SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2)
U.S. HOMECARE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
<PAGE>
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
US
HOMECARE
<PAGE>
U.S. HOMECARE CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
JUNE 6, 1996
The Annual Meeting of Shareholders of U.S. HomeCare Corporation (the
"Company") will be held at The Goodwin Hotel, 1 Haynes Street, Hartford,
Connecticut 06103, telephone number (860) 246-7500 on June 6, 1996, at 9:30 A.M.
for the following purposes:
(1) To elect eight directors for the ensuing year;
(2) To amend the Company's 1995 Stock Option/Stock Issuance Plan
to implement a director stock fee program;
(3) To amend the Company's Restated Certificate of Incorporation
to increase the number of authorized shares of the Company's
common stock;
(4) To amend the Company's Restated Certificate of Incorporation
to increase the number of authorized shares of preferred
stock; and
(5) To transact such other business as may properly come before
the Annual Meeting.
Only shareholders of record at the close of business on April 18, 1996
will be entitled to notice of, and to vote at, the Annual Meeting. A list of
shareholders eligible to vote at the Annual Meeting will be available for
inspection at the Annual Meeting and during business hours, from May 21, 1996 to
the date of the Annual Meeting, at the corporate headquarters at the address
below.
Whether or not you expect to attend the Annual Meeting, your vote is
important. To assure your representation at the meeting, please sign and date
the enclosed proxy card and return it promptly in the enclosed envelope, which
requires no additional postage if mailed in the United States or Canada.
By Order of the Board of Directors
G. Robert O'Brien
President and Chief Executive Officer
750 Main Street
Hartford, Connecticut 06103
May 14, 1996
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD
BE COMPLETED AND RETURNED PROMPTLY.
<PAGE>
U.S. HOMECARE CORPORATION
PROXY STATEMENT
MAY 14, 1996
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of U.S. HomeCare Corporation (the
"Company") for use at the Annual Meeting of its Shareholders to be held on June
6, 1996.
Shares cannot be voted at the meeting unless the owner is present in
person or by proxy. All properly executed and unrevoked proxies in the
accompanying form that are received in time for the meeting will be voted at the
meeting or any adjournment thereof in accordance with the instructions thereon,
or if no instructions are given, will be voted "FOR" the election of the named
nominees and approval of the proposals in the Notice of Annual Meeting of
Shareholders of the Company. Any person giving a proxy may revoke it by written
notice to the Company at any time prior to exercise of the proxy. In addition,
although mere attendance at the meeting will not revoke the proxy, a shareholder
who attends the meeting may withdraw his or her proxy and vote in person.
Abstentions and broker non-votes will have no effect on the outcome of the vote
on any of the matters to be considered at the Annual Meetings.
The mailing address of the principal executive offices of the Company
is 750 Main Street, Hartford, Connecticut 06103. This Proxy Statement and the
accompanying form of proxy are being mailed to the shareholders of the Company
on or about May 14, 1996.
VOTING SECURITIES
The Company has two classes of voting securities, its Common Stock, par
value $.01 per share (the "Common Stock"), and its $35.00 6% Convertible
Preferred Stock, par value $1.00 per share (the "$35.00 Preferred Stock"), which
has voting rights on an as-converted basis with the Common Stock. See "Certain
Relationships and Certain Transactions." On April 18, 1996, 8,595,041 shares of
Common Stock and 328,569 shares of $35.00 Preferred Stock, convertible into
6,517,380 shares of Common Stock, were outstanding. See "Security Ownership of
Certain Beneficial Owners and Management." At the Annual Meeting, each
shareholder of record at the close of business on April 18, 1996 will be
entitled to one vote for each share of Common Stock and twenty votes for each
share of $35.00 Preferred Stock owned by that shareholder on that date as to
each matter presented at the Annual Meeting.
ELECTION OF DIRECTORS
Unless otherwise directed, the persons appointed in the accompanying
form of proxy intend to vote at the Annual Meeting for the election of the eight
nominees named below as directors of the Company to serve until the next Annual
Meeting and until their successors are duly elected and have qualified. If any
nominee is unable to be a candidate when the election takes place, the shares
represented by valid proxies will be voted in favor of the remaining nominees.
The Board of Directors (the "Board") does not currently anticipate that any
nominee will be unable to be a candidate for election.
<PAGE>
The Board currently has eight members, all of whom are nominees for
reelection. All directors hold office for one year until the next Annual Meeting
of Shareholders or until their successors have been duly elected and qualified.
The affirmative vote of a plurality of the aggregate voting power of
the Company's outstanding Common Stock and Preferred Stock represented and
voting at the Annual Meeting is required to elect the directors.
INFORMATION REGARDING NOMINEES FOR ELECTION AS DIRECTORS
The following information with respect to the principal occupation or
employment, other affiliations and business experience of each nominee during
the last five years has been furnished to the Company by such nominee. Except as
indicated, each of the nominees has had the same principal occupation for the
last five years.
HADLEY C. FORD, 60, has been a director of the Company since November
1994. Mr. Ford currently is a Senior Advisor to insurance industry clients of
Andersen Consulting. From 1965 until his retirement in 1992, Mr. Ford was with
Booz, Allen & Hamilton, Inc., whose insurance industry consulting practice he
founded, in various executive capacities including Senior Vice President,
director and member of its Operating Council. Mr. Ford serves as non-executive
Chairman of the Board of Gryphon Holdings, Inc., Chairman of the Board of the
American Federation for Aging Research, and is a director and officer of the
Atlantic Salmon Federation (U.S.) and a trustee of Helen Keller International.
JOHN R. GUNN, 52, has been a director of the Company since September
1994. Since 1987, Mr. Gunn has served as the Executive Vice President and Chief
Operating Officer of Memorial Sloan-Kettering Cancer Center, where he has served
in various executive capacities since 1982. Previously, he was the Vice
President of Finance at Michael Reese Medical Center. Mr. Gunn serves as a board
member of several companies and associations, including the Greater New York
Hospital Association, Empire Blue Cross & Blue Shield, Hospital Association of
New York and Memorial Sloan-Kettering Cancer Center.
JAY C. HUFFARD, 54, has been a director of the Company since 1988 and
Chairman of the Board of Directors since July 1991. Since 1988, Mr. Huffard has
been Managing Director of Huffard & Co., Inc., a direct investment and
development banking firm. From 1987 to 1988, he was Chief of Staff to the
Chairman of The Equitable. From 1980 to 1988, Mr. Huffard served in various
executive capacities at Donaldson, Lufkin & Jenrette Securities Corporation,
including Executive Vice President and Managing Director, and Chairman or Chief
Executive of certain direct or indirect subsidiaries thereof. Since 1993, Mr.
Huffard has been a Managing Director and principal of Prima Management Corp.,
the general partner of an investment partnership.
W. EDWARD MASSEY, 54, has been a director of the Company since May 1986
and Vice-Chairman since August 1994. Since September 1994, he has been Managing
Director of The Lindward Group, L.P., an investment partnership and, since
October 1992, has served as President of the New Haven Baseball Corp., the
General Partner of the New Haven Ravens, L.P., a Double-A baseball team. From
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<PAGE>
May 1986 to August 1994, he served as President and Chief Executive Officer of
the Company. From October 1983 through September 1985, he was a Managing
Director of E.M. Warburg Pincus & Co., Inc.
W. WALLACE MCDOWELL, JR., 59, has been a director of the Company since
August 1992. Since December 1994, Mr. McDowell has been a private investor. From
January 1991 to December 1994, Mr. McDowell was a Managing Director of MLGAL
Partners, L.P., the General Partner of an investment partnership concentrating
on leveraged transactions. From 1983 to 1990, Mr. McDowell was Chairman and
Chief Executive Officer of The Prospect Group, Inc., a public diversified
holding company. He serves as a director of Children's Discovery Centers of
America, Inc., Jack Morton Productions, and Grossman's, Inc., and is Chairman of
Interactive Technologies, Inc. In addition, Mr. McDowell is a Trustee of The
Excelsior Funds, a family of mutual funds.
G. ROBERT O'BRIEN, 59, has been a director of the Company since
September 1992 and has been President and Chief Executive Officer of the Company
since August 1994. From August 1993 to August 1994, he served as the President
and Chief Executive Officer of Empire Blue Cross & Blue Shield. From March 1992
to March 1993, Mr. O'Brien was Executive Vice President of CIGNA Corporation,
one of the largest investor-owned insurance organizations in the United States.
From 1985 to 1992, he was the President of the Employee Benefits Division of
CIGNA, and for the past several years has been actively working on national
health care reform. He is a participant in the Jackson Hole Group, was Chairman
of HealthCare Leadership Council, and serves as Chairman of the Board of Regents
of the University of Hartford.
SHAWKAT RASLAN, 44, has been a director of the Company since December
1991. Since 1983, Mr. Raslan has been President and Chief Executive Officer of
International Resources Holdings, Inc., an asset management and investment
advisory service for international clients. He serves as a director of several
companies, including Apogee Inc., a mental health rehabilitation company, Foster
Management, a health care investment fund, and Tiedeman Goodnow International,
an equity fund. Since 1993, Mr. Raslan has been a Managing Director and
principal of Prima Management Corp., the general partner of an investment
partnership.
SUSAN S. ROBFOGEL, 53, has been a director of the Company since July
1991. Ms. Robfogel is a partner in the law firm of Nixon, Hargrave, Devans &
Doyle with which she has been associated since October 1985, and is Chair of the
Health Services Practice Group. Ms. Robfogel is a member of the visiting
committee of the University of Rochester School of Medicine and Dentistry. Ms.
Robfogel serves on the New York State Data Protection Review Board for the
Commissioner of Health.
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<PAGE>
COMMITTEES OF THE BOARD
The Board currently has standing Audit, Compensation, Executive and
Nominating Committees, the membership and principal responsibilities of which
are described below:
AUDIT COMMITTEE
Members: John R. Gunn, Chairman
Hadley C. Ford
Shawkat Raslan
The Audit Committee's functions include recommending to the Board the
selection of the Company's independent public accountants and reviewing with
such accountants the plan and results of their audit and the adequacy of the
Company's systems of internal accounting controls and management information
systems. In addition, the Audit Committee reviews the independence of the
accountants and their fees for services rendered to the Company.
COMPENSATION COMMITTEE
Members: W. Wallace McDowell, Jr., Chairman
Hadley C. Ford
Susan S. Robfogel
The Compensation Committee advises the President and Chief Executive
Officer and the Board on matters of the Company's compensation philosophy and
the compensation of executive officers. The Committee's functions also include
reviewing and setting the compensation of the Chairman, President and Chief
Executive Officer, and the directors. The Committee administers all plans
relating to the compensation of officers including the Company's stock option
plans.
EXECUTIVE COMMITTEE
Members: G. Robert O'Brien, Co-Chairman
Jay C. Huffard, Co-Chairman
W. Wallace McDowell, Jr.
Shawkat Raslan
The Executive Committee's functions include acting on behalf of the
full Board and acting as liaison between the Board and management between Board
meetings.
NOMINATING COMMITTEE
Members: Susan S. Robfogel, Chairperson
John R. Gunn
G. Robert O'Brien
W. Edward Massey
The Nominating Committee evaluates prospective nominees for election to
the Board and recommends specific nominees to fill any vacancy in the Board that
may occur. The Nominating Committee will consider a candidate for nomination as
a director of the Company upon receipt of timely written notice of a
shareholder's recommendation, addressed to the Secretary of the Company at the
Company's address set forth on the first page of this Proxy Statement.
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<PAGE>
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During 1995, the Board held four regular meetings and three special
meetings. The Audit Committee met five times, the Executive Committee met nine
times, and the Compensation Committee and the Nominating Committee each met one
time. During such fiscal year, each director attended at least 75% of the
aggregate of (i) the meetings of the Board (except that Messrs. Ford, Gunn, and
McDowell each were unable to attend three meetings) and (ii) the meetings of the
Committees of the Board on which they served, except for Mr. Ford.
COMPLIANCE WITH REPORTING REQUIREMENTS
Under the securities laws of the United States, the Company's
directors, executive (and certain other) officers, and any persons holding more
than ten percent of the Company's Common Stock are required to report their
ownership of the Company's Common Stock and any changes in their ownership to
the Securities and Exchange Commission and the Nasdaq Market Surveillance
Department. Specific due dates for these reports have been established and the
Company is required to report in this Proxy Statement any failure to file by
these dates during 1995. Based solely on its review of such forms received by it
from such persons for their 1995 transactions, the Company believes that all
filing requirements applicable to such officers, directors and greater than ten
percent beneficial owners were complied with.
COMPENSATION OF DIRECTORS
CASH COMPENSATION. Each director who is not an employee of the Company
receives an annual retainer of $10,000 as compensation for services as a
director, except for Mr. Huffard who receives an additional annual fee of
$40,000 for his services as Chairman of the Board. Each director who is not an
employee of the Company also receives a fee of $1,000 for attending each regular
or special meeting of the Board or its committees. The non-employee directors
are also reimbursed for expenses incurred in connection with performing their
respective duties as directors of the Company. Directors who are employees
receive no additional compensation for their services as directors of the
Company. During 1995, non-employee directors did not receive their $10,000
retainer and meeting fees. The Company intends to satisfy these amounts through
the issuance of shares of Common Stock equal in value to such fees. See
"Proposal to Amend 1995 Stock Option/Stock Issuance Plan."
1995 STOCK OPTION/STOCK ISSUANCE PLAN. Pursuant to the Automatic Option
Grant Program under the Company's 1995 Stock Option/Stock Issuance Plan (the
"1995 Plan"), which became effective on December 21, 1994, members of the Board
who were not employees of the Company were automatically granted stock options.
Under this program, Messrs. Ford, Gunn, Huffard, Massey, McDowell and Raslan and
Ms. Robfogel each received an option grant for 25,000 shares of Common Stock, at
an exercise price of $2.125 per share, on December 21, 1994. Each individual who
becomes a non-employee Board member after December 21, 1994 will automatically
be granted at that time an option grant for 25,000 shares of Common Stock. Each
option has an exercise price per share equal to 100% of the fair market value
per share of
- 5 -
<PAGE>
Common Stock on the option grant date and a term of ten years. The options are
immediately exercisable, but two-thirds of the underlying shares are subject to
the Company's right to repurchase the shares should the non-employee Board
member cease to serve as a Board member prior to vesting in those shares. The
Company's right of repurchase terminates: (i) as to one-third of the shares, on
each of the first and second anniversaries of the grant date (with all shares
fully vested at that time) and (ii) immediately upon an acquisition of the
Company by merger or by stock or asset sale or a hostile change of control.
