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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Third Quarter Ended September 30, 1996 Commission File #0-19240
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U.S. HOMECARE CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-2853680
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization ) Identification Number)
750 Main Street, Hartford, CT 06103
- ------------------------------- ------------------------------------
(Address of principal executive (Zip Code)
office)
Registrant's telephone number, (860)278-7242
including area code ------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of Shares of Registrant's Common Stock Outstanding
September 30, 1996: 9,097,493
<PAGE>
U.S. HOMECARE CORPORATION
INDEX
Page Number
Part I - Financial Information
Item 1 Consolidated Balance Sheets as of September 30,
1996 and December 31, 1995 1
Consolidated Statements of Operations
for the three months ended September 30, 1996
and 1995. 2
Consolidated Statements of Operations
for the nine months ended September 30, 1996
and 1995. 3
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996
and 1995. 4
Notes to Unaudited Consolidated
Financial Statements. 5-8
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of
Operations. 9-13
Part II - Other Information
Item 1 Legal Proceedings 14-15
Item 5 Other Information 15
Item 6 Exhibits & Reports on Form 8-K 15-18
Signatures 19
<PAGE>
<TABLE>
<CAPTION>
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
September 30, December 31,
1996 1995
---------- --------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 360 $ 225
Accounts receivable, net of allowance
for doubtful accounts of $3,028 and $2,960 12,138 15,480
Other current assets 1,849 2,329
Receivable from IV sale 2,000
-------- --------
TOTAL CURRENT ASSETS 16,347 18,034
-------- --------
PROPERTY AND EQUIPMENT, net 2,708 3,875
-------- --------
OTHER ASSETS
Excess cost over net assets acquired, net
of accumulated amortization of $632 and $2,496 1,602 11,669
Intangible assets, net of accumulated
amortization of $5,048 and $6,573 939 3,735
Other 854 1,128
-------- --------
TOTAL OTHER ASSETS 3,395 16,532
-------- --------
TOTAL ASSETS $ 22,450 $ 38,441
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term debt $ 12,851 $ 1,119
Accounts payable 3,804 4,205
Accrued Expenses 6,863 2,229
Restructuring reserves 5,009 1,172
Accrued payroll and related costs 1,296 1,123
-------- --------
TOTAL CURRENT LIABILITIES 29,823 9,848
-------- --------
OTHER LIABILITIES
Bank revolving line of credit 11,766
--------
Capital lease obligations and other long-term debt 69 758
Deferred income taxes 154 154
-------- --------
TOTAL OTHER LIABILITIES 223 12,678
-------- --------
TOTAL LIABILITIES 30,046 22,526
-------- --------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value, 20,000,000 shares authorized,
9,130,303 and 8,782,963 shares outstanding 91 88
Preferred stock, $1 par value, 484,000 authorized, 328,569
shares outstanding 328 328
Additional paid-in capital 45,028 45,688
Accumulated deficit (52,856) (28,607)
Treasury stock at cost, 32,810 and 277,936 shares (187) (1,582)
-------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (7,596) 15,915
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) $ 22,450 $ 38,441
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-1-
<PAGE>
U.S. HOMECARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
<S> <C> <C>
(In thousands, except per share data) 1996 1995
-------- --------
Net revenues $ 13,557 $ 13,937
Cost of revenues, primarily payroll and related costs 11,216 9,422
-------- --------
Gross profit 2,341 4,515
Operating expenses:
Selling, general & administrative expenses 5,645 4,285
Amortization and depreciation 472 531
Restructuring charges - Note 4 4,524
-------- --------
Total operating expenses 10,641 4,816
Loss from operations (8,300) (301)
-------- --------
Interest expense 292 225
-------- --------
Loss before provision for income taxes (8,592) (526)
Provision for state income taxes 29 0
-------- --------
Income from continuing operations (8,621) (526)
Discontinued Operations: (Note 3)
Income (loss)from discontinued operations (1,573) 336
Loss on sale of IV therapy business (12,879)
-------- --------
Net loss ($23,073) ($ 190)
======== ========
Weighted average common shares outstanding 9,066 8,073
======== ========
Loss per share:
Loss from continuing operations ($ .95) ($ .06)
Discontinued Operations:
Income (loss) from operations (.17) .04
Loss on disposal of IV therapy business (1.42)
-------- --------
($ 2.54) ($ .02)
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-2-
<PAGE>
U.S. HOMECARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
<S> <C> <C>
(In thousands, except per share data) 1996 1995
-------- --------
Net revenues $ 42,300 $ 41,814
Cost of revenues, primarily payroll and related costs 30,267 28,072
-------- --------
Gross profit 12,033 13,742
Operating expenses:
Selling, general & administrative expenses 14,976 13,616
Amortization and depreciation 1,498 1,656
Restructuring charges 4,524 0
-------- --------
Total operating expenses 20,998 15,272
Loss from operations (8,965) (1,530)
-------- --------
Interest expense 854 648
-------- --------
Loss before provision for income taxes (9,819) (2,178)
Provision for state income taxes 86 0
-------- --------
Income from continuing operations (9,905) (2,178)
Discontinued Operations: (Note 3)
Income (loss) from discontinued operations (1,464) 677
Loss on sale of IV therapy business (12,879)
-------- --------
Net loss ($24,248) ($ 1,501)
======== ========
Weighted average common shares outstanding 8,773 8,050
Loss per share:
Loss from continuing operations ($ 1.12) ($ .27)
Discontinued Operations:
Income (loss) from operations (.17) .08
Loss on disposal of IV therapy business (1.47) --
-------- --------
($ 2.76) ($ .19)
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For the nine months ended
September 30,
--------------------------
1996 1995
---- -----
( unaudited )
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss ($24,248) ($ 1,501)
Adjustments to reconcile net cash (used in)/provided by operating activities:
Loss on sale of IV therapy business 12,879
Issuance of common stock for services 133
Depreciation and amortization 2,457 2,599
Provision for bad debts 1,016 945
Changes in operating assets and liabilities:
Decrease/(increase) in accounts receivable 2,326 (2,538)
Decrease in other current assets 480 2,478
(Increase)in receivable from IV sale (2,000)
Decrease/(increase) in other assets 274 (368)
Decrease in accounts payable (401) (2,621)
Increase in accrued expenses 3,933 0
(Decrease)/increase in restructuring reserve 3,837 (2,312)
Increase in accrued payroll and related costs 172 401
-------- --------
Net cash (used in)/provided by operating activities 858 (2,917)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
(Purchase)of property and equipment, net 0 (106)
-------- --------
Net cash (used in)investing activities 0 (106)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on promissory note (2,000)
Payments on capital leases and long-term debt (723) (2,681)
Decrease in cash overdraft (1,145)
Purchase of treasury stock (329)
Issuance of preferred stock 8,662
-------- --------
Net cash (used in) provided by financing activities (723) 2,507
-------- --------
Net increase/(decrease) in cash 135 (516)
Cash and cash equivalents, beginning of period 225 659
-------- --------
Cash and cash equivalents, end of period $ 360 $ 143
======== ========
Cash paid during the period for:
Income taxes $ 0 $ 25
======== ========
Interest $ 854 $ 782
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-4-
<PAGE>
U.S. HOMECARE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Unaudited Information
In the opinion of the management of U.S. HomeCare Corporation (the
"Company"), the accompanying unaudited consolidated financial statements
contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the Company's financial position as of
September 30, 1996 and the results of its operations for the three month
and nine month periods ended September 30, 1996 and 1995. These
consolidated financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
The results of operations for the nine month period ended September 30,
1996 are not necessarily indicative of the results to be expected for the
full year. (See Note 3)
Note 2 - Revenue Recognition
The Company recognizes revenues as the services are performed. The Company
receives retroactive increases to certain rates. The Company records such
additional amounts as revenue when they are notified by the payor or the
amount is estimable. Certain of the Company's revenues and related
disbursements are 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 are adjusted, as required in subsequent periods,
based on final settlement.
Note 3 - Discontinued Operations
On October 31, 1996, the Company completed the sale of certain assets (not
including accounts receivable) of its IV therapy business for approximately
$2,000,000 in cash. The sale had an effective date of October 1, 1996. The
accompanying consolidated financial statements of operations for the three
and nine month periods ended September 30, 1996 and 1995 present the
results of operations of the IV therapy business as a discontinued
operation. As a result of the sale, the Company recorded a loss on disposal
of the IV therapy business of $12,879,000 in the quarter ended September
30, 1996. Such loss on sale included (1) a write-off of $11,577,000 of
goodwill and other intangible assets, (2) additional provisions for losses
on accounts receivable of $1,678,000, and (3) $1,624,000 related to a
charge for severance and other anticipated costs during the phase out
period net of (4) the net cash proceeds of the sale of approximately
$2,000,000.
The income (loss) from operations of the IV therapy business was
($1,573,000) and $336,000 for the three months ended September 30, 1996 and
1995, respectively and ($1,464,000) and $677,000 for the nine month periods
ended September 30, 1996 and 1995, respectively. As a result of net
operating loss tax credit carryforwards, no income tax benefits have been
recognized for the discontinued operations. The September 30, 1996 balance
sheet includes approximately $236,000 of inventory, $250,000 of property
and equipment and $4,200,000 of accounts
-5-
<PAGE>
receivable (net of securitized accounts receivable and allowance for
doubtful accounts) related to the assets of the IV therapy business which
was sold. The accounts receivable have not been sold. Collections on the IV
accounts receivable will go first to repay the securitization funding of
approximately $900,000 and the portion of the RLOC facility which is
supported by the IV receivables of approximately $1,200,000 and the
remainder will be available for further debt reduction and operations.
Note 4 - Restructuring Charges
During the third quarter of 1996, the Company's Board of Directors made
decisions to restructure the operations of the Company and restore its
focus on core home nursing operations. These decisions included the sale of
the Company's IV therapy business discussed in Note 3. Additional actions
included the retention of two individual turnaround specialists,
implementation of plans to reorganize its home nursing operations in a more
cost effective manner, a reduction in both corporate management and
non-management expenses and consolidation of certain offices. It is
expected that the reorganization plan will be completed by the end of the
first quarter of 1997. As a result of these decisions, the Company recorded
a restructuring charge of $4,524,000 at September 30, 1996 which was
comprised of: severance of $1,000,000, turnaround specialists $1,898,000,
and other reorganization costs of $1,626,000 (including asset write-offs
and lease costs). The reserve for compensation for the turnaround
specialists includes a monthly cash retainer aggregating $428,000 through
September 1997 and significant performance based equity incentives valued
at approximately $1,470,000. (See Note 5). The liability for restructuring
costs has been reflected in current liabilities at September 30, 1996.
Note 5 - Stock Options
In connection with the reorganization discussed in Note 4 the Company
granted options to purchase an aggregate of 1,730,000 shares of common
stock as performance based equity incentives under its Stock Issuance
Program to the turnaround specialists for $.15 per share. 576,667 of the
options were vested upon issuance. The remainder of the options vest
through September 2002 with the vesting accelerated in the event certain
earnings targets are attained in the future or certain realization events,
including the sale of the business, occur in the future. The option
agreement includes a provision which allows the grantees to "put" the
options back to the Company on or after December 31, 1997 for $1,500,000.
Note 6 - Litigation
No significant additional litigation matters have occurred since the filing
of the 1995 10-K. For a more detailed description of pending matters, see
Note 9c to the Consolidated Financial Statements in the 1995 10-K.
Note 7 - Cash and Cash Equivalents
Cash and cash equivalents at September 30, 1996 include a $130,925
certificate of deposit which has been pledged as collateral for a stand-by
letter of credit issued by one of the Company's banks in connection with a
government home health care contract.
-6-
<PAGE>
Note 8 - Stockholders Equity
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")
exchanged their 57,141 shares of Exchange Preferred for an equal number of
shares of the $35.00 Preferred and exchanged their certain related Warrants
for Warrants to purchase an aggregate of 99,997 shares of Common Stock at
$1.75 per share. These dividends were paid by issuing shares of Common
Stock from Treasury.
During June 1996, the Company issued 315,931 common shares in lieu of cash
payments for several obligations. These shares included 250,000 issued in
connection with the renegotiation of the lease obligation for one of the
Company's locations in New York State and 25,000 shares issued in
connection with the termination of a lease for a former IV location. In
addition, 29,567 shares were issued to directors in lieu of cash fees under
the directors automatic stock fee program and 11,364 shares were issued to
the Company's CEO in lieu of cash compensation for a portion of his salary.
The impact of these transactions was to increase Stockholders' Equity by
$697,000.
During September 1996, 31,409 shares were issued to directors in lieu of
cash fees under the directors automatic stock fee program. The impact of
the issuance of the shares was to increase Stockholders' Equity by $42,500.
Note 9 - Commitments and Contingencies
A Medicare audit of the Home Office cost report for the fiscal year ended
June 30, 1994 was begun during March 1996. The preliminary audit results
were received in October 1996 and as a result an additional revenue
reduction of $633,000 was reflected in the quarter ended September 30,
1996.
During the quarter ended September 30, 1996, the Company recorded an
additional reduction in revenue of $500,000 for the remaining cost report
periods subject to audit.
Note 10 - Accounting for Stock-Based Compensation
Effective January 1, 1996, the Company has adopted Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation".
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. 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 earning per share.
-7-
<PAGE>
Note 11 - Debt and Accounts Receivable Securitization
The Company's Revolving Line of Credit ("RLOC") and accounts receivable
securitization agreements with its bank expire March 31, 1997. The
Company's subordinated credit facility expires April 1, 1997. It is the
Company's intention to refinance these obligations, although there can be
no assurance that the Company will be successful in refinancing on
commercially reasonable terms or at all. Because these facilities expire in
less than a year, all such outstanding debt has been classified as current
liabilities at September 30, 1996. As a result of the third quarter 1996
loss, the Company was in technical default of its RLOC agreement and its
subordinated credit facility for which it has received waivers through
March 31, 1997 and April 1, 1997 respectively.
-8-
<PAGE>
U.S. HOMECARE CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q 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 the
Company's filings with the Securities and Exchange Commission.
R E S U L T S O F O P E R A T I O N S
THREE MONTHS ENDED SEPTEMBER 30, 1996
COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 1995
Reported net revenues from continuing operations (home nursing services)
for the three month period ended September 30, 1996 were $13,557,000 compared to
$13,937,000 for the third quarter of 1995. This decline was the result of an
increase in third quarter net revenue of $753,000 offset by a reduction of
$1,133,000 to record the audit results of the final 1993 home office Medicare
cost report, the preliminary 1994 home office cost report and an additional
reduction for other open cost reports. Without the reduction in revenue from
cost report adjustments the Company's third quarter revenue would have been
$14,690,000 or an increase of $753,000, or 5.4% over the 1995 third quarter.
Cost of revenues increased $1,794,000 to $11,216,000 for the third quarter
1996 compared to $9,422,000 for the third quarter of 1995. The increase in cost
of revenues reflects increased workers compensation insurance expense,
additional employee benefits expense, changes in the mix of direct labor and the
additional direct labor that was required to support the increase in net revenue
(prior to Medicare cost report adjustments).
Selling, general and administrative expenses for continuing operations were
$5,645,000 in the third quarter of 1996 as compared to $4,285,000 in the third
quarter of 1995. The increase in SG&A costs reflects increased workers
compensation insurance expense, increased employee benefits expense, in addition
to increased legal fees, information system expense and an increase in personnel
and related costs.
The Company provided $4,524,000 for its restructuring program effective
September 30, 1996. (See Note 4). The "1996 restructuring plan" refocuses
efforts on the Company's core home nursing business and accomplished the sale of
certain assets of the Company's IV operations. The Company has retained
turnaround specialists, eliminated a number of executive and administrative
positions, and closed the remainder of the Company's IV facilities. Certain of
the Company's nursing offices and corporate facilities have been/or will be
consolidated. The Company estimates that $2,272,500 of the restructuring charges
will result in cash outflows related to severance, lease obligations, and other
restructuring costs. These costs will occur over the next three years and the
Company believes these amounts will be funded from operating cash flow, existing
credit facilities and the collection of IV therapy accounts receivable.
-9-
<PAGE>
Net interest expense was $292,000 for the third quarter of 1996 compared to
$225,000 for the third quarter of 1995. This increase is the result of higher
average borrowings on the Company's RLOC facility and the subordinated credit
facility during the third quarter of 1996 compared to the third quarter of 1995.
During the third quarter of 1996 the Company made a decision to exit the IV
therapy business and as a result this line of business has been treated as a
discontinued operation. (See Note 3).The loss from discontinued operations was
$1,573,000 for the third quarter of 1996 compared to income of $336,000 for the
third quarter of 1995. This loss was the result of a decrease in revenue, an
increase in cost of sales and an increase in selling, general and administrative
expenses.
The Company also has incurred a loss on the sale of certain assets of its
IV therapy business. (See Note 3). The sale was consummated on October 31, 1996
with an effective date of October 1, 1996. As a result of the sale of the IV
therapy business the Company recognized a loss on sale of $12,879,000 in the
third quarter of 1996. This loss included the write off of goodwill and
intangible assets in the amount of $11,577,000.
As a result of the foregoing, for the three months ended September 30,
1996, the Company had a net loss of $23,073,000 or $2.54 per share, compared to
a net loss of $190,000 or $.02 per share for the corresponding quarter in 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996
COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1995
Net revenues from continuing operations (home nursing services) for the
nine month period ended September 30, 1996 increased by $486,000, or 1.2%, to
$42,300,000 compared to $41,814,000 for the nine months ended September 30,
1995. Revenue for the nine month period ended September 30, 1996 reflects a
reduction in revenue of $633,000 for the final audit results of the Company's
1993 home office Medicare Cost report and the preliminary audit results of the
1994 home office cost report and an additional reduction in revenue of $500,000
for the Company remaining open Medicare cost reports. Without the reduction in
revenue from cost report adjustments the Company's net revenue from continuing
operations for the nine months ended September 30, 1996 would have been
$43,433,000 or an increase of $1,619,000 over the net revenue from continuing
operations of $41,814,000 for the nine month ended September 30, 1995.
Cost of revenues increased $2,195,000 to $30,267,000 for the nine months
ended September 30, 1996 compared to $28,072,000 for the nine months ended
September 30, 1995. The increase in cost of revenues reflects increased workers
compensation insurance expense, additional employee benefits expense, changes in
the mix of direct labor and the additional direct labor that was required to
support the increase in net revenue (prior to Medicare cost report adjustments).
Selling, general and administrative expenses for continuing operations were
$14,976,000 for the first nine months of 1996 as compared to $13,616,000 in the
comparable period of 1995. The increase in SG&A costs reflects increased workers
compensation insurance expense, increased employee benefits expense, in addition
to increased legal fees, information system expense and an increase in personnel
and related costs.
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<PAGE>
The Company added $4,524,000 to its restructure reserve effective September
30, 1996. (See Note 4). The "1996 restructuring plan" refocuses efforts on the
Company's core home nursing business and accomplished the sale of certain assets
of the Company's IV operations. The Company has retained turnaround specialists,
eliminated a number of executive and administrative positions, and closed the
remainder of the Company's IV facilities. Certain of the Company's nursing
offices and corporate facilities have been/or will be consolidated. The Company
estimates that $2,272,500 of the restructuring charges will result in cash
outflows related to severance, lease obligations, and other restructuring costs.
These costs will occur over the next two or three years and will be funded from
operating cash flow, existing credit facilities and the collection of IV therapy
accounts.
Net interest expense was $854,000 for the nine month period ended September
30, 1996 compared to $648,000 for the first nine months of 1995. This increase
was the result of higher average borrowings on the Company's RLOC and
subordinated credit facilities.
During the third quarter of 1996 the Company made a decision to exit the IV
therapy business to focus on its core nursing operations and as a result this
line of business has been treated as a discontinued operation. (See Note 3). The
loss from discontinued operations was $1,464,000 for the nine months ended
September 30, 1996 compared to income of $677,000 for the nine months ended
September 30, 1995. This loss was the result of a decrease in revenue, an
increase in cost of sales and an increase in selling, general and administrative
expenses.
The Company also has incurred a loss on the sale of certain assets of its
IV therapy business. (See Note 3). The sale was consummated on October 31, 1996
with an effective date of October 1, 1996. As a result of the sale of the IV
therapy business the Company recognized a loss on sale of $12,879,000 in the
third quarter of 1996. This loss included the write off of goodwill and
intangible assets in the amount of $11,577,000.
As a result of the foregoing, for the nine month period ended September 30,
1996, the Company had a net loss of $24,248,000 or $2.76 per share, compared to
a net loss of $1,501,000 or $.19 per share for the corresponding period in 1995.
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<PAGE>
FINANCIAL CONDITION
As of September 30, 1996 the Company's cash and cash equivalents totaled
$360,000 compared to $225,000 at December 31, 1995.
Net accounts receivable on the balance sheet (net of securitized
receivables and allowance for bad debt) declined $3,342,000 from $15,480,000 at
December 31, 1995 to $12,138,000 at September 30, 1996 principally due to the
decline in IV therapy net revenue during the first nine months of 1996. Net
accounts receivable managed by the Company (including accounts receivable sold
under the Company's securitization program) were $20,672,000 and $24,140,000 at
September 30, 1996 and December 31, 1995, respectively.
Excess cost over net assets acquired declined $10,067,000 from $11,669,000
at December 31, 1995 to $1,602,000 at September 30, 1996 due to regular
amortization and the write-off of $9,664,000 in connection with the sale and
discontinuance of the Company's IV therapy business.
Intangible assets declined $2,796,000 from $3,735,000 at December 31, 1995
to $939,000 at September 30, 1996 due to regular amortization and the write-off
of $1,913,000 of intangible assets in connection with the sale and
discontinuance of the Company's IV therapy business
Trade accounts payable declined from $4,205,000 at December 31, 1995 to
$3,821,000 at September 30, 1996 reflecting, in part, the decline in purchases
of IV products resulting from the decline in IV revenue and the settlement of
certain accounts payable for common stock in lieu of cash.
Accrued expenses increased from $2,229,000 at December 31, 1995 to
$6,863,000 at September 30, 1996 resulting from an increase in accruals related
to the sale of the IV therapy business, workers compensation insurance, other
benefits and Medicare cost report liabilities.
The Company believes that its cash position and liquidity will continue to
require careful management over the remainder of 1996 and beyond, not
withstanding receipts from the proceeds of the sale of certain IV assets. This
liquidity pressure has caused the Company to manage its accounts payable
closely, including deferral of some disbursements. This situation has resulted
in a number of dissatisfied vendors including some who are operating with the
Company on cash in advance (CIA) or cash on delivery (COD) terms and some of
whom have discontinued doing business with the Company. Where vendors have
discontinued doing business with the Company, the Company has not encountered
difficulty in obtaining alternative sources.
