<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NO. 0-17821
THE CARE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2962027
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE HOLLOW LANE, LAKE SUCCESS, NEW YORK 11042
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516)869-8383
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 $.001 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K or any
amendment in this Form 10K.[ ]
As of March 18, 1996, the registrant had outstanding 8,450,019 shares of
Common Stock, $.001 par value per share.
As of March 18, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $16,900,000.
Documents Incorporated by Reference: The Company=s Proxy Statement for its
Annual Meeting of Stockholders, to be held July 8, 1996, definitive copies of
which will be filed with the Securities and Exchange Commission within 120
days after the end of the registrant=s 1995 fiscal year; this document will
be incorporated into Part III of the Form 10-K.
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TABLE OF CONTENTS
Page(s)
Part I
Item 1. Business 1-7
Item 2. Properties 8
Item 3. Legal Proceedings 8-9
Item 4. Submission of Matters to a Vote of Security
Holders 9
Part II
Item 5. Market Information 9-10
Item 6. Selected Consolidated Financial Data 11
Item 7. Management's Discussion and Analysis
of Consolidated Financial Condition and
Results of Operations 12-14
Item 8. Consolidated Financial Statements and
Supplementary Data 15
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 15
Part III
Item 10. Directors and Executive Officers of the
Registrant 35
Item 11. Executive Compensation 35
Item 12. Security Ownership of Certain Beneficial
Owners and Management 35
Item 13. Certain Relationships and Related
Transactions 35
Part IV
Item 14. Exhibits, Consolidated Financial Statements,
Financial Statement Schedules, and Reports
on Form 8-K 35-40
Signatures 41
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PART I
Item 1. Business
General Development of Business
The Care Group, Inc., a Delaware corporation ("Registrant"), and its wholly-
owned subsidiaries (collectively, the "Company") provide homecare and
alternative site care to specific patient populations through the Company's
fully integrated nursing, pharmaceutical and specialty durable medical
equipment programs. The Company's business is primarily the care and
treatment of patients with the Human Immunodeficiency Virus (-HIV-) and
Acquired Immune Deficiency Syndrome (-AIDS-). The Company is capable of
competing with larger providers by filling the needs of these niche markets.
Over the past decade, the scope of care provided by the Company has been
expanded and at present offers a wide range of nursing and pharmaceutical
services from nursing para-professionals to registered nurses with advanced
certification(s) and from oral medications to infusion therapies. On May 18,
1994, the Company acquired Advanced Care Associates, Inc., Advanced Care CPM,
Inc. and Millwo Inc., Pennsylvania corporations (-Advanced Care-). Advanced
Care is a provider of durable medical equipment and sleep studies to patients
at home and in rehabilitation centers. On July 18, 1994, the Company
acquired the assets of Clinical Care Services, Inc., a Georgia corporation
(-Clinical-). Clinical is a provider of home health services including
nursing and home infusion therapy. During 1995, the Company commenced the
operations of Mail Order Meds, Inc. (-MOM-). MOM is a mail order pharmacy
located in Austin, Texas. On September 12, 1995, the Company acquired
Therapeutic Innovations, Inc., a Texas corporation (-Therapeutic-).
Therapeutic is a provider of both in-patient and out-patient care for the
pediatric market. The Company's mix of business is approximately 31 percent
nursing, 57 percent pharmaceuticals and 12 percent durable medical equipment.
Currently, the Company provides its nursing and pharmaceutical services in
Atlanta, GA; Austin, TX; Dallas, TX; Houston, TX; Los Angeles, CA; and New
York City, NY. Each branch has a clinical pharmacy adjacent to the Company's
nursing office, combining the nursing and pharmaceutical disciplines,
enabling the Company to provide state-of-the-art case management. Advanced
Care is located in Fort Washington, Pennsylvania. The Company has also
established a separate division providing durable medical equipment in the
Company=s Houston branch.
Description of Business
Home Healthcare Services
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Treating a patient at home can include para-professional nursing care,
nursing care, intermittent nursing visits, physical or occupational
therapist visits, social worker consultations, administration of
pharmaceutical therapies and therapy or care utilizing durable medical
equipment and devices. Plans of treatment establish the needs of a specific
patient. Home healthcare begins with a physician=s order for nursing and/or
pharmaceutical regimens and/or ancillary services. These orders are
implemented by the Company's clinical nursing and/or clinical pharmacy team
which works closely with the physician to monitor the patient's progress.
The on-going collaboration among physicians, nurses, therapists and
pharmacists enables the patient to stay at home. The significant increases
in the cost of hospitalization have increased the acceptance of home health
care by insurance companies over the past decade. Patients that the
Company specializes in treating, due to the nature of their illnesses, are
among the most expensive patient populations to the insurance companies,
making the Company's services a cost effective alternative. During the past
decade, advances in technology, which include the miniaturization of
equipment and the increasing number of intravenous pharmaceutical therapies,
have enabled the home to become a "hospital without walls".
How The Company Delivers Care
Important to the Company's role as a homecare provider is the development of
clinical nursing and pharmaceutical policies and procedures that ensures that
each branch operates under the same clinical standards of excellence that
have been established by the Company. These policies and procedures begin
with the intake process and are followed through every phase of the patients'
care, including discharge procedures. The continual interaction among the
patient's physician and the Company's clinical staff monitor the progress of
the patient and modify his/her regimen according to his/her specific needs.
For example, a patient who was under 24-hour care may have progressed and now
only requires intermittent nursing visits. Conversely, the opposite
situation may occur. Many of the Company's HIV and other patients require
constant attention to nursing notes, results of blood tests and other
diagnostic tools that aid in providing the patient with high quality of care.
Each branch has clinical and support personnel on call 24-hours-a-day, 365-
days-a-year.
An integral part of the Company's clinical policies and procedures is the
Company's Quality Assurance/Continuous Quality Improvement program which is
reviewed quarterly by a Professional Advisory Board within each branch.
Each Professional Advisory Board is comprised of both employees and outside
professionals including physicians, dietitians, social workers, consumers and
nurses. Additionally, a Corporate Quality Assurance/Continuous Quality
Improvement Advisory Board has been established to monitor the branches.
JCAHO Accreditation
All branches and Advanced Care are accredited by the Joint Commission on
Accreditation of Healthcare Organizations (-JCAHO-). Accreditation by JCAHO
has become a prerequisite for contracts from many insurance companies, health
maintenance organizations (-HMO's-) and preferred provider organizations
(-PPO's-).
Pharmaceutical Services/Home Infusion Therapies
Home infusion is an industry that began in the early 1980's with the advances
in equipment that deliver intravenous therapies, including antibiotics, total
parenteral nutrition therapy, chemotherapy and other pharmaceutical
therapies. Previously, patients who required intravenous therapies were
hospitalized for the duration of the treatment. The Company entered into
home infusion operations in 1991 with the acquisition of CareLine, Inc., in
Dallas, TX. Subsequent to the acquisition, clinical pharmacies were opened
adjacent to nursing offices in all branches.
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The miniaturization of pumps that deliver therapies intravenously have made
the home the ideal environment for infusion. The advances in technology and
computer controlled devices enable the patient to receive infusion treatment
at home, and if the patient is ambulatory, he/she
may receive infusion therapy while conducting his/her daily schedule. The
cost savings of home infusion over hospitalization has made home infusion the
cost effective choice, in addition to enhancing quality of life for patients
and their families. The nursing requirements for a home infusion patient
vary from a patient requiring intermittent nursing visits, 24 hour a day
nursing care or, when clinically appropriate, a "teach and release" program
may be implemented. In a "teach and release program", patients requiring
long-term infusion therapies are taught how to assist in the monitoring of
their regimen. The "teach and release" program enables a patient to maximize
his/her insurance coverage by decreasing nursing expenditures.
As specialists in the care of HIV/AIDS patients, the Company has begun
offering oral medications. This product category enables the Company to begin
a relationship with the patient at an earlier point in time and continues to
build upon the Company's expanded scope of care philosophy for referral
sources. HIV/AIDS has transitioned from imminent death to a chronic illness,
prior to the final stages, where oral medications have become a greater part
of the care regimen than during the 1980's.
Durable Medical Equipment (-DME-)
With the acquisition of Advanced Care in May 1994 and the establishment of a
separate division within the Company=s existing Houston branch, the Company
expanded its DME business.
Advanced Care markets a product line that consists of therapy products which
are provided to patients in the home setting. These products are used
primarily for the treatment of post-operative and chronic conditions.
Advanced Care also performs diagnostic sleep studies in the home or hospital.
Advanced Care has marketing/sales teams in Connecticut, District of Columbia,
Indiana, Illinois, Massachusetts, Maryland, New Jersey, New York,
Pennsylvania, Virginia, Texas and Mississippi.
The Company=s Houston branch provides durable medical equipment and
respiratory products and services to patients in the home setting,
specifically apnea monitors, oxygen concentrators, ventilators and
nebulizers.
Mail Order Prescription
In January 1995, the Company began operations of its newly developed, wholly-
owned subsidiary, Mail Order Meds, Inc. (-MOM-). MOM specializes in the
distribution of HIV/AIDS pharmaceuticals, nutritional supplements, vitamins,
herbals, educational books, books on tape and videos. MOM=s sales efforts
are directed to individual consumers, physicians caring for HIV/AIDS
patients, hospital discharge planners, insurance companies, HMO=s, PPO=s and
other third-party payors. MOM is marketed to its target market through a
combination of national/regional print advertising, direct mail,
telemarketing and exhibiting at professional conferences. MOM=s sales and
marketing services include its toll-free nutrition and social service
referral help line.
Markets
The Home Healthcare Industry
Healthcare represents the largest single industry in the United States. The
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advancements in technology during the past decade have transformed homecare
into a more sophisticated service combining nursing, physical and
occupational therapy, pharmaceutical infusion therapy, and other ancillary
services as well as the use of durable medical equipment products which are
commonly referred to as "high-tech" home healthcare. The advancements in
technology have made possible the implementation of procedures that were
previously available only in hospitals. The Company believes that home and
alternative site care will continue to grow.
Management believes that the changing healthcare environment will result in
strategic alliances among individual physicians, physician groups and
Individual Practice Associations (-IPA's-) aligning with HMO's, managed care
companies and hospitals. These strategic alliances will create many
opportunities, including possible joint ventures for the Company.
Management believes, although there can be no assurance, that healthcare
service will be purchased regionally and the Company plans to continue its
strategy of building full service branches in all locations where the Company
conducts business. Additionally, management believes that a full service
health care facility or company will be more important and valuable to payors
than the number of branch locations throughout the United States.
Marketing And Sales
Sales are generated from referrals by physicians, case managers, discharge
planners, HMO's, PPO's, community organizations and hospitals. The Company's
branch managers devote a significant amount of time to marketing the services
of the Company to these referral and payment sources. In addition, each
branch has one to three employees whose sole responsibility is the marketing
of the Company's services. Traditional marketing techniques employed by the
branch managers and salespeople include direct solicitation, direct mail,
exhibitions at professional conferences/seminars, submission of proposals
with attractive pricing for contractual arrangements, active participation in
community events and an on-going commitment to customer service.
Corporate personnel work closely with those individuals at the branch
locations responsible for marketing to enhance their efforts and
simultaneously develop a corporate presence with referral sources.
Additionally, national professional conferences are attended by corporate
personnel and branch representatives.
Marketing representatives assisted by clinicians from the branch locations
present the Company's nursing and pharmaceutical services in conjunction with
value added services. For example, services/educational programs are
conducted by the Company's branch personnel to educate the referral sources
about current information regarding the types of services/products provided
by the Company to its specialized patient populations.
As a result of the changing healthcare environment, third-party payors are
becoming more involved in the selection of the homecare provider. The
Company has established a reputation as a cost conscious provider which
positions the Company favorably with these payors. At present, the Company
has several contracts with third-party payors.
Major Customers
The Company has one customer that accounted for approximately 8 percent, 9
percent and 16 percent of its net operating revenues for the years ended
December 31, 1995, 1994, and 1993, respectively.
Reimbursement For Services
In excess of 97 percent of the Company's revenues are received from third-
party payors (insurance companies or government agencies) with payment from
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the patient comprising the balance. In order to assure payment, the
Company's reimbursement specialists verify the patient's insurance coverage
as part of the patient intake system. At present, it is common for prices to
be negotiated during the verification process for the services to be
rendered. The Company's reimbursement specialists continue to monitor the
patient's insurance coverage until discharge. Due to the catastrophic nature
of the illnesses of the Company's patient population, the Company's
reimbursement specialists continually monitor the lifetime limits, the
availability of special state programs and other reimbursement related
issues. In an effort by payors to control costs, verification and
negotiation are becoming standard procedures on an industry-wide basis.
In addition to verification and negotiation, the Company typically obtains an
assignment of benefits from the patient that enables the Company to file the
claims for its services with the third-party payor. Once reimbursement
processing has been established with the third-party payor, claims processing
and reimbursement for a patient tend to become routine, subject to continued
patient eligibility and other coverage limitations.
Competition
The home healthcare market, which includes infusion, durable medical
equipment and nursing, is highly competitive. Management anticipates that
competition for patient referrals will intensify in substantially all of the
areas in which the Company conducts its business. The Company believes that
the primary competitive factors in the home healthcare and infusion therapy
industries are the quality of care and pricing. Management believes that the
Company is able to offer both reasonable prices and high quality care.
Consolidation in the homecare industry has created conglomerates that have
hundreds of branches throughout the United States. Management believes that
the continued development of the Company's regional philosophy, continued
emphasis on specialization, as well as positioning as a niche provider,
enables the Company to successfully compete with larger providers.
Subsidiaries
The Company operates through its wholly-owned subsidiaries. The Company's
current operating subsidiaries include the following:
DATE OF
NAME INCORPORATION
The Care Group of New York, Inc. November, 1986
CareLine of New York, Inc. September, 1991
The Care Group of Georgia, Inc. June, 1988
CareLine of Georgia, Inc. September, 1991
The Care Group of Texas, Inc. April, 1991
CareLine of Houston, Inc. September, 1991
CareLine of Dallas, Inc. May, 1987
Mail Order Meds, Inc. (M.O.M.) September, 1994
The Care Group of Los Angeles, Inc. September, 1992
Advanced Care Associates, Inc. November, 1987
Regulatory Requirements
Home Health Care Services
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The Company's business is subject to extensive governmental regulations. The
Company is required to obtain a license and/or Certificate of Need in each
state where it conducts business. Under each such license and Certificate of
Need, the Company is subject to, among other things, reporting requirements,
operating requirements and restrictions on changes in effective control or
ownership. The Company's licenses and certificates are subject to periodic
review and there can be no assurance of renewal.
Home Infusion Services
The Company's home infusion services are subject to state and Federal
regulations. For example, each of the Company=s infusion offices is a duly
licensed pharmacy. Most therapies offered are prescription-based and,
accordingly, must be dispensed by pharmacists and administered by registered
nurses who are licensed by the states in which the Company operates.
The Company believes that it is currently in substantial compliance with
regulatory requirements. If the Company violates any applicable rules or
regulations or other applicable laws, the Company may be subject to fines,
license revocation, civil lawsuits or criminal actions, any of which could
have a materially adverse effect on the Company. See -Part 1, Item 3- Legal
Proceedings-.
Insurance
The Company carries an error and omission policy covering certain negligence
and other acts by the Company's nurses and nurse's aides with liability
limitations of $1,000,000 for professional liability plus a $7,000,000
umbrella, for total coverage of $8,000,000 for any individual act.
The Company carries $3,000,000 of coverage for all directors and officers.
The Company also carries additional insurance policies covering certain
property damage and employee disability. Management believes the policies in
place are more than adequate and are priced at affordable rates. There can be
no assurance that such insurance policies will continue to be available to
the Company at rates which the Company can afford, or, that they will
adequately cover the Company=s losses resulting from negligence, malpractice
or any other claims.
Employees
As of December 31, 1995, the Company had 525 employees. The Company=s
employees are not currently represented by a labor union or other labor
organization.
Management Information Systems
The Company=s offices are equipped with local area networks (-LANs-) and
computer software that allow the Company=s locations to access the
centralized computer system. The current system has enabled the Company to
standardize all its branch offices around one computer software system.
In order to improve the branch offices= capabilities, the Company is in the
process of replacing the current system with more sophisticated hardware and
software that are less dependent on the Company=s corporate computer. The
installation of the new system in the existing branch locations will be
completed by the third quarter of 1996. The Company believes the new system
will improve branch operating efficiencies and allow each of its branch
offices to tailor its respective system to meet the specific operating
requirements at such branch office.