EMPLOYMENT ARRANGEMENTS
G. Robert O'Brien's annual salary as President and Chief Executive
Officer of the Company is $350,000 per year through December 31, 1997 and he is
eligible to earn performance-based incentive compensation under a program
administered by the Compensation Committee. A portion of Mr. O'Brien's salary
for 1996 will be paid in quarterly issuances of Common Stock in lieu of cash
pursuant to the Stock Issuance Program of the 1995 Plan. In addition, stock
options to purchase an aggregate of 700,000 shares of Common Stock were granted
to Mr. O'Brien on August 29, 1994, the commencement date of his employment with
the Company. These options are exercisable at a price of $3.50 per share, a
premium over the closing price ($3.125) on the Nasdaq National Market on that
date and have a term of ten years. Of these options, 114,284 shares are subject
to an incentive stock option and 585,716 shares are subject to a non-statutory
stock option, of which 300,000 shares vested on August 29, 1994, 100,000 shares
vested on December 31, 1994, 100,000 shares vested on December 31, 1995, with
the balance vesting in two equal installments on December 31, 1996 and 1997
(subject to acceleration of vesting upon an acquisition of the Company by a
merger or by a stock or asset sale). In the event that Mr. O'Brien's employment
is terminated prior to December 31, 1997, he is entitled to, for the longer of
the balance of his term of employment or one year, his base salary on a monthly
basis, the greater of his incentive compensation for the calendar year prior to
termination or 50% of the target incentive compensation for the year in which
his employment is terminated on a monthly basis, and certain fringe benefits.
Stephen H. Matheson's annual salary as Chief Financial Officer of the
Company is $200,000 with a target bonus opportunity of $100,000. A stock option
to purchase an aggregate of 200,000 shares of Common Stock was granted to Mr.
Matheson on February 1, 1995, the commencement date of his employment with the
Company. This option is exercisable at $2.75, the fair market value of the
Company's Common Stock on the grant date. Of the shares subject to the option,
150,000 shares have vested, and the remaining 50,000 shares will vest on
February 1, 1997 (subject to acceleration of vesting upon an acquisition of the
Company by a merger or by a stock or asset sale). In the event that Mr.
Matheson's employment is terminated, he is entitled to his base salary, on a
monthly basis, for one year.
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<PAGE>
OTHER INFORMATION
In accordance with the Company's By-Laws, no person may be nominated as
a director by a shareholder at any Annual Meeting of Shareholders unless written
notice of such proposed nomination, containing certain information required
under the By-Laws, is delivered to the Secretary not less than 50 days nor more
than 75 days prior to the anniversary of the preceding year's Annual Meeting,
subject to certain exceptions set forth in the By-Laws.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
The Company is soliciting approval of a proposal to amend the 1995 Plan
to implement a director stock fee program. If such amendment is approved,
Messrs. Ford, Gunn, Huffard, Massey, McDowell and Raslan and Ms. Robfogel will
automatically receive shares of Common Stock equal in value to the cash fees
they did not receive from January 1, 1995 to the date of the Annual Meeting for
their annual retainer and for their attendance at regular or special Board
meetings and committee meetings. Such directors shall also receive, on a
quarterly basis, following the Annual Meeting, shares of Common Stock equal in
value to the quarterly cash payment of their annual retainer and their payments
for attendance at regular or special Board meetings and committee meetings. See
"Proposal to Amend 1995 Stock Option/Stock Issuance Plan."
EXECUTIVE OFFICERS
The executive officers of the Company on April 18, 1996 were the
following:
NAME AGE POSITION
G. Robert O'Brien 59 President and Chief Executive Officer
Stephen H. Matheson 49 Vice President, Finance and Chief Financial Officer
INFORMATION REGARDING EXECUTIVE OFFICERS
G. ROBERT O'BRIEN - See "Information Regarding Nominees for Election as
Directors."
STEPHEN H. MATHESON, 49, has been Vice President, Finance and Chief
Financial Officer of the Company since February 1995. From August 1993 until
joining the Company, Mr. Matheson was President of Travelers Health Company, a
managed care and insurance company. Previously, he spent 19 years with CIGNA as
Corporate Controller of Connecticut General, President of CIGNA Asset Advisors
and, from 1987 to 1993, as President of CIGNA Healthplan, Inc.
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<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation
paid by the Company during 1993, 1994, and 1995 to the Chief Executive Officer
and the other highest paid executive officers of the Company whose compensation
was in excess of $100,000 as of the end of the last fiscal year (collectively,
the "Named Executive Officers"):
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
-------------------------------------- ----------------- -----------------
Other Securities
Annual Underlying All Other
Salary Compensation Options Granted Compensation
Name and Principal Position Year ($) ($) (#) ($)
- ------------------------------- -------- --------------- ---------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
G. Robert O'Brien.............. 1995 350,000 65,864(1) 0 0
President, Chief 1994 125,360(2) 16,472(3) 700,000(4) 86(5)
Executive Officer and Director 1993 17,000(6) N/A N/A N/A
Stephen H. Matheson............ 1995 176,603(7) 0 200,000(8) 20,000(9)
Vice President, Finance and Chief 1994 N/A N/A N/A N/A
Executive Officer 1993 N/A N/A N/A N/A
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</TABLE>
(1) Represents car services and certain relocation expenses.
(2) Mr. O'Brien was appointed President and Chief Executive Officer of the
Company in August 1994. The figure of $125,360 includes Mr. O'Brien's
actual earnings for the period from August 29, 1994 to December 31, 1994 of
$107,693, based on his annual salary of $350,000. In addition, for the
period from January to August 1994, which preceded his appointment as
President and Chief Executive Officer, he received $17,667 in compensation
for his role as a director of the Company.
(3) Represents car services.
(4) Mr. O'Brien's options consist of an incentive stock option for 114,284
shares of Common Stock and a non-statutory stock option for 585,716 shares
of Common Stock, both granted pursuant to the Company's 1990 Stock Option
Plan ("1990 Plan").
(5) Represents term life insurance premiums paid in 1994.
(6) Represents compensation as a director of the Company.
(7) Mr. Matheson was appointed Vice President, Finance and Chief Financial
Officer of the Company in February 1995. The figure $176,603 represents Mr.
Matheson's actual earnings for the period from February 1, 1995 to December
31, 1995, based on his annual salary of $200,000.
(8) Granted pursuant to the 1990 Plan.
(9) Represents relocation expenses.
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<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows, with respect to the Named Executive
Officers, certain information concerning the grant of stock options in 1995. No
stock appreciation rights (SARs") were granted to any Named Executive Officers
during 1995.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term(1)
------------------------------------------------------------------- -------------------------
Percent of
Number of Total Options Initial
Securities Granted to Exercise
Underlying Employees in Price Expiration
NAME Options Granted Fiscal Year (2) ($/Share)(3) Date 5% 10%
---- --------------- --------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
G. Robert O'Brien -- -- -- -- -- --
Stephen H. Matheson 200,000(4) 18% $2.75 2/1/05 $345,592 $876,558
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</TABLE>
(1) This column reflects the potential realizable value of each grant assuming
that the market value of the Company's Common Stock appreciates at five
percent and ten percent annually from the date of grant over the term of
the option. There is no assurance provided to any executive officer or any
other holder of the Company's securities that the actual stock price
appreciation over the option term will be at the assumed five percent and
ten percent levels or at any other defined level. Unless the market price
of the Common Stock does in fact appreciate over the option term, no value
will be realized from the option grants made to the executive officers.
(2) Based on options for 1,097,232 shares granted to employees and directors in
1995 under the Company's 1995 Plan.
(3) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving a same-day sale of the purchased
shares. The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares and the federal and state income or employment tax liability
incurred by the optionee in connection with such exercise. The optionee may
be permitted, subject to the approval of the Plan Administrator, to apply a
portion of the shares purchased under the option (or to deliver existing
shares of Common Stock) in satisfaction of such tax liability.
(4) Of such option, 150,000 shares have become exercisable and the remaining
50,000 shares will become exercisable on February 1, 1997 (subject to
acceleration of vesting upon an acquisition of the Company by a merger or
by a stock or asset sale).
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<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information with respect to the
Named Executive Officers regarding stock options during the year ended December
31, 1995. No stock options or SARs were exercised by such persons in 1995.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of
Unexercised Unexercised
Options at In-the-Money Options at
Fiscal Year End Fiscal Year End (1)
--------------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
G. Robert O'Brien..................... 500,000 200,000 0 0
Stephen H.Matheson.................... 100,000 100,000 0 0
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</TABLE>
(1) Based on a closing price on the Nasdaq National Market of $2.00 per share
of Common Stock on December 29, 1995, there were no unexercised
in-the-money options.
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of the Company is
responsible for establishing and administering the Company's executive
compensation programs. The Compensation Committee is comprised entirely of
non-employee directors.
COMPENSATION PHILOSOPHY
In connection with the adoption of the Company's restructuring
program in August 1994, the Board elected a new Chief Executive Officer and
decided to substantially recast its management team. This recruiting effort,
which was viewed as critical to a successful turnaround by the Company, was
commenced during a difficult period in the Company's operations and prior to its
raising needed equity capital in February 1995. The Compensation Committee, with
the assistance of an independent consultant, reviewed the compensation
structures of companies in the Company's industry peer group and established a
compensation structure designed to attract highly qualified individuals while
also recognizing the Company's financial condition. This compensation structure
involved three principal components:
o A base salary established at the minimum level necessary to
attract new management and to retain qualified individuals.
o A significant bonus opportunity based both on overall Company
performance and individually-established goals.
o Significant equity incentives in the form of stock options
with a portion of such options vesting up front (to replace
cash compensation and to align the interests of management
with the shareholders).
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<PAGE>
With this compensation structure, the Company has been able to
attract executives who recognize that their success is tied to the Company's
future business performance and to their success in increasing shareholder
value. For 1995, the incentive compensation plans were tied to achieving a
turnaround in the Company's operations, compared to results reported for 1993
and 1994. For 1996 and future years, incentive compensation plans will be
heavily weighted to reward superior operating performance, growth, and
profitability compared to the Company's industry peer group.
1995 CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. O'Brien's compensation package was negotiated based on the
principles described above. Mr. O'Brien is a seasoned executive with over 30
years experience in the health care industry and important relationships with
health care institutions and managed care organizations. The Compensation
Committee believes that Mr. O'Brien's terms of employment, including his base
salary, incentive compensation and stock options are in line with the Company's
established compensation philosophy. See "Employment Arrangements."
TAX LIMITATION
As a result of Federal tax legislation enacted in 1993, a
publicly held company such as the Company will not be allowed a Federal income
tax deduction for compensation paid to certain executive officers, to the extent
that compensation exceeds $1 million per officer in any year. This limitation
will be in effect for 1996, but it is not expected that the compensation to be
paid to the Company's executive officers for 1996 will exceed the $1 million
limit per officer. In addition, the shareholders approved at the 1994 Annual
Meeting an amendment to the Company's 1990 Plan which imposed a limit on the
maximum number of shares of Common Stock for which any one participant may be
granted stock options, stock appreciation rights and direct stock issuances over
the remaining term of the 1990 Plan. The 1995 Plan also limits the maximum
number of shares of Common Stock for which any one participant may be granted
stock options, stock appreciation rights and direct stock issuances over the
term of the 1995 Plan. The effect of this individual limitation in the 1990 Plan
and the new 1995 Plan is to exempt from the $1 million limitation any
compensation deemed paid to an officer when he or she exercises an outstanding
option under either of these plans. Until final Treasury Regulations are issued
with respect to the new limitation, the Compensation Committee will defer any
- 11 -
<PAGE>
decision on whether or not to limit the dollar amount of all other compensation
payable to the Company's executive officers to the $1 million cap, should the
individual compensation of any executive officer ever approach that level.
Compensation Committee of the
Board of Directors
W. Wallace McDowell, Jr., Chairman
Hadley C. Ford
Susan S. Robfogel
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, Messrs. Ford and McDowell and Ms. Robfogel served as
members of the Compensation Committee. There were no compensation committee
interlocks between the Company and any other entity during 1995. See "Certain
Relationships and Certain Transactions."
- 12 -
<PAGE>
PERFORMANCE GRAPH
Set forth below is a graph comparing the annual percentage change in
the Company's cumulative total shareholder return on its Common Stock from June
5, 1991 (the date of the Company's initial public offering) to present (as
measured by dividing (i) the sum of (A) the cumulative amount of dividends for
the measurement period, assuming dividend reinvestment, and (B) the excess of
the Company's share price at the end over the price at the beginning of the
measurement period, by (ii) the share price at the beginning of the measurement
period), with the cumulative total shareholder return so calculated of the
Russell 2000, and a group of peer issuers in a line of business similar to the
Company during the same period (the "Peer Group").
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
U. S. HomeCare Corporation, Russell 2000 Index, and Peer Group
(Performance Results Through 12/31/95)
[The following table represents a chart in the printed report}
<TABLE>
<CAPTION>
6/5/91 1991 1992 1993 1994 1995
------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
U S HOMECARE CORP ....... $100.00 $265.85 $153.66 $ 60.37 $ 25.61 $ 29.27
Russell 2000 Index ...... 100.00 107.73 127.57 151.69 148.68 190.97
Peer Group .............. 100.00 142.99 201.99 226.72 242.06 254.38
<FN>
Assumes $100 invested on 6/5/91 in U. S. HomeCare Corporation Common Stock,
Russell 2000 Index, and Peer Group.
*Cumulative total return assumes reinvestment of dividends.
Peer Group consists of the following companies: Apria Healthcare Group Inc.,
Olsten Corp., Quantum Health Resources, Quorum Health Group and Staff Builders,
Inc. Apria Healthcare Group Inc. is the surviving company after the merger of
Homedco Group and Abbey Healthcare Group in June 1995.
</FN>
</TABLE>
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, which might incorporate future
filings made by the Company under those statutes, the preceding Compensation
Committee Report on Executive Compensation and the Company's Stock Performance
Graph will not be incorporated by reference into any of those prior filings, nor
will such report or graph be incorporated by reference into any future filings
made by the Company under those statutes.
- 13 -
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 18, 1996 by (i) each
director and nominee for director, (ii) each of the Named Executive Officers,
(iii) each person known by the Company to be the beneficial owner of more than
5% of the Company's Common Stock, and (iv) all executive officers and directors
as a group.
<TABLE>
<CAPTION>
Shares Beneficially Percent of Shares
Name of Beneficial Owner(1) Owned(2) Outstanding(2)
- ----------------------------------------------------------------- --------------------- -----------------
<S> <C> <C>
G. Robert O'Brien................................................ 548,691(3) 6.0%
Stephen H. Matheson.............................................. 150,000(4) 1.7%
Jay C. Huffard................................................... 1,001,449(5)(6)(7) 10.8%
W. Edward Massey................................................. 1,279,884(6)(8) 14.9%
W. Wallace McDowell, Jr.......................................... 79,071(6)(9) *
Shawkat Raslan................................................... 642,726(6)(7) 7.0%
c/o International Resources Holdings, Inc.
770 Lexington Ave.
New York, NY 10021
Susan S. Robfogel................................................ 18,417(6) *
John R. Gunn..................................................... 16,667(6) *
Hadley C. Ford................................................... 46,667(6)(10) *
All directors and executive officers as a group (9 persons)...... 3,167,513(11) 31.5%
Prima Partners, L.P.............................................. 616,059(7) 6.7%
115 East 69th Street
New York, New York 10021
Don A. Sanders................................................... 637,081(12) 7.0%
c/o Sanders Morris Mundy Inc.
3100 Texas Commerce Tower
Houston, TX 77002
- ----------------------
</TABLE>
* Less than one percent.
(1) Except where noted otherwise, the address of all persons listed is c/o U.S.
HomeCare Corporation, 750 Main Street, Hartford, Connecticut 06103.
(2) Gives effect to the shares of Common Stock issuable within 60 days after
April 18, 1996 upon the conversion of the $35.00 Preferred Stock and the
exercise of all options, warrants and other rights beneficially held by the
indicated shareholder on that date.