The Company's financing facilities at September 30, 1996 included a
$9,000,000 bank revolving line of credit ("RLOC") which expires March 31, 1997
and a $3,000,000 subordinated credit facility which expires April 1, 1997. In
connection with the sale of certain assets of the IV therapy business a
permanent reduction of $500,000 has been made in the availability under the RLOC
effective November 1, 1996 with additional permanent reductions of $350,000
(minimum) required on or before February 15, 1997 and another $350,000 (minimum)
required on or before March 28, 1997. The outstanding balances on the RLOC and
the subordinated credit facility have been classified as current liabilities at
September 30, 1996.
-12-
<PAGE>
The Company will seek to renew the RLOC and the subordinated credit facility or
to refinance such facilities. There can be no assurance that the Company will be
able to do so on commercially reasonable terms, or at all. Failure by the
Company to renew or refinance its credit facility would have a material adverse
effect on the business, financial condition and results of operations of the
Company. The Company believes that funds from operations, borrowings under the
Company's credit facilities and collections on accounts receivable from the
Company's discontinued IV therapy operations may not be sufficient to enable the
Company to fund its operations for the foreseeable future. The Company is
seeking to refinance the existing revolving line of credit and subordinated
credit facility which expire March 31, 1997 and April 1, 1997, respectively. The
Company believes that it will need to raise additional equity capital in order
to obtain renewal or refinancing of its credit facilities, and fund its
operations. There can be no assurance that the Company will be able to achieve
the refinancing, or raise sufficient equity capital and failure to do so would
have a material adverse effect on the Company's business, financial conditions
and results of operation.
FACTORS AFFECTING THE COMPANY'S BUSINESS
The Company's future business, financial condition and results of
operations are dependent on the Company's ability to successfully provide
comprehensive home health care services to its customers and to successfully
collect for such services. Inherent in this process are a number of factors that
the Company must carefully manage in order to be successful. Some of these
factors are: obtaining sufficient cash flow from operations to meet its debt
service and pay vendors on a timely basis; obtaining additional external
financing to meet its working capital requirements, if necessary; complying with
the financial covenants in its revolving line of credit, subordinated credit
facility and accounts receivable securitization programs so the banks would not
have the right to declare the amounts outstanding under such facilities
immediately due and payable; maintaining and establishing close working
relationships with home care and social services agencies, hospitals, clinics,
nursing homes, physicians and physician groups, health maintenance organizations
and other health care providers; obtaining reimbursement from third party
payors; complying with applicable law regarding the health care industry;
attracting and retaining senior management personnel and branch level management
as well as qualified health care professionals and paraprofessionals;
maintaining adequate liability insurance; and competing effectively with other
home health care providers. The failure to manage such factors successfully
could have a material adverse effect on the Company's business, financial
condition and results of operations.
-13-
<PAGE>
U.S. HOMECARE CORPORATION
Part II - Other Information
Item 1. Legal Proceedings
HIPS LITIGATION. In July 1993, in HIPS V. USHC INFUSION, ET AL., Index No.
117835/93 (Supreme Court, State of New York, New York County), Home Infusion
Pharmaceutical Services, Inc. "HIPS") sued, on a motion for summary judgment in
lieu of complaint, to enforce the payment of promissory notes in the face amount
of $4.5 million and approximately $880,000 in consulting fees in connection with
the acquisition (the "Acquisition") of assets (or an interest therein) from HIPS
and its affiliate Abel Health Management Services, Inc. (collectively
"HIPS/Abel") and their principal, Edward J. Abel ("Abel"). In September 1994,
the Court denied HIPS's motion for summary judgment and instructed HIPS to bring
a plenary suit on the promissory notes. In October 1994, HIPS brought such
a
suit and Abel joined in the suit, seeking payment on the consulting agreement.
In November 1994, the Company answered the complaint and counterclaimed for
rescission of the Acquisition, fraudulent inducement, fraud, breach of contract,
breach of the covenant of good faith and fair dealing, and for a declaratory
judgment relieving it of any further purported obligations in connection with
the Acquisition.
In September 1995, HIPS moved to dismiss certain of the Company's
counterclaims. On February 29, 1996 the court denied HIP's motion, except that
it struck the Company's request for the imposition of punitive damages. At this
time discovery is continuing.
In October 1996, the Company moved to compel Able to participate in certain
discovery, and HIPS/Abel sought to have the Court certify the case as ready for
trial. The Company has opposed that request, and is awaiting the Court's rulings
on the pending applications.
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.
KINGSLAND LITIGATION. KINGSLAND ASSOCIATES V. ABEL HEALTH MANAGEMENT
SERVICES, INC. AND U.S. HOMECARE INFUSION THERAPY PRODUCTS CORPORATION, Index
No. 14294/93 (Supreme Court of the State of New York, Nassau County) also arises
from the Acquisition. Based on the Asset Purchase Agreement provision regarding
USHC Infusion's assumption of certain liabilities in connection with the
Acquisition, Abel Health Management Services, Inc. ("AHMS") has impleaded USHC
Infusion into these cases brought by Kingsland Associates ("Kingsland") in
connection with AHMS's abandonment of three suites of offices. Kingsland has
also asserted a claim directly against USHC Infusion. Kingsland seeks damages in
excess of $50,000, approximately $325,000 in rent, attorneys' fees and rent
escalation amounts. USHC Infusion filed an answer on November 5, 1993,
asserting, among other defenses, that because of AHMS's breaches of contract and
torts in connection with the Acquisition, as alleged in USHC INFUSION, ET. AL.
V. HIPS, USHC infusion is not liable to AHMS and therefore is not liable to
Kingsland.
-14-
<PAGE>
In August 1995, AHMS moved to dismiss certain of USHC Infusion's
affirmative defenses. On March 22, 1996 the Court granted the motion in part,
denied it in part, certified the case for trial and ordered AHMS to participate
in discovery noticed by the Company. In so doing, the Court upheld the same
defense that was upheld in the HIPS litigation.
In May 1996, Kingsland filed a motion seeking a special trial preference,
designed to move the case to trial ahead of other cases on the trial calendar;
the Company opposed the motion. At the same time, the Company filed a motion
asking the court to (a) dismiss with prejudice the claims of AHMS against it and
(b) preclude AHMS from presenting at trial any evidence or testimony concerning
USHC Infusions defenses against AHMS; AHMS opposed the motion, and both motions
are now awaiting decision.
In September 1996 the Court granted Kingsland's motion and directed that
the case be moved to the top of the jury calendar on December 2, 1996. In
October 1996 the Court directed AHMS to produce certain documents and submit to
a deposition, and reserved decision on the balance of the Company's motion.
Item 5. Other Information.
On October 31, 1996, the Company completed the sale of the business and
certain assets of its IV therapy business for approximately $2,000,000. The sale
had an effective date of October 1, 1996. Assets sold included approximately
$142,000 of inventory, $23,000 of property and equipment.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits - The following exhibits are filed
herewith or incorporated herein.
1. Calculation of earnings/(loss) per share - Three months ended
September 30,1996 and 1995
2. Calculation of earnings/(loss) per share - Nine months ended
September 30, 1996 and 1995
10. (a) Letter Agreement between the Company and Mehdi Ali, dated
October 2, 1996
10. (b) Letter Agreement between the Company and James Laird, dated
October 2, 1996
10. (c) Settlement Agreement and Mutual Release between the Company and
G. Robert O'Brien, dated October 14, 1996
10. (d) Settlement Agreement and Mutual Release between the Company and
Stephen H. Matheson, date as of October 31, 1996
-15-
<PAGE>
10. (e) Asset Purchase Agreement among Transworld Acquisition Corp.,
Transworld Home Healthcare, Inc., U.S. HomeCare Infusion Therapy
Services Corporation of New Jersey and U.S. HomeCare Corporation,
dated as of October 31, 1996
11. Statement re computation of Per Share Earnings
B. Reports on Form 8-K
1. Form 8-K dated August 22, 1996 reporting Item 5. Other Events.
-16-
EXHIBIT 10(a)
U.S. HOMECARE CORPORATION
750 Main Street
Hartford, Connecticut 06130
October 2, 1996
Mr. Mehdi Ali
69 Main Street
Ridgefield, CT 06877
Dear Mr. Ali:
This letter agreement sets forth the terms and conditions of your consultation
services for U.S. HomeCare Corporation (the "Company"), which are summarized in
the letter attached as Schedule A.
Term: Beginning September 23, 1996, you will devote such of
your time as you deem necessary to consulting on the
financial and operational affairs of the Company and on
the implementation of agreed upon changes at the
Company, as described in Schedule A hereto. After
implementation of the agreed upon changes, you will be
available on an as-needed basis until the earlier of
September 30, 1997 or the consummation of a Realization
Event (the "Term") to work on any issues which may
arise at the Company during the Term, it being
understood that you may engage in other consulting
assignments and business pursuits during the Term. The
Company will have the right to renew this Agreement on
an annual basis, subject to renegotiation of the
consulting fees set forth herein.
Current compensation: Until the expiration of the Term, you shall receive
$7,500 for the balance of September 1996; $30,000 per
month for each month beginning October 1996 and ending
February 1997; $18,000 per month for each month
beginning March 1997 and ending June 1997; and $9,000
per month for each month beginning July 1997
<PAGE>
Mr. Mehdi Ali October 2, 1996
Page 2
through the expiration of the Term. Such payments will
be made by the Company per its normal payment cycle
(bi-weekly). In addition, you shall be reimbursed for
reasonable travel or other out-of-pocket expenses
incurred by you, in accordance with the Company's
travel and reimbursement policy, in connection with
your engagement hereunder.
Incentive Options: You will be entitled to additional compensation for
your consulting services in accordance with the
following:
You will receive, as equity incentive an option (the
"Option") to purchase 1,038,000 shares of the Company's
Common Stock, $.01 par value (the "Common Stock"), at
an exercise price of $.15 per share, which will vest as
follows: (x) 346,000 shares will vest as of September
23, 1996; (y) the balance of the shares subject to the
Option will vest on September 23, 2002, provided that
you are still serving as a consultant to the Company at
that time; and provided, further that vesting of the
balance of the shares subject to the Option shall
accelerate upon the achievement of certain levels of
EBITDA if these levels are achieved on or before
September 30, 1997, as follows: (i) the vesting of
346,000 shares of the Option will accelerate in the
first month in which the trailing 3 month EBITDA (as
defined below) of the Company is greater than or equal
to $562,500; and (ii) the vesting of the remaining
346,000 shares of the Option will accelerate in the
first month (which may be the same month as in clause
(i) above) in which the trailing 3 month EBITDA of the
Company is greater than or equal to $875,000; provided,
however, that in no event will any portion of the
Option referred to in subsection (y) vest unless the
EBITDA requirements of clause (i) or (ii), as
applicable, are met on or before September 30, 1997. As
soon as the criteria set forth in the prior sentence
has been met,you shall be fully vested in the
applicable portion of the Option. The Option shall have
a 10-year term from September 23, 1996 and may be
<PAGE>
Mr. Mehdi Ali October 2, 1996
Page 3
exercised at any time after vesting and prior to
expiration of such term. The Option will have a
cashless exercise provision.
The Option shall have anti-dilution protection (the
"Anti-Dilution Protection"), consistent with the
anti-dilution protection contained in the Company's
outstanding $35 6% Convertible Preferred Stock, $1.00
par value (the "$35.00 Preferred Stock"), except that
anti-dilution adjustments shall be triggered at
issuances less than $.15 per share (not $1.75 per
share).
If a Realization Event specified in clause (i), (ii),
(iii) or (v) of the definition thereof occurs, you
shall have the right, in your sole discretion, to (a)
sell all or any portion of your Option in such
Realization Event (or, if that is not possible, to put
all or any portion of your Option to the Company at the
price you would have received had you participated in
such Realization Event) or (b) put the Option to the
Company for cash in an amount equal to $900,000 (the
"Put"). If a Realization Event specified in clause (iv)
of the definition thereof occurs, you shall have the
right to (a) participate in such Realization Event on a
pro rata basis or (b) exercise the Put.
If a Realization Event has not occurred on or prior to
December 31, 1997, you will have the right, in your
sole discretion, to exercise the Put, provided,
however, that if the Company is unable to fund (through
cash on hand, increased borrowings or otherwise) any
portion of the Put, you may rescind all or any portion
of such Put, or in your sole discretion, require the
Company to issue you a promissory note in a principal
amount equal to the portion of the Put it is unable to
fund, bearing interest at the rate of 9% per annum.
Interest will be payable quarterly and principal shall
be payable on the earlier of consummation of a
Realization Event or December 31, 1998.
<PAGE>
Mr. Mehdi Ali October 2, 1996
Page 4
It is understood and agreed that the Put is a debt
obligation of the Company which ranks senior to any
claim of the Equity of the Company, including the
Company's $35 Preferred Stock.
If a Realization Event occurs prior to December 31,
1996, for purposes of determining eligibility for the
Option, the EBITDA calculation for any period specified
that has not yet been completed shall be determined by
grossing-up on a pro rata basis the partial period
results which have been achieved after September 30,
1996 and prior to the consummation of the Realization
Event.
Definitions:
For purposes of this agreement, a "Realization Event"
shall have occurred if: (i) all or substantially all of
the assets of the Company are sold or the Company is
merged or consolidated with or into another entity;
(ii) the Company sells a number of shares equal to 30%
or more of the Fully Diluted Equity outstanding after
the transaction (or an option to purchase such shares
is granted) in one or a series of transactions; (iii)
one or more stockholders of the Company sell a number
of shares equal to 30% or more of the Fully Diluted
Equity outstanding, other than in "brokers'
transactions" (as such term is defined in Rule 144);
(iv) the Equity of the Company receives a distribution
of $3,000,000 or more pursuant to a recapitalization of
the Company; or (v) the Company sells equity to the
public pursuant to a public offering or sells $10
million or more of equity pursuant to a private
placement.
For purposes of this agreement, "Equity" shall mean (i)
the Common Stock of the Company, (ii) any other capital
stock of the Company, including any preferred stock of
the Company (including the $35 Preferred Stock), (iii)
all common stock equivalents and capital stock
equivalents of the Company including, without
limitation, any options, warrants, conversions or
similar rights to purchase or receive any Common Stock
or other capital
<PAGE>
Mr. Mehdi Ali October 2, 1996
Page 5
stock of the Company, and (iv) any other securities of
the Company which are issued to one or more holders of
the Common Stock or other capital stock of the Company
or that are issued in exchange for or in replacement of
any Common Stock or other capital stock of the Company.
"Fully-Diluted Equity" shall mean the Equity of the
Company on an as-converted basis, assuming conversion
of any options, warrants, convertible preferred stock
or similar securities of the Company (including the
Option and the $35 Preferred Stock) irrespective of
whether the holders of any such option, warrant,
preferred stock or similar security would in fact so
convert.
For purposes of this agreement, "EBITDA" of the Company
shall mean, for any period, the net income of the
Company for such period, (x) PLUS any interest
(including any banking, securitization or financing
costs, fees or charges, irrespective of whether such
costs, fees or charges are classified as interest);
taxes; depreciation; amortization; transaction fees;
your compensation pursuant to this letter agreement;
and advisory, investment banking, management or
monitoring fees (including any fees paid to Huffard &
Co. or Sanders Morris Mundy Inc.) which were deducted
from revenues in determining net income for such
period, and (y) LESS, for any period or portion thereof
in which the Company does not have employed a complete
management team, a salary provision per quarter as set
forth on Schedule B. In addition, any of the following
amounts included in net income after September 30, 1996
shall be excluded from the calculation of EBITDA for
the period in question: (a) any unusual, nonrecurring
or nonoperating items (including any costs associated
with litigation), (b) any items which relate to the
restructuring of the Company's business (e.g.,
severance payments or legal fees) or any items which
relate to infusion therapy or the discontinuance of a
segment of the business, (c) any expenses which relate
either to inadequate reserves from
<PAGE>
Mr. Mehdi Ali October 2, 1996
Page 6
prior periods, or errors in accounts or estimates from
prior periods (including any adjustments to reserves or
net revenues which relate to Medicare or Medicaid) or
(d) any adjustments to EBITDA which are a result of
negotiations between (1) the Company and (2) a
potential purchaser of the Company.
Registration Rights: You will have the right to participate in the
registration rights provided to the $35.00 Preferred
Stock holders. A registration statement on Form S-1 or
S-3 including any shares of Common Stock that you
request to be included therein will, in any event, be
filed with the Securities and Exchange Commission no
later than 30 days following completion of the
Company's audit for the year ending December 31, 1996
(which shall be no later than April 30, 1997), and the
Company will diligently pursue obtaining the
effectiveness thereof.
Miscellaneous: In the event that the structure of the Option or the
Put would (x) prevent the Company's purchaser from
achieving "pooling" treatment in a purchase of the
Company through a transaction that would otherwise
qualify as a pooling transaction, or (y) cause you to
recognize income for state or federal income tax
purposes upon the vesting of the Option, you and the
Company shall change the structure of the Option and/or
the Put to alleviate such issue(s) in a manner that
fully preserves the economics inherent in the Option
and the Put.
Indemnification: The Company shall indemnify, defend and hold you and
anyone who works with you in connection with the
services you perform pursuant to this letter agreement
harmless from and against any and all liability,
claims, expenses, damages or losses, including
reasonable fees of legal counsel and related
disbursements (such legal fees to be reimbursed as
expended) incurred by you and anyone who works with
you, or arising out of or relating to the services
performed pursuant to this letter
<PAGE>
Mr. Mehdi Ali October 2, 1996
Page 7
agreement. In addition, the Company shall cause you and
anyone who works with you to be covered by the
Company's directors' and officers' liability insurance
policy if such policy can be amended to include you and
such other persons. Nothing herein is intended to, nor
shall, relieve you or anyone who works for you from
liability for your own willful misconduct or gross
negligence.
U.S. Homecare Corporation
/s/ Jay Huffard
-------------------------------------
Jay Huffard
Chairman
Accepted and Agreed:
/s/ Mehdi Ali
- -------------------------------
Mehdi Ali
EXHIBIT 10(b)
U.S. HOMECARE CORPORATION
750 Main Street
Hartford, Connecticut 06130
October 2, 1996
Mr. James Laird
73 Old Hill Road
Westport, CT 06880
Dear Mr. Laird:
This letter agreement sets forth the terms and conditions of your consultation
services for U.S. HomeCare Corporation (the "Company").
Term: Beginning September 23, 1996, you will devote such of
your time as you deem necessary to consulting on the
financial and operational affairs of the Company and on
the implementation of agreed upon changes at the
Company, under the direction of Mehdi Ali (with whom
the Company is also signing a similar letter agreement
on the date hereof). After implementation of the agreed
upon changes, you will be available on an as-needed
basis until the earlier of September 30, 1997 or the
consummation of a Realization Event (the "Term") to
work on any issues which may arise at the Company
during the Term, it being understood that you may
engage in other consulting assignments and business
pursuits during the Term. The Company will have the
right to renew this Agreement on an annual basis,
subject to renegotiation of the consulting fees set
forth herein.
Current compensation: Until the expiration of the Term, you shall receive
$5,000 for the balance of September 1996; $20,000 per
month for each month beginning October 1996 and ending
February 1997; $12,000 per month for each month
beginning March 1997 and ending June 1997; and $6,000
per month for each month beginning July 1997
<PAGE>
Mr. James Laird October 2, 1996
Page 2
through the expiration of the Term. Such payments will
be made by the Company per its normal payment cycle
(bi-weekly). In addition, you shall be reimbursed for
reasonable travel or other out-of-pocket expenses
incurred by you, in accordance with the Company's
travel and reimbursement policy, in connection with
your engagement hereunder.
Incentive Options: You will be entitled to additional compensation for
your consulting services in accordance with the
following:
You will receive, as equity incentive an option (the
"Option") to purchase 692,000 shares of the Company's
Common Stock, $.01 par value (the "Common Stock"), at
an exercise price of $.15 per share, which will vest as
follows: (x) 230,666 shares will vest as of September
23, 1996; (y) the balance of the shares subject to the
Option will vest on September 23, 2002, provided that
you are still serving as a consultant to the Company at
that time; and provided, further that vesting of the
balance of the shares subject to the Option shall
accelerate upon the achievement of certain levels of
EBITDA if these levels are achieved on or before
September 30, 1997, as follows: (i) the vesting of
230,667 shares of the Option will accelerate in the
first month in which the trailing 3 month EBITDA (as
defined below) of the Company is greater than or equal
to $562,500; and (ii) the vesting of the remaining
230,667 shares of the Option will accelerate in the
first month (which may be the same month as in clause
(i) above) in which the trailing 3 month EBITDA of the
Company is greater than or equal to $875,000; provided,
however, that in no event will any portion of the
Option referred to in subsection (y) vest unless the
EBITDA requirements of clause (i) or (ii), as
applicable, are met on or before September 30, 1997. As
soon as the criteria set forth in the prior sentence
has been met, you shall be fully vested in the
applicable portion of the Option. The Option shall have
a 10-year term from September 23, 1996 and may be
<PAGE>
Mr. James Laird October 2, 1996
Page 3
exercised at any time after vesting and prior to
expiration of such term. The Option will have a
cashless exercise provision.
The Option shall have anti-dilution protection (the
"Anti-Dilution Protection"), consistent with the
anti-dilution protection contained in the Company's
outstanding $35 6% Convertible Preferred Stock, $1.00
par value (the "$35.00 Preferred Stock"), except that
anti-dilution adjustments shall be triggered at
issuances less than $.15 per share (not $1.75 per
share).
If a Realization Event specified in clause (i), (ii),
(iii) or (v) of the definition thereof occurs, you
shall have the right, in your sole discretion, to (a)
sell all or any portion of your Option in such
Realization Event (or, if that is not possible, to put
all or any portion of your Option to the Company at the
price you would have received had you participated in
such Realization Event) or (b) put the Option to the
Company for cash in an amount equal to $600,000 (the
"Put"). If a Realization Event specified in clause (iv)
of the definition thereof occurs, you shall have the
right to (a) participate in such Realization Event on a
pro rata basis or (b) exercise the Put.
If a Realization Event has not occurred on or prior to
December 31, 1997, you will have the right, in your
sole discretion, to exercise the Put, provided,
however, that if the Company is unable to fund (through
cash on hand, increased borrowings or otherwise) any
portion of the Put, you may rescind all or any portion
of such Put, or in your sole discretion, require the
Company to issue you a promissory note in a principal
amount equal to the portion of the Put it is unable to
fund, bearing interest at the rate of 9% per annum.
Interest will be payable quarterly and principal shall
be payable on the earlier of consummation of a
Realization Event or December 31, 1998.
<PAGE>
Mr. James Laird October 2, 1996
Page 4
It is understood and agreed that the Put is a debt
obligation of the Company which ranks senior to any
claim of the Equity of the Company, including the
Company's $35 Preferred Stock.
If a Realization Event occurs prior to December 31,
1996, for purposes of determining eligibility for the
Option, the EBITDA calculation for any period specified
that has not yet been completed shall be determined by
grossing-up on a pro rata basis the partial period
results which have been achieved after September 30,
1996 and prior to the consummation of the Realization
Event.
