<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
COMMISSION FILE NUMBER 0-17490
IN HOME HEALTH, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1458213
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
CARLSON CENTER, SUITE 500
601 LAKESHORE PARKWAY
MINNETONKA, MINNESOTA 55305-5214
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 612-449-7500
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $ .01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
----
Based on the closing sale price of $2.50 on the NASDAQ National Market System,
as of December 1, 1995 the aggregate market value of the registrant's common
stock held by nonaffiliates was $22,861,898.
As of December 1, 1995 the number of shares outstanding of the registrant's
common stock, $.01 par value was 16,295,037 shares.
Documents Incorporated by Reference: The Company's Proxy Statement for its
Annual Meeting of Shareholders to be held February 27, 1996, (the "1995 Proxy
Statement"), a definitive copy of which will be filed within 120 days of the
close of the past fiscal year, is incorporated by reference into Part III of
this Form 10-K.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE(S)
<S> <C> <C> <C>
PART I Item 1. Business...................................................................... 3-8
Item 2. Properties.................................................................... 8
Item 3. Legal Proceedings............................................................. 8
Item 4. Submission of Matters to a Vote of Security Holders........................... 8
PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters........ 9
Item 6. Selected Financial Data....................................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 10-13
Item 8. Financial Statements and Supplementary Data................................... 14-30
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................... 14
PART III Item 10. Directors and Executive Officers.............................................. 30
Item 11. Executive Compensation........................................................ 30
Item 12. Security Ownership of Certain Beneficial Owners and Management................ 30
Item 13. Certain Relationships and Related Transactions................................ 30
PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. 30-31
SIGNATURES ......................................................................................... 32
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
In Home Health, Inc. (the "Company") specializes in providing
comprehensive health care services to clients of all ages in their homes. The
Company's services include nursing, infusion therapy, rehabilitation, personal
care and homemaking. The Company currently provides services from 41 offices
and ten pharmacies in 19 geographic markets located in 14 states under the trade
names "In Home Health" or "Home Health Plus".
The Company was incorporated in Minnesota in 1983 and is the successor
to the business of a non-profit corporation which provided home health services
in Minneapolis-St. Paul beginning in 1977. The Company began expansion into new
markets in 1984 with the opening of an office in St. Louis. All expansion into
new geographic markets subsequent to St. Louis have been through acquisitions.
On October 24, 1995 the Company consummated transactions with Manor
Healthcare Corp., a wholly owned subsidiary of Manor Care, Inc., whereby Manor
Healthcare acquired approximately 64% of the voting power of the Company's
voting capital stock and the Company received net cash proceeds of approximately
$18 million. The agreement with Manor Healthcare contemplates that the Company
will continue to operate in the lines of business in which it currently engages.
INDUSTRY BACKGROUND
The Company believes that the home health care business is a rapidly
growing industry still in its formative stages. This rapid growth in the market
has several causes. First, substantial cost savings are realized through
treatment at home as an alternative to hospitalization. The National
Association for Home Care ("NAHC") estimates that home health care costs can be
one-half to one-third of the cost of comparable hospital care. Second, Medicare
reimburses hospitals a fixed amount based on the patient's diagnosis, regardless
of the cost of service or length of stay. This provides hospitals with an
incentive for shorter patient stays, frequently leading to the use of home care.
Third, advances in medical technology make it possible to provide treatments at
home that once required hospitalization. Patients requiring ventilators or
intravenous therapies frequently can be cared for safely at home. Fourth, home
health care allows the patient to remain in a familiar environment, which is
often medically and psychologically preferable.
Many health insurance plans now include home care benefits. Evidence
of the cost savings from the use of home health services has caused many Health
Maintenance Organizations (HMOs), health insurance carriers, employers, third
party administrators and utilization review services to negotiate fees and
contract with home health providers for their clients. Clients usually do not
select their home health provider; the selection is usually made with the
assistance of health care professionals such as physicians, hospital discharge
planners, nurses and social workers.
PRODUCTS AND SERVICES
The Company offers its clients a broad range of professional and
support services to meet medical and personal needs at home. All home health
services are provided under a plan of care and orders from the client's
physician. Services are available on a 24-hour a day basis every day of the
year. Office hours are from 7 a.m. to 6 p.m. Monday through Friday, although
personnel are available to respond to emergencies and fulfill service requests
at all times.
In fiscal 1995, approximately 52% of the Company's revenue was derived
from paraprofessional services provided by home health aides and
homemaker/companions, 28% was derived from medical/surgical nursing, 13% was
attributable to rehabilitation services, 3% came from infusion pharmacy
products, 2% from critical care nursing, and 2% came from medical supplies.
Services offered by the Company are paid for by Medicare, Medicaid,
insurance carriers, HMOs, state and county government programs and individuals.
Approximately 76% of the Company's revenue in fiscal 1995 came from
reimbursement by the Medicare program, which is an increase from 74% in fiscal
1994. Approximately 12% of the Company's revenue in fiscal 1995, a decrease
from 14% in fiscal 1994, was attributable to other third party payors, such as
HMOs, insurance companies and county governments. The balance of the Company's
revenue, 12% in 1995 and 1994, was received directly from individual clients.
The Company anticipates that the payor mix will continue to be comparable to
fiscal 1995.
3
<PAGE>
The Company's services are provided by a variety of personnel:
Critical Care Registered Nurses provide specialized nursing such as
pain management, respiratory care and infusion therapy.
Registered Nurses provide a broad range of nursing care including
skilled observation and assessment, teaching and technical procedures.
Licensed Practical/Vocational Nurses perform many technical nursing
procedures, such as injections and dressing changes.
Pharmacists prepare and dispense drug and nutritional therapies by
physician order and monitor the client's treatment.
Home Health Aides provide personal care such as bathing, assistance
with walking, and other procedures that do not require professional
nursing expertise.
Homemakers/Companions assist with meal preparation and housekeeping,
and provide companionship that can help maintain independent living.
Physical Therapists assist clients to restore strength and range of
joint motion for improved function; and retrain clients in all areas
of ambulation and mobility.
Occupational Therapists assist clients to become independent in
activities of daily living, such as feeding, dressing, hygiene, and
social activities.
Speech Pathologists retrain clients to deal with speech, swallowing,
language or hearing impediments to improve communication abilities.
Social Workers assist clients and their families to deal with
financial, personal and social concerns resulting from health
problems.
OPERATING DIVISIONS
The Company has 41 office locations consisting of 29 branches and
twelve satellites. Each of the Company's branches has two divisions, a Visit
Division and an Extended Hours Division. The Company's satellite locations
provide Visit Division services only. The Visit Division provides clients with
short-term care, usually up to two hours per visit. The Extended Hours Division
provides clients with care up to 24 hours per day. The Visit Division charges
by the visit while the Extended Hours Division charges by the hour.
Each division operates with a registered nurse manager and a staff of
professionals, including one or more home care coordinators who are registered
nurses. The client is assigned to a registered nurse or therapist for case
management. The home care coordinator establishes a plan of care for each
client with the client's physician, supervises the services received by the
client, and assesses the client's response to and need for continued care.
Rehabilitation, nursing and other personnel provide services according to the
physician's plan of care.
As an expansion of the Visit Division services, the Company began
providing pharmaceutical drugs, fluids and supplies through its first Infusion
Pharmacy in January 1991. Previously the Company had contracted with other
infusion providers for the pharmaceuticals and supplies being utilized. The
Company now operates ten Infusion Pharmacies. The Infusion Pharmacies operate
with one or more full time pharmacists who collaborate with the client's
physician, nurse and other health care providers.
The Company's pharmacists prepare and dispense drug and nutritional
therapies by physician order and monitor the client's response to treatment.
The pharmacist is available to the client's physician and the Company's nurses
24 hours a day, 7 days a week, to answer questions regarding drug actions and
interactions, dosage requirements and interpretation of laboratory data. The
pharmacist and nurse may jointly visit clients in their home to evaluate their
response to treatment. The pharmacist is responsible for complying with State
and Federal regulations regarding the operation of an infusion pharmacy.
Pharmacy quality assurance procedures are followed to assure all therapies are
appropriate and that Company standards are being followed.
4
<PAGE>
A Hospice Division has been added in one market during fiscal 1995.
Hospice provides palliative care through an interdisciplinary team to the
terminally ill client and the client's family. The Hospice Division charges a
per diem rate which includes medications, supplies, equipment, and team
services.
QUALITY ASSURANCE
In addition to the basic requirements necessary for licensure and
certification, the Company has implemented several practices to help assure high
quality home care service. Clients are sent evaluation surveys bi-monthly to
detect and correct weaknesses. Survey results are reviewed quarterly, along
with a sampling of client charts, by a committee of physicians, nurses and
therapists. This committee determines if the medical needs were identified and
addressed in the plan of care. Each branch has an advisory board composed of
consumers and business and health professionals that meets at least annually to
review programs and developments and to make recommendations to the management
team. The Company has a Code of Ethics and Client Bill of Rights that are
provided to all employees and clients.
MARKETING
Clients do not usually select their own home health providers; the
Company's services are typically utilized as a result of referrals by other
health professionals. The Company has identified many potential referral
sources for home health services. These referral sources include physicians,
hospitals, nursing homes, community resources, home care agencies, HMOs, word of
mouth and the other division (Visit or Extended Hours). One of the Company's
goals is to broaden the referral base with physicians, hospitals and health
insurance payors. The Company believes the growth of its business depends on
its ability to maintain and establish strong working relationships with
hospitals, clinics, nursing homes, physician groups, and other health care
providers and to keep them informed on the services the Company provides.
In each geographic area in which the Company operates a professional
health care liaison team consisting of home care coordinators, which are
primarily registered nurses, is responsible for contact with referral sources.
The team identifies client needs and emphasizes the benefits of the Company's
services. The liaison team members contact physicians, hospitals, nursing homes
and other health care providers to explain the services provided by the
Company. Other health care professionals within the Company, such as a
pharmacist or nurse specialist, may accompany the liaison team member to offer
clinical or technical expertise. The General Manager of each branch is
responsible for making contractual arrangements with hospitals, HMOs,
governments, clients and large physician groups.
GEOGRAPHIC EXPANSION
There were no acquisitions in fiscal 1995. The Company entered three
new geographic markets (Greensboro, NC; Toledo, OH and San Antonio, TX) and
opened one office in an existing market in fiscal 1994. Greensboro was an
expansion utilizing a Certificate of Need acquired in 1993. The other two
markets were added through acquisitions. These acquisitions all met the
Company's goals of entering the largest metropolitan markets and brings the
number of geographic markets in which the Company operates to 19.
COMPETITION
The home health care business has become highly competitive. There
are four different types of providers involved in home health services:
INSTITUTIONS: Hospitals and public health agencies typically provide
only short term, intermittent care. Some larger institutions have
entered into the extended hours, hospice and home infusion markets.
NATIONAL TEMPORARY EMPLOYMENT COMPANIES: These organizations provide
home care and supplemental staffing to hospitals and nursing homes.
NATIONAL SPECIALIZED HOME CARE PROVIDERS: These companies typically
provide specialized care; for example, hospice, AIDS or infusion
therapy, in multiple geographic markets. In the area of infusion
therapy there are many significant competitors, although one provider
is estimated to serve 40% of the home infusion therapy market.
5
<PAGE>
OTHER INDEPENDENT HOME CARE COMPANIES: These are generally locally
owned and specialize in home care. Some of these organizations
provide only homemaker and chore-person services, and others provide a
broad range of home care services.
The Company believes that the primary competitive factors are
availability of personnel, the price of the services and quality considerations
such as responsiveness, the technical ability of the professional staff and the
ability to provide comprehensive services.
Many of the Company's competitors are large and established
organizations with significantly greater resources than the Company. Large
hospital systems may enjoy a particular competitive advantage due to their ready
access to a large client base.
REGULATION
As a provider of health care services, the Company is subject to laws
and regulations administered by the various states. As a result of their
certification in the Medicare program, branches are subject to certain federal
laws and regulations. The Company's provision of pharmaceuticals and other
supplies for home infusion therapy subjects the Company to additional
regulation, such as the need for licensing as a pharmacy and the need to comply
with various federal and state laws and regulations governing pharmacies and the
handling of pharmaceuticals. The Company has all necessary licenses and permits
for its current operations.
Providers of home health services may be subject to increasing
regulation in the future. Compliance with laws and regulations could increase
the cost and time necessary to allow the Company to operate successfully and may
affect the Company in other respects not presently foreseeable.
In order to receive Medicare reimbursement, the Company must satisfy
conditions for participation established by the United States Department of
Health and Human Services relating to standards of medical care. Loss of
certification in the Medicare program would result in the loss of a significant
portion of the Company's revenues.
INSURANCE
General and professional liability insurance are maintained by the
Company which includes coverage up to $11,000,000 per claim and per year. There
can be no assurance that the Company will not be subject to claims in excess of
its insurance coverage or that such insurance will continue to be available. To
date, the Company has had no professional liability losses.
SERVICE MARKS AND TRADEMARKS
The Company operates in certain markets under the name "In Home
Health" and under the name "Home Health Plus" in the remaining markets, which
are registered service marks. The Company believes that because its business
derives principally from referrals by other health care providers, it is not
materially dependent on any trademarks or service marks.
EMPLOYEES
On September 30, 1995, the Company employed 1,230 persons on a full-
time basis and approximately 3,000 persons on a part-time basis. Substantially
all of the part-time employees were in direct health care. None of the
Company's employees are represented by unions.
6
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and members of the Board of Directors for the
Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- ---- ----------------
<S> <C> <C>
Mark L. Gildea (1) 43 Chief Executive Officer and Director
Judy M. Figge 47 President and Director
Kenneth J. Figge (2) 62 Executive Vice President, Chief Financial
Officer, Secretary and Director
Cathy R. Reeves 47 Vice President and Chief Operating Officer
Margaret L. Maxon 44 Vice President - Customer Relations
James J. Lynn 53 Director
Joseph Buckley (1)(2)(3) 48 Director
James H. Rempe (1)(2)(3) 65 Director
Donald C. Tomasso (1)(3) 50 Director
</TABLE>
(1) Messrs. Gildea, Buckley, Rempe and Tomasso were elected as
members of the Board of Directors effective October 24, 1995,
which was also the effective date of resignations from the
Board of Directors by S. Marcus Finkle and Sheldon Lieberbaum.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
Mr. Gildea has served as Chief Executive Officer of the Company since
October 24, 1995 and as President, Alternate Site Services Division of Manor
Healthcare since December 1994. Previously he served as Vice President of
Managed Care of Manor Healthcare from December 1993 to December 1994. Prior to
joining Manor Healthcare, he was employed as Executive Vice President of Option
Care, Inc. from October, 1992 to December, 1993. He was previously employed by
CareMark, Inc. for over 10 years, including as Area Vice President.
Ms. Figge has been the President and a director of the Company since
its founding in 1983. She served as the Company's Chief Executive Officer from
1988 to October 1995 and became the Chairman of the Board of Directors of the
Company in October 1995. From 1981 until 1983, Ms. Figge was the President of a
predecessor to the business of the Company. Ms. Figge is a registered nurse.
She is the wife of Mr. Figge, identified below.
Mr. Figge has been Secretary and a director of the Company since it
was founded in April, 1983, became Treasurer of the Company in March 1984, and
became Executive Vice President and Chief Financial Officer of the Company in
1987. From 1981 until 1983 Mr. Figge was a director of a predecessor to the
business of the Company. Mr. Figge has worked for the Company on a part-time
basis since March 1984 and on a full-time basis since January 1986. Prior to
January 1982, Mr. Figge was employed by Honeywell, Inc. for 21 years in various
positions in its Aerospace and Defense Group and International Division,
including Vice President-Commercial Aviation Operations. He is the husband of
Ms. Figge, identified above.
Ms. Reeves became Vice President and Chief Operating Officer in July,
1992. Ms. Reeves joined the Company in September 1987 as General Manager for
Home Health Plus in St. Louis, Missouri. She was first promoted to Midwest
Regional Manager then Regional Vice President before her present capacity as
Vice President and Chief Operating Officer.
7
<PAGE>
Ms. Maxon became Vice President - Customer Relations in October, 1994.
Ms. Maxon joined the Company in October 1990 as General Manager in the Chicago
office of Home Health Plus. She was promoted to Area Manager and then Business
Development Regional Manager prior to her current position. Ms. Maxon was
employed by North Dallas Diagnostic Center as a sales representative in 1989 and
1990.
Mr. Lynn has been a director of the Company since 1987 and has served
as Training and Development Director of the Company since October 1995. He had
served as Vice President - Marketing and Human Resources of the Company on a
nominal basis from 1986 to 1990. Since 1981 Mr. Lynn has been a principal of
Lynn & Associates, a management consulting company of which Mr. Lynn is the
founder and President.
Mr. Buckley has served as President, Assisted Living Division of Manor
Healthcare since January 1995 and was Senior Vice President - Information
Resources and Development of Manor Care, Inc. from June 1990 to January 1995.
He previously served as Vice President - Information Resources of Manor Care,
Inc. from July 1989 to June 1990 and as Vice President - Real Estate of Manor
Care, Inc. from September 1983 to July 1989.
Mr. Rempe has served as Senior Vice President, General Counsel and
Secretary of Manor Care, Inc. since August 1981. He has served in the same
capacity with Choice Hotels International, Inc. since February 1981 and with
Manor Healthcare since December 1980. He is a Director of Vitalink Pharmacy
Services, Inc., has served as its Secretary since January 1983 and was its
Senior Vice President from January 1983 to September 1991.
Mr. Tomasso has served as President, Long Term Care Division, of Manor
Healthcare since January 1995, as President and Chief Operating Officer of Manor
Healthcare from May 1991 to January 1995 and as a Director of Manor Healthcare
since June 1991. He has been Chairman and Chief Executive Officer of Vitalink
Pharmacy Services, Inc. since January 1995 and was its Vice Chairman from
September 1991 to January 1995. From September 1990 to March 1991 he was
President of AMF Bowling Centers, Inc. Mr. Tomasso was previously employed by
Marriott Corporation for more than five years, including as Executive Vice
President/General Manager of the Roy Rogers Division.
ITEM 2. PROPERTIES
The Company's executive offices are located in Minnetonka, Minnesota,
a suburb of Minneapolis, in approximately 27,900 square feet of leased space.
The Company's 41 office locations each lease approximately 2,000 to
7,000 square feet of office space in their respective locations. The Company's
leased properties are suitable and adequate for its current needs and additional
space is expected to be available as needed at competitive rates.
ITEM 3. LEGAL PROCEEDINGS
On October 28 and November 14, 1994 the Company filed two suits in
Federal District Court against the U.S. Department of Health and Human Services
(HHS) and several regional members of the Blue Cross Association which HHS uses
to administer the Medicare program. The two suits allege that the defendants
have unjustly withheld approximately $8,800,000 in payments that are owed to the
Company for services it provided to Medicare beneficiaries from 1988 through
fiscal 1994. The court has not ruled on the two suits pending the outcome of
administrative rulings by the HHS Provider Reimbursement Review Board concerning
these disputes.
Medicare payments to home health care providers are based on
reimbursement of allowable costs incurred by the provider in serving Medicare
beneficiaries. The Company alleges that the defendants have arbitrarily and
capriciously disallowed reimbursement of a portion of In Home Health's personnel
costs, primarily for home care coordinators and physical therapists, and have
failed to provide the Company with a timely administrative hearing. The Company
is also continuing to pursue administrative remedies on these and other disputed
Medicare payment issues. See Note 5 of the financial statements for discussion
on the Medicare cost reimbursement disputes.
The Company is also a party to various claims and legal proceedings
which management believes are in the normal course of business and will not
involve any material loss.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1995.
8
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The Company's Common Stock is registered under Section 12(g) of the
Securities Exchange Act of 1934 and is traded on the NASDAQ National Market
System under the symbol "IHHI". As of December 1, 1995 there were approximately
1,420 record holders of the common stock.
The closing sale price for the common stock as reported by NASDAQ for
each quarter of the two most recent fiscal years were:
YEAR ENDED SEPTEMBER 30
-----------------------
1995 1994
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter 2 5/8 1 13/16 4 1/16 2 1/2
Second Quarter 2 9/16 1 3/4 3 5/8 2 9/16
Third Quarter 2 15/16 2 3/16 2 13/16 1 15/16
Fourth Quarter 3 3/32 2 9/16 2 13/16 1 7/8
These prices do not include retail markups, markdowns or commissions and may not
represent actual transactions. The Company is limited by its line of credit
agreement in the amount of cash dividends it can pay and it presently intends to
reinvest all earnings for continued expansion.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars and Shares in Thousands, except per share amounts)
STATEMENT OF INCOME DATA
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-----------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Service revenue $ 129,816 $ 120,485 $ 103,761 $ 75,072 $ 36,929
Income from operations 3,774 1,353 2,432 3,840 1,850
Income before income taxes 3,007 684 1,952 3,716 1,755
Net income 1,621 247 1,015 2,303 1,037
Net income per share - primary .10 .02 .06 .15 .10
Weighted average common and common equivalent shares
outstanding - primary 16,304 16,013 16,056 15,780 11,680
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
SEPTEMBER 30
-----------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Current assets $ 21,394 $ 23,926 $ 28,975 $ 25,955 $ 14,128
Current liabilities 21,289 20,707 19,457 9,072 4,724
Total assets 57,559 56,726 54,379 38,761 20,088
Long-term debt 2,443 3,304 4,740 3,552 1,275
Shareholders' equity 30,509 28,482 27,459 24,976 13,872
</TABLE>
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table indicates the percentage relationship of income
and expense items to revenue as set forth in the Company's consolidated
statements of income and the percentage changes from year to year.
<TABLE>
<CAPTION>
Percent
Percent of Revenues Change
-------------------------------------------------------------
1994 1993
1995 1994 1993 to 1994 to 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue 100% 100% 100% 8% 16%
Direct Costs of Revenue 57 58 55 7% 22%
--- --- ---
Gross Profit 43 42 45 9% 9%
General, Administrative and Selling Expenses 40 41 43 5% 12%
--- --- ---
Income From Operations 3% 1% 2% 179% (44%)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Revenue for 1995 increased 8% over 1994. Revenue increased 11% as a
result of increased services provided in geographic markets in which the Company
operated at the beginning of the prior year ("existing markets"), 2% as a result
of acquisitions made in 1994, and 2% as a result of a decrease in additions to
the Medicare reserve. This is offset by a 7% decrease in revenue as a result of
pricing and mix changes. Revenue for 1994 increased 16% over 1993. Revenue
increased 17% as a result of increased services provided in geographic markets
in which the Company operated at the beginning of the prior year ("existing
markets"), and 5% as a result of acquisitions. This is offset by a 6% decrease
in revenue as a result of the Medicare reserve (4%) and pricing and mix changes
(2%). Medicare reserves of $1,435,000, $3,861,000 and $1,100,000 were recorded
as adjustments to revenue in 1995, 1994 and 1993, respectively. The Company's
growth within existing markets is the result of industry growth, the Company's
marketing efforts and improved name recognition. In 1994 the Company entered
the Toledo and San Antonio markets through acquisitions and expanded into the
Greensboro market utilizing a Certificate of Need acquired in 1993. In 1993 the
Company entered the Raleigh-Durham, Dallas and Norfolk geographic markets, all
of which were through acquisitions. There were no acquisitions in 1995.
The breakdown by division of the Company's total revenue is as follows:
<TABLE>
<CAPTION>
Year Ended September 30
- ----------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Extended Hours Division 19% 18% 20%
-- -- --
-- -- --
Visit Division - Service 78% 78% 77%
Infusion Product 3% 4% 3%
-- -- --
81% 82% 80%
-- -- --
-- -- --
</TABLE>
Extended Hours Division revenue increased 11% and 7% in 1995 and 1994,
respectively, and Visit Division revenue increased 7% and 18% in the comparable
periods. Within the Visit Division, infusion product revenue decreased 12% in
1995 after an increase of 32% in 1994. The reduction in the rate of the
Company's overall growth is due primarily to cash constraints resulting from
disputes with Medicare fiscal intermediaries which are discussed under
"Liquidity and Capital Resources" and Note 5 of the financial statements.