(3) Includes 500,000 shares of Common Stock issuable upon exercise of a stock
option granted under the Company's 1990 Plan, and 29,280 shares of Common
Stock issuable upon conversion of 1,464 shares of $35.00 Preferred Stock.
Also includes 1,250 shares of Common Stock issuable upon exercise of
warrants.
(4) Consists of 150,000 shares of Common Stock issuable upon exercise of a
stock option granted under the Company's 1990 Plan.
- 14 -
<PAGE>
(5) Includes 221,223 shares of Common Stock held by Huffard L.P., of which Jay
C. Huffard, Chairman of the Board and a director of the Company, is
managing director of the general partner thereof and stock options for
20,000 shares of Common Stock.
(6) Includes 16,667 shares of Common Stock issuable upon exercise of a stock
option granted for 25,000 shares of Common Stock pursuant to the 1995
Plan's Automatic Option Grant Program for non-employee directors.
(7) Includes 578,560 shares of Common Stock of the Company issuable upon
conversion of 28,928 shares of $35.00 Preferred Stock of the Company held
by Prima Partners, L.P. Also includes 37,499 shares of Common Stock
issuable upon exercise of warrants issued to Prima Management Corp., the
general partner of Prima Partners, L.P. Messrs. Huffard and Raslan are
officers, directors and shareholders of Prima Management Corp. and are
special limited partners of Prima Partners, L.P.
(8) Includes 355,876 shares of Common Stock held by The Lindward Group, of
which W. Edward Massey, a director of the Company, is a general partner.
Also includes 3,984 shares of Common Stock held by Mr. Massey under the
Company's ESOP.
(9) Includes 28,580 shares of Common Stock of the Company issuable upon
conversion of 1,429 shares of $35.00 Preferred Stock. Also includes 2,501
shares of Common Stock issuable upon exercise of warrants.
(10) Includes 30,000 shares of Common Stock of the Company issuable upon
conversion of 1,500 shares of $35.00 Preferred Stock.
(11) See Notes (2) through (10).
(12) Includes 428,580 shares of Common Stock issuable upon conversion of 21,429
shares of $35.00 Preferred Stock and 2,501 shares of Common Stock issuable
upon exercise of warrants. Also includes 40,000 shares of Common Stock as
to which Mr. Sanders expressly disclaims beneficial ownership. Does not
include 20,901 shares of Common Stock over which Mr. Sanders has
dispositive power but does not have beneficial ownership.
CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS
In February 1995, the Company sold a total of 271,428 shares of
Preferred Stock for $35.00 per share in a private placement (the "Private
Placement"). The $35.00 Preferred Stock is convertible into an aggregate of
5,428,560 shares of Common Stock at a conversion price of $1.75 per share,
subject to certain adjustments, and automatically converts into Common Stock if
the 20 day moving average of the closing prices of the Company's Common Stock is
greater than $4.375 per share. The $35.00 Preferred Stock pays an annual
dividend of $2.10, payable quarterly in cash or, at the Company's option, in
shares of Common Stock. To date, the dividends have been paid in Common Stock,
with a total of approximately 300,000 shares issued. Holders of the $35.00
Preferred Stock will receive a liquidation preference of $35.00 per share plus
accrued but unpaid dividends in the event the Company is liquidated or sold and
are entitled to vote their shares of the $35.00 Preferred Stock on an
as-converted basis with the Common Stock. The Company is obligated to register
the shares of Common Stock issuable upon conversion of the $35.00 Preferred
Stock and the holders of the $35.00 Preferred Stock also have the right to
include shares of Common Stock issued upon conversion of the $35.00 Preferred
- 15 -
<PAGE>
Stock in future registration statements filed by the Company during the
five-year period following the closing of the Private Placement.
Simultaneous with the closing of the Private Placement, 57,141 shares
of $35.00 Preferred Stock were exchanged for 100% of the Preferred Stock issued
in a private placement which closed in August and October of 1994. The Company
also exchanged warrants to purchase an aggregate of 99,997 shares of Common
Stock for $1.75 per share for warrants to purchase 285,705 shares of Common
Stock at $4.00 per share that were previously issued in connection with the 1994
private placement.
Of the net proceeds of the Private Placement, $329,000 was used to
repurchase 200,000 shares of the Company's Common Stock from Mr. Massey at a
price of $1.645 per share, representing $1.75 per share less an amount equal to
the 6% commission payable to the placement agent in the Private Placement.
Prima Management Corp. ("PMC"), a corporation of which Messrs. Huffard
and Raslan, directors of the Company, are officers, directors and shareholders,
holds warrants to purchase 37,499 shares of Common Stock at a purchase price of
$1.75 per share and Prima Partners, L.P. owns 28,928 shares of $35.00 Preferred
Stock which are convertible into 578,560 shares of Common Stock of the Company
at an initial conversion price of $1.75 per share of Common Stock. PMC is the
general partner of Prima Partners, L.P., of which Messrs. Huffard and Raslan are
special limited partners and Mr. McDowell, a director of the Company, is a
limited partner.
Messrs. O'Brien and McDowell hold warrants to purchase 1,250 and 2,501
shares of Common Stock, respectively, at a purchase price of $1.75 per share and
Messrs. O'Brien, McDowell and Ford hold 1,464, 1,429 and 1,500 shares of $35.00
Preferred Stock, respectively, which are convertible into 29,280, 28,580 and
30,000 shares of Common Stock, respectively, at an initial conversion price of
$1.75 per share of Common Stock. Mr. O'Brien is an officer and director of the
Company and Messrs. McDowell and Ford are directors of the Company.
Ms. Robfogel is a partner in the law firm of Nixon, Hargrave, Devans &
Doyle, which the Company has retained from time to time.
PROPOSAL TO AMEND
1995 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's shareholders are being asked to approve an amendment to
the 1995 Stock Option/Stock Issuance Plan (the "1995 Plan") to implement a
director stock fee program, pursuant to which non-employee Board members will
automatically receive shares of Common Stock in lieu of cash retainer fees and
fees for attending regular or special Board meetings and committee meetings. The
automatic option grant program under the 1995 Plan became effective upon its
adoption by the Board on December 21, 1994 and the discretionary option grant
and stock issuance programs became effective on March 15, 1995. The 1995 Plan
was approved by the Company's shareholders on May 18, 1995. The amendment to the
- 16 -
<PAGE>
1995 Plan implementing the director fee program was adopted by the Board on
November 16, 1995, subject to shareholder approval at the 1996 Annual Meeting.
The Board believes that the implementation of the director fee program is
necessary to provide equity incentives to attract and retain the services of
highly-qualified non-employee Board members. In addition, if the director fee
program were not adopted, the Company would have to continue to pay the retainer
fees and fees for attending regular or special Board meetings and committee
meetings otherwise payable to the non-employee directors in cash.
The following is a summary of the principal features of the 1995 Plan.
The summary, however, does not purport to be a complete description of all the
provisions of the 1995 Plan. Any shareholder of the Company who wishes to obtain
a copy of the actual plan document may do so upon written request to the
Corporate Secretary at the Company's principal executive offices in Hartford,
Connecticut.
EQUITY INCENTIVE PROGRAMS
The 1995 Plan contains four separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) a Stock Issuance Program, (iii) an
Automatic Option Grant Program and (iv) a Director Stock Fee Program. The
principal features of these programs are described below. The 1995 Plan (other
than the Automatic Option Grant and Director Stock Fee Programs) will be
administered by the Compensation Committee of the Board. This committee (the
"Plan Administrator") will have complete discretion (subject to the provisions
of the 1995 Plan) to authorize option grants and direct stock issuances under
the 1995 Plan. However, all grants under the Automatic Option Grant Program and
all issuances under the Director Stock Fee Program will be made in strict
compliance with the provisions of those programs, and no administrative
discretion will be exercised by the Plan Administrator with respect to the
grants or issuances made thereunder.
SHARE RESERVE
A total of 2,550,000 shares of Common Stock has been reserved for
issuance over the ten-year term of the 1995 Plan. In no event may any one
participant in the 1995 Plan be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances for more than 1,000,000
shares in the aggregate over the term of the 1995 Plan.
In the event any change is made to the outstanding shares of Common
Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to the securities issuable (in the aggregate and to each
participant) under the 1995 Plan and to the securities and exercise price under
each outstanding option.
- 17 -
<PAGE>
ELIGIBILITY
Officers and other employees of the Company and its parent or
subsidiaries (whether now existing or subsequently established), non-employee
members of the Board (other than those serving as members of the Compensation
Committee) and the board of directors of its parent or subsidiaries and
consultants and independent advisors of the Company and its parent and
subsidiaries will be eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs. Non-employee members of the Board (including
members of the Compensation Committee) will also be eligible to participate in
the Automatic Option Grant and Director Stock Fee Programs.
As of April 18, 1996, approximately two executive officers, 380 other
employees and seven non-employee Board members were eligible to participate in
the 1995 Plan, and seven non-employee Board members were eligible to participate
in the Automatic Option Grant and Director Stock Fee Programs.
VALUATION
The fair market value per share of Common Stock on any relevant date
under the 1995 Plan will be the closing selling price per share on that date on
the Nasdaq National Market. On April 18, 1996, the closing selling price per
share was $2.4375.
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at
an exercise price per share not less than eighty five percent (85%) of the fair
market value per share of Common Stock on the option grant date. No granted
option will have a term in excess of ten years.
Upon cessation of service, the optionee will have a limited period of
time in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
TANDEM STOCK APPRECIATION RIGHTS provide the holders with the right to
surrender their options for an appreciation distribution from the Company equal
in amount to the excess of (a) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (b) the aggregate exercise
price payable for such shares. Such appreciation distribution may, at the
discretion of the Plan Administrator, be made in cash or in shares of Common
Stock.
- 18 -
<PAGE>
LIMITED STOCK APPRECIATION RIGHTS may be granted to officers of the
Company as part of their option grants. Any option with such a limited stock
appreciation right in effect for at least six (6) months may be surrendered to
the Company upon the successful completion of a hostile take-over of the
Company. In return for the surrendered option, the officer will be entitled to a
cash distribution from the Company in an amount per surrendered option share
equal to the excess of (a) the take-over price per share over (b) the exercise
price payable for such share.
The Plan Administrator will have the authority to effect the
cancellation of outstanding options under the Discretionary Option Grant Program
which have exercise prices in excess of the then current market price of Common
Stock and to issue replacement options with an exercise price based on the
market price of Common Stock at the time of the new grant.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per
share not less than eighty five percent (85%) of fair market value per share of
Common Stock, payable in cash or through a promissory note payable to the
Company. Shares may also be issued solely as a bonus for past services.
The issued shares may either be immediately vested upon issuance or
subject to a vesting schedule tied to the performance of service or the
attainment of performance goals. The Plan Administrator will, however, have the
discretionary authority at any time to accelerate the vesting of any unvested
shares.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who was
serving as a non-employee Board member on the effective date of that program was
automatically granted at that time an option grant for 25,000 shares of Common
Stock. Each individual who first becomes a non-employee Board member after such
date, will automatically be granted at that time an option grant for 25,000
shares of Common Stock.
Each option will have an exercise price per share equal to 100% of the
fair market value per share of Common Stock on the option grant date and a
maximum term of ten years measured from the option grant date.
Each option will be immediately exercisable for all the option shares,
but any purchased shares will be subject to repurchase by the Company, at the
exercise price paid per share, upon the optionee's cessation of Board service.
Each option grant will vest (and the Company's repurchase rights will lapse) in
three equal annual installments over the optionee's period of Board service,
with the first such installment to vest on the option grant date.
- 19 -
<PAGE>
The shares subject to each automatic option grant will immediately vest
upon the optionee's death or permanent disability or an acquisition of the
Company by merger or asset sale or a hostile change in control of the Company
(whether by successful tender offer for more than 50% of the outstanding voting
stock or by proxy contest for the election of Board members). In addition, upon
the successful completion of a hostile take-over, each automatic option grant
which has been outstanding for at least six months may be surrendered to the
Company for a cash distribution per surrendered option share in an amount equal
to the excess of (a) the take-over price per share over (b) the exercise price
payable for such share.
DIRECTOR STOCK FEE PROGRAM
Under the Director Stock Fee Program, each non-employee Board member
who has accrued a retainer fee and fees for attending regular or special Board
meetings and committee meetings for the period from January 1, 1995 will be
issued shares of Common Stock in lieu of such fees. Upon approval of this
proposal, each non-employee Board member to whom retainer fees or meeting fees
are due for one or more calendar quarters of Board service commencing during the
period from January 1, 1995 to the date of the Annual Meeting, including, with
respect to the retainer fees, the calendar quarter in which the Annual Meeting
falls, will be issued shares of Common Stock equal to the number (rounded down
to the nearest whole number) obtained by dividing the aggregate dollar amount of
fees accrued during such period by the "average market price" of the Common
Stock on the date of the Annual Meeting. "Average market price" shall mean the
average of the daily closing price of the Company's Common Stock for the twenty
consecutive trading days ending on the last trading day before the date of
issuance; provided, that, in no event shall the "average market price" be less
than eighty-five percent (85%) of the fair market value per share of Common
Stock on the date of issuance. The closing price for each day shall be the last
reported sales price regular way, or in case no such sales takes place on such
day, the average of the closing bid and ask prices regular way, in each case on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading, or, if not listed or admitted to trading on any national
securities exchange, on the Nasdaq National Market or, if the Common Stock is
not listed or admitted to trading on any national securities exchange and is not
quoted on the Nasdaq National Market, the average of the closing bid and ask
prices as furnished by any New York Stock Exchange member firm selected from
time to time by the Board for such purpose. In addition, at the beginning of
each calendar quarter of Board service to be completed after the date of this
Annual Meeting, each non-employee Board member to whom (i) a retainer fee is
payable for such quarter and (ii) meeting fees are payable for attendance at
regular or special meetings of the Board or any Committee of the Board held in
the prior quarter, will automatically be issued shares of Common Stock equal to
the number (rounded down to the nearest whole number) obtained by dividing the
dollar amount of the accrued fees for the respective quarter by the average
market price of Common Stock on the last trading day of the prior calendar
quarter. The issued shares will be fully vested.
- 20 -
<PAGE>
GENERAL PROVISIONS
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation will
automatically accelerate in full, and all unvested shares under the Stock
Issuance Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. Any options assumed or replaced in connection with such
acquisition will be subject to immediate acceleration, and any unvested shares
which do not vest at the time of such acquisition will be subject to full and
immediate vesting, in the event the individual's service is subsequently
terminated within 18 months following the acquisition. The Plan Administrator
has the discretion to provide for the automatic acceleration of options (and the
immediate vesting of any unvested shares) whether or not those options are
assumed or replaced (or the Company's repurchase rights with respect to the
unvested shares are to be assigned) in the acquisition. In connection with a
hostile change in control of the Company (whether by successful tender offer for
more than 50% of the outstanding voting stock or by proxy contest for the
election of Board members), the Plan Administrator will have the discretionary
authority to provide for automatic acceleration of outstanding options under the
Discretionary Grant Program and the automatic vesting of outstanding shares
under the Stock Issuance Program either at the time of such change in control or
upon the subsequent termination of the individual's service.