Definitions: For purposes of this agreement, a "Realization Event"
shall have occurred if: (i) all or substantially all of
the assets of the Company are sold or the Company is
merged or consolidated with or into another entity;
(ii) the Company sells a number of shares equal to 30%
or more of the Fully Diluted Equity outstanding after
the transaction (or an option to purchase such shares
is granted) in one or a series of transactions; (iii)
one or more stockholders of the Company sell a number
of shares equal to 30% or more of the Fully Diluted
Equity outstanding, other than in "brokers'
transactions" (as such term is defined in Rule 144);
(iv) the Equity of the Company receives a distribution
of $3,000,000 or more pursuant to a recapitalization of
the Company; or (v) the Company sells equity to the
public pursuant to a public offering or sells $10
million or more of equity pursuant to a private
placement.
For purposes of this agreement, "Equity" shall mean (i)
the Common Stock of the Company, (ii) any other capital
stock of the Company, including any preferred stock of
the Company (including the $35 Preferred Stock), (iii)
all common stock equivalents and capital stock
equivalents of the Company including, without
limitation, any options, warrants, conversions or
similar rights to purchase or receive any Common Stock
or other capital
<PAGE>
Mr. James Laird October 2, 1996
Page 5
stock of the Company, and (iv) any other securities of
the Company which are issued to one or more holders of
the Common Stock or other capital stock of the Company
or that are issued in exchange for or in replacement of
any Common Stock or other capital stock of the Company.
"Fully-Diluted Equity" shall mean the Equity of the
Company on an as-converted basis, assuming conversion
of any options, warrants, convertible preferred stock
or similar securities of the Company (including the
Option and the $35 Preferred Stock) irrespective of
whether the holders of any such option, warrant,
preferred stock or similar security would in fact so
convert.
For purposes of this agreement, "EBITDA" of the Company
shall mean, for any period, the net income of the
Company for such period, (x) plus any interest
(including any banking, securitization or financing
costs, fees or charges, irrespective of whether such
costs, fees or charges are classified as interest);
taxes; depreciation; amortization; transaction fees;
your compensation pursuant to this letter agreement;
and advisory, investment banking, management or
monitoring fees (including any fees paid to Huffard &
Co. or Sanders Morris Mundy Inc.) which were deducted
from revenues in determining net income for such
period, and (y) less, for any period or portion thereof
in which the Company does not have employed a complete
management team, a salary provision per quarter as set
forth on Schedule A. In addition, any of the following
amounts included in net income after September 30, 1996
shall be excluded from the calculation of EBITDA for
the period in question: (a) any unusual, nonrecurring
or nonoperating items (including any costs associated
with litigation), (b) any items which relate to the
restructuring of the Company's business (e.g.,
severance payments or legal fees) or any items which
relate to infusion therapy or the discontinuance of a
segment of the business, (c) any expenses which relate
either to inadequate reserves from
<PAGE>
Mr. James Laird October 2, 1996
Page 6
prior periods, or errors in accounts or estimates from
prior periods (including any adjustments to reserves or
net revenues which relate to Medicare or Medicaid) or
(d) any adjustments to EBITDA which are a result of
negotiations between (1) the Company and (2) a
potential purchaser of the Company.
Registration Rights: You will have the right to participate in the
registration rights provided to the $35.00 Preferred
Stock holders. A registration statement on Form S-1 or
S-3 including any shares of Common Stock that you
request to be included therein will, in any event, be
filed with the Securities and Exchange Commission no
later than 30 days following completion of the
Company's audit for the year ending December 31, 1996
(which shall be no later than April 30, 1997), and the
Company will diligently pursue obtaining the
effectiveness thereof.
Miscellaneous: In the event that the structure of the Option or the
Put would (x) prevent the Company's purchaser from
achieving "pooling" treatment in a purchase of the
Company through a transaction that would otherwise
qualify as a pooling transaction, or (y) cause you to
recognize income for state or federal income tax
purposes upon the vesting of the Option, you and the
Company shall change the structure of the Option and/or
the Put to alleviate such issue(s) in a manner that
fully preserves the economics inherent in the Option
and the Put.
Indemnification: The Company shall indemnify, defend and hold you and
anyone who works with you in connection with the
services you perform pursuant to this letter agreement
harmless from and against any and all liability,
claims, expenses, damages or losses, including
reasonable fees of legal counsel and related
disbursements (such legal fees to be reimbursed as
expended) incurred by you and anyone who works with
you, or arising out of or relating to the services
performed pursuant to this letter
<PAGE>
Mr. James Laird October 2, 1996
Page 7
agreement. In addition, the Company shall cause you and
anyone who works with you to be covered by the
Company's directors' and officers' liability insurance
policy if such policy can be amended to include you and
such other persons. Nothing herein is intended to, nor
shall, relieve you or anyone who works for you from
liability for your own willful misconduct or gross
negligence.
U.S. Homecare Corporation
/s/ Jay Huffard
---------------------------------------
Jay Huffard
Chairman
Accepted and Agreed:
/s/ James Laird
- -------------------
James Laird
EXHIBIT 10(c)
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This SETTLEMENT AGREEMENT AND MUTUAL RELEASE of claims is made by U.S.
HomeCare Corporation, its past, present and future partners, parents,
subsidiaries, related entities, predecessors, successors, directors, officers,
agents, employer sponsored employee benefit and welfare benefit plans, trustees
and administrators of such plans, employees, contractors and assigns
(hereinafter "USHO") and G. Robert O'Brien and his predecessors, successors,
agents, heirs and assigns (hereinafter "Employee"). USHO and Employee shall
hereafter collectively be referred to as the "Parties."
W I T N E S S E T H :
WHEREAS, G. Robert O'Brien has been an employee of USHO pursuant to an
employment agreement, dated August 10, 1994 (the "Employment Agreement");
WHEREAS, pursuant to the Employment Agreement the Employee is entitled to a
severance package consisting of cash and other benefits; and
WHEREAS, the Parties wish to sever their relationship and settle any
outstanding severance obligations and any and all disputes which may exist
between them;
NOW, THEREFORE, for and in consideration of the representations made,
actions and agreements to be undertaken, and payments to be made as set forth
herein, the Parties agree to fully and forever release and discharge each other,
and covenant not to sue or otherwise institute or cause to be instituted, or
maintain any legal or administrative proceedings against each other with respect
to any matter, including but not limited to claims and causes of action relating
to Employee's employment with USHO and/or the termination of his employment,
including, without limitation, any rights set forth in Section 4 of the
Employment Agreement, provided, however, that nothing in this Agreement shall be
deemed to release USHO from any preexisting obligation to indemnify Employee in
connection with his services as an officer and director of USHO.
This SETTLEMENT AGREEMENT AND MUTUAL RELEASE is made in consideration of
the following:
A. Employee agrees that his employment with USHO will terminate effective
as of the date hereof (the "Termination Date"). Employee will have no right to
employment with USHO after the date hereof.
<PAGE>
B. Pursuant to Employee's existing stock option agreements with USHO, an
aggregate of 500,000 shares of USHO's Common Stock are vested and exercisable by
Employee. Pursuant to Section 3.03 of such option agreements, no additional
portion of any such option shall vest, but the vested portion may be exercised
in whole or in part within three (3) months of the date hereof.
C. Employee hereby resigns as Chief Executive Officer and director of USHO
effective November 4, 1996. Employee hereby resigns as member of the Executive
Committee of USHO effective immediately.
D. USHO shall pay Employee (i) $87,5000, to be paid $21,875 per month for
four months and (ii) $150,000, to be paid $6,250 per month for the twenty-four
months following the time period of section (i) of this Paragraph. Payments
shall be made in arrears every two weeks in accordance with USHO's standard
payroll practices. The payments made pursuant to this Paragraph D (the
"Payments") are in addition to Employee's salary through the date hereof. The
Payments are made in consideration of the representations made and actions and
agreements to be undertaken as set forth herein, are not made in compensation
for services as an employee of USHO, and are not intended to be subject to FICA,
Medicare, or other taxes or withholdings.
E. In consideration of the payments made by USHO pursuant to Section C(i)
hereof, USHO agrees to engage Employee, and Employee accepts such engagement, as
a consultant to USHO for a four-month period commencing on the date hereof,
pursuant to a consulting agreement in the form attached hereto as Exhibit A (the
"Consulting Agreement").
F. USHO shall grant to Employee on November 15, 1996 a stock award of
85,000 shares of USHO Common Stock pursuant to the terms of Article III of the
1995 Stock Option/Stock Issuance Plan.
G. Employee shall retain possession of the automobile provided to him by
USHO until December 13, 1996, on which date Employee shall relinquish all rights
to said automobile and shall make it available to USHO at its office in
Hartford, Connecticut.
H. Employee will remain eligible to participate in USHO's health insurance,
life insurance and disability insurance programs for three months from the date
hereof (the "Benefit Period") unless and until Employee commences full-time
employment with another employer. Employee understands that his entitlement to
any benefit continuation following the end of the Benefit Period will be
governed by COBRA and will be at Employee's expense. Employee understands that
his vacation accrual will cease effective on the date hereof and agrees that
accrued vacation pay, if any, is satisfied by the payments made to Employee
pursuant to Paragraph D above.
<PAGE>
I. Employee acknowledges that the payments made hereunder are not part of
an exit incentive or other employment termination program offered to a group or
class of employees.
J. Employee and USHO represent that they are not currently involved,
directly or indirectly, in any legal or administrative proceedings against one
another, and have not engaged in any efforts, plans or preparation to become so
involved in the future.
K. The Parties understand and agree that they are waiving any rights that
they may have or now have, known or unknown, to pursue any and all claims,
charges, complaints, demands, actions, causes of action, suits, rights, debts,
sums of money, costs, accounts, reckonings, covenants, contracts, agreements,
promises, doings, omissions, damages, executions, obligations, liabilities, and
expenses (including attorneys' fees and costs), of every kind and nature which
he ever had or now has, known or unknown, against USHO, its officers, directors,
stockholders, corporate affiliates, agents and employees, including, but not
limited to, all claims arising out of his employment relationship with USHO, all
employment discrimination claims under Title VII of the Civil Rights Act of
1964, 42 U.S.C. ss.2000e et seq., the Age Discrimination in Employment Act, 29
U.S.C. ss.621 et seq., and the Connecticut General Statutes, damages arising out
of all employment discrimination claims, wrongful discharge claims or other
common law claims and damages. Nothing in this SETTLEMENT AGREEMENT AND MUTUAL
RELEASE, however, shall be construed as releasing USHO from its obligations
under this SETTLEMENT AGREEMENT AND MUTUAL RELEASE and the exhibits hereto nor
shall anything in this SETTLEMENT AGREEMENT AND MUTUAL RELEASE be deemed to
release USHO from any preexisting obligation to indemnify Employee in connection
with his services as an officer and director of USHO.
L. In addition, and in further consideration of the foregoing, the Parties
agree that nothing contained in this SETTLEMENT AGREEMENT AND MUTUAL RELEASE
shall constitute or be treated as an admission of liability or wrongdoing by
USHO or Employee.
M. This SETTLEMENT AGREEMENT AND MUTUAL RELEASE is deemed to have been
entered into in the State of Connecticut and shall be construed and interpreted
in accordance with the laws of that state.
N. In addition, and in further consideration of the foregoing, this release
extends to claims which the Parties do not know or suspect to exist in their
favor at the time of executing the mutual release, which if known by them must
have materially affected this settlement.
3.
<PAGE>
O. The Parties agree that they will not, without compulsion of legal
process, disclose to others the terms or amounts referred to in this SETTLEMENT
AGREEMENT AND MUTUAL RELEASE or the fact of the payment of said amounts, except
that they may disclose them to their attorneys, accountants or other
professional advisors to whom the disclosure is necessary to effect the purposes
for which they have consulted such professional advisors. The Parties further
agree that they will not defame or disparage each other.
P. The Parties understand that the covenants contained in this SETTLEMENT
AGREEMENT AND MUTUAL RELEASE, including the covenants of nondisclosure,
non-defamation and non-disparagement, are material inducements for the making of
this agreement and that, in the event of a material breach hereof, including,
without limitation, the nonpayment of any amounts payable hereunder, the other
party will be entitled to pursue its legal and equitable remedies, including
without limitation, the right to recover damages and seek injunctive relief. The
prevailing party in any such action shall be entitled to recover its costs and
reasonable attorneys' fees. Furthermore, in the event that Employee files or
commences any legal action or administrative proceeding against USHO for any
matter other than enforcement of Employee's rights under this SETTLEMENT
AGREEMENT AND MUTUAL RELEASE, the Consulting Agreement, or any indemnification
obligation not released hereby, USHO shall, in addition to any available legal
and equitable remedies, not be obligated to make any future payments of any
amounts which would otherwise be due under Paragraph D.
Q. The Parties acknowledge and agree that no promises or repre sentations
were made which do not appear written in this Agreement and the Consulting
Agreement and that this SETTLEMENT AGREEMENT AND MUTUAL RELEASE, including the
Consulting Agreement, contains the entire agreement of the Parties as to the
subject matter hereof. This SETTLEMENT AGREEMENT AND MUTUAL RELEASE shall be
construed to be fully enforceable. If for any reason any part of this SETTLEMENT
AGREEMENT AND MUTUAL RELEASE is determined to be void or unenforceable, the
agreement and/or any remaining part hereof shall be construed without reference
to such void or inapplicable provisions to be an enforceable SETTLEMENT
AGREEMENT AND MUTUAL RELEASE between the Parties.
R. The Parties acknowledge that they have read and understand the foregoing
SETTLEMENT AGREEMENT AND MUTUAL RELEASE and that they sign it voluntarily and
without coercion. They further acknowledge that they have been advised by and
been given the opportunity to consult with an attorney of their own choosing
concerning the waivers contained in this SETTLEMENT AGREEMENT AND MUTUAL RELEASE
and that the waivers made herein are knowing, conscious and with full
appreciation that such party is forever foreclosed from pursuing any of the
rights so waived. Employee further acknowledges that he has twenty-one (21) days
after receipt of this SETTLEMENT AGREEMENT AND
4.
<PAGE>
MUTUAL RELEASE to consider this SETTLEMENT AGREEMENT AND MUTUAL RELEASE and he
understands that it will not become effective and may be revoked until seven 7)
days after it is executed. In order to revoke this SEPARATION AGREEMENT AND
MUTUAL RELEASE, Employee must deliver to USHO's Chairman, Jay C. Huffard, on or
before seven (7) days after the execution of this SEPARATION AGREEMENT AND
MUTUAL RELEASE, a letter stating that he is revoking this SEPARATION AGREEMENT
AND MUTUAL RELEASE.
Dated: October 14, 1996 /s/ G. Robert O'Brien
--------------------------------
G. Robert O'Brien
Dated: October 14, 1996 U.S. HomeCare Corporation
By: Jay Huffard
-----------------------------
5.
EXHIBIT 10(d)
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This SETTLEMENT AGREEMENT AND MUTUAL RELEASE of claims is made by U.S.
HomeCare Corporation, its past, present and future partners, parents,
subsidiaries, related entities, predecessors, successors, directors, officers,
agents, employer sponsored employee benefit and welfare benefit plans, trustees
and administrators of such plans, employees, contractors and assigns
(hereinafter "USHO") and Stephen H. Matheson and his predecessors, successors,
agents, heirs and assigns (hereinafter "Employee"). USHO and Employee shall
hereafter collectively be referred to as the "Parties."
W I T N E S S E T H :
WHEREAS, Stephen H. Matheson has been an employee of USHO pursuant to an
employment agreement, dated January 27, 1995 (the "Employment Agreement");
WHEREAS, pursuant to the Employment Agreement the Employee is entitled to a
severance package consisting of cash and other benefits; and
WHEREAS, the Parties wish to sever their relationship and settle any
outstanding severance obligations and any and all disputes which may exist
between them;
NOW, THEREFORE, for and in consideration of the representations made,
actions and agreements to be undertaken, and payments to be made as set forth
herein, the Parties agree to fully and forever release and discharge each other,
and covenant not to sue or otherwise institute or cause to be instituted, or
maintain any legal or administrative proceedings against each other with respect
to any matter, including but not limited to claims and causes of action relating
to Employee's employment with USHO and/or the termination of his employment,
including, without limitation, any rights set forth in the Employment Agreement.
This SETTLEMENT AGREEMENT AND MUTUAL RELEASE is made in consideration of
the following:
A. Employee agrees that his employment with USHO will terminate effective
the date hereof (the "Termination Date"). Employee will have no right to
employment with USHO after the date hereof.
B. Pursuant to Employee's existing stock option agreements with USHO, an
aggregate of 150,000 shares of USHO's Common Stock are vested and exercisable by
Employee. Pursuant to Section 3.03 of such option agreements, no additional
<PAGE>
portion of any such option shall vest, but the vested portion may be exercised
in whole or in part within three (3) months of the date hereof.
C. Employee hereby resigns as Chief Administrative Officer of USHO.
D. USHO shall pay Employee (i) $58,500, to be paid $14,625 per month for
four months and (ii) $50,000, to be paid $2,083.33 per month for the twenty-four
months following the time period of section (i) of this Paragraph. Payments
shall be made in arrears every two weeks in accordance with USHO's standard
payroll practices.
E. USHO shall grant to Employee on November 15, 1996 a stock award of
25,000 shares of USHO Common Stock pursuant to the terms of Article III of the
1995 Stock Option/Stock Issuance Plan.
F. Employee will remain eligible to participate in USHO's health insurance,
life insurance and disability insurance programs for three months from the date
hereof (the "Benefit Period") unless and until Employee commences full-time
employment with another employer. Employee understands that his entitlement to
any benefit continuation following the end of the Benefit Period will be
governed by COBRA and will be at Employee's expense. Employee understands that
his vacation accrual will cease effective on the date hereof and agrees that
accrued vacation pay, if any, is satisfied by the payments made to Employee
pursuant to Paragraph D above.
G. Employee acknowledges that the payments made hereunder are not part of
an exit incentive or other employment termination program offered to a group or
class of employees.
H. Employee and USHO represent that they are not currently involved,
directly or indirectly, in any legal or administrative proceedings against one
another, and have not engaged in any efforts, plans or preparation to become so
involved in the future.
I. The Parties understand and agree that they are waiving any rights that
they may have or now have, known or unknown, to pursue any and all claims,
charges, complaints, demands, actions, causes of action, suits, rights, debts,
sums of money, costs, accounts, reckonings, covenants, contracts, agreements,
promises, doings, omissions, damages, executions, obligations, liabilities, and
expenses (including attorneys' fees and costs), of every kind and nature which
he ever had or now has, known or unknown, against USHO, its officers, directors,
stockholders, corporate affiliates, agents and employees, including, but not
limited to, all claims arising out of his employment relationship with USHO, all
employment discrimination claims under Title VII of the Civil Rights Act of
2.
<PAGE>
1964, 42 U.S.C. ss.2000e et seq., the Age Discrimination in Employment Act, 29
U.S.C. ss.621 et seq., and the Connecticut General Statutes, damages arising out
of all employment discrimination claims, wrongful discharge claims or other
common law claims and damages. Nothing in this SETTLEMENT AGREEMENT AND MUTUAL
RELEASE, however, shall be construed as releasing USHO from its obligations
under this SETTLEMENT AGREEMENT AND MUTUAL RELEASE and the exhibits hereto.
J. In addition, and in further consideration of the foregoing, the Parties
agree that nothing contained in this SETTLEMENT AGREEMENT AND MUTUAL RELEASE
shall constitute or be treated as an admission of liability or wrongdoing by
USHO or Employee.
K. This SETTLEMENT AGREEMENT AND MUTUAL RELEASE is deemed to have been
entered into in the State of Connecticut and shall be construed and interpreted
in accordance with the laws of that state.
L. In addition, and in further consideration of the foregoing, this release
extends to claims which the Parties do not know or suspect to exist in their
favor at the time of executing the mutual release, which if known by them must
have materially affected this settlement.
M. The Parties agree that they will not, without compulsion of legal
process, disclose to others the terms or amounts referred to in this SETTLEMENT
AGREEMENT AND MUTUAL RELEASE or the fact of the payment of said amounts, except
that they may disclose them to their attorneys, accountants or other
professional advisors to whom the disclosure is necessary to effect the purposes
for which they have consulted such professional advisors. The Parties further
agree that they will not defame or disparage each other.
N. The Parties understand that the covenants contained in this SETTLEMENT
AGREEMENT AND MUTUAL RELEASE, including the covenants of nondisclosure,
non-defamation and non-disparagement, are material inducements for the making of
this agreement and that, in the event of a material breach hereof, the other
party will be entitled to pursue its legal and equitable remedies, including
without limitation, the right to recover damages and seek injunctive relief. The
prevailing party in any such action shall be entitled to recover its costs and
reasonable attorneys' fees. Furthermore, in the event that Employee files or
commences any legal action or administrative proceeding against USHO, USHO
shall, in addition to any available legal and equitable remedies, not be
obligated to make any future payments of any amounts which would otherwise be
due under Paragraph D.
O. The Parties acknowledge and agree that no promises or repre sentations
were made which do not appear written in this Agreement and that this SETTLEMENT
3.
<PAGE>
AGREEMENT AND MUTUAL RELEASE, contains the entire agreement of the Parties as to
the subject matter hereof. This SETTLEMENT AGREEMENT AND MUTUAL RELEASE shall be
construed to be fully enforceable. If for any reason any part of this SETTLEMENT
AGREEMENT AND MUTUAL RELEASE is determined to be void or unenforceable, the
agreement and/or any remaining part hereof shall be construed without reference
to such void or inapplicable provisions to be an enforceable SETTLEMENT
AGREEMENT AND MUTUAL RELEASE between the Parties.
P. The Parties acknowledge that they have read and understand the foregoing
SETTLEMENT AGREEMENT AND MUTUAL RELEASE and that they sign it voluntarily and
without coercion. They further acknowledge that they have been advised by and
been given the opportunity to consult with an attorney of their own choosing
concerning the waivers contained in this SETTLEMENT AGREEMENT AND MUTUAL RELEASE
and that the waivers made herein are knowing, conscious and with full
appreciation that such party is forever foreclosed from pursuing any of the
rights so waived. Employee further acknowledges that he has twenty-one (21) days
after receipt of this SETTLEMENT AGREEMENT AND MUTUAL RELEASE to consider this
SETTLEMENT AGREEMENT AND MUTUAL RELEASE and he understands that it will not
become effective and may be revoked until seven (7) days after it is executed.
In order to revoke this SEPARATION AGREEMENT AND MUTUAL RELEASE, Employee must
deliver to USHO's Chairman, Jay C. Huffard, on or before seven (7) days after
the execution of this SEPARATION AGREEMENT AND MUTUAL RELEASE, a letter stating
that he is revoking this SEPARATION AGREEMENT AND MUTUAL RELEASE.