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Item 2. Properties
The Company's executive office is located in Lake Success, New York, a suburb
of New York City, in approximately 5,500 square feet of leased space.
The Company maintains an office in each city where it conducts business (See
- -Item 1 - Business - General Development of Business-). Each of the
Company's seven office locations, plus the executive office, leases
approximately 1,500 to 7,600 square feet of office space in its respective
location. The Company's leased properties are suitable and adequate for the
Company=s current needs and additional space is expected to be available as
needed at competitive rates. The Company paid approximately $960,000 for
office rent in 1995.
Item 3. Legal Proceedings
On May 18, 1994, the Company acquired all the stock of Advanced Care
Associates, Inc., Advanced Care CPM, Inc. and Millwo Inc. (-Advanced Care-)
for an aggregate consideration of $5,268,000, of which $3,000,000 was in the
form of promissory notes, due in twenty-four equal monthly installments
beginning July 10, 1995. No payments have been made on these promissory
notes at this time. The Company also entered into employment agreements with
the prior owners of Advanced Care, although the prior owners are no longer
employed by the Company.
On September 30, 1994, Advanced Care and its former owners were served with a
civil lawsuit by the Department of Justice (United States District Court of
Pennsylvania, Eastern District) alleging improper Medicare billing and
reimbursement practices during some or all of the period from 1989 through
May 1994. All allegations in the complaint involve the time prior to the
Company=s purchase of Advanced Care in May 1994. The government is currently
seeking monetary damages. In March 1996, an informal agreement in principle
has been reached amongst the parties, subject to negotiation and execution of
a definitive agreement. Management believes that the outcome of this matter
will not have a material adverse effect on the consolidated financial
statements of the Company, although there can be no assurance to this effect.
See -Management=s Discussion and Analysis of Consolidated Financial Condition
and Results of Operations- and Notes 3 and 17 to the consolidated financial
statements.
In the purchase agreement, the prior owners of Advanced Care indemnify the
Company from and against all activities of Advanced Care prior to the
acquisition. The Company has advised the previous owners that they will be
held responsible for this claim pursuant to the indemnification provisions
contained in the agreement.
On October 17, 1994, the Company filed a lawsuit against the former owners
of Advanced Care (New York Supreme Court, Nassau County). The lawsuit
alleges, among other matters, that the former owners knowingly misrepresented
the financial condition of Advanced Care prior to the Company entering into
the purchase and employment agreements dated May 18, 1994. The Company is
seeking rescission of the employment agreements and monetary damages. The
Company expects that the litigation involving Advanced Care and its prior
owners will be settled in 1996, although there can be no assurance. See
- -Management=s Discussion and Analysis of Consolidated Financial Condition and
Results of Operations- and Notes 3 and 17 to the consolidated financial
statements.
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The Company is also involved in legal proceedings arising in the ordinary
course of business. Management believes that any liability that may result
upon the resolution of these claims and lawsuits will not, in the aggregate,
have a material adverse effect on the consolidated financial condition of the
Company or its results of operations, although there can be no assurance to
this effect.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market Information
The Company's Common Stock is traded in the over-the-counter market and
quoted on the NASDAQ National Market System under the symbol CARE. The
following table sets forth the high and low bid prices for the Company's
Common Stock for each quarter for the last two fiscal years as quoted on the
NASDAQ National Market System. The prices set forth below represent prices
between dealers, do not include retail mark-ups, markdowns or commissions and
do not necessarily represent actual transactions.
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<CAPTION>
MARKET PRICES
Year Ended December 31, 1994
High* Low
<S> <C> <C>
First Quarter................. ...$4.69 $3.50
Second Quarter.................... 4.50 3.44
Third Quarter.......................3.75 2.00
Fourth Quarter......................4.38 2.13
Year Ended December 31, 1995
First Quarter......................$6.50 $4.38
Second Quarter......................4.56 3.13
Third Quarter.......................4.25 3.50
Fourth Quarter......................3.62 1.68
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Dividends
The Company has not paid any cash dividends on its Common Stock. The Company
intends to retain all earnings for the operation and expansion of its
business, and does not anticipate paying cash dividends in the foreseeable
future. Any future determination as to the payment of cash dividends will
depend upon the Company's results of operations, financial condition and
capital requirements, as well as such other factors as the Company's Board of
Directors may consider.
NUMBER OF STOCKHOLDERS
As of March 19, 1996, there were 299 holders of record of the outstanding
shares of Common Stock (according to the records of the Company=s transfer
agent, American Stock Transfer & Trust Company). Since most holders of the
Company=s stock have placed their shares in street name, this figure is much
lower than the actual number of beneficial holders of common stock, which is
estimated to be approximately 3,000 stockholders.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share
data)
The consolidated financial data included in this table with respect to each
year in the five-year period ended December 31, 1995, and at each year-end
date in such period, have been selected by the Company and have been derived
from the Company=s audited consolidated financial statements for those years.
The data should be read in conjunction with the consolidated financial
statements, related notes and other financial information included elsewhere
in this Form 10-K.
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<CAPTION>
YEAR ENDED DECEMBER 31,
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA 1995 1994 1993 1992
1991
<S> <C> <C> <C> <C> <C>
Net Revenues $39,718 $36,381 $29,537 $28,266 $22,425
Operating Expenses 37,586 33,777 28,502 27,165 21,183
Income Before Income
Taxes and Extraordinary
Item 1,444 2,146 870 1,206 1,146
Extraordinary Item
Net of Tax Benefit ------ ------ ------ (1,145) ------
Net Income (Loss) 746 1,214 460 (521) 751
Income Per Common and
Common Equivalent
Shares Before
Extraordinary Item .09 .16 .08 .10 .18
Extraordinary item net
of tax benefit ------ ------ ------ (.19) ------
Net Income (Loss) Per
Common and Common
Equivalent Shares .09 .16 .08 (.09) .18
Cash Dividends Declared ------ ------ ------ ------ ------
CONSOLIDATED BALANCE SHEET DATA DECEMBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Total Assets $37,010 $35,408 $24,457 $20,527 $21,186
Long-term Obligations 8,522 9,014 133 480 944
Total Liabilities 12,619 12,071 5,806 3,553 5,019
Redeemable Common Stock 1,000 ------- ------- ------- -------
Stockholders' Equity 23,391 23,337 18,651 16,974 16,167
</TABLE>
See Item 8, Note 3 - -Business Combinations- and Item 7 - -Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations", for information that affects comparability of the foregoing
data.
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Item 7. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations
Results of Operations
Comparison of Year Ended December 31, 1995 to Year Ended December 31, 1994
Net revenues for the twelve months ended December 31, 1995 increased to
$39,718,000 compared to $36,381,000 for the same period last year. The 9
percent increase was primarily due to internal growth in most existing
offices and the establishment of the Company=s Mail Order Meds= (-MOM-)
operation.
Cost of revenues for the year ended December 31, 1995 were $20,165,000 or 51
percent of net revenues as compared to $20,031,000 or 55 percent of net
revenues in the prior year. The 4 percent decrease is primarily attributable
to the growth of revenue from the DME business, as compared to nursing
revenues. The infusion and durable medical equipment businesses typically
have higher gross profit margins than traditional nursing and home health
aide services.
The Company=s selling, general and administrative expenses (-SG&A-) as a
percentage of net revenues was 44 percent for 1995 as compared to 38 percent
for 1994. This increase is due to an increase in bad debt expense due to
additional write-offs of accounts receivable during 1995. Bad debt expense
was $2,400,000 for 1995, or 6 percent of net revenues, versus $180,000, or .5
percent of net revenues, in 1994.
Net income was $746,000 or $.09 per share in 1995 as compared to $1,214,000
or $.16 per share for the prior year. The difference in net income is
primarily attributable to the Company=s MOM operation, which in its first
full year of operation produced revenue of $1,200,000 and a pretax operating
loss of $500,000. The Company=s MOM operation currently services in excess
of 1,000 HIV positive patients and is currently a break-even operation.
Comparison of Year Ended December 31, 1994 to Year Ended December 31, 1993
Net revenues for the twelve months ended December 31, 1994 increased to
$36,381,000 compared to $29,537,000 for 1993. The 23 percent increase was
primarily due to continued expansion of the Company's patient volume in all
existing locations, the acquisition of Advanced Care and certain affiliates
(-Advanced Care-) in May 1994 and the acquisition of Clinical Care Services,
Inc. in July 1994.
Cost of revenues for the year ended December 31, 1994 were $20,031,000 or 55
percent of net revenue as compared to $17,864,000 or 60 percent in the prior
year. The 5 percent decrease is primarily attributable to lower direct costs
relating to Advanced Care=s business.
The Company's SG&A as a percentage of net revenue was 38 percent for 1994 as
compared to 36 percent for the same period in 1993. This increase is
primarily the result of an increase in sales salaries resulting from the
acquisition of Advanced Care.
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Net income was $1,214,000 in 1994 as compared to $460,000 for 1993. The
increase of $754,000 or 164 percent is primarily due to a larger percentage
of the Company=s revenue being derived from higher margin infusion and
durable medical equipment sales in 1994 as compared to 1993.
Financial Condition and Liquidity
Current assets remained relatively unchanged at $18,552,000 at December 31,
1995 from $18,629,000 at December 31, 1994. The decrease of $77,000 in
current assets is due to the Company's increase in inventories offset by the
decrease in accounts receivable and marketable securities. The increase in
inventories is attributable to the increase in the Company=s pharmacy and
durable medical equipment business. The decrease in accounts receivable is
primarily attributable to the increase in managed care, which resulted in the
Company=s ability to bill and collect negotiated amounts, thereby causing
accounts receivable to be billed and collected on a more timely basis. The
decrease in marketable securities was primarily attributable to the Company=s
ability to generate gains on short-term fluctuations in the security prices.
At December 31, 1995, working capital was $14,455,000 as compared to
$15,572,000 at December 31, 1994. The decrease of $1,117,000 is attributable
to the increase in the current portion of long-term debt, primarily as a
result of the pending litigation involving Advanced Care. The Company has
calculated the current portion of the notes payable associated with the
purchase of Advanced Care in accordance with the original terms of the
agreements, offset by legal costs associated with the litigation, although no
payments have been made on these notes. The Company expects a settlement of
this litigation and a revised note agreement in 1996. See -Part I, Item 3 -
Legal Proceedings- and Notes 3 and 17 to the consolidated financial
statements.
The Company has a revolving term credit agreement with a bank which provides
for borrowing up to $12,000,000, expiring November 16, 1998. The Company may
borrow up to 70 percent of eligible receivables, as defined, plus the higher
of $500,000 or 30 percent of eligible inventory, up to a maximum of $750,000,
as defined, pursuant to the terms of the agreement. Interest is charged at
prime (8.5 percent at December 31, 1995) plus percent. The outstanding
balance under this arrangement at December 31, 1995 is $6,800,000.
At December 31, 1995, the Company was in default of a financial covenant
specified in the amended credit agreement with the bank. The Company=s
default arose from the failure to meet the minimum working capital
requirements by approximately $345,000. The default resulted primarily from
the Company recording the current portion of the notes payable related to the
Advanced Care acquisition under the original terms of the note agreements.
Although the Company is in the process of settling the litigation related to
this acquisition (see Notes 3 and 17 to the consolidated financial
statements) and has made no payments against these notes, the Company has
continued to classify payments based upon the original terms of the note
agreements, less costs relating to the litigation of approximately $579,000
at December 31, 1995. On March 25, 1996, the Company received a waiver from
the bank for this covenant through April 30, 1996.
<PAGE>
The average days in receivables decreased from 156 days at December 31, 1994
to 137 days at December 31, 1995 based upon net revenues and net accounts
receivable during the year. This reduction is the result of management=s
continued effort to reduce the accounts receivable days outstanding and
managed care, which permits more flexibility in negotiating timely payments
of receivables. Delays resulting from increased third-party payor scrutiny
of invoices, refusal to pay or an increased proportion of Medicare and
Medicaid patients could have a materially adverse effect on the Company's
liquidity and general financial condition.
During the period January 1, 1995 through December 31,1995, the Company
received approximately $553,000 from the exercise of 219,000 employee stock
options.
Although management anticipates that income from operations will increase,
cash flow from operations may decrease because the Company's expanded
operations will require increased investment in accounts receivable and
inventories which may not be offset by increases in accounts payable.
Management believes that available marketable securities, cash generated from
operations and funds available under its revolving credit agreement will be
sufficient for the Company to satisfy the capital requirements associated
with the Company=s future growth plans and to finance working capital
requirements for the foreseeable future. The Company also anticipates
seeking additional financing from other sources to continue its expansion.
Recent Accounting Pronouncements
Recent pronouncements of the Financial Accounting Standards Board (-FASB-),
which are applicable to the Company and not required to be adopted at this
date, include Statement of Financial Accounting Standards (-SFAS-) No. 121,
- -Accounting for the Impairment of Long-Lived Assets to be Disposed Of - and
SFAS No. 123, -Accounting for
Stock-based Compensation.- These pronouncements are not expected to have a
material impact on the Company=s consolidated financial statements upon
adoption.
<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data
The following consolidated financial statements of the Company and
supplementary data are included in this Annual Report on Form 10-K at the
pages set forth below.
PAGE
Reports of Independent Certified Public Accountants 16 & 17
Consolidated Balance Sheets as of December 31, 1995 and 1994 18
Consolidated Statements of Income for the years
ended December 31, 1995, 1994 and 1993 19
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1995, 1994 and 1993 20
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993 21
Notes to Consolidated Financial Statements 22 - 34
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The Care Group, Inc.
Lake Success, New York
We have audited the accompanying consolidated balance sheets of The
Care Group, Inc. and subsidiaries (the"Company") as of December 31,
1995 and 1994, and the related consolidated statements of income,
stockholders' equity, and cash flows for the years then ended. Our
audits also included the financial statement schedules listed in the
Index at Item 14 for the years ended December 31, 1995 and 1994. These
financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is
to express an opinion on the financial statements and financial
statement schedules 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 also 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 The Care Group,
Inc. and subsidiaries as of December 31, 1995 and 1994 and the results
of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. Also, in
our opinion, such 1995 and 1994 financial statement schedules, 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 2 to the consolidated financial statements, in 1994
the Company changed its method of accounting for investments in debt and
equity securities to conform with Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities.
/s/Deloitte & Touche LLP
Jericho, New York
March 25, 1996
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The Care Group, Inc.
Lake Success, New York 11040
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of The Care Group, Inc.
and subsidiaries (the "Company") for the year ended December 31,
1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on the financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the results of operations and
cash flows of The Care Group, Inc. and subsidiaries for the year ended
December 31, 1993 in conformity with generally accepted accounting
principles.
/s/Holtz Rubenstein & Co., LLP
Holtz Rubenstein & Co., LLP
(Successors to the practice of Geschwind, Davidson & Co.,
Certified Public Accountants, who audited the financial
statements for the year ended December 31, 1993)
Melville, New York
March 22, 1994
<PAGE>
<TABLE>
<CAPTION>
THE CARE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(In thousands, except per share data) 1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 561 $ 577
Marketable securities 508 711
Accounts receivable, net
of allowances of
$3,564 in 1995 and $4,186 in 1994 14,927 15,585
Inventories 1,763 1,163
Prepaid expenses and other
current assets 793 593
TOTAL CURRENT ASSETS 18,552 18,629
PROPERTY AND EQUIPMENT, at cost 5,416 3,808
LESS - Accumulated depreciation 1,873 1,195
Net Property and Equipment 3,543 2,613
INTANGIBLES - Net 14,185 13,851
OTHER ASSETS 730 315
TOTAL $ 37,010 $ 35,408
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 1,845 $ 568
Accounts payable 1,302 1,374
Accrued expenses 950 851
Income taxes payable -- 264
TOTAL CURRENT LIABILITIES 4,097 3,057
NOTE PAYABLE - BANK 6,800 6,000
DEFERRED INCOME TAXES 322 158
LONG-TERM DEBT, excluding
current portion 1,400 2,856
TOTAL LIABILITIES 12,619 12,071
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK,
333,332 shares at $3
per share 1,000 --
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par
value per share; 1,000
shares authorized; no
shares issued and outstanding -- --
Common Stock, $.001 par value per
share; 20,000
shares authorized; 8,638 and
8,359 shares issued
and outstanding in 1995
and 1994, respectively 9 8
Additional paid-in-capital 19,886 20,390
Retained earnings 4,604 3,858
24,499 24,256
Common Stock held in treasury,
at cost - 247 and 207 shares in
1995 and 1994, respectively (1,108) (919)
Total Stockholders' Equity 23,391 23,337
TOTAL $ 37,010 $ 35,408
</TABLE>
See notes to consolidated financial statements
<TABLE>
<CAPTION>
THE CARE GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
(In thousands, except per share data) 1995 1994
1993
<S> <C> <C> <C>
NET REVENUES $ 39,718 $ 36,381 $ 29,537
COST OF REVENUES 20,165 20,031 17,864
GROSS PROFIT 19,553 16,350 11,673
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 17,421 13,746 10,638
OPERATING INCOME 2,132 2,604 1,035
INTEREST:
Interest income 32 21 23
Interest expense (720) (479) (188)
Net Interest Expense (688) (458) (165)
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,444 2,146 870
PROVISION FOR INCOME TAXES 698 932 410
NET INCOME $ 746 $ 1,214 $ 460
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARES $ .09 $ .16 $ .08
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 8,425 7,746 6,054
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE CARE GROUP, INC.