The acceleration of vesting in the event of a change in the ownership
or control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
FINANCIAL ASSISTANCE
The Plan Administrator may permit one or more participants to pay the
exercise price of outstanding options or the purchase price of shares under the
1995 Plan by delivering a promissory note payable in installments. The Plan
Administrator will determine the terms of any such promissory note. However, the
maximum amount of financing provided any participant may not exceed the cash
consideration payable for the issued shares plus all applicable taxes incurred
in connection with the acquisition of the shares. Any such promissory note may
be subject to forgiveness in whole or in part, at the discretion of the Plan
Administrator, over the participant's period of service.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the Plan Administrator
may allow such individuals to deliver previously acquired shares of Common Stock
in payment of such tax liability.
- 21 -
<PAGE>
AMENDMENT AND TERMINATION
The Board may amend or modify the 1995 Plan in any or all respects
whatsoever, subject to any required shareholder approval. The Board may
terminate the 1995 Plan at any time, and the 1995 Plan will in all events
terminate on December 20, 2004.
STOCK AWARDS
The table below shows, as to each of the Company's executive officers
named in the Summary Compensation Table and the various indicated individuals
and groups, the number of shares of Common Stock subject to options granted
between December 21, 1994 and April 18, 1996 under the 1995 Plan together with
the weighted average exercise price payable per share.
<TABLE>
OPTION TRANSACTIONS
==============================================================================================================
Weighted
Number of Average
Name Option Shares Exercise Price
<S> <C> <C>
G. Robert O'Brien, President and Chief
Executive Officer........................................ -- --
Stephen H. Matheson, Vice President,
Finance and Chief Executive Officer...................... 200,000 $2.75
All current executive officers as a group
(2 persons).............................................. 200,000 2.75
Hadley C. Ford, Director................................. 25,000 2.13
John R. Gunn, Director................................... 25,000 2.13
Jay C. Huffard, Director................................. 25,000 2.13
W. Edward Massey, Director............................... 25,000 2.13
W. Wallace McDowell, Jr., Director....................... 25,000 2.13
Shawkat Raslan, Director................................. 25,000 2.13
Susan S. Robfogel, Director.............................. 25,000 2.13
All non-employee directors as a group
(7 persons).............................................. 175,000 2.13
All employees, including current officers who
are not executive officers as a group (12
persons)................................................. 714,000 2.23
========================================================= ====================== ===========================
</TABLE>
- 22 -
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1995 Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code or non-statutory options which are not intended to meet such requirements.
The Federal income tax treatment for the two types of options differs as
follows:
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise disposed
of. For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. A qualifying disposition occurs if the sale
or other disposition is made after the optionee has held the shares for more
than two years after the option grant date and more than one year after the
exercise date. If either of these two holding periods is not satisfied, then a
disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the excess of (i) the
fair market value of such shares on the option exercise date over (ii) the
exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the purchased
shares.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
- 23 -
<PAGE>
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which the ordinary income
is recognized by the optionee.
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the 1995
Plan will be substantially the same as those summarized above for the exercise
of non-statutory option grants.
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less
than the fair market value of the shares on the grant or issue date will result
in a compensation expense to the Company's earnings equal to the difference
between the exercise or issue price and the fair market value of the shares on
the grant or issue date. Such expense will be accruable by the Company over the
period that the option shares or issued shares are to vest. Option grants or
stock issuances at 100% of fair market value will not result in any charge to
the Company's earnings. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis. Under the new FASB release, footnote disclosure
will be required as to the impact the outstanding options under the 1995 Plan
would have upon the Company's reported earnings were those options appropriately
valued as compensation expense.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings.
NEW PLAN BENEFITS
No stock issuances have been made under the Director Stock Fee Program.
However, upon approval of this Proposal, seven non-employee Board members who
have accrued retainer fees and meeting fees since January 1, 1995 will be issued
shares of Common Stock in lieu thereof. As of the date of the Annual Meeting,
Mr. Ford will have accrued approximately $26,000, Mr. Gunn will have accrued
approximately $27,000, Mr. Huffard will have accrued approximately $31,000, Mr.
Massey will have accrued approximately $25,000, Mr. McDowell will have accrued
approximately $37,000, Mr. Raslan will have accrued approximately $37,000, and
Ms. Robfogel will have accrued approximately $23,000, for retainer and meeting
fees since January 1, 1995. Non-employee Board members will also receive
periodic stock issuances as more fully described above.
- 24 -
<PAGE>
SHAREHOLDER APPROVAL
The affirmative vote of the holders of a majority of all outstanding
shares of the Company entitled to vote thereon at the 1996 Annual Meeting is
required for approval of the amendment to the 1995 Plan. Should such shareholder
approval not be obtained, then the Director Stock Fee Program will not be
implemented and all retainer fees and meeting fees accrued during the period
January 1, 1995 to the date of the Annual Meeting and all future retainer fees
and meeting fees will be paid in cash. The 1995 Plan will, however, continue to
remain in effect, and option grants and stock issuances may continue to be made
pursuant to the provisions of the plan pursuant to the remaining programs under
the 1995 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT TO 1995 PLAN. THE BOARD BELIEVES THAT IT IS IN THE
BEST INTERESTS OF THE COMPANY TO IMPLEMENT THE DIRECTOR STOCK FEE PROGRAM WHICH
WILL LIMIT THE CASH OUTFLOW OF THE COMPANY AND ALLOW THE COMPANY TO ATTRACT AND
RETAIN HIGHLY QUALIFIED INDIVIDUALS AS NON-EMPLOYEE MEMBERS OF THE BOARD. IF A
SHAREHOLDER DOES NOT DIRECT OTHERWISE, THE SHARES REPRESENTED BY THE PROXY
SOLICITED HEREBY WILL BE VOTED TO APPROVE THE AMENDMENT TO THE 1995 PLAN.
- 25 -
<PAGE>
PROPOSAL TO INCREASE AUTHORIZED SHARES
OF COMMON STOCK AND PREFERRED STOCK
The Company's Restated Certificate of Incorporation presently
authorizes the issuance of a maximum of 20,000,000 shares of Common Stock. The
Board of Directors has adopted resolutions proposing that the Restated
Certificate of Incorporation be amended to increase the number of shares of
Common Stock that the Company is authorized to issue from 20,000,000 to
40,000,000. The text of the proposed amendment is set forth in Annex A attached
to this Proxy Statement, substantially in the form to be filed with the
Secretary of the State of New York. If approved by the Company's shareholders,
the additional authorized shares of Common Stock would be available for issuance
at the discretion of the Board of Directors without further shareholder approval
unless otherwise required.
The Company's Restated Certificate of Incorporation presently
authorizes the issuance of a maximum of 484,000 shares of Preferred Stock. The
Board of Directors has adopted resolutions proposing that the Restated
Certificate of Incorporation be amended to increase the number of shares of
Preferred Stock that the Company is authorized to issue from 484,000 to
5,000,000. The text of the proposed amendment is set forth in Annex A attached
to this Proxy Statement, substantially in the form to be filed with the
Secretary of the State of New York. If approved by the Company's shareholders,
the additional authorized shares of Preferred Stock would be available for
issuance at the discretion of the Board of Directors without further shareholder
approval unless otherwise required.
Holders of shares of Common Stock do not have preemptive rights to
subscribe to shares issued by the Company.
In accordance with its Restated Certificate of Incorporation, Preferred
Stock may be issued from time to time in one or more classes or series with such
designations, powers, preferences, rights, qualifications, limitations and
restrictions as may be fixed by the Company's Board of Directors. However, no
series of Preferred Stock may be created which is senior to, or on a parity
with, the $35.00 Preferred Stock in payment of dividends or liquidation
preference without the consent of the holders of a majority in interest of the
$35.00 Preferred Stock. The Board of Directors, without obtaining shareholder
approval, may issue the Preferred Stock with voting or conversion rights, or
both, and thereby dilute the voting power and equity of the holders of Common
Stock and adversely affect the market price of the Common Stock.
The authorized but unissued shares of Common Stock or Preferred Stock
could be used by incumbent management to make it more difficult for a change in
control of the Company to occur. Under certain circumstances, such shares could
be used to frustrate persons seeking to effect a takeover or otherwise gain
control of the Company. For example, such shares could be privately placed with
purchasers who might support the Board of Directors in opposing a hostile
takeover bid. The increase in authorized shares of Common Stock and Preferred
Stock might be considered as having the effect of discouraging an attempt by
another person or entity, through the acquisition of a substantial number of
shares of Common Stock or Preferred Stock to acquire control of the Company with
a view to imposing a merger, sale of all or any part of the Company's assets, or
a similar transaction that may not be in the best interest of all the Company's
shareholders, because the issuance of new shares could be used to dilute the
stock ownership of a person or entity seeking to obtain control of the Company.
The Board of Directors believes that an increase in the number of
authorized shares of Common Stock and Preferred Stock would permit the Company
to take advantage of future opportunities for equity financing to improve the
Company's capital structure, possible acquisitions, stock splits, and other
- 26 -
<PAGE>
corporate purposes, without the delay and expense incident to the holding of a
special meeting of shareholders to consider any specific issuance.
The Company has no present plans or commitments for using the
additional shares of Common Stock or Preferred Stock covered by the proposed
amendments. However, the Board of Directors believes that the number of shares
of Common Stock and Preferred Stock currently available for issuance does not
provide sufficient flexibility to permit the Company to take full advantage of
the opportunities described above.
SHAREHOLDER APPROVAL
The affirmative vote of the holders of at least a majority of all
outstanding shares entitled to vote thereon is required for approval of the
proposed amendments to the Company's Restated Certificate of Incorporation.
These two amendments (one relating to Common Stock and the other relating to
Preferred Stock) are independent, so that either amendment will be approved if
it receives the necessary affirmative vote of shareholders, even if the other
amendment does not receive such affirmative vote.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO
INCREASE THE SHARES OF AUTHORIZED COMMON STOCK AND THE SHARES OF AUTHORIZED
PREFERRED STOCK. IF A SHAREHOLDER DOES NOT DIRECT OTHERWISE, THE SHARES
REPRESENTED BY THE PROXY SOLICITED HEREBY WILL BE VOTED TO APPROVE BOTH THE
PROPOSED INCREASE IN THE AUTHORIZED COMMON STOCK AND IN THE AUTHORIZED PREFERRED
STOCK.
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, which has served as the Company's independent
public accountants since 1991, has been designated by the Board as the Company's
independent public accountants for 1996. A representative of that firm will be
present at the Annual Meeting and will have an opportunity to make a statement
if he or she desires to do so. The representative also will be available to
respond to appropriate questions.
SHAREHOLDER PROPOSALS
IN ACCORDANCE WITH REGULATIONS ISSUED BY THE SECURITIES AND EXCHANGE
COMMISSION, SHAREHOLDER PROPOSALS INTENDED FOR PRESENTATION AT THE 1997 ANNUAL
MEETING OF SHAREHOLDERS MUST BE RECEIVED BY THE SECRETARY OF THE COMPANY NO
LATER THAN JANUARY 11, 1997, IF SUCH PROPOSALS ARE TO BE CONSIDERED FOR
INCLUSION IN THE COMPANY'S PROXY STATEMENT. In accordance with the Company's
By-Laws, shareholder proposals intended for presentation at the Annual Meeting
of Shareholders that are not intended to be considered for inclusion in the
Company's Proxy Statement must be received by the Secretary of the Company no
earlier than March 23, 1997 and no later than April 17, 1997.
- 27 -
<PAGE>
ANNUAL REPORT
A copy of the Company's 1995 Annual Report to the shareholders,
including the financial statements and schedules thereto, is enclosed and is
hereby incorporated by reference.
OTHER MATTERS
Management knows of no matters that are to be presented for action at
the Annual Meeting other than those set forth above. If any other matters
properly come before the Annual Meeting, the persons named in the enclosed form
of proxy will vote the shares represented by proxies in accordance with their
best judgment on such matters.
Proxies will be solicited by mail and may also be solicited in person
or by telephone by some regular employees of the Company. The Company may also
consider the engagement of a proxy solicitation firm. Costs of the solicitation
will be borne by the Company.
By Order of the Board
G. Robert O'Brien
President and Chief Executive Officer
750 Main Street
Hartford, Connecticut 06103
May 14, 1996
- 28 -
<PAGE>
P
R
O
X
Y
U.S. HOMECARE CORPORATION
750 MAIN STREET
HARTFORD, CONNECTICUT 06103
G. Robert O'Brien and Jay C. Huffard, or either of them, are hereby authorized,
with full power of substitution, to represent and to vote the stock of the
undersigned at the Annual Meeting of Shareholders of the Corporation to be held
on June 6, 1996, or at any adjournment of such meeting, upon such business as
may properly come before the meeting, including the following items as set forth
in the Proxy Statement:
Election of eight (8) Directors
Hadley C. Ford, John R. Gunn, Jay C. Huffard,
W. Edward Massey, W. Wallace McDowell, Jr.,
G. Robert O'Brien, Shawkat Raslan, Susan S. Robfogel
PLEASE MARK, SIGN AND DATE THIS PROXY WHERE INDICATED
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
-------------
SEE REVERSE
SIDE
-------------
<PAGE>
[X] PLEASE MARK YOUR 5766
VOTES AS IN THIS
EXAMPLE.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WHEN PROPERLY
EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS AND FOR ITEM 2 AND
ITEM 3.
1. Election of FOR WITHHELD
Directors [ ] [ ]
(see reverse)
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------------------------------
2. Approval of an FOR AGAINST ABSTAIN
amendment to the [ ] [ ] [ ]
Company's 1995 Stock
Option/Stock Issuance
Plan to implement a
director stock fee
program.
3. Approval of an amendment to the FOR AGAINST ABSTAIN
Company's Restated Certificate of [ ] [ ] [ ]
Incorporation to increase the
number of authorized shares of the
Company's common stock and
preferred stock.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Please sign name(s) exactly as printed hereon. Joint owners
should each sign. When signing as attorney, executor, ad-
ministrator, trustee or guardian, please give full title as such. If
a corporation, sign in full corporate name by President or
other authorized officer. If a partnership, sign in partnership
name by authorized person.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) DATE
<PAGE>
P
R
O
X
Y
U.S. HOMECARE CORPORATION
750 MAIN STREET
HARTFORD, CONNECTICUT 06103
G. Robert O'Brien and Jay C. Huffard, or either of them, are hereby authorized,
with full power of substitution, to represent and to vote the stock of the
undersigned at the Annual Meeting of Shareholders of the Corporation to be held
on June 6, 1996, or at any adjournment of such meeting, upon such business as
may properly come before the meeting, including the following items as set forth
in the Proxy Statement:
Election of eight (8) Directors
Hadley C. Ford, John R. Gunn, Jay C. Huffard,
W. Edward Massey, W. Wallace McDowell, Jr.,
G. Robert O'Brien, Shawkat Raslan, Susan S. Robfogel
PLEASE MARK, SIGN AND DATE THIS PROXY WHERE INDICATED
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
-------------
SEE REVERSE
SIDE
-------------
<PAGE>
[X] PLEASE MARK YOUR 9699
VOTES AS IN THIS
EXAMPLE.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WHEN PROPERLY
EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS AND FOR ITEM 2 AND
ITEM 3.