Dated: October 14, 1996 /s/ Stephen Matheson
----------------------------------
Stephen H. Matheson
Dated: October 14, 1996 U.S. HomeCare Corporation
By: /s/Jay Huffard
------------------------------
4.
ASSET PURCHASE AGREEMENT
Among
TRANSWORLD ACQUISITION CORP.,
As Buyer,
TRANSWORLD HOME HEALTHCARE, INC.,
The Sole Stockholder of Buyer,
U.S. HOMECARE INFUSION THERAPY SERVICES
CORPORATION OF NEW JERSEY,
As Seller,
and
U.S. HOMECARE CORPORATION
The Sole Stockholder of Seller
-----------------------------------------------------------------------
Dated as of October 31, 1996
-----------------------------------------------------------------------
<PAGE>
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS....................................................1
SECTION 1.1 Definitions.............................................1
SECTION 1.2 Interpretation..........................................6
ARTICLE II PURCHASE AND SALE; CLOSING.....................................6
SECTION 2.1 Purchase and Sale of Purchased Assets...................6
SECTION 2.2 Transfer, Assignment and Conveyance of
Purchased Assets.8
SECTION 2.3 Excluded Assets.........................................9
SECTION 2.4 Purchase Price..........................................9
SECTION 2.5 Assumption of Liabilities...............................9
SECTION 2.6 Closing................................................10
SECTION 2.7 Purchase of Additional Assets..........................10
SECTION 2.8 Collection of Existing A/R.............................10
SECTION 2.9 Certain Employees; Use of Facilities...................11
SECTION 2.10 Certain Nursing Services...............................12
SECTION 2.11 Effective Date.........................................13
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF SELLER AND THE STOCKHOLDER...............................14
SECTION 3.1 Authority Relative to this Agreement...................14
SECTION 3.2 No Conflicts; Consents.................................15
SECTION 3.3 Corporate Existence and Power..........................15
SECTION 3.4 Subsidiaries...........................................15
SECTION 3.5 Charter Documents and Corporate Records................16
SECTION 3.6 Financial Statements...................................16
SECTION 3.7 Absence of Certain Changes.............................17
SECTION 3.8 Properties.............................................19
SECTION 3.9 Contracts..............................................19
SECTION 3.10 Intangible Property....................................22
SECTION 3.11 Claims and Proceedings.................................23
SECTION 3.12 Restrictions on Business Activities....................23
SECTION 3.13 Taxes..................................................23
SECTION 3.14 Employee Benefits Plans................................24
-i-
<PAGE>
SECTION 3.15 Officers, Directors and Key Employees..................26
SECTION 3.16 Employment Related Matters.............................26
SECTION 3.17 Potential Conflicts of Interest........................27
SECTION 3.18 Insurance..............................................27
SECTION 3.19 Suppliers, Customers and Contractors...................28
SECTION 3.20 Compliance with Laws...................................28
SECTION 3.21 Permits................................................29
SECTION 3.22 Finders; Fees..........................................29
SECTION 3.23 Depositaries...........................................29
SECTION 3.24 Disclosure.............................................29
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.........................30
SECTION 4.1 Corporate Existence and Power..........................30
SECTION 4.2 Authority Relative to This Agreement...................30
SECTION 4.3 No Conflicts; Consents.................................30
SECTION 4.4 Litigation.............................................31
SECTION 4.5 Finders; Fees..........................................31
SECTION 4.6 Disclosure.............................................31
ARTICLE V COVENANTS AND AGREEMENTS........................................31
SECTION 5.1 Conduct of Business....................................31
SECTION 5.2 Corporate Examinations and Investigations..............33
SECTION 5.3 Additional Financial Statements........................33
SECTION 5.4 Filings and Authorizations.............................34
SECTION 5.5 Efforts to Consummate..................................34
SECTION 5.6 Negotiations With Others...............................35
SECTION 5.7 Notices of Certain Events..............................35
SECTION 5.8 Public Announcements...................................36
SECTION 5.9 Confidentiality........................................36
SECTION 5.10 Bulk Sales.............................................37
SECTION 5.11 Use of Name............................................37
SECTION 5.12 Certain Expenses.......................................37
SECTION 5.13 Tax Matters............................................37
ARTICLE VI CONDITIONS TO CLOSING...........................................38
SECTION 6.1 Conditions to the Obligations of Seller and Buyer......38
SECTION 6.2 Conditions to the Obligations of Seller................39
SECTION 6.3 Conditions to the Obligations of Buyer.................40
-ii-
<PAGE>
ARTICLE VII INDEMNIFICATION.................................................41
SECTION 7.1 Survival of Representations and Warranties.............41
SECTION 7.2 Obligation of Seller to Indemnify......................42
SECTION 7.3 Obligation of Buyer to Indemnify.......................42
SECTION 7.4 Notice and Opportunity to Defend Third Party Claims....43
SECTION 7.5 Limits on Indemnification..............................43
ARTICLE VIII TERMINATION.....................................................44
SECTION 8.1 Termination............................................44
SECTION 8.2 Effect of Termination; Right to Proceed................44
ARTICLE IX LIQUIDATED DAMAGES..............................................45
ARTICLE X MISCELLANEOUS...................................................45
SECTION 10.1 Notices................................................45
SECTION 10.2 Entire Agreement.......................................46
SECTION 10.3 Waivers and Amendments; NonContractual Remedies;
Preservation of Remedies............................46
SECTION 10.4 Governing Law..........................................47
SECTION 10.5 Consent to Jurisdiction and Service of Process.........47
SECTION 10.6 Designated Buyer.......................................47
SECTION 10.7 Binding Effect; No Assignment..........................47
SECTION 10.8 Severability...........................................48
SECTION 10.9 Counterparts...........................................48
-iii-
<PAGE>
SCHEDULES
Schedule 2 Bill of Sale
Schedule 2.3 Excluded Assets
Schedule 2.4(b) Allocation of Purchase Price
Schedule 2.5 Assumption Agreement
Schedule 2.5(a) Assumed Liabilities
Schedule 2.9(a) Retained Employees
Schedule 2.9(d) Exceptions to Transition Costs
Schedule 2.11 October Expenses
Schedule 3.2 Required Consents
Schedule 3.5 Exception to Records
Schedule 3.6(b) Other Liabilities
Schedule 3.6(d) Debt
Schedule 3.7 Recent Developments
Schedule 3.8(a) Real Property
Schedule 3.8(b) Tangible Property
Schedule 3.8(c) Other Personal Property
Schedule 3.9 Contracts
Schedule 3.10 Intangible Property
Schedule 3.11 Claims and Proceedings
Schedule 3.13 Tax Matters
Schedule 3.14(a) Employee Benefit Plans
Schedule 3.14(e) Multiemployer Plans
Schedule 3.15 Officers, Directors and Key Employees
Schedule 3.16 Employment-Related Matters
Schedule 3.17 Potential Conflicts of Interest
Schedule 3.18 Insurance Policies, Fidelity, and Surety Bonds
Schedule 3.19 Suppliers and Customers
Schedule 3.20 Cost Reports
Schedule 3.21 Permits
Schedule 3.22 Finders Fees
Schedule 3.23 Depositories
Schedule 4.3 Buyer's Consents
Schedule 6.2(d)(iv) Form of Buyer's Opinion
Schedule 6.3(e)(iv) Form of Sellers' Opinion
Schedule 6.3(f) Form of Covenant Not to Compete
-iv-
EXHIBIT 10(e)
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of October 31, 1996 among Transworld
Acquisition Corp., a Delaware corporation ("Buyer"), Transworld Home HealthCare,
Inc., a New York corporation ("Transworld"), U.S. HomeCare Infusion Therapy
Services Corporation of New Jersey, a New Jersey corporation ("Seller,") and
U.S. HomeCare Corporation, a New York corporation, the sole security holder of
Seller (the "Stockholder").
W I T N E S S E T H:
WHEREAS, Seller is engaged in the business of providing infusion therapy
products and related skilled nursing and other related services to patients in
the home (the "Business"); and
WHEREAS, Buyer wishes to purchase from Seller and Seller wishes to sell to
Buyer, in accordance with the terms and subject to the conditions of this
Agreement, certain of the assets, properties and rights belonging to Seller that
are used in or pertain to the Business.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
other agreements contained herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. (a) The following terms, as used herein, have the
following meanings:
"Acquisition Proposal" shall mean any proposal for the acquisition of, or
merger or other business combination involving, Seller or the sale of any equity
interest in, or a substantial portion of the assets of, Seller other than the
transactions by Buyer as contemplated by this Agreement.
"Affiliate" of any person means any other person directly or indirectly
through one or more intermediary persons, controlling, controlled by or under
common control with such person.
<PAGE>
"Agreement" or "this Agreement" shall mean, and the words "herein",
"hereof" and "hereunder" and words of similar import shall refer to, this
agreement, and the Schedules and Exhibits hereto, as the same from time to time
may be amended.
"Assumption Agreement" shall mean the Assumption Agreement in the form of
Schedule 2.5 between Seller and Buyer.
"Audit" or "audited" when used in regard to financial statements shall mean
an examination of the financial statements by a firm of independent public
accountants in accordance with GAAP consistently applied for the purpose of
expressing an opinion thereon.
"Balance Sheet" shall mean the balance sheet of Seller included in their
unaudited financial statements as at and for the year ended December 31, 1995.
"Balance Sheet Date" shall mean December 31, 1995.
"Bill of Sale" shall mean the Bill of Sale in the form of Schedule 2
hereto.
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in the Borough of
Manhattan, the City of New York, are authorized or obligated by law or executive
order to close.
"Business Employees" shall mean the employees of Seller.
"Buyer's Accountants" shall mean Coopers & Lybrand LLP or such other firm
of independent auditors selected by Buyer.
"Certificate of Incorporation" shall mean the certificate of incorporation,
articles of incorporation or charter of a corporation howsoever denominated
under the laws of the jurisdiction of its organization.
"Close of Business" on any given date shall mean 5:00 p.m., New York time,
on such date; provided, however, that if such date is not a Business Day, "Close
of Business" shall mean 5:00 p.m., New York time, on the next succeeding
Business Day.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
The term "control", with respect to any person, shall mean the power to
direct the management and policies of such person, directly or indirectly, by or
through stock ownership, agency or otherwise, or pursuant to or in connection
with an agreement, arrangement or understanding (written or oral) with one or
more other persons by or through stock ownership, agency or otherwise; and the
terms "controlling" and "controlled" shall have meanings correlative to the
foregoing.
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"Escrow Agent" shall mean Brobeck, Phleger & Harrison LLP and each
successor Escrow Agent appointed in accordance with the provisions of the Escrow
Agreement.
"Escrow Agreement" shall mean the Escrow Agreement dated October 9, 1996
hereto among Transworld, Seller, Stockholder, Escrow Agent and Sanders Morris
Mundy Inc.
"Existing A/R" shall mean the accounts receivable of Seller pertaining to
goods sold and services performed on or prior to the Closing Date, whether or
not an invoice has been submitted for such goods and services as of the Closing
Date.
"GAAP" shall mean generally accepted accounting principles in effect on the
date hereof as set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or as
may be generally accepted by the accounting profession of the United States.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"IRS" shall mean the Internal Revenue Service.
"Liability" shall mean any direct or indirect indebtedness, liability,
claim, loss, damage, deficiency, obligation or responsibility, fixed or unfixed,
choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise.
"Lien" shall mean any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended, and
all rules and regulations promulgated thereunder.
"1933 Act" shall mean the Securities Act of 1933, as amended, and all rules
and regulations promulgated thereunder.
"Net Book Value" shall mean with respect to any asset, the depreciated book
value of such asset as of the Effective Date, determined in accordance with
GAAP.
"October Net Revenues" shall mean the gross revenues generated by the
Business (net of normal and other contractual allowances determined on a basis
consistent with prior periods) and exclusive of extraordinary items and charges
or credits relating to other periods during the period from October 1, 1996
through Closing.
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"October Expenses" shall mean the sum of (i) the direct cost of goods sold
and related direct packaging costs incurred in generating the October Net
Revenue on a basis consistent with prior periods exclusive of extraordinary
items and charges or credits relating to other periods, net of the applicable
portion of the product discount related to Humatrope (which discount is equal to
4% of the cost of Humatrope and any other applicable discounts or credits, and
(ii) those specific identifiable costs which would have been incurred by Buyer
had it operated the Business during such period on a fully integrated basis, all
as more fully described on Schedule 2.11 hereto.
The term "person" shall mean an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
"Seller's Accountants" shall mean Deloitte & Touche, independent certified
public accountants, or such other accounting firm selected by Seller that is
acceptable to Buyer.
"Subsidiary" as to any person shall mean any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are owned
directly or indirectly through one or more intermediaries, or both, by such
person.
"Tax" (including, with correlative meaning, the terms "Taxes" and
"Taxable") shall mean: (i) any net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property or windfall
profits tax, alternative or add-on minimum tax, customs duty or other tax, fee,
assessment or charge of any kind whatsoever, together with any interest and any
penalty, addition to tax or additional amount imposed by any governmental
authority (domestic or foreign) responsible for the imposition of any such tax
(a "Taxing Authority"), with respect to Seller; (ii) any liability for the
payment of any amount of the type described in the immediately preceding clause
(i) as a result of Seller being a member of an affiliated or combined group with
any other corporation at any time on or prior to the Closing Date; and (iii) any
liability of Sellers for the payment of any amounts of the type described in the
immediately preceding clause (i) as a result of a contractual obligation to
indemnify any other person (other than Buyer).
"Taxable Year" shall mean, with respect to any Tax of Seller, the calendar
or fiscal year, or shorter period, for which the Tax is computed and the Return
for such Tax is made.
"Transaction Documents" shall mean, collectively, this Agreement, the
Escrow Agreement, the Non-Compete Agreements, the Assumption Agreement, the Bill
of Sale and each of the other agreements and instruments to be executed and
delivered by all or some of the parties hereto in connection with the
consummation of the transactions contemplated hereby.
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The term "voting power" when used with reference to the capital stock of,
or units of equity interests in, any person shall mean the power under ordinary
circumstances (and not merely upon the happening of a contingency) to vote in
the election of directors of such person (if such person is a corporation) or to
participate in the management and control of such person (if such person is not
a corporation).
(b) The following terms are defined in the following sections of this
Agreement:
Term Section
---- -------
Asserted Liability 7.4(a)
Assumed Liabilities 2.5(a)
Business Recital
Claims 3.11
Claims Notice 7.4(a)
Closing 2.6
Closing Date 2.6
Condition of the Business 3.3
Contemplated Transactions 3.1
Contracts 3.2
Debt 3.6(d)
Deposit 2.4
Effective Date 2.11
Environmental Laws 3.21(a)
Environmental Matters 3.21(a)
Environmental Permits 3.21(e)
ERISA 3.14(a)
Excluded Assets 2.3
Excluded Obligations 2.5(b)
Existing Accounts 2.1(f)
Financial Statements 3.6(a)
Governmental Bodies 3.20
Group 3.14(a)
Group Plans 3.14(a)
Hazardous Materials 3.21(a)
Indemnifying Party 7.4(a)
Indemnitee 7.4(a)
Intellectual Property Rights 3.10
Laws 3.20
Liabilities Definitions
Losses 7.2
Marketed Accounts 2.10
Orders 3.20
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Term Section
---- -------
Permits 3.22
Plan 3.14(b)
Products 3.11
Proposed Contracts 3.9(a)(xxi)
Purchased Assets 2.1
Real Property Leases 3.8
Receivables 3.6(c)
Representatives 5.2
Required Consents 3.2
Retained Employees 2.9
Returns 3.13(a)
Selected Employees 2.9
Settlement Account 2.11(b)
Tangible Property 3.8(b)
Transition Expenses 2.9
Transition Period 2.9
SECTION 1.2 Interpretation. Unless the context otherwise requires, the
terms defined in Section 1.1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms defined herein. All accounting terms defined in this Article I,
and those accounting terms used in this Agreement not defined in Section 1.1,
except as otherwise expressly provided herein, shall have the meanings
customarily given thereto in accordance with GAAP. Except as otherwise expressly
provided herein, all terms used in conjunction with a description of securities
shall have the meanings given to those terms under the 1934 Act. When a
reference is made in this Agreement to Sections, such reference shall be to a
Section of this Agreement unless otherwise indicated. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation". The use of the neuter gender herein
shall be deemed to include the masculine and feminine genders wherever necessary
or appropriate, the use of the masculine gender shall be deemed to include the
neuter and feminine genders and the use of the feminine gender shall be deemed
to include the neuter and masculine genders wherever necessary or appropriate.
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ARTICLE II
PURCHASE AND SALE; CLOSING; OTHER MATTERS
SECTION 2.1 Purchase and Sale of Purchased Assets. Except as otherwise
provided in Section 2.3, at the Closing, Seller shall sell, assign, transfer,
convey and deliver to Buyer, and Buyer shall acquire and purchase from Seller,
all the Purchased Assets, free and clear of all Liens. As used in this
Agreement, the term "Purchased Assets" shall mean all of the properties, rights,
goodwill, franchises, interests and assets of every kind, real, personal or
mixed, tangible or intangible, and wheresoever situated, belonging to Seller
whether or not reflected on the books and records of Seller, other than the
Excluded Assets, including, but not limited to:
(a) Those fixed assets, and certain inventory which are purchased pursuant
to Section 2.7 hereof which if, and only if, so purchased shall be deemed to be
a Purchased Asset;
(b) All claims, rights and choses in action of Seller against third
parties, including but not limited to those in respect of unliquidated rights,
under manufacturers' and vendors' warranties, guarantees or similar obligations,
other than Existing A/R and product credits and product replacements from any
supplier earned through the Effective Date;
(c) All trademarks, trade names, service marks, logos (excluding the U.S.
HomeCare Corporation logo), designs and other intangible property (including all
Federal, state and foreign registrations and applications for registration of
such trademarks, trade names, service marks, logos or designs) owned by Seller
or used in the Business;
(d) All rights, titles and interests of Seller in, to and under all
Contracts (other than Real Property Leases and any contract included within the
Excluded Assets);
(e) All prepaid expenses, claims and other prepayments, including prepaid
supplies, and deferred charges attributable to the Contracts of Seller that are
to be assigned to Buyer under this Agreement;
(f) All patient and customer lists, copies of files and computer system
files and data files relating to existing patients and any inactive patient,
(i.e. a patient not currently on service, but who is expected to or could resume
service in the future) (collectively, the "Existing Accounts"), credit policies
and credit information with respect to all patients and customers of, and all
cost and pricing data for, the Business;
(g) All supplier lists, product specifications, bills of materials and all
other production information;
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(h) All employee records of the Business with respect to Selected
Employees;
(i) All existing business plans, advertising and promotional plans, product
development plans, forecasts, market research reports and competitor
information;
(j) All existing formulae, technology, trade secrets, and know-how used by
Seller in connection with the Business, and other similar data;
(k) All rights under permits, licenses, franchises and similar
authorizations of Seller (including all rights of Sellers to obtain renewals and
extensions thereof), to the extent transferable;
(l) All patents, patent applications, copyrights and copyright applications
of Seller (including all rights of Seller to obtain renewals and extensions
thereof); and
(m) All existing referral sources to and of the Business.
SECTION 2.2 Transfer, Assignment and Conveyance of Purchased Assets.
(a) Instruments of Transfer, Assignment, Conveyance and Assumption, Etc. At
the Closing, Seller will deliver to Buyer the Bill of Sale, Assumption
Agreement, instruments of transfer of Intellectual Property Rights, and any
other instruments of transfer, conveyance and assignment deemed necessary or
desirable by Buyer to transfer all the Purchased Assets, all as provided in
Section 2.1. Simultaneously therewith, Seller shall take all steps as may be
reasonably necessary or desirable to put Buyer in possession or control of all
the Purchased Assets. At the Closing, Buyer will deliver to Seller the
Assumption Agreement and any other instruments of assumption necessary to
evidence the assumption by Buyer of the Assumed Liabilities, all as provided in
Section 2.5.
(b) Power of Attorney; Right of Endorsement. Effective upon the Closing
Date, Seller hereby constitutes and appoints Buyer, and any successors and
assigns, as the true and lawful attorney of Seller with full power of
substitution, in the name of Buyer, or the name of Seller, on behalf of and for
the benefit of Buyer, to (i) institute and prosecute, in the name of Seller or
otherwise, all proceedings which Buyer may deem proper in order to assert or
enforce any right or title of any kind in or to the Purchased Assets to be
transferred, conveyed and assigned as provided herein, (ii) with notice to
Seller as provided herein, defend and compromise any and all actions, suits or
proceedings in respect of any of the Purchased Assets, and (iii) do all such
acts and things in relation thereto as Buyer may deem advisable. Seller agrees
that the foregoing powers are coupled with an interest and shall not be
revocable by the dissolution of Seller or in any other manner or for any reason.
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(c) Further Assurances. At any time and from time to time after the Closing
Date, upon the request of Buyer, Seller and the Stockholder, without further
consideration, will do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged or delivered, all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney or assurances (including obtaining
any Required Consent not delivered at Closing with the approval of Buyer) as may
be reasonably required for the better transferring, assigning, conveying,
granting, assuring and confirming to Buyer, or for aiding and assisting in the
collection of or reducing to possession by Buyer, any of the Purchased Assets to
be transferred, conveyed and assigned hereunder or to vest in Buyer all of
Seller's right, title and interest in and to the Purchased Assets being conveyed
hereunder.
(d) Access by Buyer and Seller. Those books and records the possession of
which is not being transferred to Buyer pursuant to this Agreement which relate
to the Purchased Assets shall be preserved and maintained by Seller for seven
years from the Closing Date. Seller and Stockholder shall give to Buyer and its
authorized Representatives, during normal business hours, such access to such
books and records retained by Seller and Stockholder as may be reasonably
required by Buyer. Buyer shall be entitled, at its own expense, to make extracts
and copies thereof and Seller and Stockholder shall cooperate with Buyer in
connection with accomplishing the same. Seller and Stockholder shall deliver to
Buyer at Closing (and thereafter as the case may be) the originals of all
documents, records, instruments and files as Buyer shall require or request to
operate the Business as of and after the Closing or to satisfy any obligation to
Seller hereunder. Those books and records relating to the Purchased Assets being
transferred to Buyer shall be preserved and maintained by Buyer for seven years
from the Closing Date and shall be made available to Seller at its expense for
copying at reasonable times, upon reasonable notice.
SECTION 2.3 Excluded Assets. Anything in Section 2.1 to the contrary
notwithstanding, there shall be excluded from the assets, properties, rights and
businesses to be transferred to Buyer hereunder those items listed on Schedule
2.3 attached hereto. Such assets, properties and rights not being purchased by
Buyer as aforesaid are hereinafter collectively called the "Excluded Assets".