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS= EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, and 1993
Additional
(In thousands) Paid-In-Retained
Common Stock Capital EarningsTreasury Stock
Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance,
JANUARY 1, 1993 6,084 $6 $ 15,483 $2,184 136 $(699)
Proceeds from sales
of Common Stock 1,181 1 1,236 -- -- --
Stock distributed to employees pursuant
to employment agreements 30 - 200 -- -- --
Treasury stock acquired -- - -- -- 71 (220)
Net income -- - -- 460 -- --
Balance, December 31, 1993 7,295 7 16,919 2,644 207 (919)
Proceeds from exercise
of stock options 272 - 654 -- -- --
Stock distributed to
employees pursuant
to employment agreements 30 - 200 -- -- --
Stock issued for acquisitions 762 1 2,708 -- -- --
Adjustment for stock
distributed to employees
pursuant to employment
agreements (Note 10) -- - (91) -- -- --
Net income -- - -- 1,214 -- --
Balance, December 31, 1994 8,359 8 20,390 3,858 207 (919)
Proceeds from exercise
of stock options 219 1 552 -- -- --
Stock distributed to
employee pursuant
to employment agreement 60 - -- -- -- --
Treasury stock sold -- - (56) -- (204) 734
Treasury stock acquired -- - -- -- 244 (923)
Transfer to redeemable
common stock -- - (1,000) -- -- --
Net income -- - -- 746 -- --
BALANCE, DECEMBER 31, 1995 8,638 $9 $ 19,886 $4,604 247 $(1,108)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE CARE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(In thousands) 1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 746 $ 1,214 $ 460
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,328 908 860
Provision for contractual allowances and bad debts 1,788 1,402-
Deferred tax expense (benefit) 156 (622) (364)
Unrealized (gain) loss on marketable securities (22) 73-
(Gain) loss on sale of marketable securities (84) 138 --
Loss on sale of branch office -- 34 --
Loss on sale of treasury stock 56 -- --
Changes in assets and liabilities, net of effect of acquisitions:
Marketable securities 309 (67) --
Accounts receivable (1,370) (3,014) (1,925)
Inventories (600) (460) 151
Prepaid expenses and other current assets (328) 410 450
Other assets 56 (56) 1
Accounts payable (72) 225 (389)
Accrued expenses 99 106 (595)
Income taxes payable (264) 197 67
Net cash provided by (used in) operating activities 1,798 488 (1,284)
INVESTING ACTIVITIES:
Purchases of property and equipment (1,554) (1013) (369)
Sales of property and equipment 45 102 --
Additional costs for Care Line acquisition -- (150) --
Acquisition of Advanced Care, net of cash acquired -- (223) --
Acquisition of Clinical Care, net of cash acquired (102) -- --
Additional costs for Advanced Care acquisition (18) -- --
Acquisition of Clinical Care, net of cash acquired -- (102) --
Payments for intangible assets acquired -- -- (801)
Organization costs (107) -- --
Investment in certified home health agency (471) (63) --
Restrictive covenant (271) (460) --
Payments for
intangible assets acquired -- (801) (615)
Proceeds from sale of assets of branch office -- 65 --
Purchases of marketable securities, net -- -- (25)
Net cash used in investing activities (2,376) (1,844) (1,195)
FINANCING ACTIVITIES:
Proceeds from note payable - bank 1,200 7,214 2,600
Repayments of note payable - bank (400) -- --
Repayment of long-term debt (546) (7,186) (16)
Adjustment for stock distributed to employees -- (91) -
Proceeds from issuance of common stock -- 1,237 1,571
Proceeds from issuance of common stock -- -- 1,237
Proceeds from exercise of stock options 553 654 --
Purchases of treasury stock (923) -- (220)
Sales of treasury stock 678 -- --
Net cash provided by financing activities 562 591 3,601
(DECREASE) increase in cash and cash
equivalents (16) (765) 1,122
Cash and cash equivalents, beginning of year 577 1,342 220
Cash and cash equivalents, end of year $ 561 $ 577 $ 1,342
</TABLE>
See notes to consolidated financial statements.
<PAGE>
THE CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 - NATURE OF BUSINESS
The principal business of the Company is providing home health care,
including therapy, to patients with HIV (Human Immunodeficiency Virus)
Disease, AIDS (Acquired Immune Deficiency Syndrome), cancer, and other
diseases requiring high technology intermittent therapies. In 1994, the
Company began selling and renting durable medical equipment through its newly
acquired subsidiary, Advanced Care Associates, Inc. and affiliates (-Advanced
Care-) (see Note 3). In 1995, the Company began mail order distribution of
pharmaceuticals through Mail Order Meds, Inc., a newly formed subsidiary.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of The Care
Group, Inc. and its wholly-owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
(b) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(c) Cash and Cash Equivalents
Cash equivalents consist of short-term highly liquid investments which
are readily convertible into cash, and have maturities of three months or
less. At December 31, 1995, the Company maintained cash balances of
approximately $330,000 in excess of Federal Deposit Insurance Corporation
insured limits.
(d) Marketable Securities
Marketable securities consist of widely diversified investments in
stocks and bonds. During 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, -Accounting for Certain
Investments in Debt and Equity Securities- (-SFAS 115"). SFAS 115 requires a
positive intent and ability to hold debt securities to maturity as a
precondition for reporting those securities at amortized cost. Securities
not meeting the condition are considered either available-for-sale or
trading, as defined, and are reported at fair value. Trading securities are
reported at fair value with adjustments recorded through the consolidated
statements of income. The investments owned by the Company are considered
trading securities as they are bought and held principally for the purpose of
selling them in the near term to generate a profit on short-term differences
in price. Gross unrealized gains and gross unrealized losses related to
trading securities are included in earnings for the years ended December 31,
1995 and 1994. Gross unrealized gains approximated $14,000 and $16,000, and
gross unrealized losses approximated $65,000 and $89,000 as of December 31,
1995 and 1994, respectively.
(e) Accounts Receivable, net
Accounts receivable, net, is comprised principally of amounts expected
to be collected from insurance companies for services provided.
<PAGE>
THE CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
(f) Inventories
Inventories, consisting of supplies, durable medical equipment and
pharmaceuticals are stated at the lower of cost (first-in, first-out) or
market.
(g) Property and equipment
Leasehold improvements, furniture, equipment and equipment acquired
under capitalized leases are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the furniture and
equipment. Leasehold improvements are amortized over the period of the
respective leases or the estimated useful lives of the assets, whichever is
shorter. Equipment acquired under capitalized leases are depreciated on a
straight-line basis over the estimated useful lives or the lease term,
whichever is shorter.
(h) Intangibles
Intangible assets resulting from acquisitions primarily consist of the
excess of the acquisition cost over the fair value of the net assets acquired
(goodwill). Goodwill is amortized on a straight-line basis over forty years.
Other intangible assets are amortized over the estimated life of the related
asset. Accumulated amortization was approximately $1,063,000 and $1,908,000
at December 31, 1995 and 1994, respectively. Amortization expense was
approximately $665,000, $506,000, and $537,000 for the years ended December
31, 1995, 1994, and 1993, respectively.
(i) Revenue Recognition
Revenues are recognized at the time the service is provided to the
patient. A substantial majority of the Company's revenues are billed to
third-party Payors. These revenues are recognized net of known contractual
adjustments. Payment from third-party Payors is dependent upon the specific
benefits included in the patient's policy. The Company provides an allowance
to cover the difference between the Company's billable charges and expected
collections from third-party payors and patients.
(j) Income Taxes
The Company adopted the provisions of Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes" (-SFAS 109-) in 1993. Under
SFAS 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 enacted tax rates in effect for the year in
which differences are expected to reverse. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the
period in deferred tax assets or liabilities. The adoption of SFAS 109 did
not have a material effect on the consolidated financial statements of the
Company.
(k) Net Income Per Common and Common Equivalent Shares
Net income per common and common equivalent shares is computed by
dividing net income by the weighted average number of common stock and common
stock equivalents outstanding. Common stock equivalents result from dilutive
stock options and warrants.
(l) Reclassifications
Certain amounts in the 1994 and 1993 consolidated financial statements
have been reclassified to conform to the presentation in the 1995
consolidated financial statements.
<PAGE>
NOTE 3 - BUSINESS COMBINATIONS
On May 18, 1994, the Company acquired all the stock of Advanced Care
Associates, Inc., Millwo Management, Inc. and Advanced Care CPM, Inc.
(-Advanced Care-) in a transaction accounted for under the purchase method of
accounting. Accordingly, assets and liabilities have been recorded at their
fair value as of May 1, 1994, the effective date of acquisition, and the
operations of Advanced Care have been included in the consolidated operations
of the Company since that date.
The purchase price approximated $5,268,000 with the payment terms as
follows:
(a) 333,332 shares of the Company=s common stock valued at closing at
$1,208,000;
(b) $1,060,000 in cash; and
(c) subordinated notes for $3,000,000 with interest at 7 percent, due
in twenty-four equal monthly installments beginning July 10, 1995.
The excess of cost over the fair value of net assets acquired, which
approximated $4,989,000, is being amortized over forty years.
On September 30, 1994, Advanced Care and its former owners were served
with a civil lawsuit by the Department of Justice (United States District
Court of Pennsylvania, Eastern District) alleging improper Medicare billing
and reimbursement practices during some or all of the period from January
1989 through May 1994. All allegations in the complaint involve the time
prior to the Company=s purchase of Advanced Care in 1994 (see Note 17).
On July 18, 1994, the Company acquired certain assets of Clinical Care
Services, Inc. (-Clinical Care-), an infusion therapy provider in Atlanta,
Georgia. The purchase price is the sum of:
(a) 428,750 shares of common stock of the Company; and
(b) a promissory note for $600,000 due in one lump sum in July 1997,
with interest payable quarterly at the rate of 6 percent per annum.
The acquisition has been accounted for under the purchase method of
accounting. Accordingly, assets and liabilities have been recorded at their
fair values as of July 1, 1994, the effective date of acquisition, and the
operations of Clinical Care have been included in the consolidated operations
of the Company since that date. The excess of cost over the fair value of
net assets acquired, which approximated $1,944,000, is being amortized over
forty years.
On September 12, 1995, the Company acquired certain assets of
Therapeutic Innovations, Inc. (-Therapeutic Innovations-), a physical therapy
provider in Houston, Texas. The purchase price is the sum of:
(a) $62,500 in cash; and
(b) a promissory note for $200,000 due in equal monthly payments over twenty
months beginning October 12, 1995, with interest payable monthly at the
rate of 5 percent per annum.
The acquisition has been accounted for under the purchase method of
accounting. Accordingly, assets and liabilities have been recorded at their
fair values as of September 12, 1995, the effective date of acquisition, and
the operations of Therapeutic Innovations have been included in the
consolidated operations of the Company since that date. The excess of cost
over the fair value of net assets acquired, which approximated $250,000, is
being amortized over forty years.
THE CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 3 - BUSINESS COMBINATIONS (CONTINUED)
The following represents the unaudited proforma consolidated results of
operations for the years ended December 31, 1994 and 1993, assuming the
acquisition of Advanced Care had been consummated as of January 1, 1993.
Financial information, relating to the operations of Clinical Care Services,
Inc. and Therapeutic Innovations, Inc., prior to the respective acquisition
dates was not available to the Company. As such, the proforma results do not
reflect the operations of these entities prior to the effective dates of
acquisition.
<TABLE>
<CAPTION>
(In thousands, except per share data)
1994 1993
<S> <C> <C>
Net revenues $37,661 $34,739
Net income $ 941 $ 737
Net income per share $ .12 $ .12
</TABLE>
NOTE 4 - RESTRICTIVE COVENANTS
On June 24, 1994, the Company entered into an employment agreement with
a key employee, commencing June 1, 1994, for a period of four years. The
agreement provides, among other things, a non-compete restriction for a one-
year period beyond the term of the employment agreement. Pursuant to the
terms of the employment agreement, as clarified on March 17, 1995, the
Company was required to pay approximately $525,000 (through January 1995) in
connection with the restrictive covenant, of which approximately $459,000 and
$66,000 were paid in 1995 and 1994 and is included in other assets as of
December 31, 1995 and 1994, net of accumulated amortization of approximately
$143,000 and $48,000, respectively, calculated using the straight-line method
over five years .
On June 21, 1995, the Company entered into an non-compete agreement with
two key employees, commencing July 1, 1995, for a period of four years.
Pursuant to the terms of the non-compete agreements, the Company was required
to pay approximately $200,000 in connection with the restrictive covenant,
which is included in other assets as of December 31, 1995, net of accumulated
amortization of approximately $25,000, calculated using the straight-line
method over four years.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment (at cost) consists of the following at December 31,
1995 and 1994:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
<S> <C> <C>
Equipment and furniture $ 4,939 $ 3,358
Leasehold improvements 477 450
TOTAL $ 5,416 $ 3,808
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1994, and
1993 was approximately $613,000, $412,000, and $229,000, respectively.
<PAGE>
THE CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 6 - NOTE PAYABLE - BANK
On November 16, 1995, the Company entered into a revised three-year
revolving term credit agreement with a bank, which provides for borrowings up
to $12 million. The borrowing base is equal to the lesser of $12 million or
70 percent of eligible accounts receivable and the higher of $500,000 or 30
percent of eligible inventory, as defined in the loan agreement. Interest is
computed at the prime rate (8.5 percent at December 31, 1995) plus 1/4
percent. The maximum amount borrowed during 1995 was $7,200,000. The note
is secured by virtually all assets of the Company. The borrowing arrangement
includes certain restrictions on working capital, current ratio, tangible net
worth, and maximum leverage and interest coverage ratios. The average
interest rate for the year ended December 31, 1995 was 9.3 percent, with
average borrowings of approximately $6,700,000.
At December 31, 1994, the Company had a revolving term credit agreement
with a bank which provided for borrowings up to $7.5 million. The borrowing
base was equal to the lesser of $7.5 million or 70 percent of eligible
accounts receivable, as defined in the loan agreement. Interest was computed
at the prime rate (8.5 percent at December 31, 1994) plus 1/2 percent. The
maximum amount borrowed during 1994 was $6,600,000. The note was secured by
virtually all assets of the Company. The borrowing arrangement included
certain restrictions on working capital, current ratio, tangible net worth,
and maximum leverage and interest coverage ratios. The average interest
rate for the year ended December 31, 1994 was 7.6 percent, with average
borrowings of approximately $5,371,000.
At December 31, 1995, the Company was in default of a financial covenant
specified in the amended credit agreement with the bank. On March 25, 1996,
the Company received a waiver from the bank for this covenant through April
30, 1996.
NOTE 7 - LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1995 1994
<S> <C> <C>
Promissory notes for acquisitions
of Advanced Care, Clinical Care and
Therapeutic Innovations
(see Notes 3 and 17) $3,191 $3,408
Obligations under capitalized leases,
with interest rates ranging from 9
percent to 13 percent, due
through 1996 54 16
______ ______
Total 3,245 3,424
LESS - Debt maturing within one year 1,845 568
$1,400 $2,856
</TABLE>
<PAGE>
THE CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 7 - LONG-TERM DEBT (CONTINUED)
Scheduled repayments of long-term debt in each of the years subsequent
to December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Capitalized
Leases Other Total
<S> <C> <C> <C>
1996 $ 55 $1,791 $1,846
1997 - 800 800
1998 - 600 600
Total Payments 55 3,191 3,246
LESS - Amounts representing
interest 1 - 1
Present Value of Future
Minimum Payments 54 3,191 3,245
LESS - Current maturities 54 1,791 1,845
$ - $1,400 $1,400
</TABLE>
Assets recorded under capital leases are included in property and
equipment at a cost of approximately $69,000 at December 31, 1995 and 1994.