1. Election of FOR WITHHELD
Directors [ ] [ ]
(see reverse)
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------------------------------
2. Approval of an FOR AGAINST ABSTAIN
amendment to the [ ] [ ] [ ]
Company's 1995 Stock
Option/Stock Issuance
Plan to implement a
director stock fee
program.
3. Approval of an amendment to the FOR AGAINST ABSTAIN
Company's Restated Certificate of [ ] [ ] [ ]
Incorporation to increase the
number of authorized shares of the
Company's common stock and
preferred stock.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Please sign name(s) exactly as printed hereon. Joint owners
should each sign. When signing as attorney, executor, ad-
ministrator, trustee or guardian, please give full title as such. If
a corporation, sign in full corporate name by President or
other authorized officer. If a partnership, sign in partnership
name by authorized person.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) DATE
<PAGE>
May 14, 1996
Again this year we are combining our annual shareholder report with our proxy
statement. The Company's 1995 audited Consolidated Financial Statements,
auditor's opinion, and Management's Discussion and Analysis follow the proxy
portion of this document.
Early in 1995 we assembled a new management team at U.S. HomeCare. That team set
itself some aggressive priorities for the year that were aimed at substantially
improving the condition of the Company. During 1995, I believe we made progress
against those priorities, both in terms of fixing operating problems and in
positioning U.S. HomeCare for the future.
A number of key steps were taken. We significantly reduced expenses in both our
field offices and home office organization. We restructured our infusion therapy
business, resulting in a better relationship between revenue and operating
expenses. We improved our business selection practices in the IV business. We
are also in the process of re-engineering our billing and collection processes
to obtain appropriate reimbursement for all of the services we provide.
On the revenue front, we worked to strengthen our revenue base and to renew
revenue growth off of the flat or declining trends that we have experienced over
the last few years. We increased attention in each of our field offices to
selling, including improving people resources where we did not have enough
strength. Consistent with this, we also increased higher level management focus
on each office, with a specific priority on revenue growth. We have also added
corporate level resources to help us generate growth, most importantly a Vice
President of Sales in the first quarter of 1996.
In addition to these efforts, there were other notable accomplishments in 1995.
These included:
o further development of our psychiatric nursing capabilities;
o ongoing business processes that are improved;
o obtaining additional financing;
o settlement of the OIG investigation; and
o accreditation by JCAHO through 1998 of all of our branch offices.
<PAGE>
Although 1995 was a demanding year for us given the problems we faced, it was
gratifying to see the results of our efforts begin to take effect. The move into
1996 has not changed our rigorous ongoing efforts or our resolve to return U.S.
HomeCare to the position of a premier competitor in our marketplaces. Consistent
with our continuing objectives, priorities for 1996 are:
o keeping the momentum going;
o accelerating the pace of growth and achieving profitability.
o implementing a new systems platform throughout the Company; and
o improving overall financial performance.
I am proud of the job that our U.S. HomeCare team of employees did in 1995. An
objective for each of us is to have our efforts continue to generate a visible
business recovery, position us for outstanding performance in the future, and
have those factors be recognized in the marketplace by improvement in our stock
valuation.
G. Robert O'Brien
President and CEO
<PAGE>
ANNEX A
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF U.S. HOMECARE CORPORATION
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
WE, THE UNDERSIGNED, STEPHEN H. MATHESON and CHRISTINE AMARILLO being,
respectively, the Vice President, Finance and Secretary of U.S. HomeCare
Corporation, do hereby certify:
o The name of the Corporation is U.S. HomeCare Corporation (the
"Corporation").
o The original certificate of incorporation of said Corporation was filed
by the Department of State, State of New York, on March 22, 1976. The name under
which the Corporation was formed is Reliable Nurses Aide of Westchester, Inc.
o The amendment of the certificate of incorporation of the Corporation
effected by this certificate of amendment is to (i) increase the aggregate
number of Common shares which the Corporation shall have the authority to issue
by authorizing 20,000,000 additional Common shares, par value $.01 per share,
and (ii) increase the aggregate number of Preferred shares which the Corporation
shall have the authority to issue by authorizing 4,516,000 additional Preferred
shares, par value $1.00 per share.
o To accomplish the forgoing amendments, Article IV, Section A thereof is
hereby amended to read as follows:
A. The aggregate number of shares of stock that the Corporation shall have
authority to issue shall consist of (i) 40,000,000 shares of Common Stock
having a par value of $.01 per share (the "Common Shares") and (ii)
5,000,000 preferred shares having a par value of $1.00 per share (the
"Preferred Shares").
o The foregoing amendment of the certificate of incorporation was
authorized at a meeting of the Board of Directors held on February 15, 1996,
followed by a vote of the holders of at least a majority of all the outstanding
shares of the Corporation entitled to vote on said amendment of the certificate
of incorporation.
-29-
<PAGE>
IN WITNESS WHEREOF, we have subscribed this document on the date set forth
below and do hereby affirm under penalties of perjury, that the statements
contained herein have been examined by us and are true and correct.
Dated: June __, 1996
-------------------------
Stephen H. Matheson
Vice President, Finance
-------------------------
Christine Amarillo
Secretary
-30-
<PAGE>
TABLE OF CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
PAGE
----
Independent Auditors' Report 32
Consolidated Balance Sheets 34
Consolidated Statement of Operations 33
Consolidated Statements of Changes in Stockholders' Equity 35
Consolidated Statements of Cash Flow 36
Notes to Consolidated Financial Statements 37
Quarterly Results of Operations (Unaudited) 52
Common Stock Prices and Dividends 53
Description of the Company's Business 53
Five Year Selected Consolidated Financial Data 54
Management's Discussion and Analysis of Financial
Condition and Results of Operations 55
A copy of the Company's Form 10-K for the year ended December 31, 1995, as
filed with the Securities and Exchange Commission, will be provided without
charge upon written request to Christine Amarillo, Secretary of the Company, at
U.S. HomeCare Corporation, 141 South Central Avenue, Hartsdale, New York 10530.
-31-
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
U.S. HomeCare Corporation
Hartford, Connecticut
We have audited the accompanying consolidated balance sheets of U.S. HomeCare
Corporation and its subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
materials respects, the financial position of U.S. HomeCare Corporation and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
As discussed in Note 9.c.i. to the consolidated financial statements, the
Company is defendant in litigation regarding the resolution of the purchase
price of a 1992 acquisition.
Deloitte & Touche LLP
New York, New York
March 22, 1996
-32-
<PAGE>
<TABLE>
<CAPTION>
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31, December 31,
1995 1994
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 225 $ 659
Accounts receivable, net of allowance
for doubtful accounts of $2,960 and $8,017 15,480 13,382
Other current assets 2,329 4,784
----------- ------------
TOTAL CURRENT ASSETS 18,034 18,825
----------- ------------
PROPERTY AND EQUIPMENT, net 3,875 6,291
----------- ------------
OTHER ASSETS
Excess cost over net assets acquired, net
of accumulated amortization of $2,496 and $ 1,958 11,669 12,208
Intangible assets, net of accumulated
amortization of $6,573 and $5,373 3,735 5,212
Other 1,128 1,145
----------- ------------
TOTAL OTHER ASSETS 16,532 18,565
----------- ------------
TOTAL ASSETS $ 38,441 $ 43,681
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Promissory note payable $ -- $ 2,000
Current maturities of long-term debt 1,119 4,729
Accounts payable and accrued expenses 6,434 11,351
Restructuring reserves 1,172 5,703
Accrued payroll and related costs 1,123 1,589
----------- ------------
TOTAL CURRENT LIABILITIES 9,848 25,372
----------- ------------
OTHER LIABILITIES
Bank revolving lines of credit 11,766 7,972
Capital lease obligations and other long-term debt 758 1,310
Deferred income taxes 154 434
----------- ------------
TOTAL OTHER LIABILITIES 12,678 9,716
----------- ------------
TOTAL LIABILITIES 22,526 35,088
----------- ------------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 20,000,000 shares
authorized, 8,782,963 and 8,552,963 shares outstanding 88 85
Preferred stock, $1 par value, 484,000 authorized,
328,569 and 57,141 shares outstanding 328 57
Additional paid-in capital 45,688 37,817
Accumulated deficit (28,607) (26,809)
Treasury stock at cost, 277,936 and 302,777 shares (1,582) (2,557)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 15,915 8,593
----------- ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 38,441 $ 43,681
=========== ============
See accompanying notes to consolidated financial statements.
</TABLE>
-33-
<PAGE>
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
------- ------- -------
Net revenues $71,183 $79,066 $90,056
Cost of revenues, primarily
payroll and related costs 46,272 50,456 56,801
------- ------- -------
Gross profit 24,911 28,610 33,255
Operating expenses:
Selling, general and administrative expenses 22,229 37,909 36,521
Provision for litigation settlement -- 2,000 --
Amortization and depreciation, including
write-off of pre-operating expenses 3,456 6,612 6,078
Restructuring charge -- 7,650 --
------- ------- -------
Total operating expenses 25,685 54,171 42,599
------- ------- -------
Loss from operations (774) (25,561) (9,344)
Interest expense, net 870 1,423 1,398
------- ------- -------
Loss before provision/( benefit)
for income taxes (1,644) (26,984) (10,742)
Provision/(benefit) for income taxes 154 (219) (3,606)
------- ------- -------
Net loss ($1,798) ($26,765) ($7,136)
======= ======= =======
Loss per share ($0.22) ($3.25) ($0.87)
======= ======= =======
Weighted average common
shares outstanding 8,070 8,247 8,244
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-34-
<PAGE>
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Series B
Common Stock Preferred Stock Additional Retained
--------------------- ------------------- Paid-In Treasury Stock Earnings
Shares Amount Shares Amount Capital Shares Amount (Deficit)
--------- --------- --------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 8,541 $85 -- -- $35,924 (303) ($2,557) $7,092
Exercise of options 6 -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- -- (7,136)
----- --- --- ---- ------- ---- ------- --------
Balance, December 31, 1993 8,547 85 - - 35,924 (303) (2,557) (44)
Private placement -- -- 57 $57 1,910 -- -- --
Exercise of options 5 -- -- -- 23 -- -- --
Preferred dividends -- -- -- -- (40) -- -- --
Net loss -- -- -- -- -- -- -- (26,765)
----- --- --- ---- ------- ---- ------- --------
Balance, December 31, 1994 8,552 85 57 57 37,817 (303) (2,557) (26,809)
Private Placement -- -- 271 271 8,391 -- -- --
Purchase of treasury stock from a
related party -- -- -- -- -- (200) (329) --
Preferred dividends -- -- -- -- (1,263) 225 1,304 --
Stock issued in lieu of cash for
accounts payable settlement 230 3 -- -- 545 -- -- --
Employee Stock Savings Plan 198
Net loss -- -- -- -- -- -- -- (1,798)
----- --- --- ---- ------- ---- ------- --------
Balance, December 31, 1995 8,782 $88 328 $328 $45,688 (278) ($1,582) ($28,607)
===== === === ==== ======= ==== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements
-35-
<PAGE>
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ($ 1,798) ($26,765) ($ 7,136)
Adjustments to reconcile net cash provided by /
(used in) operating activities:
Depreciation and amortization, including write-off
of pre-operating expenses 3,456 6,612 6,078
Provision for bad debts 1,757 8,046 5,194
Other restucturing write-offs 59 581 --
Deferred income taxes (280) 202 (1,321)
Gain on return of leased assets (24) -- --
Changes in operating assets and liabilities, net of effect
of acquisitions:
Decrease/(increase) in accounts receivable (3,855) 2,596 3,323
Decrease/(increase) in other current assets 2,301 3,458 (1,002)
Increase in other assets (425) (425) (2,051)
Increase/(Decrease) in accrued payroll and related costs 38 (21) (933)
Increase in accounts payable and accrued expenses (3,389) 2,290 408
Increase/(Decrease) in restructuring reserve (3,047) 5,703 --
-------- -------- --------
Net cash provided by / (used in) operating activities (5,207) 2,277 2,560
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Disposition / (purchases) of property and equipment, net (114) 16 (1,280)
Increase in intangible assets -- -- (2,213)
Acquisition of business, net of cash acquired -- -- (1,258)
-------- -------- --------
Net cash provided by / (used in) investing activities (114) 16 (4,751)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments of) / proceeds from issuance of promissory note (2,000) 2,000 --
Proceeds from borrowing long-term debt 3,000 378 5,738
Payments on capital leases and long-term debt (3,201) (6,452) (2,973)
Purchase of treasury stock (329) -- --
(Decrease) in cash overdraft (1,247) (43) (816)
Issuance of preferred stock 8,664 1,950 --
-------- -------- --------
Net cash (used in) / provided by financing activities 4,887 (2,167) 1,949
-------- -------- --------
Net (Decrease) in cash (434) 126 (242)
Cash and cash equivalents, beginning of year 659 533 775
-------- -------- --------
Cash and cash equivalents, end of year $ 225 $ 659 $ 533
======== ======== ========
Cash paid during the year for:
Income taxes $ 25 $ -- $ 953
======== ======== ========
Interest $ 870 $ 1,380 $ 1,462
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1. SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation - The consolidated financial statements include
the accounts of the Company and its subsidiaries, all of which are wholly owned.
All significant intercompany accounts and transactions have been eliminated.
b. Accounting Estimates - The preparation of 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. Property and Equipment - Property and equipment are recorded at cost,
less accumulated depreciation computed on a straight-line basis over the useful
lives of the related assets. The useful lives vary from three to seven years.
Leasehold improvements and leased equipment are amortized over the lives of the
respective leases or the service lives of the asset, whichever is shorter.
d. Inventories - Inventories, included in other current assets, consisting
of infusion products, disposable and durable medical equipment and supplies are
stated at the lower of cost or market. Durable medical equipment is included in
inventory until it is rented, in which case it is transferred to field service
assets.
e. Intangible Assets - Excess cost over net assets acquired is being
amortized over a period of 25 years. The Company reviews the recoverability of
the excess cost of net assets acquired based upon anticipated future operating
results of the acquired company, if applicable. The Company's criteria for
assessing recoverability is that anticipated operating results will at least
equal amortization on a nondiscounted basis. Other intangible assets consist
principally of patient and referral lists, training programs, and aides and
nurses lists and are being amortized over a period of five to ten years. The net
carrying value of aides and nurses lists was approximately $1,359,000 and
$2,219,000 as of December 31, 1995 and 1994 respectively. The net carrying value
of patient and referral lists was approximately $2,376,000 and $2,993,000 as of
December 31, 1995 and 1994, respectively.
f. Revenue Recognition - The Company recognizes revenues as the services
are performed. The Company receives retroactive increases to certain rates,
certain of which are intended to be passed through as additional salary and
benefits to Company personnel. The Company records such additional amounts as
revenues and expenses when they are notified by the payor or the amount is
estimable. Certain of the Company's revenues and related disbursements are
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subject to audit by third party payors; these revenues are accrued on an
estimated basis in the period the related services are rendered. Net revenues is
adjusted, as required in subsequent periods, based on final settlement.
g. Per Share Information - For the years ended December 31, 1995, 1994 and
1993 primary and fully diluted earnings per share do not include Common Stock
equivalents outstanding since they are anti-dilutive.
h. Reclassification - The presentation of certain prior year information
has been reclassified to conform with the current year presentation.
i. Accrued Payroll - The Company maintains negative balances in its payroll
accounts and funds these accounts as the checks are presented for payment. As a
result, included in accrued payroll and related costs are $0 and $504,000 of
bank overdrafts as of December 31, 1995 and 1994, respectively.
j. Line of Business - The Company is a provider of comprehensive home
health care services, including nursing care, personal care, infusion therapy
and other specialized therapies.
k. Cash and Cash Equivalents - The Company considers all highly liquid
instruments with original maturities of three months or less to be cash
equivalents.
l. Supplemental Schedules - Supplemental schedule of noncash transactions
for the years ended:
DECEMBER 31, 1995
Write off of assets against restructuring
reserve $1,484,000
Disposal of assets under capital leases $687,000
Stock issued in lieu of cash
for accounts payable settlement $548,000
Preferred Stock dividends $1,304,000
Disposal of assets under capital leases $167,000
DECEMBER 31, 1994
Additional property and equipment
acquired through capital leases $102,000
Disposal of assets under capital
leases $325,000
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<PAGE>
m. Accounting Developments - In March 1995, the FASB issued SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." This Statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. This Statement applies to
financial statements for fiscal years beginning after December 15, 1995. The
Company does not believe the adoption of SFAS No. 121 will have a material
impact on the Company's Consolidated Financial Statements.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company beginning January 1,
1996. SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to its
stock based compensation awards to employees and will disclose the required pro
forma effect on net income and earnings per share.
n. Fair Value of Financial Instruments - SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosure of fair value
information for certain assets and liabilities, whether or not recognized in the
balance sheets, for which it is practicable to estimate that value. The
Company's balance sheets include the following financial instruments: cash and
cash equivalents; accounts receivable; accounts payable and accrued expenses;
bank revolving line of credit; and capital lease obligations and other long-term
debt. The Company considers the carrying amount in the financial statements to
approximate face value of these financial instruments because of their
relatively short period of time between the origination of such instruments and
their expected realization and/or the fact that the instruments reprice
frequently at market rates.