SECTION 2.4 Purchase Price. Subject to the terms and conditions of this
Agreement:
(a) The purchase price (the "Purchase Price") payable by Buyer for the
Purchased Assets shall, subject to adjustment as provided in Sections 2.7 and
2.11 hereof, equal the sum of $2,000,000 plus interest from October 1, 1996 to
the Closing Date at the per annum rate equal to Transworld's effective borrowing
rate as of the Closing Date, which Purchase Price includes the sum of $350,000
(the "Deposit"), which sum has been placed in escrow with the Escrow Agent and
which shall be released as provided in the Escrow
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Agreement. The balance of the Purchase Price, as adjusted, shall be payable by
wire transfer to Seller at Closing.
(b) The Purchase Price shall be allocated among the Purchased Assets in the
manner set forth on Schedule 2.4(b). Seller and Buyer agree that such
allocations shall be utilized by the parties for all purposes.
SECTION 2.5 Assumption of Liabilities.
(a) Liabilities Assumed by Buyer. In addition to payment of the Purchase
Price, except for the Excluded Obligations (as defined below), Buyer shall
assume, as of the Closing Date, the Liabilities of Seller relating to the
Business listed on Schedule 2.5(a) attached hereto. Such obligations and
liabilities to be assumed by Buyer pursuant to this Agreement are sometimes
collectively referred to herein as the "Assumed Liabilities."
(b) Liabilities Not Assumed by Buyer. Anything in this Agreement to the
contrary notwithstanding, Buyer shall not assume, or in any way be liable or
responsible for any liability or obligation of Seller or any other person
relating to the Business which, is not listed on Schedule 2.5(a), including but
not limited to all accounts and trade payables incurred prior to Closing and all
amounts owed to Seller's Humatrope supplier. Such obligations and liabilities of
Seller not being assumed by Buyer are referred to herein collectively, as
"Excluded Obligations". Seller and the Stockholder shall take any and all action
which may be necessary to prevent any person from having recourse against any of
the Purchased Assets or against Buyer as transferee thereof with respect to any
Excluded Obligations and shall indemnify Buyer and hold it harmless therefrom.
SECTION 2.6 Closing. The closing (the "Closing") of the purchase and sale
of the Purchased Assets hereunder shall take place at the offices of Baer Marks
& Upham LLP, 805 Third Avenue, New York, New York at 10:00 a.m., local time, on
October 31, 1996, provided that all applicable conditions to Closing specified
in Article VI have been satisfied, or at such other time and place upon which
Seller and Buyer may agree (the time and date of the Closing being hereinafter
called the "Closing Date"). All transactions consummated at the Closing shall be
deemed to have taken place simultaneously and shall be deemed to be effective as
of the Close of Business of Seller on the Closing Date.
SECTION 2.7 Purchase of Additional Assets. (a) At Closing, Buyer shall have
the right to purchase those fixed assets of Seller (other than Excluded Assets)
as it shall have notified Seller of at or prior to Closing, at a purchase price
equal to 40% of the Net Book Value of such assets.
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(b) At Closing, Buyer shall purchase Seller's usable inventory (as
reasonably determined by Buyer) on hand as of the Closing Date at the lesser of
Seller's acquisition cost or, if a material difference exists, the cost that
such inventory is customarily acquired at by Transworld and Seller's inventory
of usable pumps (as reasonably determined by Buyer) on hand as of the Closing
Date at the fair market value thereof as determined by one or more third party
vendors mutually acceptable to Buyer and Seller. The Buyer and Seller shall make
a mutual good faith estimate of the purchase price of the inventory and pumps so
purchased which amount shall also be paid at Closing. The calculation of the
final purchase price for the inventory and pumps shall be made by Buyer and
Seller or the third party vendors, respectively, within the ninety (90) day
period following Closing and any adjustment shall, subject to Section 2.11, be
paid to Seller or Buyer, as the case may be, by certified check or wire transfer
within five (5) Business Days thereafter.
SECTION 2.8 Collection of Existing A/R. (a) Following the Closing, Seller
will continue to collect the Existing A/R. Commencing on the ninety-first day
following the Closing Date and for a period of 180 days thereafter, to the
extent requested by Seller, Buyer will use commercially reasonable efforts
(which, it being specifically understood and agreed, shall not include the
institution of litigation or other extraordinary actions) to assist Seller in
the collection of the Existing A/R. In consideration thereof, Seller shall
reimburse Buyer for all of its actual costs of personnel who are involved in the
collection of such Existing A/R and all other costs directly related to the
collection by Buyer of the Existing A/R (such as telephone and postage) but not
including overhead costs, which reimbursable costs and time records Buyer will
document for Seller in reasonable detail. Such reimbursement shall be made
within five (5) Business Days following receipt of Buyer's records. Proceeds of
collection of the Existing A/R shall continue to be deposited into Seller's
lender lockbox without any right of offset by Buyer. Seller and Stockholder
jointly and severally agree to remit to Buyer weekly, any funds that have been
received in the lockbox which pertain to goods sold or services performed after
the Closing Date. Following the expiration of the 180 day period, the parties
will re-evaluate any further collection arrangements with respect to collection
of Existing A/R. The parties acknowledge and agree that Buyer does not guarantee
the collection or collectibility of any Existing A/R either during or after the
expiration of any collection period.
(b) The parties shall each have the right to review the collection status
of all accounts monthly and Seller shall have the right to continue to actively
seek collection of the Existing A/R. Clinical and reimbursement documentation
with respect to Existing A/R will remain the property of Seller; provided
however, that if Seller elects to have Buyer assist in its collection efforts,
it shall deliver to Buyer, at the time of such request, copies of all records
necessary to enable Buyer to provide such assistance; and provided further, that
Buyer will retain such documentation with respect to the Existing A/R as shall
be necessary to manage its ongoing operations, and will give Seller reasonable
access to such documentation during any collection period.
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SECTION 2.9 Certain Employees; Use of Facilities. (a) Buyer shall have the
right to designate at Closing and through the period ending December 1, 1996 (or
such later date, which shall not be more than 60 days following Closing, as
Buyer shall advise Seller of by November 25, 1996, such period being referred to
as the "Transition Period") by notice to Seller, those employees of Seller
(other than the employees listed on Schedule 2.9, who shall remain employees of
Seller (the "Retained Employees")) it desires to employ and Seller and
Stockholder shall use their respective best efforts to assist Buyer in the
hiring of and retention of such employees (herein, the "Selected Employees"),
and Buyer shall be responsible for all costs after Closing associated with such
Selected Employees. Buyer shall have no obligation, however, to offer employment
to any of Seller's or Stockholder's employees and shall have no obligation or
liability with respect to any employees, except as expressly provided in this
Agreement. Buyer and Transworld agree not to solicit the Retained Employees for
employment by either of them or any of their Affiliates for a period of one (1)
year from the Closing Date to the extent that they remain employees of Seller or
Stockholder during such period.
(b) Seller and Stockholder shall pay all accrued salary, taxes, benefits
and other costs for its existing employees including the Selected Employees
through the end of the Transition Period. Commencing on the date immediately
following the end of the Transition Period, Buyer shall be responsible for all
salary, taxes, benefits and other costs of the Selected Employees.
(c) Consistent with pharmacy and homecare licensing and regulatory
requirements, Seller and Stockholder agree that Buyer and Transworld shall have
the right to use, without cost to Buyer or Transworld, Seller's existing
facilities during the Transition Period, in order to ensure an orderly
transition of the Purchased Assets to Buyer. Buyer acknowledges that Seller will
also be using such facilities for its ongoing operations and shall cooperate
with Seller in seeking to minimize any interference with such operations. In
order to ensure an orderly transition of care for those patients for whom Seller
has provided home infusion therapy products or services prior to the Closing,
Seller and Stockholder agree that during the Transition Period, Seller shall
dispense on behalf of Buyer and Transworld such pharmaceutical products for such
patients as Buyer or Transworld requests. Seller shall deliver such
pharmaceutical products in the manner and to the locations as Buyer or
Transworld shall from time to time direct. For any such pharmaceutical products
sold by Seller, Buyer shall pay Seller or Stockholder an amount equal to
Seller's or Stockholder's direct costs (which shall mean the cost of drugs,
direct labor costs, packaging and delivery) for such pharmaceutical products.
Seller and Stockholder agree that Seller shall maintain all necessary licenses
and permits to permit them to perform their obligations hereunder. Seller,
Stockholder, Buyer and Transworld shall cooperate with each other as necessary
to facilitate the proper billing by Buyer and reimbursement from third party
payors for such pharmaceutical products.
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(d) During the Transition Period, in order to assist in the transition of
the Business to Buyer, Buyer shall have the right to request that Seller use its
reasonable best efforts to retain its existing employees and existing business
functions of the Business, and Buyer shall be responsible for paying all costs
incurred by Seller directly related to such employees and business functions,
other than as set forth on Schedule 2.9(d), (the "Transition Costs"). All
Transition Costs shall be settled from the Settlement Account pursuant to
Section 2.11 hereof.
SECTION 2.10 Certain Nursing Services. (a) In order to assist in providing
continuity of care to patients who are included within the Existing Accounts and
any accounts which are referred to Transworld or an Affiliate by Seller or
Stockholder (the "Marketed Accounts") during the ninety (90) day period after
the Closing, Buyer will utilize Stockholder's skilled nurses at a rate of $90
per visit in cases where skilled nursing services are required in connection
with infusion therapy services or products. With respect to visits which are
longer than two (2) hours, Seller and Stockholder will bill Buyer at the rate of
$45 per hour for each additional hour, in addition to the base rate of $90 per
visit; provided however, that where a CHHA will reimburse Buyer in connection
with nursing services related to the provision of gamma globulin, Seller and
Stockholder will bill Buyer the same amount as Buyer will be reimbursed by the
CHHA. Buyer and Transworld agree that, during such 90-day period, neither they
nor their Affiliates will solicit such nurses for employment, except to the
extent that such nurses are included within the Selected Employees. Seller,
Stockholder and Transworld's Steri-Pharm, Inc. subsidiary will enter into such
nursing services agreements as Buyer, Transworld and Seller may request, which
agreements shall contain terms consistent with the foregoing and such other
terms as are normal, customary and appropriate for nursing services agreements.
If after such 90 day period, Buyer requests Seller or Stockholder to continue to
provide such skilled nursing services, Seller and Stockholder shall continue to
provide such skilled nursing services and Buyer or Transworld shall reimburse
Seller or Stockholder at the greater of (i) the rates set forth above or (ii)
Seller's or Stockholder's direct costs incurred in providing such skilled
nursing services.
(b) Transworld agrees that after the Closing, and until the second
anniversary thereof, Stockholder shall be given a preferential opportunity to
provide skilled nursing services to Transworld at service rates no higher than
can be obtained by Transworld from other sources, in those markets where
Stockholder now or hereafter provides such skilled nursing services, except that
Stockholder shall not be entitled to any such preference in any markets where
(i) Transworld or any Affiliate thereof now or hereafter provides such skilled
nursing services, (ii) Transworld or any Affiliate thereof is committed to
utilize nursing services from another provider, or (iii) Transworld or any
Affiliate thereof has been directed by a referral source to use a particular
provider (which may include Transworld or its Affiliates).
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(c) The parties acknowledge and agree that in furtherance of the provisions
of Section 2.9 hereof, and in order to provide continuity of care, the parties
contemplate that (and Seller and Stockholder shall use their reasonable best
efforts to cause) as of and after Closing (i) the two (2) CHHA nurses of Seller
based in Queens, New York will remain employees of Stockholder or its
subsidiaries and will be cross-charged to Buyer under a nursing services
agreement which will provide for their full salary, benefits and on-call
expenses and (ii) the two (2) CHHA nurses of Stockholder or its subsidiaries
based in Scarsdale, New York will become employees of Transworld's Steri-Pharm,
Inc. subsidiary.
SECTION 2.11 Effective Date. (a) To the extent permitted by applicable law
and, in the manner provided in this Section 2.11, and provided that the Closing
has occurred, the parties intend that all of the Purchased Assets shall be
deemed vested in and with the Buyer, effective as of the commencement of
business on October 1, 1996 (the "Effective Date").
(b) The parties acknowledge and agree that the October Net Revenues,
subject to the October Expenses, shall be for the benefit of the Buyer. As of
the Closing Date the parties shall jointly prepare a good faith estimate of the
October Net Revenues and the October Expenses. At Closing, an amount equal to
20% of the October Net Revenues (as so estimated) shall be paid to Buyer in
cash, and an amount equal to the October Net Revenues less the October Expenses
less such 20% payment shall be recorded on the books and records of the Seller
as an account payable to Buyer (the "Settlement Account"). Within the sixty (60)
day period following Closing, Buyer and Seller shall endeavor to finalize the
October Net Revenues and Expenses, and on the ninetieth day following Closing,
Seller shall pay to Buyer the Settlement Account as adjusted for any
post-Closing adjustments to be made pursuant to Section 2.7 hereof and any
amounts due to Seller pursuant to Section 2.9(d); provided, however that Seller
may retain an amount equal to 3% of October Net Revenues from the payment of the
Settlement Account as an offset against actual bad debt in excess of 7% of
October Net Revenues, with any unused portion of said 3% to be paid to Buyer on
the 180th day following Closing. In the event that the parties are unable to
agree as to such amounts, they shall, within fifteen (15) days following the
expiration of the sixty (60) day period jointly appoint an independent public
accounting firm who shall, within fifteen (15) days after such appointment,
issue its calculation of the amount of the final Settlement Account amounts,
which calculation, absent manifest error, shall be binding upon the parties. The
cost of any independent accounting firm so appointed shall be shared equally
between Buyer and Seller. In furtherance of Section 3.7 and 5.1, Seller
represents and warrants to Buyer that it has and will operate the Business only
in the ordinary course between October 1, 1996 and Closing.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF SELLER AND THE STOCKHOLDER
Seller and the Stockholder hereby jointly and severally represent and
warrant to Buyer that:
SECTION 3.1 Authority Relative to this Agreement. Seller and the
Stockholder have full power, capacity and authority to execute and deliver this
Agreement and each other Transaction Document to which it is a party and to
consummate the transactions contemplated hereby (the "Contemplated
Transactions"). The execution and delivery of this Agreement and the
consummation of the Contemplated Transactions have been duly and validly
authorized by Seller and the Stockholder and no other proceedings on the part of
Seller or the Stockholder (or any other person) is necessary to authorize the
execution and delivery by Seller and the Stockholder of this Agreement or the
consummation of the Contemplated Transactions. The consideration to be received
by Seller represents the fair value of the Purchased Assets to be transferred to
Buyer. This Agreement has been duly and validly executed and delivered by Seller
and the Stockholder, and (assuming the valid execution and delivery of this
Agreement by the other parties hereto) constitutes the legal, valid and binding
agreement of such party enforceable against such party in accordance with its
terms except as such obligations and their enforceability may be limited by
bankruptcy, insolvency reorganization, moratorium and other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies, including specific performance, is subject
to the discretion of the court before which any proceeding therefor may be
brought (whether at law or in equity).
SECTION 3.2 No Conflicts; Consents. The execution, delivery and performance
by Seller and the Stockholder of this Agreement and each other Transaction
Document to which it is a party and the consummation of the Contemplated
Transactions will not (i) violate any provision of the Certificate of
Incorporation or By-laws (or comparable instruments) of Seller; (ii) require
Seller or the Stockholder to obtain any consent, approval or action of, or make
any filing with or give any notice to, any Governmental Body or any other
person, except as set forth on Schedule 3.2 (the "Required Consents"); (iii) if
the Required Consents are obtained, violate, conflict with or result in the
breach of any of the terms of, result in a modification of the effect of, or
otherwise cause the termination of or give any other contracting party to a
contract the right to terminate, or constitute (or with notice or lapse of time
or both constitute) a default (by way of substitution, novation or otherwise)
under any contract, agreement, indenture, note, bond, loan, instrument, lease,
conditional sale contract, purchase order, sales order, agreement with customer,
agreement with supplier, union contract, collective bargaining agreement,
mortgage, license, permit, franchise, commitment or other binding
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arrangement, whether written, oral, express or implied, (the "Contracts") to
which Seller isa party or by or to which Seller or any of its properties may be
bound or subject, or result in the creation of any Lien upon the Purchased
Assets or upon the properties of Seller pursuant to the terms of any such
Contract; (iv) if the Required Consents are obtained, violate any Order of any
Governmental Body against, or binding upon, Seller or upon its respective
securities, properties or business; (v) if the Required Consents are obtained,
violate any Law of any Governmental Body, or (vi) if the Required Consents are
obtained, violate or result in the revocation or suspension of any Permit.
SECTION 3.3 Corporate Existence and Power. Seller is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation, and has all requisite powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted. Seller is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so qualified
would not, individually or in the aggregate, have a material adverse effect on
the business, properties, financial condition or the results of operations of
Seller and its Affiliates, individually or taken as a whole (the "Condition of
the Business"). Seller is not qualified to do business as a foreign corporation
in any other jurisdiction.
SECTION 3.4 Subsidiaries. Seller does not own, directly or indirectly, any
equity or other interest in any other person and has no Subsidiaries.
SECTION 3.5 Charter Documents and Corporate Records. (a) Seller has
heretofore delivered to Buyer true and complete copies of the Certificate of
Incorporation (certified by the Secretaries of State or other appropriate
official of its jurisdictions of incorporation) and By-laws (certified by
Seller's secretary or an assistant secretary), or comparable instruments, of
Seller as in effect on the date hereof. The stock books of Seller which have
been made available to Buyer for its inspection are true and complete. The
Stockholder is the sole record and beneficial owner of all of the outstanding
capital stock of Seller and there are no options, warrants or other agreements
of any kind outstanding or proposed to be issued with respect to the capital
stock of Seller.
(b) All financial, business and accounting books, ledgers, accounts and
other records relating to Seller have been properly and accurately kept and
completed in all material respects except as set forth on Schedule 3.5(b)
hereto.
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SECTION 3.6 Financial Statements. (a) Seller has delivered to Buyer
unaudited financial statements of Seller consisting of a statement of net assets
being sold and statement of income as at and for the six-month period ended June
30, 1996, and unaudited financial statements of Seller consisting of statement
of net assets being sold and statement of income as at and for Seller's fiscal
year ended December 31, 1995. Such financial statements (collectively, the
"Financial Statements") present fairly the financial position of Seller and the
results of its operations and changes in financial position as of the dates and
for the periods indicated, in conformity with GAAP consistently applied during
each of such periods.
(b) Except as set forth on Schedule 3.6(b): (i) As at the Balance Sheet
Date, Seller did not have any Liabilities that were not fully and adequately
reflected or reserved against on the balance sheet contained in, or in the notes
to, the December 31, 1995 Financial Statements; (ii) Seller has not, except in
the ordinary course of business consistent with past practice and except for
customary expenses incurred in connection with the Contemplated Transactions,
incurred any Liabilities since the Balance Sheet Date; and (iii) neither Seller
nor the Stockholder has any knowledge of any circumstance, condition, event or
arrangement that they reasonably anticipate would hereafter give rise to any
Liabilities of Seller or any successor to its businesses except Liabilities
arising in the ordinary course of business consistent with past practice and
customary expenses incurred in connection with the Contemplated Transactions.
Seller and Stockholder represent and warrant that they know of no reason why the
Financial Statements cannot be audited in accordance with the requirements of
Section 5.3 hereof.
(c) The accounts receivable of Seller with respect to patients who have
been on service since June 1, 1996 (the "Receivables") (except such Receivables
as have been collected since such date) constitute bona fide Receivables
resulting from the sale of goods and services in the ordinary course of business
in conformity with applicable purchase orders and agreements. Except as
otherwise disclosed by Seller to Buyer, such Receivables are subject to no valid
defense, offsets, returns, allowances or credits of any kind other than
defenses, offsets, returns, allowances and credits arising in the ordinary
course of business, it being understood that nothing herein shall be interpreted
as a guarantee of the collectibility of such Receivables.
(d) Insofar as it relates to or affects the Purchased Assets, Schedule
3.6(d) sets forth a brief description of all Liabilities of Seller in respect of
(i) money borrowed from and owed to any bank, financial institution or other
person and (ii) any indebtedness or potential indebtedness under any guaranty,
letter of credit or performance credit (collectively, "Debt"). Except as set
forth on Schedule 3.6(d), all Debt may be repaid or prepaid upon no more than 30
days' notice without premium or penalty.
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SECTION 3.7 Absence of Certain Changes. Since the Balance Sheet Date,
except as contemplated by this Agreement or disclosed in Schedule 3.7, Seller
has conducted its business in the ordinary course consistent with past practices
and there has not been:
(a) Any event (other than those events affecting the infusion therapy
industry generally) that has had or would reasonably be expected to have a
material adverse effect on the operations of Seller, individually or in the
aggregate;
(b) Any amendment to the Certificate of Incorporation or By-laws of Seller
or any amendment to any term of any outstanding security of Seller;
(c) Insofar as it relates to or affects the Purchased Assets, any (i)
incurrence, assumption or guarantee by Seller of any debt other than in the
ordinary course of business in amounts and on terms consistent with past
practices, (ii) issuance or sale of any securities convertible into or
exchangeable for debt securities of Seller, or (iii) issuance or sale of options
or other rights to acquire from Seller, directly or indirectly, debt securities
of Seller or any securities convertible into or exchangeable for any such debt
securities;
(d) Insofar as it relates to or affects the Purchased Assets, any creation,
incurrence or assumption by Seller of any lien on any asset other than (i) liens
for Taxes not yet due or being contested in good faith (and for which adequate
reserves have been established); (ii) liens which do not materially detract from
the value of such asset as now used, or materially interfere with any present or
intended use of such asset; or (iii) warehousemen's, mechanics', carriers',
landlords', repairmen's or other similar liens arising in the ordinary course of
business;
(e) Insofar as it relates to or affects the Purchased Assets, any making or
forgiving of any loan, advance or capital contribution to or investment in any
person other than loans, advances or capital contributions to or investments in
wholly-owned subsidiaries made in the ordinary course of business consistent
with past practices;
(f) Any damage, destruction or other casualty loss (whether or not covered
by insurance) affecting the business or assets of Seller which, individually or
in the aggregate, has had or will reasonably be expected to have a material
adverse effect on its operations;
(g) Except in the ordinary course of business, any transaction or
commitment made, or any Contract entered into, by Seller relating to its assets
or business (including the acquisition or disposition of any substantial assets)
or any relinquishment by Seller or other party of any Contract or other right;
(h) Any change in any method of accounting or accounting practice by Seller
or its marketing practices;
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(i) Any assumption or guarantee of the obligations of any person;
(j) Insofar as it may affect or relate to any Selected Employee, any grant
of any severance or termination pay to any employee of Seller, any entering into
of any employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any employee of Seller or any
increase in benefits payable under any existing severance or termination pay
policies or employment agreements, or any increase in compensation, bonus or
other benefits payable to any employee of Seller, other than routine increases
for employees in the ordinary course of business or disclosed to Buyer in
writing prior to the date hereof or on any Schedule;
(k) Any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to organize
any employees of Seller, which employees were not subject to a collective
bargaining agreement at the Balance Sheet Date, or any lockouts, strikes,
slowdowns, work stoppages or, to the knowledge of Seller, threats thereof by or
with respect to such employees;
(l) Any intentional waiver of any material right under any Contract of the
type required to be set forth on any Schedule;
(m) Except for any changes made in the ordinary course of business, any
material change in any business policies of Seller, including pricing,
purchasing, production, personnel, sales or product acquisition/return policies;
(n) Except in the ordinary course of business, any payment, directly or
indirectly, of any Liability before the same became due in accordance with its
terms;
(o) Any termination or failure to renew, or the receipt of any written
threat (that was not subsequently withdrawn) to terminate or fail to renew, any
Contract that is or was material to the operation; or
(p) Any agreement or arrangement made by Seller to take any action which,
if taken prior to the date hereof, would have made any representation or
warranty in this Section untrue or incorrect in any material respect.