Accumulated depreciation relating to assets recorded under capital leases
approximates $37,000 and $29,000 at December 31, 1995 and 1994, respectively.
NOTE 8 - ACCRUED EXPENSES
Accrued expenses as of December 31, 1995 and 1994 consisted of the
following (in thousands):
1995 1994
Payroll and payroll related expenses $ 448 $ 351
Other 502 500
$ 950 $ 851
NOTE 9 - COMMITMENTS
a) Employment Agreements
The Company has entered into employment agreements with an executive
officer and certain key employees, including agreements pursuant to
acquisitions, which provide, among other things, specified compensation
levels. Total minimum future commitments at December 31, 1995, under these
agreements, are as follows (in thousands):
Amount
1996 $ 800
1997 400
1998 400
1999 100
$ 1,700
b) Acquisition Agreement
On September 22, 1994, the Company entered into a stock acquisition
agreement to acquire all of the outstanding common stock of a certified home
health agency. The purchase price, as amended in February 1995, is for
$700,000 plus net operating expenses paid by the Company prior to such
acquisition. The Company has made deposit payments of approximately $75,000
and $63,000 in 1995 and 1994, respectively, and has paid approximately
$396,000 in net operating expenses of the certified home health agency during
1995. These amounts are included in other assets at December 31, 1995 and
1994.
<PAGE>
THE CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 9 - COMMITMENTS (CONTINUED)
The remaining purchase price is payable one-half at closing, as defined, and
one-half within one year from the closing date, with interest at 8 percent
per annum. Pursuant to the terms of the agreement, as amended, the
acquisition is subject to certain contingencies. If the acquisition is not
approved, a portion of the purchase price paid in advance ($63,000) and
amounts paid to fund the operations of the certified home health agency are
refundable.
c) Interest Rate Collar Agreement
In October 1995, the Company entered into an interest rate collar
agreement to reduce the Company=s risk from rising interest rates related to
the Company=s note payable to a bank. The interest rate collar agreement
provides for a notional principal amount of $6 million, with an interest rate
floor of 8.11 percent and an interest rate cap of 9.50 percent. Under the
terms of the agreement, the writer of the collar has agreed to pay the
Company an amount, if any, by which the variable rate, as defined, exceeds
the cap and the Company has agreed to pay the writer of the collar an amount,
if any, by which the variable rate, as defined, falls below the floor. The
Company=s interest rate collar agreement qualifies for settlement accounting
and the agreement provides for quarterly settlement dates beginning January
23, 1996. No settlement amount has been recorded at December 31, 1995 as the
interest rate on the Company=s note payable to a bank was within the collar.
d) Self-Insurance
The Company provides health insurance benefits to its employees through
an insurance policy which is partially self-funded. The policy, which is
renewable February 1 of each year, requires the Company to reimburse medical
expenses of up to $40,000 per employee, up to a maximum stop-loss amount of
approximately $460,000 per year. The Company paid claims of approximately
$436,000, $373,000 and $300,000 for the years ended December 31, 1995, 1994
and 1993, respectively, relating to its health insurance benefits.
NOTE 10 - CAPITAL TRANSACTIONS
Stock Option Plan
The Company has adopted stock option plans to provide for the granting
of options to purchase up to a maximum of 1,525,000 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 for the years ended December 31, 1995, 1994 and 1993:
<PAGE>
THE CARE GROUP, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 10 - CAPITAL TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
Number of Shares
Available Exercise
For Grant Outstanding Price
<S> <C> <C> <C>
BALANCE - DECEMBER 31, 1992 76,750 448,250 $4.00 - $6.63
Additional options authorized 500,000 -- --
Options granted (622,750) 622,750 2.25 - 2.88
Options canceled 422,250 (422,250) 4.00 - 6.63
BALANCE - DECEMBER 31, 1993 376,250 648,750 2.25 - 5.50
Options exercised -- (272,000) 2.25 - 2.88
Options granted (69,500) 69,500 3.50 - 4.13
Options canceled 50,000 (50,000) 2.38 - 3.63
BALANCE - DECEMBER 31, 1994 356,750 396,250 2.38 - 5.50
Additional options authorized 500,000 -- --
Options exercised -- (219,000) 2.38 - 3.63
Options granted (524,750) 524,750 2.75 - 6.00
Options canceled 1,000 (1,000) 5.50 - 6.00
BALANCE - DECEMBER 31, 1995 333,000 701,000 2.38 - 6.00
</TABLE>
At December 31, 1995, options for the purchase of 701,000 shares of
common stock were exercisable at prices ranging from $2.38 to $6.00 per
share.
1991 STOCK INCENTIVE PLAN
Effective July 1, 1991, the Company established a 1991 Stock Incentive
Plan (the "Stock Plan"), pursuant to which the Board of Directors may from
time to time award shares of Common Stock to employees, officers and
directors of the Company. The Board of Directors may award up to a total of
50,000 shares of Common Stock under the Stock Plan.
Prior to 1993, pursuant to the Stock Plan, the Company issued 4,350
shares of Common Stock to certain employees of the Company in consideration
for their services to the Company.
WARRANTS
In October, 1991, the Company sold 1,732,500 shares of its common stock
in a public offering. The Company granted underwriters warrants to purchase
up to 194,597 shares of its common stock at a price of $4.58 per share. The
warrants, currently exercisable, are scheduled to expire in October 1996 and
are repriced based upon new issuances of common stock and issuances of
options to purchase common stock.
In February 1993, the Company granted warrants entitling the holders to
purchase up to 60,000 shares of its common stock at $5.75 per share. The
warrants, currently exercisable, are scheduled to expire in June 1997.
TREASURY STOCK
The Company, in connection with the acquisition of Care Line, Inc. of
Dallas, Texas in 1991, agreed to repurchase certain shares of common stock
issued in connection with related employment agreements at $6.75 per share.
On March 1, 1994, 29,630 shares were sold on the open market and the Company
paid the difference (approximately $91,000) between the market price and the
agreed upon repurchase price. The Company purchased the remaining 29,630
shares in 1995 pursuant to this agreement for $200,000.
<PAGE>
THE CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 11 - INCOME TAXES
The income tax provision (benefit) for the years ended December 31,
1995, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
(In thousands) Federal State Total
<S> <C> <C> <C>
1995
Current $377 $165 $542
Deferred 137 19 156
Total $514 $184 $698
1994
Current $1,166 $388 $1,554
Deferred (461) (161) (622)
Total $705 $227 $932
1993
Current $599 $175 $774
Deferred (300) (64) (364)
Total $299 $111 $410
</TABLE>
The income tax expense differs from the amount computed by applying the
Federal statutory rate to income before provision for income taxes, for each
of the years ended December 31, 1995, 1994, and 1993, as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
<S> <C> <C> <C>
Tax at Federal statutory rate $491 $730 $296
State income taxes, net of
Federal income tax benefit 184 149 73
Deferred compensation - - 6
Other differences 23 53 35
INCOME TAX EXPENSE $698 $932 $410
</TABLE>
The tax effect of the temporary differences giving rise to the Company's
deferred tax assets (liabilities) at December 31, 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
<S> <C> <C> <C>
CURRENT
Bad Debt Allowance $ 55 $ 19 $ 74
Net Operating Losses - 24 24
Other 7 3 10
Total $ 62 $ 46 $ 108
LONG-TERM
Capital Losses $ 56 $ 22 $ 78
Depreciation and Amortization (340) (121) (461)
Net Operating Losses - 42 42
Other 14 5 19
Total $(270) $ (52) $(322)
</TABLE>
<PAGE>
THE CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 11 - INCOME TAXES (CONTINUED)
The tax effect of the temporary differences giving rise to the Company=s
deferred tax assets (liabilities) at December 31, 1994 are as follows (in
thousands):
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
<S> <C> <C> <C>
CURRENT
Bad Debt Allowance $ 44 $ 19 $ 63
Net Operating Losses - 30 30
Other 5 2 7
Total $ 49 $ 51 $ 100
LONG-TERM
Capital Losses $ 79 $ 31 $ 110
Depreciation and
amortization (199) (69) (268)
Total $ (120) $ (38) $ (158)
</TABLE>
The Company has state net operating loss carryforwards of approximately
$1,200,000 expiring through 2011.
NOTE 12 - CASH FLOW INFORMATION
Net cash flows from operating activities reflect cash payments for interest
and income taxes as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Interest paid $720 $ 473 $ 156
Income taxes paid $907 $1,346 $ 147
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Issuance of stock in
connection with
acquisitions $ -- $2,709 $ --
Stock distributed to
employees pursuant to
employment agreements $- $ 200 $ 200
Issuance of promissory
notes and other
consideration in
connection with
acquisitions $263 $3,600 $1,030
Increase in allowance
for doubtful accounts
receivable and goodwill
related to a prior
acquisition $240 $ -- $ --
Issuance of debt to
finance purchase
of equipment $104 $ -- $ --
</TABLE>
NOTE 13 - LEASES
The Company leases office facilities and equipment under various
noncancelable operating lease agreements which provide for minimum rentals
plus, in certain instances, real estate taxes, maintenance and other
expenses.
<PAGE>
THE CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 13 - LEASES (CONTINUED)
Future minimum lease payments, net of sublease rental income, at December 31,
1995 are as follows:
Years Ending December 31, (in thousands):
1996 $833
1997 553
1998 402
1999 285
2000 279
Thereafter 1,019
$ 3,371
Total rent expense relating to operating leases, net of sublease rental
income in 1995 and 1994 of approximately $90,000 and $86,000, respectively,
for the years ended December 31, 1995, 1994 and 1993 was approximately
$1,276,000, $1,298,000 and $1,043,000, respectively.
NOTE 14 - EMPLOYEE BENEFIT PROGRAM
In 1993, the Company established a contributory savings plan under
Section 401(k) of the Internal Revenue code. Employees may elect to
contribute up to 15 percent of their annual compensation to the plan. The
Company provides a guaranteed matching contribution to the plan equal to 10
percent of the first 6 percent of the employee's contribution with a
discretionary additional match up to another 40 percent of the first 6
percent based upon the Company=s year-end pre-tax earnings. The Company=s
matching contribution was 20 percent, 20 percent and 10 percent for 1995,
1994 and 1993, respectively. Total contributions by the Company under this
plan were $35,000, $27,000 and $21,000 in 1995, 1994 and 1993, respectively.
NOTE 15 - MAJOR CUSTOMERS
The Company had one customer accounting for approximately 8 percent, 9
percent and 16 percent of its operating revenues for the years ended December
31, 1995, 1994 and 1993, respectively.
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTERLY FINANCIAL DATA FOR THE YEAR ENDED DECEMBER 31, 1995 (in thousands,
except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Net revenues $10,037 $11,019 $9,592 $9,070
Gross profit $ 4,726 $ 5,940 $4,317 $4,570
Operating income $ 457 $ 744 $ 437 $ 494
Net income $ 141 $ 328 $ 147 $ 130
Net income per common
and common equivalent
shares $ 0.02 $ 0.04 $ 0.02 $ 0.02
Weighted average number of
common and common equivalent
shares outstanding 8,293 8,414 8,450 8,426
</TABLE>
<PAGE>
THE CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
QUARTERLY FINANCIAL DATA FOR THE YEAR ENDED DECEMBER 31, 1994 (in thousands,
except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Net revenues $7,599 $8,815 $10,210 $9,757
Gross profit $3,130 $3,985 $ 4,806 $4,429
Operating
income $ 624 $ 704 $ 854 $ 422
Net income $ 298 $ 360 $ 368 $ 188
Net income
per common
and common
equivalent
shares $ .04 $ .05 $ .05 $ .02
Weighted average
number of
common and
common equivalent
shares outstanding 7,305 7,675 7,985 8,317
</TABLE>
NOTE 17- LITIGATION
On May 18, 1994, the Company acquired all the stock of Advanced Care
Associates, Inc., Advanced Care CPM, Inc. and Millwo Inc. (-Advanced Care-)
for aggregate consideration of $5,268,000, of which $3,000,000 was in the
form of promissory notes due in twenty-four equal monthly installments
beginning July 10, 1995.
On September 30, 1994, Advanced Care and its former owners were served
with a civil lawsuit by the Department of Justice (United States District
Court of Pennsylvania, Eastern District) alleging improper Medicare billing
and reimbursement practices during some or all of the period from January
1989 through May 1994. All allegations in the complaint involve the time
prior to Advanced Care=s acquisition by the Company. The government is
currently seeking unspecified monetary damages. Pursuant to the terms of
the purchase agreement, the Company is indemnified by the prior owners of
Advanced Care from and against activities of Advanced Care prior to its
acquisition. The Company has advised the previous owners that they will be
held responsible for this claim pursuant to the indemnification agreement.
The agreement also provides that in the event indemnification is required,
the Company has the right to reduce the outstanding principal amounts due by
the indemnified amounts, including legal and other costs of litigation. As
of December 31, 1995 and 1994, the Company has incurred costs relating to
this litigation of approximately $579,000 and $192,000, which have been
offset against the $3,000,000 subordinated promissory notes at December 31,
1995 and 1994, respectively.
In connection with the purchase agreement, a put option was issued for
the 333,332 shares of common stock at $3 per share, or $1 million,
exercisable beginning after May 18, 1996. At December 31, 1994, no transfer
from permanent equity to temporary equity was recorded based on the then
settlement discussions, whereby it was anticipated that the shares of common
stock would be returned to the Company. In March 1996, an informal agreement
in principle has been reached amongst the parties, subject to negotiation and
execution of a definitive agreement. Such agreement provides for a transfer
of the 333,332 shares of common stock and assignment of the put at $3 per
share from the former owners of Advanced Care to the government. The value
of the shares of common stock subject to the put option, $1 million, has been
transferred from stockholders= equity to redeemable common stock at December
31, 1995.
Management believes that the outcome of this matter will not have a
material adverse effect on the Company, although there can be no assurance.
<PAGE>
THE CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 17- LITIGATION (CONTINUED)
On October 17, 1994, the Company filed a lawsuit against the former
owners of Advanced Care (New York Supreme Court, Nassau County). The lawsuit
alleges, among other matters, that the former owners knowingly misrepresented
the financial condition of Advanced Care to the Company causing the Company
to enter into the purchase and employment agreements dated May 18, 1994. The
Company is seeking rescission of the employment agreements and monetary
damages.
The Company is a party to litigation arising in the normal course of its
operations. It is the opinion of management of the Company that it has
meritorious defenses against all outstanding claims and that the outcome of
such litigation will not have a significant adverse effect on the Company=s
financial position or results of operations. Further, management intends to
vigorously defend all such litigation.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information with respect to the directors and executive officers of
the Company is incorporated by reference to the Company=s Proxy Statement to
be filed with the Securities and Exchange Commission pursuant to Regulation
14A no later than 120 days after the end of the fiscal year covered by this
report.
Item 11. Executive Compensation
The information with respect to the directors and executive officers of
the Company is incorporated by reference to the Company=s Proxy Statement to
be filed with the Securities and Exchange Commission pursuant to Regulation
14A no later than 120 days after the end of the fiscal year covered by this
report.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information with respect to the directors and executive officers of
the Company is incorporated by reference to the Company=s Proxy Statement to
be filed with the Securities and Exchange Commission pursuant to Regulation
14A no later than 120 days after the end of the fiscal year covered by this
report.
Item 13. Certain Relationships and Related Transactions
The Company is not involved with any related transactions.
PART IV
Item 14. Exhibits, Consolidated Financial Statements, Financial Statement
Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements - included in Item 8.
An index to financial statements for the years ended December 31, 1995,
1994 and 1993 appears on page 15
(2) Financial Statement Schedules.
Financial Statement Schedule II for the years ended December 31, 1995,
1994 and 1993 is submitted herewith.
Other schedules are omitted because of the absence of conditions under
which they are required.
(b) No reports on Form 8-K have been filed by the Company during the fourth
quarter of 1995.
(c) Exhibits
(3) (i) Certificate of Incorporation of Registrant, as amended (m)
(ii) Bylaws of Registrant (a)
(4) (i) Form of Specimen Stock Certificate (a)
(ii) Form of Underwriter's Warrant Certificate (b)
( 9) Form of Voting Trust Agreement (a)
(10) (i) Form of Employment Agreement between Registrant and Ann T.