2. ACCOUNTS RECEIVABLE
a. In November 1993, the Company entered into a financing agreement with a
bank whereby it can sell an undivided percentage ownership interest in a
designated pool of accounts receivable. This agreement was amended and extended
in October 1995, the bank has committed up to $14.0 million based upon
securitizing the Company's eligible accounts receivable. The agreement now
expires on March 1997. Accounts receivable in the consolidated balance sheet
does not include the receivables sold to the bank in the amount of approximately
$8.9 and $9.7 million at December 31, 1995 and 1994, respectively. The Company
remains liable for all sold receivables until collected.
The Company maintains a reserve for accounts receivable including
receivables sold, based upon the expected collectibility of all accounts
receivable.
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<PAGE>
3. ACQUISITIONS
During the three years ended December 31, 1995, the Company acquired the
following nursing service business for total consideration of approximately $2.5
million, including transaction costs. This acquisition has been accounted for as
a purchase transaction:
NAME LOCATION DATE OF ACQUISITION
- ---- -------- -------------------
Pittsburgh Nursing Services ("PNS") Pittsburgh, PA March 1993
The following increases in excess cost over net assets acquired and other
intangible assets resulting from this acquisition was:
(In thousands of dollars)
Excess cost over net
YEAR ENDED ASSETS ACQUIRED OTHER INTANGIBLE ASSETS
- ---------- --------------- -----------------------
1993 $1,125 $ 680
The purchase price for Home Infusion Pharmaceuticals Services, Inc., a 1992
acquisition, is subject to adjustment (see note 9.c.i.).
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
(In Thousands)
1995 1994
---- ----
Leasehold improvements $ 2,663 $ 2,839
Furniture and fixtures 2,088 2,667
Computer and other equipment 6,392 6,722
Field service assets 564 436
Transportation equipment 30 554
--------- --------
11,737 13,218
Less accumulated depreciation
and amortization 7,862 6,927
--------- --------
$ 3,875 $ 6,291
========= ========
At December 31, 1995 and 1994 amounts relating to assets under capital
leases (including above) had a net carrying value of approximately $838,000 and
$1,605,000 respectively.
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5. INCOME TAXES
The Company adopted SFAS No. 109 as of January 1, 1993. The effect of the
adoption of SFAS 109 on a prospective basis from January 1, 1993 was not
material.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109 -- "Accounting for Income Taxes" (FAS 109) in
February 1992, and the Company was required to adopt FAS 109 by January 1, 1993.
This statement requires that deferred income taxes reflect the tax consequences
on future years of difference between the tax return base of assets and
liabilities and their financial statement amounts.
In accordance with FAS 109, deferred income tax assets and liabilities
reflect the impact of temporary differences between values recorded as assets
and values utilized for remeasurement in accordance with the tax laws.
A reconciliation of the income tax provision to the amount computed using
the federal statutory rate is as follows:
Year Ended
December 31,
1993
-----------
Federal income tax (benefit)
statutory rate (34.0%)
State income tax, net of federal
benefit (1.0%)
Other, net 1.4%
------
Provision for income taxes (33.6%)
======
The tax benefit recognized in 1994 was limited to the amount previously
paid partially offset by state tax expense. There was no federal benefit
recorded in 1995. The 1995 provision consisted entirely of state taxes.
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<PAGE>
The tax effect of temporary differences giving rise to the Company's
deferred tax assets and liabilities at December 31, 1995 are as follows:
Liabilities Asset
----------- -----
Net operating loss carryforward $7,140
Restructuring reserve -- 850
Depreciation of property & equipment 125 --
Bad debts -- 1,152
Amortization of defe red licensure 29 --
Goodwill and other 177
------ ------
Total $ 154 $9,319
====== ======
For financial reporting purposes, deferred tax assets are reduced by a
valuation allowance to an amount that is "more likely than not" to be realized.
Due to the Compan 's cumulative losses, management does not consider that enough
support to overcome the "more likely than not" criteria existed at December 31,
1995 and 1994. Accordingly, a valuation allowance of $9,165,000 and $7,706,000
was established as of December 31, 1995 and 1994, respectively.
Prior to 1993, provisions were made by the Company for deferred income
taxes where differences existed between the time that transactions affected
taxable income for financial reporting purposes. The effect of the adoption of
FAS 109 on a prospective basis from January 1, 1993 was not material.
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<PAGE>
Provision (benefit) for income taxes consists of the following:
Year Ended December 31,
1995 1994 1993
--- ---- ----
(In Thousands)
Current:
State and Local $ 154 $ 231 $ 75
Federal -- (329) (2,935)
------- ------- -------
Total Current 154 (98) (2,860)
------- ------- -------
Deferred:
Expenses deducted for tax return
periods different than for book 730 (1,404) (133)
Difference between tax and book
depreciation (97) (9) (41)
Deferred costs which are currently
deductible for tax (book) purposes -- (516) (572)
Restructuring reserve 1,287 (2,137) --
Net operating loss (4,059) (3,081) --
Litigation settlement reserve 680 (680) --
Valuation allowance 1,459 7,706 --
Other -- -- --
------- ------- -------
Total deferred -- (121) (746)
------- ------- -------
Total provision/(benefit) for
income taxes $ 154 $ (219) $(3,606)
======= ======= =======
At December 31, 1995 the Company has a tax net operating loss ("NOL") of
approximately $21.0 million expirin in 2009 to offset against future taxable
income, if any. The Internal Revenue Code limits the amount of a company's NOL
carryforward that may be used in any one year to offset future income after an
"ownership change" (as defined). The Company does not believe any such
"ownership change" has occurred which would limit the available annual amount.
6. RESTRUCTURING
In the third quarter of 1994, the Company announced a restructuring plan
and recorded a charge of approximately $7.65 million. The plan was designed to
improve profitability by exiting the Florida market, consolidating infusion
therapy operations and closing development offices opened during 1992 and 1993.
The charge relates to: severance; disposition of property and equipment and
intangible assets related to these operations; and the estimated costs to close
or sublease facilities. The balance of the reserve at December 31, 1995 was
approximately $1.2 million.
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<PAGE>
7. LONG TERM DEBT
December 31,
1995 1994
---- ----
(In Thousands)
Convertible subordinated
debentures bearing interest
at 9%, various maturity dates (a) $ 284 $ 484
Capitalized lease obligations (b) 838 2,120
Revolving credit facility (Note 7.e. and Note 8) 11,766 9,972
Notes payable (c) 743 1,211
Promissory note payable (d) -- 2,000
Other 12 224
------- --------
13,643 16,011
Less current portion 1,119 6,729
------- --------
$12,524 $ 9,282
======= =======
a. In consideration of the original acquisition (1986), the Company issued
to the sellers a series of convertible subordinated debentures which provided
for annual payments with any unpaid principal and interest due and payable
September 30, 1994. The agreement provides, among other things, for minimum
consolidated working capital and net worth requirements, limitations on
additional borrowings, stock repurchases, disposals of business, and prohibits
cash dividend payments.
The Company has asserted a claim against its former shareholders pursuant
to a stock purchase agreement dated March 29, 1986. Pursuant to a written
agreement with the shareholders, the Company has offset approximately $284,000
as well as the interest payments due thereon, and the former shareholders have
agreed not to serve notice of default under the debenture agreement.
b. The Company leases certain equipment under non-cancelable leases
expiring at various times through 1997.
c. In consideration of the H.I.P.S. and Tri-Cities acquisitions (1992), and
PNS acquisition (1993), the Company issued to the sellers a series of promissory
notes.
d. In March 1994, the bank provided $2 million evidenced by a promissory
note due January 4, 1995, bearing interest at prime plus 1% per annum. The note
was repaid in February 1995.
e. In October 1995, the Company entered into a $3 million subordinated
credit facility with a commercial bank. The subordinated credit facility is 100%
guaranteed by the Connecticut Development Authority ("CDA"). Aggregate
maturities of a long-term debt as of December 31, 1995 are as follows:
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(In Thousands)
--------------
1996 $ 1,119
1997 12,524
---------
$ 13,643
=========
8. BANK LOAN PAYABLE
The Company has a $9,000,000 revolving line of credit ("RLOC"), with
availability based upon a stated formula, expiring in March 31, 1997, with
borrowings thereunder bearing interest at the higher of the bank's prime rate
plus 2.0% or the federal funds rate plus 1.0%. Borrowings under the RLOC are
collateralized by substantially all of the Company's assets. The terms of the
RLOC provide, among other things, for minimum tangible net worth, maintenance of
certain financial ratios, limitations on capital expenditures, acquisitions, and
cash dividends. On December 31, 1995 and 1994, the Company had $8,766,000 and
$9,972,000, respectively, outstanding under the RLOC.
9. COMMITMENTS AND CONTINGENCIES
a. Operating Leases - The Company leases office space under various leases
with terms ranging from one to twelve years. Rent expense was $1,330,000,
$2,203,000 and $1,864,000 for the years ended December 31, 1995, 1994 and 1993
respectively. Future minimum rental commitments under non-cancellable operating
leases as of December 31, 1995 are as follows:
(In Thousands)
1996 $ 2,052
1997 1,721
1998 767
1999 463
2000 392
---------
$ 5,395
=========
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<PAGE>
b. Consulting Agreements - The Company has entered into various consulting
agree ents, non-competition and non-disclosure agreements and employment
contracts or arrangements. Future minimum commitments under these
non-cancellable agreements as of December 31, 1995 are as follows:
(In Thousands)
1996 $ 328
1997 20
---------
$ 348
=========
c. Litigation -
i) In July 1993, the Company filed suit against Home Infusion
Pharmaceutical Services, Inc. and its affiliate Abel Health Management Services,
Inc. (collectively "HIPS/Abel"). The complaint alleges that HIPS/Abel and their
principal engaged in fraud, negli ent misrepresentation and breach of contract
in connection with the Company's acquisition of assets (or an interest therein)
from HIPS and its affiliate Abel (the "Acquisition"), and claiming entitlement
to damages and a declaratory judgment relieving it of any further purported
obligations in connection with the Acquisition, including under the promissory
notes and under a consulting agreement. HIPS/Abel and their principal have moved
to dismiss certain claims in the complaint. The Company has opposed this motion,
which is pending.
Also, in July 1993, HIPS sued to enforce the payment of promissory notes in
the face amount of $4.5 million executed in connection with the Acquisition.
HIPS has moved for summary judgment. The Company has opposed the motion, which
is pending.
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<PAGE>
In September 1995, HIPS moved to dismiss certain of the Company's
counterclaims. On February 29, 1996 the Court denied HIPS's motion, except that
it struck the Company's request for the imposition of punitive damages.
Although the Company believes that its position in the HIPS/Abel litigation
is meritorious, the ultimate outcome of this matter cannot presently be
determined. A reserve has been established in the Company's consolidated
financial statements for specified amounts in connection with the resolution of
this matter.
ii) Roberts v. U.S. HomeCare Corporation, et al., 93 Civ. 4060 (CLB) (U.S.
District Court for the Southern District of New York).
On October 14, 1994, the plaintiffs in the securities class action suit,
Roberts v. U.S. HomeCare Corporation, et al., and the defendants (the Company
and certain directors and officers of the Company) reached a settlement
agreement with the Court. On March 17, 1995, the Court approved the settlement,
certified the class for settlement purposes only, and approved procedures for
administering the settlement process. Under the agreement the Company paid $3.0
million dollars (included in accounts payable and accrued expenses at December
31, 1994). This amount consists of $1.0 million to be paid by the Company's
directors' and officers' liability insurance (included in other current assets
at December 31, 1994) and $2.0 million in cash by the Company. As of March 1995
the $3.0 million dollars had been paid into a settlement fund which was
disbursed throughout the year.
iii) In addition to the matters discussed above, the Company is involved in
litigation in the ordinary course of business. The Company carries general
liability insurance in the amounts of $2.0 million per occurrence and $6.0
million in the aggregate, such aggregate coverage having been increased over
time. The Company does not believe, after giving consideration to the insurance
in place and the claims outstanding, that the resolution of these matters will
have a material adverse effect on the consolidated financial statements.
d. A Medicare audit of the Company's cost report for the year ended June
30, 1993, with respect to its West Palm Beach branch resulted in an assessment
of approximately $1.1 million. The Company provided a reserve in its 1994
consolidated financial statements for the estimated settlement and has been
making monthly payments from December 1994. An additional assessment received in
April 1995 of $200,000 was reflected in the first quarter of 1995 results.
In addition, Medicare audits of the Connecticut and Home Office cost
reports for the fiscal year ended June 30, 1993 were performed during August
1995. The Connecticut audit resulted in a $150,000 revenue reduction. The Home
Office audit has not been completed but a revenue reduction of approximately
$150,000 is estimated at this time. Both of these adjustments were reflected in
the 1995 third quarter results.
e. Approximately 16% in 1995, 13% in 1994 and 20% in 1993 of net revenues
were derived under Medicare program. These revenues are based, in part, on cost
reimbursement principles and are subject to audit and retroactive adjustment by
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<PAGE>
the respective third-party fiscal intermediaries. Included in accounts
receivable at December 31, 1995 was approximately $1.0 million which is an
estimate of what is to be collected upon finalization of certain cost reports.
In the opinion of management, additional other retroactive adjustments, if any,
are not expected to be material to the consolidated financial statements of the
Company.
f. In April 1995, the Company settled a QUI TAM action with the Government
and a former employee. The complaint alleged that false Medicare claims were
submitted in connection with the Company's south Florida and Pennsylvania
operations. The Company reached a global settlement with the Government and
former employee in the amount of $675,000 which was paid in 1995 (expensed in
1994). The settlement was signed by the U.S. Department of Justice, U.S.