Direct costs of revenue, as a percentage of sales, were 57%, 58% and
55% in 1995, 1994 and 1993, respectively. The change in 1995 was principally a
result of the decrease in additions to the Medicare reserve as a percent of
revenue. The change
10
<PAGE>
in 1994, resulting from an increase of direct costs of 22% over 1993, whereas
revenues increased only 16%, was due to volume increase, the recording of the
revenue reserve which reduced revenues, fewer and smaller acquisitions and
reductions in operational support staff resulting in a smaller relative
increase in general, administrative and selling expense. Direct costs, as a
percentage of revenue before Medicare reserves, were 56%, 56% and 54% in
1995, 1994 and 1993, respectively.
Total operating expenses increased 6% in 1995 and 18% in 1994, which
compares to the increase in revenues of 8% in 1995 and 16% in 1994. The smaller
percentage increase in operating expenses as compared to revenue in 1995 was
principally due to the reduction in additions to the Medicare reserve as a
percent of revenue. The greater percentage increases in total operating costs
in 1994, as compared to the revenue increases, are due to the growth in the less
profitable Visit Division services and the increases in reserves for disputed
costs (which reduce the magnitude of the increase in revenues).
The gross profit percentage is 43% for 1995 and 42% for 1994. The
increase in gross profit percent is principally a result of the reduction in
addition to the Medicare reserve as a percent of revenue. Gross profit
decreased in 1994 to 42% as compared to 45% in 1993. With the growth in the
Company's operations, revenues and direct costs of revenues in 1994 have grown
at a greater pace than general, administrative and selling expenses (see table
above). The disproportionate increases in these elements, combined with the
greater increase in direct costs of revenue (22%) in relation to the increase in
revenue (16%), results in the decrease in gross profit. Gross profit, as a
percentage of revenue before Medicare reserves, was 44%, 44% and 46% in 1995,
1994 and 1993, respectively.
General, administrative and selling expenses as a percent of revenue
decreased to 40% of revenue in 1995 compared to 41% and 43% in 1994 and 1993,
respectively. The decrease in 1995 is principally a result of the reduction in
additions to the Medicare reserve as a percent of revenue. The decrease in 1994
was due to revenue growth at locations acquired in prior years without related
growth in expenses, as well as a conscious effort to control expense.
Net interest expense increased $98,000 in 1995 over 1994 and $189,000
in 1994 over 1993. The increase was the result of Medicare repayment plans,
long-term equipment leases and reduced short-term investments.
Income taxes were 46%, 64% and 44% of pretax income in 1995, 1994 and
1993, respectively. The increase in 1994 in the effective tax rate is due to
non-deductible expenses being a higher proportion of pretax earnings.
Net income was $1,621,000, $247,000, and $1,015,000 for the years
1995, 1994 and 1993, respectively. The primary reason for the changes in
profitability was the addition of reserves related to the Medicare payment
dispute which is discussed below and in Note 5. Additions to the Medicare
reserves totaled $1,435,000 in 1995, $3,861,000 in 1994 and $1,100,000 in 1993.
LIQUIDITY & CAPITAL RESOURCES
During fiscal 1995 the Company's cash and cash equivalents increased
$2,754,000 to $3,665,000 at September 30, 1995. Total accounts receivable net
of third party liabilities increased $760,000 in 1995. Improved collection
efforts were offset by continued disputes concerning payment for services to
Medicare beneficiaries.
Approximately 76%, 74% and 73% of revenue for the years ended
September 30, 1995, 1994 and 1993, respectively, was derived from services
provided to Medicare beneficiaries. Payment for these services is made by the
Medicare program based on reimbursable costs incurred in rendering the services.
Payments are made via an interim payment rate as services are rendered. Cost
reports are filed with Medicare on an annual basis, which are subject to audit
and retroactive adjustment by Medicare. The Company reports revenue only for
those costs that it believes are probable (as defined in Statement of Financial
Accounting Standards No. 5) of recovery under the applicable Medicare statutes
and regulations and reports its accounts receivable balances at net realizable
value. The Company utilizes an extensive system of internal controls to ensure
such proper reporting of revenues. The Company employs personnel with
significant Medicare reimbursement experience to prepare its cost reports and to
monitor its operations on an ongoing basis to identify and seek to minimize
those costs which are not reimbursed. As a part of its system of internal
controls, the Company uses a detailed analysis process in calculating its
Medicare revenue at the time services are rendered. This process considers the
nature and amounts of the disputed costs (as described in more detail below)
along with several authoritative, legal and historical sources of information
including:
- - Applicable statutes and regulations, such as those contained in the Title
XVIII of the Social Security Act, particularly Sec. 1861 (V) (1) (A)
"Reasonable Cost" and 42 C.F.R. 413.9 "Cost Related to Patient Care",
Health Care Financing Administration
11
<PAGE>
(HCFA) Publication 11 "Home Health Agency Manual", applicable sections
of HCFA Publication 15-1 "Provider Reimbursement Manual" and intermediary
letters and program memoranda issued by HCFA.
- - Administrative decisions and rulings on related issues by the Provider
Reimbursement Review Board and Administrative Law Judges.
- - Judicial decisions from Federal District Courts on relevant cases.
- - Consultation with independent industry experts such as Medicare Cost
Reimbursement Consultants.
- - Opinions of outside legal counsel who specialize in dealing with Medicare
reimbursement issues.
- - Historical knowledge gained internally from past Medicare audits.
- - Meetings and other communication with Medicare Intermediaries, Blue Cross
Association and HCFA.
This detailed analysis process is updated on a quarterly basis, taking into
account any new information (such as decisions relating to the Company's
disputed costs, and administrative and judicial decisions relating to similar
issues) that may affect the determination of the net realizable value of
accounts receivable or of liabilities to repay amounts received for disputed
costs. Results of this detailed analysis process are extrapolated to other
unaudited cost reporting years for all of the Company's operations, including
operations that have not yet been audited by Medicare, to estimate the gross
amount of reimbursement that would be affected. The Company, through this
ongoing control and monitoring process, provides a reserve (by means of a
revenue reduction) for any costs incurred which the Company believes are not
probable of recovery. This reserve is reported as a reduction of accounts
receivable for disputed costs for which the Company may not ultimately receive
payment. The Company has also reported as a liability disputed costs for which
it has received payment, which may have to be returned to Medicare.
Accordingly, the Company believes that its accounts receivable are stated at net
realizable value, and that it has recorded all probable liabilities for
repayment of disputed costs.
Over the years, Medicare auditors employed by the Medicare fiscal
intermediaries have, in connection with their retrospective audit process, taken
certain positions with respect to certain types of costs, claiming that they are
not reimbursable and thus not recoverable by the Company from the Medicare
program. These positions are based on interpretations promulgated after the
period covered by the cost reports and applied retroactively, interpretations of
cost reimbursement principles that are contrary to the Company's
interpretations, or on what the Company believes to be misapplications of
specific reimbursement principles, that could not have been foreseen at the time
services were rendered and revenue recorded. These positions taken by Medicare
auditors are usually determined from Medicare's Notice of Program Reimbursement
("NPR") which typically are not received until two to three years after the
services are rendered. In those situations where the Company decides to not
challenge an NPR finding, any revenue relating to these costs, as well as the
extrapolated impact, if any, on other open costs reporting years, if not written
off or provided for earlier, is written off as a revenue reduction at that time.
The results of all NPRs are included in the analysis process in calculating net
Medicare revenue as described above.
The Company has received NPRs challenging $12.1 million of costs as of
September 30, 1995. There was an additional $15.1 million of costs at September
30, 1995 related to open cost reporting years that are similar to the costs that
have been challenged on NPRs. Together these amounts ($27.2 million at
September 30, 1995) comprise the total amount the Company considers to be
disputed costs. The major cost category in dispute, accounting for
approximately half of total disputed costs, is the treatment of certain
personnel costs relating to the Company's community liaison positions, which
Medicare auditors allege are unreimbursable sales costs; other costs in dispute
relate to the cost of physical therapists employed by the Company, the method of
allocation of administrative and general costs to branch operations, certain
corporate expenses, and cost transfers within branch operations. These disputed
costs (including the extrapolated impact) of $27.2 million at September 30, 1995
arose in the fiscal years ended September 30, 1995 ($6.0 million), 1994 ($8.2
million), 1993 ($6.5 million), 1992 ($4.4 million), and 1991 ($2.1 million).
The amount of disputed costs has increased over the last several years as the
Company's operations have grown, Medicare auditors have taken positions to
disallow certain costs in certain cost reports as non-reimbursable, and the
Company has extrapolated that amount of costs that may be challenged to other
unaudited cost reporting years. The normal Medicare administrative appeal
process may take several years to resolve these types of disputes.
The Company disagrees with the positions taken by the Medicare fiscal
intermediaries' auditors and the Health Care Financing Administration, and is
vigorously pursuing these matters through administrative and legal channels.
The disputed cost analysis process related to the community liaison and physical
therapist positions (which comprise 60% of disputed costs) encompassed all of
the authoritative, legal and historical sources discussed above. Based on this
review the Company believes that the majority of the community liaison costs are
probable of recovery, and that a relatively small portion of these costs are not
probable of recovery. The Company has established, and is continuing to add to,
a reserve for the portion of these costs not considered probable of recovery.
Since the reserves have been established, the Company has continued to review
whether the level is appropriate. Nothing has occurred in the legal or
administrative process which the Company is pursuing concerning the disputes
which has caused the Company to conclude that the reserve should be changed.
Therefore, no change has been made in the rate of reserve used to record
additional reserves on community liaison related costs incurred on an ongoing
basis. On the physical therapist issue, the Company believes Medicare has no
12
<PAGE>
basis in the regulations for its disallowance of certain costs related to
physical therapists employed by the Company, and therefore the Company has not
established a reserve for these disputed costs. The Company has filed two suits
against the U.S. Department of Health and Human Services ("HHS") and several
members of the Blue Cross Association which act as fiscal intermediaries to
administer the Medicare program. The two suits relate to the community liaison
and physical therapist issues discussed above allege that the defendants have
unjustly withheld payments that are owed to the Company for services it provided
to Medicare beneficiaries from fiscal 1989 through fiscal 1994. Legal opinions
have been received on both the community liaison and physical therapist issues
from an attorney specializing in Medicare reimbursement issues indicating that
it is probable that the Company will prevail in both issues.
The Company, based on its analysis process, believes that recovery of
$6,396,000 of total disputed costs (including the extrapolated impact) may not
be probable and, accordingly, has established reserves which totaled that amount
as of September 30, 1995. The net amount of disputed costs which the Company
believes is probable of recovery has been included in revenues in the respective
years in which services were rendered and, to the extent not paid to the
Company, is included in accounts receivable. Total accounts receivable (net of
reserves) due from Medicare at September 30, 1995 were $26,034,000, including
the receivables (net of reserves) for disputed costs of $20,771,000. As of
September 30, 1995 the Company had received $4,480,000 in payments from Medicare
for disputed costs. Medicare may seek repayment for such amounts and
accordingly, the potential liability for repayments is recorded as Accrued
Liabilities - Third Party. The Company believes it is probable that it has not
incurred any other liability to repay disputed costs. In view of the
expectation that resolution of the disputed costs will not likely be
accomplished within the next twelve months, related net receivables of
$17,592,000 as of September 30, 1995 have been classified as a non-current
asset.
Operating activities provided $5,135,000, $982,000 and $951,000 in
cash during 1995, 1994 and 1993, respectively. Total accounts receivable
(current and long-term) decreased 7% during 1995 and increased 18% and 67%
during 1994 and 1993, respectively. The decrease during 1995 was due to improved
collection efforts and timing of payments from Medicare. The increase in 1994
was due to the Medicare disputes noted above. The increase in 1993 was due to
increased revenue. The average age of total receivables is 87 and 102 days as
of September 30, 1995 and 1994, respectively.
Investing activities used $772,000, $1,519,000 and $3,152,000 in cash
during 1995, 1994 and 1993, respectively. The Company acquired two companies
during 1994 and three companies during 1993. The 1994 acquisitions were made
with $341,000 in cash, issuance of 10,000 shares of common stock and the
assumption of $264,000 in notes payable. In connection with expansion of the
Company's operations, the Company acquired property and developed software,
which was funded by $785,000 in cash and $1,256,000 of capitalized leases in
1995, $995,000 in cash and $753,000 of capitalized leases in 1994 and $2,466,000
in cash and $3,713,000 of capitalized leases in 1993.
Financing activities used $1,609,000, $1,633,000 and $2,218,000 in
cash during 1995, 1994 and 1993, respectively, principally for repayment of
long-term debt.
The Company has a line of credit with a commercial bank that expires
in December 1995. Under the credit line, the Company may borrow or obtain
letters of credit, all of which in the aggregate may not exceed the lesser of
$7.5 million or a borrowing base (which was $5,906,000 at September 30, 1995)
that consists of 80% of eligible accounts receivable. Substantially all the
Company's receivables and general intangible assets are pledged to secure the
credit line. As of September 30, 1995 the Company had no outstanding borrowings
and had utilized $4,520,000 of the credit facility as the basis for a letter of
credit. The interest rate on the line of credit is prime plus .75% (9.5% at
September 30, 1995). The credit agreement obligates the Company to, among other
things, maintain certain financial ratios and limits the payment of dividends.
In December 1995, the Company has obtained a new letter of credit facility for
$4,520,000. The letter of credit is collateralized by secured investments and
will expire on December 12, 1996.
On October 24, 1995 the Company consummated a Securities Purchase and
Sale Agreement with Manor Healthcare Corp. under which the Company received net
cash proceeds of approximately $18 million. These proceeds will be available to
the Company for general corporate purposes. The Company anticipates that it
will principally use the proceeds to invest in the expansion of Company
operations into the eight geographic areas where Manor Healthcare is present and
the Company is not, and to finance the Company's continued operations.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page(s)
Consolidated Balance Sheets . . . . . . . . . . . . . . . 15-16
Consolidated Statements of Income . . . . . . . . . . . 17
Consolidated Statements of Shareholders' Equity . . . . . 18
Consolidated Statements of Cash Flows . . . . . . . . . .19
Notes to Consolidated Financial Statements . . . . . . . 20-29
Independent Auditors' Report . . . . . . . . . . . . . . 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
14
<PAGE>
IN HOME HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
(DOLLARS AND SHARES IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,665 $ 911
Accounts receivable (net of allowances of $867 and $1,029 in 1995 and 1994, respectively) 14,130 20,318
Prepaid income tax - 459
Deferred income tax 2,129 800
Prepaid expenses and other current assets 1,470 1,438
--------- ---------
Total current assets 21,394 23,926
--------- ---------
Property:
Furniture and equipment 9,997 9,007
Leasehold improvements 807 654
Computer equipment and software 7,480 7,057
--------- ---------
Total 18,284 16,718
Accumulated depreciation (7,163) (4,993)
--------- ---------
Property - Net 11,121 11,725
--------- ---------
Other Assets:
Accounts receivable 17,592 13,830
Goodwill 5,748 5,906
Covenants not to compete - 128
Deposits 558 559
Other assets 1,146 652
--------- ---------
Total other assets 25,044 21,075
--------- ---------
Total Assets $ 57,559 $ 56,726
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
15
<PAGE>
IN HOME HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
(DOLLARS AND SHARES IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 2,041 $ 2,286
Accounts payable 4,468 3,821
Accrued liabilities:
Third party 4,480 7,666
Compensation 4,142 3,486
Insurance 5,127 2,960
Income tax 240 -
Other 791 488
--------- ---------
Total current liabilities 21,289 20,707
--------- ---------
Long-Term Debt 2,443 3,304
Deferred Revenue 1,242 1,632
Deferred Rent Payable 351 516
Deferred Income Tax 1,725 2,085
Commitments and Contingencies - -
Shareholders' Equity:
Preferred stock - authorized 1,000 shares - -
Common stock - $.01 par value: authorized - 40,000 shares; issued and outstanding -1995 -
16,277 shares 1994 - 15,944 shares 163 159
Additional paid-in capital 24,230 23,828
Retained earnings 6,116 4,495
--------- ---------
Total shareholders' equity 30,509 28,482
--------- ---------
Total Liabilities and Shareholders' Equity $ 57,559 $ 56,726
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
16
<PAGE>
IN HOME HEALTH, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenue (net of Medicare reserves of $1,435, $3,861 and $1,100 in 1995,
1994 and 1993, respectively) $ 129,816 $ 120,485 $ 103,761
----------- ----------- -----------
Operating Expenses:
Direct costs of revenue (primarily payroll related costs) 74,082 69,411 57,059
General, administrative and selling expenses 51,960 49,721 44,270
----------- ----------- -----------
Total operating expenses 126,042 119,132 101,329
----------- ----------- -----------
Income from Operations 3,774 1,353 2,432
Interest:
Interest expense 790 698 575
Interest income (23) (29) (95)
----------- ----------- -----------
Net interest expense 767 669 480
Income Before Income Taxes 3,007 684 1,952
Income Tax Expense 1,386 437 865
----------- ----------- -----------
Income Before Cumulative Effect of Change in Accounting Principle 1,621 247 1,087
Cumulative Effect of Change in Accounting Principle - - 72
Net Income $ 1,621 $ 247 $ 1,015
----------- ----------- -----------
----------- ----------- -----------
Net Income per Common and Common Equivalent Share $ .10 $ .02 $ .06
----------- ----------- -----------
----------- ----------- -----------
Weighted Average Common and Common Equivalent Shares Outstanding 16,304 16,013 16,056
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NET INCOME PER SHARE IMPACT OF THE CUMULATIVE EFFECT OF THE CHANGE IN ACCOUNTING
PRINCIPLE IS LESS THAN $.01.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
17
<PAGE>
IN HOME HEALTH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Balance - September 30, 1992 15,151 $ 151 $ 21,592 $ 3,233
Common stock issued for:
Employee stock plans 194 2 521 -
Acquisitions 173 2 943 -
Net income - - - 1,015
----------- ----- ------------- -----------
Balance - September 30, 1993 15,518 155 23,056 4,248
Common stock issued for:
Employee stock plans 266 3 745 -
Acquisitions 10 - 28 -
Exchange for warrants 150 1 (1) -
Net income - - - 247
----------- ----- ------------- -----------
Balance - September 30, 1994 15,944 159 23,828 4,495
Common stock issued for:
Employee stock plans 442 5 685 -
Exchange for options (109) (1) (283) -
Net income - - - 1,621
----------- ----- ------------- -----------
Balance - September 30, 1995 16,277 $ 163 $ 24,230 $ 6,116
----------- ----- ------------- -----------
----------- ----- ------------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
<PAGE>
IN HOME HEALTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,621 $ 247 $ 1,015
Adjustments:
Depreciation and amortization 3,226 3,233 2,146
Accounts receivable (760) (5,008) (11,062)
Prepaid expenses and other assets (833) (210) (141)
Accounts payable 647 (216) 545
Accrued liabilities 3,478 1,196 7,903
Deferred revenue (390) 1,632 -
Deferred rent payable (165) (20) 139
Deferred income tax (1,689) 128 406
--------- --------- ----------
Net cash provided by operating activities 5,135 982 951
Cash Flows From Investing Activities:
Acquisition of businesses - (389) (699)
Acquisition of property (785) (995) (2,466)
Advances to officers and employees 13 (135) 13
--------- --------- ----------
Net cash used by investing activities (772) (1,519) (3,152)
Cash Flows From Financing Activities:
Payment of long-term debt (2,015) (2,381) (2,741)
Proceeds from issuance of common stock 406 748 523
--------- --------- ----------
Net cash used by financing activities (1,609) (1,633) (2,218)
Cash and Cash Equivalents:
Net increase (decrease) 2,754 (2,170) (4,419)
Beginning of year 911 3,081 7,500
--------- --------- ----------
End of year $ 3,665 $ 911 $ 3,081
--------- --------- ----------
--------- --------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
19
<PAGE>
IN HOME HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - In Home Health specializes in high-quality health services to
clients in their own homes, including infusion therapy, high-tech nursing,
rehabilitation and personal care.
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of In Home Health, Inc. and its subsidiaries (the "Company"). All
material intercompany accounts and transactions have been eliminated in
consolidation.
CASH EQUIVALENTS - Securities which are readily convertible into cash with
original maturities of three months or less are considered cash
equivalents.
NOTES RECEIVABLES FROM OFFICER - Included in prepaid expenses and other
current assets are advances to an officer of the Company in the amount of
$150,000 as of September 30, 1995 and 1994.
PROPERTY AND PROPERTY UNDER CAPITALIZED LEASES - Property and property
under capitalized leases are stated at cost and depreciated or amortized
over estimated useful lives (from three to twelve years) using the
straight-line method. Property acquired by capital lease for the years
ended September 30, 1995, 1994 and 1993 was $1,256,000, $753,000 and
$3,713,000, respectively.
GOODWILL - Costs in excess of net assets of acquired businesses have been
capitalized and are being amortized over 40 years. Accumulated
amortization was $578,000 and $420,000 at September 30, 1995 and 1994,
respectively.
DEFERRED REVENUE - Deferred revenue relates to the timing difference in
recording certain software development costs for financial statement
purposes and Medicare cost reporting purposes. Incremental costs relating
to the development of software for certain major management information
system projects undertaken during 1992 through 1994 have been capitalized
and are included in computer equipment and software on the balance sheet.
For Medicare cost reimbursement purposes, the Company has filed amended
cost reports for prior years to include in reimbursable costs the amount of
expenditures in the year they were incurred. The Company has reported an
amount of deferred revenue, representing the Medicare impact of the
difference between the reimbursable costs reported on the Medicare cost
reports and the unamortized balance of capitalized software development
costs. The deferred revenues are being recorded to revenue when the
amortization of the related software development expenses is recorded (over
a five year period). Unamortized software development costs are $1,799,000
and $2,368,000 as of September 30, 1995 and 1994, respectively.
DEFERRED RENT PAYABLE - Deferred rent payable has been recorded for long-
term office space operating leases which contain initial rent inducements.
Rental expense is being amortized on a straight-line basis over the terms
of the operating leases.
INCOME TAXES - The Company adopted Statement of Financial Accounting
Standard (SFAS) No. 109, "Accounting for Income Taxes" in 1993. Under SFAS
No. 109, the deferred tax provision is determined under the liability
method. Under this method, deferred tax assets and liabilities are
recognized based on differences between the financial statement and tax
bases of assets and liabilities using presently enacted tax rates.
REVENUE RECOGNITION - Revenues are recognized at the time the service is
provided to the client. The Company records revenue for services to
Medicare beneficiaries at the time the services are rendered and based on
the Medicare cost reimbursement principles. Under those principles,
Medicare reimburses the Company for the reasonable costs (as defined)
incurred in providing care to Medicare beneficiaries. The Company reports
as reimbursable costs in the Medicare cost reports only those costs it
believes to be reimbursable under the applicable Medicare cost
reimbursement principles. In determining the amount of revenue to be
recorded, those costs are reduced for costs that are in excess of
reimbursable cost limits, and for costs for
20
<PAGE>
which reimbursement may be questionable based on the Company's
understanding of reimbursement principles in effect at that time.
Accordingly, this process results in recording revenue only for the
costs that the Company believes are reasonably assured of recovery.
Refer to Note 5 for additional information.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE - Net income per common
and common equivalent share is computed by dividing net income by the
weighted average number of common stock and dilutive common stock
equivalents outstanding. Common stock equivalents result from dilutive
stock options and warrants. Net earnings per share assuming full dilution
would be substantially the same.