Mittasch dated as of January 1, 1992 (c)
(ii) Form of 1990 Stock Option Plan (a)
(iii) Form of 1991 Stock Option Plan (e)
(iv) Form of 1993 Stock Option Plan (d)
(v) Form of 1995 Stock Option Plan (l)
(vi) Standard industrial commercial single tenant net lease dated July 6, 1991
by and between the Boone Family Trust and Preferred Healthcare Services (c)
(vii) Lease Agreement dated November 27, 1991 by and between California State
Teachers' Retirement System and The Care Group of Georgia, Inc.; and Addendum
Letter to said Lease Agreement dated February 14, 1991 (f)
(viii) Form of Amendment to Lease Agreement dated June 27, 1988 by and between
California State Teacher's Retirement System and Windsor Homecare of Georgia,
Inc. (g)
(ix) Lease dated October 29, 1991 by and between Registrant and Brown Realty
Company. (f)
(xi) Sublease dated January 6, 1990 Between Windsor Home Care, Inc. and Superior
Medical Equipment and Supply Corp. (a)
<PAGE>
(xii) Temporary Help Service Errors and Omissions Policy by and between National
Union Fire Insurance Company of Pittsburgh, PA and Windsor International
Agencies, Inc. (a)
(xiii) Form of Transfer Agent Agreement with American Stock Transfer and Trust
Company (a)
(xiv) $7,500,000 revolving credit agreement dated as of February 14, 1994
between the Registrant and the Chase Manhattan Bank, N.A. (d)
(xv) Amendment and waiver to Revolving Credit Agreement dated November 16, 1995
by and between The Care Group, Inc. and The Chase Manhattan Bank, N.A. (m)
(xvi) Directors' and Officers' liability Insurance (temporary rider) (h)
(xvii) Lease Agreement dated December, 1991 between Philip C. Richardson and The
Care Group of Texas, Inc. (c)
(xiii) Lease Agreement by and between Texas Commerce Bank and The Care Group of
Texas, Inc. (c)
(xix) Lease Agreement between The Western - Southern Life Assurance Company and
The Care Group, Inc. (c)
(xx) Stock Purchase Agreement dated May 18, 1994 by and among Robert B. Wolk,
Robert S. Miller, and the Company (j)
(xxi) Amendment to Stock Purchase Agreement dated July 21, 1994 by
and among Robert P. Wolk and Robert S. Miller and the Company (k)
(xxii) Promissory Note by the Company to Robert P. Wolk dated July
21, 1994 (k)
(xxiii) Promissory Note by the Company to Robert S. Miller dated July
21, 1994 (k)
(xxiv) Employment Agreement dated May 18, 1994 by and among Advanced
Care Associates, Inc., Robert S. Miller and the Company (the Company has
deemed this Agreement rescinded) (j)
(xxv) Amendment to Employment Agreement with Robert S. Miller dated
July 21, 1994 (the Company has deemed this Agreement rescinded). (k)
(xxvi) Employment Agreement dated May 18, 1994 by and among Advanced
Care Associates, Inc., Robert P. Wolk and the Company (the Company has deemed
this Agreement rescinded) (j)
<PAGE>
(xxvii) Amendment to Employment Agreement with Robert P. Wolk dated
July 21, 1994 (the Company has deemed this Agreement rescinded) (k)
(xxviii) Asset Purchase Agreement dated July 18, 1994 by and among Jack
J. Gutkin, Care Line of Georgia, Inc. and the Company (k)
(xxix) Lease dated August 5, 1994 between 257 Park Avenue Associates
and The Care Group of New York, Inc. (k)
(xxx) Lease dated November 25, 1995 by and between Newark Partners
II and The Care Group of Georgia, Inc. (m)
21. Subsidiaries of the Registrant (m)
23. (i) Consent of Deloitte & Touche LLP, independent auditors (m)
(ii) Consent of Geschwind, Davidson & Co., independent auditors (m)
a) Filed in Registrant's Registration Statement on Form S-18 or post-
effective amendments thereto, which exhibit is incorporated herein by
reference (Registration No. 33-27840-NY).
b) Filed as an exhibit to Registrant's Registration Statement on Form S-1
(Registration No. 33-42528), or post effective amendments thereto, which was
declared effective by the Securities and Exchange Commission on October 18,
1991, which exhibit is incorporated herein by reference.
c) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, which exhibit is incorporated herein by
reference.
d) Filed as an exhibit to the Company=s Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, which exhibit is incorporated herein by
reference.
e) Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (33-41578) filed with Securities and Exchange Commission on July 11,
1991, which exhibit is incorporated herein by reference.
f) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, which exhibit is incorporated herein by
reference.
g) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990, which exhibit is incorporated herein
by reference.
h) Filed as an exhibit to Registrant's Registration Statement on Form S-1
(33-43196), which exhibit is incorporated herein by reference.
i) Filed as an exhibit to Registrant's report on Form 8-K, dated December
17, 1993, which exhibit is incorporated herein by reference
j) Filed as an exhibit to Report on Form 8-K dated May 19, 1994, which
exhibit is incorporated herein by reference.
k) Filed as an exhibit to the Company=s Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, which exhibit is incorporated herein by
reference.
l) Filed as an exhibit to Registrant=s Registration Statement on Form S-8
(333-00849) filed with the Securities and Exchange Commission on February 12,
1996, which exhibit is incorporated herein by reference.
m) Filed as an exhibit to this Annual Report on Form 10-K.
<PAGE>
THE CARE GROUP, INC.
Schedule II
Schedule II-Valuation and Qualifying Accounts and Reserves
Column A Column B Column C Column E
Additions
Balance at
beginning of Additions Balance at
period (Deductions) end of period
(January 1st) Charged to (December 31st)
Description Income
YEAR
Deductions from accounts
receivable for revenue
discounts and allowances
1995 $4,186,000 $(622,000) $3,564,000
1994 2,784,000 1,402,000 4,186,000
1993 2,630,000 154,000 2,784,000
<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.
THE CARE GROUP, INC.
Date: March 29, 1996 By:/s/ Ann T. Mittasch
Ann T. Mittasch
Chairman & President
Pursuant to the requirements of the Securities 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 dates indicated:
Date: March 29, 1996 /s/ Ann T. Mittasch
Ann T. Mittasch,
Chairman and President
Date: March 29, 1996 /s/ Gilda G. Schechter
Gilda G. Schechter,
Executive Vice President and Director
Date: March 29, 1996 /s/ Randolph J. Mittasch
Randolph J. Mittasch,
Secretary, Treasurer and Director
Date: March 29, 1996 /s/ John J. Lynch
John J. Lynch, Director
Date: March 29, 1996 /s/ Pat H. Celli
Pat H. Celli, Chief
Financial Officer
Assistant Secretary and Assistant Treasurer
(Principal Financial and Accounting Officer)
Date: March 29, 1996 /s/ Dr. Alex Maurillo
Dr. Alex Maurillo
Director
<PAGE>
EXHIBIT 3(I)
CERTIFICATE OF INCORPORATION
OF REGISTRANT, AS AMENDED
<PAGE>
EXHIBIT 3(I)
CERTIFICATE OF INCORPORATION
OF
THE CARE GROUP, INC.
The undersigned, being of legal age, in order to form a corporation under
and pursuant to the laws of the State of Delaware, do hereby set forth as
follows:
First: The name of the corporation is
THE CARE GROUP, INC.
Second: The address of the initial registered and principal
office of this corporation in this state is c/o United Corporate Services, Inc.
410 South State Street, in the City of Dover, County of Kent, State of Delaware
19901 and the name of the registered agent at said address is United Corporate
Services, Inc.
Third: The purpose of the corporation is to engage in any lawful
act or activity for which corporations may be organized under the corporate
laws of the State of Delaware.
Fourth: The corporation shall be authorized to issue the
following shares:
Class Number of Shares Par Value
COMMON 3,000 NONE
FIFTH: The name and address of the incorporator are as follows:
NAME ADDRESS
Ray A. Barr 9 East 40th Street
New York, New York 10016
SIXTH: The following provisions are inserted for the management
of the business and for the conduct of the affairs of the corporation, and for
further definition, limitation and regulation of the powers of the corporation
and of its stockholders.
(1) The number of directors of the corporation shall be such as from
time to time shall be fixed by, or in the manner provided in the by-laws.
Election of directors need not be by ballot unless the by-laws so provide.
<PAGE>
(2) The Board of Directors shall have power without the assent or vote
of the stockholders:
(a) To make, alter, amend, change, add to or repeal the By-laws
of the corporation; to fix and vary the amount to be reserved for any proper
purpose; to authorize and cause to be executed mortgages and liens upon all or
any part of the property of the corporation; to determine the use and
disposition of any surplus or net profits; and to fix the times for the
declaration and payment of dividends.
(b) To determine from time to time whether, and to what times and
places, and under what conditions the accounts and books of the corporation
(other than the stock ledger) or any of them, shall be open to the inspection
of the stockholders.
(3) The directors in their discretion may submit any contract or act
for approval or ratification at any annual meeting of the stockholders or at
any meeting of the stockholders called for the purpose of considering any such
act or contract, and any contract or act that shall be approved or be ratified
by the vote of the holders of a majority of the stock of the corporation which
is represented in person or by proxy at such meeting and entitled to vote
thereat (provided that a lawful quorum of stockholders be there represented in
person or by proxy) shall be as valid and as binding upon the corporation and
upon all the stockholders as though it has been approved or ratified by every
stockholder of the corporation, whether or not the contract or act would
otherwise be open to legal attack because of directors= interest, or for other
reason.
(4) In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this certificate, and to any by-laws from time to time
made by the stockholders; provided, however, that no by-laws so made shall
invalidate any prior act of the directors which would have been valid is such
by-law had not been made.
<PAGE>
SEVENTH: No director shall be liable to the corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director, except with respect to (1) a breach of the director=s duty of loyalty
to the corporation or its stockholders, (2) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (3)
liability under Section 174 of the Delaware General Corporation Law or (4) a
transaction from which the director derived an improper personal benefit, it
being the intention of the foregoing provision to eliminate the liability of
the corporation=s directors to the corporation or its stockholders to the
fullest extent permitted by Section 102(b)(7) of the Delaware General
Corporation Law, as amended from time to time. The corporation shall indemnify
to the fullest extent permitted by Sections 102(b)(7) and 145 of the Delaware
General Corporation Law, as amended from time to time, each person that such
Sections grant the corporation the power to indemnify.
EIGHTH: Whenever a compromise or arrangement is proposed between
this corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of Section 279 Title 8 of
the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths (3/4) in value of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
this corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this corporation as consequence of such compromise
or arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
<PAGE>
NINTH: The corporation reserves the right to amend, change or
repeal any provision contained in this certificate of incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
IN WITNESS WHEREOF, the undersigned hereby executes this document and
affirms that the facts set forth herein are true under the penalties of perjury
this second day of February, 1989.
/s/ Ray A. Barr
Ray A. Barr, Incorporator
REGISTERED OFFICE AND REGISTERED AGENT
OF
UNITED CORPORATE SERVICES, INC.
Pursuant to Section 134 of Title 8 of the Delaware Code
To: Department of State
Division of Corporations
Townsend Building
Dover, Delaware 19901
Pursuant to the provisions of Section 134 of Title 8 of the Delaware Code,
the undersigned Agent for service of process, in order to change the address of
the registered office of the corporation for which it is registered agent,
hereby certifies that:
1. The name of the registered agent is UNITED CORPORATE SERVICES,
INC.
2. The address of the old registered office was:
410 South State Street
County of Kent
Dover, Delaware 19901
3. The address to which the registered office is to be changed
is:
15 East North Street
County of Kent
Dover, Delaware 19901
<PAGE>
4. The names of the corporations represented by said agent are set forth
on the list annexed to this certificate and made a part hereof
reference.
5. The new address will be effective upon filing of this document.
In WITNESS WHEREOF, said agent has caused this certificate to be signed
on its behalf by its President and Secretary this 6th day of March,
A.D. 1989.
UNITED CORPORATE SERVICES, INC.
/s/ Ray A. Barr
Ray A. Barr, President
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
THE CARE GROUP, INC.
The undersigned, being a majority of the directors of THE CARE GROUP,
INC., a Delaware corporation (the -Corporation-), hereby certify and set forth:
1. The name of the corporation is THE CARE GROUP, INC. The name
under which the Corporation was formed is THE CARE GROUP, INC.
2. The Certificate of Incorporation was filed in the office of
the Secretary of State of the State of Delaware on February 3, 1989.
3. Paragraph FOURTH of the Certificate of Incorporation is hereby
amended in its entirety to read:
-FOURTH: The Corporation shall be authorized to issue the following
shares:
<PAGE>
Class Number of Shares Par Value
COMMON 15,000,000 $.001
Preferred 1,000,000 $.001
The Preferred Stock is to be issued in one or more series as determined by the
Corporation=s Board of Directors in which the designations, powers, preferences,
justifications, limitations, restrictions and relative, optional, conversion and
other special rights of the shares of Preferred Stock contained in each such
series shall be as fixed by the Board of Directors of the Corporation (authority
to do so being hereby expressly granted) and stated and expressed in a
resolution or resolutions for the issuance of the shares of Preferred Stock
contained in such series.-
4. The Corporation has not received any payment for any of its
stock, and this amendment to the Certificate of Incorporation of the
Corporation has been duly adopted in accordance with the provisions of Section
241 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
22nd day of March, 1989.
Sworn to before me this 22nd day
of March, 1989 /s/ Ann T. Mittasch
Ann T. Mittasch, Director
/s/ Michael F. Gedell
Notary Public
Sworn to before me this 22nd day
of March, 1989 /s/ Gilda G. Schechter
Gilda G. Schechter, Director
/s/ Michael F. Gedell
Notary Public
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
THE CARE GROUP, INC.
The undersigned, being the Executive Vice President of The Care Group,
Inc., a Delaware corporation (the -Corporation-), hereby certifies and sets
forth:
1. The name of the corporation is THE CARE GROUP, INC. The name under
which the Corporation was formed is THE CARE GROUP, INC.
2. The Certificate of Incorporation was filed in the office of the
Secretary of State of the State of Delaware on February 3, 1989.
3. Paragraph (2)(a) of Article SIXTH of the Certificate of
Incorporation is hereby amended in its entirety to read as follows:
- -(a) To make, alter, amend, change, add to or repeal the By-Laws of the
corporation; to fix and vary the amount of capital stock of the Corporation to
be reserved for any proper purpose; to authorize and cause to be executed
mortgages and liens upon all or any part of the property of the corporation; to
determine the use and disposition of any surplus or net profits; and to fix the
times for the declaration and payment of dividends,
4. A new ARTICLE TENTH is hereby added to the Certificate of
Incorporation which shall read in its entirety as follows:
- - No person or group as defined in Rule 13(d)(3) of the Securities Exchange Act
of 1934, as amended (the -Exchange Act-), may, after May 15, 1989, acquire
beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of 10%
or more of any class of equity securities of the Corporation without the prior
written consent of all state health regulatory agencies or state health
commissions governing the Corporation=s activities that require such consent,
including the New York State Department of Health and the District of Columbia
<PAGE>
State Health Planning and Development Agency. The requirements of this Article
TENTH apply to neither (i) persons who beneficially owned (as defined in Rule
13d-3 under the Exchange Act) more than 10% of any class of the Corporation=s
equity securities prior to May 15, 1989, nor (ii) securities held by broker-
dealers registered under Section 15 of the Exchange Act solely for bona fide
market making purposes.-
This amendment to the certificate of Incorporation of the Corporation has
been duly adopted in accordance with the provisions of Section 241 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 3rd
day of May, 1989.
/s/ Gilda G. Schechter
Gilda G. Schechter,
Executive Vice President
ATTEST:
/s/ Randolph J. Mittasch
Randolph J. Mittasch, Secretary
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT
OF
THE CARE GROUP, INC.
The Undersigned, being the President of The Care Group, Inc. a Delaware
corporation (the -Corporation-), hereby certifies and sets forth:
1. The name of the corporation is THE CARE GROUP, INC. the name under
which the Corporation was formed is THE CARE GROUP, INC.
2. On May 4, 1984, the Corporation filed an amendment (the
- -Amendment-) to its Certificate of Incorporation which is inaccurate in the
following two respects:
(a) The phrase -Rule 13(d)(3)- that appears in ARTICLE TENTH of
the Certificate of Incorporation, which Article is set forth in paragraph 4 of
<PAGE>
the Amendment, should read -Section 13(d)(3).- Accordingly, paragraph 4 of the
Amendment, as corrected, reads in its entirety as follows:
A new ARTicle tenth is hereby added to the certificate of incorporation which
shall read in its entirety as follows: -no person or group as defined in section
13(d)(3) of the securities exchange act of 1934, as amended (the -exchange
act-), may, after may 15, 1989, acquire beneficial ownership (as defined in rule
13d-3 under the exchange act) of 10% or more of any class of equity securities
of the corporation without the prior written consent of all state health
regulatory agencies or state health commissions governing the corporation=s
activities that require such consent, including the new york state department of
health planning and development agency. The requirements of this article tenth
apply to neither (i) persons who beneficially owned (as defined in rule 13d-3
under exchange act) more than 10% of any class of the corporation=s equity
securities prior to may 15, 1989, nor (ii) securities held by broker-dealers
registered under section 15 of the exchange act solely for bona fide market
making purposes.-
(b) The Amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware, not Section 241 as the Amendment=s adoption clause currently states.