Attorney for the District of Maryland, U.S. Attorney for the Southern District
of Florida, U.S. Department of Health and Human Services, the former employee
and the Company, and resolves all pending matters relating to the allegations in
the QUI TAM complaint. As a result of the settlement, the QUI TAM action was
dismissed on April 24, 1995.
g. Concentration of Credit Risk - The majority of the Company's patients
are currently located in the Northeastern United States.
10. STOCKHOLDERS' EQUITY
a. Common Stock - The Company's authorized Common Stock consists of
20,000,000 shares of Common Stock, par value $0.01 per share, of which 8,782,693
shares were issued and outstanding as of December 31, 1995.
On June 1, 1988, the Company established an Employee Stock Ownership Plan
(ESOP). The cost of the ESOP is borne by the Company through annual
contributions in amounts determined by the Board of Directors. The annual ESOP
contribution expense was $0 for the years ended December 31, 1995, 1994 and
1993. The ESOP funds are invested either by contribution of Common Stock of the
Company or open market purchases of Common Stock.
b. Exchange Preferred Stock - Preferred Stock Placement - On February 1 and
February 8, 1995, the Company issued and sold in a private placement a total of
271,428 shares of $35.00 6% Convertible Preferred Stock, $1.00 par value (the
"$35.00 Preferred") for $35.00 per share (the "Private Placement"). The $35.00
Preferred is convertible into 5,428,560 shares of Common Stock at a conversion
price of $1.75 per share, subject to certain adjustments, and will be
automatically converted into Common Stock if the 20 day moving average of the
closing prices of the Company's Common Stock is greater than $4.375 per share.
The $35.00 Preferred pays an annual dividend of $2.10, which is payable
quarterly in cash or, at the Company's option, Common Stock. Simultaneously,
with the initial closing of the Private Placement, all of the holders of
Preferred Stock issued in September and October 1994 (the "Exchange Preferred")
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<PAGE>
exchanged their 57,141 shares of Exchange Preferred for an equal number of
shares of the $35.00 Preferred and exchanged their Exchange Warrants for
Warrants to purchase an aggregate of 99,997 shares of Common Stock at $1.75 per
share. To date, the dividends have been paid in Common Stock, with a total of
approximately 300,000 shares issued.
In connection with the restructured financing, the Company issued warrants
to purchase an aggregate of 750,000 shares of Common Stock at $1.75 per share to
its RLOC banks. Warrants to purchase 375,000 shares of Common Stock are
currently exercisable and warrants to purchase the remaining 375,000 shares of
Common Stock will be exercisable after April 1, 1996. In connection with the
CDA's guarantee, the Company issued to the CDA warrants to purchase 750,000
shares of Common Stock at $1.75 per share (which number of shares may be reduced
in certain circumstances) and agreed to issue the CDA a warrant to purchase an
additional 735,000 shares of Common Stock at the same price if the CDA's
guarantee is not released by April 30, 1997.
c. Stock Options - At the Company's Annual Meeting held on May 18, 1995,
the Company obtained shareholder approval of its 1995 Stock Option/Stock
Issuance Plan (the "1995 Plan"), pursuant to which 2,550,000 shares of common
Stock were reserved for issuance. The 1995 Plan is the successor to the
Company's 1990 Stock Option Plan (the "1990 Plan") and was adopted by the Board,
subject to shareholder approval at the Annual Meeting.
All outstanding stock options under the 1990 Plan were incorporated into
the new 1995 Plan but continue to be governed by the terms and conditions of the
specific agreements evidencing those grants. Subject to shareholder approval of
the 1995 Plan, (i) the Company's 1993 Director Stock Option Plan (the "1993
Plan") was terminated and all options outstanding thereunder were cancelled on
December 21, 1994 and (ii) the Company's 1991 Premium Price Stock Option Plan
(the "1991 Plan") was terminated and all options outstanding thereunder were
canceled. No further option grants or stock issuances will be made under the
1990 Plan, the 1991 Plan or the 1993 Plan (collectively, the "Predecessor
Plans").
Prior to the inception of the Plans, options were granted to certain key
employees, officers and directors under substantially the same terms, except
that vested options automatically expired if not exercised upon the initial
public offering of the Company's stock.
The 1995 Plan contains three separate equity incentive programs; (i) a
Discretionary Option Grant Program, (ii) an Automatic Option Grant Program and
(iii) a Stock Issuance Program.
The 1995 Plan (other than the automatic Option Grant Program) is
administered by the Compensation Committee of the Board. However, all grants
under the Automatic Option Grant Program are made in strict compliance with the
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<PAGE>
provisions of that program, and no administrative discretion is exercised by the
Compensation Committee with respect to the grants made thereunder.
Employees of the Company, non-employee members of the Board (other than
those serving as members of the Compensation Committee) and consultants and
independent advisors of the Company are eligible to participate in the
Discretionary Option Grant and Stock Issuance Program. Non-employee members of
the Board (including members of the Compensation Committee) are also eligible to
participate in the Automatic Option Grant Program.
Options may be granted under the Discretionary Option Grant Program at an
exercise price per share not less than 85% of the fair market value per share of
Common Stock on the option grant date. No granted option will have a term in
excess of ten years. The fair market value per share of Common Stock on any
relevant date under the 1995 Plan will be the last reported sales price per
share on that date on the Nasdaq National Market.
Under the Automatic Option Grant Program, each individual who was serving
as a non-employee Board member on December 21, 1994 was automatically granted at
that time an option grant for 25,000 shares of Common Stock, subject to
shareholder approval of the 1995 Plan at the Annual Meeting. Each individual who
first becomes a non-employee Board member after such date will automatically be
granted at that time an option grant for 25,000 shares of Common Stock. Each
option will have an exercise price per share equal to 100% of the fair market
value per share of Common Stock on the option grant date and a maximum term of
ten years measured from the option grant date.
Shares may be sold under the Stock Issuance Program at a price per share
not less than 85% of fair market value per share of Common Stock, payable in
cash or through a promissory note payable to the Company. Shares may also be
issued solely as a bonus for past services.
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A summary of changes in stock options is as follows:
PER SHARE NO. OF SHARES OPTION PRICE
--------- ------------- ------------
Balance, January 1, 1993 806,835 $2.52 - $25.87
Option granted 89,700 $4.63 - $13.00
Option exercised (10,875) $2.52 - $ 7.00
Option expired/canceled (68,335) $2.72 - $25.87
Balance, December 31, 1993 817,325 $2.52 - $25.87
Option granted 1,074,880 $3.25 - $ 5.13
Option exercised (54,000) $3.93
Option expired/canceled (631,982) $3.22 - $10.25
Balance, December 31, 1994 1,206,223 $3.22 - $10.25
Option granted 1,097,232 $1.75 - $ 3.25
Option expired/cancelled (336,955) $2.00 - $11.11
Balance December 31, 1995 1,966,500 $1.75 - $10.25
11. MAJOR CUSTOMER
One referring institution has accounted for more than 10% of the Company's
net revenues for the years ended December 31, 1994 and 1993. VNS HomeCare
("VNS"), a non-profit home health institution in New York City, accounted for
approximately $6.2 million (8.7%), $8.8 million (11%) and $11.9 million (13%)
respectively, of net revenue for the years ended December 31, 1995, 1994 and
1993.
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<PAGE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table presents unaudited financial data for the eight
quarters beginning January 1, 1994. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary have been
made to present fairly the following selected quarterly information when read in
conjunction with the consolidated financial statements included elsewhere
herein.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(Amounts in thousands, except per share data)
1994
Net revenues $22,206 $18,116 $19,724 $19,020
Loss from operations (841) (8,107) (14,257) (2,356)
Net loss (903) (8,455) (14,694) (2,713)
Loss per share $(.11) $(1.03) $(1.78) $(.33)
1995
Net revenues 17,958 18,239 17,166 17,820
Earnings/(loss) from
operations (752) (136) 35 79
Net loss (974) (337) (190) (297)
Loss per share $(.12) $(.04) $(.02) $(.04)
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<PAGE>
COMMON STOCK PRICES AND DIVIDENDS
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "USHO". The following table presents the quarterly high and low bid
quotations, as reported by the Nasdaq National Market for 1995 and 1994. These
quotations reflect the inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
1995 1994
---- ----
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter $3.625 $1.625 $6.125 $3.375
Second Quarter 2.875 1.625 4.625 3.000
Third Quarter 2.875 1.875 4.000 2.750
Fourth Quarter 3.000 1.750 3.130 1.690
On March 20, 1996, the last reported sales price for the Company's Common
Stock on the Nasdaq National Market was $2.00 per share. At December 31, 1995,
there were 300 record holders of Common Stock.
The Company has never declared or paid any cash dividends on its capital
stock. In addition, the Company's RLOC (as defined below) and 9% Convertible
Subordinated Debentures prohibit the payment of cash dividends on the Company's
capital stock without prior consent. The Company currently intends to retain all
earnings for the operation and expansion of its business and does not anticipate
paying any cash dividends in the foreseeable future. The Company pays dividend
on its outstanding $35.00 6% Convertible Preferred Stock, $1.00 par value, with
Common Stock.
DESCRIPTION OF THE COMPANY'S BUSINESS
U.S. HomeCare Corporation (collectively with its subsidiaries, "USHC" or
the "Company") is a regional provider of comprehensive home health care
services, including nursing care, personal care, and infusion therapy and other
specialized therapies. The Company is headquartered in Hartford, Connecticut and
has operations in New York (Westchester County, metropolitan New York City, Long
Island and upstate New York) as well as New Jersey, Connecticut and
Pennsylvania. The Company works with physicians, social service agencies, health
care institutions, and patients to identify home care services that are
appropriate for the patient's diagnosis and required to implement the
physician's plan of treatment. The Company addresses the needs of its patients
by coordinating therapies, products, equipment and support services with the
appropriate nursing care. To further its emphasis on a diagnosis-centered
approach, the Company has designed specialized programs for patients with
particular diseases such as cancer, AIDS and Alzheimer's disease, and for
particular classes of patients such as the developmentally disabled and hospice
patients.
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<PAGE>
FIVE YEAR SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1991 1992 1993 1994 1995
---------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................. $50,183 $71,239 $90,056 $79,066 $71,183
Cost of revenues......................... 29,136 40,534 56,801 50,456 46,272
------- -------- ------- -------- --------
Gross profit............................. 21,047 30,705 33,255 28,610 24,911
Selling, general and administrative
expenses 15,047 21,787 36,521 37,909 22,229
Provision for litigation settlement 0 0 0 2,000(1) 0
Amortization and depreciation 895 1,688 6,078 6,612 3,456
Restructuring charge..................... 0 0 0 7,650 0
------- -------- ------- -------- ---------
Earnings (loss) from operations 5,105 7,230 (9,344) (25,561) (774)
Other expenses:
Interest................................. 259 (40) 1,398 1,423 870
Earnings (loss) before provision (benefit)
for income taxes...................... 4,846 7,270 (10,742) (26,984) (1,644)
Provision (benefit) for income taxes 2,126 3,170 (3,606) (219) 154
------- -------- ------- -------- --------
Net earnings (loss)...................... $ 2,720 $ 4,100 $(7,136) $(26,765) ($ 1,798)
======= ======== ======= ======== ========
Earnings (loss) per share(2)(3) $ .43 $ .51 $ (.87) $ (3.25) $ (0.22)
Weighted average common shares
outstanding(2)........................ 6,395 8,020 8,244 8,247 8,070
BALANCE SHEET DATA: (As of December 31,)
Net accounts receivable.................. $16,209 $32,023 $24,024(4) $13,382(4) 15,480(4)
Working capital (deficit)................ 12,365 25,145 19,338 (6,547) 8,186
Total assets............................. 23,784 67,710 64,662 43,681 38,441
Short-term debt.......................... 548 3,429 2,747 6,729 1,119
Long-term debt (less current portion) 1,031 11,495 17,561 9,282 12,524
Shareholders' equity..................... 16,818 40,544 33,408 8,593 15,915
</TABLE>
- ---------------
(1) Represents the portion of the settlement of a class action suit paid by the
Company.
(2) All share and per share amounts have been adjusted to reflect a one-for-two
Common Stock dividend effected in February 1992.
(3) On a primary basis, earnings per share for 1991 was $.44. For the other
years or periods reported, earnings per share on both a primary and fully
diluted basis were identical.
(4) Reflects the sale of approximately $7.8 million, $9.7 million and $8.9
million at December 31, 1993, 1994 and 1995, respectively, of accounts
receivable pursuant to the Company's Securitization Program which resulted
in a reduction in accounts receivable carried on the Balance Sheet.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Such statements are only predictions and the actual events or results may differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include those discussed below
as well as those discussed in other filings made by the Company with the
Securities and Exchange Commission.
GENERAL
The Company was formed in April 1986 to acquire a home health care company
operating primarily through five nursing service offices in New York City and
Westchester County with net revenues of approximately $8.8 million for the year
ended May 31, 1986. Following its formation in 1986, the Company expanded
through a strategy of internal growth, the opening of new branch offices,
selected acquisitions within its region and the introduction of new services and
programs, including infusion therapy which was added in 1989.
In 1992, the Company adopted an accelerated expansion strategy, opened
offices in a number of new geographic markets, developed a new and sizeable base
of Medicare business in South Florida, and, in late 1992, consummated a
significant infusion therapy acquisition in the greater New York metropolitan
area. Management underestimated the financial, managerial and system resources
necessary to execute its expansion strategy. As a result, the Company failed to
successfully implement its expansion strategy and began to incur operating
losses in the second quarter of 1993 which have continued throughout 1994 and
1995.
In August 1994, the Board of Directors of the Company adopted an extensive
restructuring plan under which the Board decided to make significant additions
to the Company's management team, refocus the Company's operations within its
core geographic markets, which had experienced a decline in revenues and
profitability in 1994, and raise additional capital.
The Company made provisions for restructuring, bad debt allowances, and
Medicare cost report adjustments and assessments during 1993 and 1994, which
adversely affected revenues and profits and which required cash payments during
1995 that will continue primarily through 1996. The Company's operating losses
and the decline in the Company's revenues from 1993 to 1994 were primarily
attributable to a $9.0 million decline in revenues from its South Florida
operations and its development offices, all of which have been sold or closed,
and to a lesser degree due to a $2.0 million reduction in infusion therapy
revenues.
In 1995, the Company reported net revenues of $71.2 million compared with
net revenues of $79.1 million in 1994 and $90.1 million in 1993. The Company
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<PAGE>
also reported a net loss of ($1.8) million, or ($.22) per share, in 1995
compared with a net loss of ($26.8) million or ($3.25) per share in 1994 and a
net loss of ($7.1) million or ($0.87) per share in 1993. The $7.9 million
decline in net revenues from 1994 to 1995 resulted primarily from a decrease in
infusion therapy revenues which were partially offset by an increase in nursing
revenues in the core geographic markets.
In 1995 and 1994, the Company's operations in its core geographic markets
attained net revenues of approximately $71.4 million and $77.7 million,
respectively. As part of its restructuring plan to lower its operating cost
structure in its core geographic markets, in late 1994 and early 1995 the
Company consolidated its five full service infusion therapy pharmacies into two
facilities located in northern New Jersey and Pittsburgh.