2. ACQUISITIONS
The Company acquired all of the issued and outstanding capital stock of two
and three home health care companies during the years ended September 30,
1994 and 1993, respectively. There were no acquisitions during the year
ended September 30, 1995. The acquisitions accounted for as purchases for
financial reporting purposes are summarized as follows (in thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
CONSIDERATION:
CASH
ACQUISITION NOTES PAYABLE ISSUED TOTAL VALUE OF GOODWILL
COMPANY NAME DATE COMMON STOCK CONSIDERATION RECORDED
PAID
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CareServices of Raleigh Limited January, 1993 $ 210 $ 569 $ 548
Partnership, CareServices of -
Raleigh, NC, Inc. and 58 shares
CareServices of Greensboro, NC,
Inc.
-------------------------------------------------------------------------------------------------------------------------
Accent on Care Home Health January, 1993 $ 25 $ 100 $ 155
Services, Ltd. 25
8 shares
-------------------------------------------------------------------------------------------------------------------------
Home Care Resources, Inc., HCR February, 1993 $ 205 $ 741 $ 852
Associates, Inc. and Physician -
Home Health Care, Inc. 107 shares
-------------------------------------------------------------------------------------------------------------------------
ENS, Inc. January, 1994 $ 41 $ 69 $ 232
-
10 shares
-------------------------------------------------------------------------------------------------------------------------
RI Partners and RHC Partners May, 1994 $ 300 $ 300 $ 516
-
-
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
The purchase price has been allocated to the net assets acquired, including
intangible assets, based on their fair market values at the acquisition
dates. The net assets acquired in these acquisitions consisted primarily
of accounts receivable and current liabilities. The consolidated
statements of operations include the results of operations of these
companies since their respective acquisition dates. The fair market value
of the common stock issued for the acquisitions in 1994 and 1993 was
$28,000 and $945,000, respectively. Additional goodwill of $421,000 was
recorded in 1993 related to 1992 acquisitions. Notes payable issued for
the acquisitions in 1993 was $25,000. The Company incurred $95,000 and
$264,000 of costs in 1994 and 1993, respectively, in connection with the
acquisitions.
21
<PAGE>
The following table summarizes the Company's unaudited pro forma operating
results as if the 1994 acquisitions had occurred at the beginning of 1993
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1994 1993
---- ----
<S> <C> <C>
Service revenue $121,277 $105,142
------- -------
------- -------
Net income $ 250 $ 996
------- -------
------- -------
Net income per common and common
equivalent share $ .02 $ .06
------- -------
------- -------
</TABLE>
The pro forma operating results do not purport to be indicative of the
results that actually would have been obtained had the combined operations
been conducted during the periods presented and are not intended to be a
projection of future operating results.
3. NOTE PAYABLE - BANK
The Company has an agreement with a bank which provides for a line of
credit equal to the lesser of $7.5 million or a borrowing base (which was
$5,906,000 at September 30, 1995) that consists of 80% of eligible accounts
receivable. As of September 30, 1995 the Company had utilized $4,520,000
of the facility for an irrevocable standby letter of credit to secure
workers' compensation commitments. The interest rate on the line of credit
is prime plus .75% (9.5% at September 30, 1995). Borrowings are due at the
expiration of the agreement and are collateralized by accounts receivable
and intangibles. The Company had no bank borrowings at September 30, 1995
and 1994.
The current line of credit expires on December 29, 1995. The Company has
obtained a new letter of credit facility for $4,520,000. The letter of
credit is collateralized by secured investments and will expire on December
12, 1996.
4. LONG-TERM DEBT
Following is a summary of long-term debt at September 30 (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Obligations under capitalized leases, up
to 17.3% due through July 2000 $ 4,484 $ 5,220
Installment notes payable, secured by property - 370
----- -----
Total 4,484 5,590
Less current maturities 2,041 2,286
----- -----
Long-term debt $ 2,443 $ 3,304
----- -----
----- -----
</TABLE>
22
<PAGE>
Future minimum payments as of September 30, 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITALIZED
SEPTEMBER 30 LEASES
--------------------- -----------
<S> <C>
1996 $ 2,566
1997 1,574
1998 812
1999 214
2000 44
-----
Total minimum payments 5,210
Less amounts
representing interest 726
-----
Present value of future
minimum payments 4,484
Less current maturities 2,041
-----
Long-term debt $ 2,443
-----
-----
</TABLE>
Assets recorded under capital leases are included in property at cost of
$9,885,000 and $7,993,000, and accumulated depreciation of $3,719,000 and
$1,854,000 at September 30, 1995 and 1994, respectively. Interest paid for
the years ended September 30, 1995, 1994 and 1993 was $779,000, $687,000
and $546,000, respectively.
5. MEDICARE COST REIMBURSEMENT
Approximately 76%, 74% and 73% of revenue for the years ended September 30,
1995, 1994 and 1993, respectively, was derived from services provided to
Medicare beneficiaries. Payment for these services is made by the Medicare
program based on reimbursable costs incurred in rendering the services.
Payments are made via an interim payment rate as services are rendered.
Cost reports are filed with Medicare on an annual basis, which are subject
to audit and retroactive adjustment by Medicare. The Company reports
revenue only for those costs that it believes are probable (as defined in
Statement of Financial Accounting Standards No. 5) of recovery under the
applicable Medicare statutes and regulations and reports its accounts
receivable balances at net realizable value. The Company utilizes an
extensive system of internal controls to ensure such proper reporting of
revenues. The Company employs personnel with significant Medicare
reimbursement experience to prepare its cost reports and to monitor its
operations on an ongoing basis to identify and seek to minimize those costs
which are not reimbursed. As a part of its system of internal controls,
the Company uses a detailed analysis process in calculating its Medicare
revenue at the time services are rendered. This process considers the
nature and amounts of the disputed costs (as described in more detail
below) along with several authoritative, legal and historical sources of
information including:
- Applicable statutes and regulations, such as those contained in the
Title XVIII of the Social Security Act, particularly Sec. 1861 (V) (1)
(A) "Reasonable Cost" and 42 C.F.R. 413.9 "Cost Related to Patient
Care", Health Care Financing Administration (HCFA) Publication 11
"Home Health Agency Manual", applicable sections of HCFA Publication
15-1 "Provider Reimbursement Manual" and intermediary letters and
program memoranda issued by HCFA.
- Administrative decisions and rulings on related issues by the Provider
Reimbursement Review Board and Administrative Law Judges.
- Judicial decisions from Federal District Courts on relevant cases.
- Consultation with independent industry experts such as Medicare Cost
Reimbursement Consultants.
- Opinions of outside legal counsel who specialize in dealing with
Medicare reimbursement issues.
- Historical knowledge gained internally from past Medicare audits.
- Meetings and other communication with Medicare Intermediaries, Blue
Cross Association and HCFA.
This detailed analysis process is updated on a quarterly basis, taking into
account any new information (such as decisions relating to the Company's
disputed costs, and administrative and judicial decisions relating to
similar issues) that may affect the determination of the net realizable
value of accounts receivable or of liabilities to repay amounts received
for disputed costs. Results of this detailed analysis process are
extrapolated to other unaudited cost reporting years for all of the
Company's
23
<PAGE>
operations, including operations that have not yet been audited by Medicare,
to estimate the gross amount of reimbursement that would be affected. The
Company, through this ongoing control and monitoring process, provides a
reserve (by means of a revenue reduction) for any costs incurred which the
Company believes are not probable of recovery. This reserve is reported as
a reduction of accounts receivable for disputed costs for which the Company
may not ultimately receive payment. The Company has also reported as a
liability disputed costs for which it has received payment, which may have
to be returned to Medicare. Accordingly, the Company believes that its
accounts receivable are stated at net realizable value, and that it has
recorded all probable liabilities for repayment of disputed costs.
Over the years, Medicare auditors employed by the Medicare fiscal
intermediaries have, in connection with their retrospective audit process,
taken certain positions with respect to certain types of costs, claiming
that they are not reimbursable and thus not recoverable by the Company from
the Medicare program. These positions are based on interpretations
promulgated after the period covered by the cost reports and applied
retroactively, on interpretations of cost reimbursement principles that are
contrary to the Company's interpretations, or on what the Company believes
to be misapplications of specific reimbursement principles, that could not
have been foreseen at the time services were rendered and revenue recorded.
These positions taken by Medicare auditors are usually determined from
Medicare's Notice of Program Reimbursement ("NPR") which typically are not
received until two to three years after the services are rendered. In
those situations where the Company decides to not challenge an NPR finding,
any revenue relating to these costs, as well as the extrapolated impact, if
any, on other open costs reporting years, if not written off or provided for
earlier, is written off as a revenue reduction at that time. The results of
all NPRs are included in the analysis process in calculating net Medicare
revenue as described above.
The Company has received NPRs challenging $12.1 million of costs as of
September 30, 1995. There was an additional $15.1 million of costs at
September 30, 1995 related to open cost reporting years that are similar to
the costs that have been challenged on NPRs. Together these amounts ($27.2
million at September 30, 1995) comprise the total amount the Company
considers to be disputed costs. The major cost category in dispute,
accounting for approximately half of total disputed costs, is the treatment
of certain personnel costs relating to the Company's community liaison
positions, which Medicare auditors allege are unreimbursable sales costs;
other costs in dispute relate to the cost of physical therapists employed
by the Company, the method of allocation of administrative and general
costs to branch operations, certain corporate expenses, and cost transfers
within branch operations. These disputed costs (including the extrapolated
impact) of $27.2 million at September 30, 1995 arose in the fiscal years
ended September 30, 1995 ($6.0 million), 1994 ($8.2 million), 1993 ($6.5
million), 1992 ($4.4 million), and 1991 ($2.1 million). The amount of
disputed costs has increased over the last several years as the Company's
operations have grown, Medicare auditors have taken positions to disallow
certain costs in certain cost reports as non-reimbursable, and the Company
has extrapolated that amount of costs that may be challenged to other
unaudited cost reporting years. The normal Medicare administrative appeal
process may take several years to resolve these types of disputes.
The Company disagrees with the positions taken by the Medicare fiscal
intermediaries' auditors and the Health Care Financing Administration, and
is vigorously pursuing these matters through administrative and legal
channels. The disputed cost analysis process related to the community
liaison and physical therapist positions (which comprise 60% of disputed
costs) encompassed all of the authoritative, legal and historical sources
discussed above. Based on this review the Company believes that the
majority of the community liaison costs are probable of recovery, and that
a relatively small portion of these costs are not probable of recovery.
The Company has established, and is continuing to add to, a reserve for the
portion of these costs not considered probable of recovery. Since the
reserves have been established, the Company has continued to review whether
the level is appropriate. Nothing has occurred in the legal or
administrative process which the Company is pursuing concerning the
disputes which has caused the Company to conclude that the reserve should
be changed. Therefore, no change has been made in the rate of reserve used
to record additional reserves on community liaison related costs incurred
on an ongoing basis. On the physical therapist issue, the Company believes
Medicare has no basis in the regulations for its disallowance of certain
costs related to physical therapists employed by the Company, and therefore
the Company has not established a reserve for these disputed costs. The
Company has filed two suits against the U.S. Department of Health and Human
Services ("HHS") and several members of the Blue Cross Association which
act as fiscal intermediaries to administer the Medicare program. The two
suits relate to the community liaison and physical therapist issues
discussed above allege that the defendants have unjustly withheld payments
that are owed to the Company for services it provided to Medicare
beneficiaries from fiscal 1989 through fiscal 1994. Legal opinions have
been received on both the community liaison and physical therapist issues
from an attorney specializing in Medicare reimbursement issues indicating
that it is probable that the Company will prevail in both issues.
The Company, based on its analysis process, believes that recovery of
$6,396,000 of total disputed costs (including the extrapolated impact) may
not be probable and, accordingly, has established reserves which totaled
that amount as of September 30, 1995. The net amount of disputed costs
which the Company believes is probable of recovery has been included in
revenues
24
<PAGE>
in the respective years in which services were rendered and, to the extent
not paid to the Company, is included in accounts receivable. Total accounts
receivable (net of reserves) due from Medicare at September 30, 1995 were
$26,034,000, including the receivables (net of reserves) for disputed costs
of $20,771,000. As of September 30, 1995 the Company had received
$4,480,000 in payments from Medicare for disputed costs. Medicare may seek
repayment for such amounts and accordingly, the potential liability for
repayments is recorded as Accrued Liabilities - Third Party. The Company
believes it is probable that it has not incurred any other liability to
repay disputed costs. In view of the expectation that resolution of the
disputed costs will not likely be accomplished within the next twelve
months, related net receivables of $17,592,000 as of September 30, 1995
have been classified as a non-current asset.
The reserve balance of $6,396,000 at September 30, 1995 has been recorded
during fiscal 1993 ($1,100,000), 1994 ($3,861,000), and 1995 ($1,435,000),
based on the timing of information that was available to make an assessment
of assurance of recovery of the disputed costs. In connection therewith,
based on information that became available in the last fiscal quarter of
1994, adjustments to the Medicare reserves of $2,639,000 were recorded in
that fiscal quarter.
6. COMMITMENTS AND CONTINGENCIES
The Company is obligated under several noncancelable operating leases for
office space and equipment. Total rental expense for all operating leases
was $4,005,000, $3,666,000 and $2,763,000, for the years ended September
30, 1995, 1994 and 1993, respectively.
Future minimum rental payments as of September 30, 1995 for operating
leases with noncancelable terms in excess of one year are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30
-----------------------
<S> <C>
1996 $ 3,381
1997 2,567
1998 1,592
1999 1,110
2000 435
Thereafter 369
-----
Total minimum payments $ 9,454
-----
-----
</TABLE>
The Company is a party to various claims and legal proceedings which
management believes are in the normal course of business and will not
involve any material loss.
25
<PAGE>
7. CAPITAL TRANSACTIONS
STOCK OPTION PLAN
The Company has adopted a stock option plan to provide for the granting of
options to purchase up to a maximum of 3,150,000 shares of common stock.
The options are granted at exercise prices equal to the fair market value
of the common stock at the date of grant. The following is a summary of
stock option activity (in thousands, except per share amounts):
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------
AVAILABLE
FOR GRANT OUTSTANDING EXERCISE PRICES
--------- ----------- ---------------
<S> <C> <C> <C>
Balance - September 30, 1992 854 1,139 $ .53 to $5.38
Options granted (449) 449 $ 2.94 to $5.94
Options exercised - (76) $ .69 to $4.44
Options cancelled 109 (109) $ 1.03 to $5.50
---- -----
Balance - September 30, 1993 514 1,403 $ .53 to $5.94
Options granted (360) 360 $ 1.88 to $4.06
Options exercised - (117) $ .54 to $2.69
Options cancelled 211 (211) $ 1.03 to $5.94
---- -----
Balance - September 30, 1994 365 1,435 $ .53 to $5.63
Additional options authorized 650 -
Options granted (637) 637 $ 1.75 to $3.06
Options exercised - (314) $ .53 to $2.50
Options cancelled 273 (273) $ 1.03 to $5.44
---- -----
Balance - September 30, 1995 651 1,485 $ .53 to $5.63
---- -----
---- -----
</TABLE>
At September 30, 1995, options for the purchase of 698,000 shares of common
stock are currently exercisable at prices ranging from $.53 to $5.63 per
share.
In 1995, two officers of the Company surrendered 109,000 shares of common
stock to the Company at fair market value in lieu of cash payment for the
exercise of 194,000 options.
WARRANTS
As of September 30, 1995, private warrants issued in January 1993 totalling
96,000 and expiring January 1996, are exercisable at $6.00 per share.
In April 1994, 150,000 shares of common stock were issued in exchange for
300,000 private warrants issued in January 1991 and expiring January 1996.
STOCK PURCHASE PLAN
The Company has a plan whereby eligible employees may purchase the
Company's common stock at the lower of 85% of the market price at the time
of grant or the time of purchase. There are 700,000 shares reserved for
this plan of which 124,000 shares were issued on September 30, 1995 at
$1.96 per share, 144,000 shares were issued on September 30, 1994 at $1.96
per share and 116,000 shares were issued on September 30, 1993 at $3.40 per
share.
26
<PAGE>
8. INCOME TAXES
The income tax provision for the years ended September 30, 1995, 1994 and
1993 consisted of (in thousands):
<TABLE>
<CAPTION>
1995 FEDERAL STATE TOTAL
------- ----- -----
<S> <C> <C> <C>
Current $ 2,505 $ 593 $ 3,098
Deferred (1,380) (332) (1,712)
------ ---- ------
$ 1,125 $ 261 $ 1,386
------ ---- ------
------ ---- ------
<CAPTION>
1994 FEDERAL STATE TOTAL
------- ----- -----
<S> <C> <C> <C>
Current $ 483 $ 46 $ 529
Deferred (138) 46 (92)
------ ---- ------
$ 345 $ 92 $ 437
------ ---- ------
------ ---- ------
<CAPTION>
1993 FEDERAL STATE TOTAL
------- ----- -----
<S> <C> <C> <C>
Current $ 437 $ 94 $ 531
Deferred 291 43 334
------ ---- ------
$ 728 $ 137 $ 865
------ ---- ------
------ ---- ------
</TABLE>
The income tax expense differs from the amount computed by applying the
Federal statutory rate to income before income taxes for each of the years
ended September 30, 1995, 1994 and 1993 as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Tax at Federal statutory rate $ 1,022 $ 233 $ 664
State income taxes,
net of Federal benefit 231 92 90
Officers life insurance 24 24 45
Goodwill amortization 33 44 44
Meals and entertainment 81 32 34
Other (5) 12 (12)
----- ---- ----
Income tax expense $ 1,386 $ 437 $ 865
----- ---- ----
----- ---- ----
</TABLE>
The tax benefit related to the exercise of employee stock options is
recorded as additional paid-in-capital.
Income taxes paid during the years ended September 30, 1995, 1994 and 1993
were $2,376,000, $31,000 and $1,566,000, respectively.
The Company adopted SFAS No. 109 as of the beginning of fiscal year 1993.
The cumulative effect on prior years of this change in accounting principle
reduced 1993 net income by $72,000, and is reported separately in the
consolidated statement of income for the year ended September 30, 1993.
The tax effect of the temporary differences giving rise to the Company's
deferred tax assets and liabilities at September 30, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ ------------------------
CURRENT LONG-TERM CURRENT LONG-TERM
ASSET LIABILITY ASSET LIABILITY
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Bad debt allowance $ 335 $ - $ 397 $ -
Depreciation and amortization - 2,031 - 2,047
Insurance accruals 1,397 - 225 -
Capitalized items expensed
for taxes - 372 - 516
Deferred revenue - (479) - -
Vacation 318 - 240 -
AMT credit carry forward - - - (321)
Other 79 (199) (62) (157)
----- ----- --- -----
$ 2,129 $ 1,725 $ 800 $ 2,085
----- ----- --- -----
----- ----- --- -----
</TABLE>
27
<PAGE>
9. SUBSEQUENT EVENTS
On October 24, 1995, the Company closed an agreement with Manor Healthcare
Corp., a wholly owned subsidiary of Manor Care, Inc., a national health
care and international lodging firm. Pursuant to this agreement, the
Company conducted a cash self-tender offer and purchased 6,750,000 shares
of its common stock (41% of outstanding) at $3.40 per share and Manor
Healthcare purchased 6,750,000 shares from the Company at $3.40 per share.
In addition, Manor Healthcare invested $20 million to purchase redeemable
convertible preferred shares and a warrant to purchase 6,000,000 shares of
common stock at an exercise price of $3.75 per share. These transactions
have resulted in net cash proceeds to the Company of $18 million (after
transaction costs of approximately $2 million). The redeemable preferred
shares may be redeemed in cash at the option of the holder or the Company
on and after the fifth anniversary of their issuance. The redeemable
preferred shares have voting rights on an as-if converted basis, and are
initially convertiable into 10 million common shares at an initial
conversion price of $2 per share. The redeemable preferred shares bear
dividends payable quarterly at 12% per annum. The Company's pro forma loss
per share for 1995 would be $.07 assuming the transactions occurred on
October 1, 1994, as a result of an assumed dividend on redeemable preferred
shares of $2,400,000 and redeemable preferred share accretion of $291,000.
The proforma effect on shareholders' equity of the Company at September 30,
1995, assuming the transactions occurred on such date, would be a reduction
of $500,000 (comprised of the $2 million in transaction costs less the $1.5
million fair value of the warrant issued).
Upon the close of the agreement, the Company granted options to purchase
650,000 shares of the Company's common stock to certain Company officers
and employees with exercise prices equal to the fair value of the Company's
common stock at the date of grant.
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
FISCAL 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Service revenue $32,334 $32,593 $32,239 $32,650
Income from operations 995 1,018 820 941
Net income 422 421 347 431
Net income per share .03 .03 .02 .02
</TABLE>
FISCAL 1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Service revenue $29,780 $30,167 $30,591 $29,947
Income (loss) from operations 1,375 979 597 (1,598)
Net income (loss) 646 410 152 (961)
Net income (loss) per share .04 .03 .01 (.06)
</TABLE>
See Note 5 for a discussion of a fourth quarter adjustment recorded to the
Company's Medicare reserve.
11. RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation," which will be effective in fiscal 1997. The Company has not
determined the effect of the new standard on the financial statements.
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
In Home Health, Inc.:
We have audited the accompanying consolidated balance sheets of In Home Health,
Inc. as of September 30, 1995 and 1994 and the related consolidated statements
of income, shareholders' equity and cash flows for each of the three years in
the period ended September 30, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14(a)2. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of In Home Health, Inc. as of
September 30, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 1995 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note 8 to the consolidated financial statements, effective
October 1, 1992 the Company changed its method of accounting for income taxes.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
November 22, 1995, except for the second paragraph of Note 3, as to which the
date is December 14, 1995.
29
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information required under this Item with respect to directors will be
contained in the section entitled "Election of Directors" in the Company's 1996
Proxy Statement, and is incorporated herein by reference.
Information concerning executive officers is set forth in the section
entitled "Executive Officers of the Registrant" in Part I of this Form 10-K
pursuant to Instruction 3 to paragraph (b) of Item 401 of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this item will be contained in the section
entitled "Executive Compensation and Other Information" in the Company's 1996
Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this item will be contained in the section
entitled "Security Ownership of Certain Beneficial Owners and Management" in the
Company's 1996 Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this item will be contained in the section
entitled "Election of Directors - Certain Transactions" in the Company's 1996
Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS A PART OF THIS REPORT
1. FINANCIAL STATEMENTS
The Consolidated Financial Statements filed with this Form 10-K are
listed in Item 8 above.
2. FINANCIAL STATEMENT SCHEDULES
The schedules required to be filed as part of this Annual Report on
Form 10-K are listed below with their location in this report.
PAGE
----
In Home Health, Inc.:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . 29
Schedules for the Years Ended September 30, 1995, 1994 and 1993:
II - Valuation and Qualifying Accounts and Reserves . . . . . 34
All schedules, other than indicated above, are omitted because of the
absence of the conditions under which they are required or because the
information required is shown in the consolidated financial statements
or notes thereto.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of
fiscal 1995.
30
<PAGE>
(c) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1 Restated Articles of Incorporation, as amended.
3.2 Restated Bylaws.
4.1 Form of specimen Common Stock certificate. (i)
4.2 Form of specimen certificate for Series A Preferred Stock.
4.3 Certificate of Designation of the Series, Number of Shares in Series,
Dividend Rate, Redemption Price, Liquidation Price, Conversion Right
and Other Rights and Preferences of the Series A Preferred Stock ($1.00
par value) of In Home Health, Inc.
10.1 Revolving Credit Agreement dated September 24, 1992 as amended,
with First Bank National Association.
10.2 Management Incentive Plan in place for fiscal 1995.
10.3 Lease agreement dated October 24, 1991 with Minnesota CC
Properties, as amended.