SECTION 3.8 Properties. (a) Schedule 3.8(a) sets forth a brief description
(including the address) of all real property leased by Seller ("Real Property
Leases"); the date of the lease and any amendments thereto, the term thereof,
the term of any renewal options and the aggregate monthly rental payable
thereunder. Seller owns no real property.
(b) Schedule 3.8(b) sets forth a complete and correct list and description
of all tangible property (the "Tangible Property"), owned or used by Seller or
which Seller holds
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an option to acquire having a book value individually of $5,000 or more or
$10,000 or more in the aggregate in case of any group of similar items of
Tangible Property, including, without limitation, all machinery, equipment,
furniture, furnishings, leasehold improvements, fixtures, vehicles and
structures. All Tangible Property selected by Buyer pursuant to Section 2.7
shall be in a state of working order except for a nonmaterial portion of such
Tangible Property that may be undergoing repairs or maintenance in the ordinary
course.
(c) Except as set out in Schedule 3.8(c) and insofar as it may affect or
relate to the Purchased Assets, Seller has good title to, or in the case of
leased property have valid leasehold interests in, all properties and assets
(whether real, personal, tangible or intangible) reflected on the Balance Sheet
or acquired after the Balance Sheet Date except for properties and assets sold
or disposed of since the Balance Sheet Date in the ordinary course of business
consistent with past practice. Except as set forth on Schedule 3.8(c), none of
such properties or assets is subject to any Liens, except:
(i) Liens disclosed on the Balance Sheet or the notes thereto;
(ii) Liens for taxes not yet due or being contested in good faith (and for
which adequate reserves have been established on the Balance Sheet);
(iii)Liens which do not materially detract from the value of such property
or assets as now used, or materially interfere with any present or intended use
of such property or assets; or
(iv) Warehousemen's, mechanics', carriers', landlords', repairmen's or
other similar Liens arising in the ordinary course of business.
SECTION 3.9 Contracts. (a) Except for (i) purchase orders with suppliers or
sales orders from patients or customers arising in the ordinary course of
business and (ii) Contracts pursuant to the terms of which Seller is to make or
receive payments not in excess of $10,000, in the aggregate, throughout the term
thereof, Schedule 3.9 sets forth as of the date hereof a complete and accurate
list and description of all Contracts to which Seller is a party or by or to
which it or its assets or properties are bound or subject, including, without
limitation:
(i) Contracts with any current or former shareholder, officer, director,
employee, independent contractor, consultant, agent or other representative or
with any Affiliate of any of the foregoing;
(ii) Contracts with any labor union or association representing any
employee;
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(iii) Contracts for the purchase of materials, supplies, equipment,
merchandise or services in excess of $10,000 for any one individual item;
(iv) Other than in the ordinary course of business: (A) Contracts for
the sale of any of its assets or properties or business or (B) Contracts for
the grant to any person of any preferential rights to purchase any of its
assets or properties;
(v) Partnership or joint venture Contracts;
(vi) Contracts under which Seller agrees to indemnify any party;
(vii) Contracts under which Seller agrees to share Tax liability of or
with any party;
(viii) Contracts that cannot be cancelled without liability, premium or
penalty;
(ix) Contracts that can be cancelled only on 60 days' or more notice;
(x) Any special financial arrangements with the largest (in terms of
sales volume) 25 customers, referral sources or third party payors of Seller
that is outside of Seller's published policies including, but not limited to,
any arrangements relating to chargebacks, allowances and payment terms;
(xi) Contracts with any person to advertise or market Seller's products
or services other than in the ordinary course of business;
(xii) Contracts containing covenants not to compete in any line of
business or with any person in any geographical area (or not to solicit or
accept any business) or covenants of any other person not to compete in any line
of business or in any geographical area (or not to solicit or accept any
business);
(xiii) Contracts relating to the acquisition of any operating business or
the capital shares of any other person;
(xiv) Options for the purchase or sale of any asset, tangible or
intangible;
(xv) Contracts requiring the payment to any person of an override
or similar commission or fee;
(xvi) Contracts relating to all Debt, insofar as it affects or relates
to the Purchased Assets;
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(xvii) Contracts with customers, referral sources, third party payors,
independent suppliers, contractors and manufacturers other than in the ordinary
course of business;
(xviii)Sales agency, licensing, representative, provider, managed care or
distributorship Contracts;
(xix) Contracts for the payment of fees or other consideration to any
officer or director of Seller or to any other entity in which any of the
foregoing has an interest;
(xx) management Contracts and other similar agreements with any person;
(xxi) Any other Contracts not made in the ordinary course of business
or pursuant to the terms of which there is either a current or future obligation
or right of Seller to make payments or receive payments in excess (individually
or, in the case of any group of similar items, in the aggregate) of $10,000
throughout the term thereof. Schedule 3.9 also lists and describes the status of
all Contracts currently in negotiation or proposed by Seller as to which there
exists a draft agreement, letter of intent or similar instrument and which is of
a type which if entered into by Seller would be required to be listed on
Schedule 3.9 or on any other Schedule (the "Proposed Contracts").
(b) There are no Contracts, other than those set forth on Schedule 3.9,
and on any other Schedule hereto, that are required to be disclosed hereunder.
Except as set forth on Schedule 3.9, all such Contracts and all Contracts
reflected on any other Schedule hereto are valid, subsisting, in full force and
effect and binding upon Seller, and, to the best knowledge of Seller, on the
other parties thereto in accordance with their terms, and the Seller has paid in
all respects or accrued all amounts due thereunder and has satisfied in all
respects or provided for all of its liabilities and obligations thereunder to be
satisfied or provided for through the date hereof, and is not in default under
any of them in any material respect, nor, to the best knowledge of Seller, is
any other party to any such Contract in default thereunder in any respect, nor,
to the best knowledge of Seller, does any condition exist that with notice or
lapse of time or both would constitute a default thereunder. Seller and
Stockholder further represent and warrant that notwithstanding that any Contract
may be in the name of another U.S. HomeCare Corporation entity, no such entity
other than Seller has an interest in any such Contracts, and at Closing and
thereafter as provided herein, Seller and Stockholder shall take any further
corrective action to ensure the transfer of such Contract to Buyer (subject to
any Required Consents) as is reasonably requested by Buyer. Except as separately
identified on Schedule 3.9 hereto or on any other Schedule, no approval or
consent of any person is needed in order that the Contracts set forth on
Schedule 3.9 or on any other Schedule continue in full force and effect
following the consummation of the Contemplated Transactions.
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(c) There have been delivered to Buyer, true and complete copies of (i)
all of the Contracts required to be set forth on Schedule 3.9 or on any
other Schedule and (ii) the most recent draft, letter of intent or term sheet of
all of the Proposed Contracts required by the provisions of Section 3.9(a)(xxi)
to be set forth on Schedule 3.9.
SECTION 3.10 Intangible Property. (a) Schedule 3.10 sets forth all patents,
trademarks, copyrights, service marks and trade names owned or used by Seller
relating to the Business, all applications for any of the foregoing, and all
permits, grants and licenses or other rights running to or from Seller relating
to any of the foregoing (the "Intellectual Property Rights"), and there are no
other patents, trademarks, copyrights, service marks and trade names that are
material to the Business. To the best of Seller's knowledge: (i) with respect to
trademarks material to the Business as presently conducted (and only in such
jurisdictions where such trademarks are material to the Business as presently
conducted), all renewals of the registrations set forth in Schedule 3.10 for
such trademarks have been appropriately filed; (ii) Seller has exercised its
best efforts to ensure compliance with all registration requirements, and have
paid all necessary government fees; and (iii) the trademark registrations
material to the Business as presently conducted are valid with respect to
Products that are covered by the registrations. The trademarks of Seller that
are material to the Business are identified on Schedule 3.10 by means of an
asterisk.
(b) Except as set forth on Schedule 3.10, no Intellectual Property Rights
or any other such right is subject to any security interest or outstanding
order, judgment, decree, stipulation or agreement restricting the use or
licensing thereof. Except as set forth on Schedule 3.10, (i) Seller, during the
three years preceding the date hereof, has not been sued or charged in writing
with or been a defendant in any claim, suit, action or proceeding relating to
the Business which has not been terminated prior to the date hereof and which
involves a claim of infringement of any Intellectual Property Rights; and (ii)
the Stockholder and Seller have no knowledge of any such charge or claim of any
infringement during the three years preceding the date hereof by any other
person of any Intellectual Property Rights.
SECTION 3.11 Claims and Proceedings. Except as set forth on Schedule 3.11,
there are no outstanding Orders of any Governmental Body against or involving
Seller other than Orders affecting the home health care industry generally.
Except as set forth on Schedule 3.11, there are no actions, suits, claims or
counterclaims or legal, administrative or arbitral proceedings or investigations
(collectively, "Claims") (whether or not the defense thereof or liabilities in
respect thereof are covered by insurance), pending or threatened in writing,
against or involving Seller, the Business, the Purchased Assets or Seller's
properties which (i) involve a claim for the payment of money damages of $25,000
or more; (ii) relate to employment, regardless of amount; (iii) involve a claim
from any prior or present patient, payor or referral source or involve any
alleged violation of laws relating to health regulation (including state
certificate of need and licensure laws and federal and state controlled
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substances laws) or the Medicare or Medicaid programs; or (iv) individually or
in the aggregate, would have a material adverse effect upon the Contemplated
Transactions or upon the Condition of the Business other than Claims affecting
the home health care industry generally. Except as set forth on Schedule 3.11,
to the best knowledge of Seller, there is no fact, event or circumstances that
would give rise to any Claim that would be required to be set forth on Schedule
3.11 if currently pending or threatened. All notices required to have been given
to any insurance company listed as insuring against any Claim set forth on
Schedule 3.11 have been timely and duly given and, except as set forth on
Schedule 3.11, no insurance company has asserted in writing that such Claim is
not covered by the applicable policy relating to such Claim. Except as set forth
on Schedule 3.11 there are no product liability Claims against or involving
Seller or, to the best knowledge of Seller, any product marketed or distributed
by Seller ("Products").
SECTION 3.12 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order, decree or other instrument binding upon Seller
which has or would reasonably be expected to have the effect of prohibiting (i)
competition by Seller, (ii) any business practice of Seller, (iii) any
acquisition of property by Seller, or (iv) to the knowledge of Seller or the
Stockholder, the conduct of the Business.
SECTION 3.13 Taxes. (a) Except as set forth on Schedule 3.13, (i) all Tax
returns, statements, reports and forms required to be filed with any Taxing
Authority by or on behalf of Seller (collectively, the "Returns") have been
timely filed through the date hereof or will be filed when due (taking into
account any extension granted by the appropriate Taxing Authority), in
accordance with all applicable Laws; (ii) as of the time of filing, the Returns
correctly reflected (and, as to any Returns not filed as of the date hereof,
will correctly reflect) the income and expenses of Seller and any other
information required to be shown therein; (iii) Seller has timely paid (or is
contesting in good faith and has reserved adequate amounts therefor) all Taxes
that have been shown as due and payable on the Returns that have been filed;
(iv) Seller is not delinquent in the payment of any Tax and has not requested
any extension of time within which to file or send any Return, which Return has
not since been filed or sent; (v) no deficiency for any Tax or claim for
additional Taxes by any Taxing Authority has been proposed, asserted or assessed
in writing against Seller (or any member of any affiliated or combined group of
which Seller is or have been a member); (vi) Seller (or any member of any
affiliated or combined group of which Seller is or has been a member) have not
granted any extension or waiver of the limitation period applicable to any
Returns; (vii) Seller has not filed any consent or election under the Code,
other than such consents and elections, if any, reflected in the Returns; (viii)
there is no claim, audit, action, suit, proceeding or investigation now pending
against or with respect to Seller in respect of any Tax or assessment; (ix)
there are no Liens for Taxes upon the assets of Seller; (x) Seller has not been
a member of an affiliated group other than one of which Stockholder was the
common parent, or filed or been included in a combined, consolidated or unitary
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Return together other than one filed by Stockholder; (xi) Seller has complied
with all Laws relating to Tax withholding; and (xii) Seller is not currently
under any contractual obligation to indemnify any other person with respect to
Taxes.
(b) True and correct copies of the Returns for the years 1995, 1994 and
1993 have been delivered to Buyer.
(c) Neither Buyer nor Seller shall be required to pay any amount to anyone
else pursuant to any tax-sharing or tax allocation agreement to which Seller is
a party.
(d) Seller does not hold and has not held a permit, registration,
certificate or like instrument as a "dealer" or other collecting agent from a
state Taxing Authority under which it collects sales tax from their business
operations and remits such tax to such Taxing Authority.
SECTION 3.14 Employee Benefits Plans. (a) Schedule 3.14(a) contains a true
and complete list of (i) all employee benefit plans described in Section 3(3) of
ERISA of Seller, and of any other companies or entities which constitute a
"controlled group" with Seller (within the meaning of Sections 4001(a)(14) and
(b) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and/or Sections 414(b)-(o) of the Code (hereinafter referred to collectively as
the "Group"), which are presently in effect or which may give rise to liability,
and are for the benefit of the Business Employees, and (ii) any other pension,
profit sharing, retirement, deferred compensation, stock purchase, stock option,
incentive, bonus, sabbatical leave, vacation, severance (including, without
limitation, arrangements providing for benefits in the event of a change of
ownership in whole or in part of Seller), disability, hospitalization, medical
insurance, relocation, child care, educational assistance or other employee
benefit plan or program which any member of the Group maintains or to which any
member of the Group has any present or future obligation to contribute for the
benefit of the Business Employees. (The plans or programs described in clauses
(i) and (ii) are herein collectively referred to as the "Group Plans".) Seller
has delivered or made available to Buyer true and complete copies of all
documents (including plan documents and related trust agreements), as they may
have been amended to the date of delivery or availability, embodying the Group
Plans. Since such date of delivery or availability, the Group Plans have not
been amended to materially change the terms thereof. Seller has also delivered
to Buyer true and complete copies of all annual reports, summary annual reports,
summary plan descriptions and a summary of material modifications with respect
to each Group Plan for the preceding three years.
(b) Except for Seller's 401(k) Plan (the "Plan") and the U.S. HomeCare
Corporation Employee Stock Ownership Plan (the "ESOP"), the Group maintains no
tax qualified "employee pension benefit plan" as defined in Section 401 of the
Code or Section 3(2) of ERISA for the benefit of employees of the Seller, nor
has the Group ever maintained
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any other employee pension benefit plan for the benefit of employees of the
Seller, except for multiemployer plans as defined in Section 3(37) of ERISA.
(c) The IRS has issued a favorable determination letter to the effect that
the Plan qualifies under Section 401(a) of the Code and that the related trust
is exempt from taxation under Section 501(a) of the Code and such determination
letter remains in effect and has not been revoked. To Seller's best knowledge,
nothing has occurred (or, if occurred, has not been corrected in a manner
acceptable to the IRS as expressly applied to the Plan) or is expected to occur
that would adversely affect the qualified status of the Plan or any related
trust subsequent to the issuance of such determination letter.
(d) Except for the ESOP each member of the Group is in material compliance
with the requirements prescribed by any and all statutes, orders, governmental
rules or regulations applicable to the Group Plans and all reports and
disclosures relating to the Group Plans required to be filed with or furnished
to governmental agencies, participants or beneficiaries prior to the Closing
Date have been or will be filed or furnished in a timely manner and in
accordance with applicable law.
(e) Except as provided in Schedule 3.14(e), no member of the Group
currently has any obligation to contribute to any multiemployer plan as defined
in Section 3(37) of ERISA. With respect to each such multiemployer plan listed
on Scheduled 3.14(e), the Group has not incurred withdrawal liability within the
meaning of the Multiemployer Pension Plan Amendments Act of 1980.
(f) To Seller's best knowledge, no member of the Group nor any other
"disqualified person" or "party in interest" (as defined in Section 4975 of the
Code and Section 3 of ERISA, respectively) has engaged in any "prohibited
transaction," as such term is defined in Section 4975 of the Code or Section 406
of ERISA with respect to a Group Plan, which could subject any of the Group
Plans (or their related trusts), any officer, director or employee of any entity
within the Group or any trustee, administrator or any other fiduciary of any of
the Group Plans to a material tax or penalty imposed under Section 4975 of the
Code or Section 502(i) of ERISA.
(g) There are no actions, audits, suits or claims pending (other than
routine claims for benefits) or, to the knowledge of Seller, threatened against
any of the Group Plans or any fiduciary of any of the Group Plans or against the
assets of any of the Group Plans.
(h) The consummation of the Contemplated Transactions will not accelerate
any liability under any of the Group Plans because of an acceleration of any
rights or benefits to which employees may be entitled thereunder.
(i) The consummation of the Contemplated Transactions will not provide a
basis for a participant in any Group Plan to claim an involuntary termination of
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his employment with any member of the Group and become entitled thereby to
payments under such Group Plan.
(j) With respect to any Group Plan that is an employee welfare benefit plan
within the meaning of Section 3(1) of ERISA (a "Welfare Plan"), (i) each such
Welfare Plan, the contributions to which are claimed as a deduction under any
provision of the Code, is in substantial compliance with all applicable
requirements pertaining to such deduction, (ii) to Sellers' best knowledge, any
Welfare Plan which is a group health plan within the meaning of Section 5000(b)
of the Code satisfies in all material respects all of the requirements of
Section 4980B of the Code, and (iii) all employer contributions due have been
fully and timely paid or accrued on the books of Seller.
(k) Other than as required by law, Seller has no obligation to or on behalf
of any retired or former employee with regard to any disability (long or short
term), hospitalization, medical, dental or life insurance plans (whether insured
or self-insured) or other Welfare Plan as defined in Section 3(1) of ERISA
maintained by Sellers.
SECTION 3.15 Officers, Directors and Key Employees. Schedule 3.15 sets
forth (a) the name and total direct compensation of each employee, consultant,
agent or other representative of Seller whose current or committed annual rate
of compensation (including bonuses and commissions) exceeds $25,000, (b) all
wage and salary increases, bonuses and increases in any other direct
compensation received by or accrued to such persons since December 31, 1995, (c)
any payments or commitments to pay any severance or termination pay to any such
persons or to any other person, and (d) any accrual for, or any commitment or
agreement by Seller to pay, such increases, bonuses or pay. Except as set forth
on Schedule 3.15, the employment of all persons presently employed by Seller are
terminable at will.
SECTION 3.16 Employment-Related Matters. Except as set forth in Schedule
3.16, (a) Seller is not a party to any contract or agreement with any labor
organization or other representative of its employees; (b) there is no unfair
labor practice charge or complaint pending or, to Seller's best knowledge,
threatened against Seller; (c) there is no labor strike, slowdown, work stoppage
or other labor controversy in effect or, to Seller's best knowledge, threatened
against or otherwise affecting Seller; (d) Seller has not experienced any labor
strike, slowdown, work stoppage or similar labor controversy within the past
three years; (e) no representation question has been raised respecting any
employees of Seller working within the past three years, nor, to the best
knowledge of Seller, are there any campaigns being conducted to solicit
authorization from any employees of Seller to be represented by any labor
organization; (f) no collective bargaining agreement relating to any employees
of Seller is being negotiated other than extensions or renewals of existing
agreements set forth in Schedule 3.16; (g) no action, suit, complaint, charge,
arbitration, inquiry, proceeding or investigation by or before any court,
governmental agency, administrative agency or
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commission brought by or on behalf of any employee, prospective employee, former
employee, retiree, labor organization or other representative of Seller's
employees, is pending or, to Seller's best knowledge, threatened against Seller;
(h) Seller is not a party to, or otherwise bound by, any consent decree with,
citation or order by, any Governmental Body relating to their employees or
employment practices relating to the employees; (i) Seller is in compliance in
all material respects with all applicable laws, policies, procedures, agreements
and contracts, relating to employment, employment practices, wages, hours, and
terms and conditions of employment; (j) Seller has paid in full to all of its
employees all wages, salaries, commissions, bonuses, benefits and other
compensation due and payable to such employees on or prior to the date hereof.
SECTION 3.17 Potential Conflicts of Interest. Except for the Excluded
Assets, neither the Stockholder nor any officer, director or Affiliate of
Seller, or any spouse of any such officer, director or Affiliate, and no entity
controlled by one or more of the foregoing:
(a) owns, directly or indirectly, any interest in (excepting less than 1%
stock holdings for investment purposes in securities of publicly held and traded
companies), or is an officer, director, employee or consultant of, any person
which is, or is engaged in business as, a competitor, lessor, lessee, supplier,
distributor, sales agent or customer of Seller;
(b) owns, directly or indirectly, in whole or in part, any material
property that Seller uses in the conduct of their business; or
(c) has any material cause of action or other claim whatsoever against, or
owes any amount to, Seller, except for claims in the ordinary course of business
such as for accrued vacation pay and accrued benefits under employee benefit
plans.
SECTION 3.18 Insurance. Seller has provided to Buyer a list of all
insurance policies and fidelity and surety bonds covering the assets, business,
equipment, properties, operations, employees, officers and directors of Seller
and true and complete copies of all such policies and bonds have been made
available to Buyer and such policies and bonds are in full force and effect.
SECTION 3.19 Suppliers, Customers and Contractors. Schedule 3.19 lists, by
dollar volume paid or revenues generated, as the case may be, for the month
ended September 30, 1996, the 15 largest suppliers and the 25 largest customers,
referral sources and third party payors of Seller. Except as otherwise disclosed
to Buyer in Schedule 3.7 hereof with respect to the gamma globulin and growth
hormone components of the Business, during the last six
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months (i) no supplier to the Business has refused to ship products or supplies
to the Seller; and (ii)the Seller has not suffered the loss of any significant
referral source or patient group.