The Company completed the sale of all of its related assets of its closed
Florida operations, including its CONs, in December 1995. The Company may incur
additional liabilities or be required to make further adjustments to its
consolidated financial statements as a result of its past operations in Florida,
although the Company believes that such adjustments, if any, will not be
material.
The following table sets forth for the periods indicated consolidated
statement of operations data expressed as a percentage of net revenues.
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
---- ---- ----
Net revenues................................ 100.0% 100.0% 100.0%
Cost of revenues............................ 63.1 63.8 65.0
------ ------ -----
Gross profit................................ 36.9 36.2 35.0
Branch selling, general and
administrative expense.................... 28.8 32.7 18.8
Corporate selling, general and
administrative expense.................... 14.2 27.5 12.4
------ ------ -----
EBITDA...................................... (6.1) (24.0) 3.8
Amortization and depreciation............... 4.3 8.4 4.9
Loss from operations........................ (10.4) (32.4) (1.1)
Other expenses:
Interest, net............................. 1.5 1.8 1.2
Loss before provisions
for income taxes.......................... (11.9) (34.2) (2.3)
Provisions/(benefits) for income taxes...... (4.0) (0.3) 0.2
------ ------ ----
Net loss.................................... (7.9) (33.9) (2.5)
====== ====== =====
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<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net revenues for 1995 were $71.2 million compared to $79.1 million for
1994. Net nursing revenues were $56.7 million and $55.4 million in 1995 and
1994, respectively, an increase of $1.3 million or 2%. Net revenues from
infusion therapy services were $14.7 million in 1995 compared to $23.1 million
in 1994, a decline of $8.4 million which resulted primarily from the Company's
instituting more stringent standards for accepting new patients and from intense
competition in infusion therapy services.
Cost of revenues as a percentage of net revenues increased to 65.0% in 1995
as compared to 63.8% in 1994. The increase in cost of revenue was primarily due
to infusion therapy costs which were 58.9% as a percentage of revenue in 1995 as
compared to 52.9% in 1994. The higher costs in 1995 were primarily attributable
to higher drug costs due to lower purchase discounts. The cost of revenue for
nursing decreased from 68.0% in 1994 to 66.2% in 1995. Cost of revenues as a
percentage of net revenues for the core markets increased to 64.7% in 1995 as
compared to 60.7% in 1994.
Selling, general and administrative expense decreased by $25.4 million, or
53.4%, to $22.2 million in 1995. This decrease reflected cost cutting actions in
1995 as well as bad debt, litigation and restructuring reserves taken in 1994
which did not substantially reoccur in 1995.
Net interest expense was $0.9 million in 1995 or 38.9% lower than in 1994.
The decrease was the result of decreased borrowing under the Company's bank
facilities in 1995, as well as decreased interest charges in connection with
equipment leases.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net revenues for 1994 were $79.1 million compared to $90.1 million for
1993. Net revenues for nursing services declined $9.8 million or 6.7%. The
decrease in revenue was primarily due to declines in the South Florida market.
The Company's South Florida nursing revenues declined $9.0 million due to
adjustments of $4.4 million related to Medicare patients and a $4.6 million
decline in patient volume. Net nursing revenues from the core geographic markets
were $55.4 million and $55.1 million for the years ended 1994 and 1993,
respectively. Net revenues from infusion therapy services were $23.1 million or
$1.9 million lower as a result of decreased referral volume in both the Long
Island and Metropolitan New York markets.
Cost of revenues as a percentage of net revenues increased slightly to
63.8% in 1994 as compared to 63.1% in 1993. This was associated with lower
revenues in the South Florida market without a corresponding decline in
expenses. Cost of revenues as a percentage of net revenues for the core markets
decreased to 60.7% in 1994 as compared to 61.6% in 1993.
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<PAGE>
Selling, general and administrative expense increased by $11.1 million to
$47.6 million or 30.1%. This increase resulted primarily from additional bad
debt provisions, restructuring charges, professional fees associated with
various litigation and litigation settlement expenses.
Net interest expense was $1.4 million or 1.8% higher than 1993 as a result
of higher borrowings and interest rates under the Company's bank facilities in
1994, as well as increased interest charges in connection with equipment leases.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1995, the Company had cash and cash equivalents of
approximately $225,000. Working capital (current assets less current
liabilities) increased by $14.7 million, to $8.2 million at December 31, 1995
from ($6.5) million at December 31, 1994.
On October 6, 1995, the Company entered into a $3.0 million subordinated
credit facility with a commercial bank (the "Subordinated Credit Facility")
which is 100% guaranteed by the Connecticut Development Authority (the "CDA").
The debt matures on April 15, 1997.
At the same time that new financing was completed, the Company restructured
its existing $9.0 million bank revolving line of credit ("RLOC"). The Company's
existing banks agreed to forgo a $1.0 million required paydown under the RLOC
scheduled for September 1995 and extended the term of the RLOC from March 19,
1996 to March 31, 1997. The Company also negotiated new financial covenants
acceptable to its existing banks, the subordinated lender and the CDA. The
Company was not in default of any of its bank covenants as of December 31, 1995.
Should the Company fail to comply with any of these covenants, the banks and the
CDA would have the right to declare the amounts outstanding under the RLOC and
the Subordinated Credit Facility, as well as under its Receivables Purchase and
Servicing Agreement (the "Securitization Program"), immediately due and payable
upon notice. In the past, the Company was not in compliance several times with
certain of these covenants but obtained waivers from the banks. At December 31,
1995, the outstanding amount under the RLOC was $8.8 million. Amounts
outstanding under the RLOC bear interest at the bank's prime rate plus 2.0%.
The Company's existing Securitization Program was also modified at the time
of the new financing in October 1995. The Securitization Program was originated
in 1993 and allows the Company to sell for cash an undivided percentage
ownership interest in a designated pool of eligible receivables, as defined. The
Company relies on this accounts receivable financing to fund working capital for
current operations. Coincident with the new financing, the term of the
Securitization Program was extended to April 15, 1997, and the maximum amount of
cash receipts (based on eligible accounts receivable) allowed under the program
was reduced to $14.0 million from $25.0 million. The net proceeds from the sale
of accounts receivable through the Securitization Program at December 31, 1995
were $8.9 million.
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<PAGE>
In connection with the restructured financing, the Company issued warrants
to purchase an aggregate of 750,000 shares of Common Stock at $1.75 per share to
its RLOC banks. Warrants to purchase 375,000 shares of Common Stock are
currently exercisable and warrants to purchase the remaining 375,000 shares of
Common Stock will be exercisable after April 1, 1996. In connection with the
CDA's guarantee, the Company issued to the CDA warrants to purchase 750,000
shares of Common Stock at $1.75 per share (which number of shares may be reduced
in certain circumstances) and agreed to issue the CDA a warrant to purchase an
additional 735,000 shares of Common Stock at the same price if the CDA's
guarantee is not released by April 30, 1997.
The most significant component of the Company's current assets is accounts
receivable. At December 31, 1995, total net accounts receivable managed by the
Company were $24.4 million, after $3.0 million of allowances for doubtful
accounts. These included $15.5 million in net accounts receivable on the balance
sheet of the Company and $8.9 million of net accounts receivable purchased by
the bank under the Securitization Program.
In 1994, the Company wrote off or reserved significant amounts with respect
to its accounts receivable, largely related to its closed operations. The
Company has also increased the amount of contractual discounts it records with
respect to certain infusion therapy receivables.
In 1995, the Company continued to experience difficulties relative to the
timely collection of infusion therapy accounts receivable. At December 31, 1995,
approximately 68.0% ($7.5 million) of total infusion therapy accounts receivable
were older than 180 days (based on date of service). Of these older than 180
days infusion therapy accounts receivable, approximately 57.0% were over 360
days old. At December 31, 1995, approximately 10.0% ($1.5 million) of total
nursing services accounts receivable were older than 180 days. Of total nursing
services accounts receivable, approximately 3.0% were over 360 days old.
Steps were systematically taken through 1995 to improve the overall
effectiveness of infusion therapy billing and reimbursement processes. In the
second half of 1995 and continuing until the present, efforts have been focused
on the collection of infusion therapy accounts receivable over 180 days. These
efforts include intense review of individual patient records, re-documentation
of service provided, resubmission of bills if needed, and aggressive
communications with specific payors. In addition, management has focused
attention on the generation of proper billing on new accounts receivable in
order to insure more timely collection of such accounts receivable. Failure to
collect existing and future accounts receivable could result in further cash
flow problems.
The largest payor for infusion therapy accounts receivable over 180 days is
the New York State Department of Social Services ("DSS"), representing New York
Medicaid business, with $1.9 million of the over 180 day accounts receivable.
After extensive discussions with DSS concerning submission of electronic
billing, the Company successfully completed the electronic submission of bills.
The Company did receive approximately $230,000 of cash from such accounts
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<PAGE>
receivable in the first half of March 1996 and expects to receive additional
periodic payments related to the recently submitted bills.
The Company's infusion therapy accounts receivable were a principal factor
creating the Company's cash and liquidity constraints throughout 1995. Infusion
therapy accounts receivable over 180 days are not financed through either the
Company's RLOC or its Securitization Program. As a result, infusion therapy
accounts receivable over 180 days represent funds already spent by the Company
to provide services for which there was no funding available.
At December 31, 1995, the Company estimated that for United States federal
income tax purposes, it had consolidated net operating loss carryforwards of
approximately $21.0 million. The availability of these carryforwards to offset
future taxable income of the Company, if any, is subject to various limitations
under the Internal Revenue Code (the "Code"). In particular, the Company's
ability to utilize such carryforwards would be restricted due to the occurrence
of an "ownership change" within the meaning of Section 382 of the Code. Any
"ownership change" pursuant to Section 382 of the Code will result in
limitations on the Company's ability to utilize its net operating loss
carryforwards to offset taxable income, including the timing of such
utilization. In February 1995, the Company completed the offering of its $35.00
Preferred which it believes did not result in an "ownership change."
Accounts payable and accrued expenses were $6.4 million at December 31,
1995, of which $4.3 million related to trade payables. At December 31, 1995,
approximately 22.0% of the payables ($946,000) were outstanding for more than 90
days. The Company has reduced payables outstanding in excess of 90 days through
cost cutting measures instituted in conjunction with the establishment of the
restructuring reserve and non-cash settlements reached with certain
vendors/creditors. The Company has managed payables so as to defer payment on
less critical items while meeting vital operational needs. Payment plans have
been established with certain vendors.
In February 1995, the Company issued and sold in a private placement
271,428 shares of the $35.00 Preferred, for $35.00 per share (the "Private
Placement"). The $35.00 Preferred is convertible into an aggregate of 5,428,560
shares of Common Stock at a conversion price of $1.75 per share, subject to
certain adjustments, and automatically converts into Common Stock if the 20 day
moving average of the closing prices of the Company's Common Stock is greater
than $4.375 per share. The $35.00 Preferred pays an annual dividend of $2.10,
which is payable quarterly in cash or, at the Company's option, Common Stock. To
date, the dividends have been paid in Common Stock, with a total of
approximately 300,000 shares issued. Simultaneously with the closing of the
Private Placement, holders of certain previously issued shares of Preferred
Stock exchanged such shares for 57,141 shares of $35.00 Preferred and exchanged
previously issued Warrants for warrants to purchase an aggregate of 99,997
shares of Common Stock at $1.75 per share.
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Sales of substantial amounts of Common Stock in the public market in the
future could adversely affect the prevailing market price of the Company's
Common Stock and may have a material and adverse effect on the Company's ability
to raise the capital necessary to fund its future operations. In connection with
the Company's private placements in August and October 1994 and February 1995,
the restructuring of its RLOC and the guarantee of its Subordinated Credit
Facility, the Company issued Warrants exercisable for an aggregate of 2,074,997
shares of Common Stock, an aggregate of 328,570 shares of $35.00 Preferred
convertible into 6,571,400 shares of Common Stock, and approximately 600,000
shares of Common Stock as dividends on the $35.00 Preferred (which amount
includes dividends to be issued through January 31, 1997, calculated by assuming
the trading range of the Common Stock will be the same in 1996 as 1995). In
addition, the Company has issued or committed to issue an aggregate of 173,333
shares in exchange for the cancellation of certain of the Company's obligations
(the "Common Shares"). The foregoing securities are all restricted securities
within the definition of Rule 144 and are subject to certain resale provisions
relating to the manner and notice of sale, availability of current public
information about the Company and volume limitations. The holders of the
foregoing securities are entitled to have such shares registered by the Company
under the Securities Act of 1933, as amended. The Company intends to file a
registration statement registering approximately 9,419,730 shares of Common
Stock for resale in the second quarter of 1996 and plans to keep such
registration statement effective for a minimum of three years.
In order to fund operations during 1994 and 1995, the Company issued
securities and borrowed funds. The cash flow from operations disclosed in the
December 31, 1993 and 1994 Consolidated Statement of Cash Flows were positive
primarily from the sale of receivables pursuant to the Company's Securitization
Program and was offset by a reduction in availability under the Company's RLOC.
The Company continues to operate under severe cash flow pressure primarily
because collections of accounts receivable have not met expectations and
extraordinary payments have been required for professional fees, continuing
Medicare settlements in Florida and cash requirements related to closed
operations. Although the Company has reduced on-going overhead and has slowed
payments to vendors since 1994, cash operating out-flows continued to outpace
in-flows through 1995. In the event that the Company experiences continuing
negative cash flow, the Company may need additional external financing to meet
its working capital requirements.
The Company believes that its cash position and liquidity will continue to
require careful management for the foreseeable future. Cash availability was
extremely limited in 1995 and could remain so throughout 1996. Lack of cash
availability also led to instances when the Company was overdrawn on its bank
account during 1995.
Management believes that non-operating cash disbursements, primarily
related to expenditures provided for under the 1994 restructuring reserve, will
be significantly lower in 1996 than in 1995.
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The Company believes that its existing credit facilities, together with
cash generated from operations, will be sufficient to fund the Company's
operations and debt obligations through 1996.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
G. Robert O'Brien
PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
Stephen H. Matheson
VICE PRESIDENT, FINANCE, AND CHIEF FINANCIAL OFFICER
Jay C. Huffard, DIRECTOR AND CHAIRMAN OF THE BOARD
MANAGING DIRECTOR, HUFFARD & CO., INC.
W. Edward Massey, DIRECTOR AND VICE CHAIRMAN OF THE BOARD
PRESIDENT, NEW HAVEN BASEBALL CORP.
Hadley C. Ford, DIRECTOR
SENIOR ADVISOR, ANDERSEN CONSULTING
John R. Gunn, DIRECTOR
PRESIDENT AND COO, MEMORIAL SLOAN-KETTERING CANCER CENTER
W. Wallace McDowell, DIRECTOR
PRIVATE INVESTOR
Shawkat Raslan, DIRECTOR
PRESIDENT AND CEO, INTERNATIONAL RESOURCES HOLDINGS, INC.
Susan S. Robfogel, Esq., DIRECTOR
PARTNER, NIXON, HARGRAVE, DEVANS & DOYLE
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[LOGO]
U.S. HomeCare Corporation
750 Main Street
Hartford, CT 06103
(860) 278-7242