10.4 The Company's 1987 Stock Option Plan, as amended.
10.5 The Company's 1995 Stock Option Plan, as amended.
10.6 Stock exchange agreement between In Home Health, Inc. and Robert
L. Hancock dated January 11, 1993. (ii)
10.7 Asset purchase agreement between In Home Health, Inc., Robert L.
Hancock and CareServices of Raleigh Limited Partnership dated
January 11, 1993. (ii)
10.8 Asset purchase agreement between In Home Health, Inc., Carolyn
Kelley and Accent On Care Home Health Services, Ltd. dated
January 22, 1993. (iii)
10.9 Stock exchange agreement between In Home Health, Inc., John B.
Syer, Scott L. Pachter, R. Evelyn Wool, Anita W. Fuering, Carol
L. Michaelis, Cynthia A. Heide, Jane M. Hixon, Margaret D.
Sullivan and Stephanie H. Shipman dated February 12, 1993. (iv)
10.10 Asset purchase agreement between In Home Health, Inc.,
Carol I. Peake and ENS, Inc. dated January 14, 1994. (vi)
10.11 Partnership purchase agreement between In Home Health, Inc. and
Riata Health Care, Inc., Red Health Care, Inc., Crimson Health
Care, Inc., William W. Sullivan, Jr., Warren Neely and Dennis
Gutzman dated May 23, 1994. (vii)
10.12 Asset purchase agreement between In Home Health, Inc., RI
Investments, Inc. Green Investments, Inc., Maroon
Investments, Inc., William W. Sullivan, Jr., Warren Neely,
Dennis Gutzman and RI Partners dated May 23, 1994. (vii)
10.13 Securities Purchase and Sale Agreement dated May 2, 1995,
as amended between the Company and Manor Healthcare Corp.
(viii)
10.14 Employment Agreement between the Company and Judy M. Figge
dated May 2, 1995. (viii)
10.15 Employment Agreement between the Company and Kenneth J. Figge
dated May 2, 1995. (viii)
10.16 Employment Agreement between the Company and James J. Lynn
dated October 24, 1995. (viii)
10.17 Employment Agreement between the Company and Cathy R. Reeves
dated October 24, 1995. (viii)
10.18 Employment Agreement between the Company and Margaret L. Maxon
dated October 24, 1995. (viii)
10.19 Letter of Credit Agreement dated December 14, 1995 with Harris
Trust and Savings Bank.
11 Computation of Per Share Earnings
24 Independent Auditors' Consent
- ---------------------
(i) Incorporated herein by reference to the Registrant's Registration
Statement (Form S-18) No. 33-17228C.
(ii) Incorporated herein by reference to the Registrant's current
report on Form 8-K dated January 15, 1993.
(iii) Incorporated herein by reference to the Registrant's current
report on Form 8-K dated January 22, 1993.
(iv) Incorporated herein by reference to the Registrant's current
report on Form 8-K dated February 12, 1993.
(v) Incorporated herein by reference to the Registrant's annual
report on Form 10-K for the year ended September 30, 1991.
(vi) Incorporated herein by reference to the Registrant's current
report on Form 8-K dated January 17, 1994.
(vii) Incorporated herein by reference to the Registrant's current
report on Form 8-K dated May 26, 1994.
(viii) Incorporated herein by reference to the Registrant's current
report on Form 8-K dated May 2, 1995.
(ix) Filed as Appendix II to the Company's definitive Proxy Statement
for the Special Meeting of Shareholders held October 23, 1995.
</TABLE>
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Minnetonka,
Minnesota.
IN HOME HEALTH, INC.
By: /s/ Mark L. Gildea
----------------------------------------
Mark L. Gildea, Chief Executive Officer
Date: December 29, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date set forth above.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Mark L. Gildea Chief Executive Officer December 29, 1995
- ------------------------- and Director
Mark L. Gildea (principal executive officer)
/s/ Judy M. Figge President and Director December 29, 1995
- -------------------------
Judy M. Figge
/s/ Kenneth J. Figge Executive Vice President, December 29, 1995
- ------------------------- Chief Financial Officer,
Kenneth J. Figge Secretary, and Director
(principal financial officer)
/s/ James J. Lynn Director December 29, 1995
- -------------------------
James J. Lynn
/s/ Joseph Buckley Director December 29, 1995
- -------------------------
Joseph Buckley
/s/ Donald C. Tomasso Director December 29, 1995
- -------------------------
Donald C. Tomasso
/s/ James H. Rempe Director December 29, 1995
- -------------------------
James H. Rempe
</TABLE>
32
<PAGE>
IN HOME HEALTH, INC.
SCHEDULE AND EXHIBIT INDEX
SCHEDULE PAGE
- -------- --------
II Valuation and Qualifying Accounts and Reserves 34
EXHIBIT
- -------
3.1 Restated Articles of Incorporation, as amended 35
3.2 Restated Bylaws 38
4.2 Form of specimen certificate of Series A Preferred Stock 63
10.1 Amendments No. 4 and 5 to Second Amended and Restated Credit
Agreement 65
10.2 Management Incentive Plan in place for fiscal 1995 78
10.3 Amendment to Lease Agreement with Minnesota CC Properties 82
10.4 1987 Stock Option Plan, as amended 86
10.5 1995 Stock Option Plan, as amended 98
10.19 Letter of Credit Agreement dated December 14, 1995 with Harris
Trust and Savings Bank 110
11 Computation of Earnings per Share 114
24 Independent Auditors' Consent 115
27 Financial Data Schedule 116
33
<PAGE>
SCHEDULE II
IN HOME HEALTH, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994, AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
----------
(2)
(1) CHARGED BALANCE
BALANCE AT CHARGED TO TO OTHER AT
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS END OF
CLASSIFICATION OF PERIOD EXPENSES DESCRIBE -DESCRIBE PERIOD
(B) (A)
- ----------------------------------------------------------------------------------------------------------------------------------
1995
- ----
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts - Current $ 1,029 $ 856 $ - $ 1,018 $ 867
Medicare Reserve 4,961 - 1,435 - 6,396
1994
- ----
Allowance for Doubtful Accounts - Current $ 859 $ 914 $ - $ 744 $ 1,029
Medicare Reserve 1,100 - 3,861 - 4,961
1993
- ----
Allowance for Doubtful Accounts - Current $ 576 $ 427 $ - $ 144 $ 859
Medicare Reserve - - 1,100 - 1,100
(A) Write-off of Bad Debts, Net of Recoveries and acquisition balances.
(B) Adjustment to Medicare reserve.
</TABLE>
34
<PAGE>
EXHIBIT 3.1
SECOND RESTATEMENT
OF
ARTICLES OF INCORPORATION
OF
IN HOME HEALTH, INC.
I, Kenneth J. Figge, as Secretary of In Home Health, Inc., a Minnesota
corporation, do hereby certify that this Second Restatement correctly sets forth
without change the existing provisions of the articles of incorporation of In
Home Health, Inc. as previously amended to date, and that this Second
Restatement was duly approved by the Board of Directors of In Home Health, Inc.
on October 24, 1995, to wit:
ARTICLE I
The name of this corporation shall be In Home Health, Inc.
ARTICLE II
The location and address of this corporation's registered office in
this state is:
In Home Health, Inc.
Carlson Center, Suite 500
601 Lakeshore Parkway
Minnetonka, MN 55305-5214
ARTICLE III
The authorized capital stock of this corporation shall consist of
Forty Million (40,000,000) shares of Common Stock, par value $.01 per
share, and One Million (1,000,000) shares of Preferred Stock. The
Preferred Stock may be issued from time to time as shares of one or more
series. Subject to the provisions hereof and the limitations prescribed by
law, the Board of Directors is authorized, by adopting resolutions
providing for the issuance of Preferred Stock of any particular series, to
establish the number of shares of Preferred Stock to be included in each
such series, and to fix the par value, designation, relative powers,
preferences, rights, qualifications, limitations and restrictions thereof,
including without limitation the right to create voting, dividend and
liquidation preferences greater than those of Common Stock.
In addition, as to any series of Preferred Stock which may have voting
rights fixed by resolution of the Board of Directors, the Board of
Directors is authorized to provide in the resolution fixing the voting
rights of any series of
35
<PAGE>
Preferred Stock that each share of such Preferred Stock has voting rights
equal to the number of shares of Common Stock into which each such share of
Preferred Stock may be convertible at any time.
ARTICLE IV
Shareholders shall have no rights of cumulative voting.
ARTICLE V
Shareholders shall have no rights, preemptive or otherwise, to acquire
any part of any unissued shares or other securities of this corporation or
of any rights to purchase shares or other securities of this corporation
before the corporation may offer them to other persons.
ARTICLE VI
The Board of Directors of this corporation shall consist of three
directors or such other number of directors as shall be fixed in the manner
provided in the By-laws or this corporation.
ARTICLE VII
Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken by written action signed by all of the directors
then in office, unless the action is one which need not be approved by the
shareholders, in which case such action shall be effective if signed by the
number of directors that would be required to take the same action at a
meeting at which all directors were present.
ARTICLE VIII
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of
fiduciary duty by such director as a director; provided, however, that his
Article VIII shall not eliminate or limit the liability of a director to
the extent provided by applicable law (I) for any breach of the director's
duty of loyalty to the Corporation or its shareholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) under Sections 302A.559 or 80A.23 of the
Minnesota Statutes, (iv) for any transaction from which the director
derived an improper personal benefit, or (v) for any act or omission
occurring prior to the date when this Article VIII become effective. If
the Minnesota Business Corporation Act is amended after approval by the
shareholders of this Article to authorize corporate action further
eliminating or
36
<PAGE>
limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Minnesota Business Corporation Act, as so amended.
No amendment to or repeal of this Article VIII shall apply to, or have any
effect on, the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
IN WITNESS WHEREOF, I have hereunto subscribed my name pursuant to and
authorized by the foregoing resolution this 24th day of October, 1995.
/s/ Kenneth J. Figge
------------------------------------
Kenneth J. Figge, Secretary of
In Home Health, Inc.
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 24th day of
October, 1995, by Kenneth J. Figge, the Secretary of In Home Health, Inc.,
a Minnesota corporation, on behalf of the corporation.
/s/ Myrna J. Florentine
------------------------------------
Notary Public
My Commission Expires: Jan 31, 2000
----------
MYRNA J. FLORENTINE
[NOTARY PUBLIC SEAL] NOTARY PUBLIC MINNESOTA
MY COMMISSION EXPIRES
JANUARY 31, 2000
37
<PAGE>
EXHIBIT 3.2
As amended through May 2, 1995,
effective October 24, 1995
RESTATED
BY-LAWS
OF
IN HOME HEALTH, INC.
ARTICLE I
Offices
SECTION 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive office of
the corporation shall be such as is designated by the Board of Directors from
time to time.
SECTION 2. REGISTERED OFFICE. The location and address of the registered
office of the corporation shall be such as is designated by the Board of
Directors or the President from time to time and certified to the Secretary of
State. The registered office need not be identical with the principal executive
office of the corporation and may be changed from time to time by the Board of
Directors.
SECTION 3. OTHER OFFICES. The corporation may have other offices at such
places within and without the State of Minnesota as the Board of Directors may
from time to time determine.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETING. All meetings of the shareholders of this
corporation shall be held at its principal executive office unless some other
place for any such meeting within or without the State of Minnesota be
designated by the
38
<PAGE>
Board of Directors in the notice of meeting. Any regular or special meeting of
the shareholders of the corporation called by or held pursuant to a written
demand of shareholders shall be held in the county where the principal executive
office is located.
SECTION 2. REGULAR MEETINGS. (a) Regular meetings of the shareholders of
this corporation may be held at the discretion of the Board of Directors on an
annual or less frequent periodic basis on such date and at such time and place
as may be designated by the Board of Directors in the notice of meeting. At
regular meetings the shareholder shall elect a Board of Directors and transact
such other business as may be appropriate for action by shareholders. If a
regular meeting of shareholders has not been held for a period of fifteen (15)
months, one or more shareholders holding not less than three percent (3%) of the
voting power of all shares of the corporation entitled to vote may call a
regular meeting of shareholders by delivering to the President or Treasurer a
written demand for a regular meeting. Within thirty (30) days after the receipt
of such written demand by the President or Treasurer, the Board of Directors
shall cause a regular meeting of shareholders to be called and held on notice no
later than ninety (90) days after the receipt of written demand, all at the
expense of the corporation.
(b) At a regular meeting, the shareholders shall elect directors of the
corporation and shall transact such other business s as may properly come before
them. To be properly brought before the meeting, business must be of a nature
that is
39
<PAGE>
appropriate for consideration at a regular meeting and must be (i) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (ii) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (iii) otherwise properly
brought before the meeting by a shareholder. In addition to any other
applicable requirements, for business to be properly brought before a regular
meeting by a shareholder, the shareholder must have given timely notice thereof
in writing to the Secretary of the corporation. To be timely, each such notice
must be given, either by personal delivery or by United States mail, postage
prepaid, to the Secretary of the corporation, and received not later than the
close of business on the 10th day following the day on which such notice of the
date of the regular meeting was mailed or public disclosure of the meeting was
made, whichever first occurs. Each such notice to the Secretary shall set forth
as to each matter the shareholder proposes to bring before the regular meeting
(1) a brief description of the business desired to be brought before the meeting
and the reasons for conducting such business at the regular meeting, (2) the
name and address of record of the shareholder proposing such business, (3) the
class or series (if any) and number of shares of the corporation which are owned
by the shareholder, and (4) any material interest of the shareholder in such
business. Notwithstanding anything in these Bylaws to the contrary, no business
shall be transacted at the regular meeting except in
40
<PAGE>
accordance with the procedures set forth in this Article; PROVIDED, HOWEVER,
that nothing in this Article shall be deemed to preclude discussion by any
shareholder of any business properly brought before the regular meeting in
accordance with these Bylaws.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders, for any
purpose or purposes appropriate for action by shareholders, may be called by the
President, by the Vice President in the absence of the President, by the
Treasurer, or by the Board of Directors or any two or more members thereof.
Such meeting shall be held on such date and at such time and place as shall be
fixed by the person or persons calling the meeting and designated in the notice
of meeting. Special meetings may also be called by one or more shareholders
holding not less than ten percent (10%) of the voting power of all shares of the
corporation entitled to vote by delivering to the President or Treasurer a
written demand for a special meeting, which demand shall contain the purposes of
the meeting; PROVIDED, HOWEVER, that a special meeting for the purpose of
considering any action to directly or indirectly facilitate a business
combination (as defined in the Minnesota Business Corporation Act), including
any action to change or otherwise affect the composition of the Board of
Directors for that purpose, must be called by twenty-five percent (25%) or more
of the voting power of all shares entitled to vote. Within thirty (30) days
after the receipt of a written demand for a special meeting of
41
<PAGE>
shareholders by the President or Treasurer, the Board of Directors shall cause a
special meeting of shareholders to be called and held on notice no later than
ninety (90) days after the receipt of such written demand, all at the expense of
the corporation. Business transacted at any special meeting of shareholders
shall be limited to the purpose or purposes stated in the notice of meeting.
Any business transacted at any special meeting of shareholders that is not
included among the stated purposes of such meeting shall be voidable by or on
behalf of the corporation unless all of the shareholders have waived notice of
the meeting.
SECTION 4. NOTICE OF MEETINGS. Except where a meeting of shareholders is
an adjourned meeting and the date, time, and place of such meeting were
announced at the time of adjournment, notice of all meetings of shareholders
stating the date, time, and place thereof, and any other information required by
law or desired by the Board of Directors or by such other person or persons
calling the meeting, and in the case of special meetings, the purpose thereof,
shall be given to each shareholder of record entitled to vote at such meeting
not less than three (3) nor more than sixty (60) days prior to the date of such
meeting. In the event that a plan of merger or the sale or other disposition of
all or substantially all of the assets of the corporation is to be considered at
a meeting of shareholders, notice of such meeting shall be given to every
shareholder, whether or not
42
<PAGE>
entitled to vote, not less than fourteen (14) days prior to the date of such
meeting.
Notices of meeting shall be given to each shareholder entitled thereto by
oral communication, by mailing a copy thereof to such shareholder at an address
he has designated or to the last known address of such shareholder, by handing a
copy thereof to such shareholder, or by any other delivery that conforms to law.
Notice by mail shall be deemed given when deposited in the United States mail
with sufficient postage affixed. Any shareholder may waive notice of any
meeting of shareholders. Waiver of notice shall be effective whether given
before, at, or after the meeting and whether given orally, in writing, or by
attendance. Attendance by a shareholder at a meeting is a waiver of notice of
that meeting, except where the shareholder objects at the beginning of the
meeting to the transaction of business because the meeting is not lawfully
called or convened and does not participate thereafter in the meeting, or
objects before a vote on an item of business because the item may not lawfully
be considered at that meeting and does not participate in the consideration of
that item at the meeting.
SECTION 5. RECORD DATE. For the purpose of determining shareholders
entitled to notice of and to vote at any meeting of shareholders or any
adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors of the corporation may, but need not, fix
a
43
<PAGE>
date as the record date for any such determination of shareholders, which record
date, however, shall in no event be more than sixty (60) days prior to any such
intended action or meeting.
SECTION 6. QUORUM. The holders of a majority of the voting power of all
shares of the corporation entitled to vote at a meeting shall constitute a
quorum at a meeting of shareholders for the purpose of taking any action other
than adjourning such meeting. If the holders of a majority of the voting power
of all shares are not represented at a meeting, the shareholders present in
person or by proxy shall constitute a quorum for the sole purpose of adjourning
such meeting, and the holders of a majority of the shares so represented may
adjourn the meeting to such date, time, and place as they shall announce at the
time of adjournment. Any business may be transacted at the meeting held
pursuant to such an adjournment and at which a quorum shall be represented,
which might have been transacted at the adjourned meeting. If a quorum is
present when a duly called or held meeting is convened, the shareholders present
may continue to transact business until adjournment, even though the withdrawal
of a number of shareholders originally represented leaves less than the number
otherwise required for a quorum.
A meeting of the shareholders at which there is a quorum may be adjourned
as to all or part of the matters to be considered at the meeting upon motion by
the person presiding at such meeting and by a majority vote of shares
represented in person or by
44
<PAGE>
proxy at such meeting. Such adjournment shall be until a specific time and
place, and the time and place for the reconvened meeting shall be announced at
the meeting and reflected in the minutes thereof.
SECTION 7. VOTING AND PROXIES. At each meeting of the shareholders every
holder of the Common Stock shall be entitled to one vote in person or by proxy
for each share of Common Stock held by such shareholder and each holder of
Preferred Stock having the power to vote with the Common Stock shall be entitled
to such number of votes in person or by proxy as is specified pursuant to the
terms of such Preferred Stock for each share of such Preferred Stock held by
such shareholder, but no appointment of a proxy shall be valid for any purpose
more than eleven (11) months after the date of its execution, unless a longer
period is expressly provided in the appointment. Every appointment of a proxy
shall be in writing (which shall include telegraphing, cabling, or
telephotographic transmission), and shall be filed with the Secretary of the
corporation before or at the meeting at which the appointment is to be
effective. An appointment of a proxy for shares held jointly by two or more
shareholders shall be valid if signed by any one of them, unless the Secretary
of the corporation receives from any one of such shareholders written notice
either denying the authority of that person to appoint a proxy or appointing a
different proxy. All questions regarding the qualification of voters, the
validity of appointments of proxies, and the acceptance or rejection of votes
45
<PAGE>
shall be decided by the presiding officer of the meeting. The shareholders
shall take action by the affirmative vote of the holders of a majority of the
voting power of the shares present, in person or represented by proxy, and
entitled to vote, except where a different vote is required by law, the Articles
of Incorporation, or these By-Laws.
(First sentence amended May 2, 1995, effective October 24, 1995, to include
references to voting rights of preferred shares.)
SECTION 8. ACTION WITHOUT MEETING BY SHAREHOLDERS. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting by written action signed by all of the shareholders entitled to vote on
such action. Such written action shall be effective when signed by all of the
shareholders entitled to vote thereon or at such different effective time as is
provided in the written action.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the corporation
shall be managed by or under the direction of its Board of Directors. The
directors may exercise all such powers and do all such things as may be
exercised or done by the corporation, subject to the provisions of applicable
law, the Articles of Incorporation, and these By-Laws.
SECTION 2. NUMBER, TENURE, AND QUALIFICATION. The number of directors
which shall constitute the whole Board of Directors shall be fixed from time to
time by resolution of the shareholders, subject to increase by resolution of the
Board of
46
<PAGE>
Directors. In the event that the shareholders fail to fix the number of
directors, the number of directors shall be the number provided for in the
Articles of Incorporation, subject to increase by resolution of the Board of
Directors. No decrease in the number of directors pursuant to this section
shall effect the removal of any director then in office except upon compliance
with the provisions of Section 7 of this Article. Each director shall be
elected at a regular meeting of shareholders, except as provided in Sections 6
and 7 of this Article, and shall hold office until the next regular meeting of
shareholders and thereafter until his successor is duly elected and qualified,
unless a prior vacancy shall occur by reason of his death, resignation, or
removal from office. Directors shall be natural persons but need not be
shareholders.
SECTION 3. MEETINGS. Meetings of the Board of Directors may be held at
such times and places as shall from time to time be determined by the Board of
Directors. Meetings of the Board of Directors also may be called by the
President, by the Vice President in the absence of the President, or by any
director, in which case the person or persons calling such meeting may fix the
date, time, and place thereof, either within or without the State of Minnesota,
and shall cause notice of meeting to be given. The Chairman of the Board of
Directors shall preside at all meetings of the Board of Directors when present.
(Last sentence added by amendment adopted May 2, 1995, effective October 24,
1995.)
47
<PAGE>
SECTION 4. NOTICE OF MEETINGS. If the date, time, and place of a meeting
of the Board of Directors has been announced at a previous meeting, no notice is
required. In all other cases three (3) days' notice of meetings of the Board of
Directors, stating the date and time thereof and any other information required
by law or desired by the person or persons calling such meeting, shall be given
to each director. If notice of meeting is required, and such notice does not
state the place of the meeting, such meeting shall be held at the principal
executive office of the corporation. Notice of meetings of the Board of
Directors shall be given to directors in the manner provided in these By-Laws
for giving notice to shareholders of meetings of shareholders.
Any director may waive notice of any meeting. A waiver of notice by a
director is effective whether given before, at, or after the meeting, and
whether given orally, in writing, or by attendance. The attendance of a
director at any meeting shall constitute a waiver of notice of such meeting,
unless such director objects at the beginning of the meeting to the transaction
of business on grounds that the meeting is not lawfully called or convened and
does not participate thereafter in the meeting.
SECTION 5. QUORUM AND VOTING. A majority of the directors currently
holding office shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors. In the absence of a quorum, a majority of
the directors present
48
<PAGE>
may adjourn the meeting from time to time until a quorum is present. If a
quorum is present when a duly called or held meeting is convened, the directors
present may continue to transact business until adjournment, even though the
withdrawal of a number of directors originally present leaves less than the
number otherwise required for a quorum.
The Board of Directors shall take action by the affirmative vote of a
majority of the directors present at any duly held meeting, except as to any
question upon which any different vote is required by law, the Articles of
Incorporation, or these By-Laws. A director may give advance written consent or
objection to a proposal to be acted upon at a meeting of the Board of Directors.
If the proposal acted on at the meeting is substantially the same or has
substantially the same effect as the proposal to which the director has
consented or objected, such consent or objection shall be counted as a vote for
or against the proposal and shall be recorded in the minutes of the meeting.
Such consent or objection shall not be considered, in determining the existence
of a quorum.
SECTION 6. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Any vacancy
occurring in the Board of Directors may be filled by the affirmative vote of a
majority of the directors remaining in office, even though said remaining
directors be less than a quorum. Any newly created directorship resulting from
an increase in the authorized number of directors by action of the Board of
Directors may be filled by a majority vote of the
49
<PAGE>
directors serving at the time of such increase. Any vacancy or newly created
directorship may be filled by resolution of the shareholders. Unless a prior
vacancy occurs by reason, of his death, resignation, or removal from office, any
director so elected shall hold office until the next regular meeting of
shareholders and until his successor is duly elected and qualified.