SECTION 3.20 Compliance with Laws. (a) Seller is not in violation of any
applicable order, judgment, injunction, award, decree or writ (collectively,
"Orders"), or any applicable law, statute, code, ordinance, rule, regulation or
other requirement (collectively, "Laws"), of any government or political
subdivision thereof, whether federal, state, local or foreign, or any agency or
instrumentality of any such government or political subdivision, or any court or
arbitrator (collectively, "Governmental Bodies") affecting its property, affairs
or business, where the effect of any such violation, individually or in the
aggregate, would have a material adverse effect on the Condition of the
Business, including any environmental law, rule or regulation. Seller has not
made any illegal payment to officers or employees of any Governmental Body, or
made any illegal payment to customers for the sharing of fees or to customers or
suppliers for rebating of charges, or engaged in any other illegal reciprocal
practice, or made any illegal payment or given any other illegal consideration
to purchasing agents or other representatives of customers in respect of sales
made or to be made by Seller.
(b) Without limiting the generality of the foregoing, Seller has been and
is in compliance in all material respects with The False Statement Statute (18
U.S.C. ss. 1001), The Criminal False Claims Statute (18 U.S.C. ss. 287), The
Civil False Claims Act (31 U.S.C. ss.ss. 3729), The Medicare and Medicaid Civil
Monetary Penalties Act (42 U.S.C. ss.ss. 1320a-7a), The Medicare and Medicaid
Criminal Penalties Act (42 U.S.C. ss. 1320a-7b), The Stark Law (42 U.S.C. ss.
1395nn), The Medicare and Medicaid Anti-Kickback law (42 U.S.C. ss. 1320a-7b(b))
and all similar state statutes in all of the states in which Seller operates or
provides services.
(c) Schedule 3.20 hereto lists the required cost reports and other
submissions and filings (other than claims for payments) with respect to
Medicaid and Medicare or other third party payments to Seller, and the last year
for which such cost report or other submissions or filings or payments to Seller
have been audited by any Governmental Body or other third party payor (and all
disallowances and retroactive rate adjustments thereon settled, paid or
otherwise recouped). All such cost reports and other submissions and filings
were complete and accurate in all material respects, and were prepared in
accordance with the requirements of the Medicaid program, the Medicare program
or the other third party payors, as applicable.
(d) No third-party payor (including, without limitation, Medicare or
Medicaid) has asserted any liability against Seller in respect of any period
through the date hereof which has not been settled or paid; to the best
knowledge of the Seller and Stockholder, there is no pending audit or any
pending or threatened audit assessment or retroactive rate adjustment against
Seller, for any period through the date hereof; and, if any such audit
assessment or retroactive rate adjustment is so asserted, it will be promptly
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paid or otherwise satisfied by Seller and will have no material effect upon any
of its rates, operations or financial performance.
(e) Schedule 3.20 hereto also contains a complete and correct list of all
agreements, arrangements and other relationships of Seller currently in effect,
or in effect at any time since January 1, 1995, with individuals and entities
who refer or have referred to or otherwise generate or have generated business
for Seller (including, without limitation, sales representatives and referring
health care providers).
(f) Neither Seller nor Stockholder has any actual knowledge that any
referring physician, chiropractor, podiatrist, dentist, nurse or other licensed
health professional currently has, or has had at any time after January 1, 1995,
an ownership interest in or otherwise have or had a financial relationship with
Seller.
SECTION 3.21 Permits. Seller has all licenses, permits, orders or approvals
of, and has made all required registrations with, any Governmental Body that are
necessary to the conduct of the Business and participation in the Medicare or
Medicaid programs (collectively, "Permits"), except for such Permits which, if
not in the possession of Seller, would not have a materially adverse effect on
the Condition of the Business. All Permits are listed on Schedule 3.21 and are
in full force and effect; no material violations are or have been recorded in
respect of any Permit; and no proceeding is pending or threatened to revoke or
limit any Permit.
SECTION 3.22 Finders; Fees. Except for Sanders Morris Mundy Inc., there is
no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of Seller or the Stockholder who
might be entitled to any fee or commission upon consummation of the Contemplated
Transactions, and Seller and Stockholder agree to satisfy any obligations to
them at Closing.
SECTION 3.23 Depositaries. Schedule 3.23 sets forth the name of each bank
or similar entity in which Seller has an account, lock box or safe deposit box
and the names of all persons authorized to draw thereon or to have access
thereto.
SECTION 3.24 Disclosure. Neither this Agreement, the Schedules hereto, the
Financial Statements nor any other audited or unaudited financial statements,
documents or certificates furnished or to be furnished to Buyer by or on behalf
of Seller or the Stockholder pursuant to this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading. There
are no facts which would materially adversely affect the Condition of the
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Business which have not been set forth herein, or in any Schedule hereto, or in
any certificate or statement furnished or to be furnished to Buyer by Seller or
the Stockholder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND TRANSWORLD
Buyer and Transworld represent and warrant to Seller that:
SECTION 4.1 Corporate Existence and Power Buyer is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and all governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
SECTION 4.2 Authority Relative to This Agreement. Buyer has full corporate
power and authority to execute and deliver this Agreement and each other
Transaction Document to which it is a party and to consummate the Contemplated
Transactions. The execution and delivery of this Agreement and the consummation
of the Contemplated Transactions have been duly and validly authorized and
approved by the Board of Directors of Buyer and no other corporate proceedings
on the part of Buyer (or any other person) are necessary to authorize the
execution and delivery by Buyer of this Agreement or the Contemplated
Transactions. This Agreement has been duly and validly executed and delivered by
Buyer and (assuming the valid execution and delivery of this Agreement by the
other parties hereto) constitutes the legal, valid and binding agreement of
Buyer, enforceable against Buyer in accordance with its terms, except as such
obligations and their enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting
creditors' rights generally and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought (whether in law or at
equity).
SECTION 4.3 No Conflicts; Consents. The execution, delivery and performance
by Buyer of this Agreement and each other Transaction Document to which it is a
party and the consummation by Buyer of the Contemplated Transactions will not
(i) violate any provision of the Certificate of Incorporation or By-laws of
Buyer; (ii) require Buyer to obtain any consent, approval or action of, or make
any filing with or give any notice to, any Governmental Body or any other
person, except for obtaining the consents listed on Schedule 3.9 and Schedule
4.3; (iii) violate, conflict with or result in the breach of any of the terms
of, result in a material modification of the effect of, or otherwise cause the
termination of or give any other contracting party to a contract the right to
terminate, or constitute (or with notice or lapse of time or both constitute) a
default (by way of substitution, novation or otherwise) under any Contract to
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which Buyer is a party or by or to which it or any of its properties may be
bound or subject, or result in the creation of any Lien upon the properties of
Buyer; (iv) subject to obtaining the consents listed on Schedule 3.9 and 4.3,
violate any Order of any Governmental Body against, or binding upon, Buyer or
upon Buyer's securities, properties or business; (v) subject to obtaining the
consents listed on Schedule 3.9 and 4.3, violate any Law of any Governmental
Body; or (vi) violate or result in the revocation or suspension of any Permit.
SECTION 4.4 Litigation. There are no Claims (whether or not the defense
thereof or liability in respect thereof are covered by insurance) pending or
threatened in writing against or involving Buyer which individually or in the
aggregate would have a material adverse effect upon the business, properties,
financial condition or results of operations of Buyer taken as a whole. No suit,
action or proceeding before any court or any Governmental Body has been
commenced or is pending or, to the knowledge of Buyer, threatened against Buyer,
which suit, action or proceeding seeks to restrain, prevent, change or delay in
any material respect the Contemplated Transactions.
SECTION 4.5 Finders; Fees. There is no investment banker, broker, finder or
other intermediary retained by or authorized to act on behalf of Buyer who might
be entitled to any fee or commission from Buyer upon consummation of the
Contemplated Transactions.
SECTION 4.6 Disclosure. Neither this Agreement, the Schedules hereto, nor
any other audited or unaudited financial statements, documents or certificates
furnished or to be furnished to Seller by or on behalf of Buyer pursuant to this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading.
ARTICLE V
COVENANTS AND AGREEMENTS
SECTION 5.1 Conduct of Business. (a) From the date hereof through the
Closing Date, Seller agrees (and the Stockholder will cause Seller):
(i) To conduct its operations according to its ordinary and usual course
of business consistent with past practice, to use reasonable efforts to preserve
intact its present business operations and organization, to use reasonable
efforts to keep available the services of its present officers and employees,and
to use reasonable efforts to preserve its
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relationships with customers, suppliers, contractors and others having business
dealings with it.
(ii) To maintain in the ordinary course of business consistent with past
practice all their material structures, equipment and other Tangible Property in
its present repair, order and condition, except for depletion, depreciation and
ordinary wear and tear.
(iii) To keep in full force and effect insurance comparable in amount
and scope of coverage to insurance now carried by it.
(iv) To perform all of its obligations under the Contracts.
(v) To maintain its books of account and records in the usual, regular
and ordinary manner.
(vi) To comply in all material respects with all Laws applicable to it.
(vii) To use its best good faith efforts, upon the request of Buyer, to
assist Buyer in obtaining the continued services of the Selected Employees.
(viii) To take all reasonable steps to keep all material Contracts in full
force and effect.
(ix) To conduct its marketing, promotional, billing and
collection practices consistent with past practices.
(x) To not cause any increase or decrease in rates charged for services
or products, or in its purchasing practices, unless previously agreed to by
Buyer in writing, and Seller shall give Buyer prompt written notice of any
changes in any Medicare or Medicaid reimbursement rates.
(b) From the date hereof through the Closing Date, except with the
prior written consent of Buyer, Seller agrees (and the Stockholder will cause
Seller to):
(i) Except with respect to transactions with customers and suppliers in
the ordinary course of business, not to incur any material Liability nor to
enter into any Contract with a value in excess of $5,000.
(ii) Not to undertake (nor permit to be undertaken) any of the
actions specified in Section 3.7 which are within the control of Seller.
(iii) With respect to all employees, except as provided or disclosed
in Schedule 3.14 or 3.15, not to: (A) make, institute, agree to or change any
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bonus, profit sharing, pension, retirement, severance, termination, "parachute"
or other similar arrangement or plan for employees; and (B) otherwise than in
accordance with past practices: (1) increase the compensation payable or to
become payable to any employee, and (2) accrue any bonus, percentage of
compensation or other like benefit to or for the credit of any employee.
(iv) Not to authorize or make any capital expenditures involving
the payment or liability of $25,000 or more in the aggregate.
(c) From the date hereof through the Closing Date, the Stockholder agrees
to use reasonable best efforts to cause the affairs of Seller to be conducted in
such a manner so that the representations and warranties of the Stockholder and
Seller contained herein shall continue to be true and correct on and as of the
Closing Date as if made on and as of the Closing Date.
SECTION 5.2 Corporate Examinations and Investigations. Prior to the Closing
Date, Seller and Stockholder agree that Buyer shall be entitled, through its
directors, officers, employees, attorneys, accountants, representatives,
consultants and other agents (collectively, "Representatives"), to make such
investigation of the properties, businesses and operations of Seller and
Stockholder, and such examination of the books, records and financial condition
of Seller and Stockholder, as Buyer reasonably deems necessary. Any such
investigation and examination shall be conducted at reasonable times, under
reasonable circumstances and upon reasonable notice, and the Stockholder shall,
and shall cause Seller to, cooperate fully therein. No investigation by Buyer
shall diminish or obviate any of the representations, warranties, covenants or
agreements of Seller or the Stockholder contained in this Agreement. In order
that Buyer may have full opportunity to make such physical, business, accounting
and legal review, examination or investigation as it may reasonably deem
necessary of the affairs of Seller, Seller shall make available and the
Stockholder shall cause Seller to make available to the Representatives of Buyer
during such period, without however causing any unreasonable interruption in the
operations of Seller, all such information and copies of such documents and
records concerning the affairs of Seller as such Representatives may reasonably
request, shall permit the Representatives of Buyer access to the properties of
Seller and all parts thereof and to their respective customers, suppliers,
contractors and others, and shall cause Seller and the Seller's Representatives
to cooperate fully in connection with such review and examination.
SECTION 5.3 Additional Financial Statements. (a) Prior to Closing, if
requested by Buyer, Seller shall provide Buyer with daily summaries of net
revenues and cost of goods sold, in such form as Buyer may reasonably request.
Within ten (10) Business Days after Closing, Seller shall furnish Buyer with a
statement of net assets being sold and statement of income for the nine (9)
month period ended September 30, 1996 on a basis consistent with those financial
statements delivered pursuant to Section 3.6(a). If requested by Buyer, as soon
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as available and in any event within twenty (20) Business Days after the end of
each monthly accounting period of Seller after September 30, 1996, Seller shall
furnish Buyer unaudited financial statements for such period in such detail as
such financial statements have been prepared consistent with past practice.
(b) If requested by Buyer in order to comply with its reporting
requirements under the 1934 Act, as promptly as practicable (and in any event by
no later than twenty (20) days after such request (or such later date as the
Buyer and Seller shall agree upon) in the case of calendar years 1995, 1994 and
1993, Seller and the Stockholder shall cause the Seller's Accountants to conduct
and complete an audit of the financial statements of the Seller and to issue
certified financial statements with respect thereto for the year ended December
31, 1995, 1994 and 1993 (the "Subsequent Audited Financial Statements"). An
accounting firm selected by Buyer shall have the right to review the work of the
Seller's Accountants and to comment thereon. The Subsequent Audited Financial
Statements shall be prepared in accordance with (i) GAAP and present fairly the
financial position and results of operations of Seller as at and for the periods
then ended; and (ii) Regulation S-X under the 1933 Act. The Subsequent Audited
Financial Statements shall not vary in any material respect from the applicable
unaudited Financial Statements delivered to Buyer pursuant to Section 3.6(a)
hereof.
SECTION 5.4 Filings and Authorizations. (a) Concurrent with the execution
of this Agreement, Seller shall file all required applications with all relevant
Governmental Bodies and other parties in connection with the Required Consents
and Seller shall thereafter prosecute such applications with all reasonable
diligence in order to obtain the approval of such applications as expeditiously
as practicable.
(b) The consummation of the Contemplated Transactions is expressly
conditioned upon (i) the grant of Governmental Bodies' and other parties'
consent in connection with the Required Consents, and (ii) the Governmental
Bodies' and other parties' consents having become final orders or approvals, as
the case may be, without any condition which would have a material adverse
effect upon Buyer's ability to continue to operate the Business in the normal
course, which grants and consents are no longer subject to administrative,
judicial or other review.
(c) With respect to each Permit which may expire prior to the Closing Date
and during the Transition Period, Seller shall (i) timely file with the
appropriate Governmental Bodies applications for renewal of each such Permit
(the "Applications"), (ii) deliver to Buyer true and complete copies of such
Applications, (iii) diligently prosecute such Applications to conclusion, and
(iv) cooperate fully with all Governmental Bodies in the processing of such
Applications.
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SECTION 5.5 Efforts to Consummate. (a) Subject to the terms and conditions
herein provided, each party hereto without payment or further consideration
shall use its reasonable, good faith efforts to take or cause to be taken all
action and to do or cause to be done all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective, as soon
as reasonably practicable, the Contemplated Transactions, including, but not
limited to, obtaining all consents, authorizations, orders and approvals of any
third party, whether private or governmental, required in connection with such
party's performance of such transactions and each party hereto shall cooperate
with the other in all of the foregoing. Notwithstanding anything to the contrary
contained in this Agreement, Buyer shall not be required to undertake any
measures which in the reasonable opinion of Buyer are extraordinary to obtain
any such approvals or consents, including, without limitation, under no
circumstances shall Buyer be required to (a) make any payments to any person or
party from whom such consents or approvals are sought, as consideration
therefor; or (b) except as Buyer may otherwise agree in writing (and Buyer shall
have no obligation to so agree), accept any changes in the terms of the document
or instrument for which a consent, approval or waiver is sought or (c) alter or
modify its capital or debt structure or any term or provision contained in any
agreement relating thereto.
(b) Whenever this Agreement requires Seller to take any action (or to use
any effort to take such action) or refrain from taking any action, such
requirement shall be deemed to include an undertaking on the part of the
Stockholder to cause Seller to take or refrain from taking such action.
SECTION 5.6 Negotiations With Others. From and after the date hereof unless
and until this Agreement shall have terminated in accordance with its terms, the
Stockholder will not, and will not permit Seller or any officer, director,
employee or other Representative of Seller to, directly or indirectly (a)
solicit, engage in discussions or engage in negotiations with any person (other
than Buyer or any of its Affiliates) with respect to an Acquisition Proposal;
(b) provide information to any person (other than Buyer or any of its
Affiliates) in connection with an Acquisition Proposal; or (c) enter into any
transaction with any person (other than Buyer or any of its Affiliates) with
respect to an Acquisition Proposal. If the Stockholder, Seller or Representative
receives any offer or proposal to enter into discussions or negotiations
relating to any of the above, Seller or the Stockholder will immediately notify
Buyer in writing as to the identity of the offeror or the party making any such
proposal and the specific terms of such offer or proposal.
SECTION 5.7 Notices of Certain Events. Seller shall advise Buyer within
three (3) Business Days (or one (1) Business Day in the case of any Selected
Employee) of learning, after the date hereof, of any employee of Seller who
intends to cancel or otherwise terminate his or her relationship with Seller. In
addition, Seller and Buyer shall promptly notify the other of:
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(a) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with the Contemplated
Transactions;
(b) any notice or other communication from any Governmental Body in
connection with the Contemplated Transactions; and
(c) any event, condition or circumstance occurring from the date hereof
through the Closing Date that would constitute a violation or breach of any
representation or warranty, whether made as of the date hereof or as of the
Closing Date, or that would constitute a violation or breach of any covenant of
any party contained in this Agreement.
SECTION 5.8 Public Announcements. Neither Seller, Stockholder nor Buyer
shall make or issue, or cause to be made or issued, any announcement or
statement (whether written or oral) concerning this Agreement or the
transactions contemplated hereby for dissemination to the general public without
the prior written consent of the other party. This provision shall not apply,
however, to any announcement or statement required in the reasonable opinion of
Buyer, Stockholder or Seller, to be made by law or the regulations of any
federal or state governmental agency or any stock exchange.
SECTION 5.9 Confidentiality. (a) Buyer, on the one hand, and the
Stockholder and Seller, on the other hand, each shall hold in strict confidence,
and shall use its best efforts to cause all its Representatives to hold in
strict confidence, unless compelled to disclose by judicial or administrative
process, or by other requirements of law, all information concerning the
Stockholder and Seller (in the case of Buyer) and Buyer (in the case of the
Stockholder and Seller) which is created or obtained prior to, on or after the
dates hereof in connection with the Contemplated Transactions, and Buyer and the
Stockholder and Seller shall not use or disclose to others, or permit the use of
or disclosure of, any such information created or obtained except to the extent
that such information can be shown to have been (i) previously known by Buyer or
the Stockholder or Seller as the case may be (ii) in the public domain through
no fault of Buyer or the Stockholder or Seller, as the case may be, or any of
their respective Representatives, and will not release or disclose such
information to any other person, except its officers, directors, employees,
Representatives, investors and lending institutions who need to know such
information in connection with this Agreement.
(b) If the Contemplated Transactions are not consummated, such confidence
shall be maintained for five (5) years except (i) as required by law or (b) to
the extent such information comes into the public domain through no fault of
Buyer or Seller or the Stockholder, as the case may be, or any of their
respective Representatives. If the Contemplated Transactions are not consummated
and if requested by Seller or Buyer, as the case may be, Buyer shall return to
Seller all tangible evidence of such information regarding
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Seller and Seller shall return to Buyer all tangible evidence of such
information regarding Buyer.
SECTION 5.10 Bulk Sales. Seller and Buyer each waives any requirement for
compliance with the procedures of any applicable "bulk sales law", including,
without limitation, the bulk transfer provisions of any applicable Uniform
Commercial Code; provided, however, that Seller and the Stockholder shall
jointly and severally indemnify Buyer from any liability arising therefrom.
SECTION 5.11 Use of Name. From and after the Closing, Seller shall, and the
Stockholder shall cause Seller to, cease any use of the tradename "U.S. HomeCare
Infusion Therapy Services," other than in connection with Seller's billing and
collection activities with respect to the Existing A/R. From and after the
Closing Date, Seller shall discontinue using and dispose of any assets in its
possession including, without limitation, stationery, business cards and
literature, bearing the tradename "U.S. HomeCare Infusion Therapy Services" or
any derivation thereof. During the six (6) month period following the Closing
Date, Buyer shall have the right to use, for transition purposes, the name U.S.
HomeCare Infusion Therapy Services. Thereafter, Buyer shall have the right to
use such name to the extent necessary to conduct joint marketing activities with
Seller or Stockholder or in connection with any referrals made to Buyer by
Seller or Stockholder. As of and after the Closing Date, the Seller and
Stockholder shall promptly forward any inquiry or referral for infusion therapy
services to Buyer indicating to such referrer or inquiring party that Buyer has
purchased the Business and is providing service with respect thereto.
SECTION 5.12 Certain Expenses.
(a) Any and all sales, use, transfer and documentary taxes and recording
and filing fees applicable to the transfer of the Purchased Assets to Buyer
shall be borne equally by Buyer and Seller.
(b) Except as otherwise specifically provided herein, Buyer and Seller
shall bear their respective expenses incurred in connection with the
preparation, execution and performance of this Agreement and the Contemplated
Transactions, including, without limitation, all fees and expenses of agents,
representatives, counsel and accountants.
(c) Whether or not the Contemplated Transaction is consummated, Buyer shall
reimburse Seller, upon presentation of appropriate invoices therefor, for its
reasonable auditing expenses incurred with respect to each year for which
audited financial statements are required under Section 5.3 of this Agreement to
be delivered by Seller to Buyer in connection with the Contemplated
Transactions.
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SECTION 5.13 Tax Matters. (a) After the Closing, Buyer and Seller will
provide each other such assistance as may be reasonably requested by either of
them in connection with the preparation of any Return, any audit or other
examination by any Taxing Authority, or any judicial or administrative
proceedings relating to liability for Taxes, and each will retain and provide
the other with, at all reasonable times, any work papers, records or other
information which may be relevant to such return, audit or tax examination
proceedings or determinations.
(b) Seller shall provide Buyer with a clearance certificate or similar
document(s) that may be required by the taxing authority of any jurisdiction in
order to relieve Buyer of any obligation to withhold or escrow any portion of
the Purchase Price.
(c) Prior to Seller's filing of any Return for its Taxable Year ended
December 31, 1996, Seller shall provide Buyer with a copy of such Return at
least ten business days prior to the date on which Seller gives notice to Buyer
that Seller will file such Return. Seller will prepare such Returns and compute
the amount of their income and the Tax liability owed, if any, in accordance and
consistent with the past custom and practice of Seller in filing its Returns.
(d) Seller shall timely pay all Taxes (including payments of estimated
Taxes) that are shown as due and payable on Returns that are due (taking into
account any valid extensions of time to file or any amounts contested in good
faith for which adequate amounts have been reserved) in connection with the
period ended December 31, 1996.
ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.1 Conditions to the Obligations of Seller and Buyer. The
obligations of Buyer and Seller to consummate the Contemplated Transactions by
this Agreement are subject to the satisfaction of the following conditions:
(a) No Injunction. No provision of any applicable Law and no judgment,
injunction, order or decree of any Governmental Body shall prohibit the
consummation of the Contemplated Transactions including any provisions of the
HSR Act.