Accordingly, the Amendment=s adoption clause, as corrected, reads in it
entirety as follows:
-This amendment to the Certificate of Incorporation of the
Corporation has been duly adopted in accordance with the provisions of
Section 242
This Certificate of Correction was duly adopted in accordance with the
provisions of Section 103 (f) of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
11th day of July, 1989.
<PAGE>
/s/ Ann T. Mittasch,
Ann T. Mittasch, President
ATTEST:
/s/ Randolph J. Mittasch
Randolph J. Mittasch
Secretary
CERTIFICATE OF OWNERSHIP AND MERGER
OF
WINDSOR INTERNATIONAL AGENCIES, INC.
(a New York corporation)
into
The Care Group, Inc.
(a Delaware corporation)
It is hereby certified that:
1. The Care Group, Inc. (the -Corporation-) is a business corporation
of the State of Delaware.
2. The Corporation is the owner of all of the outstanding shares of
Windsor International Agencies, Inc. (-Windsor-), which is a business
corporation of the State of New York.
3. The laws of the jurisdiction of organization of Windsor permit the
merger of a business corporation of that jurisdiction with a business
corporation of another jurisdiction.
4. The Corporation hereby merges Windsor into the Corporation.
5. The following is a copy of the resolutions adopted on June 20, 1991
by the Board of Directors of the Corporation to merge Windsor into the
Corporation:
RESOLVED, that Windsor be merged into the Corporation, and that all of the
estate, property rights, privileges, powers and franchises of Windsor be vested
in and held and enjoyed by the Corporation as fully and entirely and without
<PAGE>
change or diminution as the same were before held and enjoyed by Windsor in its
name; and be it furtherheld and enjoyed by Windsor in its name; and be it
further
RESOLVED, that the Corporation assume all of the obligations of Windsor; and be
it further
RESOLVED, that the Corporation shall cause to be executed and filed and/or
recorded the documents prescribed by the laws of the State of Delaware, by the
laws of the State of New York, and by the laws of any other appropriate
jurisdiction and will cause to be performed all necessary acts within the
jurisdiction of Windsor and of this Corporation and in any other appropriate
jurisdiction; and be it further
RESOLVED, that the effective time of the Certificate of Ownership and Merger
setting forth a copy of these resolutions shall be July 1, 1991, and that,
insofar as the General Corporation Law of the State of Delaware shall govern the
same, said time shall be the effective merger time.
Executed on June 25, 1991
THE CARE GROUP, INC.
By:/s/ Ann T. Mittasch
Ann T. Mittasch,
President
ATTEST:
/s/ Randolph J. Mittasch
Randolph J. Mittasch,
Secretary
<PAGE>
THE CARE GROUP, INC.
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
THE CARE GROUP, INC.
The undersigned, being the Executive Vice President of The Care Group,
Inc., a Delaware corporation (the -Corporation-), hereby certifies and sets
forth:
1. The name of the corporation is THE CARE GROUP, INC. The name under which
the Corporation was formed is THE CARE GROUP, INC. 2. The Certificate of
Incorporation was filed in the office of the Secretary of State, of the
State of Delaware on February 3, 1989. 3. A new ARTICLE ELEVENTH is hereby
added to the Certificate of Incorporation which shall read in its entirety
as follows: ELEVENTH: The Board of Directors shall consist of not less than
3 nor more than 7 members, and subject to such limitation the number of
directors will be fixed from time to time by the Board of Directors. This
Article Eleventh cannot be amended without the affirmative vote of the
holders of more than two-thirds of the share of Common Stock present at a
meeting in person or represented by proxy, provided that a quorum is
present thereat.
This amendment to the Certificate of Incorporation of the Corporation has
been duly adopted in accordance with the provisions of Section 241 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
30th day of June, 1991.
/s/ Gilda G. Schachter
Gilda G. Schachter,
Executive Vice President
ATTEST:
/s/ Randolph J. Mittasch
Randolph J. Mittasch,
Secretary
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
THE CARE GROUP, INC.
The undersigned, being the majority of directors of The Care Group,
Inc., a Delaware corporation (the -Corporation-), hereby certifies and sets
forth:
1. The name of the corporation is THE CARE GROUP, INC. The name under which
the Corporation was formed is THE CARE GROUP, INC.
2. The Certificate of Incorporation was filed in the office of the Secretary
of State, of the State of Delaware on February 3, 1989.
3. The certificate of incorporation of the corporation is hereby amended by
adding a new ARTICLE TWELFTH to the certificate of incorporation which
shall read in its entirety as follows: -12. Directors shall be divided into
three classes, Class I, Class II and Class III. The Board of Directors of
the Company shall determine into which class each director or nominee is
assigned. Each class shall consist of the same number of directors;
provided, however that (i) if the directors cannot be divided evenly into
three classes, Class III shall consist of one fewer director, Class I shall
consist of One more director than Classes II and III. The members of each
class shall be elected for three year terms and until their successors are
elected and shall have qualified; provided however, that the first
directors to be assigned to Class II initially shall be elected for a term
of two years an the first director or directors to be assigned to Class III
initially shall be elected for a term of one year. The provisions of this
Article TWELVE cannot be amended without the affirmative vote of the
holders of more than two-thirds of the shares of Common Stock present at a
meeting in person or represented by proxy, provided that a quorum is
present thereat.-
4. The amendment of the certificate of incorporation herein certified has been
duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
5. The effective time of the amendment herein certified shall be 11:00 a.m. on
June 21, 1995.
IN WITNESS WHEREOF,
the undersigned has executed this Certificate
this 15th day of June, 1995.
/s/ Ann T. Mittasch
Ann T. Mittasch, President
ATTEST:
/s/ Randolph J. Mittasch
Randolph J. Mittasch, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
THE CARE GROUP, INC.
The undersigned, being the majority of directors of The Care Group,
Inc., a Delaware corporation (the -Corporation-), hereby certifies and sets
forth:
1. The name of the corporation is THE CARE GROUP, INC. The name under which
the Corporation was formed is THE CARE GROUP, INC.
<PAGE>
2. The Certificate of Incorporation was filed in the office of the Secretary
of the State of Delaware on February 3, 1989.
3. The paragraph in Article FOURTH of the Certificate of Incorporation of the
Corporation which authorizes the Board of Directors to determine the
preferences, powers, designation, rights, qualifications, limitations, and
restrictions of the preferred stock is hereby amended in its entirety to
read:
-The Board of Directors is hereby authorized to provide for the issuance of
Preferred Stock from time to time in one or more series with such distinctive
serial voting powers, designations, preferences, rights, qualifications,
limitations, and restrictions of the shares of each such series as the Board of
Directors with respect to each series shall determine, which shall include,
without limiting the generality of the foregoing, the determination of any or
all of the following:
(i) the number of shares constituting such series, the par value and the
distinctive designation of such series;
(ii) the extent, if any, to which the shares of such series shall have voting
rights;
(iii)Whether dividends, if any, with respect to such series shall be cumulative
or noncummulative, the dividend rate or method or determining the dividend
rate of such series, and the dates and preferences of dividends on such
series;
(iv) the rights of the shares of such series in the event of voluntary of
involuntary liquidation, dissolution, or winding up of the Corporation, or
upon any distribution of the Corporation=s assets;
(v) whether the shares of such series shall have conversion privileges and, if
so, the terms and conditions of such conversion privileges, including a
provision, if any, for adjustment of the conversion rate and for payment of
<PAGE>
additional amounts by holders of Preferred Stock of such series upon exercise of
such conversion privileges;
(vi) whether or not the shares of such series shall be redeemable, and, if so,
the price at and the terms and conditions upon which such shares shall be
redeemable, and whether such series shall have a sinking fund for the
redemption or purchase of shares of such series, and, if so, the terms and
amount of such sinking fund; and
(vii)any other preference and relative, participating, optional, or other
special rights, and qualifications, limitations, or restrictions thereof.
The powers, designations, preferences, rights, qualifications, limitations
and restrictions of the Preferred Stock shall be determined from time to time by
the Board of Directors and shall be stated in a resolution or resolutions
thereof providing for the issuance of such Preferred Stock (a -Preferred Stock
Designation-). Except as may be provided by the Board of Directors in a
Preferred Stock Designation or by law, shares of any series of Preferred Stock
that have been redeemed (whether through the operation of a sinking fund or
otherwise) or purchased by the Corporation, or which, of convertible or
exchangeable, have been converted into or exchanged for shares of stock of any
other class or classes, shall have the status of authorized and unissued shares
of Preferred Stock and may be reissued as a part of the series of which they
were originally a part or may be reissued as part of a new series of Preferred
Stock to be created by resolution or resolutions of the Board of Directors or as
part of any other series of Preferred Stock.-
<PAGE>
4. The amendment of the certificate of incorporation herein certified has been
duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 15th day
of June, 1995.
/s/ Ann T. Mittasch
Ann T. Mittasch, President
ATTEST:
/s/ Randolph J. Mittasch
Randolph J. Mittasch, Secretary
<PAGE>
EXHIBIT 10 (XV)
AMENDMENT AND WAIVER TO REVOLVING CREDIT AGREEMENT
DATED NOVEMBER 16, 1995
BY AND BETWEEN THE CARE GROUP, INC.
AND THE CHASE MANHATTAN BANK, N.A.
EXHIBIT 10 (XV)
AMENDMENT AND WAIVER TO
REVOLVING CREDIT AGREEMENT
This Amendment to Revolving Credit Agreement (this "Amendment") is
made as of this 16th day of November, 1995 by and between:
THE CARE GROUP, INC., a corporation organized under the laws of the
State of New York (the "Borrower"); and
THE CHASE MANHATTAN BANK, NATIONAL ASSOCIATION, a National Banking
association organized under the laws of the United States of America (the
"Bank").
WITNESSETH:
WHEREAS:
(A) The Borrower and the Bank are parties to a
Revolving Credit Agreement dated as of February 14, 1994 (as amended through
the date hereof, the "Agreement");
(B) The Borrower and the Bank wish to amend certain
provisions of the Agreement as set forth herein;
(C) Any capitalized terms not defined herein shall
have the meanings ascribed thereto in the Agreement.
NOTE, THEREFORE, the parties hereto hereby agree as follows:
Article 1. Amendments to Revolving Credit Agreement.
This Amendment shall be deemed to be an amendment to the Agreement and
shall not be construed in any way as a replacement or substitution therefore.
All of the terms and provisions of this Amendment are hereby incorporated by
reference into the Agreement as if such terms and provisions were set forth in
full therein.
Section 1.1 The cover page of the Agreement is hereby amended by
deleting the reference to "$7,500,000" therefrom and by substituting in its
place "$12,000,000".
Section 1.2 The definition of Borrowing Base contained in Section
1.01 of the Agreement is hereby amended to read in its entirety as follows:
"Borrowing Base" means at any time an amount equal to (i) seventy percent
(70%) of the Borrower's Eligible Receivables which have remained unpaid for
no more than 120 days past their Processing Date plus (ii) the greater of (A)
$500,000 or (B) thirty percent (30%) of the Borrower's Eligible Inventory up
to a maximum amount of $750,000.
Section 1.3 The definition of "Borrowing Base Certificate"
contained in Section 1.01 of the Agreement is hereby amended by deleting the
words "an officer" therefrom and substituting the words "the chief financial
officer" in their place.
Section 1.4 Section 1.01 of the Agreement is hereby amended by
inserting the following immediately prior to the definition of Capital Lease:
"Capital Expenditures" means payments that are made by the Borrower
or its
Subsidiaries for the lease, purchase, improvement, construction, or
use of
any property, the value or cost of which under GAAP is required to be
capitalized and appears on a consolidated balance sheet of the
Borrower and
its Subsidiaries in the category of property, plant or equipment,
without
regard to the manner in which such payments or the instrument
pursuant to
which they are made is characterized by the Borrower and its
Subsidiaries,
and shall include, without limitation, payments for the installment
purchase
of property and payments under Capital Leases.
Section 1.5 The definition of Commitment contained in Section
1.01 of the Agreement is hereby amended by deleting the reference to
"$7,500,000" therefrom and by substituting "$12,000,000" in its place.
Section 1.6 Section 1.01 of the Agreement is hereby amended by
inserting the following immediately prior to the definition of Consolidated
Operating Income:
"Consolidated Net Profit After Tax" means for any fiscal period, the
amount
of consolidation net income (or loss) of the Borrower and its
Subsidiaries
for such period excluding therefrom profits or losses attributable to
extraordinary items.
Section 1.7 Section 1.01 of the Agreement is hereby amended by
inserting the following immediately prior to the definition of Consolidated
Tangible Net Worth:
"Consolidated Principal Payment on Debt and/or Capitalized Leases"
means, for
any period, the sum of (i) principal payments on consolidated Debt
(including
Subordinated Debt) and (ii) payments made on Capital Leases, by the
Borrower
and its Subsidiaries, on a consolidated basis, for such period.
Section 1.8 Section 1.01 of the Agreement is hereby amended by
inserting the following immediately prior to the definition of Eligible
Receivables:
"Eligible Inventory" means, on a consolidated basis, the amount of
inventory
of the Borrower and its Subsidiaries as determined in accordance with
GAAP
that may be classified as durable medical equipment and supplies
excluding
the following items: drug inventory, vitamin inventory, any
perishable
inventory, damaged or unsalable inventory, obsolete inventory,
inventory
located at facilities where the Bank has not been granted a perfected
security interest, consigned inventory, book inventory, video tape
inventory,
inventory consisting of intravenous bags, solutions, stands and
tubing,
inventory of items having a unit cost of less than $100 and inventory
that
has previously been used.
Section 1.9 The definition of Termination Date contained in
Section 1.01 of the Agreement is hereby amended by deleting the reference to
"February 14, 1997" and by substituting November 16, 1998" in its place.
Section 1.10 Section 2.03 of the Agreement is hereby amended
by deleting the phrase "one-half of one percent (1/2%)" therefrom and
substituting the following in its place "one-quarter of one percent (1/4%)".
Section 1.11 Section 2.05 of the Agreement is hereby amended
by deleting the first sentence thereof and substituting the following in its
place:
"All loans made by the Bank under this Agreement shall be evidenced
by, and
repaid with interest in accordance with, a single promissory note of
the
Borrower in substantially the form of Exhibit A hereto duly
completed, in the
principal amount of Twelve Million Dollars ($12,000,000) payable to
the Bank,
and maturing as to principal on the Termination Date (such note,
together
with any Note issued in substitution or replacement therefore, being
hereinafter referred to as the "Note")."
In addition, Exhibit A to the Agreement is hereby deleted and Exhibit A-1
hereto is substituted in its place. On the date hereof, the Note in the form
attached hereto as Exhibit A-1 shall be substituted for and shall replace the
Borrower's existing $7,500,000 promissory note (the "Existing Note" and all
amounts outstanding under the Existing Note shall be deemed to be out-standing
under the new Note.
Section 1.12 Section 5.08(c) of the Agreement is hereby
amended by inserting the following at the end thereof:
"and, as soon as available and in any event within 60 days after the
end of
each calendar quarter, profit and loss statements by line of business
for
such quarter on a pre-corporate allocation basis and, as soon as
available
and in any event within 90 days after each fiscal year end, profit
and loss
statements by line of business for such fiscal year on a pre-
corporate
allocation basis and a post-corporate allocation basis, each with a
comparison to budget, all prepared in accordance with GAAP and all of
which
shall be attested to by an officer of the Borrower."
Section 1.13 Section 5.08(d) of the Agreement is hereby
amended by deleting the words "an officer" therefrom and substituting the words
"the chief financial officer" in their place.
Section 1.14 Section 6.02 of the Agreement is hereby amended
to delete the word "and" from the end of clause (j) thereof, to correct the
designation of the next clause by deleting "(i)" therefrom and substituting
"(k)" in its place, and to insert the following at the end of clause "(k)":
"; and
(1) Liens securing the obligations of the
Borrower and
its Subsidiaries to the United States government arising out
of the
settlement of the Advanced Care Associates vs. United Stated
Department of Justice lawsuit provided that such Liens are
limited to
a first lien on certain marketable securities having a face
value of
not more than $885,000 and a second lien upon all other
assets of the
Borrower."