SECTION 7. REMOVAL OF DIRECTORS. The entire Board of Directors or any
director or directors may be removed from office, with or without cause, at any
special meeting of the shareholders, duly called for that purpose as provided in
these By-Laws, by a vote of the shareholders holding a majority of the shares
entitled to vote at an election of directors. At such meeting, without further
notice, the shareholders may fill any vacancy or vacancies created by such
removal as provided in Section 6 of this Article. Any such vacancy not so
filled may be filled by the directors as provided in Section 6 of this Article.
Any director named by the Board of Directors to fill a vacancy may be removed at
any time, with or without cause, by an affirmative vote of a majority of the
remaining directors, even though said remaining directors be less than a quorum,
if the shareholders have not elected directors in the interval between the
appointment to fill the vacancy and the time of removal.
SECTION 8. COMMITTEES. The Board of Directors, by a resolution approved by
the affirmative vote of a majority of the directors then holding office, may
establish one or more commit-
50
<PAGE>
tees of one or more persons having the authority of the Board of Directors in
the management of the business of the corporation to the extent provided in such
resolution. Such committees, however, shall at all times be subject to the
direction and control of the Board of Directors. Committee members need not be
directors and shall be appointed by the affirmative vote of a majority of the
directors present. A majority of the members of any committee shall constitute
a quorum for the transaction of business at a meeting of any such committee. In
other matters of procedure the provisions of these By-Laws shall apply to
committees and the members thereof to the same extent they apply to the Board of
Directors and directors, including, without limitation, the provisions with
respect to meetings and notice thereof, absent members, written actions, and
valid acts. Each committee shall keep regular minutes of its proceedings and
report the same to the Board of Directors.
SECTION 9. ACTION IN WRITING. Any action required or permitted to be taken
at a meeting of the Board of Directors or of a lawfully constituted committee
thereof may be taken by written action signed by all of the directors then in
office or by all of the members of such committee, as the case may be. If the
action does not require shareholder approval, such action shall be effective if
signed by the number of directors or members of such committee that would be
required to take the same action at a meeting at which all directors or
committee members were present. If any written action is taken by less than all
51
<PAGE>
directors, all directors shall be notified immediately of its text and effective
date. The failure to provide such notice, however, shall not invalidate such
written action.
SECTION 10. MEETING BY MEANS OF ELECTRONIC COMMUNICATION. Members of the
Board of Directors of the corporation, or any committee designated by such
Board, may participate in a meeting of such Board or committee by means of
conference telephone or similar means of communication by which all persons
participating in the meeting can simultaneously hear each other, and
participation in a meeting pursuant to this section shall constitute presence in
person at such meeting.
SECTION 11. NOMINATIONS TO THE BOARD OF DIRECTORS. Subject to the rights,
if any, of holders of any preferred stock, nominations for the election of
directors may be made by the Board of Directors or a committee appointed by the
Board of Directors or by any shareholder entitled to vote generally in the
election of directors. However, any shareholder entitled to vote generally in
the election of directors may nominate one or more persons for election as
directors at a regular or special meeting of shareholders only if written notice
of such shareholder's intent to make such nomination or nominations has been
given, either by personal delivery or by United States mail, postage prepaid, to
the Secretary of the corporation and received not later than the close of
business on the 10th day following the day on which notice of the date of the
meeting was mailed or public disclosure of the date of the meeting was made,
whichever
52
<PAGE>
first occurs. Each such notice to the Secretary shall set forth: (i) the name
and address of record of the shareholder who intends to make the nomination;
(ii) a representation that the shareholder is a holder of record of shares of
the corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to nominate the person or persons specified in the
notice; (iii) the name, age, business and residence addresses, and principal
occupation or employment of each nominee; (iv) a description of all arrangements
or understandings between the shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (v) such other information
regarding each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission; and (vi) the consent of each nominee to
serve as a director of the corporation if so elected. The corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the corporation to determine the eligibility of such proposed
nominee to serve as a director of the corporation. The presiding officers of
the meeting may, if the facts warrant, determine that a nomination was not made
in accordance with the foregoing procedure, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
53
<PAGE>
ARTICLE IV
OFFICERS
SECTION 1. NUMBER AND QUALIFICATION. The officers of the corporation shall
be elected by the Board of Directors and shall include a Chief Executive
Officer, a President, a Secretary, and a Treasurer. The Board of Directors may
also appoint one or more Vice Presidents or such other officers and assistant
officers as it may deem necessary. Except as provided in these By-Laws, the
Board of Directors shall fix the powers, duties, and compensation of all
officers. officers may, but need not, be directors of the corporation. Any
number of offices may be held by the same person.
(First sentence amended May 2, 1995, effective October 24, 1995, to include
reference to Chief Executive officer.)
SECTION 2. TERM OF OFFICE. An officer shall hold office until his successor
shall have been duly elected, unless prior thereto he shall have resigned or
been removed from office as hereinafter provided.
SECTION 3. REMOVAL AND VACANCIES. Any officer or agent elected or appointed
by the Board of Directors shall hold office at the pleasure of the Board of
Directors and may be removed, with or without cause, at any time by the vote of
a majority of the Board of Directors. Any vacancy in an office of the corpo-
ration shall be filled by the Board of Directors.
SECTION 4. PRESIDENT. The President shall have such powers and perform such
duties as the Board of Directors may from time
54
<PAGE>
to time prescribe. The President shall report to the Chief Executive Officer of
the corporation.
(Amended in its entirety by amendment adopted May 2, 1995, effective October 24,
1995.)
SECTION 5. VICE PRESIDENTS. The Vice President, if any, or vice Presidents
in case there be more than one, shall have such powers and perform such duties
as the Board of Directors may from time to time prescribe. In the absence of
the President or in the event of his death, inability, or refusal to act, the
Vice President, or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the Board of Directors, or, in the absence
of any designation, in the order of their election, shall perform the duties of
the President, and, when so acting, shall have all the powers of and be subject
to all of the restrictions upon the President.
(First sentence amended May 2, 1995, effective October 24, 1995, to delete the
President's authority to determine the duties of the Vice-Presidents.)
SECTION 6. SECRETARY. The Secretary shall attend all meetings of the Board
of Directors and of the shareholders and shall maintain records of, and whenever
necessary, certify all proceedings of the Board of Directors and of the
shareholders. He shall keep the stock books of the corporation, and, when so
directed by the Board of Directors or other person or persons authorized to call
such meetings, shall give or cause to be given notice of meetings of the
shareholders and of meetings of the Board of Directors. He shall also perform
such other duties and
55
<PAGE>
have such other powers as the Board of Directors may from time to time
prescribe.
(Last sentence amended May 2, 1995, effective October 24, 1995, to delete
President's authority to prescribe secretary's duties.)
SECTION 7. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall be
the chief financial officer of the corporation. He shall have the care and
custody of the corporate funds and securities of the corporation and shall
disburse the funds of the corporation as may be ordered from time to time by the
Board of Directors. He shall keep full and accurate financial records for the
corporation and shall have such other powers and perform such other duties as
the Board of Directors may from time to time prescribe.
(Amended May 2, 1995, effective October 24, 1995, to change title from Treasurer
to CFO and delete President's authority to prescribe CFO's powers.)
SECTION 8. OTHER OFFICERS. The Assistant Secretaries and Assistant
Treasurers in the order of their seniority, unless otherwise determined by the
Board of Directors, shall, in the absence or disability of the Secretary or
Treasurer, perform the duties and exercise the powers of the Secretary and
Treasurer respectively. Such Assistant Secretaries and Assistant Treasurers
shall have such other powers and perform such other duties as the Board of
Directors may from time to time prescribe. Any other officers appointed by the
Board of Directors shall hold office at the pleasure of the Board of Directors
and shall have such powers, perform such duties, and be responsible to such
56
<PAGE>
other officers as the Board of Directors may from time to time prescribe.
(Second sentence amended May 2, 1995, effective October 24, 1995, to delete
President's power to prescribe duties of officers.)
SECTION 9. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
preside at all meetings of the shareholders and shall see that all orders and
resolutions of the Board of Directors are carried into effect. The Chief
Executive Officer shall have such powers and perform such duties as the Board of
Directors may from time to time prescribe.
SECTION 10. TREASURER. The Treasurer shall have such powers and perform
such duties as the Board of Directors may from time to time prescribe.
(Sections 9 and 10 added by amendment adopted May 2, 1995, effective October 24,
1995.)
ARTICLE V
CERTIFICATES AND OWNERSHIP OF SHARES
SECTION 1. CERTIFICATES. All shares of the corporation shall be
represented by certificates. Each certificate shall contain on its face (a) the
name of the corporation, (b) a statement that the corporation is incorporated
under the laws of the State of Minnesota, (c) the name of the person to whom it
is issued, and (d) the number and class of shares, and the designation of the
series, if any, that the certificate represents. Certificates shall also
contain any other information required by law or desired by the Board of
Directors, and shall be in such
57
<PAGE>
form as shall be determined by the Board of Directors. Such certificates shall
be signed by either the President, a Vice President, the Secretary, or an
Assistant Secretary. If a certificate is signed (1) by a transfer agent or an
assistant transfer agent or (2) by a transfer clerk acting on behalf of the
corporation and a registrar, the signature of any such President, Vice
President, Secretary, or Assistant Secretary may be a facsimile. If a person
signs or has a facsimile signature placed upon a certificate while an officer,
transfer agent, or registrar of a corporation, the certificate may be issued by
the corporation, even if the person has ceased to have that capacity before the
certificate is issued, with the same effect as if the person had that capacity
at the date of its issue. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the person to whom
the shares represented thereby are issued with the number of shares and date of
issue shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation or the transfer agent for transfer
shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed, or mutilated certificate, a
new one may be issued therefor upon such terms and indemnity to the corporation
as the Board of Directors may prescribe.
58
<PAGE>
SECTION 2. TRANSFER OF SHARES. Transfer of shares of the corporation shall
be made only on the stock transfer books of the corporation by the holder of
record thereof or by his legal representative who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation, and on
surrender of such shares to the corporation or the transfer agent of the
corporation.
SECTION 3. OWNERSHIP. Except as otherwise provided in this Section, the
person in whose name shares stand on the books of the corporation shall be
deemed by the corporation to be the owner thereof for all purposes. The Board
of Directors, however, by a resolution approved by the affirmative vote of a
majority of directors then in office, may establish a procedure whereby a
shareholder may certify in writing to the corporation that all or a portion of
the shares registered in the name of the shareholder are held for the account of
one or more beneficial owners. Upon receipt by the corporation of the writing,
the persons specified as beneficial owners, rather than the actual shareholder,
shall be deemed the shareholders for such purposes as are permitted by the
resolution of the Board of Directors and are specified in the writing.
ARTICLE VI
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize such officers
or agents as they shall designate to enter into
59
<PAGE>
contracts or execute and deliver instruments in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instances.
SECTION 2. LOANS. The corporation shall not lend money to, guarantee the
obligation of, become a surety for, or otherwise financially assist any person
unless the transaction, or class of transactions to which the transaction
belongs, has been approved by the affirmative vote of a majority of directors
present, and (a) is in the usual and regular course of business of the
corporation, (b) is with, or for the benefit of, a related corporation, an
organization in which the corporation has a financial interest, an organization
with which the corporation has a business relationship, or an organization to
which the corporation has the power to make donations, (c) is with, or for the
benefit of, an officer or other employee of the corporation or a subsidiary,
including an officer or employee who is a director of the corporation or a
subsidiary, and may reasonably be expected, in the judgment of the Board of
Directors, to benefit the corporation, or (d) has been approved by the
affirmative vote of the holders of two-thirds of the outstanding shares,
including both voting and nonvoting shares.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the corporation shall be signed by such officers or agents of the corporation
as shall be
60
<PAGE>
designated and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks or other financial institutions as the Board of Directors may select.
ARTICLE VII
MISCELLANEOUS
SECTION 1. DIVIDENDS. The Board of Directors may from time to time
declare, and the corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law.
SECTION 2. RESERVES. There may be set aside out of any funds of the
corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, deem proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or for the purchase of additional property, or
for such other purpose as the directors shall deem to be consistent with the
interests of the corporation, and the directors may modify or abolish any such
reserve.
SECTION 3. FISCAL YEAR. The fiscal year of the corporation shall be such
twelve-month period as may be set by a resolution of the Board of Directors,
provided, however, that the first fiscal year of the corporation may be a
shorter period if
61
<PAGE>
permitted by law and set by a resolution of the Board of Directors.
SECTION 4. AMENDMENTS. Except as limited by the Articles of Incorporation,
these By-Laws may be altered or amended by the Board of Directors at any meeting
of directors to the full extent permitted by law, subject, however, to the power
of the shareholders of this corporation to alter or repeal such By-Laws.
* * * * *
The undersigned, Secretary of In Home Health, Inc., a Minnesota corporation
does hereby certify that the foregoing are the Restated By-Laws of the
corporation incorporating all amendments to date.
Dated: October 24, 1995 /s/ KENNETH J. FIGGE
----------------------------------------
Kenneth J. Figge,
Secretary
62
<PAGE>
EXHIBIT 4.2
SEE REVERSE SIDE FOR IMPORTANT NOTICES
INCORPORATED UNDER THE LAWS OF THE
STATE OF MINNESOTA
NUMBER SHARES
IN HOME HEALTH, INC.
SERIES A PREFERRED STOCK
PAR VALUE $1.00 PER SHARE
THIS CERTIFIES THAT __________________________________________ IS THE OWNER AND
REGISTERED HOLDER OF ________________________________________________ SHARES OF
Series A Preferred Stock, par value $1.00 per share of In Home Health, Inc.
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN
PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE
PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS
CERTIFICATE TO BE SIGNED BY THE DULY AUTHORIZED OFFICERS AND
TO BE SEALED WITH THE SEAL OF THE CORPORATION
THIS _______________ DAY OF _____________, 19____________,
/s/ Kenneth J. Figge /s/ Judy M. Figge
____________________________ _____________________________
SECRETARY PRESIDENT
63
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER
RELEVANT STATE SECURITIES LAWS. THE SHARES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR EXEMPTION THEREFROM. THE COMPANY RESERVES
THE RIGHT TO REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO IT BEFORE
EFFECTING ANY TRANSFER OF THE SHARES.
A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE
RIGHTS OF THE SHARES OF EACH CLASS OR SERIES AUTHORIZED TO BE ISSUED, SO FAR
AS THEY HAVE BEEN DETERMINED, AND A STATEMENT OF THE AUTHORITY OF THE BOARD
TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT CLASSES OR
SERIES, ARE ON FILE WITH THE CORPORATION AND WILL BE FURNISHED TO ANY
SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE.
FOR VALUE RECEIVED ________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
_____________________________________________________________________________
_______________________________________________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE
AND APPOINT
_____________________________________________________________________ ATTORNEY
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED __________________________, 19 _____ ________________________________
IN PRESENCE OF ______________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGE-
MENT OR ANY CHANGE WHATEVER.
64
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 4 TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT NO. 4 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
("Amendment No. 4") is entered into as of the 30th day of September, 1995, by
and between IN HOME HEALTH, INC., a Minnesota corporation (the "Borrower") and
FIRST BANK NATIONAL ASSOCIATION, a national banking association (the "Bank").
RECITALS
FIRST: Borrower is indebted to the Bank pursuant to the terms of a
Second Amended and Restated Credit Agreement dated March 31, 1994, as amended
(the "Credit Agreement"), as evidenced by a Substitute Revolving Credit Note
dated June 30, 1994, in the original principal amount of $15,000,000 (the
"Revolving Note").
SECOND: All indebtedness of the Borrower to the Bank is secured by a
Security Agreement dated September 24, 1992, executed by the Borrower in favor
of the Bank, as successor by merger to Marquette Bank Minneapolis, National
Association.
THIRD: The Borrower and the Bank have agreed to amend certain terms and
provisions of the Credit Agreement and address certain existing Events of
Default, all as more particularly set forth herein.
NOW, THEREFORE, for and in consideration of the mutual promises, covenants
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower and the
Bank agree as follows:
1. DEFINED TERMS. All capitalized terms used in this Amendment No. 3
which are not otherwise defined herein shall have the meanings ascribed to them
in the Credit Agreement.
2. WAIVER. Borrower acknowledges that an Event of Default exists under
the Credit Agreement due to the breach of Section 6.6 of the Credit Agreement as
a result of making a loan to a director and officer of the Borrower. Subject to
the conditions to the effectiveness of this Amendment No. 4 as set forth in
paragraph 6 below, the Bank hereby waives the above-described Event of Default
through and including October 31, 1995; PROVIDED, HOWEVER, that the waiver
granted herein is limited to the specific Event of Default described in this
paragraph and is not intended, and shall not be construed, to be a general
waiver of any term or provision of the Credit Agreement or any other existing or
future Default or Event of Default.
September 20, 1995
65
<PAGE>
3. CONSTRUCTION. All references in the Credit Agreement to "this Credit
Agreement", "herein" and similar references shall be deemed to refer to the
Credit Agreement as amended by this Amendment No. 4.
4. REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into this
Amendment No. 4 and to grant the waiver hereunder, the Borrower hereby warrants
and represents to the Bank that it is duly authorized to execute and deliver
this Amendment No. 4 and to perform its obligations under the Credit Agreement
as amended hereby and that this Amendment No. 4 and all other documents executed
by the Borrower in connection herewith constitute the legal, valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms. The Credit Agreement, as amended hereby, and the Revolving Note, shall
continue to be secured by the Security Agreement, without loss of lien or
priority. The Borrower further represents and warrants that it has been advised
by the Bank that the Bank does not intend to renew the Revolving Credit
Commitment after December 31, 1995, that the Bank intends to terminate the
Revolving Credit Commitment on December 31, 1995 (unless earlier terminated in
accordance with the terms of the Credit Agreement) and that the Bank will notify
the beneficiaries of any letters of credit on or before December 1, 1995, that
any letters of credit will not be renewed on their expiry date.
5. EFFECTIVE DATE. This Amendment No. 4 shall become effective on the
date first set forth above upon the satisfaction of each of the following
conditions precedent:
(a) WARRANTIES. Before and after giving effect to this Amendment No.
4, the representations and warranties in Section 4 of the Credit Agreement
shall be true and correct as though made on the date hereof, except for
changes that are permitted by the terms of the Credit Agreement. The
execution by the Borrower of this Amendment No. 4 shall be deemed a
representation that the Borrower has complied with the foregoing condition.
(b) DEFAULTS. After giving effect to this Amendment No. 4, no
Default or Event of Default shall have occurred and be continuing under the
Credit Agreement. The execution by the Borrower of this Amendment No. 4
shall be deemed a representation that the Borrower has complied with the
foregoing condition.
(c) DOCUMENTS. The following shall have been delivered to the Bank,
each in form and substance satisfactory to the Bank:
September 20, 1995
66
<PAGE>
(i) AMENDMENT NO. 4. This Amendment No. 4 appropriately
completed and duly executed by the Borrower.
(ii) SECRETARY'S CERTIFICATE. A Secretary's Certificate signed
by the Borrower's corporate secretary certifying that copies of the
Articles of Incorporation and the Bylaws of the Borrower attached
thereto are in full force and effect.
(iii) LEGAL FEES AND EXPENSES. Payment of the legal fees and
expenses of counsel for the Bank incurred in connection with the
preparation, negotiation and execution of this Amendment No. 4.
6. EXPENSES. The Borrower agrees to reimburse the Bank upon demand for
all reasonable expenses (including attorneys' fees and legal expenses) incurred
by the Bank in the preparation, negotiation and execution of this Amendment No.
4, and any other document required to be furnished herewith, and in enforcing
the obligations of the Borrower under the Credit Agreement as amended hereby,
which obligations of the Borrower shall survive any termination of the Credit
Agreement.
7. COUNTERPARTS. This Amendment No. 4 may be executed in as many
counterparts as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts, each of which, when so executed, shall
be deemed an original but all such counterparts shall constitute but one and the
same instrument.
8. SEVERABILITY. Any provision of this Amendment No. 4 which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
9. SUCCESSORS ENFORCEABILITY. This Amendment No. 4 shall be binding upon
the Borrower and the Bank and their respective successors and assigns, and shall
inure to the benefit of the Borrower and the Bank and the successors and assigns
of the Bank. Except as hereby amended, the terms and provisions of the Credit
Agreement shall remain in full force and effect and the Credit Agreement is
hereby ratified and confirmed in all respects.
10. ENTIRE AGREEMENT. The Credit Agreement, as amended hereby, together
with the other Loan Documents constitute the entire agreement of the parties and
all other agreements, whether oral or in writing, are merged into the Credit
Agreement, as amended hereby, and are superseded hereby.
September 20, 1995
67
<PAGE>
11. GOVERNING LAW. THIS AMENDMENT NO. 4 SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE LAW OF CONFLICTS)
OF THE STATE OF MINNESOTA, GIVING EFFECT TO LAWS APPLICABLE TO NATIONAL BANKS.
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amendment
No. 4 to be executed by their duly authorized officers as of the date and year
first above written.
IN HOME HEALTH, INC.,
a Minnesota corporation
By /s/ MICHAEL J. KENNEDY
--------------------------------
Its VICE-PRESIDENT-TREASURER
----------------------------
FIRST BANK NATIONAL ASSOCIATION,
a national banking association
By /s/ CONRAD A. KEECH
--------------------------------
Its VICE PRESIDENT
----------------------------
September 20, 1995
68
<PAGE>
SECRETARY'S CERTIFICATE
I, Kenneth J. Figge, do hereby certify that I am the duly elected and
acting secretary of In Home Health, Inc. a corporation (the "Corporation") duly
organized and existing under the laws of the state of Minnesota, and am keeper
of the records of the Corporation.
I further certify that the Articles of Incorporation nor the Bylaws of the
Corporation have been altered, amended, modified or repealed since May 2, 1995
and the same remain in full force and effect as in existence on said date.
WITNESS my hand as of the 22 day of September, 1995.
/s/ Kenneth J. Figge
-----------------------------------
Secretary of said corporation
69
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 5 TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT NO. 5 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
("Amendment No. 5") is entered into as of the 30 day of November, 1995, by and
between IN HOME HEALTH, INC., a Minnesota corporation (the "Borrower") and FIRST
BANK NATIONAL ASSOCIATION, a national banking association (the "Bank").
RECITALS
FIRST: Borrower is indebted to the Bank pursuant to the terms of a
Second Amended and Restated Credit Agreement dated March 31, 1994, as amended
(the "Credit Agreement"), as evidenced by a Substitute Revolving Credit Note
dated June 30, 1994, in the original principal amount of $15,000,000 (the
"Revolving Note").
SECOND: All indebtedness of the Borrower to the Bank is secured by a
Security Agreement dated September 24, 1992, executed by the Borrower in favor
of the Bank, as successor by merger to Marquette Bank Minneapolis, National
Association.
THIRD: The Borrower and the Bank have agreed to amend certain terms and
provisions of the Credit Agreement and address certain existing Events of
Default, all as more particularly set forth herein.
NOW, THEREFORE, for and in consideration of the mutual promises, covenants
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower and the
Bank agree as follows:
1. DEFINED TERMS. All capitalized terms used in this Amendment No. 5
which are not otherwise defined herein shall have the meanings ascribed to them
in the Credit Agreement.
2. WAIVER. Borrower acknowledges that as of the date hereof, an Event of
Default exists under the Credit Agreement due to the breach of Section 6.6 of
the Credit Agreement as a result of making a loan to a director and officer of
the Borrower. Subject to the conditions to the effectiveness of this Amendment
No. 5 as set forth in paragraph 6 below, the Bank hereby waives the above-
described Event of Default through and including December 29, 1995; PROVIDED,
HOWEVER, that the waiver granted herein is limited to the specific Event of
Default described in this paragraph and is not intended, and shall not be
construed, to be a general waiver of any term or provision of the Credit
Agreement or any other existing or future Default or Event of Default.
