - Oklahoma, Inc. G
Rehab Provider Network - Virginia, Inc. G
Rehab Provider Network - Washington, D.C., Inc. G
Rehab Provider Network - Pennsylvania, Inc. G
Rehab Provider Network of Colorado, Inc. G
Rehab Provider Network of Nevada, Inc. G
Rehab Provider Network of New Mexico, Inc. G
</TABLE>
<PAGE> 45
<TABLE>
<CAPTION>
BORROWER ("B") /
ENTITY GUARANTOR ("G")
- -------------------------------------------------------------------------------- ----------------
<S> <C>
Rehab Provider Network of North Carolina, Inc. G
Rehab Provider Network of Texas, Inc. G
Rehab Provider Network of Wisconsin, Inc. G
Rehab World, Inc. G
Rehab/Work Hardening Management Associates, Ltd. G
RehabClinics (COAST), Inc. G
RehabClinics (GALAXY), Inc. G
RehabClinics (New Jersey), Inc. G
RehabClinics (PTA), Inc. G
RehabClinics (SPT), Inc. G
RehabClinics Abilene, Inc. G
RehabClinics Dallas, Inc. G
RehabClinics Pennsylvania, Inc. G
Rehabilitation Fabrication, Inc. G
Rehabilitation Management, Inc. G
Reid Medical Systems, Inc. G
Robert M. Bacci, R.P.T. Physical Therapy, Inc. G
Robin Aids Prosthetics, Inc. G
S.T.A.R.T., Inc. G
Salem Orthopedic & Prosthetic, Inc. G
San Joaquin Orthopedic, Inc. G
Scott G. Knoche, Inc. G
SG Rehabilitation Agency, Inc. G
SG Speech Associates, Inc. G
Sierra Nevada Physical Therapy Corporation G
South Jersey Physical Therapy Associates, Inc. G
South Jersey Rehabilitation and Sports Medicine Center, Inc. G
Southern Illinois Prosthetic & Orthotic, Ltd. G
Southern Illinois Prosthetic & Orthotic of Missouri, Ltd. G
Southpointe Fitness Center, Inc. G
Southwest Emergency Associates, Inc. G
Southwest Medical Supply Company G
Southwest Physical Therapy, Inc. G
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
BORROWER ("B") /
ENTITY GUARANTOR ("G")
- -------------------------------------------------------------------------------- ----------------
<S> <C>
Southwest Therapists, Inc. G
Sporthopedics Sports and Physical Therapy Centers, Inc. G
Sports Therapy and Arthritis Rehabilitation, Inc. G
Star Physical Therapy Inc. G
Stephenson-Holtz, Inc. G
T.D. Rehab Systems, Inc. G
Texoma Health Care Center, Inc. G
The Center for Physical Therapy and Rehabilitation, Inc. G
The Orthopedic Sports and Industrial Rehabilitation Network, Inc. G
Theodore Dashnaw Physical Therapy, Inc. G
Treister, Inc. G
Tucson Limb & Brace, Inc. G
Union Square Center for Rehabilitation & Sports Medicine, Inc. G
University Orthotic and Prosthetic Consultants, Ltd. G
Valley Group Physical Therapists, Inc. G
Vanguard Rehabilitation, Inc. G
Wayzata Physical Therapy Center, Inc. G
West Side Physical Therapy, Inc. G
West Suburban Health Partners, Inc. G
Western Missouri Rehabilitation Services, Inc. G
Western Rehab Services, Inc. G
Worker Rehabilitation Services, Inc. G
Yuma Rehabilitation Center, Inc. G
A.D. Craig (A.D. Craig Company is general partner) G
Advanced Orthopedic Services, Ltd. (RehabClinics Dallas, Inc. is general partner) G
Craig Weymouth Enterprises (A.D. Craig Company is general partner) G
Land Park Physical Therapy (Union Square Center for Rehabilitation & Sports G
Medicine, Inc. is general partner)
NovaPartners (IND), LP (NovaCare, Inc. (a Pennsylvania corporation) is general G
partner)
</TABLE>
<PAGE> 47
EXHIBIT I
AMENDMENT FEES TO BANKS APPROVING AMENDMENT
<TABLE>
<CAPTION>
Bank Amendment Fee
---- -------------
<S> <C>
PNC Bank, National Association $ 90,000
First Union National Bank $ 69,750
Fleet National Bank $ 69,750
Mellon Bank, N.A $ 69,750
NationsBank, N.A $ 69,750
Bank One, Kentucky, NA $ 51,187.50
Credit Lyonnais New York Branch $ 51,187.50
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch $ 51,187.50
Toronto Dominion (Texas), Inc. $ 51,187.50
The Bank of New York $ 45,000
SunTrust Bank, Central Florida, N.A $ 45,000
AmSouth Bank $ 33,750
Bank of America NT & SA $ 33,750
Bank of Tokyo - Mitsubishi Trust Company $ 33,750
Comerica Bank $ 33,750
Crestar Bank $ 33,750
The Fuji Bank, Limited New York Branch $ 33,750
The Tokai Bank, Limited New York Branch $ 33,750
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1999.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENT IN FORM 10-Q FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 1999.
</LEGEND>
<CIK> 0000802843
<NAME> NOVACARE, INC.
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 23,804
<SECURITIES> 0
<RECEIVABLES> 344,143
<ALLOWANCES> 42,774
<INVENTORY> 45,135
<CURRENT-ASSETS> 440,528
<PP&E> 165,331
<DEPRECIATION> (100,790)
<TOTAL-ASSETS> 1,289,829
<CURRENT-LIABILITIES> 701,492
<BONDS> 55,267
0
0
<COMMON> 684
<OTHER-SE> 457,001
<TOTAL-LIABILITY-AND-EQUITY> 1,289,829
<SALES> 0
<TOTAL-REVENUES> 1,398,830
<CGS> 0
<TOTAL-COSTS> 1,342,086<F1>
<OTHER-EXPENSES> 148,962<F2>
<LOSS-PROVISION> 23,439
<INTEREST-EXPENSE> 28,373
<INCOME-PRETAX> (144,030)
<INCOME-TAX> (19,163)
<INCOME-CONTINUING> (124,867)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (124,867)
<EPS-PRIMARY> (1.99)
<EPS-DILUTED> (1.99)
<FN>
<F1>"TOTAL COSTS" CONSIST OF COST OF SERVICE 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>