Section 1.15 Section 6.07 of the Agreement is hereby amended
by inserting the following at the end thereof: "Notwithstanding any other
provision of this Section 6.07, no Acquisition will be permitted hereunder
unless the total consideration paid or to be paid by the Borrower in connection
with such Acquisition (including cash, stock, promissory notes, etc.) is less
than or equal to five times the target entity's net profit before interest,
taxes, depreciation and amortization. For purposes of calculating the target
entity's net profit before interest, taxes, depreciation and amortization, the
Bank may make an adjustment to such figures by calculating such entity's net
profits as if the entity were being managed by a third-party manager and were
not paying salaries to shareholders.
Section 1.16 Section 7.02 of the Agreement is hereby amended
to read in its entirety as follows:
"Section 7.02 Upon Completion of Advanced Care Acquisition.
If the Advance Care Acquisition is consummated in accordance with the terms
hereof, then upon completion of such Acquisition and so long as the Note shall
remain unpaid or the Bank shall have any Commitment under this Agreement:
(a) Minimum Consolidated Working Capital. The Borrower
and its Subsidiaries shall maintain at all times during any fiscal year an
excess of Consolidated Current Assets over Consolidated Current Liabilities of
not less than the amount set forth below for such fiscal year:
Fiscal Year Minimum Amount
1995 $ 8,000,000
1996 $ 9,000,000
1997 $10,000,000
1998 $12,000,000
(b) Minimum Current Ratio. The Borrower and its
Subsidiaries shall maintain at all times during any fiscal year a ratio of
Consolidated Current Assets to Consolidated Current Liabilities of not less
than 1.50:1.0.
(c) Minimum Tangible Net Worth. The Borrower and its
Subsidiaries shall maintain at all times Consolidated Tangible Net Worth of at
least $11,000,000 for its fiscal year ending December 31, 1995 and for each
fiscal year thereafter of at least the prior year's required minimum Tangible
Net Worth plus 50% of the Consolidated Net Income (if positive) of the Borrower
and its Subsidiaries for such prior year.
(d) Maximum Leverage. The Borrower and its
Subsidiaries shall not permit their ratio of (i) Consolidated Total Liabilities
to (ii) Consolidated Tangible Net Worth for any fiscal year to be greater than
the ratio set forth below for such fiscal year:
Fiscal Year Ratio
1995 1.25:1.0
1996 1.25:1.0
1997 1.15:1.0
1998 1.00:1.0
(e) Interest Coverage Ratio. The Borrower and its
Subsidiaries shall maintain at all times during any fiscal year a ratio of (i)
Consolidated Operating Income plus Consolidated Depreciation, Amortization and
Other non-cash Charges to (ii) Consolidated Interest Expense of not less than
5.00:1.00.
(f) No Losses. The Borrower and its Subsidiaries shall
not have a net loss, on a consolidated basis, in any fiscal year.
(g) Minimum Cash Flow Coverage Ratio. The Borrower and
its Subsidiaries shall maintain at all times a ratio of (i) Consolidated Net
profit After Tax plus Consolidated Interest Expense plus Consolidated
Depreciation, Amortization and other Non-Cash Charges to (ii) Consolidated
Interest Expense plus Consolidated Principal Payment on Funded Debt and/or
Capitalized Leases plus Capital Expenditures of not less than 1.50:1.00.
Compliance with all of the financial convenants contained in this
Article 7 shall be determined by reference to the consolidated financial
statements of the Borrower and its Subsidiaries delivered to the Bank in
accordance with Section 5.08 hereof. All financial convenants shall be
applicable at all times and shall be tested on a quarterly basis except for the
convenant contained in Sections 7.01(e) and 7.02(e) and (g) which shall be
tested on a rolling four quarterly basis. For purposes of calculating
compliance with Sections 7.01(a) and (b) and 7.02(a) and (b) hereof only, the
principal amount of all Loans hereunder shall be deemed to be a current
liability.
Section 1.17 Section 8.01 of the Agreement is hereby amended
to insert the following at the end of clause "(i)" thereof:
"; or
(j) The Borrower shall fail to (i) settle the
lawsuit
captioned United States of America ex rel., Christopher
Paicentile
v. Robert P. Wolk, Advanced Care Associates, Inc., Robert
Miller,
Harriet Wolk and Anne Miller, together with all related
actions, on
or before January 31, 1996 on substantially the terms
outlined in
the draft Settlement Agreement to be executed by and
between the
United States of America, Advanced Care Associates, Inc.
and the
Borrower previously provided to the Bank, provided that the
final
terms of the Settlement Agreements shall provide that the
United
States shall have a second lien upon the accounts
receivable of the
Borrower and its affiliates; or (ii) settle its disputes
with the
former shareholders of Advanced Care Associates, Inc. The
parties
hereto understand and agree that in order for any such
settlements
to be satisfactory to the Bank, upon completion of the
settlement,
all notes payable by the Borrower to the former
shareholders of
Advanced Care Associates, Inc. must be canceled and the
Borrower
must have no further obligation to the former shareholders
of
Advanced Care Associates, Inc.
Section 1.18 Exhibit D to the Agreement is hereby deleted and
Exhibit B hereto is substituted in its place.
Article 2. Waiver. The Bank hereby waives compliance with the
provisions of Section 7.02(a) hereof to the extent that the Borrower's failure
to comply with such Section results from the Borrower's potential liability to
the United States Department of Justice arising out of the Advanced Care
litigation being classified as a current liability. This waiver shall continue
only until the settlement referred to in Section 8.01(j) hereof is finalized.
This waiver is limited to non-compliance with the specific provision described
herein shall not entitle the Borrower to any future waivers whatsoever.
Article 3. Representations and Warranties.
The Borrower hereby represents and warrants to the Bank that:
Section 3.1 Subject to Section 3.5 of this Amendment,
each and every one of the representations and warranties set forth in the
Agreement is true as of the date hereof with respect to the Borrower with the
same effect as though made on the date hereof, and is hereby incorporated
herein in full by reference as if fully restated herein in its entirety.
Section 3.2 No default or Event of Default, as
defined in the Agreement now exists except as specifically waived hereby.
Section 3.3 The Borrower is not in default with
respect to any agreement to which it is a party or by which it is bound.
Section 3.4 No representation, warranty or statement
by the Borrower contained herein or in any other document to be furnished by
the Borrower in connection herewith contains, or at the time of delivery shall
contain, any untrue statement of material fact, or omits or at the time of
delivery shall omit to state a material fact necessary to make such
representation, warranty or statement not misleading.
Section 3.5 There is no claim, litigation,
investigation or proceeding pending or threatened against or otherwise
materially affected the Borrower's business except as previously disclosed to
the Bank (in connection with U.S. v. Wolk, Advanced Care Associates, Inc., et
al) and except in the ordinary course of the Borrower's business which do not,
in the aggregate, affect materially and adversely the financial condition,
operations, properties or business of the Borrower.
Section 3.6 The Security Agreements continue to be in
full force and effect and secure all payment and other obligations of the
Borrower under the Agreement. The Borrower has not located assets in any new
locations since the execution and delivery of the Security Agreement.
Article 4. Miscellaneous.
This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, each of the undersigned has executed or
caused to be duly executed this Waiver as of the date first above written.
THE CARE Group, INC.
By: /s/ Ann T. Mittasch
Name: Ann T.
Mittasch
Title: President
THE CHASE MANHATTAN BANK
NATIONAL ASSOCIATION
By: /s/ Emelia Teige
Name: Emelia
Teige
Title: Vice
President
EXHIBIT A-1
REVOLVING CREDIT NOTE
$12,000,000 November 16, 1995
Suffolk County,
New York
THE CARE GROUP, INC., a corporation organized under the laws
of Delaware (the "Borrower"), for value received, hereby promises to pay to the
order of THE CHASE MANHATTAN BANK, N.A., a national banking association (the
"Bank") at the Bank's office at 1 Greenway Plaza, 135 Pinelawn Road, Melville,
New York 11747, on or before November 16, 1998, the principal sum of TWELVE
MILLION DOLLARS ($12,000,000), or, if less, the amount loaned by the Bank to
the Borrower pursuant to the Credit Agreement referred to below, in lawful
money of the United States of America and in immediately available funds, on
the date(s) and in the manner provided in said Credit Agreement. The Borrower
also promises to pay interest on the unpaid principal balance hereof, for the
period such balance is outstanding, at said office, in like money, at the rate
of interest as provided in the Credit Agreement described below, on the date(s)
and in the manner provided in said Credit Agreement.
The holder of this Revolving Credit Note shall record the
date and amount of each Loan made by the Bank, and the date and amount of each
payment or prepayment of principal of or interest, on any Loan, on the schedule
attached hereto or on such computer, magnetic disk, tape or other such
electronic data storage and retrieval system deemed adequate for such purpose
by the Bank, in its sole and absolute discretion, which record shall constitute
prima facie evidence of the accuracy of the information so recorded (although
if such information is determined to be incorrect, the Bank will correct such
information), but no failure so to record or any error in so recording shall
affect the obligation of the Borrower to repay any such Loans, with interest
thereon, as provided in the Credit Agreement or herein.
This is the Note referred to in that certain Credit Agreement
dated as of February 14, 1994 between the Borrower and the Bank as amended by
an Amendment and Waiver to Revolving Credit Agreement dated the date hereof (as
such agreement may be further amended from time to time, the "Credit
Agreement") and evidences the Loans made by the Bank thereunder. All terms not
defined herein shall have the meanings given to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the
maturity of principal upon the occurrence of certain Events of Default and for
prepayments on the terms and conditions specified therein. The Borrower waives
presentment, notice of dishonor, protest and any other notice or formality with
respect to this Note.
The terms of this Note may not be changed orally, but only by
an instrument duly executed by the Borrower and the Bank.
This Note is issued in substitution for and replacement of
the Borrower's $7,500,000 promissory note dated February 14, 1994 (the "Old
Note") and all amounts outstanding under the Old Note are as of the date hereof
deemed to be outstanding hereunder.
This Note shall be governed by, and interpreted and construed
in accordance with, the laws of the State of New York.
THE CARE GROUP,
INC.
By:
Name: Ann T.
Mittasch
Title:
President
EXHIBIT B
THE CARE GROUP, INC.
BORROWING BASE CERTIFICATE
FOR THE MONTH ENDING
Reference is made to that certain Credit Agreement (the "Credit Agreement")
dated as of February 14, 1994 among the Care Group, Inc., and The Chase
Manhattan Bank, N.A. as amended through the date hereof. All capitalized terms
used herein shall have the meanings assigned to them in the Credit Agreement.
I. Computation of Borrowing Base:
A. Receivables
(i) Eligible Receivables $
(ii) 70% of Line A(i) $
B. Inventory
(i) Eligible Inventory $
(ii) 30% of Line B(i) $
(iii) $500,000
$500,000
(iv) The greater of lines B(ii)
and B(iii) $
C. Borrowing Base (the sum of lines
A(ii) and B(iv) $
II. Availability - Lesser of Borrowing
Base or $12,000,000 $
III. Revolving Credit Debt Outstanding $
IV. Credit Available (Excess of Availability
over Total Debt Outstanding, i.e., II minus III) $
The undersigned hereby certifies that to the best of my knowledge, as of the
date hereof:
(i) the statements contained in Article 4 of the Credit
Agreement are true and correct;
(ii) no material adverse change has occurred in the business,
financial condition or operations of the Borrower since the Closing Date; and
(iii) no Default or Event of Default has occurred.
The Care group,
Inc.
By:
Name:
Title:
<PAGE>
Exhibit 10 (xv)
Amendment and waiver to Revolving Credit Agreement
dated November 16, 1995
by and between the Care Group, Inc.
and The Chase Manhattan Bank, N.A.
<PAGE>
Exhibit 10 (xv)
AMENDMENT AND WAIVER TO
REVOLVING CREDIT AGREEMENT
This Amendment to Revolving Credit Agreement (this "Amendment") is made as
of this 16th day of November, 1995 by and between:
THE CARE GROUP, INC., a corporation organized under the laws of the State
of New York (the "Borrower"); and
THE CHASE MANHATTAN BANK, NATIONAL ASSOCIATION, a National Banking
association organized under the laws of the United States of America (the
"Bank").
WITNESSETH:
WHEREAS:
(A) The Borrower and the Bank are parties to a Revolving Credit Agreement dated
as of February 14, 1994 (as amended through the date hereof, the
"Agreement");
(B) The Borrower and the Bank wish to amend certain provisions of the Agreement
as set forth herein;
(C) Any capitalized terms not defined herein shall have the meanings ascribed
thereto in the Agreement.
NOTE, THEREFORE, the parties hereto hereby agree as follows:
Article 1. Amendments to Revolving Credit Agreement.
This Amendment shall be deemed to be an amendment to the Agreement and
shall not be construed in any way as a replacement or substitution therefore.
All of the terms and provisions of this Amendment are hereby incorporated by
reference into the Agreement as if such terms and provisions were set forth in
full therein.
<PAGE>
SECTION 1.1 The cover page of the Agreement is hereby amended by deleting
the reference to "$7,500,000" therefrom and by substituting in its place
"$12,000,000".
SECTION 1.2 The definition of Borrowing Base contained in Section 1.01 of
the Agreement is hereby amended to read in its entirety as follows:
"Borrowing Base" means at any time an amount equal to (i) seventy percent
(70%) of the Borrower's Eligible Receivables which have remained unpaid for
no more than 120 days past their Processing Date plus (ii) the greater of
(A) $500,000 or (B) thirty percent (30%) of the Borrower's Eligible
Inventory up to a maximum amount of $750,000.
SECTION 1.3 The definition of "Borrowing Base Certificate" contained in
Section 1.01 of the Agreement is hereby amended by deleting the words "an
officer" therefrom and substituting the words "the chief financial officer"
in their place.
SECTION 1.4 Section 1.01 of the Agreement is hereby amended by inserting
the following immediately prior to the definition of Capital Lease:
"Capital Expenditures" means payments that are made by the Borrower or its
Subsidiaries for the lease, purchase, improvement, construction, or use of
any property, the value or cost of which under GAAP is required to be
capitalized and appears on a consolidated balance sheet of the Borrower and
its Subsidiaries in the category of property, plant or equipment, without
regard to the manner in which such payments or the instrument pursuant to
which they are made is characterized by the Borrower and its Subsidiaries,
and shall include, without limitation, payments for the installment
purchase of property and payments under Capital Leases.
SECTION 1.5 The definition of Commitment contained in Section 1.01 of the
Agreement is hereby amended by deleting the reference to "$7,500,000"
therefrom and by substituting "$12,000,000" in its place.
<PAGE>
Section 1.6 Section 1.01 of the Agreement is hereby amended by inserting
the following immediately prior to the definition of Consolidated Operating
Income:
"Consolidated Net Profit After Tax" means for any fiscal period, the amount
of consolidation net income (or loss) of the Borrower and its Subsidiaries
for such period excluding therefrom profits or losses attributable to
extraordinary items.
Section 1.7 Section 1.01 of the Agreement is hereby amended by inserting
the following immediately prior to the definition of Consolidated Tangible
Net Worth:
"Consolidated Principal Payment on Debt and/or Capitalized Leases" means,
for any period, the sum of (i) principal payments on consolidated Debt
(including Subordinated Debt) and (ii) payments made on Capital Leases, by
the Borrower and its Subsidiaries, on a consolidated basis, for such
period.
Section 1.8 Section 1.01 of the Agreement is hereby amended by inserting
the following immediately prior to the definition of Eligible Receivables:
"Eligible Inventory" means, on a consolidated basis, the amount of
inventory of the Borrower and its Subsidiaries as determined in accordance
with GAAP that may be classified as durable medical equipment and supplies
excluding the following items: drug inventory, vitamin inventory, any
perishable inventory, damaged or unsalable inventory, obsolete inventory,
inventory located at facilities where the Bank has not been granted a
perfected security interest, consigned inventory, book inventory, video
tape inventory, inventory consisting of intravenous bags, solutions, stands
and tubing, inventory of items having a unit cost of less than $100 and
inventory that has previously been used.
Section 1.9 The definition of Termination Date contained in Section 1.01
of the Agreement is hereby amended by deleting the reference to "February
14, 1997" and by substituting November 16, 1998" in its place.
<PAGE>
Section 1.10 Section 2.03 of the Agreement is hereby amended by deleting
the phrase "one-half of one percent (1/2%)" therefrom and substituting the
following in its place "one-quarter of one percent (1/4%)".