November 1, 1995
70
<PAGE>
3. CONSTRUCTION. All references in the Credit Agreement to "this Credit
Agreement", "herein" and similar references shall be deemed to refer to the
Credit Agreement as amended by this Amendment No. 5.
4. REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into this
Amendment No. 5 and to grant the waiver hereunder, the Borrower hereby warrants
and represents to the Bank that it is duly authorized to execute and deliver
this Amendment No. 5 and to perform its obligations under the Credit Agreement
as amended hereby and that this Amendment No. 5 and all other documents executed
by the Borrower in connection herewith constitute the legal, valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms. The Credit Agreement, as amended hereby, and the Revolving Note, shall
continue to be secured by the Security Agreement, without loss of lien or
priority.
5. EFFECTIVE DATE. This Amendment No. 5 shall become effective on the
date first set forth above upon the satisfaction of each of the following
conditions precedent:
(a) WARRANTIES. Before and after giving effect to this Amendment No.
5, the representations and warranties in Section 4 of the Credit Agreement
shall be true and correct as though made on the date hereof, except for
changes that are permitted by the terms of the Credit Agreement. The
execution by the Borrower of this Amendment No. 5 shall be deemed a
representation that the Borrower has complied with the foregoing condition.
(b) DEFAULTS. After giving effect to this Amendment No. 5, no
Default or Event of Default shall have occurred and be continuing under the
Credit Agreement. The execution by the Borrower of this Amendment No. 5
shall be deemed a representation that the Borrower has complied with the
foregoing condition.
(c) DOCUMENTS . The following shall have been delivered to the Bank,
each in form and substance satisfactory to the Bank:
(i) AMENDMENT NO. 5. This Amendment No. 5 appropriately
completed and duly executed by the Borrower.
(ii) SECRETARY'S CERTIFICATE. A Secretary's Certificate signed
by the Borrower's corporate secretary certifying that copies of the
Articles of Incorporation and the Bylaws of the Borrower attached
thereto are in full force and effect and that the Board of
November 1, 1995
71
<PAGE>
Directors has authorized the Borrower to enter into this Amendment No.
5 by all necessary corporate action.
(iii) LEGAL FEES AND EXPENSES. Payment of the legal fees and
expenses of counsel for the Bank incurred in connection with the
preparation, negotiation and execution of this Amendment No. 5.
6. EXPENSES. The Borrower agrees to reimburse the Bank upon demand for
all reasonable expenses (including attorneys' fees and legal expenses) incurred
by the Bank in the preparation, negotiation and execution of this Amendment No.
5, and any other document required to be furnished herewith, and in enforcing
the obligations of the Borrower under the Credit Agreement as amended hereby,
which obligations of the Borrower shall survive any termination of the Credit
Agreement.
7. COUNTERPARTS. This Amendment No. 5 may be executed in as many
counterparts as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts, each of which, when so executed, shall
be deemed an original but all such counterparts shall constitute but one and the
same instrument.
8. SEVERABILITY. Any provision of this Amendment No. 5 which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
9. SUCCESSORS: ENFORCEABILITY. This Amendment No. 5 shall be binding
upon the Borrower and the Bank and their respective successors and assigns, and
shall inure to the benefit of the Borrower and the Bank and the successors and
assigns of the Bank. Except as hereby amended, the terms and provisions of the
Credit Agreement shall remain in full force and effect and the Credit Agreement
is hereby ratified and confirmed in all respects.
10. ENTIRE AGREEMENT. The Credit Agreement, as amended hereby, together
with the other Loan Documents constitute the entire agreement of the parties and
all other agreements, whether oral or in writing, are merged into the Credit
Agreement, as amended hereby, and are superseded hereby.
11. GOVERNING LAW. THIS AMENDMENT NO. 5 SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE LAW OF CONFLICTS)
OF THE STATE OF MINNESOTA, GIVING EFFECT TO LAWS APPLICABLE TO NATIONAL BANKS.
November 1, 1995
72
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amendment
No. 5 to be executed by their duty authorized officers as of the date and year
first above written.
IN HOME HEALTH, INC.,
a Minnesota corporation
By /s/ MICHAEL J. KENNEDY
--------------------------------
Its VICE PRESIDENT-TREASURER
----------------------------
FIRST BANK NATIONAL ASSOCIATION,
a national banking association
By /s/ CONRAD A. KEECH
--------------------------------
Its VICE PRESIDENT
----------------------------
November 1, 1995
73
<PAGE>
SECRETARY'S CERTIFICATE
I, Kenneth J. Figge, do hereby certify that I am the duly elected and
acting secretary of In Home Health, Inc. a corporation (the "Corporation") duly
organized and existing under the laws of the state of Minnesota, and am keeper
of the records of the Corporation.
I further certify that, except for the amendments to the Corporation's
Articles of Incorporation that are stated on the attached Exhibits A and B, the
Articles of Incorporation and the Bylaws of the Corporation have not been
altered, amended, modified or repealed since May 2, 1995 and the same remain in
full force and effect as in existence on said date.
I further certify that the resolutions previously adopted by the
Corporation's Board of Directors with respect to the Corporation's agreements
with First Bank National Association have not been amended or revoked and remain
in full force and effect as of the date hereof, and that under such resolutions
the undersigned as Chief Financial Officer and the Vice President - Treasurer of
the Corporation are authorized to execute on behalf of the Corporation, and
deliver to First Bank National Association, Amendment No. 5 to Second Amended
and Restated Credit Agreement.
WITNESS my hand as of the 30th day of November, 1995.
/s/ Kenneth J. Figge
-----------------------------------
Secretary of said corporation
74
<PAGE>
SECOND RESTATEMENT
OF
ARTICLES OF INCORPORATION
OF
IN HOME HEALTH. INC.
I, Kenneth J. Figge, as Secretary of In Home Health, Inc., a Minnesota
corporation, do hereby certify that this Second Restatement correctly sets forth
without change the existing provisions of the articles of incorporation of In
Home Health, Inc. as previously amended to date, and that this Second
Restatement was duly approved by the Board of Directors of In Home Health, Inc.
on October 24, 1995, to wit:
ARTICLE I
The name of this corporation shall be In Home Health, Inc.
ARTICLE II
The location and address of this corporation's registered office in
this state is:
In Home Health, Inc.
Carlson Center, Suite 500
601 Lakeshore Parkway
Minnetonka, MN 55305-5214
ARTICLE III
The authorized capital stock of this corporation shall consist of
Forty Million (40,000,000) shares of Common Stock, par value $.01 per
share, and One Million (1,000,000) shares of Preferred Stock. The
Preferred Stock may be issued from time to time as shares of one or more
series. Subject to the provisions hereof and the limitations prescribed by
law, the Board of Directors is authorized, by adopting resolutions
providing for the issuance of Preferred Stock of any particular series, to
establish the number of shares of Preferred Stock to be included in each
such series, and to fix the par value, designation, relative powers,
preferences, rights, qualifications, limitations and restrictions thereof,
including without limitation the right to create voting, dividend and
liquidation preferences greater than those of Common Stock.
In addition, as to any series of Preferred Stock which may have voting
rights fixed by resolution of the Board of Directors, the Board of
Directors is authorized to provide in the resolution fixing the voting
rights of any series of
75
<PAGE>
Preferred Stock that each share of such Preferred Stock has voting rights
equal to the number of shares of Common Stock into which each such share of
Preferred Stock may be convertible at any time.
ARTICLE IV
Shareholders shall have no rights of cumulative voting.
ARTICLE V
Shareholders shall have no rights, preemptive or otherwise, to acquire
any part of any unissued shares or other securities of this corporation or
of any rights to purchase shares or other securities of this corporation
before the corporation may offer them to other persons.
ARTICLE VI
The Board of Directors of this corporation shall consist of three
directors or such other number of directors as shall be fixed in the manner
provided in the By-laws or this corporation.
ARTICLE VII
Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken by written action signed by all of the directors
then in office, unless the action is one which need not be approved by the
shareholders, in which case such action shall be effective if signed by the
number of directors that would be required to take the same action at a
meeting at which all directors were present.
ARTICLE VIII
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of
fiduciary duty by such director as a director; provided, however, that this
Article VIII shall not eliminate or limit the liability of a director to
the extent provided by applicable law (i) for any breach of the director's
duty of loyalty to the Corporation or its shareholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) under Sections 302A.559 or 80A.23 of the
Minnesota Statutes, (iv) for any transaction from which the director
derived an improper personal benefit, or (v) for any act or omission
occurring prior to the date when this Article VII become effective. If the
Minnesota Business Corporation Act is amended after approval by the
shareholders of this Article to authorize corporate action further
eliminating or
76
<PAGE>
limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Minnesota Business Corporation Act, as so amended.
No amendment to or repeal of this Article VIII shall apply to, or have any
effect on, the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
IN WITNESS WHEREOF, I have hereunto subscribed my name pursuant to and
authorized by the foregoing resolution this 24th day of October, 1995.
/s/ Kenneth J. Figge
-----------------------------------
Kenneth J. Figge, Secretary of
In Home Health, Inc.
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 24th day of
October, 1995, by Kenneth J. Figge, the Secretary of In Home Health, Inc., a
Minnesota corporation, on behalf of the corporation.
/s/ Myrna J. Florentine
------------------------------------
Notary Public
My Commission expires: Jan. 31, 2000
-------------
[SEAL (Notary Public)]
77
<PAGE>
EXHIBIT 10.2
IN HOME HEALTH, INC.
MANAGEMENT INCENTIVE PLANS
FISCAL YEAR 1995
In Home Health has annual incentive plans for key positions. The purpose of
these plans is:
* To ensure a competitive total compensation package for key management
and support positions.
* To attract, retain and motivate qualified employees in key management
and support positions.
* To stimulate higher performance levels by clarifying and strengthening
the links between an individual's contributions and their
compensation.
* To assure that corporate goals and objectives are an integral part of
every employee's performance.
ELIGIBILITY
The plans are intended to include those management and support personnel who
have measurable effects on financial results. Positions will be identified by
the Executive Management Team and the Compensation Committee of the Board of
Directors.
TOTAL COMPENSATION OPPORTUNITY
The total compensation package, composed of base salary and benefits, plus the
management incentive plan, is designed to provide participants with an
opportunity to earn above average compensation for meeting and exceeding the
plan objectives.
78
<PAGE>
ANNUAL INCENTIVE MOTIVATION
An incentive will be motivational if:
1. the opportunity is large enough to be of significance to the individual,
and
2. the individual perceives that he/she can reasonably impact and/or control
the expected results which are set forth in the compensation plan.
INCENTIVE ELEMENTS
For fiscal year 1995, the emphasis will be placed on operating profit/net income
and/or asset management. An individual incentive worksheet has been developed
for each eligible position and provided to each participant. Corporate profit
is defined as consolidated net income. Area, branch and infusion profit is
defined as operating profit before the adjustment for aged accounts receivable
over 120 days.
No bonus will be paid to any manager where a loss occurs in their area of
responsibility, even if the loss was planned or if the Company incurs a loss for
the year.
GENERATION OF INCENTIVE POOL
Each year, incentive dollars will be integrated into the operating budget based
on performance projections for individuals and the corporation.
INCENTIVE PAYMENTS
Incentive payments will be paid annually. Payments will be made when the
audited results of the preceding fiscal year are available and the individual
incentive amount has been approved by the appropriate department head and at
79
<PAGE>
least one executive officer. The incentive amount is a percentage of base
salary in effect on the last day of the fiscal year.
NEW HIRES
Participants hired during the year must be employed for at least 6 of the 12
months of the fiscal year in order to be eligible for the incentive. A prorated
payment may be made based on the number of full months (6 to 11 months) worked
during the fiscal year. Exceptions to this policy must receive the prior
written approval of the President/Chief Executive Officer.
TRANSFERS, PROMOTIONS AND LEAVES
If an employee is transferred or promoted into an incentive eligible position
during the fiscal year, he/she will be eligible for incentive when they complete
at least six (6) months of employment in the position. A prorated payment may
be made based on the number of full months (six to eleven) worked in the
eligible position.
If the employee is promoted from one eligible position to another eligible
position and is in the higher position at least six months, the amount paid may
be prorated according to the number of months worked in each position. If the
employee is in the new position for less than six months, the incentive will not
be prorated but will be based on the lower position's incentive rate.
An employee transferring into a lower incentive from a higher incentive position
will receive the lower incentive rate for the entire year. An employee who
transfers out of an eligible incentive position any time during the year is
ineligible for any incentive relating to that year.
An employee on an unpaid leave of absence will not be paid incentive for the
months or portions of months absent. The amount will be prorated for the full
months worked in an eligible position.
80
<PAGE>
TERMINATION
In the event a participant is terminated for cause, no incentive will be paid.
When a participant voluntarily terminates their position before the incentive
award is due to be paid, payment of the incentive will not be made. Exceptions
to this policy may be made at the discretion of the President/Chief Executive
Officer and must be in writing. Payments to former employee will be made on the
normal schedule.
REGIONAL OR AREA POSITIONS
All Corporate, area or regional positions will participate in the Company's
Annual Incentive Plan utilizing the Company's consolidated results to determine
their Management Incentive compensation for the year. Branch and Pharmacy
General Managers will participate in the General Managers Incentive Plan.
Details of the pertinent plan will be distributed to the participants.
DURATION OF PLAN
The company may change, modify, or amend this plan at any time. This plan is
for fiscal year 1995 only and no plan for fiscal year 1996 or any other fiscal
year is implied.
81
<PAGE>
EXHIBIT 10.3
AMENDMENT NO. 4 TO LEASE AGREEMENT
AGREEMENT, made as of November 10, 1994, between MINNESOTA CC PROPERTIES,
INC. ("Landlord") and IN HOME HEALTH, INC. ("Tenant").
A. Landlord and Tenant entered into a written lease dated October 24, 1991
(the "Lease"), relating to the premises currently consisting of approximately
20,867 rentable square feet ("Current Premises") on the fifth floor of the
building commonly known as 601 Lakeshore Parkway, Minnetonka, Minnesota (the
"Project") and approximately 5,333 rentable square feet ("Temporary Space") on
the third floor of the Project.
B. The Lease has not been amended or modified except by Amendment No. 1 to
Lease Agreement dated January 4, 1993 ("Amendment No. 1"), Amendment No. 2 to
Lease Agreement dated March 11, 1993 ("Amendment No. 2"), and Amendment No. 3 to
Lease Agreement dated February 22, 1994 ("Amendment No. 3"), which Amendments
shall be deemed included in the term "Lease".
C. Landlord and Tenant desire to expand the Premises to include additional
space and to amend the Lease as provided in this Amendment.
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are
expressly acknowledged, Landlord and Tenant agree as follows:
1. EFFECT. The Lease is hereby amended to the extent necessary to give
effect to this Amendment, and the terms of this Amendment shall supersede any
contrary terms in the Lease. All references in the Lease to "this Lease" shall
be deemed to refer to the Lease as amended by this Amendment. In all other
respects, the terms and conditions of the Lease shall remain unmodified and in
effect.
2. SPACE C.
A. As of the Space C Delivery Date (as defined below), the Premises shall
be amended and expanded by adding to the Current Premises approximately 6,992
rentable square feet ("Space C") on the second floor of the Project as shown on
the attached Exhibit 1, so that the Premises shall thereafter consist of
approximately 27,859 rentable square feet on the second and fifth floors of the
Project. Except as expressly provided otherwise in this Amendment or in the
Lease, Space C shall be added to and become part of the Premises on all of the
terms and conditions of the Lease, and any reference in the Lease to the
Premises shall thereafter be deemed to refer to and include Space C.
B. Space C shall be added to the Premises effective on the earlier of (the
"Space C Delivery Date"): (1) January 1, 1995, or (2) the date Tenant occupies
Space C; provided, that if Landlord has not substantially completed Landlord's
Work in Space C pursuant to Section 2E of this Amendment by January 1, 1995,
other than for delays caused by Tenant Delay (as defined in Exhibit C-1 to the
Lease), the Space C Delivery Date for purposes of this Amendment shall be
postponed until substantial completion of Landlord's Work in Space C; Landlord
shall not be liable for any delay and the Lease shall not be impaired; and the
Space C Term shall automatically be extended to include the same number of
months set forth in Section 2C of this Amendment, plus, if the Space C Delivery
82
<PAGE>
Date is not the first day of a calendar month, the partial month in which the
Space C Delivery Date occurs.
C. Space C shall be added to the Premises for a limited term ("Space C
Term") of thirty-six (36) months beginning on the Space C Delivery Date and
ending on December 31, 1997, unless sooner terminated as provided in the Lease.
Upon the expiration or termination of the Space C Term, Tenant shall completely
vacate and surrender possession of Space C to Landlord in as good condition as
when Tenant took possession, ordinary wear and tear excepted. The expiration or
termination of the Space C Term shall not terminate or modify the Term of the
Lease with respect to the remaining Premises.
D. In addition to the Rent payable for the Current Premises as provided
in the Lease, Tenant shall pay Rent for Space C during the Space C Term as
follows:
(1) Base Rent for Space C shall be determined at an annual rate per
rentable square foot in Space C and payable in monthly installments as
follows:
Period of Annual Rate Monthly
Space C Term Per Square Foot Installment
- ------------ --------------- -----------
Months 1-12 $10.00 $5,826.67
Months 13-24 $11.00 $6,409.33
Months 25-36 $12.00 $6,992.00
If the Space C Term is extended as provided in Section 2B of this Amendment
and the Space C Delivery Date is not the first day of a calendar month,
Month 1 in the above schedule shall be the first full calendar month
beginning after the Space C Delivery Date, and the Base Rent for the
initial partial month shall be prorated daily and paid at the rate provided
for Month 1 in the above Schedule.
(2) Tenant's Proportionate Share of Operating Costs shall be 9.56%, and
Operating Cost Rent shall be payable for Space C at the same rate per
rentable square foot as payable for the Current Premises and subject to the
same adjustments as provided in the Lease.
(3) If the Space C Term begins or ends other than on the first day and
last day of a calendar month, the Base Rent and Operating Cost Rent for
Space C for any such partial month shall be prorated daily and paid in
advance. Rent for Space C shall be payable at the same time and in the
same manner as provided for payment of Rent with respect to the Current
Premises.
E. Landlord shall provide an allowance ("Tenant Finish Allowance") not to
exceed $9.60 per rentable square foot in Space C (total $67,123.20) or the total
cost of such improvements, whichever is less, to be applied to Tenant Finish
Costs (as defined in Exhibit C to the Lease) relating to Space C. Any Tenant
Finish Costs in excess of such Tenant Finish Allowance shall be payable by
Tenant to Landlord as Additional Rent within thirty (30) days of Landlord's
invoice for such costs.
As Landlord's Work, Landlord shall construct leasehold improvements in
Space C, substantially in accordance with plans and specifications approved by
Tenant and Landlord, in a total
83
<PAGE>
amount not to exceed the Tenant Finish Allowance. Landlord's Work shall be
performed in compliance with the terms and conditions of Exhibit C-1 to the
Lease. In all other respects, Tenant agrees to accept Space C in its present
condition, "as is," with no obligation for Landlord to do or pay for any
improvements or plans.
F. During the Space C Term, the term "Premises" shall be deemed to refer
to and include Space C, except as expressly provided otherwise in the Lease or
this Amendment. Upon the expiration or termination of the Space C Term, Space C
shall be deleted from the Premises, and the Lease shall continue in effect as to
the remaining Premises.
G. Within ten (10) days after written request by Landlord from time to
time, Tenant shall execute a written confirmation concerning the Space C
Delivery Date, the Space C Term, and any other matter reasonably relating to
Space C.
4. TEMPORARY SPACE. Effective on the Space C Delivery Date, the
Temporary Space Term (as defined in Amendment No. 3) shall terminate; the
Temporary Space shall be deleted from the Lease; and Tenant shall completely
vacate and surrender possession of the Temporary Space to Landlord in as good
condition as when Tenant took possession, ordinary wear and tear excepted.
5. TENANT REPRESENTATIONS. Tenant hereby represents to Landlord that
there has been no assignment of the Lease and no sublease of all or any portion
of the Premises, there are no existing defenses or offsets which Tenant has
against enforcement of the Lease, and Landlord and Tenant are not currently in
default under the Lease.
6. ENTIRE AGREEMENT. The Lease, including, without limitation, this
Amendment and all exhibits which are attached hereto and hereby incorporated by
reference, constitutes the entire agreement between Landlord and Tenant with
respect to the subject matter hereof. Tenant acknowledges that it has not been
induced to enter into this Amendment by any agreements or representations which
are not set forth in this Amendment. This Amendment shall not be effective
until execution and delivery by both Landlord and Tenant.
By signing this Amendment, the parties agree to the above terms.
LANDLORD: TENANT:
MINNESOTA CC PROPERTIES, INC. IN HOME HEALTH, INC.
By /s/ Mark J. Wood By /s/ MJ Kennedy
-------------------------- ----------------------------
Printed Name: MARK J. WOOD Printed Name: MJ KENNEDY
-------------- ----------------
Its: ASST. SECRETARY Its: VP-TREASURER
----------------------- -------------------------
84
<PAGE>
EXHIBIT 1
[CARLSON CENTER - 601 TOWER FLOOR PLAN]
85
<PAGE>
IN HOME HEALTH, INC.
STOCK OPTION PLAN
OF 1987
Effective April 15, 1987
as amended through
October 24, 1995
86
<PAGE>
IN HOME HEALTH, INC.
STOCK OPTION PLAN
ARTICLE I. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT. In Home Health, Inc., a Minnesota corporation
("Company"), hereby establishes a stock option plan for key employees selected
for participation in the Plan which shall be known as the "STOCK OPTION PLAN OF
1987" (the "Plan"). It is intended that certain of the options issued pursuant
to the Plan to employees of the Company may constitute incentive stock options
within the meaning of section 422A of the Internal Revenue Code, and that other
options, if any, issued pursuant to the Plan shall constitute nonstatutory
options. The Board shall determine which options are to be incentive stock
options and which are to be nonstatutory options and shall enter into option
agreements with recipients accordingly.
1.2 PURPOSE. The purpose of this Plan is to enhance stockholder
investment by attracting, retaining and motivating key employees of the Company,
and to encourage stock ownership by such employees by providing them with a
means to acquire a proprietary interest in the Company's success.
ARTICLE II. DEFINITIONS
2.1 DEFINITIONS. Whenever used herein, the following terms shall have the
respective meanings set forth below, unless the context clearly requires
otherwise, and when said meaning is intended, the term shall be capitalized.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" shall mean the Committee provided for by Article IV
hereof, which may be created at the discretion of the Board.
(d) "COMPANY" means In Home Health, Inc., a Minnesota corporation.
(e) "DATE OF EXERCISE" means the date the Company receives notice, by an
Optionee, if the exercise of an Option pursuant to section 8.1 of this
Plan. Such notice shall indicate the number of shares of Stock the
Optionee intends to exercise.
(f) "EMPLOYEE" means any person, including an officer or director of the
Company, who is employed by the Company.
87
<PAGE>
(g) "FAIR MARKET VALUE" means the fair market value of Stock upon which an
option is granted under this Plan.
(h) "INCENTIVE STOCK OPTION" means an Option granted under this Plan which
is intended to qualify as an "incentive stock option" within the
meaning of Section 422A of the Code.
(i) "NONSTATUTORY OPTION" means an Option granted under this Plan which is
not intended to qualify as an incentive stock option within the
meaning of Section 422A of the Code. Nonstatutory Options may be
granted at such times and subject to such restrictions as the Board
shall determine without conforming to the statutory rules of Section
422A of the Code applicable to incentive stock options.
(j) "OPTION" means the right, granted under this Plan, to purchase Stock
of the Company at the option price for a specified period of time.
For purposes of this Plan, an Option may be either an Incentive Stock
Option or a Nonstatutory Option.