(b) No Proceeding or Litigation. No suit, action or proceeding before any
Governmental Body instituted by any person shall have been commenced or be
pending or threatened against Seller, Buyer or the Stockholder or any of their
respective Affiliates, associates, officers or directors, which suit, action or
proceeding shall have a reasonable likelihood of success and which suit, action
or proceeding seeks to restrain, prevent, change or delay in any material
respect the Contemplated Transactions or seeks to challenge any of the terms or
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provisions of this Agreement or seeks material damages in connection with any
of such transactions or seeks to restrain or prevent the ownership and
operations by Buyer after the Closing Date of the assets and business of
Seller.
(c) Consents. All Required Consents shall have been obtained in form and
substance consistent with the provisions of this Agreement or as otherwise
agreed to in writing by Buyer and shall have become effective, no longer subject
to any statutory, administrative or judicial waiting, appeal, reconsideration or
appeal periods, without any condition which is adverse to Buyer.
SECTION 6.2 Conditions to the Obligations of Seller. All obligations of
Seller hereunder are subject, at the option of Seller, to the fulfillment prior
to or at the Closing of each of the following further conditions:
(a) Performance. Buyer shall have performed in all material respects with
all of its agreements, obligations and covenants hereunder required to be
performed by it at or prior to the Closing Date.
(b) Representations and Warranties. The representations and warranties of
Buyer contained in this Agreement and in any certificate or other writing
delivered by Buyer pursuant hereto shall be true in all material respects at and
as of the Closing Date as if made at and as of such time.
(c) Purchase Price. Buyer shall have paid to Seller the Purchase Price
(less the Deposit) by wire transfer of immediately available funds.
(d) Documentation. There shall have been delivered to Seller the following:
(i) One or more duly executed originals of the Assumption Agreement
(ii) A certificate, dated the Closing Date, of the President or
a Vice-President of Buyer and Transworld confirming the matters set forth in
Section 6.2(a) and (b) hereof.
(iii) A certificate, dated the Closing Date, of the Secretary or
Assistant Secretary of Buyer and Transworld certifying, among other things,
that attached or appended to such certificate (A) is a true and correct copy of
its Certificate of Incorporation and all amendments if any thereto as of the
date thereof; (B) is a true and correct copy of its By-laws; (C) is a true copy
of all corporate resolutions of its board of directors authorizing the
execution, delivery and performance of this Agreement, and each other document
to be
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delivered by Buyer pursuant hereto; and (D) are the names and signatures of its
duly elected or appointed officers who are authorized to execute and deliver
this Agreement and any certificate, document or other instrument in connection
herewith.
(iv) A signed opinion of Buyer's counsel, dated the Closing Date
and addressed to Seller, substantially in the form of opinion annexed as
Schedule 6.2(d)(iv) hereto.
(e) Lender's Consent. The Seller's senior secured lenders shall have
consented to the execution, delivery and performance of this Agreement and the
Contemplated Transactions.
SECTION 6.3 Conditions to the Obligations of Buyer. All obligations of
Buyer hereunder are subject, at its option, to the fulfillment prior to or at
the Closing of each of the following further conditions:
(a) Performance. Seller and the Stockholder shall have performed and
complied in all material respects with all agreements, obligations and covenants
required by this Agreement to be performed or complied with by them at or prior
to the Closing Date.
(b) Representations and Warranties. The representations and warranties of
Seller and the Stockholder contained in this Agreement and in any certificate or
other writing delivered by the Stockholder or Seller pursuant hereto shall be
true in all material respects at and as of the Closing Date as if made at and as
of such time.
(c) No Adverse Change. During the period from the date hereof to the
Closing Date, there shall not have been (i) any material adverse change in the
Condition of the Business; (ii) any damage to the Purchased Assets by fire,
flood, casualty, act of God or other cause, which has a material adverse effect
on the Purchased Assets or the Business; or (iii) any lawsuits, claims or
proceedings filed, or to the knowledge of Seller or the Stockholder threatened,
against or affecting Seller which, if adversely determined, is reasonably likely
to have a material adverse effect on the Condition of the Business.
(d) Documentation. There shall have been delivered to Buyer the following:
(i) one or more duly executed originals of the Bill of Sale and such
other instruments as are necessary or desirable to effect the transfers,
conveyances and assignments to Buyer of the Purchased Assets, and to perform
Seller's and Stockholder's obligations hereunder.
(ii) A certificate dated the Closing Date, of the President of Seller and
Stockholder, confirming the matters set forth in Section 6.3(a) and (b) hereof.
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(iii) A certificate, dated the Closing Date, of the Secretary or
Assistant Secretary of Seller and Stockholder certifying, among other things,
that attached or appended to such certificate (A) is a true and correct copy of
the Certificate of Incorporation and By-laws (or comparable instruments) of
Seller and Stockholder, and all amendments if any thereto as of the date
thereof; (B) is a true copy of all corporate actions taken by it, including
resolutions of its board of directors, authorizing the execution, delivery and
performance of this Agreement, and each other document to be delivered by
Seller and Stockholder pursuant hereto; and (C) are the names and signatures of
its duly elected or appointed officers who are authorized to execute and
deliver this Agreement and any certificate, document or other instrument in
connection herewith.
(iv) A signed opinion(s) of Seller's counsel, dated the Closing
Date, addressed to Buyer, substantially in the form of opinion annexed as
Schedule 6.3(e)(iv) hereto.
(v) Releases of all Liens on the Purchased Assets, together with copies
of UCC, tax and judgment searches with respect to Seller and the appropriate
tax certificates evidencing the payment of all taxes owed by Seller, each dated
as of a date within five (5) Business Days of the Closing Date.
(e) Lender's Consent. The Buyer's lenders shall have consented to the
execution, delivery and performance of this Agreement and the Contemplated
Transactions.
(f) Covenants Not to Compete. The Seller and the Stockholder shall have
executed and delivered a Covenant Not to Compete in the form of Schedule 6.3(f)
annexed hereto.
ARTICLE VII
INDEMNIFICATION
SECTION 7.1 Survival of Representations and Warranties. Notwithstanding any
right of Buyer or Seller fully to investigate the affairs of Buyer or Seller,
and notwithstanding any knowledge of facts determined or determinable by Buyer
or Seller pursuant to such investigation or right of investigation, Buyer and
Seller have the right to rely fully upon the representations, warranties,
covenants and agreements of Seller, the Stockholder and Buyer contained in this
Agreement, or listed or disclosed on any Schedule hereto or in any instrument or
document delivered in connection with or pursuant to any of the foregoing. All
such representations, warranties, covenants and agreements shall survive the
execution and delivery of this Agreement and the Closing hereunder for a period
of two (2) years after the Closing Date, except that (a) any representation,
warranty, covenant or agreement contained in Sections 3.1 and 4.2 hereof shall
survive the execution and delivery of this Agreement and the Closing hereunder
without limitation, (b) any representation, warranty, covenant or
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agreement related to Taxes shall survive the execution and delivery of this
Agreement and the Closing hereunder until the expiration of the applicable
statute of limitations, (c) any non-compete agreement delivered pursuant hereto
shall survive the Closing until the expiration of the duration of such covenant
not to compete, and (d) any representation, warranty, covenant or agreement
contained herein and any Liabilities of Seller with respect thereto relating to
Medicare, Medicaid or third party payors shall survive until the later of the
third anniversary of the Closing Date or the conclusion of any audit or review
commenced within such three-year period.
SECTION 7.2 Obligation of Seller to Indemnify. The Stockholder and Seller,
jointly and severally, agree to indemnify, defend and hold harmless Buyer (and
its directors, officers, employees, Affiliates, successors and assigns and
Representatives) from and against all claims, losses, liabilities, damages,
deficiencies, judgments, settlements, costs of investigation or other expenses
(including interest, penalties and reasonable attorneys' fees and disbursements
(collectively, the "Losses")) based upon, arising out of or otherwise in respect
of:
(a) any inaccuracy in or any breach of any representation, warranty,
covenant or agreement of Seller or the Stockholder contained in this Agreement
or in any Schedules, instrument or documents delivered pursuant to this
Agreement;
(b) any obligation or liability arising in connection with the Business
from or in respect of any event or circumstance occurring prior to the Closing
Date;
(c) any and all Losses resulting from any adjustment to any accounts
receivable or prior billings of Seller for the period from October 1, 1996
through Closing, other than those contained in allowances for doubtful accounts
as set forth in the books and records of Seller as of the date hereof; and
(d) any and all actions, suits, proceedings, claims, demands, assessments,
judgments, costs and expenses, including without limitation, reasonable legal
fees and expenses, incident to any of the foregoing or incurred in investigating
or attempting to avoid the same or to oppose the imposition thereof, or in
enforcing this indemnity.
SECTION 7.3 Obligation of Buyer to Indemnify. Buyer agrees to perform and
discharge all of the Assumed Liabilities and agrees to indemnify, defend and
hold harmless Sellers and the Stockholder from and against any Losses based upon
Buyer's failure to do so or arising out of or otherwise in respect of any
inaccuracy in or breach of any representation, warranty, covenant or agreement
of Buyer contained in this Agreement or in any instrument or document delivered
pursuant to this Agreement and any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses, including without
limitation, reasonable legal fees and expenses, incident to any of the foregoing
or incurred in
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investigating or attempting to avoid the same or to oppose the imposition
thereof, or in enforcing this indemnity.
SECTION 7.4 Notice and Opportunity to Defend Third Party Claims. (a)
Promptly after receipt by any party hereto (the "Indemnitee") of notice of any
demand, claim or circumstance which would or might give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give written notice thereof (the "Claims Notice") to the party
obligated to provide indemnification pursuant to Section 7.2 or 7.3 hereof (the
"Indemnifying Party"). The Claims Notice shall describe the Asserted Liability
in reasonable detail and shall indicate the amount (estimated, if necessary, and
to the extent feasible) of the Loss that has been or may be suffered by the
Indemnitee.
(b) The Indemnifying Party may elect to compromise or defend, at its own
expense and by its own counsel, any Asserted Liability. If the Indemnifying
Party elects to compromise or defend such Asserted Liability, it shall within
thirty days (or sooner, if the nature of the Asserted Liability so requires)
notify the Indemnitee in writing of its intent to do so, and the Indemnitee
shall cooperate, at the expense of the Indemnifying Party, in the compromise of,
or defense against, such Asserted Liability. If the Indemnifying Party elects
not to compromise or defend the Asserted Liability, fails to notify the
Indemnitee of its election as herein provided or contests its obligation to
indemnify under this Agreement, the Indemnitee may pay, compromise or defend
such Asserted Liability. Notwithstanding the foregoing, neither the Indemnifying
Party nor the Indemnitee may settle or compromise any claim over the objection
of the other; provided, however, that consent to settlement or compromise shall
not be unreasonably withheld or delayed. In any event, the Indemnitee and the
Indemnifying Party may participate, at their own expense, in the defense or
compromise of such Asserted Liability. If the Indemnifying Party chooses to
defend any claim, the Indemnitee shall cooperate with and make available to the
Indemnifying Party any books, records or other documents within its control that
are necessary or appropriate for such defense.
SECTION 7.5 Limits on Indemnification. Notwithstanding anything contained
in this Article VII to the contrary, Seller and the Stockholder shall not have
an obligation to indemnify Buyer pursuant to Section 7.2 hereof with respect to
any Losses unless and until Buyer shall have incurred Losses in an aggregate in
excess of $50,000 (the "Stipulated Amount"), in which event Buyers shall be
entitled to be indemnified by such parties for all of its Losses commencing at
$1.00.
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ARTICLE VIII
TERMINATION
SECTION 8.1 Termination. This Agreement may be terminated and the
Contemplated Transactions may be abandoned at any time prior to the Closing:
(a) By mutual written consent of Seller and the Stockholder, on the one
hand, and Buyer on the other;
(b) By Seller and the Stockholder, if (i) there has been a material
misrepresentation or breach of warranty on the part of Buyer in the
representations and warranties contained herein or in any Schedule, document or
instrument delivered in connection with or pursuant hereto and such material
misrepresentation or breach of warranty, if curable, is not cured within 15 days
of written notice thereof from Seller; (ii) Buyer has committed a material
breach of any covenant or agreement imposed upon it hereunder and fails to cure
such breach within 15 days of written notice thereof from Seller; or (iii) any
condition to Seller's or the Stockholder's obligations hereunder becomes
incapable of fulfillment through no fault of such parties and is not waived by
such parties;
(c) By Buyer, if (i) there has been a material misrepresentation or breach
of warranty on the part of Seller or the Stockholder in the representations and
warranties contained herein or in any Schedule, document or instrument delivered
in connection with or pursuant hereto and such material misrepresentation or
breach of warranty, if curable, is not cured within 15 days of written notice
thereof from Buyer to Seller; (ii) Seller or the Stockholder has committed a
material breach of any covenant imposed upon it hereunder and fails to cure such
breach within 15 days of written notice thereof from Buyer to Seller; or (iii)
any condition to Buyer's obligations hereunder becomes incapable of fulfillment
through no fault of Buyer and is not waived by Buyer;
(d) By Seller and the Stockholder on the one hand, or Buyer on the other,
if the Closing shall not have occurred on or before October 31, 1996; provided
that if the Closing has not occurred by such date because a Required Consent has
not been obtained, such date shall be extended until the second Business Day
following the date such Consent(s) have been obtained or denied; and provided
further that no party may terminate this Agreement pursuant to this clause if
such party's failure to fulfill any of its obligations under this Agreement is
the reason that the Closing shall not have occurred on or before said date.
SECTION 8.2 Effect of Termination; Right to Proceed. In the event that this
Agreement shall be terminated pursuant to Section 8.1, all further obligations
of the parties under the Agreement shall terminate without further liability of
any party hereunder except: (i) in the case of Buyer, to the extent provided in
Article IX; (ii) (A) to the extent that Seller
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and/or Stockholder has made amaterial misrepresentation hereunder or committed
a material breach of the covenants and agreements imposed upon it hereunder; or
(B) to the extent that any condition to Buyer's obligations hereunder became
incapable of fulfillment because of the breach by Seller and/or Stockholder of
its obligations hereunder, in either of such event, Buyer shall have all of its
rights and remedies at law or in equity. Notwithstanding the foregoing, the
agreements contained in Sections 5.8 and 5.9 shall survive the termination
hereof. In the event that a condition precedent to its obligation is not met,
nothing contained herein shall be deemed to require any party to terminate this
Agreement, rather than to waive such condition precedent and proceed with the
Contemplated Transactions.
ARTICLE IX
LIQUIDATED DAMAGES
Notwithstanding anything to the contrary contained in this Agreement, if
the Contemplated Transactions are not consummated because of a material default
by Buyer of its obligations hereunder and provided Seller and Stockholder are
not in material default of their obligations hereunder and Seller and
Stockholder have terminated this Agreement pursuant to Section 8.1(b), then the
Deposit shall be paid to Seller and Stockholder as liquidated damages and as
Seller's and Stockholder's sole and exclusive remedy, it being agreed that the
Deposit shall constitute full payment for any and all damages suffered by Seller
and Stockholder by reason of Buyer's failure to close this Agreement. Buyer,
Seller and Stockholder agree in advance that the Deposit is a fair and equitable
amount to reimburse Seller and Stockholder for damages sustained due to Buyer's
failure to consummate this Agreement.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Notices. (a) Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally by
hand, telecopied or mailed (by overnight courier or registered or certified
mail, postage prepaid) as follows:
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(i) if to Buyer, one copy to:
Mr. Vincent J. Caruso
Executive Vice President and Chief
Administrative Officer
Transworld Home HealthCare, Inc.
75 Terminal Avenue
Clark, New Jersey 07066
Telecopier: (908) 340-9170
with a copy to:
Leslie J. Levinson, Esq.
Baer Marks & Upham LLP
805 Third Avenue
New York, New York 10022
Telecopier: (212) 702-5941
(ii) if to Seller or the Stockholder, one copy to:
Mr. Gerald J. Boisvert, Jr.
U.S. HomeCare Corporation
750 Main Street, 12th Floor
Hartford, Connecticut
with a copy to:
Ellen B. Corenswet, Esq.
Brobeck, Phleger & Harrison LLP
1301 Avenue of the Americas
New York, New York 10019
Telecopier: (212) 586-7878
(b) Each such notice or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in Section 9.1(a) (with confirmation of transmission) or (ii) if given
by any other means, when delivered at the address specified in Section 9.1(a).
Any party by notice given in accordance with this Section 9.1 to the other party
may designate another address (or telecopier number) or person for receipt of
notices hereunder.
SECTION 10.2 Entire Agreement. This Agreement (including the Schedules and
Exhibits hereto) and the other Transaction Documents executed in connection with
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the consummation of the Contemplated Transactions contain the entire agreement
between the parties with respect to the subject matter hereof and related
transactions and supersede all prior agreements, written or oral, with respect
thereto.
SECTION 10.3 Waivers and Amendments; Non-Contractual Remedies; Preservation
of Remedies. This Agreement may be amended, superseded, cancelled, renewed or
extended, and the terms hereof may be waived, only by a written instrument
signed by the parties hereto or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof. Nor shall any waiver on
the part of any party of any such right, power or privilege, nor any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
Except as otherwise provided herein, the rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any party may
otherwise have at law or in equity. The rights and remedies of any party based
upon, arising out of or otherwise in respect of any inaccuracy in or breach of
any representation, warranty, covenant or agreement contained in, this Agreement
shall in no way be limited by the fact that the act, omission, occurrence or
other state of facts upon which any claim of any such inaccuracy or breach is
based may also be the subject matter of any other representation, warranty,
covenant or agreement contained in this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy or breach.
SECTION 10.4 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such State, without regard to the
conflict of laws rules thereof.
SECTION 10.5 Consent to Jurisdiction and Service of Process. The parties
hereto irrevocably: (a) agree that any suit, action or other legal proceeding
arising out of this Agreement may be brought in the courts of the State of New
York or the courts of the United States located in New York County, New York,
(b) consent to the jurisdiction of each court in any such suit, action or
proceeding, (c) waive any objection which they, or any of them, may have to the
laying of venue of any such suit, action or proceeding in any of such courts,
and (d) waive the right to a trial by jury in any such suit, action or other
legal proceeding.
SECTION 10.6 Designated Buyer. It is understood and agreed between the
parties that Buyer may cause one or more Affiliates, direct or indirect
Subsidiaries or other entities designated by it (the "Designated Buyer") to
carry out all or part of the Contemplated Transactions to be carried out by
Buyer.
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SECTION 10.7 Binding Effect; No Assignment. This Agreement and all of its
provisions, rights and obligations shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors, heirs and legal
representatives. Except as otherwise provided in Section 10.6, this Agreement
may not be assigned by a party without the express written consent of the others
and any purported assignment, unless so consented to, shall be void and without
effect. Nothing herein express or implied is intended or shall be construed to
confer upon or to give anyone other than the parties hereto and their respective
heirs, legal representatives and successors any rights or benefits under or by
reason of this Agreement. Accordingly, no party that has not executed this
Agreement shall have any right to enforce any of the provisions of this
Agreement.
SECTION 10.8 Severability. If any provisions of this Agreement for any
reason shall be held to be illegal, invalid or unenforceable, such illegality
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such illegal, invalid or unenforceable provision had never
been included herein.
SECTION 10.9 Counterparts. The Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as the signatories.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date set forth above.
U.S. HomeCare Infusion Therapy
Services Corporation of New Jersey
By:____________________________________
Name:
Title:
U.S. HomeCare Corporation
By:____________________________________
Name:
Title:
Transworld Acquisition Corp.
By:____________________________________
Name:
Title:
Transworld Home HealthCare, Inc.
By:___________________________________
Name:
Title:
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Schedule 4.3
Buyer's Consents
1. Consent of Transworld's senior lenders
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EXHIBIT 11
U.S. HOMECARE CORPORATION
CALCULATION
OF LOSS PER SHARE
For the Three Months Ended September 30, 1996
<TABLE>
<CAPTION>
PRIMARY
<S> <C>
Net loss ($ 23,073,000)
Weighted average number of common shares 9,066,000
Loss per share:
Loss from continuing operations (.95)
Discontinued operations:
Income (loss) from operations (.17)
Loss on disposal of IV therapy business (1.42)
--------------
Net loss ($ 2.54)
==============
</TABLE>
For the Three Months Ended September 30, 1995
<TABLE>
<CAPTION>
PRIMARY
<S> <C>
Net loss ($ 190,000)
Weighted average number of common shares 8,073,000
Loss per share:
Loss from continuing operations ($ .06)
Discontinued operations:
Income (loss) from operations .04
Loss on disposal of IV therapy business --
--------------
Net loss ($ .02)
==============
</TABLE>
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EXHIBIT 11 (CONTINUED)
U.S. HOMECARE CORPORATION
CALCULATION
OF LOSS PER SHARE
For the Nine Months Ended September 30, 1996
PRIMARY
Net loss ($24,248,000)
Weighted average number of common shares 8,773,000
Loss per share:
Loss from continuing operations ($1.12)
Discontinued operations:
Income (loss) from operations ( .17)
Loss on disposal of IV therapy business (1.47)
------
Net loss ($2.76)
======
For the Nine Months Ended September 30, 1995
PRIMARY
Net loss ($1,501,000)
Weighted average number of common shares 8,050,000
Loss per share:
Loss from continuing operations ($0.27)
Discontinued operations:
Income (loss) from operations .08
Loss on disposal of IV therapy business -
-----
Net loss ($.19)
-18-
<PAGE>
U.S. HOMECARE CORPORATION
SIGNATURES
Pursuant to the requirements of the securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. HomeCare Corporation
November 14, 1996 Gerald J. Boisvert, Jr.
- --------------------------- ------------------------------------------
Date Vice President, Finance and Chief
Financial Officer
(Principal Financial Officer)
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS DATED AS OF SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000874507
<NAME> easj$7sr
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 360
<SECURITIES> 0
<RECEIVABLES> 15,166
<ALLOWANCES> 3,028
<INVENTORY> 0
<CURRENT-ASSETS> 16,347
<PP&E> 11,448
<DEPRECIATION> 8,740
<TOTAL-ASSETS> 22,450
<CURRENT-LIABILITIES> 29,823
<BONDS> 0
91
0
<COMMON> 328
<OTHER-SE> (8,015)
<TOTAL-LIABILITY-AND-EQUITY> 22,450
<SALES> 42,300
<TOTAL-REVENUES> 42,300
<CGS> 0
<TOTAL-COSTS> 30,267
<OTHER-EXPENSES> 20,998
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 854
<INCOME-PRETAX> (9,819)
<INCOME-TAX> 86
<INCOME-CONTINUING> (9,905)
<DISCONTINUED> 14,452
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,248)
<EPS-PRIMARY> (2.76)
<EPS-DILUTED> 0
</TABLE>