Section 1.11 Section 2.05 of the Agreement is hereby amended by deleting
the first sentence thereof and substituting the following in its place:
"All loans made by the Bank under this Agreement shall be evidenced by, and
repaid with interest in accordance with, a single promissory note of the
Borrower in substantially the form of Exhibit A hereto duly completed, in
the principal amount of Twelve Million Dollars ($12,000,000) payable to the
Bank, and maturing as to principal on the Termination Date (such note,
together with any Note issued in substitution or replacement therefore,
being hereinafter referred to as the "Note")."
In addition, Exhibit A to the Agreement is hereby deleted and Exhibit A-1
hereto is substituted in its place. On the date hereof, the Note in the
form attached hereto as Exhibit A-1 shall be substituted for and shall
replace the Borrower's existing $7,500,000 promissory note (the "Existing
Note" and all amounts outstanding under the Existing Note shall be deemed
to be out-standing under the new Note.
Section 1.12 Section 5.08(c) of the Agreement is hereby amended by
inserting the following at the end thereof:
"and, as soon as available and in any event within 60 days after the end of
each calendar quarter, profit and loss statements by line of business for
such quarter on a pre-corporate allocation basis and, as soon as available
and in any event within 90 days after each fiscal year end, profit and loss
statements by line of business for such fiscal year on a pre-corporate
allocation basis and a post-corporate allocation basis, each with a
comparison to budget, all prepared in accordance with GAAP and all of which
shall be attested to by an officer of the Borrower."
Section 1.13 Section 5.08(d) of the Agreement is hereby amended by
deleting the words "an officer" therefrom and
<PAGE>
substituting the words "the chief financial officer" in their place.
Section 1.14 Section 6.02 of the Agreement is hereby amended to delete the
word "and" from the end of clause (j) thereof, to correct the designation
of the next clause by deleting "(i)" therefrom and substituting "(k)" in
its place, and to insert the following at the end of clause "(k)":
"; and
(1) Liens securing the obligations of the Borrower and its Subsidiaries to
the United States government arising out of the settlement of the Advanced
Care Associates vs. United Stated Department of Justice lawsuit provided
that such Liens are limited to a first lien on certain marketable
securities having a face value of not more than $885,000 and a second lien
upon all other assets of the Borrower."
Section 1.15 Section 6.07 of the Agreement is hereby amended by inserting
the following at the end thereof: "Notwithstanding any other provision of
this Section 6.07, no Acquisition will be permitted hereunder unless the
total consideration paid or to be paid by the Borrower in connection with
such Acquisition (including cash, stock, promissory notes, etc.) is less
than or equal to five times the target entity's net profit before interest,
taxes, depreciation and amortization. For purposes of calculating the
target entity's net profit before interest, taxes, depreciation and
amortization, the Bank may make an adjustment to such figures by
calculating such entity's net profits as if the entity were being managed
by a third-party manager and were not paying salaries to shareholders.
Section 1.16 Section 7.02 of the Agreement is hereby amended to read in
its entirety as follows:
"Section 7.02 Upon Completion of Advanced Care Acquisition. If the
Advance Care Acquisition is consummated in accordance with the terms
hereof, then upon completion of such Acquisition and so long as the Note
shall remain unpaid or the Bank shall have any Commitment under this
Agreement:
(a) Minimum Consolidated Working Capital. The Borrower and its
Subsidiaries shall maintain at all times during any
<PAGE>
fiscal year an excess of Consolidated Current Assets over Consolidated
Current Liabilities of not less than the amount set forth below for such fiscal
year:
Fiscal Year Minimum Amount
1995 $ 8,000,000
1996 $ 9,000,000
1997 $10,000,000
1998 $12,000,000
(b) Minimum Current Ratio. The Borrower and its Subsidiaries shall
maintain at all times during any fiscal year a ratio of Consolidated
Current Assets to Consolidated Current Liabilities of not less than
1.50:1.0.
(c) Minimum Tangible Net Worth. The Borrower and its Subsidiaries shall
maintain at all times Consolidated Tangible Net Worth of at least
$11,000,000 for its fiscal year ending December 31, 1995 and for each
fiscal year thereafter of at least the prior year's required minimum
Tangible Net Worth plus 50% of the Consolidated Net Income (if positive) of
the Borrower and its Subsidiaries for such prior year.
(d) Maximum Leverage. The Borrower and its Subsidiaries shall not permit
their ratio of (i) Consolidated Total Liabilities to (ii) Consolidated
Tangible Net Worth for any fiscal year to be greater than the ratio set
forth below for such fiscal year:
<TABLE>
<CAPTION>
Fiscal Year Ratio
<S> <C>
1995 1.25:1.0
1996 1.25:1.0
1997 1.15:1.0
1998 1.00:1.0
</TABLE>
(e) Interest Coverage Ratio. The Borrower and its Subsidiaries shall
maintain at all times during any fiscal year a ratio of (i) Consolidated
Operating Income plus Consolidated Depreciation, Amortization and Other
non-cash Charges to (ii) Consolidated Interest Expense of not less than
5.00:1.00.
(f) No Losses. The Borrower and its Subsidiaries shall not have a net
loss, on a consolidated basis, in any fiscal year.
<PAGE>
(g) Minimum Cash Flow Coverage Ratio. The Borrower and its Subsidiaries
shall maintain at all times a ratio of (i) Consolidated Net profit After
Tax plus Consolidated Interest Expense plus Consolidated Depreciation,
Amortization and other Non-Cash Charges to (ii) Consolidated Interest
Expense plus Consolidated Principal Payment on Funded Debt and/or
Capitalized Leases plus Capital Expenditures of not less than 1.50:1.00.
Compliance with all of the financial convenants contained in this Article 7
shall be determined by reference to the consolidated financial statements
of the Borrower and its Subsidiaries delivered to the Bank in accordance
with Section 5.08 hereof. All financial convenants shall be applicable at
all times and shall be tested on a quarterly basis except for the convenant
contained in Sections 7.01(e) and 7.02(e) and (g) which shall be tested on
a rolling four quarterly basis. For purposes of calculating compliance
with Sections 7.01(a) and (b) and 7.02(a) and (b) hereof only, the
principal amount of all Loans hereunder shall be deemed to be a current
liability.
Section 1.17 Section 8.01 of the Agreement is hereby amended to insert the
following at the end of clause "(i)" thereof:
"; or
(j) The Borrower shall fail to (i) settle the lawsuit captioned United
States of America ex rel., Christopher Paicentile v. Robert P. Wolk,
Advanced Care Associates, Inc., Robert Miller, Harriet Wolk and Anne
Miller, together with all related actions, on or before January 31, 1996 on
substantially the terms outlined in the draft Settlement Agreement to be
executed by and between the United States of America, Advanced Care
Associates, Inc. and the Borrower previously provided to the Bank, provided
that the final terms of the Settlement Agreements shall provide that the
United States shall have a second lien upon the accounts receivable of the
Borrower and its affiliates; or (ii) settle its disputes with the former
shareholders of Advanced Care Associates, Inc. The parties hereto
understand and agree that in order for any such settlements to be
satisfactory to the Bank, upon completion of the settlement, all notes
payable by the Borrower to the former shareholders of Advanced Care
Associates, Inc. must be canceled and the Borrower must have no further
obligation to the former shareholders of Advanced Care Associates, Inc.
<PAGE>
Section 1.18 Exhibit D to the Agreement is hereby deleted and Exhibit B
hereto is substituted in its place.
Article 2. Waiver. The Bank hereby waives compliance with the provisions
of Section 7.02(a) hereof to the extent that the Borrower's failure to
comply with such Section results from the Borrower's potential liability to
the United States Department of Justice arising out of the Advanced Care
litigation being classified as a current liability. This waiver shall
continue only until the settlement referred to in Section 8.01(j) hereof is
finalized. This waiver is limited to non-compliance with the specific
provision described herein shall not entitle the Borrower to any future
waivers whatsoever.
Article 3. Representations and Warranties.
The Borrower hereby represents and warrants to the Bank that:
Section 3.1 Subject to Section 3.5 of this Amendment, each and every one
of the representations and warranties set forth in the Agreement is true as
of the date hereof with respect to the Borrower with the same effect as
though made on the date hereof, and is hereby incorporated herein in full
by reference as if fully restated herein in its entirety.
Section 3.2 No default or Event of Default, as defined in the Agreement
now exists except as specifically waived hereby.
Section 3.3 The Borrower is not in default with respect to any agreement
to which it is a party or by which it is bound.
Section 3.4 No representation, warranty or statement by the Borrower
contained herein or in any other document to be furnished by the Borrower
in connection herewith contains, or at the time of delivery shall contain,
any untrue statement of material fact, or omits or at the time of delivery
shall omit to state a material fact necessary to make such representation,
warranty or statement not misleading.
Section 3.5 There is no claim, litigation, investigation or proceeding
pending or threatened against or otherwise materially affected the
Borrower's business except as previously disclosed to the Bank (in
connection with U.S. v. Wolk, Advanced Care Associates, Inc., et al) and
except in the ordinary course of the Borrower's business which do not, in
the aggregate, affect materially and adversely the financial condition,
operations, properties or business of the Borrower.
Section 3.6 The Security Agreements continue to be in full force and
effect and secure all payment and other obligations of the Borrower under
the Agreement. The Borrower has not located assets in any new locations
since the execution and delivery of the Security Agreement.
Article 4. Miscellaneous.
This Amendment shall be governed by and construed in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, each of the undersigned has executed or caused to be
duly executed this Waiver as of the date first above written.
THE CARE Group, INC.
By: /s/ Ann T. Mittasch
Name: Ann T. Mittasch
Title: President
THE CHASE MANHATTAN BANK
NATIONAL ASSOCIATION
By: /s/ Emelia Teige
Name: Emelia Teige
Title: Vice President
<PAGE>
EXHIBIT A-1
REVOLVING CREDIT NOTE
$12,000,000 November 16, 1995
Suffolk County, New York
THE CARE GROUP, INC., a corporation organized under the laws of Delaware
(the "Borrower"), for value received, hereby promises to pay to the order of THE
CHASE MANHATTAN BANK, N.A., a national banking association (the "Bank") at the
Bank's office at 1 Greenway Plaza, 135 Pinelawn Road, Melville, New York 11747,
on or before November 16, 1998, the principal sum of TWELVE MILLION DOLLARS
($12,000,000), or, if less, the amount loaned by the Bank to the Borrower
pursuant to the Credit Agreement referred to below, in lawful money of the
United States of America and in immediately available funds, on the date(s) and
in the manner provided in said Credit Agreement. The Borrower also promises to
pay interest on the unpaid principal balance hereof, for the period such balance
is outstanding, at said office, in like money, at the rate of interest as
provided in the Credit Agreement described below, on the date(s) and in the
manner provided in said Credit Agreement.
The holder of this Revolving Credit Note shall record the date and amount
of each Loan made by the Bank, and the date and amount of each payment or
prepayment of principal of or interest, on any Loan, on the schedule attached
hereto or on such computer, magnetic disk, tape or other such electronic data
storage and retrieval system deemed adequate for such purpose by the Bank, in
its sole and absolute discretion, which record shall constitute prima facie
evidence of the accuracy of the information so recorded (although if such
information is determined to be incorrect, the Bank will correct such
information), but no failure so to record or any error in so recording shall
affect the obligation of the Borrower to repay any such Loans, with interest
thereon, as provided in the Credit Agreement or herein.
This is the Note referred to in that certain Credit Agreement dated as of
February 14, 1994 between the Borrower and the Bank as amended by an Amendment
and Waiver to Revolving Credit Agreement dated the date hereof (as such
agreement may be further amended from time to time, the "Credit Agreement") and
evidences the Loans made by the Bank thereunder. All terms not defined herein
shall have the meanings given to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
principal upon the occurrence of certain Events of Default and for prepayments
on the terms and conditions specified therein. The Borrower waives presentment,
notice of dishonor, protest and any other notice or formality with respect to
this Note.
<PAGE>
The terms of this Note may not be changed orally, but only by an instrument
duly executed by the Borrower and the Bank.
This Note is issued in substitution for and replacement of the Borrower's
$7,500,000 promissory note dated February 14, 1994 (the "Old Note") and all
amounts outstanding under the Old Note are as of the date hereof deemed to be
outstanding hereunder.
This Note shall be governed by, and interpreted and construed in accordance
with, the laws of the State of New York.
THE CARE GROUP, INC.
By:
Name: Ann T. Mittasch
Title: President
EXHIBIT B
THE CARE GROUP, INC.
BORROWING BASE CERTIFICATE
FOR THE MONTH ENDING
Reference is made to that certain Credit Agreement (the "Credit Agreement")
dated as of February 14, 1994 among the Care Group, Inc., and The Chase
Manhattan Bank, N.A. as amended through the date hereof. All capitalized
terms used herein shall have the meanings assigned to them in the Credit
Agreement.
I. Computation of Borrowing Base:
A. Receivables
(i) Eligible Receivables $
(ii) 70% of Line A(i) $
B. Inventory
<PAGE>
(i) Eligible Inventory $
(ii) 30% of Line B(i) $
(iii) $500,000 $500,000
(iv) The greater of lines B(ii)
and B(iii) $
C. Borrowing Base (the sum of lines
A(ii) and B(iv) $
II. Availability - Lesser of Borrowing
Base or $12,000,000 $
III. Revolving Credit Debt Outstanding $
IV. Credit Available (Excess of Availability over Total Debt Outstanding, i.e.,
II minus III) $
The undersigned hereby certifies that to the best of my knowledge, as of
the date hereof:
(i) the statements contained in Article 4 of the Credit Agreement are true
and correct;
(ii) no material adverse change has occurred in the business, financial
condition or operations of the Borrower since the Closing Date; and
(iii) no Default or Event of Default has occurred.
The Care group, Inc.
By:
Name:
Title:
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary and Jurisdiction
Other Names Under Which of
the Subsidiary Does Business Incorporation
The Care Group of New York, Inc. New York
dba* Care Group
Care Line of New York, Inc. New York
dba* Care Line
The Care Group of Georgia, Inc. Georgia
dba* Care Group
Care Line of Georgia Georgia
dba* Care Line
The Care Group of Texas, Inc. Texas
dba* Care Group
Care Line of Dallas, Inc. Texas
dba* Care Line
Care Line of Houston, Inc. Texas
dba* Care Line
The Care Group of Los Angelas California
Advanced Care Associates, Inc. Pennsylvania
Mail Order Meds, Inc. Texas
dba* MOM
_____________________
* "dba" means "doing business as"
Exhibit 23(ii) CONSENT OF
INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation by reference in
the following registration statements of The Care Group, Inc. (the
"Registrant"), a Delaware corporation of our report dated March 22, 1994
appearing in this Annual Report on Form 10-K for the year ended December 31,
1993: Registration Statement on Form S-8 (333- 00849), effective February 12,
1996, Registration Statement on Form S-3 (33- 90836), effective August 14, 1995
and Registration Statement on Form S-3 (333- 83), effective January 19, 1996.
/s/ Holtz Rubenstein & Co. LLP Holtz Rubenstein & Co., LLP Holtz Rubenstein &
Co., LLP (successor to the practice of Geschwind, Davidson & Co., Certified
Public Accountants, who audited the financial statements for the year ended
December 31, 1993) Melville New York March 26, 1996
<PAGE>
Exhibit 23(ii)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the following registration
statements of The Care Group, Inc. (the "Registrant"), a Delaware corporation
of our report dated March 22, 1994 appearing in this Annual Report on Form 10-K
for the year ended December 31, 1993: Registration Statement on Form S-8 (333-
00849), effective February 12, 1996, Registration Statement on Form S-3 (33-
90836), effective August 14, 1995 and Registration Statement on Form S-3 (333-
83), effective January 19, 1996.
/s/ Holtz Rubenstein & Co. LLP Holtz Rubenstein & Co., LLP Holtz Rubenstein &
Co., LLP (successor to the practice of Geschwind, Davidson & Co., Certified
Public Accountants, who audited the financial statements for the year ended
December 31, 1993)
Melville New York
March 26, 1996
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<MULTIPLIER> 1000
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
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<RECEIVABLES> 18491
<ALLOWANCES> 3564
<INVENTORY> 1763
<CURRENT-ASSETS> 18552
<PP&E> 5416
<DEPRECIATION> 1873
<TOTAL-ASSETS> 37010
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0
0
<COMMON> 9
<OTHER-SE> 23382
<TOTAL-LIABILITY-AND-EQUITY> 37010
<SALES> 39718
<TOTAL-REVENUES> 39718
<CGS> 20165
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<INTEREST-EXPENSE> 688
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 746
<EPS-PRIMARY> .09
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