(k) "OPTIONEE" means an Employee designated by the Board to participate in
the Plan.
(l) "PARENT CORPORATION" shall have the meaning set forth in Section
425(e) of the Code with the Company being treated as the employer
corporation for purposes of this definition.
(m) "SUBSIDIARY CORPORATION" shall have the meaning set forth in Section
425(f) of the Code with the Company being treated as the employer
corporation for purposes of this definition.
(n) "SIGNIFICANT SHAREHOLDER" means an individual who, within the meaning
of Section 422A(b)(6) of the Code, owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of
the Company or of any Parent Corporation or Subsidiary Corporation of
the Company. In determining whether an individual is a Significant
Shareholder, an individual shall be treated as owning stock owned by
certain relatives of the individual and certain stock owned by
corporations in which the individual is a shareholder, partnerships in
which the individual is a partner, and estates or trusts of which the
individual is a beneficiary, all as provided in Section 425(d) of the
Code.
(o) "STOCK" means the Common Stock of the Company.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
any masculine terminology when used in this Plan also shall include the feminine
gender, and the definition of any term herein in the singular also shall include
the plural.
88
<PAGE>
ARTICLE III. ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY AND PARTICIPATION. All Employees are eligible to
participate in this Plan and receive Incentive Stock Options and/or Nonstatutory
Options hereunder. Optionees in the Plan shall be selected by the Board from
among those Employees who, in the opinion of the Board, are in a position to
contribute materially to the Company's and its Subsidiary Corporations'
continued growth and development and to its long-term financial success.
ARTICLE IV. ADMINISTRATION
4.1 ADMINISTRATION. The Plan shall be administered by the Board of
Directors or by a Committee of two or more persons who are disinterested persons
within the meaning of SEC Regulation 16b-3. The Committee shall be appointed by
the Board and shall serve at the pleasure of the Board. Where a Committee has
been created by the Board, references in the Plan to actions to be taken by the
Board shall be deemed to refer to the Committee, except where limited by the
Plan or by the Board.
The Committee shall have the power and authority:
(i) to select the officers and other key employees of the Company and
its Subsidiaries to whom Options may from time to time be granted
hereunder;
(ii) to determine whether and to what extent Incentive Stock Options,
Nonstatutory Options, or a combination of the foregoing, are to be
granted hereunder;
(iii) to determine the number of shares to be covered by each such
Option granted hereunder; and
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of Options granted hereunder.
The Committee shall also have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any Option issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate its authority to officers of the Company for the purpose of selecting
employees who are not officers of the Company for purposes of (i) above.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Optionees.
89
<PAGE>
ARTICLE V. STOCK SUBJECT TO THE PLAN
5.1 NUMBER. The total number of shares of Stock hereby made available and
reserved for issuance under the Plan shall be 2,500,000. The aggregate number
of shares of Stock available under this Plan shall be subject to adjustment as
provided in section 5.3. The total number of shares of Stock may be authorized
but unissued shares of Stock, or shares acquired by purchase as directed by the
Board from time to time in its discretion, to be used for issuance upon exercise
of Options granted hereunder.
5.2 UNUSED STOCK. If an Option shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares of Stock subject
thereto shall (unless the Plan shall have terminated) become available for other
Options under the Plan.
5.3 ADJUSTMENT IN CAPITALIZATION. In the event of any change in the
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification, or other similar corporate change, the
aggregate number of shares of Stock set forth in Section 5.1 shall be
appropriately adjusted by the Board, whose determination shall be conclusive;
provided however, that fractional shares shall be rounded to the nearest whole
share. In any such case, the number and kind of shares that are subject to any
Option (including any Option outstanding after termination of employment) and
the Option price per share shall be proportionately and appropriately adjusted
without any change in the aggregate Option price to be paid therefor upon
exercise of the Option.
ARTICLE VI. DURATION OF THE PLAN
6.1 DURATION OF THE PLAN. Subject to the stockholder approval, the Plan
shall be in effect for ten years from the date of its adoption by the Board.
Any Options outstanding at the end of said period shall remain in effect in
accordance with their terms. The Plan shall terminate before the end of said
period, if all Stock subject to it has been purchased pursuant to the exercise
of Options granted under the Plan.
ARTICLE VII. TERMS OF STOCK OPTIONS.
7.1 GRANT OF OPTIONS. Subject to section 5.1, Options may be granted to
Employees at any time and from time to time as determined by the Board. The
Board shall have complete discretion in determining the number of Options
granted to each Optionee. In making such determinations, the Board may take
into account the nature of services rendered by such Employees, their present
and potential contributions to the Company, and such other factors as the Board
in its discretion shall deem relevant. The Board also shall determine whether
an Option is to be an Incentive Stock Option or a Nonstatutory Option.
90
<PAGE>
The total Fair Market Value (determined at the date of grant) of shares of
Stock with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year under all plans of the
Company under which Incentive Stock Options may be granted (and all such plans
of any Parent Corporations and any Subsidiary Corporations of the Company) shall
not exceed $100,000. (Hereinafter, this limitation is sometimes referred to as
the "$100,000 Limitation.")
The written Option agreements with the Optionees shall contain such
provisions as may be necessary to implement the $100,000 Limitation, taking into
account the restrictions on exercise which already exist upon the Option or
Options held by the Optionee which are subject to the $100,000 Limitation.
Where an Option holder already holds Options subject to the $100,000 Limitation,
and the Optionee is granted a new Incentive Stock Option under this plan, the
Board or Committee may, if permitted by the Code and the regulations and
interpretations thereunder, impose the restrictions upon exercisability which
are necessary to implement the $100,000 Limitation in whole or in part upon the
previously issued Option or Options to accelerate the exercisability of the
newly granted Incentive Stock Option.
Nothing in this Article VII of the Plan shall be deemed to prevent the
grant of Options in excess of the $100,000 Limitation where such excess amount
is treated as a Nonstatutory Option.
The Board is expressly given the authority to issue amended Options with
respect to shares of Stock subject to an Option previously granted hereunder.
An amended Option amends the terms of an Option previously granted and thereby
supersedes the previous Option.
7.2 NO TANDEM OPTIONS. Where an Option granted under this Plan is
intended to be an Incentive Stock Option, the Option shall not contain terms
pursuant to which the exercise of the Option would affect the Optionee's right
to exercise another Option, or vice versa, such that the Option intended to be
an Incentive Stock Option would be deemed a tandem stock option within the
meaning of the regulations under Section 422A of the Code.
7.3 OPTION AGREEMENT. As determined by the Board on the date of grant,
each Option shall be evidenced by an Option Agreement (the "Option Agreement")
that includes the nontransferability provisions of Section 10.2 hereof and
specifies: whether the Option is an Incentive Stock Option or a Nonstatutory
Option; the Option price; the duration of the Option; the number of shares of
Stock to which the Option applies; any vesting or serial exercise restrictions
which the Board may impose; and any other terms or conditions which the Board
may impose.
All Option Agreements shall incorporate the provisions of this Plan by
reference, with certain provisions to apply depending upon whether the Option
Agreement applies to an Incentive Stock Option or to a Nonstatutory Option.
7.2 OPTION PRICE. No Incentive Stock Option granted pursuant to this Plan
shall have an Option price that is less than the Fair Market Value of Stock on
the date the Option is granted.
91
<PAGE>
Incentive Stock Options granted to Significant Shareholders shall have an Option
price of not less than 110 percent of the Fair Market Value of Stock on the date
of grant. The Option price for Nonstatutory Options shall be established by the
Board and shall not be subject to the restrictions applicable to Incentive Stock
Options.
7.5 TERM OF OPTIONS. Each Option shall expire at such time as the Board
shall determine when it is granted, provided however that no Option shall be
exercisable later than the tenth anniversary date of its grant. By its terms,
an Incentive Stock Option granted to a Significant Shareholder shall not be
exercisable after five years from the date of grant.
7.6 EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable at such time and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for all
Optionees.
7.7 PAYMENT. Payment for all shares of Stock shall be made at the time
that an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefore has been made. Payment shall be made (i) in cash,
or (ii) if acceptable to the Board, in stock or in some other form; provided,
however, in the case of an Incentive Stock Option, that said other form of
payment does not prevent the Option from qualifying for treatment as an
"incentive stock option" within the meaning of the Code.
7.8 ANNUAL LIMIT ON ALL STOCK OPTIONS. No eligible person shall be
granted any stock options for more than 300,000 shares of stock in the aggregate
during any fiscal year period, subject to adjustments pursuant to Section 5.3.
For this purpose, each fiscal year period shall begin each October 1 and shall
end on the following September 30.
ARTICLE VIII. WRITTEN NOTICE, ISSUANCE OF
STOCK CERTIFICATES, STOCKHOLDER PRIVILEGES
8.1 WRITTEN NOTICE. An Optionee wishing to exercise an Option shall give
written notice to the Company, in the form and manner prescribed by the Board.
Full payment for the shares exercised pursuant to the Option must accompany the
written notice.
8.2 ISSUANCE OF STOCK CERTIFICATES. As soon as practicable after the
receipt of written notice and payment, the Company shall deliver to the Optionee
or to a nominee of the Optionee a certificate or certificates for the requisite
number of shares of Stock.
8.3 PRIVILEGES OF A STOCKHOLDER. An Optionee or any other person entitled
to exercise an Option under this Plan shall not have stockholder privileges with
respect to any Stock covered by the Option until the date of issuance of a stock
certificate for such stock.
92
<PAGE>
ARTICLE IX. TERMINATION OF EMPLOYMENT
9.1 DEATH. If an Optionee's employment terminates by reason of death, the
Option may thereafter be exercised at any time prior to the expiration date of
the Option or within 12 months after the date of such death, whichever period is
the shorter, by the person or persons entitled to do so under the Optionee's
will or, if the Optionee shall fail to make a testamentary disposition of an
Option or shall die intestate, the Optionee's legal representative or
representatives. The Option shall be exercisable only to the extent that such
Option was exercisable as of the date of death.
9.2 TERMINATION OTHER THAN FOR CAUSE OR DUE TO DEATH. In the event of an
Optionee's termination of employment, other than by reason of death, the
Optionee may exercise such portion of his Option as was exercisable by him at
the date of such termination (the "Termination Date") at any time within three
(3) months of the Termination Date; provided, however, that where the Optionee
is terminated due to disability within the meaning of Code Section 422A(c)(7),
he may exercise such portion of his Option as was exercisable by him on his
Termination Date within One year of his Termination Date. In any event, the
Option cannot be exercised after the expiration of the term of the Option.
Options not exercised within the applicable period specified above shall
terminate.
In the case of an Employee, a change of duties or position within the
Company or an assignment of employment in a Subsidiary Corporation or Parent
Corporation of the Company, if any, or from such a Corporation to the Company,
shall not be considered a termination of employment for purposes of this Plan.
The Option Agreements may contain such provisions as the Board shall approve
with reference to the effect of approved leaves of absence upon termination of
employment.
9.3 TERMINATION FOR CAUSE. In the event of an Optionee's termination of
employment by the Company for cause, any Option or Options held by him under the
Plan, to the extent not exercised before such termination, shall forthwith
terminate.
ARTICLE X. RIGHTS OF OPTIONEES
10.1 SERVICE. Nothing in this Plan shall interfere with or limit in any
way the right of the Company to terminate any Employee's employment at any time,
nor confer upon any Employee any right to continue in the employ of the Company.
10.2 NONTRANSFERABILITY. All Options granted under this Plan shall be
nontransferable by the Optionee, other than by will or the laws of descent and
distribution, and shall be exercisable during the Optionee's lifetime only by
the Optionee.
93
<PAGE>
ARTICLE XI. OPTIONEE'S
TRANSFER OR LEAVE OF ABSENCE
11.1 OPTIONEE'S TRANSFER OR LEAVE OF ABSENCE. For Plan purposes--
(a) a transfer of an Optionee from the Company to a Subsidiary Corporation
or Parent Corporation, or from one such Corporation to another, or
(b) a leave of absence for an Optionee (i) which is duly authorized in
writing by the Company, and (ii) if the Optionee holds an Incentive
Stock Option, which qualifies under the applicable regulations under
the Code which apply in the case of incentive stock options,
shall not be deemed a termination of employment. However, under no
circumstances may an Optionee exercise an Option during any leave of absence,
unless authorized by the Board.
ARTICLE XII. AMENDMENT,
MODIFICATION, AND TERMINATION OF THE PLAN
12.1 AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN. The Board may
at any time terminate, and from time to time any may amend or modify the Plan,
provided, however, that no such action of the Board, without approval of the
stockholders, may--
(a) increase the total amount of Stock which may be purchased through
Options granted under the Plan, except as provided in section 5.1;
(b) change the class of Employees eligible to receive Options;
No amendment, modification, or termination of the Plan shall in any manner
adversely affect any outstanding Option under the Plan without the consent of
the Optionee holding the Option.
ARTICLE XIII. MERGER OR CONSOLIDATION
13.1 MERGER OR CONSOLIDATION. (a) Subject to any required action by the
stockholders, if the Company shall be the surviving corporation in any merger or
consolidation, any Option granted hereunder shall pertain to and apply to the
Securities to which a holder of the number of shares of Stock subject to the
Option would have been entitled in such merger or consolidation.
(b) A dissolution or a liquidation of the Company or a merger and
consolidation in which the Company is not the surviving corporation shall cause
every Option outstanding hereunder to terminate as of the effective date of such
dissolution, liquidation, merger or consolidation.
94
<PAGE>
However, the Optionee either (i) shall be offered a firm commitment whereby the
resulting or surviving corporation in a merger or consolidation will tender to
the Optionee an option (the "Substitute Option") to purchase its shares on terms
and conditions both as to number of shares and otherwise, which will
substantially preserve to the Optionee the rights and benefits of the Option
outstanding hereunder granted by the Company, or (ii) shall have the right
immediately prior to such dissolution, liquidation, merger, or consolidation to
exercise any unexercised Options whether or not then exercisable, subject to the
provisions of this Plan. The Board shall have absolute and uncontrolled
discretion to determine whether the Optionee has been offered a firm commitment
and whether the tendered Substitute Option will substantially preserve to the
Optionee the rights and benefits of the Option outstanding hereunder. In any
event, any Substitute Option for an Incentive Stock Option shall comply with the
requirements of Code Section 425(a).
Notwithstanding the foregoing provisions providing that Options shall or
may become immediately exercisable in full upon the dissolution or liquidation
of the Company, or in certain mergers or consolidations, Incentive Stock Options
shall become immediately exercisable in full only to the extent that this is
permitted under the $100,000 Limitation as this Limitation is interpreted by the
Code and the regulations and decisions thereunder. To the extent an Incentive
Stock Option is not exercisable due to this Limitation, the unexercised portion
of the Option shall terminate. However, in the case of a merger, consolidation,
or other form of reorganization, the surviving corporation or its parent
corporation shall have the right, but not the obligation, to issue Substitute
Options for the portion not exercisable, as provided above.
13.2 CHANGE IN CONTROL. In the event that the Company closes and
consummates any transaction which has been approved by the Company's
stockholders which, while not a merger or consolidation, involves a change in
control of the Company, then, notwithstanding any other provision of the Plan,
(i) the Board or the Committee may grant as a part of such transaction Options
which are not subject to the termination provisions of Article IX and having
such other terms and provisions as the Board or the Committee deems appropriate,
and (ii) any outstanding Option held by non-employee members of the Board of
Directors shall be immediately vested in full.
ARTICLE XIV. SECURITIES REGISTRATION
14.1 SECURITIES REGISTRATION. In the event that the Company shall deem it
necessary or desirable to register under the Securities Act of 1933, as amended,
or any other applicable statute, any Options or any Stock with respect to which
an Option may be or shall have been granted or exercised, or to qualify any such
Options or Stock under the Securities Act of 1933, as amended, or any other
statute, then the Optionee shall cooperate with the Company and take such action
as is necessary to permit registration or qualified of such Options or Stock.
Unless the Company has determined that the following representation is
unnecessary, each person exercising an Optionee under the Plan may be required
by the Company, as a condition to
95
<PAGE>
the issuance of the shares pursuant to exercise of the Option, to make a
representation in writing (a) that he is acquiring such shares for his own
account for investment and not with a view to, or for sale in connection with,
the distribution of any part thereof, and (b) that before any transfer in
connection with the resale of such shares, he will obtain the written opinion of
counsel for the Company, or other counsel acceptable to the Company, that such
shares may be transferred. The Company may also require that the certificates
representing such shares contain legends reflecting the foregoing.
ARTICLE XV. TAX WITHHOLDING
15.1 TAX WITHHOLDING. Whenever shares of Stock are to be issued in
satisfaction of Options exercised under this Plan, the Company shall have the
power to require the recipient of the Stock to remit to the Company in amount
sufficient to satisfy federal, state, and local withholding tax requirements.
ARTICLE XVI. INDEMNIFICATION
16.1 INDEMNIFICATION. To the extent permitted by law, each person who is
or shall have been a member of the Board shall be indemnified and held harmless
by the Company against and from any loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by him in connection with or resulting
from any claim, action, suit, or proceeding to which he may be a party or in
which he may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of judgment
in any such action, suit, or proceeding against him, provided he shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's articles of incorporation
or bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them to hold them harmless.
ARTICLE XVII. REQUIREMENTS OF LAW
17.1 REQUIREMENTS OF LAW. The granting of Options and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules and regulations and to such approvals by any governmental
agencies or national securities exchange as may be required.
17.2 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Minnesota.
96
<PAGE>
ARTICLE XVIII. EFFECTIVE DATE OF PLAN
18.1 EFFECTIVE DATE. The Plan shall be effective on April 15, 1987, the
date of its adoption by the Board.
ARTICLE XIX. COMPLIANCE WITH CODE.
19.1 COMPLIANCE WITH CODE. Incentive Stock Options granted hereunder are
intended to qualify as "incentive stock options" under Code Section 422A. If
any provision of this Plan is susceptible to more than one interpretation, such
interpretation shall be given thereto as is consistent with Incentive Stock
Options granted under this Plan being treated as incentive stock options under
the Code.
ARTICLE XX. NO OBLIGATION TO EXERCISE OPTION.
20.1 NO OBLIGATION TO EXERCISE. The granting of an Option shall impose no
obligation upon the holder thereof to exercise such Option.
97
<PAGE>
IN HOME HEALTH, INC.
1995 STOCK OPTION PLAN
Effective November 8, 1994
as amended through
October 24, 1995
98
<PAGE>
IN HOME HEALTH, INC.
STOCK OPTION PLAN
ARTICLE I. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT. In Home Health, Inc., a Minnesota corporation
("Company"), hereby establishes a stock option plan for key employees selected
for participation in the Plan which shall be known as the "1995 STOCK OPTION
PLAN" (the "Plan"). It is intended that certain of the options issued pursuant
to the Plan to employees of the Company may constitute incentive stock options
within the meaning of section 422A of the Internal Revenue Code, and that other
options, if any, issued pursuant to the Plan shall constitute nonstatutory
options. The Board shall determine which options are to be incentive stock
options and which are to be nonstatutory options and shall enter into option
agreements with recipients accordingly.
1.2 PURPOSE. The purpose of this Plan is to enhance stockholder
investment by attracting, retaining and motivating key employees of the Company,
and to encourage stock ownership by such employees by providing them with a
means to acquire a proprietary interest in the Company's success.
ARTICLE II. DEFINITIONS
2.1 DEFINITIONS. Whenever used herein, the following terms shall have the
respective meanings set forth below, unless the context clearly requires
otherwise, and when said meaning is intended, the term shall be capitalized.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" shall mean the Committee provided for by Article IV
hereof, which may be created at the discretion of the Board.
(d) "COMPANY" means In Home Health, Inc., a Minnesota corporation.
(e) "DATE OF EXERCISE" means the date the Company receives notice, by an
Optionee, if the exercise of an Option pursuant to section 8.1 of this
Plan. Such notice shall indicate the number of shares of Stock the
Optionee intends to exercise.
(f) "EMPLOYEE" means any person, including an officer or director of the
Company, who is employed by the Company.
99
<PAGE>
(g) "FAIR MARKET VALUE" means the fair market value of Stock upon which an
option is granted under this Plan.
(h) "INCENTIVE STOCK OPTION" means an Option granted under this Plan which
is intended to qualify as an "incentive stock option" within the
meaning of Section 422A of the Code.
(i) "NONSTATUTORY OPTION" means an Option granted under this Plan which is
not intended to qualify as an incentive stock option within the
meaning of Section 422A of the Code. Nonstatutory Options may be
granted at such times and subject to such restrictions as the Board
shall determine without conforming to the statutory rules of Section
422A of the Code applicable to incentive stock options.
(j) "OPTION" means the right, granted under this Plan, to purchase Stock
of the Company at the option price for a specified period of time.
For purposes of this Plan, an Option may be either an Incentive Stock
Option or a Nonstatutory Option.
(k) "OPTIONEE" means an Employee designated by the Board to participate in
the Plan.
(l) "PARENT CORPORATION" shall have the meaning set forth in Section
425(e) of the Code with the Company being treated as the employer
corporation for purposes of this definition.
(m) "SUBSIDIARY CORPORATION" shall have the meaning set forth in Section
425(f) of the Code with the Company being treated as the employer
corporation for purposes of this definition.
(n) "SIGNIFICANT SHAREHOLDER" means an individual who, within the meaning
of Section 422A(b)(6) of the Code, owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of
the Company or of any Parent Corporation or Subsidiary Corporation of
the Company. In determining whether an individual is a Significant
Shareholder, an individual shall be treated as owning stock owned by
certain relatives of the individual and certain stock owned by
corporations in which the individual is a shareholder, partnerships in
which the individual is a partner, and estates or trusts of which the
individual is a beneficiary, all as provided in Section 425(d) of the
Code.
(o) "STOCK" means the Common Stock of the Company.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
any masculine terminology when used in this Plan also shall include the feminine
gender, and the definition of any term herein in the singular also shall include
the plural.
100
<PAGE>
ARTICLE III. ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY AND PARTICIPATION. All Employees are eligible to
participate in this Plan and receive Incentive Stock Options and/or Nonstatutory
Options hereunder. Optionees in the Plan shall be selected by the Board from
among those Employees who, in the opinion of the Board, are in a position to
contribute materially to the Company's and its Subsidiary Corporations'
continued growth and development and to its long-term financial success.
ARTICLE IV. ADMINISTRATION
4.1 ADMINISTRATION. The Plan shall be administered by the Board of
Directors or by a Committee of two or more persons who are disinterested persons
within the meaning of SEC Regulation 16b-3. The Committee shall be appointed by
the Board and shall serve at the pleasure of the Board. Where a Committee has
been created by the Board, references in the Plan to actions to be taken by the
Board shall be deemed to refer to the Committee, except where limited by the
Plan or by the Board.
The Committee shall have the power and authority:
(i) to select the officers and other key employees of the Company and its
Subsidiaries to whom Options may from time to time be granted
hereunder;
(ii) to determine whether and to what extent Incentive Stock Options,
Nonstatutory Options, or a combination of the foregoing, are to be
granted hereunder;
(iii) to determine the number of shares to be covered by each such
Option granted hereunder; and
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of Options granted hereunder.
The Committee shall also have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any Option issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate its authority to officers of the Company for the purpose of selecting
employees who are not officers of the Company for purposes of (i) above.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Optionees.
101
<PAGE>
ARTICLE V. STOCK SUBJECT TO THE PLAN
5.1 NUMBER. The total number of shares of Stock hereby made available and
reserved for issuance under the Plan shall be 1,300,000. The aggregate number
of shares of Stock available under this Plan shall be subject to adjustment as
provided in section 5.3. The total number of shares of Stock may be authorized
but unissued shares of Stock, or shares acquired by purchase as directed by the
Board from time to time in its discretion, to be used for issuance upon exercise
of Options granted hereunder.
5.2 UNUSED STOCK. If an Option shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares of Stock subject
thereto shall (unless the Plan shall have terminated) become available for other
Options under the Plan.
5.3 ADJUSTMENT IN CAPITALIZATION. In the event of any change in the
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification, or other similar corporate change, the
aggregate number of shares of Stock set forth in Section 5.1 shall be
appropriately adjusted by the Board, whose determination shall be conclusive;
provided however, that fractional shares shall be rounded to the nearest whole
share. In any such case, the number and kind of shares that are subject to any
Option (including any Option outstanding after termination of employment) and
the Option price per share shall be proportionately and appropriately adjusted
without any change in the aggregate Option price to be paid therefor upon
exercise of the Option.
ARTICLE VI. DURATION OF THE PLAN
6.1 DURATION OF THE PLAN. Subject to the stockholder approval, the Plan
shall be in effect for ten years from the date of its adoption by the Board.
Any Options outstanding at the end of said period shall remain in effect in
accordance with their terms. The Plan shall terminate before the end of said
period, if all Stock subject to it has been purchased pursuant to the exercise
of Options granted under the Plan.
ARTICLE VII. TERMS OF STOCK OPTIONS.
7.1 GRANT OF OPTIONS. Subject to section 5.1, Options may be granted to
Employees at any time and from time to time as determined by the Board. The
Board shall have complete discretion in determining the number of Options
granted to each Optionee. In making such determinations, the Board may take
into account the nature of services rendered by such Employees, their present
and potential contributions to the Company, and such other factors as the Board
in its discretion shall deem relevant. The Board also shall determine whether
an Option is to be an Incentive Stock Option or a Nonstatutory Option.
102
<PAGE>
The total Fair Market Value (determined at the date of grant) of shares of
Stock with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year under all plans of the
Company under which Incentive Stock Options may be granted (and all such plans
of any Parent Corporations and any Subsidiary Corporations of the Company) shall
not exceed $100,000. (Hereinafter, this limitation is sometimes referred to as
the "$100,000 Limitation.")
The written Option agreements with the Optionees shall contain such
provisions as may be necessary to implement the $100,000 Limitation, taking into
account the restrictions on exercise which already exist upon the Option or
Options held by the Optionee which are subject to the $100,000 Limitation.
Where an Option holder already holds Options subject to the $100,000 Limitation,
and the Optionee is granted a new Incentive Stock Option under this plan, the
Board or Committee may, if permitted by the Code and the regulations and
interpretations thereunder, impose the restrictions upon exercisability which
are necessary to implement the $100,000 Limitation in whole or in part upon the
previously issued Option or Options to accelerate the exercisability of the
newly granted Incentive Stock Option.
Nothing in this Article VII of the Plan shall be deemed to prevent the
grant of Options in excess of the $100,000 Limitation where such excess amount
is treated as a Nonstatutory Option.
The Board is expressly given the authority to issue amended Options with
respect to shares of Stock subject to an Option previously granted hereunder.
An amended Option amends the terms of an Option previously granted and thereby
supersedes the previous Option.
7.2 NO TANDEM OPTIONS. Where an Option granted under this Plan is
intended to be an Incentive Stock Option, the Option shall not contain terms
pursuant to which the exercise of the Option would affect the Optionee's right
to exercise another Option, or vice versa, such that the Option intended to be
an Incentive Stock Option would be deemed a tandem stock option within the
meaning of the regulations under Section 422A of the Code.
7.3 OPTION AGREEMENT. As determined by the Board on the date of grant,
each Option shall be evidenced by an Option Agreement (the "Option Agreement")
that includes the nontransferability provisions of Section 10.2 hereof and
specifies: whether the Option is an Incentive Stock Option or a Nonstatutory
Option; the Option price; the duration of the Option; the number of shares of
Stock to which the Option applies; any vesting or serial exercise restrictions
which the Board may impose; and any other terms or conditions which the Board
may impose.
All Option Agreements shall incorporate the provisions of this Plan by
reference, with certain provisions to apply depending upon whether the Option
Agreement applies to an Incentive Stock Option or to a Nonstatutory Option.
7.2 OPTION PRICE. No Incentive Stock Option granted pursuant to this Plan
shall have an Option price that is less than the Fair Market Value of Stock on
the date the Option is granted.
103
<PAGE>
Incentive Stock Options granted to Significant Shareholders shall have an Option
price of not less than 110 percent of the Fair Market Value of Stock on the date
of grant. The Option price for Nonstatutory Options shall be established by the
Board and shall not be subject to the restrictions applicable to Incentive Stock
Options.
7.5 TERM OF OPTIONS. Each Option shall expire at such time as the Board
shall determine when it is granted, provided however that no Option shall be
exercisable later than the tenth anniversary date of its grant. By its terms,
an Incentive Stock Option granted to a Significant Shareholder shall not be
exercisable after five years from the date of grant.
7.6 EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable at such time and be subject to such restrictions and conditions as
the Board shall in each instance approve, which need not be the same for all
Optionees.
7.7 PAYMENT. Payment for all shares of Stock shall be made at the time
that an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefore has been made. Payment shall be made (i) in cash,
or (ii) if acceptable to the Board, in stock or in some other form; provided,
however, in the case of an Incentive Stock Option, that said other form of
payment does not prevent the Option from qualifying for treatment as an
"incentive stock option" within the meaning of the Code.
7.8 ANNUAL LIMIT ON ALL STOCK OPTIONS. No eligible person shall be
granted any stock options for more than 300,000 shares of stock in the aggregate
during any fiscal year period, subject to adjustments pursuant to Section 5.3.
For this purpose, each fiscal year period shall begin each October 1 and shall
end on the following September 30.
ARTICLE VIII. WRITTEN NOTICE, ISSUANCE OF
STOCK CERTIFICATES, STOCKHOLDER PRIVILEGES
8.1 WRITTEN NOTICE. An Optionee wishing to exercise an Option shall give
written notice to the Company, in the form and manner prescribed by the Board.
Full payment for the shares exercised pursuant to the Option must accompany the
written notice.
8.2 ISSUANCE OF STOCK CERTIFICATES. As soon as practicable after the
receipt of written notice and payment, the Company shall deliver to the Optionee
or to a nominee of the Optionee a certificate or certificates for the requisite
number of shares of Stock.
8.3 PRIVILEGES OF A STOCKHOLDER. An Optionee or any other person entitled
to exercise an Option under this Plan shall not have stockholder privileges with
respect to any Stock covered by the Option until the date of issuance of a stock
certificate for such stock.
104
<PAGE>
ARTICLE IX. TERMINATION OF EMPLOYMENT
9.1 DEATH. If an Optionee's employment terminates by reason of death, the
Option may thereafter be exercised at any time prior to the expiration date of
the Option or within 12 months after the date of such death, whichever period is
the shorter, by the person or persons entitled to do so under the Optionee's
will or, if the Optionee shall fail to make a testamentary disposition of an
Option or shall die intestate, the Optionee's legal representative or
representatives. The Option shall be exercisable only to the extent that such
Option was exercisable as of the date of death.
9.2 TERMINATION OTHER THAN FOR CAUSE OR DUE TO DEATH. In the event of an
Optionee's termination of employment, other than by reason of death, the
Optionee may exercise such portion of his Option as was exercisable by him at
the date of such termination (the "Termination Date") at any time within three
(3) months of the Termination Date; provided, however, that where the Optionee
is terminated due to disability within the meaning of Code Section 422A(c)(7),
he may exercise such portion of his Option as was exercisable by him on his
Termination Date within One year of his Termination Date. In any event, the
Option cannot be exercised after the expiration of the term of the Option.
Options not exercised within the applicable period specified above shall
terminate.
In the case of an Employee, a change of duties or position within the
Company or an assignment of employment in a Subsidiary Corporation or Parent
Corporation of the Company, if any, or from such a Corporation to the Company,
shall not be considered a termination of employment for purposes of this Plan.
The Option Agreements may contain such provisions as the Board shall approve
with reference to the effect of approved leaves of absence upon termination of
employment.
9.3 TERMINATION FOR CAUSE. In the event of an Optionee's termination of
employment by the Company for cause, any Option or Options held by him under the
Plan, to the extent not exercised before such termination, shall forthwith
terminate.
ARTICLE X. RIGHTS OF OPTIONEES
10.1 SERVICE. Nothing in this Plan shall interfere with or limit in any
way the right of the Company to terminate any Employee's employment at any time,
nor confer upon any Employee any right to continue in the employ of the Company.
10.2 NONTRANSFERABILITY. All Options granted under this Plan shall be
nontransferable by the Optionee, other than by will or the laws of descent and
distribution, and shall be exercisable during the Optionee's lifetime only by
the Optionee.
105
<PAGE>
ARTICLE XI. OPTIONEE'S
TRANSFER OR LEAVE OF ABSENCE
11.1 OPTIONEE'S TRANSFER OR LEAVE OF ABSENCE. For Plan purposes--
(a) a transfer of an Optionee from the Company to a Subsidiary Corporation
or Parent Corporation, or from one such Corporation to another, or
(b) a leave of absence for an Optionee (i) which is duly authorized in
writing by the Company, and (ii) if the Optionee holds an Incentive
Stock Option, which qualifies under the applicable regulations under
the Code which apply in the case of incentive stock options,
shall not be deemed a termination of employment. However, under no
circumstances may an Optionee exercise an Option during any leave of absence,
unless authorized by the Board.
ARTICLE XII. AMENDMENT,
MODIFICATION, AND TERMINATION OF THE PLAN
12.1 AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN. The Board may
at any time terminate, and from time to time any may amend or modify the Plan,
provided, however, that no such action of the Board, without approval of the
stockholders, may--
(a) increase the total amount of Stock which may be purchased through
Options granted under the Plan, except as provided in section 5.1;
(b) change the class of Employees eligible to receive Options;
No amendment, modification, or termination of the Plan shall in any manner
adversely affect any outstanding Option under the Plan without the consent of
the Optionee holding the Option.
ARTICLE XIII. MERGER OR CONSOLIDATION
13.1 MERGER OR CONSOLIDATION. (a) Subject to any required action by the
stockholders, if the Company shall be the surviving corporation in any merger or
consolidation, any Option granted hereunder shall pertain to and apply to the
Securities to which a holder of the number of shares of Stock subject to the
Option would have been entitled in such merger or consolidation.
(b) A dissolution or a liquidation of the Company or a merger and
consolidation in which the Company is not the surviving corporation shall cause
every Option outstanding hereunder to terminate as of the effective date of such
dissolution, liquidation, merger or consolidation.
106
<PAGE>
However, the Optionee either (i) shall be offered a firm commitment whereby the
resulting or surviving corporation in a merger or consolidation will tender to
the Optionee an option (the "Substitute Option") to purchase its shares on terms
and conditions both as to number of shares and otherwise, which will
substantially preserve to the Optionee the rights and benefits of the Option
outstanding hereunder granted by the Company, or (ii) shall have the right
immediately prior to such dissolution, liquidation, merger, or consolidation to
exercise any unexercised Options whether or not then exercisable, subject to the
provisions of this Plan. The Board shall have absolute and uncontrolled
discretion to determine whether the Optionee has been offered a firm commitment
and whether the tendered Substitute Option will substantially preserve to the
Optionee the rights and benefits of the Option outstanding hereunder. In any
event, any Substitute Option for an Incentive Stock Option shall comply with the
requirements of Code Section 425(a).
Notwithstanding the foregoing provisions providing that Options shall or
may become immediately exercisable in full upon the dissolution or liquidation
of the Company, or in certain mergers or consolidations, Incentive Stock Options
shall become immediately exercisable in full only to the extent that this is
permitted under the $100,000 Limitation as this Limitation is interpreted by the
Code and the regulations and decisions thereunder. To the extent an Incentive
Stock Option is not exercisable due to this Limitation, the unexercised portion
of the Option shall terminate. However, in the case of a merger, consolidation,
or other form of reorganization, the surviving corporation or its parent
corporation shall have the right, but not the obligation, to issue Substitute
Options for the portion not exercisable, as provided above.
13.2 CHANGE IN CONTROL. In the event that the Company closes and
consummates any transaction which has been approved by the Company's
stockholders which, while not a merger or consolidation, involves a change in
control of the Company, then, notwithstanding any other provision of the Plan,
(i) the Board or the Committee may grant as a part of such transaction Options
which are not subject to the termination provisions of Article IX and having
such other terms and provisions as the Board or the Committee deems appropriate,
and (ii) any outstanding Option held by non-employee members of the Board of
Directors shall be immediately vested in full.
ARTICLE XIV. SECURITIES REGISTRATION
14.1 SECURITIES REGISTRATION. In the event that the Company shall deem it
necessary or desirable to register under the Securities Act of 1933, as amended,
or any other applicable statute, any Options or any Stock with respect to which
an Option may be or shall have been granted or exercised, or to qualify any such
Options or Stock under the Securities Act of 1933, as amended, or any other
statute, then the Optionee shall cooperate with the Company and take such action
as is necessary to permit registration or qualified of such Options or Stock.
Unless the Company has determined that the following representation is
unnecessary, each person exercising an Optionee under the Plan may be required
by the Company, as a condition to
107
<PAGE>
the issuance of the shares pursuant to exercise of the Option, to make a
representation in writing (a) that he is acquiring such shares for his own
account for investment and not with a view to, or for sale in connection with,
the distribution of any part thereof, and (b) that before any transfer in
connection with the resale of such shares, he will obtain the written opinion of
counsel for the Company, or other counsel acceptable to the Company, that such
shares may be transferred. The Company may also require that the certificates
representing such shares contain legends reflecting the foregoing.
ARTICLE XV. TAX WITHHOLDING
15.1 TAX WITHHOLDING. Whenever shares of Stock are to be issued in
satisfaction of Options exercised under this Plan, the Company shall have the
power to require the recipient of the Stock to remit to the Company in amount
sufficient to satisfy federal, state, and local withholding tax requirements.
ARTICLE XVI. INDEMNIFICATION
16.1 INDEMNIFICATION. To the extent permitted by law, each person who is
or shall have been a member of the Board shall be indemnified and held harmless
by the Company against and from any loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by him in connection with or resulting
from any claim, action, suit, or proceeding to which he may be a party or in
which he may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of judgment
in any such action, suit, or proceeding against him, provided he shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's articles of incorporation
or bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them to hold them harmless.
ARTICLE XVII. REQUIREMENTS OF LAW
17.1 REQUIREMENTS OF LAW. The granting of Options and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules and regulations and to such approvals by any governmental
agencies or national securities exchange as may be required.
17.2 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Minnesota.
108
<PAGE>
ARTICLE XVIII. EFFECTIVE DATE OF PLAN
18.1 EFFECTIVE DATE. The Plan shall be effective on November 8, 1994, the
date of its adoption by the Board.
ARTICLE XIX. COMPLIANCE WITH CODE.
19.1 COMPLIANCE WITH CODE. Incentive Stock Options granted hereunder are
intended to qualify as "incentive stock options" under Code Section 422A. If
any provision of this Plan is susceptible to more than one interpretation, such
interpretation shall be given thereto as is consistent with Incentive Stock
Options granted under this Plan being treated as incentive stock options under
the Code.
ARTICLE XX. NO OBLIGATION TO EXERCISE OPTION.
20.1 NO OBLIGATION TO EXERCISE. The granting of an Option shall impose no
obligation upon the holder thereof to exercise such Option.
109
<PAGE>
[HARRIS BANK LOGO]
Harris Trust and Savings Bank Attn: Letter of Credit Section
P.O. Box 755 311 W. Monroe St., 13th Floor
Chicago, IL 60690-0755 Chicago, Illinois 60606
EXHIBIT 10.19
OUR IRREVOCABLE STANDBY LETTER OF DATE OF ISSUE: DECEMBER 21, 1995
CREDIT NUMBER SPL 35003
APPLICANT: BENEFICIARY:
IN HOME HEALTH, INC. THE TRAVELERS INDEMNITY CO.
601 LAKESHORE PARKWAY NATIONAL ACCTS COLLATERAL
MINNETONKA, MN 55305 ONE TOWER SQUARE
HARTFORD, CT. 06183
AVAILABLE
AMOUNT: MAXIMUM USD 4,520,000.00
EXPIRY DATE : DECEMBER 12, 1996
THIS IS A NON-PRINT LETTER OF CREDIT TO BE USED FOR FILE PURPOSES ONLY. THE
ORIGINAL DOCUMENT WAS CREATED TODAY OUTSIDE OF THE LETTER OF CREDIT SYSTEM, A
COPY OF WHICH IS ATTACHED.
PREPARED BY: RFN
110
<PAGE>
[HARRIS BANK LOGO]
Harris Trust and Savings Bank Attn: Letter of Credit Section
P.O. Box 755 311 W. Monroe St., 13th Floor
Chicago, IL 60690-0755 Chicago, Illinois 60606
MAIL TO: DECEMBER 21, 1995
IN HOME HEALTH, INC. OUR STANDBY LETTER OF CREDIT
601 LAKESHORE PARKWAY NUMBER: SPL35003
MINNETONKA, MN 55305
YOUR CUSTOMER: THE TRAVELERS INDEMNITY CO.
WE HEREWITH INVOICE YOU AS FOLLOWS:
CHARGE TYPE CHARGE AMOUNT
------------------------ ----------------
STANDBY L/C COMMISSION USD 11,425.56
________________
TOTAL DUE: USD 11,425.56
AMOUNT CALCULATED: $4,520,000.00 X 1/4% X 364/360 (12/15/95-12/12/96
PLEASE REMIT YOUR CHECK, ALONG WITH A COPY OF THIS INVOICE, TO THE ATTENTION OF
THE STANDBY LETTER OF CREDIT UNIT, 311 WEST MONROE STREET, 13TH FLOOR, CHICAGO,
ILLINOIS 60606 QUOTING OUR REFERENCE NUMBER SPL35003.
IF YOU HAVE ANY QUESTIONS REGARDING THIS INVOICE, PLEASE CALL THE STANDBY LETTER
OF CREDIT PROCESSING UNIT AT (312) 461-6460 OR (312) 461-6463.
HARRIS TRUST AND SAVINGS BANK
PREPARED BY: RFN
111
<PAGE>
Harris Trust and 111 West Monroe Street Telephone (312) 461-2121
Savings Bank P.O. Box 755
Chicago, Illinois 60690-0755
- --------------------------------------------------------------------------------
[HARRIS BANK - LOGO]
IRREVOCABLE LETTER OF CREDIT NO. SPL35003
TO: The Travelers Indemnity Company (Beneficiary) December 15, 1995
National Accounts Collateral Unit
Attn: Indra Gajraj - 9GS
One Tower Square
Hartford, Connecticut 06183
We hereby establish this clean irrevocable Letter of Credit in favor of the
aforesaid addressee ("BENEFICIARY") for drawings up to United States $4,520,000
effective immediately. This Letter of Credit is issued, presentable and payable
at our office at 311 West Monroe Street, Chicago, Illinois 60606 and expires
with our close of business on December 12, 1996. Shawmut Bank Connecticut,
N.A., Boston, Massachusetts is hereby authorized to negotiate documents under
this credit. After the Letter of Credit has been issued, it cannot be revoked
or reduced without the consent of the Beneficiary.
The term "BENEFICIARY" includes any successor by operation of law of the
named Beneficiary including, without limitation, any liquidator, rehabilitator,
receiver or conservator.
We hereby undertake to promptly honor your sight draft(s) drawn on us,
indicating our Credit No. SPL35003, for all or any part of this Credit if
presented at our office, or the office of the negotiating bank, specified in
paragraph one on or before the expiry date or any automatically extended expiry
date. If you so choose, you will be able to draw on this Letter of Credit more
than once, so long as the sum of the amounts which you draw does not exceed the
full amount of the Letter of Credit.
This Letter of Credit sets forth in full the terms of our undertaking, and
such undertaking shall not in any way be modified, amended or amplified by
reference to any note, document, instrument or agreement referred to herein or
in which this Letter of Credit relates and any such reference shall not be
deemed to be incorporated herein by reference to any note, document or
agreement. The obligation of Harris Trust and Savings Bank under this Letter of
Credit is the individual obligation of Harris Trust and Savings Bank, and is in
no way contingent upon reimbursement with respect thereto.
It is a condition of this Letter of Credit that it is deemed to be
automatically extended without amendment for one year from the expiry date
hereof, or any future expiration date, unless 90 days prior to any expiration
date we notify you by registered mail that we elect not to consider this Letter
of Credit renewed for any such additional period. In that event, you may draw
hereunder on or prior to the then relevant expiration date, up to the full
amount then available hereunder, against your sight draft(s) on us, bearing the
number of this Letter of Credit.
112
<PAGE>
Harris Trust and
Savings Bank
This Letter of Credit is subject to and governed by the Laws of the State
of Connecticut and the 1993 Revision of the Uniform Customs and Practice for
Documentary Credits of the International Chamber of Commerce (Publication No.
500) and, in the event of any conflict, the Laws of the State of Connecticut
will control. If this Credit expires during an interruption of business as
described in Article 17 of said Publication 500, the bank hereby specifically
agrees to effect payment if this Credit is drawn against within 30 days after
the resumption of business.
Very truly yours,
HARRIS TRUST AND SAVINGS BANK
By /s/ (illegible)
--------------------------------
Its Sr Vice President
113
<PAGE>
EXHIBIT 11
IN HOME HEALTH, INC.
COMPUTATION OF PER SHARE EARNINGS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
PRIMARY:
Net income $ 1,621 $ 247 $ 1,015
------ ------ ------
------ ------ ------
Shares:
Weighted average number of shares
outstanding during the period 16,062 15,656 15,302
Shares issuable in connection with
stock options and warrants less
shares purchasable from proceeds 242 357 754
------ ------ ------
Total shares 16,304 16,013 16,056
------ ------ ------
------ ------ ------
Net income per share $ .10 $ .02 $ .06
------ ------ ------
------ ------ ------
ASSUMING FULL DILUTION:
Net income $ 1,621 $ 247 $ 1,015
------ ------ ------
------ ------ ------
Shares:
Weighted average number of shares
outstanding during the period 16,062 15,656 15,302
Shares issuable in connection with
stock options and warrants less
shares purchasable from proceeds 352 357 754
------ ------ ------
Total shares 16,414 16,013 16,056
------ ------ ------
------ ------ ------
Net income per share $ .10 $ .02 $ .06
------ ------ ------
------ ------ ------
</TABLE>
NOTE 1. Net income per share impact of the cumulative effect of the change in
accounting principle is less than $.01.
114
<PAGE>
EXHIBIT 24
INDEPENDENT AUDITORS' CONSENT
In Home Health, Inc.
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (No. 33-38504, 33-75876 and 33-75830) and to the Registration
Statements on Form S-3 (No. 33-77174) of our report dated November 22, 1995,
except for the second paragraph of Note 3, as to which the date is December 14,
1995, appearing in this Annual Report on Form 10-K of In Home Health, Inc. for
the year ended September 30, 1995.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
December 27, 1995
115
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS, THE STATEMENTS OF INCOME AND THE STATEMENTS OF CASH FLOWS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 3,665
<SECURITIES> 0
<RECEIVABLES> 32,589
<ALLOWANCES> 867
<INVENTORY> 0
<CURRENT-ASSETS> 21,394
<PP&E> 18,284
<DEPRECIATION> 7,163
<TOTAL-ASSETS> 57,559
<CURRENT-LIABILITIES> 21,289
<BONDS> 0
<COMMON> 163
0
0
<OTHER-SE> 30,346
<TOTAL-LIABILITY-AND-EQUITY> 57,559
<SALES> 0
<TOTAL-REVENUES> 129,816
<CGS> 0
<TOTAL-COSTS> 74,082
<OTHER-EXPENSES> 51,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 767
<INCOME-PRETAX> 3,007
<INCOME-TAX> 1,386
<INCOME-CONTINUING> 1,621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,621
<EPS-PRIMARY> .10
<EPS-DILUTED> 0
</TABLE>
